<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 21, 1998
-------------
IMCO Recycling Inc.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-7170 75-2008280
- --------------------------------- -----------------------------------
(Commission File Number) (IRS Employer Identification No.)
5215 N. O'Connor Blvd., Suite 940, Irving, Texas 75039
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 401-7200
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
In July 1998, IMCO Recycling Inc. ("IMCO", or the "Company") acquired all of the
outstanding stock of U.S. Zinc Corporation and its subsidiary corporations
("U.S. Zinc") for a total purchase price of approximately $72,000,000. U.S. Zinc
is the surviving corporation in a merger which occurred on April 1, 1998 with
Gulfmet Holdings, Inc., then its 80% parent corporation. As such, U.S. Zinc
succeeded to and possesses all assets, property rights, privileges and other
attributes of both corporations. MetalChem, Inc. and Western Zinc Corporation
are now wholly owned subsidiaries of U.S. Zinc.
*(a) Audited Financial Statements of Business Acquired:
Financial Statements of Gulfmet Holdings, Inc., MetalChem, Inc. & Western
Zinc Corporation
. Independent Auditors' Report
. Combined Balance Sheet as of December 31, 1997
. Combined Statement of Income for the year ended December 31, 1997
. Combined Statement of Stockholders' Equity for the year ended
December 31, 1997
. Combined Statement of Cash Flows for the year ended December 31, 1997
. Notes to Combined Financial Statements
*(b) Unaudited Financial Statements of U.S. Zinc Corporation, MetalChem, Inc. &
Western Zinc Corporation
. Combined Balance Sheet as of June 30, 1998 and December 31, 1997
(audited)
. Combined Statements of Income for the six months ended June 30, 1997
and June 30, 1998
. Combined Statements of Cash Flows for the six months ended
June 30, 1997 and June 30, 1998
. Notes to Combined Financial Statements
*(c) Pro Forma Financial Information:
. Pro Forma Condensed Consolidated Statement of Earnings for the year
ended December 31, 1997
. Pro Forma Condensed Consolidated Statement of Earnings for the six
months ended June 30, 1998
. Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998
. Notes to Pro Forma Condensed Consolidated Financial Statements
<PAGE>
(d) Exhibits:
**2.1 Memorandum of Purchase and Sale Agreement by and among IMCO
Recycling Inc., the Minette and Jerome Robinson Community Property
Trust, The Minette and Jerome Robinson Foundation, The Minette and
Jerome Robinson Charitable Remainder Trust, M. Russ Robinson,
Howard Robinson and Mindy Robinson Brown, dated July 21, 1998. (In
accordance with Item 601 of Regulation S-K, the copy of the U. S.
Zinc Purchase Agreement filed with the Securities and Exchange
Commission (the "Commission") does not include the schedules or
exhibits thereto. The Company agrees to furnish such information
supplementally to the Commission upon request.)
**2.2 Form of Common Stock Purchase Warrant dated July 21, 1998.
* 2.3 Amendment No. 1 to Memorandum of Purchase and Sale Agreement by
and among IMCO Recycling Inc., the Minette and Jerome Robinson
Community Property Trust, The Minette and Jerome Robinson
Foundation, The Minette and Jerome Robinson Charitable Remainder
Trust, M. Russ Robinson, Howard Robinson and Mindy Robinson Brown,
effective as of August 20, 1998.
*23.1 Consent of Deloitte & Touche LLP
- --------------------------------------------------------------------------------
* Filed herewith
** Previously Filed in this Current Report on Form 8-K
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
IMCO Recycling Inc.
("Registrant")
By: /s/ Robert R. Holian
------------------------------------
Robert R. Holian
Vice President and Controller
Principal Accounting Officer
Date: October 5, 1998
<PAGE>
Gulfmet Holdings, Inc., MetalChem, Inc. & Western Zinc Corporation
Financial Statements
Year ended December 31, 1997
CONTENTS
Independent Auditors' Report....................................... F-2
Financial Statements:
Combined Balance Sheet............................................. F-3 - F-4
Combined Statement of Income....................................... F-5
Combined Statement of Stockholders' Equity......................... F-6
Combined Statement of Cash Flows.................................. F-7 - F-8
Notes to Combined Financial Statements............................. F-9 - F-16
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Gulfmet Holdings, Inc., MetalChem, Inc. & Western Zinc Corporation
Houston, Texas
We have audited the accompanying combined balance sheet of Gulfmet Holdings,
Inc. and related companies as of December 31, 1997, and the related combined
statements of income, stockholders' equity and cash flows for the year then
ended. The combined financial statements include the accounts of Gulfmet
Holdings, Inc. and two related companies, MetalChem, Inc. and Western Zinc
Corporation. These companies are under common ownership and common management.
These financial statements are the responsibility of the companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of Gulfmet Holdings, Inc. and related
companies as of December 31, 1997, and the combined results of their operations
and their combined cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
August 17, 1998
F-2
<PAGE>
GULFMET HOLDINGS, INC., METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED BALANCE SHEET,
DECEMBER 31, 1997 (In thousands)
- ------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,188
Accounts receivable:
Trade 27,520
Shareholders 248
Other 126
Inventories 15,254
Prepaid expenses 1,225
Income taxes receivable 212
Deferred tax asset 363
--------
Total current assets 46,136
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PROPERTY, PLANT AND EQUIPMENT:
Land 746
Buildings and improvements 3,964
Machinery and equipment 23,046
--------
Total 27,756
Less accumulated depreciation (14,790)
--------
Property, plant and equipment, net 12,966
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EQUIPMENT HELD FOR SALE 66
OTHER ASSETS, NET 748
--------
TOTAL $ 59,916
========
F-3
<PAGE>
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $16,352
Payable to affiliate 8
Accrued disposal expense 775
Current portion of long-term debt 1,226
-------
Total current liabilities 18,361
LONG-TERM DEBT 24,634
DEFERRED INCOME TAXES PAYABLE 1,421
-------
Total liabilities 44,416
-------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $1 par value; 21,000 shares authorized and 18,428 shares
issued and outstanding, as follows:
Gulmet Holdings, Inc. (428 shares issued and outstanding)
MetalChem, Inc. (10,000 shares issued and outstanding) 10
Western Zinc Corporation (8,000 shares issued and outstanding) 8
Additional paid-in capital 2,198
Retained earnings 13,284
-------
Total stockholders' equity 15,500
-------
TOTAL $59,916
=======
</TABLE>
F-4
<PAGE>
GULFMET HOLDINGS, INC., METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
- ------------------------------------------------------------------------------
SALES $ 164,515
COST OF SALES 151,918
---------
GROSS MARGIN 12,597
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,781
---------
INCOME FROM OPERATIONS 5,816
---------
OTHER (INCOME) EXPENSE:
Interest expense 2,050
Interest income (44)
Equity in loss of Gulf Metals Industries, Inc. 390
Loss on sale of Gulf Metals Industries, Inc. 544
Other, net (134)
---------
Total 2,806
---------
INCOME BEFORE INCOME TAXES 3,010
---------
PROVISION FOR INCOME TAXES:
Current 378
Deferred (4)
---------
Total 374
---------
NET INCOME $ 2,636
=========
See notes to combined financial statements.
