<PAGE>
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 September 30, 2000
[_] 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 1500
Central Tower at Williams Square
Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
(972) 401-7200
(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 September 29, 2000.
Common Stock, $0.10 par value, 15,328,268
-----------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,978 $ 2,578
Accounts receivable, net of allowance of $435 and $1,950 at
September 30, 2000 and December 31, 1999, respectively 130,976 125,917
Inventories 57,062 74,568
Deferred income taxes 3,447 3,008
Other current assets 9,061 9,228
------------- ------------
Total Current Assets 206,524 215,299
Property and equipment, net 188,828 189,987
Excess of acquisition cost over the fair value of net assets acquired,
net of accumulated amortization of $14,369 and $11,149 at
September 30, 2000 and December 31, 1999, respectively 118,972 117,861
Investments in joint ventures 14,477 13,901
Other assets, net 7,186 6,589
------------- ------------
$535,987 $543,637
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 78,344 $101,458
Accrued liabilities 15,569 7,164
Current maturities of long-term debt 121 181
------------- ------------
Total Current Liabilities 94,034 108,803
Long-term debt 230,885 214,993
Deferred income taxes 15,284 15,104
Other long-term liabilities 10,108 9,081
STOCKHOLDERS' EQUITY
Preferred stock; par value $.10; 8,000,000 shares authorized;
none issued - -
Common stock; par value $.10; 40,000,000 shares authorized;
17,117,420 issued at September 30, 2000; 17,110,620 issued
at December 31, 1999 1,712 1,711
Additional paid-in capital 106,127 106,549
Retained earnings 106,446 104,079
Accumulated other comprehensive loss from foreign currency
translation adjustments (6,436) (3,131)
Net unrealized loss on long-term marketable equity securities (517) -
Treasury stock, at cost; 1,789,152 shares at September 30,
2000; 1,083,406 shares at December 31, 1999 (21,656) (13,552)
------------- ------------
Total Stockholders' Equity 185,676 195,656
------------- ------------
$535,987 $543,637
============= ============
</TABLE>
Page 2
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $205,619 $196,347 $654,697 $551,427
Cost of sales 192,687 178,147 612,132 498,348
---------- ---------- ---------- ----------
Gross profits 12,932 18,200 42,565 53,079
Selling, general and administrative expense 6,864 6,319 20,468 17,494
Amortization expense 1,289 1,191 3,840 3,449
Interest expense 4,369 3,064 13,311 8,989
Interest and other (income) 203 (103) (42) (826)
Equity in net earnings of affiliates (810) (798) (2,378) (1,818)
---------- ---------- ---------- ----------
Earnings before (benefit) provision for income taxes and
minority interests 1,017 8,527 7,366 25,791
(Benefit) Provision for income taxes (41) 2,830 1,948 9,291
---------- ---------- ---------- ----------
Earnings before minority interests 1,058 5,697 5,418 16,500
Minority interests, net of (benefit) provision for income
taxes 41 52 299 241
---------- ---------- ---------- ----------
Net earnings $ 1,017 $ 5,645 $ 5,119 $ 16,259
========== ========== ========== ==========
Net earnings per common share:
Basic $ 0.07 $ 0.34 $ 0.33 $ 0.99
Diluted $ 0.07 $ 0.34 $ 0.33 $ 0.98
Weighted average shares outstanding:
Basic 15,322 16,512 15,362 16,495
Diluted 15,446 16,682 15,421 16,628
Dividends declared per common share $ 0.06 $ 0.06 $ 0.18 $ 0.18
</TABLE>
Page 3
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 5,119 $ 16,259
Depreciation and amortization 21,322 19,927
(Benefit) Provision for deferred income taxes (260) 2,621
Equity in earnings of affiliates (2,524) (1,818)
Other non-cash charges 3,239 1,815
Changes in operating assets and liabilities:
Accounts receivable (6,331) (34,716)
Inventories 17,310 (7,113)
Other current assets 2 797
Accounts payable and accrued liabilities (11,719) 20,385
---------- ----------
Net cash from operating activities 26,158 18,157
INVESTING ACTIVITIES
Payments for property and equipment (25,824) (20,617)
Acquisitions, net of cash acquired - (21,480)
Other (1,125) (899)
---------- ----------
Net cash used by investing activities (26,949) (42,996)
FINANCING ACTIVITIES
Net proceeds from long-term revolving credit facility 16,000 28,000
Proceeds from issuance of long-term debt - 679
Principal payments of long-term debt (155) (3,609)
Dividends paid (2,751) (2,963)
Purchases of treasury stock (9,120) (649)
Other 475 164
---------- ----------
Net cash from financing activities 4,449 21,622
---------- ----------
Effect of exchange rate differences on cash and cash equivalents (258) (56)
Net increase (decrease) in cash and cash equivalents 3,400 (3,273)
Cash and cash equivalents at January 1 2,578 6,075
---------- ----------
Cash and cash equivalents at September 30 $ 5,978 $ 2,802
========== ==========
SUPPLEMENTARY INFORMATION
Cash payments for interest $ 12,153 $ 9,135
Cash payments for income taxes $ 707 $ 7,408
</TABLE>
Page 4
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
(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 and nine month periods
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000. 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, 1999.
Certain reclassifications have been made to prior period statements to conform
to the current period presentation.
