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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, 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 940
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 April 28, 2000.
Common Stock, $0.10 par value, 15,439,942
-----------------------------------------
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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>
<CAPTION>
March 31, December 31,
2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,012 $ 2,578
Accounts receivable, net of allowance of $1,626 and $1,950 at
March 31, 2000 and December 31, 1999, respectively 132,064 125,917
Inventories 73,498 74,568
Deferred income taxes 3,022 3,008
Other current assets 10,222 9,228
--------------- --------------
Total Current Assets 221,818 215,299
Property and equipment, net 186,080 189,987
Excess of acquisition cost over the fair value of net assets acquired,
net of accumulated amortization of $12,224 and $11,149 at
March 31, 2000 and December 31, 1999, respectively 120,646 117,861
Investments in joint ventures 13,523 13,901
Other assets, net 7,787 6,589
--------------- --------------
$ 549,854 $ 543,637
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 71,595 $ 101,458
Accrued liabilities 5,153 7,164
Current maturities of long-term debt 149 181
--------------- --------------
Total Current Liabilities 76,897 108,803
Long-term debt 260,994 214,993
Deferred income taxes 15,252 15,104
Other long-term liabilities 9,534 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;
17,114,620 issued at March 31, 2000; 17,110,620 issued
at December 31, 1999 1,712 1,711
Additional paid-in capital 106,547 106,549
Retained earnings 105,728 104,079
Accumulated other comprehensive loss from foreign currency
translation adjustments (4,446) (3,131)
Treasury stock, at cost; 1,847,592 shares at March 31, 2000;
1,083,406 shares at December 31, 1999 (22,364) (13,552)
--------------- --------------
Total Stockholders' Equity 187,177 195,656
--------------- --------------
$ 549,854 $ 543,637
=============== ==============
</TABLE>
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IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------
2000 1999
---------- ---------
<S> <C> <C>
Revenues $ 223,259 $ 172,778
Cost of sales 207,157 155,579
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Gross profits 16,102 17,199
Selling, general and administrative expense 7,187 5,362
Amortization expense 1,282 1,054
Interest expense 4,313 2,980
Interest and other income (57) (156)
Equity in earnings of affiliates (670) (478)
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Earnings before provision for income taxes
and minority interests 4,047 8,437
Provision for income taxes 1,381 3,194
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Earnings before minority interests 2,666 5,243
Minority interests, net of provision for income taxes 102 102
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Net earnings $ 2,564 $ 5,141
========== =========
Net earnings per common share:
Basic $ 0.17 $ 0.31
Diluted $ 0.17 $ 0.31
Weighted average shares outstanding:
Basic 15,497 16,497
Diluted 15,510 16,550
Dividends declared per common share $ 0.06 $ 0.06
</TABLE>
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IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------------
2000 1999
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,564 $ 5,141
Depreciation and amortization 7,126 6,287
Provision for deferred income taxes 134 287
Equity in earnings of affiliates (670) (478)
Other noncash charges 454 629
Changes in operating assets and liabilities:
Accounts receivable (6,681) (16,647)
Inventories 1,006 (2,378)
Other current assets (1,143) 517
Accounts payable and accrued liabilities (29,017) 14,003
----------- ------------
Net cash (used by) from operating activities (26,227) 7,361
INVESTING ACTIVITIES
Payments for property and equipment (7,986) (5,944)
Acquisitions, net of cash acquired - (21,618)
Other (1,561) 72
----------- ------------
Net cash used by investing activities (9,547) (27,490)
FINANCING ACTIVITIES
Net proceeds from long-term revolving credit facility 46,000 24,000
Proceeds from issuance of long-term debt - 550
Principal payments of long-term debt (17) (273)
Dividends paid (916) (982)
Purchases of treasury stock (9,136) (649)
Other 296 (89)
----------- ------------
Net cash from financing activities 36,227 22,557
----------- ------------
Effect of exchange rate differences on cash and cash equivalents (19) (53)
Net increase in cash and cash equivalents 434 2,375
Cash and cash equivalents at January 1 2,578 6,075
----------- ------------
Cash and cash equivalents at March 31 $ 3,012 $ 8,450
=========== ============
SUPPLEMENTARY INFORMATION
Cash payments for interest $ 3,776 $ 2,437
Cash payments for income taxes $ 273 $ 230
</TABLE>
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IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
(dollars in tables are in thousands)
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, 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
year statements to conform to the current year presentation.
NOTE B - INVENTORIES
The components of inventories are:
March 31, December 31,
2000 1999
------------ ------------
Finished goods $ 37,718 $ 35,130
Raw materials 33,085 36,768
Supplies 2,695 2,670
------------ ------------
$ 73,498 $ 74,568
============ ============
NOTE C - LONG-TERM DEBT
As of March 31, 2000, the Company had $246,000,000 of indebtedness outstanding
under the Second Amended and Restated Credit Agreement and had approximately
$2,462,000 available for borrowing.
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NOTE D - NET EARNINGS PER SHARE
The following table sets forth the reconciliation between weighted average
shares used for calculating basic and diluted earnings per share:
Three months ended
March 31,
----------------------
2000 1999
-------- --------
Weighted average shares outstanding
for basic earnings per share 15,497 16,497
Effect of employee stock options 13 53
-------- --------
Weighted average shares outstanding
for diluted earnings per share 15,510 16,550
======== ========
NOTE E - 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.