F-5
<PAGE>
GULFMET HOLDINGS, INC., METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands of dollars, except share amounts)
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<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1997 18,428 $ 18 $ 408 $12,308 $12,734
Net income 2,636 2,636
Distributions to shareholders (1,660) (1,660)
Contribution of shareholder note 1,790 1,790
------ ------- ------- ------- -------
BALANCE AT
DECEMBER 31, 1997 18,428 $ 18 $ 2,198 $13,284 $15,500
====== ======= ======= ======= =======
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
GULFMET HOLDINGS, INC., METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 (In thousands)
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<TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 2,636
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 2,294
Gain on disposition of property, plant and equipment (24)
Equity in loss of Gulf Metals Industries, Inc. 390
Loss on sale of Gulf Metals Industries, Inc. 544
Loss on sale of assets held for sale 53
Deferred income tax provision (4)
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable:
Trade (6,214)
Affiliates 3,055
Other 761
Inventories (3,994)
Prepaid expenses (141)
Other assets (305)
Income taxes receivable 129
Increase in accounts payable and accrued expenses 797
-------
Net cash used in operating activities (23)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,128)
Proceeds from sale of property, plant and equipment 531
Proceeds from sale of Gulf Metals Industries, Inc. 25
-------
Net cash used in investing activities (572)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit 5,179
Payments on senior debt (1,485)
Payments on subordinated shareholder debt (23)
Net advances to affiliate (1,022)
Distributions to shareholders (1,660)
-------
Net cash provided by financing activities 989
-------
NET INCREASE IN CASH AND CASH EQUIVALENTS 394
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 794
CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,188
=======
</TABLE>
(Continued)
F-7
<PAGE>
GULFMET HOLDINGS, INC., METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 (In thousands)
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid for:
Interest $2,041
======
Taxes (net of refunds) $ 525
======
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Contribution of shareholder note into equity $1,790
======
Property acquired by capital leases $ 190
======
See notes to combined financial statements. (Concluded)
F-8
<PAGE>
GULFMET HOLDINGS, INC., METALCHEM, INC. &
WESTERN ZINC CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
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1. BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION - Gulfmet Holdings, Inc. ("Gulfmet") is a privately held
Delaware Corporation. MetalChem, Inc. ("MetalChem") and Western Zinc
Corporation ("Western") are separate, individually owned subchapter S
corporations.
On December 31, 1997 the stock of Gulf Metals Industries, Inc., a wholly
owned subsidiary of Gulfmet, was sold to G.M.I. Investments, L.L.C., an
affiliate of a shareholder of Gulfmet, for $25,000. A loss of $544,000 has
been recorded on the sale.
DESCRIPTION OF BUSINESS - Gulfmet is headquartered in Houston, Texas, and
its business primarily consists of manufacturing value-added zinc
products. These zinc products, consisting primarily of zinc dust, zinc
oxide, zinc ingot and various zinc by-products, are manufactured at five
locations in the United States, with sales offices in the United States,
Canada and Germany. Gulfmet's major customers include tire and rubber
manufacturers, steel galvanizers, and paint and chemical manufacturers.
MetalChem and Western are located in Pittsburgh, Pennsylvania and Los
Angeles, California, respectively. MetalChem also has satellite offices in
Germany, and Canada. Operations of the companies consist primarily of
buying and reselling secondary zinc-bearing materials.
PRINCIPLES OF COMBINATION - The combined financial statements include the
accounts and operations of Gulfmet, its majority-owned subsidiary, U.S.
Zinc Corporation ("USZ"), MetalChem and Western (the "Company"). Gulfmet
owns 80% of USZ. The remaining 20% is owned by the shareholders of Gulfmet
and is included in these combined financial statements. Both MetalChem and
Western are 100% owned by the shareholders of Gulfmet. Western is under
common management with Gulfmet, while MetalChem is managed by separate
personnel. All material intercompany accounts and transactions have been
eliminated in combination.
These combined financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Significant principles followed by the Company and the methods of applying
those principles that materially affect the combined financial statements
are summarized below:
CASH AND CASH EQUIVALENTS - The Company considers all short-term
investments with a maturity of three months or less at acquisition to be
cash equivalents.
SALES RECOGNITION - Sales and accounts receivable are recorded at the date
of product shipment.
F-9
<PAGE>
INVENTORIES - Inventories consist of finished goods, raw materials and by-
products. For Gulfmet, finished goods and by-products are recorded at
market less estimated selling costs. Raw materials are recorded at the
lower of cost or market. Cost for inventories held by Gulfmet is
determined using the last-in first-out ("LIFO") method of accounting in
order to match the most current costs of production with the related
revenues. Cost for inventories representing 2% of total combined inventory
held by MetalChem and Western is determined using average costing.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
presented at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, as follows:
Buildings and improvements 5 - 20 years
Machinery and equipment 3 - 10 years
Depreciation expense for the year ended December 31, 1997 was $2,001,000.
The Company evaluates long-lived assets for impairment based on the
recoverability of the asset's carrying value. When it is probable that the
undiscounted future cash flows will not be sufficient to recover the
asset's carrying value, an impairment is recognized. No such impairments
were recognized by the Company during the year ended December 31, 1997.
OTHER ASSETS - Other assets consist primarily of goodwill, financing,
organization, and non-compete costs. Such assets are being amortized over
a period of five to fifteen years. See Note 4.
INCOME TAXES - Gulfmet files a consolidated federal income tax return.
Gulfmet and its subsidiary file separate state tax returns and a unitary
return in Illinois, with the related expense included in the provision for
income taxes.
Gulfmet uses the liability method to account for its deferred income
taxes. Deferred income taxes are provided for the differences between the
tax basis of assets and liabilities and their basis for financial
statement purposes.
MetalChem and Western are both organized as subchapter S corporations.
Accordingly, the attached combined financial statements do not reflect any
provision for federal income taxes for these entities, as such amounts are
the responsibility of their respective shareholders.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The carrying values reflected in
the combined balance sheet of the Company for cash, accounts receivable
and accounts payable approximated their fair values because of the short-
term nature of such financial instruments. The carrying amount of the
Company's long-term, fixed rate debt was estimated to approximate its fair
value at December 31, 1997 based on currently prevailing interest rates
for similar issues.