NOTE B - INVENTORIES
The components of inventories are:
September 30, December 31,
2000 1999
-------------- ------------
Finished goods $30,679 $35,130
Raw materials 23,688 36,768
Supplies 2,695 2,670
-------------- ------------
$57,062 $74,568
============== ============
NOTE C - INCOME TAXES
The Company recorded an effective tax rate of a negative four percent for the
three month period ending September 30, 2000 and 26% for the nine month period
ended September 30, 2000 compared to 33% and 36% for the comparable three and
nine month periods in 1999, respectively. The decrease in the effective rate
during these periods is due to lower earnings in 2000 and to a greater
percentage of the Company's income derived from the VAW-IMCO venture, which is
reported on an after-tax basis.
Page 5
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NOTE D - LONG-TERM DEBT
As of September 30, 2000, the Company had $216,000,000 of indebtedness
outstanding under the Second Amended and Restated Credit Agreement and had
approximately $32,124,000 available for borrowing.
On October 20, 2000, the Company amended the terms of its long-term credit
facility with its lenders. The Second Amendment to the Second Amended and
Restated Credit Agreement (the "Amendment") permitted the Company to sell,
convey or otherwise contribute up to $100,000,000 in certain accounts
receivable, and other related assets, to a Qualifying Special-Purpose Entity
(the "QSPE"), a special purpose corporation which exists as a subsidiary of the
Company, under the terms of an accounts receivables sale and securitization
facility (the "Receivables Sale Facility"), with a simultaneous reduction in the
maximum credit facility commitment from $250,000,000 to $175,000,000 upon the
closing of the Receivables Sale Facility. The Amendment also eliminated the
Company's option to request increases to the revolving credit commitment of up
to $50,000,000 in the aggregate; eliminated the Company's option to issue up to
$125,000,000 in convertible subordinated debt; amended the credit margins
applied to alternate base rate loans and LIBOR loans; and amended certain
financial covenants.
The Credit Agreement, as amended by the Amendment, imposes certain restrictions
on the Company, including: (i) a prohibition against incurring certain
additional indebtedness, (ii) maintenance of certain financial ratios, (iii)
limitations on dividends on and repurchases of shares of capital stock, (iv)
limitations on capital expenditures, investments and acquisitions, except for
mergers, consolidations and acquisitions in any fiscal year having an aggregate
consideration of up to $75,000,000. The annual limitations on cash dividends on
capital stock are as follows: $6,000,000 for 2000, and $8,000,000 for each year
after 2000. The amended Credit Agreement limits repurchases of the Company's
common stock to $5,000,000 under the terms of an existing forward share
repurchase agreement (see NOTE E). The indebtedness under the amended credit
facility is secured by substantially all of the Company's personal property
(except for the accounts receivable and certain related assets, which were sold
under the Receivables Sale Facility) and a first lien mortgage on certain real
property at seven of the Company's operating plants, as well as a pledge of the
capital stock of substantially all of the Company's subsidiaries.
On November 2, 2000 the Company and various subsidiaries of the Company (the
"Originators") entered into the Receivables Sale Facility with the QSPE under
which the Originators sold their right, title and interest in and to certain
accounts receivable, and other related assets, to the QSPE, which in turn sold
undivided interests therein to an unrelated purchaser. The proceeds under this
sale were $94,200,000, of which $89,000,000 was used to pay down the credit line
and $5,200,000 was applied to working capital. As of November 3, 2000, the
Company had $122,000,000 of indebtedness outstanding under the Credit Agreement
and had approximately $51,124,000 available for borrowing. The Company believes
that its cash on hand, the availability of funds under its credit facility and
its anticipated
Page 6
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internally generated funds will be sufficient to fund its current needs,
including its expected capital spending plans.
NOTE E - NET EARNINGS PER SHARE
The following table sets forth the reconciliation between weighted average
shares used for calculating basic and diluted earnings per share (EPS):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for basic earnings per share 15,322 16,512 15,362 16,495
Effect of equity forward contract 124 - 53 -
Effect of employee stock options - 170 6 133
-------------- -------------- -------------- --------------
Weighted average shares outstanding
for diluted earnings per share 15,446 16,682 15,421 16,628
============== ============== ============== ==============
</TABLE>
In May 2000, the Company entered into a forward share repurchase agreement (or
equity forward contract). The contract, which must be settled by May 2001,
provides at the Company's option for the Company to purchase up to 644,500 of
the Company's shares from a financial institution. However, the Company, at its
option, may also elect to settle the contract on a net share basis in lieu of a
cash payment. As of September 30, 2000, 644,500 shares had been committed to
the contract at an average price of $7.67 per share. The effect of this purchase
agreement has been included in determining diluted EPS.
NOTE F - OPERATIONS
The Company's operations, like those of other basic industries, are subject to
federal, state, local and foreign laws, regulations and ordinances. These laws
and regulations (1) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes and (2) impose liability
for costs of cleaning up, and certain damages resulting from past spills,
disposals or other releases of hazardous substances. It can be anticipated that
more rigorous environmental laws will be enacted that could require the Company
to make substantial expenditures in addition to those described in this Form 10-
Q.
Page 7
<PAGE>
From time to time, operations of the Company have resulted, or may result, in
certain noncompliance with applicable requirements under environmental laws.
However, the Company believes that any such noncompliance under such
environmental laws would not have a material adverse effect on the Company's
financial position or results of operations.
