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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7170
IMCO RECYCLING INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2008280
(I.R.S. Employer Identification No.)
5215 North O'Connor Blvd., Suite 940
Central Tower at Williams Square
Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
(972) 869-6575
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on April 30, 1998.
COMMON STOCK, $0.10 PAR VALUE, 16,700,911
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
MARCH 31, DECEMBER 31,
1998 1997
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,901 $ 405
Accounts receivable 55,284 52,163
Inventories 35,334 34,556
Deferred income taxes 3,047 2,782
Other current assets 2,368 1,746
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Total Current Assets 103,934 91,652
Property and equipment, net 145,547 142,100
Excess of acquisition cost over the fair value of
net assets acquired, net of accumulated amortization
of $4,641 and $4,053 at March 31, 1998 and
December 31, 1997, respectively 74,212 74,658
Investments in joint ventures 14,572 14,271
Other assets, net 9,048 9,855
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$ 347,313 $ 332,536
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 33,668 $ 25,902
Accrued liabilities 8,419 7,254
Current maturities of long-term debt 560 648
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Total Current Liabilities 42,647 33,804
Long-term debt 110,762 109,194
Deferred income taxes 11,994 11,278
Other long-term liabilities 9,018 9,336
STOCKHOLDERS' EQUITY
Preferred stock; par value $.10; 8,000,000 shares
authorized; none issued - -
Common stock; par value $.10; 20,000,000 shares authorized;
16,543,750 issued at March 31, 1998; 16,515,750 issued at
December 31, 1997 1,654 1,652
Additional paid-in capital 96,586 96,519
Retained earnings 75,030 71,096
Treasury stock, at cost; 41,639 shares at March 31, 1998;
39,354 shares at December 31, 1997 (378) (343)
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Total Stockholders' Equity 172,892 168,924
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$ 347,313 $ 332,536
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</TABLE>
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IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except share data)
<TABLE>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1997
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<S> <C> <C>
Revenues $ 127,232 $ 82,528
Cost of sales 113,606 72,376
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Gross profits 13,626 10,152
Selling, general and administrative expense 4,740 4,578
Interest expense 1,998 1,716
Interest income (103) (70)
Equity in earnings of affiliates (464) (30)
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Earnings before provision for income taxes, minority
interests and extraordinary item 7,455 3,958
Provision for income taxes 2,756 1,583
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Earnings before minority interests and extraordinary item 4,699 2,375
Minority interests, net of provision for income taxes 88 95
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Earnings before extraordinary item 4,611 2,280
Extraordinary item, net - (1,318)
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Net earnings $ 4,611 $ 962
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Net earnings per common share:
BASIC:
Earnings before extraordinary item $ 0.28 $ 0.18
Extraordinary item - (0.10)
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Net earnings $ 0.28 $ 0.08
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--------- --------
DILUTED:
Earnings before extraordinary item $ 0.28 $ 0.18
Extraordinary item - (0.10)
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Net earnings $ 0.28 $ 0.08
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Weighted average shares outstanding:
Basic 16,485 12,384
Diluted 16,686 12,548
Dividends declared per common share $ 0.05 $ 0.05
</TABLE>
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IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Earnings before extraordinary item $ 4,611 $ 2,280
Depreciation and amortization 4,984 3,837
Provision for deferred income taxes 451 75
Equity in earnings of affiliates (464) (30)
Other noncash charges 656 222
Changes in operating assets and liabilities
Accounts receivable (3,625) (1,654)
Inventories (777) 1,337
Other current assets (622) (658)
Accounts payable and accrued liabilities 8,564 3,657
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 13,778 9,066
INVESTING ACTIVITIES
Payments for property and equipment (7,535) (12,008)
Acquisition of IMSAMET, Inc., net of cash acquired - (58,251)
Other 745 (1,591)
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NET CASH USED BY INVESTING ACTIVITIES (6,790) (71,850)
FINANCING ACTIVITIES
Net repayments of short-term borrowings - (4,087)
Net proceeds from long-term revolving credit facility 1,479 -
Proceeds from issuance of long-term debt - 112,097
Principal payments of long-term debt - (48,337)
Debt issuance costs (62) (2,147)
Dividends paid (825) (627)
Other (93) 1,626
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NET CASH PROVIDED FROM FINANCING ACTIVITIES 499 58,525
-------- --------
Effect of exchange rate differences on cash and cash equivalents 9 -
Net increase (decrease) in cash and cash equivalents 7,496 (4,259)
Cash and cash equivalents at January 1 405 5,070
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Cash and cash equivalents at March 31 $ 7,901 $ 811
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SUPPLEMENTARY INFORMATION
Cash payments for interest $ 1,833 $ 2,193
Cash payments for income taxes $ 390 $ 200
Fair value of the shares issued in the acquisition of Rock Creek
Aluminum, Inc. $ - $ 7,125
</TABLE>
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IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. The accompanying financial
statements include the accounts of IMCO Recycling Inc. and all of its
subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE B - INVENTORIES
The components of inventories are:
<TABLE>
MARCH 31, DECEMBER 31,
1998 1997
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<S> <C> <C>
Finished goods $ 19,435 $ 16,771
Raw materials 15,470 17,313
Supplies 429 472
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$ 35,334 $ 34,556
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</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Most of the Company's processing consists of aluminum, magnesium and zinc
tolled for its customers. To a lesser (but increasing) extent, the Company's
processing also consists of buy/sell business, which involves purchasing scrap
metal and dross for processing and resale. The Company's buy/sell business
revenues include the cost of the metal, the processing cost and the Company's
profit margin. Tolling revenues reflect only the processing cost and the
Company's profit margin. Accordingly, tolling business produces lower revenues
and costs of sales than does the buy/sell business. Variations in the mix of
these two businesses can cause revenues to change significantly from period to
period while not significantly affecting gross profit, since both types of
business generally produce approximately the same gross profit per pound of
metal processed. As a result, the Company considers processing volume to be a
more important determinant of performance than revenues.
The Company's aluminum alloying facility (acquired in November 1997) is
primarily engaged in buy/sell business, as opposed to tolling; therefore, the
Company has experienced higher levels of buy/sell business relative to tolling
during 1998. Consequently, the higher level of buy/sell business has increased
the Company's working capital requirements and subjected the Company to greater
risks associated with price fluctuations in the aluminum market. The proposed
acquisition of U.S. Zinc (if consummated) is also expected to increase the
level of overall buy/sell business for the Company.