SIGNIFICANT GROUP OF CONCENTRATIONS OF CREDIT RISK - The Company's trade
accounts receivable potentially subject them to concentrations of credit
risk. Sales of zinc dust are primarily made across a wide geographic base
to a large number of customers; however, 35% of zinc dust sales are made
in the Gulf Coast region. Sales of zinc oxide to a large number of
customers are concentrated 36% in the Midwest region and 26% in the Gulf
Coast region. Sales of zinc metal to a large number of customers are
concentrated in the Gulf Coast region. For the year ended December 31,
1997, there were no sales to any individual customer which exceeded 10% of
total sales.
F-10
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 129, "Disclosure of Information
About Capital Structure," was issued in February 1997 and establishes
standards for disclosing information about an entity's capital structure.
This statement is effective for fiscal years beginning after December 15,
1997.
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997
and requires disclosure of all nonstockholder changes in equity during a
period. This statement is effective for fiscal years beginning after
December 15, 1997.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and establishes certain reporting and
accounting requirements for entities which hold such instruments or engage
in such activities. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
Statement of Position 98-5 was issued in April 1998 and is effective for
fiscal years beginning after December 15, 1998. This statement requires
that organization and start-up costs for a Company be expensed as
incurred.
The Company's management expects that adoption of these statements other
than SFAS 133, if required, will not have a material effect on the
Company's combined financial position or results of operations but will
impact future financial statement disclosure. Management has not completed
their evaluation of SFAS 133 and accordingly, its impact on the Company's
combined financial position or results of operations can not be determined
at this time.
USE OF ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
use of estimates and assumptions that affect amounts reported in the
financial statements as well as certain disclosures. Actual results could
differ from these estimates.
2. SUBSEQUENT EVENTS
On April 1, 1998 (the "Effective Date"), the shareholders of Gulfmet
approved the Agreement of Merger under which Gulfmet merged with USZ.
Gulfmet's stock shall convert into fully paid and nonassessable shares of
USZ stock. Each share of the common stock of Gulfmet outstanding as of the
Effective Date, and all rights in respect thereof, shall be changed and
converted into 3.7383 shares of common stock of USZ. USZ, as surviving
corporation, will succeed to and possess all assets, property, rights,
privileges, powers, franchises and other attributes of both corporations.
Corporate actions approved by the Company's officers, directors and/or
stockholders before the Effective Date will remain in effect, and USZ will
be bound by them.
On April 22, 1998, IMCO Recycling Inc. ("IMCO"), a public company, signed
a letter of intent to acquire USZ. On July 21, 1998, a definitive
agreement was signed, with an effective date of July 1, 1998. The
principal terms of the acquisition are expected to be completed in the
third quarter of 1998, subject to regulatory approval. The purchase price
is expected to total approximately $72 million to be paid through cash,
the assumption of debt and the issuance of new IMCO common shares in a
privately negotiated transaction. In addition, the transaction provides
for additional payments depending on future earnings performance and
issuance of four-year warrants to purchase 1.5 million shares of IMCO
common stock.
F-11
<PAGE>
On July 1, 1998, the shareholders of MetalChem and Western contributed
their shares to USZ, for no consideration, making both companies wholly
owned subsidiaries of USZ, to be included in the sale to IMCO.
During July 1998, IMCO repaid the full amount outstanding under the
Company's line of credit (see Note 5).
3. INVENTORIES
Inventories consisted of the following:
(000'S)
Finished goods $ 4,347
Raw materials 8,783
By-products 2,124
--------
Total $ 15,254
========
At December 31, 1997, the LIFO reserve was $2,001,000. Cost of sales for
the year ended December 31, 1997, would have decreased by $1,437,000 if
the first-in first-out cost method had been used.
4. OTHER ASSETS
Other assets consisted of the following:
(000's)
Goodwill $ 245
Organization costs and noncompete
agreements 162
Financing costs 83
Deposits and bonds 166
Other 339
--------
Total 995
Less accumulated amortization 247
Total $ 748
========
F-12
<PAGE>
5. NOTES PAYABLE, LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
(000's)
Term note payable to a bank, due in
monthly installments of approximately
$75,000, plus interest at a variable
rate, maturing August 2002 $ 4,108
Note payable to a third party, due in
equal monthly installments of
approximately $25,000, including
interest imputed at 6%, maturing
February 1999 319
Revolving line of credit with a bank,
plus interest at a floating rate,
maturing June 1999 21,274
Obligation under capital leases 159
--------
Total 25,860
Less current maturities 1,226
--------
Total long-term debt $ 24,634
========
Gulfmet has a term loan with a bank. During 1995, Gulfmet renegotiated its
term agreement with a new loan of $6,500,000 due in monthly installments
of approximately $75,000 plus interest at London Interbank Offered Rates
("LIBOR"), plus 2.50% (8.4922% at December 31, 1997), and is
collateralized by substantially all of its capital assets. The terms of
the commitment require, among other things, Gulfmet to meet certain
financial ratios, maintain a minimum tangible net worth and limit dividend
payments and investments in, and advances to, subsidiaries and affiliates.
At December 31, 1997, USZ was not in compliance with the reporting
covenant requiring audited consolidated financial statements of USZ to be
delivered to the bank within 120 days after the end of the fiscal year; it
has obtained a waiver of such noncompliance from the bank.
Gulfmet satisfies its short-term debt requirements through a revolving
line of credit agreement with a bank. During 1997, Gulfmet renegotiated
its revolving line of credit facility with terms and covenants similar to
its previous credit line. The loan agreement provides for a revolving line
of credit aggregating $25,000,000, subject to a combined borrowing base
limitation of eligible accounts receivable and inventory. The credit line
bears interest at LIBOR plus a variable rate, ranging from 1.75% to 2.75%,
dependent on Gulfmet's funded debt ratio; such rate was 8.00% at December
31, 1997 and is collateralized by accounts receivable and inventory.
Amounts available under the credit agreement totaled $3,726,000 at
December 31, 1997. The terms of the agreement require, among other things,
Gulfmet to meet certain financial ratios, maintain minimum tangible net
worth and limit dividend payments and investments in, and advances to,
subsidiaries and affiliates. At December 31, 1997, USZ was not in
compliance with the reporting covenant requiring audited consolidated
financial statements of USZ to be delivered to the bank within 120 days
after the end of the fiscal year; it has obtained a waiver of such
noncompliance from the bank.
The subordinated convertible promissory notes from shareholders had an
outstanding balance of $1,813,000 at January 1, 1997. The shareholders
agreed to contribute the remaining principal balance, $1,790,000, into
paid-in capital at December 31, 1997.