In 1997, the Illinois Environmental Protection Agency ("IEPA") notified the
Company that two of the Company's zinc subsidiaries are potentially responsible
parties ("PRP") pursuant to the Illinois Environmental Protection Act for the
cleanup of contamination at a site in Marion County, Illinois to which these
subsidiaries, among others, in the past sent zinc oxide for processing and
resale. These subsidiaries have joined a group of PRPs that is planning to
negotiate with the IEPA regarding the cleanup of the site. The site has not
been fully investigated and final cleanup costs have not yet been determined.
Although no assurances can be made, based on current cost estimates and
information regarding the amount and type of materials sent to the site by the
subsidiaries, the Company does not believe that its potential liability at this
site, if any, will have a material adverse effect on its financial position or
results of operations.
NOTE G - OTHER COMPREHENSIVE INCOME
The following table presents the Company's calculation of other comprehensive
income.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income $ 1,017 $5,645 $ 5,119 $16,259
Other comprehensive (loss)
income, primarily translation (2,814) 1,035 (3,822) (1,222)
------------ ------------ ------------ ------------
Comprehensive income ($ 1,797) $6,680 $ 1,297 $15,037
============ ============ ============ ============
</TABLE>
NOTE H - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. The standard
requires that entities value all derivative instruments at fair value and record
the instruments on the balance sheet. The standard also significantly changes
the requirements for hedge accounting. In June 1999, the FASB approved a delay
in the effective date of this standard until January 2001. In June 2000, the
FASB issued SFAS 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS 138 amended SFAS 133 to provide guidance on
its implementation. The Company plans to adopt the amended standard effective
January 1, 2001. The Company, which enters in to production derivatives to
hedge the cost of energy and the sales price of certain aluminum and zinc
products, has evaluated the impact of Statement No. 133 as amended by SFAS 138
and believes the impact will not have a material adverse effect upon the
Company's future operating results.
Page 8
<PAGE>
In September 2000, the FASB issued SFAS 140, a replacement of Statement 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS 140 is effective for transfers after March 31, 2000 and is
effective for disclosures about securitizations and collateral and for
recognition and reclassification of collateral for fiscal years ending after
December 15, 2000. The Company is currently reviewing this guidance in order to
determine the impact of its provisions, if any, on its consolidated financial
statements.
NOTE I - SEGMENT REPORTING
The Company has two reportable segments: aluminum and zinc. The aluminum
segment represents all of the Company's aluminum melting, processing, alloying,
brokering and salt cake recovery activities, including investments in joint
ventures. In addition, this segment includes magnesium melting activities which
represent less than 1% of consolidated revenues and production. The Company's
zinc segment represents all of the Company's zinc melting, processing and
brokering activities.
There has been no material change in the Company's segment classifications
during 2000.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Aluminum $142,391 $146,315 $467,560 $412,902
Zinc 63,228 50,032 187,137 138,525
-------------- -------------- -------------- --------------
Total revenues $205,619 $196,347 $654,697 $551,427
============== ============== ============== ==============
INCOME:
Aluminum $ 6,822 $13,436 $ 23,369 $ 40,796
Zinc 3,311 3,494 11,718 8,595
-------------- -------------- -------------- --------------
Total segment income 10,133 16,930 35,087 49,391
Unallocated amounts:
General and administrative expense (3,665) (4,264) (11,087) (11,771)
Amortization expense (1,289) (1,191) (3,840) (3,449)
Interest expense (4,369) (3,064 (13,311) (8,989)
Interest and other income 207 116 517 609
-------------- -------------- -------------- --------------
Income before provision for income
taxes and minority interests $ 1,017 $ 8,527 $ 7,366 $ 25,791
============== ============== ============== ==============
</TABLE>
Page 9
<PAGE>
NOTE J - SUBSEQUENT EVENTS
On October 20, 2000, the Company amended the terms of its long-term credit
facility with its lenders. The Second Amendment to the Second Amended and
Restated Credit Agreement permited the Company to sell, convey or otherwise
contribute up to $100,000,000 in certain accounts receivable and other related
assets to a Qualifying Special-Purpose Entity (the "QSPE") under the terms of an
accounts receivable sale and securitization facility (the "Receivables Sale
Facility").
On November 2, 2000 the Company and various subsidiaries of the Company (the
"Originators") entered into the Receivables Sale Facility with the QSPE under
which the Originators sold their right, title and interest in and to certain
accounts receivable totaling $112,844,000 to the QSPE, which in turn sold
undivided interests therein to an unrelated purchaser. The proceeds under this
sale were $94,200,000, of which $89,000,000 was used to pay down the credit line
and $5,200,000 was applied to working capital.
Page 10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------
OF OPERATIONS
A majority of the Company's processing consists of aluminum tolled for its
customers. Tolling revenues reflect only the processing cost and the Company's
profit margin. The Company's processing activities also consist of the
processing, recovery and specialty alloying of aluminum and zinc metal and the
production of other value-added zinc products for sale by the Company. The
revenues from these sales transactions include the cost of the metal, as well as
the processing cost and the Company's profit margin. Accordingly, tolling
business produces lower revenues and costs of sales than does the product sales
business. Variations in the mix between these two types of transactions could
cause revenue amounts to change significantly from period to period. As a
result, the Company has traditionally considered processing volume to be a more
important determinant of performance than revenues.