The following table shows the total pounds of metal melted, the percentage of
total pounds melted represented by tolled metal, total revenues and total gross
profits:
<TABLE>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
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<S> <C> <C>
Pounds of metal melted 579,388 432,434
Percentage of pounds tolled 72% 81%
Revenues $ 127,232 $ 82,528
Gross profits $ 13,626 $ 10,152
</TABLE>
ACQUISITION
On April 22, 1998, the Company announced that it had entered into a non-binding
letter of intent to acquire, in a privately negotiated transaction, all of the
capital stock of U.S. Zinc Corporation and certain of its affiliated
corporations ("U.S. Zinc") for a total purchase price currently estimated to be
$75,000,000, consisting of approximately $46,000,000 in cash, the assumption of
approximately $21,000,000 in debt and the issuance of 566,213 shares of the
Company's common stock. In addition, the transaction provides for potential
additional payments to the sellers payable over a three-year period commencing
in 1999, depending upon future earnings performance, and issuance of a four-
year warrant to purchase 1,500,000 shares of a newly authorized class of the
Company's preferred stock. The acquisition will be accounted for using the
purchase method of accounting.
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U.S. Zinc, headquartered in Houston, Texas, is believed to be the world's
largest zinc recycler and the second largest supplier of zinc oxide and zinc
dust. It operates five production facilities located in Illinois, Texas and
Tennessee and has an annual processing capacity of 200,000,000 pounds of zinc.
The acquisition of U.S. Zinc is expected to increase the Company's total annual
processing capacity in 1998 to approximately 2.7 billion pounds.
The closing of the acquisition of U.S. Zinc is subject to the conditions
contained in the letter of intent and in the definitive acquisition agreement
to be entered into in connection with the acquisition. Although the Company
believes that such conditions will be fully satisfied on or before the
anticipated closing date of the acquisition of U.S. Zinc (currently estimated
to be during the second quarter of 1998), many of these conditions are beyond
the control of the Company, and there can be no assurance of when or whether
the closing of the acquisition of U.S. Zinc will occur. Closing conditions
will include the satisfaction of usual and customary closing conditions,
including termination of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, the absence of any injunction or other
legal restraint, the consent of third parties and governmental entities, the
accuracy in all material respects of the representations and warranties made in
the definitive acquisition agreement and the performance of pre-closing
agreements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
PRODUCTION: The Company melted 34% more metal in the first quarter of 1998
than it did in the first quarter of 1997. Aluminum processing at the Company's
newest plants in Coldwater, Michigan (which began production in the first
quarter of 1997) and Swansea, Wales (which began production in the fourth
quarter of 1997) and the Alchem facility (which was acquired in November 1997)
accounted for 63% of the increase in production. The Idaho and Utah facilities
(IMSAMET, Inc. plants) accounted for 13% of the increase in production
primarily due the Idaho furnaces being shut-down during the first quarter of
1997 for furnace reline maintenance and the Utah facility experiencing greater
production operating efficiencies in 1998. In addition, production increased
at the Company's Bedford, Indiana facility due to the 1997 installation of a
new furnace.
REVENUES: In the first quarter of 1998, the Company's revenues totaled
$127,232,000, which was 54% higher than revenues of $82,528,000 for the same
period in 1997. The acquisition of Alchem and operations at the new Coldwater,
Michigan and Swansea, Wales plants accounted for most of the increase, but this
increase was partially offset by lower aluminum selling prices. Tolling
activity represented 72% of the Company's pounds melted for the first quarter
ended March 31, 1998, compared to 81% for the first quarter of 1997. As
discussed above, a reduction in the tolling ratio will generally increase
revenues. Prior to November 1997, materials processed for Alchem at the
Company's Coldwater, Michigan facility were classified as tolling business, but
because the Company acquired Alchem in November 1997, these pounds are now
classified as buy/sell business.
GROSS PROFIT: Gross profits were $13,626,000 for the first quarter of 1998,
which was 34% higher than gross profits of $10,152,000 for the first quarter of
1997. The November 1997
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acquisition of Alchem and operations at the new Coldwater plant accounted for
89% of the increase in gross profits.
SG&A EXPENSES: Selling, general and administrative expenses of $4,740,000 for
the first quarter of 1998 were slightly higher than $4,578,000 for the first
quarter of 1997. The increase was primarily due to higher selling and goodwill
amortization expenses resulting from the November 1997 acquisition of Alchem.
INTEREST: Interest expense was $1,998,000 for the first quarter of 1998, or
16% higher than $1,716,000 for the first quarter of 1997. The increase in
interest expense was primarily the result of higher capitalized interest during
the first quarter of 1997 in connection with the construction of the new plant
in Coldwater, Michigan.
EXTRAORDINARY ITEM: In connection with the plant acquisitions in January 1997,
the Company borrowed funds under a new long-term credit facility. A portion of
the sums borrowed under this credit facility was used to retire substantially
all of the Company's outstanding indebtedness prior to its stated maturity.
This early debt retirement generated an extraordinary loss of $1,318,000 (net
of income tax benefit of $878,000) for the first quarter of 1997. There was no
extraordinary item in 1998.
NET EARNINGS/(LOSS): Earnings before the provision for income taxes, minority
interests and extraordinary item was $7,455,000 for the first quarter of 1998,
which was 88% higher than $3,958,000 for the first quarter of 1997. The
increase was primarily the result of higher gross profits. The Company's
effective income tax rate was 37% for the first quarter of 1998 compared to 40%
for the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS. Operations provided $13,778,000 of cash during the
first quarter of 1998 compared to $9,066,000 of cash provided during the same
period of 1997. Higher net earnings before extraordinary item in 1998 of
$4,611,000 compared to $2,280,000 for 1997 accounted for approximately half of
the increase in cash provided from operations. In addition, higher
depreciation and amortization of $4,984,000 in 1998 compared to $3,837,000 for
1997 accounted for 24% of the increase in cash provided from operations.
Changes in the components of operating assets and liabilities accounted for 18%
of the increase in cash provided from operations. During the first quarter of
1998, changes in operating assets and liabilities generated $3,540,000 of cash,
compared to generating $2,682,000 in cash for the first quarter of 1997. At
March 31, 1998, the relationship of current assets to current liabilities, or
current ratio, was 2.44 to 1, compared to 2.71 to 1 at December 31, 1997.