F-13
<PAGE>
During 1997, Gulfmet entered into capital leases with an unrelated party
for forklifts. Each lease meets the criteria of a capital lease as defined
by SFAS No. 13, "Accounting for Leases," which defines a capital lease
generally as one which transfers benefits and risks of ownership to the
lessee. The assets have been capitalized as machinery and equipment in an
amount equal to the present value of the future minimum lease payments at
the inception of the lease and are being depreciated over the life of the
respective lease. A corresponding liability was recorded as long-term
debt. Principal and interest payments during 1997 totaled $31,000 and
$4,000, respectively. At December 31, 1997, assets capitalized under
capital leases amounted to $190,000 less accumulated depreciation of
$21,000. Depreciation expense of $21,000 has been recorded and included in
depreciation and amortization. At December 31, 1997, the current and long-
term portions of the future minimum lease obligations were $59,000 and
$100,000, respectively.
Maturities of long-term debt for each of the five years subsequent to
December 31, 1997 are as follows:
(000's)
1998 $ 1,226
1999 22,286
2000 936
2001 899
2002 513
--------
Total $ 25,860
========
On July 21, 1998, IMCO paid off the outstanding balance of $15,725,000
under the Company's revolving line of credit. In addition, IMCO also paid
$201,865 for various fees and expenses, such as interest, commitment fees,
letters of credit and escrow fees.
6. INCOME TAXES
Differences between the effective tax rate and the statutory federal rate
are as follows:
(000'S)
Federal income tax provision
at the statutory rate of 34% $ 1,023
Increase (decrease) resulting from:
State income taxes, net of
federal income tax benefit 101
Subchapter S earnings (536)
Nondeductible meals and
entertainment 26
Nondeductible officers' life
insurance 25
Accrual to return adjustment (337)
Foreign sales corporation
benefits (228)
Loss on sale of Gulf Metals
Industries, Inc. 265
Other, net 35
-------
Total $ 374
=======
F-14
<PAGE>
Temporary differences which gave rise to deferred tax assets and
liabilities at December 31, 1997 were as follows:
(000'S)
Deferred tax liabilities:
Depreciation of property,
plant and equipment $ 1,188
Interest charge - domestic
international sales corporation 213
Other 20
-------
Deferred tax liability 1,421
-------
Current deferred tax assets:
Accrued workers' compensation 45
Accrued disposal expense 279
Other 39
-------
Current deferred tax asset $ 363
=======
7. RELATED-PARTY TRANSACTIONS
Interest expense to affiliated parties and shareholders was approximately
$229,000 and interest income from affiliated parties was approximately
$33,000 during 1997.
As discussed in Note 1, the stock of Gulf Metals Industries, Inc., a
wholly owned subsidiary of the Gulfmet, was sold to GMI Investments,
L.L.C., an affiliate of a shareholder of the Company, for $25,000. A loss
of $544,000 has been recorded on the sale.
8. CONTINGENCIES AND COMMITMENTS
The Company is involved in various litigation matters arising in the
normal course of its business. Management believes it has adequate legal
defenses or insurance coverage and that the ultimate outcome of such
litigation will not have a materially adverse effect on the Company's
financial position or results of operations.
Gulfmet's operations are subject to environmental laws and regulations,
and Gulfmet is involved in ongoing proceedings and communications with
regulatory authorities concerning environmental matters. It is possible
that as a result of these proceedings and communications, Gulfmet may in
the future incur additional costs to assure compliance with environmental
laws and regulations. In the opinion of management, the disposition of
these claims will not have a materially adverse effect on the Company s
financial position or results of operations.
Gulfmet has accrued $775,000 of disposal expense related to zero value
inventory, of which the majority was disbursed during the first quarter of
1998.
F-15
<PAGE>
The Company has various noncancelable operating lease commitments
outstanding at December 31, 1997, payable as follows:
FISCAL YEAR
1998 $ 236,000
1999 109,000
2000 37,000
2001 25,000
2002 25,000
Thereafter 27,000
---------
Total $ 459,000
=========
Rental expense under these leases for 1997 was $294,000.
9. SAVINGS AND PROFIT SHARING PLAN
The Company has a savings plan which covers all employees not covered by a
collective bargaining agreement. Participants may contribute up to 15% of
his or her annual compensation. Employer contributions are discretionary
and are determined by the Board of Directors. The Company recorded
contributions related to this plan of $108,000 for the year ended 1997.
******
F-16
<PAGE>
U.S. ZINC CORPORATION, METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED BALANCE SHEETS,
(IN THOUSANDS)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(unaudited) (audited)
---------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,316 $ 1,188
Accounts receivable:
Trade, net 22,634 27,520
Affiliates 978 248
Other 483 126
Inventories 9,646 15,254
Prepaid expenses 1,247 1,225
Income tax receivable 83 212
Deferred tax asset - 363
------- -------
Total current assets 36,387 46,136
PROPERTY, PLANT AND EQUIPMENT:
Land 441 746
Buildings and improvements 3,704 3,964
Machinery and equipment 24,003 23,046
------- -------
Total 28,148 27,756
Less accumulated depreciation (15,813) (14,790)
------- -------
Property, plant and equipment, net 12,335 12,966
------- -------
EQUIPMENT HELD FOR SALE 66 66
OTHER ASSETS, NET 720 748
------- -------
TOTAL $ 49,508 $59,916
======== =======
</TABLE>
See notes to combined financial statements.
F-17
<PAGE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1998
(unaudited) (audited)
---------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade and accrued expenses $ 12,820 $ 16,352
Other 380 783
Current portion of long-term debt 1,094 1,226
-------- --------
Total current liabilities 14,294 18,361
LONG-TERM DEBT 17,509 24,634
DEFERRED INCOME TAXES PAYABLE 1,307 1,421
-------- --------
Total liabilities 33,110 44,416
-------- --------
STOCKHOLDERS' EQUITY:
Common stock - $1 par value; 21,000 shares authorized and 20,000 shares
issued and outstanding, as follows:
Gulfmet Holdings, Inc. (428 shares issued and outstanding) - -
U.S. Zinc Corporation (2,000 shares issued and outstanding) 2 -
MetalChem, Inc. (10,000 shares issued and outstanding) 10 10
Western Zinc Corporation (8,000 shares issued and outstanding) 8 8
Additional paid-in capital 2,198 2,198
Retained earnings 14,180 13,284
-------- --------
Total stockholders' equity 16,398 15,500
-------- --------
TOTAL $ 49,508 $ 59,916
======== ========
</TABLE>
F-18
<PAGE>
U.S. ZINC CORPORATION, METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
SALES $ 82,047 $ 72,597
COST OF SALES 76,521 67,385
------------- -------------
GROSS MARGIN 5,526 5,212
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,718 2,471
------------- -------------
INCOME FROM OPERATIONS 2,808 2,741
------------- -------------
OTHER (INCOME) EXPENSE:
Interest expense 844 1,026
Interest income (20) (25)
Equity in loss of Gulf Metals Industries Inc. -- 195
Other, net 127 (173)
------------- -------------
Total 951 1,023
------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,857 1,718
------------- -------------
PROVISION FOR INCOME TAXES:
Current 289 266
Deferred 249 --
------------- -------------
Total 538 266
------------- -------------
NET INCOME $ 1,319 $ 1,452
============= =============
</TABLE>
See notes to combined financial statements.