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
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Company does not believe that its potential liability, if any, at this site will
have a material adverse effect on its financial position or results of
operations.
NOTE F - OTHER COMPREHENSIVE INCOME
As of March 31, 2000 the Company's foreign currency translation adjustment
increased to $4,446,000 from $3,131,000 as of December 31, 1999. Total
comprehensive income for the three months ended March 31, 2000 and March 31,
1999 was $1,249,000 and $4,718,000, respectively.
NOTE G - NEW ACCOUNTING PRONOUNCEMENTS
In July 1999, the Financial Accounting Standards Board delayed the effective
date of Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," for one year to fiscal years beginning after June 15, 2000. The
Company plans to adopt the statement effective January 1, 2001. The Company has
evaluated the impact of Statement No. 133 and believes the impact will not have
a material adverse effect upon the Company's future operating results.
NOTE H - 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.
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Three months ended
March 31,
-----------------------------
2000 1999
------------ --------------
Revenues:
Aluminum $ 167,319 $ 132,358
Zinc 55,940 40,420
------------ --------------
Total revenues $ 223,259 $ 172,778
============ ==============
Income:
Aluminum $ 9,486 $ 13,707
Zinc 4,123 2,298
------------ --------------
Total segment income 13,609 16,005
Unallocated amounts:
General and administrative expense (4,061) (3,653)
Amortization expense (1,282) (1,054)
Interest expense (4,313) (2,980)
Interest and other income 94 119
------------ --------------
Earnings before provision for income
taxes and minority interests $ 4,047 $ 8,437
============ ==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
Most 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.
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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):
Three months ended
March 31,
----------------------
2000 1999
--------- ---------
Pounds processed 766,306 700,184
Percentage of pounds tolled 55% 62%
Revenues $ 223,259 $ 172,778
Gross profits $ 16,102 $ 17,199
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
PRODUCTION. For the three month period ended March 31, 2000, the Company melted
- ----------
766.3 million pounds, 9% more metal compared to 700.2 million pounds during the
same period in 1999. The aluminum and zinc segments accounted for 82% and 18%,
respectively, of the overall production increase for the three month period.
Tolling activity for the three month period ended March 31, 2000 represented 55%
of total pounds processed, compared to 62% for the same period in 1999.
The following table shows the total pounds processed and the percentage tolled
for the aluminum and zinc segments (in thousands, except percentages):
Three months ended
March 31,
-----------------------------
2000 1999
------------- -------------
Pounds Processed:
Aluminum 697,459 643,057
Zinc 68,847 57,127
------------- -------------
Total Pounds Processed 766,306 700,184
============= =============
Percentage Tolled:
Aluminum 60% 67%
Zinc 6% 6%
Total Percentage Tolled 55% 62%
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ALUMINUM PRODUCTION: For the three month period ended March 31, 2000, the
Company melted 8% more aluminum than it did during the same period in 1999. The
increase in aluminum production for the first quarter was primarily due to the
following factors: (1) a significant increase at the Shelbyville, Tennessee
facility (acquired in February 1999), (2) greater production at the Coldwater,
Michigan and Bedford, Indiana facilities, (3) higher production at the Swansea,
Wales facility and (4) increases in production at the Wendover, Utah and
Uhrichsville, Ohio facilities. The increase in the Ohio facility is the result
of adding two new reverberatory furnaces in late 1999. The decrease in aluminum
percentage tolled compared to the first quarter of 1999 is primarily due to the
acquisition of the Shelbyville, Tennessee facility, the production of which is
dedicated primarily for product sales serving the transportation market, and an
increase in product sales volume at the Post Falls, Idaho facility.
ZINC PRODUCTION: For the three month period ended March 31, 2000, the Company
melted 21% more zinc than it did during the same period in 1999. The February
1999 acquisition of the Clarksville, Tennessee facility accounted for most of
the increase in zinc production. In addition, production increased due to the
strong demand of value-added products, especially zinc oxide, from the Company's
U.S. Zinc subsidiary.
REVENUES. For the three month period ended March 31, 2000, the Company's
- --------
consolidated revenues increased 29% to $223,259,000, compared to $172,778,000
for the same period in 1999. The aluminum and zinc segments accounted for 69%
and 31%, respectively, of the overall revenue increase for the three month
period.
Increased product sales relative to tolling transactions 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 primarily
consist of product sales business.
The following table shows the total revenues for the aluminum and zinc segments
(in thousands):
Three months ended
March 31,
---------------------------
2000 1999
----------- -----------
Revenues:
Aluminum $ 167,319 $ 132,358
Zinc 55,940 40,420
----------- -----------
Total Revenues $ 223,259 $ 172,778
=========== ===========
ALUMINUM REVENUES: For the three month period ended March 31, 2000, the
Company's aluminum revenues increased 26% compared to the same period in 1999.
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Aluminum revenues increased due to the combination of (1) higher prevailing
aluminum product sale prices, (2) higher aluminum production volumes as a result
of facility expansions and (3) a decrease in the relative proportion of
volumes from tolling 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.