For the reasons discussed above, working capital fluctuates as the mix of
buy/sell business and tolling business changes. The Company's working capital
requirements have increased in 1998 as a result of higher levels of buy/sell
business and increased processing volumes due to the acquisition of Alchem and
the initial operation of the new plant in Swansea, Wales. The acquisition of
U.S. Zinc is also currently expected to increase the level of overall Company
buy/sell business, and thereby further increase its working capital
requirements. Nonetheless, the Company believes that its cash on hand, the
availability of funds under its amended and restated credit facilities and its
anticipated internally generated funds will be sufficient to fund its current
needs and meet its obligations for the foreseeable future.
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CASH FLOWS FROM INVESTING ACTIVITIES. For the first quarter of 1998, net cash
used by investing activities was $6,790,000 compared to $71,850,000 for the
same period in 1997, which primarily reflected the first quarter 1997
acquisition of IMSAMET for $58,251,000. In addition, the Company's total
payments for property, plant and equipment in the first quarter of 1998
decreased to $7,535,000 compared to $12,008,000 spent in the first quarter of
1997. Capital expenditures for property, plant and equipment in 1998 are
expected to be approximately $34,500,000. Major projects include the
installation of a reverberatory furnace and delacquering equipment at the
Morgantown, Kentucky facility, the purchase of environmental equipment, and the
expansion of an existing Company-owned landfill and upgrades to various
furnaces.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided from financing
activities decreased to $499,000 in the first quarter of 1998 compared to
$58,525,000 in the first quarter of 1997. In connection with its January 1997
acquisitions, the Company entered into a new long-term credit agreement with
certain lenders, borrowing $110,000,000 at the closing and using approximately
$61,000,000 for the IMSAMET acquisition and $49,000,000 to retire substantially
all of the Company's outstanding debt as of December 31, 1996. Financing
activities also included cash payments of $825,000 in dividends for the first
quarter of 1998.
The Company expects to fund the cash portion of the acquisition of U.S. Zinc
through borrowings under its long-term reducing revolving credit facility.
Upon the closing of the acquisition, the Company also intends to repay U.S.
Zinc's outstanding indebtedness under its working capital line of credit
facility (expected to be approximately $17,000,000 at the time of the
acquisition) through borrowings under the Company's long-term reducing
revolving credit facility.
As of March 31, 1998, the Company had $97,825,000 outstanding under its long-
term reducing revolving credit facility. As of March 31, 1998, the floating
interest rate was capped at 8% per annum for 41% of the total outstanding
borrowings under the long-term reducing revolving credit facility. At March
31, 1998, the Company had standby letters of credit outstanding with Chase Bank
Texas, NA and American National Bank and Trust Company in the amounts of
$1,752,000 and $769,000, respectively.
CONTINGENCIES. On May 8, 1997, Harvard Industries, Inc. ("Harvard") announced
that it and its wholly-owned subsidiary, Doehler-Jarvis, Inc. ("Doehler-
Jarvis") had filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
The Company sells aluminum to Doehler-Jarvis. At March 31, 1998, the Company
had $3,492,000 of outstanding unsecured receivables from Doehler-Jarvis, net of
related reserves. While the Company currently believes that Harvard's
bankruptcy will not have a material adverse effect on the Company's financial
position or results of operations, no assurance can be given as to the amount
and timing of the Company's ultimate recovery, if any, of its claims. The
Company's revenues from Doehler-Jarvis totaled $12,350,000 and $17,490,000 for
the years ended December 31, 1997 and 1996, respectively. The Company believes
that the loss of this customer would not have a material adverse effect on the
Company's financial position or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," which is effective for periods beginning
after December 31, 1997.
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Statement 130 establishes standards for reporting and display of
comprehensive income and its components. During the first quarter of 1998,
the impact of Statement 130 was not material.
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which is
effective for periods beginning after December 15, 1997. Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Based on management's review of the impact of Statement 131, this
statement is not expected to affect the number of segments the Company is
required to report.
TECHNOLOGY FOR THE YEAR 2000
The Company relies heavily on software technology to deliver its services and
has taken actions to evaluate the nature and extent of the work required to
make its systems and infrastructure "Year 2000" compliant. The Company
believes that its primary operations and accounting software vendors are Year
2000 compliant. However, the Company has identified potential Year 2000 issues
with certain subsidiaries and a joint venture partner, and is currently
developing plans to convert or modify those systems in order to achieve Year
2000 compliance. Based on preliminary information, the Company believes that
it will be able to manage its total Year 2000 transition without any material
adverse effect on its business, financial position or results of operations.
The Company cannot presently determine the impact on its customers and
suppliers in the event that they may be Year 2000 non-compliant, and in such
event, whether such non-compliance may have a material adverse effect on the
Company's results of operations or financial position. The Company has
prepared and distributed a Year 2000 questionnaire to its customers and
suppliers to determine their respective Year 2000 issues. Currently, the
Company is in the process of evaluating the responses of the questionnaires
received.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this ITEM 2. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" (as well as certain
oral statements made by or on behalf of the Company) may be deemed to be
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995 and are subject to the "Safe Harbor" provisions
in that enacted legislation. This information includes, without limitation,
statements concerning future revenues, future earnings, future costs, future
margins and future expenses; future acquisitions or corporate combinations
(including the proposed acquisition of U.S. Zinc); expected effects of the
proposed U.S. Zinc acquisition; plans for domestic or international expansion,
facility construction schedules and projected completion dates, and anticipated
technological advances; future capabilities of the Company to achieve "closed
loop recycling" on a commercially efficient basis; prospects for the Company's
joint venture partners to purchase a portion of the Company's interests; future
(or extensions of existing) long-term supply contracts with its customers; the
outcome of and any liabilities resulting from any claims, investigations or
proceedings against the Company or its subsidiaries; future levels of dividends
(if any); the future mix of business, future asset recoveries, future
operations, future demand, future industry conditions, future capital
expenditures, future
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financial condition, and the impact of the "Year 2000" technology transition
on the Company, its customers and suppliers. These statements are based on
current expectations and involve a number of risks and uncertainties.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct.