F-19
<PAGE>
U.S. ZINC CORPORATION, METALCHEM, INC. &
WESTERN ZINC CORPORATION
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,319 $ 1,452
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,186 1,077
Gain on disposition of property, plant and equipment (11) (12)
Deferred income tax provision 249 --
Equity in loss of Gulf Metals Industries Inc. -- 195
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable:
Trade 4,887 (4,462)
Affiliates (655) 1,629
Other 23 557
Inventories 5,609 1,543
Prepaid expenses (21) (341)
Other assets (3) 240
Income taxes receivable 129 135
Decrease in accounts payable and accrued expenses (4,322) (3,277)
------------- -------------
Net cash provided (used) by operating activities 8,390 (1,264)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,004) (440)
Proceeds from sale of property, plant and equipment 491 37
------------- -------------
Net cash used in investing activities (513) (403)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving line of credit (6,619) 2,930
Payments on senior and subordinate debt (667) (839)
Net advances to affiliate (68) (294)
Distributions to shareholders (395) (685)
------------- -------------
Net cash (used in) provided by financing activities (7,749) 1,112
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 128 (555)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,188 794
------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,316 $ 239
============= =============
</TABLE>
(Continued)
F-20
<PAGE>
U.S. ZINC CORPORATION, METALCHEM, INC. &
WESTERN ZINC CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION - Gulfmet Holdings, Inc. ("Gulfmet") is a privately held
Delaware Corporation. MetalChem, Inc. ("MetalChem") and Western Zinc
Corporation ("Western") are separate, individually owned subchapter S
corporations.
On April 1, 1998 (the "Effective Date"), the shareholders of Gulfmet approved
the Agreement of Merger under which the Gulfmet merged with USZ. Gulfmet's
stock was converted into fully paid and nonassessable shares of USZ stock.
Each share of the common stock of Gulfmet outstanding as of the Effective
Date, and all rights in respect thereof, were changed and converted into
3.7383 shares of common stock of USZ. USZ, as surviving corporation, will
succeed to and possess all assets, property, rights, privileges, powers,
franchises and other attributes of both corporations. Corporate actions
approved by the Company's officers, directors and/or stockholders before the
Effective Date will remain in effect, and USZ will be bound by them.
On April 22, 1998, IMCO Recycling Inc. ("IMCO"), a public company, signed a
letter of intent to acquire USZ. The purchase price is expected to total
approximately $72 million to be paid through cash, the assumption of debt and
the issuance of new IMCO common shares in a privately negotiated transaction.
In addition, the transaction provides for additional payments depending on
future earnings performance and issuance of four-year warrants to purchase
1.5 million shares of IMCO common stock. On July 21, 1998, a definitive
agreement was signed, with an effective date of July 1, 1998.
On June 29, 1998, the shareholders of MetalChem transferred and assigned
shares to an affiliate of MetalChem, making the ownership structure 1/4 among
each of the shareholders.
DESCRIPTION OF BUSINESS - Gulfmet is headquartered in Houston, Texas, and its
business primarily consists of manufacturing value-added zinc products.
These zinc products, consisting primarily of zinc dust, zinc oxide, zinc
ingot and various zinc by-products, are manufactured at five locations in the
United States, with sales offices in the United States, Canada and Germany.
Gulfmet's major customers include tire and rubber manufacturers, steel
galvanizers, and paint and chemical manufacturers.
MetalChem and Western are located in Pittsburgh, Pennsylvania and Los
Angeles, California, respectively. MetalChem also has satellite offices in
Germany and Canada. Operations of these companies consist primarily of buying
and reselling secondary zinc-bearing materials.
PRINCIPLES OF COMBINATION - The combined financial statements include the
accounts and operations of Gulfmet, its majority-owned subsidiary, U.S. Zinc
Corporation ("USZ"), MetalChem and Western (the "Company"). Gulfmet owns 80%
of USZ. The remaining 20% is owned by the shareholders of Gulfmet and is
included in these combined financial statements. Both MetalChem and Western
are 100% owned
F-21
<PAGE>
by the shareholders of Gulfmet. Western is under common management with
Gulfmet, while MetalChem is managed by separate personnel. All material
intercompany accounts and transactions have been eliminated in combination.
The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
have been made which are necessary to fairly present the financial position
of the Company as of June 30, 1998 and the results of its operations and cash
flows for the interim period ended June 30, 1998. The results of the interim
period should not be regarded as necessarily indicative of results that may
be expected for the entire year. The financial information presented herein
should be read in conjunction with the audited financial statements and notes
included in the Company's combined financial statements for the year ended
December 31, 1997.
NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 129, "Disclosure of Information
About Capital Structure," was issued in February 1997 and establishes
standards for disclosing information about an entity's capital structure.
This statement is effective for fiscal years beginning after December 15,
1997.
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997 and
requires disclosure of all nonstockholder changes in equity during a period.
This statement is effective for fiscal years beginning after December 15,
1997.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
was issued in June 1998 and establishes certain reporting and accounting
requirements for entities which hold such instruments or engage in such
activities. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Statement of Position 98-5 was issued in April 1998 and is effective for
fiscal years beginning after December 15, 1998. This statement requires that
organization and start-up costs for a Company be expensed as incurred.
The Company's management expects that adoption of these statements other than
SFAS 133, if required, will not have a material effect on the Company's
combined financial position or results of operations but will impact future
financial statement disclosure. Management has not completed their
evaluation of SFAS 133 and accordingly, its impact on the Company's combined
financial position or results of operations cannot be determined at this
time.
2. SUBSEQUENT EVENTS
On July 1, 1998, the shareholders of MetalChem and Western contributed their
shares to USZ, for no consideration, making both companies wholly owned
subsidiaries of USZ, to be included in the sale to IMCO.
During July 1998, IMCO repaid the full amount outstanding under the Company's
line of credit (see Note 5).
F-22
<PAGE>
3. INVENTORIES
Inventories consisted of the following:
(000'S)
-------
June 30, December 31,
1998 1997
-------- --------
Finished goods $ 4,077 $ 4,347
Raw materials 5,068 8,783
By-products 501 2,124
-------- --------
Total $ 9,646 $ 15,254
======== ========
At June 30, 1998, the LIFO reserve was $1,344,000. Cost of sales for the six
months ended June 30, 1998, would have increased by $657,000 if the first-in
first-out cost method had been used. At December 31, 1997 the LIFO reserve
was $2,001,000. Cost of Sales for the year ended December 31, 1997 would
have decreased by $1,437,000 if the first-in first-out method had been used.