ZINC REVENUES: For the three month period ended March 31, 2000, the Company's
zinc revenues increased 38% compared to the same period in 1999. Zinc revenues
increased primarily due to higher volumes mainly due to the acquisition of the
Clarksville, Tennessee facility in February 1999 as well as higher prevailing
selling prices of zinc metal in 2000.
GROSS PROFITS. For the three month period ended March 31, 2000, the Company's
- -------------
consolidated gross profits decreased 6% to $16,102,000 compared to $17,199,000
from the same period in 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):
Three months ended
March 31,
---------------------------
2000 1999
------------ ------------
Segment Income:
Aluminum $ 9,486 $ 13,707
Zinc 4,123 2,298
------------ ------------
Total segment income 13,609 16,005
Items not included in gross profits:
Plant selling expense 1,435 577
Management SG&A expense 1,691 1,131
Equity in earnings of affiliates (670) (478)
Other income 37 (36)
------------ ------------
Gross Profits $ 16,102 $ 17,199
============ ============
ALUMINUM INCOME: For the three month period ended March 31, 2000, the Company's
aluminum income decreased 31% compared to the same period in 1999. The decrease
was primarily due to lower profit margins in the aluminum alloys business.
Recent capacity increases in this business have resulted in intensified
competition for the available
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scrap metal units, which is the Company's raw material. This, in turn, caused
higher raw material costs and lower selling prices. Additionally, a processing
error in the operation of a new operations information system installed in
December 1999 at the aluminum alloy facility in Coldwater, Michigan delayed the
recognition of certain raw material costs, which increased cost of sales and
reduced gross profits to a lower-than-anticipated level. The Company is taking
steps to improve the profitability of our alloys business that include a review
of raw material acquisitions in an effort to lower costs; a review of customer
orders and other actions to raise price realizations; and further emphasis on
operating cost reductions at the Michigan and Tennessee alloys plants. The
aluminum income decreased despite the increase in aluminum processing volumes,
principally due to the reasons discussed above.
ZINC INCOME: For the three month period ended March 31, 2000, the Company's zinc
income increased 79% compared to the same period in 1999. The increase 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 benefits from integrating the Company's previously owned zinc
business with the U.S. Zinc and Clarksville, Tennessee facilities.
SG&A EXPENSES. Selling, general and administrative expenses for the three month
- -------------
periods ended March 31, 2000 and 1999 were $7,187,000 and $5,362,000,
respectively, an increase of 34%. The increase is primarily due to the operation
of more production facilities and costs associated with the Company's investment
in its new Enterprise Resource Planning system.
AMORTIZATION EXPENSE. Amortization expense for the three month periods ended
- --------------------
March 31, 2000 and 1999 was $1,282,000 and $1,054,000, respectively, an increase
of 22%. The increase 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 March 31,
- ----------------
2000 and 1999 was $4,313,000 and $2,980,000, respectively, an increase of 45%.
The increase is the result of increased interest rates and higher amounts of
debt outstanding in 2000 compared to 1999, primarily due to additional working
capital requirements.
NET EARNINGS. Net earnings decreased 50% to $2,564,000 for the three month
- ------------
period ended March 31, 2000 compared to $5,141,000 for the same period in 1999.
The decrease was primarily the result of lower profit margins in the aluminum
alloys business (see "ALUMINUM INCOME" above). In addition, increases in
interest expense, amortization expense and selling, general and administration
expense, as discussed above, reduced net earnings. The Company recorded an
effective tax rate of 34% in the first quarter of 2000, which was lower than the
37.9% in the first quarter of 1999 due to a greater percentage of pre-tax income
not included in the calculation of income tax expense. The majority of the
Company's equity income is from the VAW-IMCO venture, which is reported on an
after-tax basis.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS. Operations utilized $26,227,000 and provided
$7,361,000 of cash during the first three months of 2000 and 1999, respectively.
Changes in operating assets and liabilities represented a $35,835,000 net use of
cash for the first three months of 2000 compared to a net use of cash of
$4,505,000 for the same period in 1999. The extent of the change in operating
assets and liabilities was primarily due to the increase in revenues in 2000, as
discussed above, and the greater percentage of product sales, which resulted in
increases in working capital. The Company does not anticipate further increases
in the percentage of product sales v. tolling during the remainder of the year,
and therefore does not expect to utilize working capital at the same levels
experienced in the first quarter. Lower net earnings in 2000 of $2,564,000
compared to $5,141,000 for 1999 contributed to the increase in net cash used
from operating activities. Higher depreciation and amortization of $7,126,000 in
2000 compared to $6,287,000 in 1999 helped offset the effects of these other
factors.