When used in or incorporated by reference into this Quarterly Report on Form
10-Q, the words "anticipate," "estimate," "expect," "may," "project" and similar
expressions are intended to be among the statements that identify forward-
looking statements. Important factors that could affect the Company's actual
results and cause actual results to differ materially from those results that
might be projected, forecasted, estimated or budgeted by the Company in such
forward-looking statements include, but are not limited to, the following:
fluctuations in operating levels at the Company's facilities, the mix of
buy/sell business as opposed to tolling business, retention and financial
condition of major customers, effects of future costs, collectibility of
receivables, the inherent unpredictability of adversarial or administrative
proceedings, effects of environmental and other governmental regulations,
currency exchange rate fluctuations, trends in the Company's key markets, the
price of and supply and demand for aluminum and zinc (and their derivatives) on
world markets, business conditions and growth in the aluminum and zinc
industries and aluminum and zinc recycling industries, and future levels and
timing of capital expenditures.
These statements are further qualified by the following:
*Estimates of future operating rates at the Company's plants are based on
current expectations by management of the Company of future levels of
volumes and prices for the Company's services or metal, and are subject to
fluctuations in customer demand for the Company's services and prevailing
conditions in the metal markets, as well as certain components of the
Company's cost of operations, including energy and labor costs. Many of
the factors affecting revenues and costs are outside of the control of the
Company, including weather conditions, general economic and financial
market conditions, and governmental regulation and factors involved in
administrative and other proceedings. The future mix of buy/sell vs.
tolling business is dependent on customers' needs and overall demand,
world and U.S. market conditions then prevailing in the respective metal
markets, and the operating levels at the Company's various facilities at
the relevant time.
*The price of primary aluminum and other metals is subject to worldwide
market forces of supply and demand and other influences. Prices can be
volatile, which could affect the Company's buy/sell aluminum business.
The Company's use of contractual arrangements including long-term
agreements and forward contracts may reduce the Company's exposure to this
volatility but does not eliminate it.
*The markets for most aluminum products are highly competitive. The major
primary aluminum producers are larger than the Company in terms of total
assets and operations and have greater financial resources. In addition,
aluminum competes with other materials such as steel, vinyl, plastics and
glass, among others, for various applications in the Company's key
markets. Unanticipated actions or developments by or affecting the
Company's competitors and/or willingness of customers to accept
substitutions for
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aluminum products could affect the Company's financial position and results
of operations.
*Fluctuations in the costs of fuels, raw materials and labor can affect the
Company's financial position and results of operations.
*The Company's key transportation market is cyclical, and sales to that
market in particular can be influenced by economic conditions.
*A strike at a customer facility or a significant downturn in the business
of a key customer supplied by the Company could affect the Company's
financial position and results of operations.
*The Company spends substantial capital and operating amounts relating to
ongoing compliance with environmental laws. In addition, the Company is
involved in certain investigations and actions in connection with
environmental compliance and past disposals of solid waste. Estimating
future environmental compliance and remediation costs is imprecise due to
the continuing evolution of environmental laws and regulatory requirements
and uncertainties about their application to the Company's operations, the
availability and applicability of technology and the allocation of costs
among principally responsible parties. Unanticipated material legal
proceedings or investigations could affect the Company's financial
position and results of operations.
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Ernst & Young LLP, have reviewed the
Company's consolidated financial statements at March 31, 1998, and for the
three month period then ended prior to filing, and their report is included
herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks include (1) floating interest rate risk on its long-
term debt, (2) foreign currency risk from its operations outside the United
States, (3) price risk for natural gas used in its production process, (4)
price risk for aluminum in its buy/sell and by-product processing businesses
and (5) credit risk from customers. The Company uses derivative financial
instruments to manage some of these risks; these financial instruments are not
used for speculative purposes.
In order to reduce the fluctuating interest rate exposure on the term loan
under the January 1997 Credit Agreement (See ITEM 2. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND
CAPITAL RESOURCES"), the Company entered into an interest rate cap transaction
("Rate Cap Transaction") agreement with Chase Bank Texas, NA on April 7, 1997.
The cost associated with this Rate Cap Transaction is being amortized as
interest expense over the four year term of the agreement. As of March 31,
1998, the floating interest rate was capped at 8% per annum for 41% of the
total outstanding borrowings under the Amended and Restated Credit Agreement.
Page 12
<PAGE>
During the first quarter of 1998, the financial impact of gains and losses from
foreign currency exchange rate fluctuations associated with the construction
and operation of the Company's Wales facility and VAW-IMCO was immaterial.
Natural gas is the Company's second largest cost component. In order to manage
its price exposure for natural gas purchases, the Company has, at times, fixed
the future price of a portion of its natural gas requirements by entering into
firm-priced physical commitments. In addition, the Company has cost escalators
included in some of its long-term supply contracts with its customers, which
limit the Company's exposure to natural gas price risk. As of March 31, 1998,
approximately 54% of the Company's projected natural gas requirements were
locked-in at fixed delivery prices for the remainder of 1998.
Aluminum ingot is an internationally priced, sourced and traded commodity, and
its principal trading market is the London Metal Exchange. From time to time,
the Company has entered into forward sale contracts and a series of put and
call option contracts with metal brokers to cover the future selling prices on
a portion of the aluminum generated by the Company's salt cake processing
facility in Kentucky. These contracts are settled in the month of the
corresponding production. The contracts did not have a significant effect on
the Company's financial position or results of operations for the first quarter
of 1998. Based upon the Company's increased amount of buy/sell business in
recent years and expected as a result of the U.S. Zinc acquisition (if
consummated), it is likely that the degree of the Company's metals hedging
activities will increase during the remainder of 1998 and for the foreseeable
future.
In May 1997, one of the Company's customers filed for protection under
Chapter 11 of the U.S. Bankruptcy Code--see "LIQUIDITY AND CAPITAL RESOURCES"
above.
Because the Company is not yet required to provide the disclosures otherwise
mandated under Item 305 of Regulation S-K promulgated by the Securities and
Exchange Commission (pursuant to General Instruction 1. of General Instructions
to Paragraphs 305(a), 305(b), 305(c), 305(d) and 305(e)), the foregoing
disclosures under this ITEM 3. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK" do not and are not intended to comply with Item 305.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company paid $825,000 in dividends during the first quarter of 1998.
During the three months ended March 31, 1998, the Company made no unregistered
sales of its equity securities.
Page 13
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
10.1 Executive Option Exercise Loan Program dated March 10, 1998
15.1 Acknowledgment letter regarding unaudited financial information from
Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMCO Recycling Inc.
(Registrant)
Date: May 5, 1998 By: /s/ Robert R. Holian
-----------------------------------
Robert R. Holian
Vice President and Controller
(Principal Accounting Officer)
Page 14
<PAGE>
Independent Accountants' Review Report
Stockholders and
Board of Directors
IMCO Recycling Inc.