4. OTHER ASSETS
Other assets consisted of the following:
(000'S)
-------
June 30, December 31,
1998 1997
-------- --------
Goodwill $ 245 $ 245
Organization costs
and noncompete
agreements 162 162
Financing costs 83 83
Deposits and bonds 466 166
Other 39 339
-------- --------
Total 995 995
Less accumulated
amortization 275 247
-------- --------
Total $ 720 $ 748
======== ========
F-23
<PAGE>
5. NOTES PAYABLE, LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
(000'S)
June 30 December 31
1998 1997
------------ ------------
<S> <C> <C>
Term note payable to a bank, due in monthly installments of approximately
$75,000, plus interest at a variable rate,
maturing August 2002 $ 3,643 $ 4,108
Note payable to a third party, due in equal monthly installments
of approximately $25,000, including interest imputed at 6%,
maturing February 1999 150 319
Revolving line of credit with a bank, plus interest at a floating
rate, maturing June 1999 14,655 21,274
Obligation under capital leases 155 159
------------ ------------
Total 18,603 25,860
Less current maturities 1,094 1,226
------------ ------------
Total $ 17,509 $ 24,634
============ ============
</TABLE>
Gulfmet has a term loan with a bank. During 1995, Gulfmet renegotiated its
term agreement with a new loan of $6,500,000 due in monthly installments of
approximately $75,000 plus interest at London Interbank Offered Rates
("LIBOR"), plus 2.50% (8.1563% at June 30, 1998), and is collateralized by
substantially all of its capital assets. The terms of the commitment
require, among other things, Gulfmet to meet certain financial ratios,
maintain a minimum tangible net worth and limit dividend payments and
investments in, and advances to, subsidiaries and affiliates. At June 30,
1998, the Company was in compliance with all debt covenants.
Gulfmet satisfies its short-term debt requirements through a revolving line
of credit agreement with a bank. During 1997, Gulfmet renegotiated its
revolving line of credit facility with terms and covenants similar to its
previous credit line. The loan agreement provides for a revolving line of
credit aggregating $25,000,000, subject to a combined borrowing base
limitation of eligible accounts receivable and inventory. The credit line
bears interest at LIBOR plus a variable rate, ranging from 1.00% to 2.25%,
dependent on Gulfmet's funded debt ratio; such rate was 6.91% at June 30,
1998 and is collateralized by accounts receivable and inventory. Amounts
available under the credit agreement totaled $10,345,000 at June 30, 1998.
The terms of the agreement require, among other things, Gulfmet to meet
certain financial ratios, maintain minimum tangible net worth and limit
dividend payments and investments in, and advances to, subsidiaries and
affiliates. At June 30, 1998, the Company was in compliance with all debt
covenants.
On July 21, 1998, IMCO paid off the outstanding balance of $15,725,000 under
the Company's revolving line of credit. In addition, IMCO also paid $201,865
for various fees and expenses such as interest, commitment fees, letters of
credit and escrow fees.
During 1997 and 1998, Gulfmet entered into capital leases with an unrelated
party for forklifts. Each lease meets the criteria of a capital lease as
defined by SFAS No. 13, "Accounting for Leases," which defines a capital
lease generally as one which transfers benefits and risks of ownership to the
lessee. The assets have been capitalized as machinery and equipment in an
amount equal to the present value of the future minimum lease payments at the
inception of the lease and are being depreciated over the life of the
F-24
<PAGE>
respective lease. A corresponding liability was recorded as long-term debt.
Principal and interest payments during the six months ended June 30, 1998
totaled $33,453 and $6,004, respectively. At June 30, 1998, assets
capitalized under capital leases amounted to $219,319 less accumulated
depreciation of $56,845. Depreciation expense of $36,552 has been recorded
and included in depreciation and amortization. At June 30, 1998, the current
and long-term portions of the future minimum lease obligations were $69,335
and $85,579, respectively.
6. CONTINGENCIES AND COMMITMENTS
The Company is involved in various litigation matters arising in the normal
course of its business. Management believes it has adequate legal defenses
or insurance coverage and that the ultimate outcome of such litigation will
not have a materially adverse effect on the Company's financial position or
results of operations.
Gulfmet's operations are subject to environmental laws and regulations, and
Gulfmet is involved in ongoing proceedings and communications with regulatory
authorities concerning environmental matters. It is possible that as a
result of these proceedings and communications, Gulfmet may in the future
incur additional costs to assure compliance with environmental laws and
regulations. In the opinion of management, the disposition of these claims
will not have a materially adverse effect on the Company's financial position
or results of operations.
******
F-25
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited Pro Forma Condensed Consolidated Financial Statements
have been prepared by recording pro forma adjustments to the historical
consolidated financial statements of IMCO Recycling Inc. (the "Company"). The
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998 has been
prepared as if the Company's July 1998 acquisition of U.S. Zinc Corporation and
its Subsidiaries ("U.S. Zinc") was consummated on June 30, 1998. The Proforma
Condensed Consolidated Statement of Earnings for the six months ended June 30,
1998 has been prepared as if the U.S. Zinc acquisition had been consummated on
January 1, 1998. The Pro Forma Condensed Consolidated Statement of Earnings for
the year ended December 31, 1997 has been prepared as if the Company's November
1997 acquisition of Alchem Aluminum, Inc. ("Alchem") and its U.S. Zinc
acquisition had both been consummated on January 1, 1997.
The Pro Forma Condensed Consolidated Statement of Earnings for the year ended
December 31, 1997 has been derived from (i) the historical audited consolidated
financial statements of the Company for the year ended December 31, 1997, (ii)
the historical audited combined financial statements of Gulfmet Holdings, Inc.,
MetalChem, Inc. & Western Zinc Corporation for the year ended December 31, 1997,
and (iii) the historical financial statements of Alchem for the 10 months ended
October 31, 1997, as adjusted.
Subsequent to December 31, 1997, (i) Gulfmet Holdings, Inc., the 80% parent
corporation of U.S. Zinc, was merged with and into U.S. Zinc, and (ii) the
shares of capital stock of MetalChem, Inc. and Western Zinc Corporation were
contributed by their shareholders to U.S. Zinc. See Note 2 of the Notes to
Audited Combined Financial Statements.
The Pro Forma Condensed Consolidated Statement of Earnings for the six months
ended June 30, 1998 and the Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1998 have been derived from (i) the historical unaudited consolidated
financial statements of the Company as of and for the six-month period ended
June 30, 1998 and (ii) the historical unaudited combined financial statements of
U.S. Zinc as of and for the six month period ended June 30, 1998.