CASH FLOWS FROM INVESTING ACTIVITIES. During the three months ended March 31,
2000, net cash used by investing activities was $9,547,000 compared to
$27,490,000 for the same period in 1999. During the first quarter of 1999, the
Company spent approximately $21,600,000 (net of cash acquired) in the
acquisitions of the Shelbyville and Clarksville, Tennessee facilities. The
Company's total payments for property, plant and equipment in the first three
months of 2000 increased to $7,986,000, compared to $5,944,000 spent in the
first three months of 1999. Capital expenditures for property, plant and
equipment in 2000 are now expected to be approximately $35,000,000, which are
expected to be funded with internally generated funds. Major 2000 projects
include further installation of the Company's new Enterprise Resource Planning
(ERP) software system, installation of new furnaces at the Millington, Tennessee
facility and the construction of a new aluminum alloying facility near Saginaw,
Michigan.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities
was $36,227,000 for the three months ended March 31, 2000, compared to
$22,557,000 for the same period of 1999. In the first three months of 2000, the
Company borrowed $46,000,000 under its revolving credit facility, most of which
was used to finance its additional working capital requirements. In the three
month period ended March 31, 1999 the Company had net borrowings of $24,000,000
on its long-term revolving credit facility, the majority of which was used to
fund the acquisitions of the Shelbyville and Clarksville, Tennessee facilities.
At March 31, 2000 the Company had $246,000,000 in indebtedness outstanding under
its long-term revolving credit facility. In addition, there were standby letters
of credit outstanding with several banks totaling $2,584,000.
Financing activities also included cash payments of $916,000 in dividends for
the first three months of 2000 compared to $982,000 for the same period in 1999.
In addition, for the three months ended March 31, 2000 and 1999, $9,136,000 and
$649,000, respectively, was used to purchase 790,100 and 55,000, respectively,
shares of the Company's common stock in open market transactions. In May 2000,
the Company entered into a forward share purchase transaction with a financial
institution to facilitate open-market purchases of additional shares of the
Company's common stock.
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As of May 1, 2000, the Company had $231,000,000 of indebtedness outstanding
under the Second Amended and Restated Credit Agreement and had approximately
$17,462,000 available for borrowing. During April 2000, the Company executed a
$15,000,000 90-day short-term note payable for working capital requirements.
While 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, additional financing will probably be necessary for the Company to
continue its growth rate experienced in recent years. The Company has
experienced and expects to continue to experience substantial capital funding
requirements for its new facilities, potential acquisitions and capital and
environmental improvement programs.
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, if any,
at this site, will have a material adverse effect on its financial position or
results of operations.
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<PAGE>
IMPACT OF YEAR 2000
In 1998 and 1999, the Company implemented a comprehensive plan to address
potential Year 2000 compliance problems. In late 1999, the Company completed its
remediation and testing of systems. As a result of those efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes its systems
successfully responded to the Year 2000 issues. The Company's Year 2000 project
expenditures were immaterial during 1999 and 1998. The Company is not currently
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems or the products and services of third parties.
The Company will continue to monitor its critical computer applications and
those of certain third parties throughout 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in ITEM 1. "BUSINESS;" ITEM 3. "LEGAL PROCEEDINGS"
------ ------
and ITEM 7. "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 profit margins, plant
capacity, volumes, revenues, earnings, costs, and expenses (including capital
expenditures); the ability of the Company to be able to continue to grow its
domestic and foreign business through expansion, acquisition or partnering; 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; future prices for metals; 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; access to
adequate energy supplies at commercial rates; future levels of dividends (if
any); potential affects of the Company's metals brokerage activities; the future
mix of business (product sales vs. tolling); future costs and asset recoveries;
future operations, 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
Page 15
<PAGE>
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; the mix of product sales business as opposed to
tolling business; 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 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 and the price of and supply and demand for aluminum and
zinc (and their derivatives) on world markets; the effects of shortages 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 weather conditions, 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 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.
Page 16
<PAGE>
* 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 affect the
Company's financial position and results of operations.
* 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.
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Ernst & Young LLP, have reviewed the
Company's consolidated financial statements at March 31, 2000, 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
There have been no material changes regarding market risk and the Company's
derivative instruments during the first quarter of 2000. Accordingly, no
additional disclosures have been provided in accordance with Regulation S-K Item
305 (c).
Page 17
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- -------
During the three month period ended March 31, 2000, the Company repurchased
790,100 shares of its common stock on the open market or in privately negotiated
transactions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
(a) The following exhibits are included herein:
10.1 IMCO Recycling Inc. Performance Share Unit Plan
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 March
31, 2000.
Page 18
<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: May 10, 2000 By: /s/ Robert R. Holian
--------------------------
Robert R. Holian
Senior Vice President
Controller and Chief Accounting Officer
Page 19
<PAGE>
Independent Accountant's 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, 2000, and the related consolidated statements of earnings
and cash flows for the three-month periods ended March 31, 2000 and 1999. 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, 1999, 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 January 31, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1999, 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
May 11, 2000
<PAGE>
Exhibit 10.1
IMCO Recycling Inc.
Performance Share Unit Plan
SECTION 1. ESTABLISHMENT, PURPOSE,AND
EFFECTIVE DATE OF PLAN
1.1 Establishment. IMCO Recycling Inc., a Delaware corporation, hereby
-------------
establishes the "IMCO RECYCLING INC. Performance Share Unit Plan" for key
employees (the "Plan"). The Plan permits the grant of performance units and
performance share units.
1.2 Purpose. The purpose of the Plan is to foster and promote the long-
-------
term financial success of the Company and its Subsidiaries and materially
increase the value of the Company and its Subsidiaries by (a) encouraging the
long-term commitment of key employees, (b) motivating performance of key
employees by means of long-term performance related incentives, (c) attracting
and retaining outstanding key employees by providing incentive compensation
opportunities, and (d) enabling participation by key employees in the long-term
growth and financial success of the Company and its Subsidiaries.