We have reviewed the accompanying consolidated balance sheet of IMCO
Recycling Inc. as of March 31, 1998, and the related consolidated statements
of earnings and cash flows for the three-month periods ended March 31, 1998
and 1997. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of IMCO Recycling Inc. as of
December 31, 1997, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the year then ended,
[not presented herein], and in our report dated February 2, 1998, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which
it has been derived.
/s/ ERNST & YOUNG LLP
Dallas, Texas
April 27, 1998
15
<PAGE>
IMCO RECYCLING INC.
EXECUTIVE OPTION EXERCISE LOAN PROGRAM
(As Adopted March 10, 1998)
PURPOSE:
The purpose of the IMCO Recycling Inc. Executive Option Exercise Loan
Program (the "Program") is to more closely align the goals and motivation of
management holding options under the Company's Amended and Restated Option
Plan with those of other Company stockholders and to provide such management
with a long-term capital accumulation opportunity. This purpose is
accomplished by providing selected management employees with loans to permit
them to exercise their Company stock options under the Amended and Restated
Option Plan and to pay federal and state taxes realized upon such exercises.
DEFINITIONS:
"BOARD" shall mean the Board of Directors of the Company, as constituted
from time to time.
"COMMON STOCK" shall mean the common stock of the Company, par value $.10
per share.
"COMPANY" shall mean IMCO Recycling Inc., or any subsidiary thereof.
"COMPENSATION COMMITTEE" shall mean the Compensation Committee of the
Board of Directors of the Company, as constituted from time to time.
"ELIGIBLE EMPLOYEE" shall mean any management employee of the Company
holding a stock option under the Plan that the Compensation Committee has
determined may be granted a loan pursuant to the Program.
"EXERCISE LOAN" shall have the meaning assigned to it in Section 2 of
this Program.
"EXERCISE NOTE" shall mean a Promissory Note evidencing an Exercise Loan
made to a Participant by the Company pursuant to the terms of this Program, in
the form attached hereto as EXHIBIT 1A.
"FEDERAL RATE" means the annual rate equal to the Internal Revenue
Service mid-term applicable federal rate under Section 1274 of the Internal
Revenue Code of 1986, as amended, as announced from time-to-time.
<PAGE>
"LOAN" shall mean a loan made to a Participant pursuant to this Program
and evidenced by one or more Promissory Notes, and that will be comprised of
either or both of a Tax Loan and/or an Exercise Loan.
"PARTICIPANT" shall refer to an Eligible Employee that has a Loan
outstanding.
"PLAN" shall mean the Company's Amended and Restated Option Plan.
"PROGRAM ADMINISTRATOR" shall mean the person or persons designated as
such by the Compensation Committee. If no person has been formally designated,
the Program Administrator shall be the Secretary of the Company.
"PROMISSORY NOTE" shall mean either an Exercise Note or a Tax Note.
"PURCHASED SHARES" shall mean all of the shares of Common Stock purchased
by a Participant upon exercise at the time a Loan was made to such Participant
hereunder.
"TAX LOAN" shall have the meaning assigned to it in Section 2 of this
Program.
"TAX NOTE" shall mean a Promissory Note evidencing a Tax Loan made to a
Participant by the Company pursuant to the terms of this Program, in the form
attached hereto as EXHIBIT 1B.
PROGRAM:
1. SELECTION OF ELIGIBLE EMPLOYEES. From time to time, the Compensation
Committee shall determine the Eligible Employees who may be granted Loans
hereunder and the maximum amount of the Loans, which amount will be stated in
terms of the maximum number of shares of Common Stock that each may exercise
under the Plan utilizing Loans as provided hereunder. As soon as practicable
after the determination by the Compensation Committee, the Program
Administrator will notify each Eligible Employee in writing of his or her
eligibility and the outstanding stock options under the Plan that he or she
may exercise utilizing Loans under the terms of the Program. An Eligible
Employee shall cease being an Eligible Employee on the date on which he or she
ceases to be an employee of the Company. The rights of an Eligible Employee to
borrow money hereunder are not transferable and may not be exercised by any
person other than the Eligible Employee. The Board or the Compensation
Committee may revoke or reduce the availability of Loans to an Eligible
Employee at any time.
2. THE LOAN. An Eligible Employee may borrow from the Company 100% of
the cost of exercising one or more Company stock options under the Plan held
by that Eligible Employee (vested portions only) (an "EXERCISE LOAN"), plus
100% of the
-2-
<PAGE>
amount of any federal or state tax payable by the Eligible Employee as a
result of the exercise (a "TAX LOAN"). The Eligible Employee may only borrow
funds from the Company under the Program if they are used to exercise Company
options under the Plan and/or pay taxes resulting from such exercise. If
Regulation G (or any successor provision) promulgated by the Board of
Governors of the Federal Reserve System is deemed applicable to the Loans made
pursuant hereto, the Company and each Eligible Employee shall take such
actions as the Company deems necessary or advisable in order to comply with
Regulation G. Each Loan will be evidenced by a Promissory Note. The terms of
each Promissory Note shall be as follows:
(a) GENERAL. The following terms shall be applicable to both Tax
Notes and Exercise Notes.
(i) INTEREST. Interest on the unpaid principal balance of
each Promissory Note will accrue at the Federal Rate in effect as of
the date of the making of the applicable Loan. Interest will be
calculated as simple interest and shall not compound, whether or not
accrued interest is paid on an annual basis or otherwise.
(ii) ACCELERATION. The Company will have the option of
accelerating the maturity of a Promissory Note and declaring that
the entire unpaid principal balance of, and all accrued unpaid
interest on, that Promissory Note, are and shall be immediately due
and payable, on (A) the Participant's termination of employment with
the Company for any reason; or (B) the date the Participant sells or
otherwise disposes or attempts to dispose of all of the Purchased
Shares. If only a portion of the Purchased Shares is to be sold, the
Participant may request that only a pro rata portion of the proceeds
be utilized to repay the applicable Loan.
(iii) SECURITY. The Promissory Notes executed by each
Participant will be secured by a Security Agreement granting the
Company a first lien security interest in and to the Purchased
Shares.
(iv) PREPAYMENT. The Participant may prepay each Loan in whole
or in part at any time without penalty. At the option of the
Compensation Committee, Loans may be repaid by the tender of Company
Common Stock owned by the Participant.