The following table shows total pounds processed, the percentage of total pounds
processed represented by tolled metals, total revenues and total gross profits
(in thousands, except percentages):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ----------------------------
2000 1999 2000 1999
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Pounds processed 696,358 717,550 2,187,038 2,114,976
Percentage of pounds tolled 59% 62% 57% 61%
Revenues $205,619 $196,347 $ 654,697 $ 551,427
Gross profits $ 12,932 $ 18,200 $ 42,565 $ 53,079
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999, AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
PRODUCTION. For the three month period ended September 30, 2000, the Company
----------
melted 696.4 million pounds, three percent less metal compared to 717.6 million
pounds during the same period in 1999. For the nine month period ended
September 30, 2000 the Company melted 2.19 billion pounds, up three percent
compared to 2.11 billion pounds during the first nine months of 1999. The
aluminum segment production, for the three month period ending September 30,
2000, decreased four percent while the zinc segment partially offset this
decline, increasing production over the same three month period last year, by
ten percent. For the nine month period ending September 30, 2000, the aluminum
and zinc segments accounted for 71% and 29% of the overall production
Page 11
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increase respectively. Tolling activity for the three month period ended
September 30, 2000 represented 59% of total pounds processed, compared to 62%
for the same period in 1999. For the nine months ended September 30, 2000,
tolling represented 57% of total pounds processed compared to 61% for the first
nine months of 1999.
The following table shows the total pounds processed and the percentage tolled
for the aluminum and zinc segments (in thousands, except percentages):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Pounds Processed:
Aluminum 623,038 650,906 1,972,620 1,921,771
Zinc 73,320 66,644 214,418 193,205
------------ ------------ ------------- ------------
Total Pounds Processed 696,358 717,550 2,187,038 2,114,976
============ ============ ============= ============
Percentage Tolled:
Aluminum 66% 67% 63% 66%
Zinc 3% 5% 4% 5%
Total Percentage Tolled 59% 62% 57% 61%
</TABLE>
ALUMINUM PRODUCTION: For the three month period ended September 30, 2000, the
Company melted four percent less aluminum than it did during the same period in
1999. For the nine month period ended September 30, 2000, the Company melted
three percent more aluminum than in the first nine months of 1999. The decrease
in aluminum production for the three month period was primarily due to a
reduction in can stock volume and Company selectivity in scrap purchases in an
attempt to improve profit margins. The reduction in can stock volume was mainly
seen at the Post Falls, Idaho facility where a major customer discontinued its
can body stock business, and at the Rockwood, Tennessee facility where its
largest customer has reduced the amount of scrap used in its overall product mix
due to the lack of availability of UBCs. For the nine month period ended
September 30, 2000, the overall increase in production can be attributed to a
significant increase at the Shelbyville, Tennessee facility (acquired in
February 1999) and increases in production at the Uhrichsville, Ohio facility.
The increase in the Ohio facility is the result of adding two new reverberatory
furnaces in late 1999. The decrease in aluminum percentage tolled in 2000
compared to the three and nine month periods ending September 30, 1999 is
primarily due to the Shelbyville, Tennessee facility's production, which is
dedicated primarily to product sales serving the transportation market, and an
increase in product sales volume at the Post Falls, Idaho facility.
Page 12
<PAGE>
ZINC PRODUCTION: For the three and nine month periods ended September 30, 2000,
the Company melted 10% and 11% more zinc, respectively, than it did during the
same periods in 1999, due to the strong demand for value-added products,
especially zinc oxide from the Company's U.S. Zinc subsidiary.
REVENUES. For the three month period ended September 30, 2000, the Company's
--------
consolidated revenues increased five percent to $205,619,000 compared to
$196,347,000 for the same period in 1999. For the nine month period ended
September 30, 2000, revenues increased 19% to $654,697,000 compared to
$551,427,000 for the three quarters of 1999. The aluminum segment revenues
decreased three percent for the three month period while the zinc segment offset
this decrease with an increase of 26% compared to the same three month period in
1999. For the nine month period ended September 30, 2000, the aluminum and zinc
segments accounted for 53% and 47% of the overall revenue increase,
respectively.
Increased product sales relative to tolling transaction revenues expose the
Company to a greater degree of market risk because of fluctuations in the price
of scrap metal which the Company must buy as raw material, and fluctuations in
the then-prevailing aluminum and zinc market prices at which the Company sells
the resulting processed metal. The Company's aluminum specialty alloying
activities, which serve the transportation market, and the Company's zinc
segment operations primarily consist of product sales business.
The following table shows the total revenues for the aluminum and zinc segments
(in thousands) (See NOTE I - SEGMENT REPORTING):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Aluminum $142,391 $146,315 $467,560 $412,902
Zinc 63,228 50,032 187,137 138,525
---------- ----------- ----------- -----------
Total Revenues $205,619 $196,347 $654,697 $551,427
========== =========== =========== ===========
</TABLE>
ALUMINUM REVENUES: For the three month period ended September 30, 2000, the
Company's aluminum revenues decreased three percent compared to the same three
month period in 1999. For the nine month period ended September 30, 2000,
aluminum revenues increased 13% over the same nine month period in 1999. For
the three month period, aluminum revenues decreased due to lower production
volumes, as discussed previously. For the nine month period, aluminum revenues
increased due to the combination of higher prevailing aluminum product sale
prices and a decrease in the relative proportion of volumes from tolling
transactions versus product sales (see "ALUMINUM PRODUCTION" above). As
discussed above, increased product sales generally result in a higher increase
in revenues than a similar increase in tolling business.