1.3 Effective Date. The Plan shall become effective upon its adoption by
--------------
the Board of Directors of the Company (i.e., December 15, 1999), subject to
----
approval by the stockholders of the Company. Awards may be granted hereunder on
or after the effective date but shall in no event be exercisable by or payable
to a Participant prior to such stockholder approval; and, if such approval of
the stockholders is not obtained within twelve (12) months after the effective
date, such Awards shall be of no force and effect.
SECTION 2. DEFINITIONS
2.1 Definitions. In addition to the terms defined elsewhere herein,
-----------
whenever used herein, the following terms shall have their respective meanings
set forth below:
(a) "Award" means any Performance Unit or Performance Share Unit granted
pursuant to the Plan.
(b) "Award Agreement" means a written agreement between a Participant and
the Company which sets forth the terms of the grant of an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means any action by the Participant or inaction by the
Participant that constitutes: (i) a breach of a written employment
agreement by that Participant; or (ii) misconduct, dishonesty,
disloyalty, disobedience or action that might reasonably injure the
Company or any or its Subsidiaries or their business interests or
reputation.
(e) "Change in Control" shall have the meaning set forth in Section 10.2.
<PAGE>
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Compensation Committee of the Board or a
subcommittee thereof, which shall consist of at least two members.
(h) "Company" means IMCO Recycling Inc., a Delaware corporation.
(i) "Disability" means any mental or physical illness, condition,
disability or incapacity that prevents the Participant from reasonably
discharging the Participant's duties and responsibilities to the
Company, as determined by the Committee in its sole discretion.
(j) "Employee" means a regular salaried employee (including officers and
directors who are also employees) of the Company or any of its
Subsidiaries, or any branch or division thereof. An Award may be
granted to a potential Employee in connection with hiring, retention
or otherwise, prior to the date the Employee first performs services
for the Company or its Subsidiaries, provided that such Award shall
not become vested to any extent prior to the date the Employee first
performs such services.
(k) "Participant" means any Employee designated by the Committee to
participate in the Plan.
(l) "Performance Goals" shall mean the criteria and objectives determined
by the Committee pursuant to the Plan, which shall be satisfied or met
during the applicable Performance Period as a condition precedent to
the Participant's receipt of payment with respect to any Performance
Unit Award or Performance Share Unit Award. Such criteria and
objectives may include, but are not limited to, earnings before
interest, taxes, depreciation and amortization; return on assets;
return on equity; growth in net earnings; growth in earnings per
share; tangible net asset growth; any combination of the foregoing; or
any other financial criteria and objectives determined by the
Committee.
(m) "Performance Period" means a period of time determined at date of
grant by the Committee over which performance is measured for the
purpose of determining a Participant's right to and the payment value
of any Performance Unit Award or Performance Share Unit Award.
(n) "Performance Unit Award" or "Performance Share Unit Award" means an
Award representing a contingent right to receive cash at the end of a
Performance Period based upon the achievement of certain Performance
Goals pursuant to Section 6 of the Plan.
(o) "Plan" means the IMCO Recycling Inc. Performance Share Unit Plan as
set forth herein and any amendments hereto.
2
<PAGE>
(p) "Resigns for Good Reason" means a Participant's resignation caused by,
and within ninety (90) days after the occurrence of, any one of the
following: (i) an action is taken by the Company which results in a
material diminution in the position or status of the Participant with
the Company immediately prior to said action, except in connection
with a termination of the Participant's employment as a result of the
Participant's Disability or for Cause; (ii) a transfer or proposed
transfer of the Participant to a location outside of the Participant's
city of residence immediately prior to such transfer, without the
Participant's prior written consent; or (iii) the Company reduces the
annual base salary of the Participant, unless such decrease is the
result of a general reduction affecting the annual base salaries of
sixty percent (60%) or more of the then similarly situated employees
of the Company; provided that the Company has failed to rescind or
--------
remedy the action or occurrence prompting such resignation within five
(5) days (or if it requires a longer period, a reasonable period of
time) after the Participant has given the Company written notice
identifying such action or occurrence.
(q) "Retirement" means termination of employment due to retirement from
the Company and its Subsidiaries in accordance with standard
retirement policies of the Company and its Subsidiaries then in
effect, or permitted early retirement as determined by the Board in
its sole discretion.
(r) "Subsidiary" means any corporation or entity of which more than 50% of
the outstanding securities or ownership interests having ordinary
voting power to elect a majority of the members of the Board of
Directors or persons in a similar capacity of such corporation or
entity, is, directly or indirectly, owned by the Company.
2.2 Definitional Terms; Gender and Number. All terms defined in this Plan
-------------------------------------
shall have the meanings set forth herein when used in any Award Agreement or
other document made or delivered pursuant to the Plan, except where the context
thereof shall otherwise require. Except when otherwise indicated by the
context, words in the masculine gender when used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular. The words "hereof," "herein," "hereunder," and similar
terms when used in this Plan shall refer to this Plan as a whole and not to any
particular provision of the Plan.