(v) APPLICATION OF PAYMENTS. All payments made or applied on
a Promissory Note shall be applied first to pay accrued and unpaid
interest thereon and then to the unpaid principal balance thereof.
-3-
<PAGE>
(vi) MATURITY. Except as otherwise provided herein, each
Promissory Note shall mature and be due and payable in full on the
date that is five years after the date of that Promissory Note.
(b) PAYMENT TERMS FOR TAX NOTES. Accrued unpaid interest on each Tax
Note shall be due and payable annually on each anniversary date of that Tax
Note, and at maturity.
(c) PAYMENT TERMS FOR EXERCISE NOTES. Accrued unpaid interest on
each Exercise Note shall be due and payable at maturity (whether by
acceleration, stated maturity or otherwise); PROVIDED HOWEVER, that
portions of the interest accruing on the principal balance outstanding of
each Exercise Note as of the particular date of determination shall be
automatically forgiven, extinguished and discharged without further
action on the part of the Participant or the Company in the event that
the Participant remains in the employ of the Company and has not disposed
of any of the Purchased Shares as of the time of determination, in
accordance with the following schedule:
The first anniversary of 50% of the interest accrued
the date of the making of interest
the Exercise Note
Each anniversary of the 50% of the accrued during the
date of the making of the most recent twelve-month
Exercise Note after the period, plus the remaining
first anniversary interest accrued for the prior
twelve-month period which had
not been forgiven
The scheduled maturity All remaining accrued interest
date of the Exercise Note to the maturity date
3. EXERCISE OF OPTIONS. An Eligible Employee may borrow funds as set
forth above to purchase shares of Common Stock by means of the exercise of
outstanding and vested options under the Plan on the following terms:
(a) An Eligible Employee that wishes to borrow funds pursuant to
this Program to acquire Common Stock by means of exercising options under
the Plan or to pay taxes upon exercise may do so by giving written notice
to the Program Administrator indicating the Eligible Employee's name, the
number of shares of Common Stock he or she desires to acquire hereunder
and any other information reasonably requested by the Program
Administrator.
(b) Following the approval by the Program Administrator of the Loan
requested by the Eligible Employee, the Eligible Employee will (i) execute
and deliver the applicable Promissory Note(s) to the Program Administrator;
and (ii) execute and deliver the Security Agreement to the Program
Administrator.
-4-
<PAGE>
(c) The certificate(s) representing the Purchased Shares will be
registered in the name of the Participant, but will be held by the
Company and pledged to the Company under the Security Agreement to secure
payment of the Promissory Note(s). So long as the Participant owns the
Purchased Shares and is not in default under the Loan, he or she shall
retain the right to vote, and to receive dividends on and distributions
with respect to, the Purchased Shares.
4. MISCELLANEOUS.
(a) The Board may amend or terminate this Program at any time;
provided, however, no such termination or amendment shall affect any Loan
or Promissory Note outstanding at the time the Program is amended or
terminated, unless the Participant who obtained the Loan and issued the
Promissory Note so agrees.
(b) The Program Administrator may make Loans hereunder upon the
authority of the Compensation Committee.
APPROVAL:
This Program was adopted by the Board of Directors of the Company at its
meeting duly held on March 10, 1998.
/s/ DON V. INGRAM
-------------------------------
DON V. INGRAM
Chairman of the Board
and Chief Executive Officer
-5-
<PAGE>
EXHIBIT 1A
FULL RECOURSE
PROMISSORY NOTE
(EXERCISE LOAN)
$_________________ _______________
(amount) (date)
FOR VALUE RECEIVED, _____________ (the "Promisor") hereby promises to pay
to the order of IMCO Recycling Inc. (the "Holder") the principal sum of____
____________ Dollars ($______), plus simple interest accrued (commencing the
date hereof) on the unpaid principal balance hereof at a rate of_____% per
annum (that percentage amount being the Internal Revenue Service mid-term
"applicable federal rate" as of the date of this Promissory Note). All
principal and accrued interest shall be paid on or before the earlier of the
_________anniversary date of this Promissory Note or the date the Promisor
ceases to be employed by the Holder; PROVIDED HOWEVER, that a portion of the
accrued interest hereon may be forgiven from time to time during the term of
this Promissory Note, provided that the conditions for such forgiveness are
satisfied in accordance with the terms of the IMCO Recycling Inc. Amended and
Restated Option Plan Executive Option Loan Program (the "Loan Program"), to
which this Promissory Note and the indebtedness evidenced hereby are expressly
made subject in all respects.
The Promisor reserves and shall have the right to prepay the unpaid
principal balance of this Promissory Note, together with accrued interest
thereon to the date of such prepayment, at any time without premium or penalty.
All proceeds from the sale of stock pledged under the Loan Program shall
be applied to the repayment of amounts outstanding under all indebtedness owed
by the Promisor under the Loan Program (including that evidenced by this
Promissory Note).
The unpaid principal balance of, together with all accrued unpaid
interest on, this Note, shall, at the option of the Holder, be immediately due
and payable upon the occurrence of any one or more of the following events:
(a) the Promisor shall make a general assignment for the benefit of
creditors;
(b) the Promisor shall become or be adjudicated bankrupt or shall
voluntarily file a petition for bankruptcy;
<PAGE>
(c) the Promisor shall apply for the appointment of a receiver or a
trustee for any substantial portion of the Promisor's property or assets or
shall permit the appointment of any such receiver or trustee who is not
discharged within a period of 30 days after such appointment;
(d) any event of default shall occur under the terms of the Security
Agreement between the Holder and the Promisor bearing even date herewith,
which secures the indebtedness evidenced by this Promissory Note; or
(e) the Holder exercises its right to accelerate the maturity of this
Promissory Note pursuant to SECTION 2(a)(ii)(A) of the Loan Program (or,
pursuant to SECTION 2(a)(ii)(B) of the Loan Program, and if only a portion of
the loan evidenced by this Promissory Note is to be repaid, then only that
portion of this Promissory Note shall be subject to acceleration).
The Promisor hereby waives demand, presentment, notice of non-payment,
protest, notice of protest, notice of dishonor and diligence in collection,
notice of default, notice of intent to accelerate and notice of acceleration.
Furthermore, in any action or proceeding based upon the Note, the Holder shall
be entitled to recover reasonable attorneys' fees and all other reasonable
costs of collection.