Page 13
<PAGE>
ZINC REVENUES: For the three and nine month periods ended September 30, 2000,
the Company's zinc revenues increased 26% and 35%, respectively, compared to the
same periods in 1999. Zinc revenues increased due to higher volumes, higher
prevailing selling prices of zinc metal in 2000, an increase in zinc trading
activities as well as an increase in demand for value-added products, especially
zinc oxide.
GROSS PROFITS. For the three month period ended September 30, 2000, the
-------------
Company's consolidated gross profits decreased 29% to $12,932,000 compared to
$18,200,000 in the same period in 1999. For the nine month period, consolidated
gross profits decreased 20% to $42,565,000 compared to $53,079,000 in the first
nine months of 1999.
The following table shows the total income for the aluminum and zinc segments
and a reconciliation of segment income to the Company's consolidated gross
profits (in thousands) (See NOTE H - SEGMENT REPORTING):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- ---------------------------
2000 1999 2000 1999
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Segment Income:
Aluminum $ 6,822 $13,436 $23,369 $40,796
Zinc 3,311 3,494 11,718 8,595
----------- ------------ ---------- ----------
Total segment income 10,133 16,930 35,087 49,391
Items not included in gross profits:
Plant selling expense 1,380 463 4,109 1,562
Management SG&A expense 1,819 1,626 5,275 4,138
Equity in earnings of affiliates (810) (798) (2,378) (1,818)
Other income 410 (21) 472 (194)
----------- ------------ ---------- ----------
Gross Profits $12,932 $18,200 $42,565 $53,079
=========== ============ ========== ==========
</TABLE>
ALUMINUM INCOME: For the three and nine month periods ended September 30, 2000,
the Company's aluminum income decreased 49% and 43%, respectively, compared to
the same periods in 1999. The third quarter and year to date were affected by
weaker volumes at several aluminum recycling plants, particularly those that
serve the can stock producers, coupled with lower margins in the specification
alloys business. The weak aluminum alloys margins resulted from both higher raw
material costs and weaker selling prices for aluminum alloys. Recent capacity
increases in the aluminum alloys business resulted in heightened competition for
available scrap metal units, which the Company uses as raw material in its
aluminum alloys production. This, in turn, produced more intense competition
for metal units, causing higher purchase costs and lower selling
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<PAGE>
prices for the Company. An increase in natural gas prices during 2000 was also a
major contributor to the overall decline in aluminum income.
ZINC INCOME: For the three and nine month periods ended September 30, 2000, the
Company's zinc income decreased 5% and increased 36%, respectively, compared to
the same periods in 1999. The decrease in the quarter was due to an increase in
administrative costs related to the payment of incentives to the management of
U.S. Zinc that were provided for in the purchase agreement for that company.
The overall increase year to date was primarily due to the higher overall zinc
production volumes (see "ZINC PRODUCTION" above). In addition, the relative
increase in zinc income was greater than the increase in zinc processing volumes
due to higher zinc product sale prices and cost savings benefits from
integrating the Company's previously owned zinc business with the U.S. Zinc and
Clarksville, Tennessee facilities, as well as an increase in demand for value-
added products, especially zinc oxide.
SG&A EXPENSES. Selling, general and administrative expenses for the three month
-------------
periods ended September 30, 2000 and 1999 were $6,864,000 and $6,319,000,
respectively, an increase of nine percent. For the nine month period ended
September 30, 2000 selling, general and administrative expenses increased 17% to
$20,468,000, compared to $17,494,000 for the first nine months of 1999. The
increases in these periods resulted primarily from incentives paid to the
management of U.S. Zinc (see "ZINC INCOME"), plus costs associated with the
Company's investment in its new Enterprise Resource Planning (ERP) system.
AMORTIZATION EXPENSE. Amortization expense for the three month periods ended
--------------------
September 30, 2000 and 1999 was $1,289,000 and $1,191,000, respectively, an
increase of eight percent. For the nine month periods ended September 30, 2000
and 1999, amortization expense was $3,840,000 and $3,449,000, respectively, an
increase of 11%. The increase, especially in the nine month period, is due
almost entirely to amortization of additional goodwill recorded as a result of
the Shelbyville and Clarksville, Tennessee acquisitions in February 1999.
INTEREST EXPENSE. Interest expense for the three month periods ended September
----------------
30, 2000 and 1999 was $4,369,000 and $3,064,000, respectively, representing an
increase of 43% in 2000 compared to the same three months of 1999. For the
first nine months of 2000, interest expense increased 48% to $13,311,000
compared to $8,989,000 for the first nine months of 1999. The increases in these
periods are the result of increased interest rates and higher amounts of debt
outstanding in 2000 compared to 1999. The increased interest rates and
outstanding debt are due to the Company's additional working capital
requirements and higher capital spending levels.
NET EARNINGS. Net earnings decreased 82% to $1,017,000 for the three month
------------
period ended September 30, 2000 compared to $5,645,000 for the same period in
1999. For the nine month period ended September 30, 2000, net earnings
decreased 69% to $5,119,000 compared to $16,259,000 for the same period in 1999.
The decrease in these periods was
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<PAGE>
primarily the result of lower profits in the aluminum business (see "ALUMINUM
INCOME" above). In addition, increases in interest expense and selling, general
and administrative expense, as discussed above, reduced net earnings.
The Company recorded an effective tax rate of a negative four percent for the
three month period ending September 30, 2000 and 26% for the nine month period
ended September 30, 2000 compared to 33% and 36% for the comparable three and
nine month periods in 1999, respectively. The decrease in the effective rate
during these periods is due to lower earnings in 2000 and to a greater
percentage of the Company's income derived from the VAW-IMCO venture, which is
reported on an after-tax basis.