SECTION 3. ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation. Participants in the Plan shall be
-----------------------------
selected by the Committee from among those Employees who in the opinion of the
Committee, are key employees in a position to contribute materially to the
Company's continued growth and development and to its long-term financial
success. The Committee, upon its own action, may grant, but shall not be
required to grant, an Award to any eligible Employee of the Company or any
Subsidiary. The Committee shall determine the amounts, terms and conditions of
each Award granted hereunder. Awards may be granted by the Committee at any
time and from time
3
<PAGE>
to time to new Participants, or to already-participating Participants, or to a
greater or lesser number of Participants, and may include or exclude previous
Participants, as the Committee shall determine. The grant of an Award shall be
evidenced by an Award Agreement setting forth such terms, provisions,
limitations and performance criteria as are approved by the Committee, but not
inconsistent with the Plan.
Except as required by this Plan, Awards granted at different times need not
contain similar provisions. The Committee's determinations under the Plan
(including without limitation determinations of which Employees are to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Award Agreements evidencing same) need not be uniform and
may be made by the Committee selectively among Participants who receive, or are
eligible to receive, Awards under the Plan.
Notwithstanding any other provision contained in this Plan to the contrary,
the Committee may delegate to the Chief Executive Officer of the Company from
time to time the authority to grant up to a certain number (to be designated by
the Committee from time to time) of Performance Units and/or Performance Share
Units to be awarded to eligible Employees to be chosen by the Chief Executive
Officer in his sole discretion, so long as those Employees are not at the date
of grant an officer of the Company and are not and are not likely to be a
"covered employee" (as that term is defined under Section 162(m) of the Code and
the Treasury Regulations promulgated thereunder).
SECTION 4. ADMINISTRATION
4.1 Administration. The Committee shall be responsible for the
--------------
administration of the Plan. Any member of the Committee may be removed at any
time, with or without cause, by resolution of the Board in its sole discretion.
Any vacancy occurring in the membership of the Committee may be filled by
appointment by the Board.
Plan administrative costs and expenses shall be paid by the Company. The
Committee is authorized to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to the Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company, to correct any errors or inconsistencies in and make adjustments for
mistakes or errors made in the administration of the Plan, and to make all other
determinations necessary or advisable for the administration and application of
the Plan, including but not limited to the eligibility and participation
determinations as set forth in Section 3. Notwithstanding any provision
contained herein to the contrary, the Committee may, at any time and from time
to time, in its absolute discretion (i) accelerate the date on which any Award
granted under the Plan vests, (ii) extend the date on which any Award granted
under the Plan terminates, or (iii) remove, suspend or alter the restrictions
imposed with respect to any Award granted under the Plan. Except as otherwise
provided herein, determinations, interpretations, or other actions made or taken
by the Committee pursuant to the provisions of the Plan shall be final and
binding and conclusive for all purposes and upon all persons whomsoever,
including the Company and all Participants.
4
<PAGE>
To the extent that the Committee determines that the restrictions imposed
by the Plan preclude the achievement of the material purposes of the Awards in
jurisdictions outside the United States, the Committee will have the authority
and discretion to modify those restrictions as the Committee determines to be
necessary or appropriate to conform to applicable requirements or practices of
jurisdictions outside of the United States.
SECTION 5. DURATION OF PLAN
5.1 Duration of Plan. The Plan shall remain in effect, subject to the
----------------
Board's right to earlier terminate the Plan pursuant to Section 11 hereof, until
December 15, 2009. Notwithstanding the foregoing, all Awards granted prior to
the date specified in the preceding sentence will continue to be effective in
accordance with their terms and conditions.
SECTION 6. PERFORMANCE UNIT AWARDS
AND PERFORMANCE SHARE UNIT AWARDS
6.1 Grant of Performance Unit or Performance Share Unit Awards. Subject
-----------------------------------------------------------
to the provisions of this Section 6, Performance Unit Awards or Performance
Share Unit Awards may be granted to Participants at any time and from time to
time as shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Units or Performance Share
Units to be awarded to any Participant. Any Award shall be subject to such
conditions, restrictions and contingencies (including such Performance Goals) as
the Committee shall determine. The Performance Period shall also be determined
by the Committee and set forth in the Award Agreement.
6.2 Performance Goals. At the beginning of each Performance Period, the
-----------------
Committee shall (i) establish for each Performance Period the specific
Performance Goals as the Committee believes are relevant to the Company's
overall business objectives; (ii) determine the value of a Performance Unit or a
Performance Share Unit relative to the Performance Goals; and (iii) instruct
senior management to notify each Participant in writing of the established
Performance Goals and the minimum, target, and maximum Performance Unit or
Performance Share Unit value for such Performance Period.
6.3 Adjustments. The Committee will make appropriate adjustments to
-----------
exclude the effect of extraordinary corporate transactions, such as
acquisitions, divestitures, recapitalizations and reorganizations, and will not
take into account extraordinary or non-recurring accounting charges and items,
insofar as they would otherwise affect the results under the applicable
Performance Goals.