THIS NOTE IS SECURED BY A SECURITY AGREEMENT OF EVEN DATE HEREOF BETWEEN
THE HOLDER AND THE PROMISOR.
-------------------------------
PROMISOR
-2-
<PAGE>
EXHIBIT 1B
FULL RECOURSE
PROMISSORY NOTE
(TAX LOAN)
$_________________ _______________
(amount) (date)
FOR VALUE RECEIVED, _____________ (the "Promisor") hereby promises to pay
to the order of IMCO Recycling Inc. (the "Holder") the principal sum of ____
____________ Dollars ($_______), plus simple interest accrued (commencing the
date hereof) on the unpaid principal balance hereof at a rate of_____% per
annum (that percentage amount being the Internal Revenue Service mid-term
"applicable federal rate" as of the date of this Promissory Note). The accrued
unpaid interest on this Note shall be payable annually on each anniversary
date hereof. All principal and accrued interest shall be paid on or before the
earlier of the _________ anniversary date of this Promissory Note or the date
the Promisor ceases to be employed by the Holder. This Promissory Note and the
indebtedness evidenced hereby are expressly made subject in all respects to
the terms of the IMCO Recycling Inc. Amended and Restated Option Plan
Executive Option Loan Program (the "Loan Program").
The Promisor reserves and shall have the right to prepay the unpaid
principal balance of this Note, together with accrued interest thereon to the
date of such prepayment, at any time without premium or penalty.
All proceeds from the sale of stock pledged under the Loan Program shall
be applied to the repayment of amounts outstanding under all indebtedness owed
by the Promisor under the Loan Program (including that evidenced by this
Promissory Note).
The unpaid principal balance of; together with all accrued unpaid
interest on, this Note, shall, at the option of the Holder, be immediately due
and payable upon the occurrence of any one or more of the following events:
(a) the Promisor shall make a general assignment for the benefit of
creditors;
(b) the Promisor shall become or be adjudicated bankrupt or shall
voluntarily file a petition for bankruptcy;
<PAGE>
(c) the Promisor shall apply for the appointment of a receiver or a
trustee for any substantial portion of the Promisor's property or assets or
shall permit the appointment of any such receiver or trustee who is not
discharged within a period of 30 days after such appointment;
(d) any event of default shall occur under the terms of the Security
Agreement between the Holder and the Promisor bearing even date herewith,
which secures the indebtedness evidenced by the Promissory Note; or
(e) the Holder exercises its right to accelerate the maturity of this
Promissory Note pursuant to SECTION 2(a)(ii)(A) of the Loan Program (or,
pursuant to SECTION 2(a)(ii)(B) of the Loan Program, and if only a portion of
the loan evidenced by this Promissory Note is to be repaid, then only that
portion of this Promissory Note shall be subject to acceleration).
The Promisor hereby waives demand, presentment, notice of non-payment,
protest, notice of protest, notice of dishonor and diligence in collection,
notice of default, notice of intent to accelerate and notice of acceleration.
Furthermore, in any action or proceeding based upon the Note, the Holder shall
be entitled to recover reasonable attorneys' fees and all other reasonable
costs of collection.
THIS NOTE IS SECURED BY A SECURITY AGREEMENT OF EVEN DATE HEREOF BETWEEN
THE HOLDER AND THE PROMISOR.
-------------------------------
PROMISOR
-2-
<PAGE>
EXHIBIT 2
SECURITY AGREEMENT
_____________________,(the "Borrower") hereby grants to IMCO Recycling
Inc. (the "Secured Party") a security interest in those certain assets of
Borrower described in Section 1 below (collectively referred to hereinafter as
the "Collateral"). This security interest is granted to secure payment to the
Secured Party of the indebtedness evidenced by that certain [those certain]
Promissory Note(s) dated _______________________ in the original principal
amount of _______________ Dollars ($__________________) (the "Secured
Obligations").
1. COLLATERAL. The Collateral subject to this Agreement consists of
___________ shares (the "Pledged Shares") of IMCO Recycling Inc. common stock,
all certificates representing the Pledged Shares, and all proceeds of any of
the foregoing, including any property issued in exchange or substitution for
the Pledged Shares (all of the foregoing being collectively referred to herein
as the "Collateral").
2. BORROWER'S SPECIFIC AGREEMENTS. Borrower agrees that:
(a) All certificates or instruments representing or evidencing the
Collateral shall be delivered to and held by or on behalf of Secured Party.
Unless there is then existing an Event of Default (as defined below) by the
Borrower, the Pledgor shall be entitled to vote the Pledged Shares. Upon the
occurrence of any Event of Default, all voting rights shall revert to the
Secured Party.
(b) The Borrower agrees from time to time to promptly execute and deliver
all further instruments and documents, and take all further action, that
Secured Party may reasonably request in order to exercise and enforce its
rights and remedies under this Agreement.
(c) The Borrower agrees that until the Secured Obligations have been paid
in full, Borrower will not sell, assign or otherwise dispose of; or grant any
option with respect to, any of the Collateral, or create or permit to exist
any lien, security interest, option or other charge or encumbrance upon any of
the Collateral, except for this Security Agreement.
3. EVENTS OF DEFAULT. The Secured Obligations shall become immediately
due and payable without notice or demand upon the occurrence of any of the
following events of default:
(a) Borrower shall make a general assignment for the benefit of
creditors.
<PAGE>
(b) Borrower shall become or be adjudicated bankrupt or shall
voluntarily file a petition for bankruptcy.
(c) Borrower shall apply for the appointment of a receiver or a trustee
for any substantial portion of his or her property or assets or shall permit
the appointment of any such receiver or trustee who is not discharged within a
period of 30 days after such appointment.
(d) Borrower shall cease to be an employee of IMCO Recycling Inc.
4. REMEDIES.
(a) Borrower recognizes that in the event he or she violates any of the
warranties, covenants, terms and conditions of this Agreement, no remedy at
law will provide adequate relief to the Secured Party and Borrower hereby
agrees that the Secured Party shall be entitled to temporary and permanent
injunctive relief in case of any breach without the necessity of proving
actual damages.
(b) Upon the occurrence of any such event of default, and at any time
thereafter, the Secured Party shall have the rights and remedies of a secured
party under the Texas Business and Commerce Code and under any and all other
applicable laws in addition to the rights and remedies provided herein or in
any other instrument or document executed by Borrower. All rights, powers and
remedies hereunder or in any other instrument or document provided are
cumulative and none is exclusive.