OUTLOOK
The following statements are estimates based on current expectations for the
fourth quarter of 2000 and for 2001. These statements are forward-looking in
nature and actual results may differ materially due to a number of reasons, as
more fully described under "Cautionary Statement for Purposes of Forward-Looking
Statements" set forth below in this Item 2. These statements do not reflect
the potential impact of acquisitions or divestitures that may be completed, or
unforeseen events that may occur after the date of this filing.
The Company expects the conditions currently prevailing in its aluminum alloys
business and its aluminum recycling business to continue in to the foreseeable
future. Continued weak demand from can stock customers and lower margins in the
alloys business, coupled with higher fuel costs, will continue to negatively
impact the Company's results of operations. However, management anticipates some
margin improvement for its alloys business in the fourth quarter of 2000, and in
2001, due to expected increased demand in the automotive sector and changes in
Company scrap buying procedures, coupled with reduced inventory. The Company
currently expects that fourth quarter 2000 net earnings per share will
approximate third quarter 2000 results.
The Company also is focusing on other cost reduction initiatives to improve net
earnings. In the aluminum alloys business, the Company is working to improve
margins by revising contract terms with suppliers and customers where possible.
The Company has reduced personnel headcount by seven percent from the beginning
of 2000 and is focused on reducing discretionary spending. In addition, the
Company is beginning to recover a portion of the higher gas costs incurred in
2000 through cost escalation clauses that are a part of some customer contracts.
These escalator provisions generally take effect following the periods in which
the Company actually incurs the higher fuel costs.
Additional positive factors which may affect fourth quarter 2000 results and
fiscal 2000 results include programs to improve the allocation of processing
work throughout the Company's network of facilities
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<PAGE>
and planned furnace burner technology retrofits to reduce energy consumption and
increase processing productivity.
The Company is also continuing to review expansion opportunities, particularly
in Europe and in Latin America, through expansion of its major customer
relationships, and project venture partnering opportunities.
No assurances can be made that any of these anticipated results will actually be
achieved. In addition, the Company disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS. Operations provided $26,158,000 and $18,157,000 of
--------------------------
cash during the first nine months of 2000 and 1999, respectively. Changes in
operating assets and liabilities resulted in a net use of cash of $738,000 for
the nine months ended September 30, 2000 compared to a use of $20,647,000 for
the same period in 1999. The extent of the change in operating assets and
liabilities was primarily due to a decrease in accounts payable and accrued
liabilities totaling $11,719,000 in the first nine months of 2000, compared to
an increase of $20,385,000 in the first nine months of 1999 and a decrease in
the use of cash for accounts receivable from a use of $34,716,000 for the nine
months ended September 30, 1999 to a use of $6,331,000 for the nine months ended
September 30, 2000. A reduction in inventory levels of $17,310,000 for the first
three quarters of 2000 compared to an increase of $7,113,000 in 1999,
contributed to the increase in cash provided. Lower net earnings offset the
favorable impact from the change in operating assets and liabilities.
CASH FLOWS FROM INVESTING ACTIVITIES. During the nine months ended September
------------------------------------
30, 2000, net cash used by investing activities was $26,949,000 compared to
$42,996,000 for the same period in 1999. The difference in these two periods is
primarily due to the acquisition of the Shelbyville and Clarksville, Tennessee
facilities during the first quarter of 1999. The Company spent approximately
$21,600,000 (net of cash acquired) in the acquisitions of these two facilities
during the comparable 1999 period. The Company's total payments for property,
plant and equipment in the first nine months of 2000 increased to $25,824,000,
compared to $20,617,000 spent in the first nine months of 1999. Capital
expenditures for property, plant and equipment in 2000 are now expected to
approximate $35,000,000. Major 2000 projects have included further installation
of the Company's Enterprise Resource Planning (ERP) software system,
installation of new furnaces at the Millington, Tennessee facility and the
completion of a new aluminum alloying facility near Saginaw, Michigan.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities
------------------------------------
was $4,449,000 for the nine months ended September 30, 2000, compared to net
cash from financing of $21,622,000 for the same period of 1999. In the first
nine months of 2000, the Company had net borrowings of $16,000,000 under its
revolving credit facility, most of which was used to finance the construction of
a new specialty alloys facility in Saginaw, Michigan. In the nine month period
ended September 30, 1999 the Company had net borrowings of $28,000,000 on its
long-term revolving credit
Page 17
<PAGE>
facility, the majority of which was used to fund the acquisitions of the
Shelbyville and Clarksville, Tennessee facilities. At September 30, 2000 the
Company had $216,000,000 in indebtedness outstanding under its long-term
revolving credit facility and had approximately $32,124,000 available for
borrowing. In addition, there were standby letters of credit outstanding with
several banks totaling $2,717,000.
Financing activities also included cash payments of $2,751,000 in dividends for
the first nine months of 2000 compared to $2,963,000 for the same period in
1999. For the nine months ended September 30, 2000 and 1999, $9,120,000 and
$649,000, respectively, were expended to purchase 788,900 and 55,000,
respectively, shares of the Company's common stock in open market transactions.