6.4 Payment. Upon completion of the Performance Period, the Committee
-------
shall certify the level of the Performance Goals attained and the amount of the
Award payable as a result thereof. The basis for payment of each Performance
Unit or Performance Share Unit for a given Performance Period shall be the
achievement of those Performance Goals determined by the Committee at the
beginning of the Performance Period. If minimum performance is not
5
<PAGE>
achieved for a Performance Period, no payment shall be made, the Performance
Unit Award or Performance Share Unit Award will terminate and all contingent
rights thereunder shall cease. If minimum performance is achieved or exceeded,
the value of a Performance Unit or Performance Share Unit shall be based on the
degree to which actual performance met or exceeded the pre-established minimum
performance standards, as determined by the Committee. The amount of payment
shall be determined by multiplying the number of Performance Units or
Performance Share Units granted at the beginning of the Performance Period times
the final Performance Unit or Performance Share Unit value. Payments shall be
made in cash following the close of the applicable Performance Period.
6.5 Deferral. If the terms of the particular Award granted by the
--------
Committee so provide, the Participant may be provided an option to defer payment
of the Participant's vested Performance Unit Award or Performance Share Unit
Award.
6.6 Termination of Employment Due To Death, Disability or Retirement. In
----------------------------------------------------------------
the case of death, Disability, or Retirement, the holder of a Performance Unit
or Performance Share Unit (or his beneficiary, as the case may be) shall be
entitled to receive following the end of the particular Performance Period, a
pro rata payment based on the number of months' service during the Performance
Period, and the level of achievement of Performance Goals during the Performance
Period, to be determined by the Committee following the end of the Performance
Period.
6.7 Termination of Employment Other Than Death, Disability or Retirement.
--------------------------------------------------------------------
Except in circumstances in which a Change in Control is involved pursuant to
Section 9 hereof, in the event that a Participant terminates employment with the
Company for any reason other than death, Disability or Retirement, all
Performance Unit Awards and Performance Share Unit Awards shall be forfeited.
6.8 Funding. No provision of the Plan shall require the Company, for the
-------
purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets in a manner that would provide any Participant
any rights that are greater than those of a general creditor of the Company, nor
shall the Company maintain separate bank accounts, books, records or other
evidence of the existence of a segregated or separately maintained or
administered fund if such action would provide any Participant with any rights
that are greater than those of a general creditor of the Company. Participants
shall have no rights under the Plan other than as unsecured general creditors of
the Company. However, the Company may establish a "Rabbi Trust" for purposes of
securing the payment pursuant to a Change in Control.
6.9 Nontransferability. Performance Units or Performance Share Units
------------------
granted under the Plan may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution until the termination of the applicable Performance
Period. All rights with respect to Performance Unit Awards and Performance
Share Unit Awards granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant.
6
<PAGE>
6.10 Restrictions on Awards. It is intended that the Plan will provide
----------------------
Participants with opportunities for long-term incentive compensation which is
not subject to the deduction limitation rules prescribed under Section 162(m) of
the Code, and that the Plan be construed to the degree possible as providing for
renumeration which is "performance-based compensation" within the meaning of
Section 162(m) of the Code and the Treasury Regulations promulgated thereunder.
Notwithstanding the foregoing, the Committee may grant Awards to non-officers
and individuals who are not and are likely not to be "covered employees" as that
term is defined under Section 162(m) and the Treasury Regulations, which Awards
may thereby not meet the requirements of being "performance-based compensation."
In order for Awards to be "performance-based compensation," the grant of the
Awards and the establishment of the Performance Goals shall be made during the
period required under Section 162(m) of the Code.
6.11 Maximum Amount. No Participant may receive during any fiscal year of
--------------
the Company, payment of Awards covering an aggregate of more than 300% of the
target amount designated in the Participant's Award Agreement, which amount must
be based on maximum achievement of Performance Goals and certified by the
Committee. In addition, and in any event, no Participant may receive during any
fiscal year payment of Awards totaling in excess of $4,500,000.
SECTION 7. BENEFICIARY DESIGNATION
7.1 Beneficiary Designation. Each Participant under the Plan may name,
-----------------------
from time to time, any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in the event of such Participant's death before such Participant receives any or
all of such benefit. Each designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation, benefits remaining
unpaid at the Participant's death shall be paid to his estate.
SECTION 8. RIGHTS OF EMPLOYEES
8.1 Employment. Nothing in the Plan shall interfere with or limit in any
----------
way the right of the Company to terminate any Participant's employment at any
time or confer upon any Participant any right to continue in the employ of the
Company.
8.2 Participation. No Employee shall have a right to be selected as a
-------------
Participant or, having been so selected, to be selected again as a Participant.
7
<PAGE>
SECTION 9. CHANGE IN CONTROL
9.1 In General.
----------
(a) Notwithstanding any other provision contained herein, in the event of
a Change in Control, as defined in Section 9.2 below, affecting the
Company in which the outstanding Awards granted by the Company prior
to such Change in Control (and the Company's obligations in connection
therewith) are not fully assumed by the Company after the Change in
Control or the corporation or entity resulting from the Change in
Control, or replaced by fully equivalent substitute Awards, then all
outstanding Awards shall automatically be accelerated and become fully
vested, whereupon all Performance Unit Awards and Performance Share
Unit Awards shall be paid based upon the extent to which Performance
Goals during the Performance Period have been met up to the date of
the Change in Control, but in any event, not less than the target
Award amount as set forth in each Participant's Award Agreement.