The Pro Forma Condensed Consolidated Financial Statements are not necessarily
indicative of the financial position or results of operations that would have
occurred had the transactions been effected on the assumed dates. Additionally,
future results may vary significantly from the results reflected in the Pro
Forma Condensed Consolidated Statements of Earnings due to normal fluctuations
in operating levels, changes in prices, future transactions and other factors.
Each of the acquisitions was accounted for by the purchase method. Accordingly,
the assets and liabilities of U.S. Zinc have been adjusted to their estimated
fair values, as determined by the management of the Company, to reflect the
allocation of the costs of the acquisitions by the Company.
F-26
<PAGE>
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
-------------------------------------------
HISTORICAL
10 MONTHS
ENDED
COMPANY OCTOBER 31, PRO FORMA PRO
HISTORICAL 1997 ADJUSTMENTS FORMA
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 339,381 $ 125,877 $ (3,694) A1 $ 461,564
Cost of sales 291,527 114,949 (3,694) A1 402,907
125 A2
---------- ----------- --------- ---------
Gross profit 47,854 10,928 (125) 58,657
Selling, general and administrative expense 17,612 10,037 332 A3 22,981
(5,000) A4
Interest expense 7,331 688 1,030 A5 9,049
Interest income (413) (14) (427)
Equity in (earnings)/loss of affiliates (182) - (182)
---------- ----------- --------- ---------
Earnings before provision for income
taxes and minority interests 23,506 217 3,513 27,236
Provision for income taxes 9,086 - 1,455 A6 10,541
---------- ----------- --------- ---------
Earnings before minority interests 14,420 217 2,058 16,695
Minority interests, net of provision for
income taxes (293) - (293)
---------- ----------- --------- ---------
Net earnings before extraordinary item $ 14,127 $ 217 $ 2,058 $ 16,402
========== =========== ========= =========
Net earnings before extraordinary item
per common share:
Basic $ 1.08 $ 1.16
Diluted $ 1.06 $ 1.14
Weighted average common and common
equivalent shares outstanding:
Basic 13,066 1,083 A7 14,149
Diluted 13,293 1,083 A7 14,376
<CAPTION>
PRO FORMA FOR THE U.S. ZINC ACQUISITION
---------------------------------------------
HISTORICAL
YEAR ENDED
DECEMBER 31, PRO FORMA PRO
1997 ADJUSTMENTS FORMA
------------ ------------ ---------
<S> <C> <C> <C>
Revenues $ 164,515 $ 626,079
Cost of sales 151,918 $ (1,017) B1 554,008
200 B2
------------ --------- ---------
Gross profit 12,597 817 72,071
Selling, general and administrative expense 6,781 1,252 B3 29,553
(1,461) B4
Interest expense 2,050 2,683 B5 13,782
Interest income (178) (605)
Equity in (earnings)/loss of affiliates 934 (934) B4 (182)
------------ --------- ---------
Earnings before provision for income
taxes and minority interests 3,010 (723) 29,523
Provision for income taxes 374 511 B6 11,426
------------ --------- ---------
Earnings before minority interests 2,636 (1,234) 18,097
Minority interests, net of provision for
income taxes - (293)
------------ --------- ---------
Net earnings before extraordinary item $ 2,636 $ (1,234) $ 17,804
============ ========= =========
Net earnings before extraordinary item
per common share:
Basic $ 1.23
Diluted $ 1.21
Weighted average common and common
equivalent shares outstanding:
Basic 298 B8 14,447
Diluted 298 B8 14,674
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-27
<PAGE>
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPANY U.S. ZINC PRO FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 251,721 $ 82,047 $ 333,768
Cost of sales 223,921 76,326 $ (435) B1 299,912
100 B2
---------- ---------- ------- ---------
Gross profit 27,800 5,721 335 33,856
Selling, general and administrative expense 9,666 2,718 626 B3 11,838
(1,172) B4
Interest expense 3,799 844 1,449 B5 6,092
Interest income (199) (20) (219)
Equity in (earnings)/loss of affiliates (1,028) - (1,028)
Other, net - 127 127
---------- ---------- ------- ---------
Earnings before provision for income
taxes and minority interests 15,562 2,052 (568) 17,046
Provision for income taxes 5,737 608 218 B6 6,563
---------- ---------- ------- ---------
Earnings before minority interests 9,825 1,444 (786) 10,483
Minority interests, net of provision for
income taxes (203) - (203)
---------- ---------- ------- ---------
Net earnings $ 9,622 $ 1,444 $ (786) $ 10,280
========== ========== ======= =========
Net earnings per common share:
Basic $ 0.58 $ 0.61
========== =========
Diluted $ 0.57 $ 0.60
========== =========
Weighted average common and common
equivalent shares outstanding:
Basic 16,574 298 B8 16,872
Diluted 16,766 298 B8 17,064
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-28
<PAGE>
IMCO RECYCLING INC.
CONDENSED CONSOLIDATED UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMCO U.S. ZINC PRO FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 8,680 $ 1,316 $ 62,296 B7 $ 9,996
(46,369) B8
(15,927) B9
Accounts receivable 45,314 24,095 69,409
Inventories 32,272 9,646 201 B11 42,119
Deferred income taxes 3,170 - 3,170
Other current assets 2,766 1,330 4,096
---------- ---------- -------- ---------
Total current assets 92,202 36,387 201 128,790
Property and equipment, net 148,642 12,335 2,000 B11 162,977
Intangible assets 74,940 215 2,665 B10 114,120
36,300 B11
Investments in affiliates 14,889 - 54,869 B8 14,889
(54,869) B11
Other assets, net 10,695 571 (31) B11 11,235
---------- ---------- -------- ---------
$ 341,368 $ 49,508 $ 41,135 $ 432,011
========== ========== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 30,971 $ 12,695 $ 43,666
Accrued liabilities 8,921 504 $ 2,165 B10 11,590
Current maturities of long-term debt 498 1,119 1,617
---------- ---------- -------- ---------
Total current liabilities 40,390 14,318 2,165 56,873
Long-term debt 101,058 17,484 62,296 B7 164,911
(15,927) B9
Deferred income taxes 11,358 1,307 (400) B10 12,265
Other long-term liabilities 9,194 - 900 B10 10,094
Stockholders' equity 179,368 16,399 8,500 B8 187,868
(16,399) B11
---------- ---------- -------- ---------
$ 341,368 $ 49,508 $ 41,135 $ 432,011
========== ========== ======== =========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-29
<PAGE>
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE ALCHEM ACQUISITION
In November 1997, the Company acquired all of the outstanding capital stock
of Alchem. The acquisition was accounted for using the purchase method of
accounting. The pro forma adjustments to the historical financial statements
for the Alchem acquisition are as follows:
A1. To eliminate sales and cost of sales for transactions between Alchem
and the Company.