On October 20, 2000, the Company amended the terms of its long-term credit
facility with its lenders. The Second Amendment to the Second Amended and
Restated Credit Agreement (the "Amendment") permitted the Company to sell,
convey or otherwise contribute up to $100,000,000 in certain accounts
receivable, and other related assets to a Qualifying Special-Purpose Entity
(the "QSPE") under the terms of an accounts receivables sale and securitization
facility (the "Receivables Sale Facility"), with a simultaneous reduction in the
maximum credit facility commitment from $250,000,000 to $175,000,000 upon the
closing of the Receivables Sale Facility. The Amendment also eliminated the
Company's option to request increases to the revolving credit commitment of up
to $50,000,000 in the aggregate; eliminated the Company's option to issue up to
$125,000,000 in convertible subordinated debt; amended the credit margins
applied to alternate base rate loans and LIBOR loans; and amended certain
financial covenants.
The amended Second Amended and Restated Credit Agreement, as amended by the
Amendment, imposes certain restrictions on the Company, including: (i) a
prohibition against incurring certain additional indebtedness, (ii) maintenance
of certain financial ratios, (iii) limitations on dividends on and repurchases
of shares of capital stock, (iv) limitations on capital expenditures,
investments and acquisitions, except for mergers, consolidations and
acquisitions in any fiscal year having an aggregate consideration of up to
$75,000,000. The annual limitations on cash dividends on capital stock are as
follows: $6,000,000 for 2000, and $8,000,000 for each year after 2000. The
amended Credit Agreement limits repurchases of the Company's common stock to
$5,000,000 under the terms of an existing forward share repurchase agreement
(see NOTE E - NET EARNINGS PER SHARE). The indebtedness under the amended credit
facility is secured by substantially all of the Company's personal property
(except for the accounts receivable and certain related assets, which were sold
under the Receivables Sale Facility) and a first lien mortgage on certain real
property at seven of the Company's operating plants, as well as a pledge of the
capital stock of substantially all of the Company's subsidiaries.
On November 2, 2000 the Company and various subsidiaries of the Company (the
"Originators") entered into the Receivables Sale Facility with the QSPE under
which the Originators sold their right, title and interest in and to certain
accounts receivable to the QSPE, which in turn sold undivided interests therein
to an unrelated purchaser. The
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<PAGE>
proceeds under this sale were $94,200,000, of which $89,000,000 was used to pay
down the credit line and $5,200,000 was applied to working capital. As of
November 3, 2000, the Company had $122,000,000 of indebtedness outstanding under
the Credit Agreement and had approximately $51,124,000 available for borrowing.
The Company believes that its cash on hand, the availability of funds under its
credit facility and its anticipated internally generated funds will be
sufficient to fund its current needs, including its expected capital spending
plans.
The Company's transactions under the Receivables Sales Facility may have the
effect of reducing the Company's interest expense and should give the Company
additional borrowing capacity under its revolving credit facility (although the
maximum amount which could be drawn down under the facility was reduced from
$250,000,000 to $175,000,000).
ENVIRONMENTAL
The Company's operations, like those of other basic industries, are subject to
federal, state, local and foreign laws, regulations and ordinances. These laws
and regulations (1) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes and (2) impose liability
for costs of cleaning up, and certain damages resulting from past spills,
disposals or other releases of hazardous substances. It can be anticipated that
more rigorous environmental laws will be enacted that could require the Company
to make substantial expenditures in addition to those described in this Form 10-
Q and in other filings made by the Company.
From time to time, operations of the Company have resulted, or may result, in
certain noncompliance with applicable requirements under such environmental
laws. However, the Company believes that any such noncompliance under such
environmental laws would not have a material adverse effect on the Company's
financial position or results of operations.
In 1997, the Illinois Environmental Protection Agency ("IEPA") notified the
Company that two of the Company's zinc subsidiaries are potentially responsible
parties ("PRP") pursuant to the Illinois Environmental Protection Act for the
cleanup of contamination at a site in Marion County, Illinois to which these
subsidiaries, among others, in the past sent zinc oxide for processing and
resale. These subsidiaries have joined a group of PRPs that is planning to
negotiate with the IEPA regarding the cleanup of the site. The site has not
been fully investigated and final cleanup costs have not yet been determined.
Although no assurances can be made, based on current cost estimates and
information regarding the amount and type of materials sent to the site by the
subsidiaries, the Company does not believe that its potential liability at this
site, if any, will have a material adverse effect on its financial position or
results of operations.
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<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in 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 from time to time) 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 whether currently prevailing conditions in the Company's
aluminum alloys business, its aluminum recycling business, and its zinc
business, will continue, anticipated margin improvements in the Company's alloys
business, expected increased demand for the Company's products from the
automotive sector, expected cost reductions through better allocation of
processing work at Company facilities, technology changes affecting the
Company's fuel usage, the effect of escalation provisions in Company supply
agreements, and other cost reduction initiatives underway, potential expansion
opportunities, and estimated net earnings. Other forward-looking information
includes statements concerning future profit margins, plant capacity absorption,
volumes, revenues, earnings, costs, energy costs, and expenses (including
capital expenditures); future prices for metals; the ability of the Company to
be able to continue to grow its domestic and foreign business through expansion,
acquisition or partnering; access to adequate energy supplies at advantageous
rates; the expected effects of strikes, work stoppages or production shutdowns
at Company or customer facilities; future acquisitions or corporate
combinations; expected effects of recent acquisitions; projected completion
dates and anticipated technological advances; future (or extensions of existing)
long-term supply contracts with its customers; anticipated environmental control
measures; 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); potential effects of the Company's metals
brokerage activities and metals and fuel price hedging transactions; the future
mix of business (product sales vs. tolling); future costs and asset recoveries;
future, demand and industry conditions; future sources of capital and future
financial condition. 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.