5. TERM; BINDING EFFECT; GOVERNING LAW.
(a) This Agreement, upon acceptance by the Secured Party, shall continue
in effect until the Secured Obligations have been paid in full.
(b) This Security Agreement shall be binding and inure to the benefit of
the parties hereto and their respective heirs, successors, representatives and
assigns.
(c) The validity, interpretation, enforcement and effect of this
Security Agreement shall be governed by the laws of the State of Texas.
6. SEPARABILITY. In the event that any provision hereof is deemed to be
invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Agreement shall be construed
as not containing such provision and the invalidity of such provision shall
not affect the validity of any provision hereof and any and all provisions
hereof which are otherwise lawful and valid shall remain in full force and
effect.
-2-
<PAGE>
This Agreement has been executed and delivered at ________________,
_________ this ________ day of ________________, 199____.
-------------------------------
BORROWER
Accepted at Irving, Texas this _____ day of _____________, 19___.
IMCO RECYCLING INC.
By
-----------------------------
Its
----------------------------
-3-
<PAGE>
EXHIBIT 15.1
Stockholders and
Board of Directors
IMCO Recycling Inc.
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 No. 33-26641, Form S-8 No. 33-34745, Form S-8 No. 33-76780, Form S-8
No. 333-00075, and Form S-8 No. 333-07091) pertaining to the Nonqualified Stock
Option Plan of IMCO Recycling Inc., the IMCO Recycling Inc. Amended and Restated
Stock Option Plan, the IMCO Recycling Inc. 1992 Stock Option Plan, the IMCO
Recycling Inc. Amended and Restated 1992 Stock Option Plan, and the IMCO
Recycling Inc. Annual Incentive Program of our report dated April 27, 1998
relating to the unaudited condensed consolidated interim financial statements of
IMCO Recycling Inc. which are included in its Form 10-Q for the quarter ended
March 31, 1998.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ ERNST & YOUNG LLP
Dallas, Texas
May 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,901
<SECURITIES> 74
<RECEIVABLES> 56,953
<ALLOWANCES> 1,669
<INVENTORY> 35,334
<CURRENT-ASSETS> 103,934
<PP&E> 204,370
<DEPRECIATION> 58,823
<TOTAL-ASSETS> 347,313
<CURRENT-LIABILITIES> 42,647
<BONDS> 110,762
0
0
<COMMON> 1,654
<OTHER-SE> 171,238
<TOTAL-LIABILITY-AND-EQUITY> 347,313
<SALES> 127,232
<TOTAL-REVENUES> 127,232
<CGS> 113,606
<TOTAL-COSTS> 113,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 315
<INTEREST-EXPENSE> 1,998
<INCOME-PRETAX> 7,455
<INCOME-TAX> 2,756
<INCOME-CONTINUING> 4,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,611
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 811 2,781 3,753
<SECURITIES> 0 85 85
<RECEIVABLES> 49,428 47,698 43,807
<ALLOWANCES> 226 771 816
<INVENTORY> 15,291 16,596 14,669
<CURRENT-ASSETS> 69,150 69,999 64,550
<PP&E> 165,414 168,887 175,913
<DEPRECIATION> 45,876 48,866 51,737
<TOTAL-ASSETS> 262,823 267,421 268,475
<CURRENT-LIABILITIES> 39,621 34,631 37,521
<BONDS> 110,181 115,391 110,824
0 0 0
0 0 0
<COMMON> 1,264 1,264 1,264
<OTHER-SE> 94,658 97,624 101,259
<TOTAL-LIABILITY-AND-EQUITY> 262,823 267,421 268,475
<SALES> 82,528 159,127 236,588
<TOTAL-REVENUES> 82,528 159,127 236,588
<CGS> 72,376 136,850 201,468
<TOTAL-COSTS> 72,376 136,850 201,468
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 40 590 635
<INTEREST-EXPENSE> 1,716 3,659 5,596
<INCOME-PRETAX> 3,958 10,088 17,086
<INCOME-TAX> 1,583 4,033 6,789
<INCOME-CONTINUING> 2,280 5,847 9,978
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (1,318) (1,318) (1,318)
<CHANGES> 0 0 0
<NET-INCOME> 962 4,529 8,660
<EPS-PRIMARY> 0.08 0.36 0.69
<EPS-DILUTED> 0.08 0.36 0.68
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1995 JAN-01-1996 JAN-01-1996
JAN-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1995 MAR-31-1996 JUN-30-1996
SEP-30-1996
<CASH> 5,070 8,678 8,998 9,075
6,900
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 33,735 27,501 29,396 28,209
30,441
<ALLOWANCES> 80 59 60 62
111
<INVENTORY> 11,847 9,146 9,291 15,808
16,077
<CURRENT-ASSETS> 53,316 47,917 50,444 55,904
56,022
<PP&E> 128,899 111,758 113,830 115,978
119,206
<DEPRECIATION> 42,591 32,989 35,480 38,043
40,235
<TOTAL-ASSETS> 164,707 139,877 142,271 159,876
159,969
<CURRENT-LIABILITIES> 20,667 19,919 20,471 15,480
16,934
<BONDS> 48,202 29,754 29,231 49,185
48,658
0 0 0 0
0
0 0 0 0
0
<COMMON> 1,202 1,196 1,196 1,201
1,202
<OTHER-SE> 87,133 82,080 84,582 86,991
85,654
<TOTAL-LIABILITY-AND-EQUITY> 164,707 139,877 142,271 159,876
159,969
<SALES> 210,871 141,167 50,718 101,183
154,872
<TOTAL-REVENUES> 210,871 141,167 50,718 101,183
154,872
<CGS> 185,333 110,228 42,828 85,486
136,550
<TOTAL-COSTS> 185,333 110,228 42,828 85,486
136,550
<OTHER-EXPENSES> 0 0 0 0
0
<LOSS-PROVISION> 35 40 7 15
23
<INTEREST-EXPENSE> 3,421 1,073 610 1,590
2,559
<INCOME-PRETAX> 10,852 20,363 4,750 9,043
8,038
<INCOME-TAX> 4,132 7,983 1,787 3,482
3,275
<INCOME-CONTINUING> 6,720 12,470 2,963 5,561
4,763
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 6,720 12,470 2,963 5,561
4,763
<EPS-PRIMARY> 0.57 1.08 0.25 0.47
0.40
<EPS-DILUTED> 0.55 1.05 0.24 0.45
0.38
</TABLE>