(b) If there is a Change in Control of the Company in which the
outstanding Awards granted by the Company prior to such Change in
Control (and the Company's obligations in connection therewith) are
fully assumed by the Company after the Change in Control or the
corporation or other legal entity resulting from the Change in
Control, or replaced by fully equivalent substitute Awards, then,
except as otherwise provided in this Section 9, no acceleration of
vesting of any unmatured installments of outstanding Awards granted by
the Company shall occur.
(c) In addition, notwithstanding any other provision contained in this
Plan, in the event that a Participant's employment is terminated by
the Company, within that period commencing on the date which is ninety
(90) days prior to and continuing during the 24-month period following
the effective date of a Change in Control (i.e., with such period
ending on the same day of the 24th month following the effective date
of the Change in Control), for any reason (other than such
Participant's (i) voluntary resignation (which does not constitute a
Resign for Good Reason resignation), (ii) termination as a result of
death, Disability or Retirement, or (iii) termination by the Company
for Cause), or such Participant Resigns for Good Reason within such
period, then to the extent the Awards granted to such Participant have
not already become fully vested pursuant to this Section 9, all
outstanding Awards granted by the Company to such Participant shall,
without further action by any person, immediately become fully vested
in full, effective as of the date of such termination of employment,
whereupon all Performance Unit Awards and Performance Share Unit
Awards shall be paid out based upon the higher of the targeted
Performance Goals or the extent to which the Performance Goals during
the Performance Period have been met up to the date of the Change in
Control or the date of termination (whichever date results in the
then-higher value of the particular Award).
8
<PAGE>
9.2 Definition. For purposes of the Plan, a "Change in Control" shall
----------
mean the occurrence of any of the following events: (i) there shall be
consummated any merger or consolidation pursuant to which shares of the
Company's Stock would be converted into or exchanged for cash, securities or
other property, or any sale, lease, exchange or other disposition (excluding
disposition by way of mortgage, pledge or hypothecation), in one transaction or
a series of related transactions, of all or substantially all of the assets of
the Company (a "Business Combination"), in each case unless, following such
Business Combination, all or substantially all of the holders of the outstanding
Stock immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50.1% of the outstanding common stock or equivalent
equity interests of the corporation or entity resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more Subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination, of the outstanding Stock, (ii) the stockholders of the Company
approve any plan or proposal for the complete liquidation or dissolution of the
Company, (iii) any "person" (as such term is defined in Section 3(a)(9) or
Section 13(d)(3) under the 1934 Act) or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Company or any
successor of the Company or any Subsidiary of the Company or any employee
benefit plan of the Company or any Subsidiary (including such plan's trustee),
becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the 1934
Act, directly or indirectly, of securities of the Company representing 50.1% or
more of the Company's then outstanding securities having the right to vote in
the election of directors, or (iv) during any period of two consecutive years,
individuals who, at the beginning of such period constituted the entire Board,
cease for any reason (other than death) to constitute a majority of the
directors, unless the election, or the nomination for election, by the Company's
stockholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of the
period.
SECTION 10. AMENDMENT, MODIFICATION,
AND TERMINATION OF PLAN
10.1 Amendment, Modification, and Termination of Plan. The Board at any
------------------------------------------------
time may terminate, and from time to time may amend or modify the Plan,
provided, however, that unless required by law, no action contemplated or
permitted by this Section 11.1 shall reduce the amount of any Award theretofore
granted under the Plan without the consent of the affected Participant.
SECTION 11. TAX WITHHOLDING
11.1 Tax Withholding. The Company shall have the power and the right to
---------------
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of the Plan.
9
<PAGE>
SECTION 12. INDEMNIFICATION
12.1 Indemnification. Each Person who is or shall have been a member of
---------------
the Committee or of the Board, or who acts on behalf of or at the direction of
the Committee or Board with respect to this Plan, shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit, or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
SECTION 13. MISCELLANEOUS
13.1 Requirements of Law. The granting of Awards shall be subject to all
-------------------
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
13.2 Governing Law. The Plan, and all agreements hereunder, shall be
-------------
construed in accordance with and governed by the laws of the State of Delaware.
13.3 Substitute Awards. Awards may be granted under the Plan from time to
-----------------
time in substitution for similar instruments held by employees or directors of a
corporation, partnership, or limited liability company who become or are about
to become Employees of the Company or any Subsidiary as a result of a merger or
consolidation of the employing corporation with the Company, the acquisition by
the Company of equity of the employing entity, or any other similar transaction
pursuant to which the Company becomes the successor employer. The terms and
conditions of the substitute Awards so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Committee or Board at
the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the incentives in substitution for which they are granted.
10
<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 Nos. 33-76780,
333-00075, and 333-71339, Form S-8 Nos. 333-07091 and 333-71335, and Form S-8
No. 333-81949) 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. Anual
Incentive Program and the IMCO Recycling Inc. Employee Stock Purchase Plan,
respectively, of our report dated May 11, 2000 relating to the unaudited
consolidated interim financial statements of IMCO Recycling Inc. which are
included in its Form 10Q for the quarter ended March 31, 2000.
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 12, 2000
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