These forward-looking 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. 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 these forward-looking statements
include, but are not limited to, the following: competition for raw materials
costs and pricing pressures from competitors; fluctuations in operating levels
at the Company's facilities; fluctuations in demand from the automotive,
construction and packaging markets, which are more subject to cyclical
pressures; the increased percentage of product sales business compared to
tolling business (with the accompanying higher working capital requirements and
increased risk through metal markets price movements); unforeseen difficulties
in the operation or performance of the Company's new ERP software system, and
the Company's other operations and reporting systems; retention and financial
condition of major customers; effects of future energy prices and related fuel
costs; collectibility of receivables; the inherent unpredictability of
adversarial or administrative proceedings; effects of environmental and other
governmental regulations; currency exchange rate fluctuations;
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<PAGE>
trends in the Company's key markets and the price of and supply and demand for
aluminum and zinc (and their derivatives) on world markets; the effects of
shortages and oversupply in used aluminum beverage containers and can scrap at
facilities; the continuation of reduced spreads between primary aluminum prices
and aluminum scrap prices; business conditions and growth in the aluminum and
zinc industries and recycling industries; and future levels and timing of
capital expenditures.
These statements are further qualified by the following:
* Any 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 energy commodity prices; scrap prices; weather conditions;
overall industry capacity online; general economic and financial market
conditions; work stoppages, maintenance programs and other production
shutdowns at customer facilities; and governmental regulation and factors
involved in administrative and other proceedings. The future mix of product
sales 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, zinc and other metals is subject to worldwide
market forces of supply and demand and other influences. An increase in
demand for raw materials can and has adversely affected profit margins for
the Company's product sales business. Prices can be volatile, which could
adversely affect the Company's product sales 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. Lower market prices for primary metals may adversely affect the
demand for the Company's recycling services and recycled metals.
* The markets for most aluminum and zinc 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 aluminum products could affect the Company's financial position and
results of operations.
* Fluctuations in the costs of fuels, raw materials and labor can materially
affect the Company's financial position and results of operations from period
to period.
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<PAGE>
* The Company's key transportation market is cyclical, and sales within that
market in particular can be influenced by economic conditions. Strikes and
work stoppages by automotive customers of the Company may have a material
adverse effect on the Company's financial condition and results of
operations.
* The Company spends substantial capital and operating sums on an ongoing basis
to comply 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.
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<PAGE>
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Ernst & Young LLP, have reviewed the
Company's consolidated financial statements at September 30, 2000, and for the
three and nine month periods then ended prior to filing, and their report is
included herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------
There have been no material changes regarding market risk and the Company's
derivative instruments during the third quarter of 2000 compared to that
disclosed in the Company's Quarterly Report on Form 10-Q for the period(s) ended
June 30, 2000. Accordingly, no additional disclosures have been provided in
accordance with Regulation S-K Item 305 (c).
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
------
On November 2, 2000, the Company and certain of its originating subsidiaries
sold certain of their accounts receivable and related assets to a wholly-owned
subsidiary of the Company, IMCO Funding Corp. ("IFC"), a special purpose
corporation. Simultaneously, IFC entered into a three-year accounts receivables
purchase and securitization facility with a financial institution and a third
party purchaser unaffiliated with the Company whereby IFC can sell, on a
revolving basis, an undivided interest in certain of its receivables and other
related assets, and receive up to $100,000,000 from the unrelated third party
purchaser at a cost of funds linked to commercial paper rates, plus a charge for
administrative and credit support services. At November 2, 2000, the Company had
received $94,200,000 under these arrangements, which funds were applied
to reduce the outstanding debt under the Company's senior revolving credit
facility ($89,000,000) and $5,200,000 was added to working capital.
In connection with this transaction, the Company had entered into a Second
Amendment to its Second Amended and Restated Credit Agreement dated as of
October 20, 2000, which, among other modifications, permitted the receivables
sale transactions referred to above, removed the provisions permitting under
certain circumstances the Company to issue up to $125,000,000 in certain
subordinated debt, and reduced the maximum amount available for borrowing under
the Credit Agreement to $175,000,000. The Second Amendment also contains
provisions limiting aggregate repurchases of common stock to those under the
Company's equity forward share repurchase agreement, which may not exceed
$5,000,000. The annual limitations on cash dividends on capital stock under the
Credit Agreement as amended remain at $6,000,000 for fiscal 2000 and $8,000,000
for each fiscal year after 2000. See
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<PAGE>
Part I. Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------
(a) The following exhibits are included herein:
10.1 Second Amendment to the Second Amended and Restated Credit Agreement
dated as of October 20, 2000 by and among the Company, the Subsidiary
Guarantors named therein, the Lenders party thereto and The Chase
Manhattan Bank in its capacity as Administrative Agent.
10.2 Receivables Purchase Agreement dated as of November 2, 2000 by and
among IMCO Funding Corporation as the Seller, the Company as the
Servicer, Market Street Funding Corporation as the Issuer and PNC
Bank, National Association as the Administrator.
15.1 Acknowledgment letter regarding unaudited financial information from
Ernst & Young LLP
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the quarter ended
September 30, 2000.
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<PAGE>
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: November 14, 2000 By: /s/ Robert R. Holian
-------------------------------------
Robert R. Holian
Senior Vice President
Controller and Chief Accounting Officer
Page 25