A2. To reflect additional depreciation expense based on the fair value of
the assets acquired. Pro forma depreciation is computed on a straight-
line basis over the estimated useful lives of the assets acquired.
A3. To adjust amortization expense for the goodwill acquired and Alchem's
debt issuance costs written-off. Goodwill is amortized on a straight-
line basis over a 40 year life.
A4. To eliminate S G & A expenses which would not have been incurred.
A5. To record the net increase in interest expense due to borrowings under
the Amended and Restated Credit Agreement using the applicable LIBOR
rate plus 1.5%, less interest expense on the Alchem indebtedness
retired. An increase of .125% in the assumed interest rate would
increase pro forma interest expense related to the Alchem acquisition
by $33,000 for the year ended December 31, 1997.
A6. To adjust income tax expense based on the combined effective federal
and state income tax rates.
A7. To record the acquisition of the capital stock of Alchem.
B. PRO FORMA ADJUSTMENTS FOR THE U.S. ZINC ACQUISITION
In July 1998, the Company acquired all of the outstanding stock of U.S. Zinc
Corporation and its subsidiary corporations ("U.S. Zinc"). U.S. Zinc is the
surviving corporation in a merger which occurred on April 1, 1998. The
acquisition was accounted for using the purchase method of accounting. The
pro forma adjustments to the historical combined audited financial
statements for the period ending December 31, 1997, and to the unaudited
combined financial statements as of and for the period ending June 30, 1998
are as follows:
B1. To eliminate the impact on U.S. Zinc's results related to conforming to
the Company's method of accounting for inventory.
B2. To reflect additional depreciation expense based on the fair value of
the assets acquired. Pro forma depreciation is computed on a straight-
line basis over the estimated useful lives of the assets acquired.
B3. To adjust amortization expense for the goodwill acquired and U.S.
Zinc's old intangible assets which were written-off. Goodwill is
amortized on a straight-line basis over a 30 year life.
B4. To eliminate duplicate management costs on U.S. Zinc's books which will
be eliminated, and to eliminate equity loss on businesses previously
disposed.
F-30
<PAGE>
B5. To record the net increase in interest expense due to borrowings under
the Amended and Restated Credit Agreement using the applicable LIBOR
rate plus 1%, less interest expense on the U.S. Zinc indebtedness
retired. An increase of .125% in the assumed interest rate would
increase pro forma interest expense related to the U.S. Zinc
acquisition by $78,000 for the year ended December 31, 1997 and $39,000
for the six months ended June 30, 1998.
B6. To adjust income tax expense based on the combined effective federal
and state income tax rates.
B7. To record borrowings to fund the cash portion of the purchase price and
for repayment of U.S. Zinc's outstanding obligations under terms of
their credit agreement.
B8. To record the purchase of the capital stock of U.S. Zinc.
B9. To repay U.S. Zinc's outstanding credit agreement obligations.
B10. To record merger related costs and other purchase accounting accruals.
B11. To record the preliminary purchase price allocation as follows
(in 000's):
Working Capital $ 20,105
Property & Equipment 14,335
Goodwill 39,180
Other Noncurrent Assets 540
Noncurrent Liabilities (19,291)
--------
$ 54,869
========
F-31
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 1 TO MEMORANDUM OF PURCHASE AND SALE AGREEMENT
This Amendment No. 1 to the Memorandum of Purchase and Sale Agreement,
dated July 21, 1998 (the "Agreement"), by and among IMCO Recycling Inc., a
Delaware corporation ("Buyer"), and each of The Minnette and Jerome Robinson
Community Property Trust, a Texas trust, The Minnette and Jerome Robinson
Foundation, The Minnette and Jerome Robinson Charitable Remainder Trust, a Texas
trust, M. Russ Robinson, Howard Robinson and Mindy Robinson Brown, all residents
of the state of Texas, (collectively, "Shareholders") is made by and among Buyer
and the Shareholders (acting by and through M. Russ Robinson individually and as
the Shareholders' Representative in accordance with Section 7 of the Agreement)
effective as of the 20th day of August, 1998. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, Buyer and the Shareholders have entered into the Agreement;
WHEREAS, the closing of the transactions contemplated by the Agreement
occurred on July 21, 1998 (the "Closing Date");
WHEREAS, the parties to the Agreement wish to amend the Agreement to
memorialize certain understandings among them in connection with the terms and
conditions set forth in Sections 2.3(c) and 2.3(d) of the Agreement;
NOW, THEREFORE, Buyer and the Shareholders hereby agree as follows:
1. Section 2.3(c) of the Agreement is hereby deleted in its entirety and
replaced with the following in lieu thereof:
"(c) In the event the Net Worth is less than $16,750,000 as of
the Effective Date, then the amount of the Cash Component to be paid
to Shareholders as described in Section 2.2(a) herein shall be reduced
by an amount (if any) equal to the difference between $16,750,000 and
the Net Worth as of the Effective Date."
2. Section 2.3(d) of the Agreement is hereby amended by deleting the third
sentence thereof and replacing it with the following in lieu thereof:
"Buyer will deliver the Closing Financial Statements to
Shareholders within forty-five (45) days after the Closing Date."
[the remainder of this page is intentionally blank]
<PAGE>
3. Except as expressly modified by the terms hereof, the terms and conditions
of the Agreement shall remain in full force and effect for all purposes.
This Amendment No. 1 may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Amendment No. 1 and all
of which, when taken together, will be deemed to constitute one and the
same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to
the Memorandum of Purchase and Sale Agreement effective as of the day and year
first above written.
BUYER:
IMCO RECYCLING INC.
/s/ DON V. INGRAM
--------------------------------------------------
DON V. INGRAM, Chief Executive Officer
SHAREHOLDERS:
/s/ M. RUSS ROBINSON
--------------------------------------------------
M. RUSS ROBINSON, acting individually and in his
capacity as Shareholders' Representative in
accordance with the terms of Section 7 of the
Agreement, for and on behalf of M. Russ Robinson,
Howard Robinson, Mindy Robinson Brown, The
Minnette and Jerome Robinson Community Property
Trust, The Minnette and Jerome Robinson
Foundation, and the Minnette and Jerome Robinson
Charitable Remainder Trust.
2
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
26641, Registration Statement No. 33-34745, Registration Statement No. 33-76780,
Registration Statement No. 333-00075, and Registration Statement No. 333-07091
of IMCO Recycling Inc. each on Form S-8 of our report dated August 17, 1998 on
the combined financial statements of Gulfmet Holdings, Inc., MetalChem, Inc.,
and Western Zinc Corporation, appearing in this Form 8-K of IMCO Recycling Inc.
for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
October 5, 1998
