-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H+sKX1GLwgU90M3mEjC0lGq1g2cNMuey55DlltnnkaW4kT8TvDzwjffH7bToylDP BAuEpnx0F9Wak7W+h8YC9w== 0001047469-98-018525.txt : 19980508 0001047469-98-018525.hdr.sgml : 19980508 ACCESSION NUMBER: 0001047469-98-018525 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980507 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMCO RECYCLING INC CENTRAL INDEX KEY: 0000202890 STANDARD INDUSTRIAL CLASSIFICATION: SECONDARY SMELTING & REFINING OF NONFERROUS METALS [3341] IRS NUMBER: 752008280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07170 FILM NUMBER: 98612205 BUSINESS ADDRESS: STREET 1: 5215 N OCONNOR BLVD STE 940 STREET 2: CENTRAL TOWERS AT WILLIAM SQUARE CITY: IRVING STATE: TX ZIP: 75007 BUSINESS PHONE: 2148696575 MAIL ADDRESS: STREET 1: 5215 N O CONNOR BOULVARD STE 940 CITY: IRVING STATE: TX ZIP: 75030 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER TEXAS CORP DATE OF NAME CHANGE: 19881012 FORMER COMPANY: FORMER CONFORMED NAME: PIONEER TEXAS CORP DATE OF NAME CHANGE: 19850416 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1-7170 IMCO RECYCLING INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 75-2008280 (I.R.S. Employer Identification No.) 5215 North O'Connor Blvd., Suite 940 Central Tower at Williams Square Irving, Texas 75039 (Address of principal executive offices) (Zip Code) (972) 869-6575 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of business on April 30, 1998. COMMON STOCK, $0.10 PAR VALUE, 16,700,911 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,901 $ 405 Accounts receivable 55,284 52,163 Inventories 35,334 34,556 Deferred income taxes 3,047 2,782 Other current assets 2,368 1,746 --------- --------- Total Current Assets 103,934 91,652 Property and equipment, net 145,547 142,100 Excess of acquisition cost over the fair value of net assets acquired, net of accumulated amortization of $4,641 and $4,053 at March 31, 1998 and December 31, 1997, respectively 74,212 74,658 Investments in joint ventures 14,572 14,271 Other assets, net 9,048 9,855 --------- --------- $ 347,313 $ 332,536 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 33,668 $ 25,902 Accrued liabilities 8,419 7,254 Current maturities of long-term debt 560 648 --------- --------- Total Current Liabilities 42,647 33,804 Long-term debt 110,762 109,194 Deferred income taxes 11,994 11,278 Other long-term liabilities 9,018 9,336 STOCKHOLDERS' EQUITY Preferred stock; par value $.10; 8,000,000 shares authorized; none issued - - Common stock; par value $.10; 20,000,000 shares authorized; 16,543,750 issued at March 31, 1998; 16,515,750 issued at December 31, 1997 1,654 1,652 Additional paid-in capital 96,586 96,519 Retained earnings 75,030 71,096 Treasury stock, at cost; 41,639 shares at March 31, 1998; 39,354 shares at December 31, 1997 (378) (343) --------- --------- Total Stockholders' Equity 172,892 168,924 --------- --------- $ 347,313 $ 332,536 --------- --------- --------- ---------
Page 2 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except share data) FOR THE THREE MONTHS ENDED MARCH 31, ----------------------- 1998 1997 ------- --------- Revenues $ 127,232 $ 82,528 Cost of sales 113,606 72,376 --------- -------- Gross profits 13,626 10,152 Selling, general and administrative expense 4,740 4,578 Interest expense 1,998 1,716 Interest income (103) (70) Equity in earnings of affiliates (464) (30) --------- -------- Earnings before provision for income taxes, minority interests and extraordinary item 7,455 3,958 Provision for income taxes 2,756 1,583 --------- -------- Earnings before minority interests and extraordinary item 4,699 2,375 Minority interests, net of provision for income taxes 88 95 --------- -------- Earnings before extraordinary item 4,611 2,280 Extraordinary item, net - (1,318) --------- -------- Net earnings $ 4,611 $ 962 --------- -------- --------- -------- Net earnings per common share: BASIC: Earnings before extraordinary item $ 0.28 $ 0.18 Extraordinary item - (0.10) --------- -------- Net earnings $ 0.28 $ 0.08 --------- -------- --------- -------- DILUTED: Earnings before extraordinary item $ 0.28 $ 0.18 Extraordinary item - (0.10) --------- -------- Net earnings $ 0.28 $ 0.08 --------- -------- --------- -------- Weighted average shares outstanding: Basic 16,485 12,384 Diluted 16,686 12,548 Dividends declared per common share $ 0.05 $ 0.05
Page 3 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) FOR THE THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 -------- -------- OPERATING ACTIVITIES Earnings before extraordinary item $ 4,611 $ 2,280 Depreciation and amortization 4,984 3,837 Provision for deferred income taxes 451 75 Equity in earnings of affiliates (464) (30) Other noncash charges 656 222 Changes in operating assets and liabilities Accounts receivable (3,625) (1,654) Inventories (777) 1,337 Other current assets (622) (658) Accounts payable and accrued liabilities 8,564 3,657 -------- -------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 13,778 9,066 INVESTING ACTIVITIES Payments for property and equipment (7,535) (12,008) Acquisition of IMSAMET, Inc., net of cash acquired - (58,251) Other 745 (1,591) -------- -------- NET CASH USED BY INVESTING ACTIVITIES (6,790) (71,850) FINANCING ACTIVITIES Net repayments of short-term borrowings - (4,087) Net proceeds from long-term revolving credit facility 1,479 - Proceeds from issuance of long-term debt - 112,097 Principal payments of long-term debt - (48,337) Debt issuance costs (62) (2,147) Dividends paid (825) (627) Other (93) 1,626 -------- -------- NET CASH PROVIDED FROM FINANCING ACTIVITIES 499 58,525 -------- -------- Effect of exchange rate differences on cash and cash equivalents 9 - Net increase (decrease) in cash and cash equivalents 7,496 (4,259) Cash and cash equivalents at January 1 405 5,070 -------- -------- Cash and cash equivalents at March 31 $ 7,901 $ 811 -------- -------- -------- -------- SUPPLEMENTARY INFORMATION Cash payments for interest $ 1,833 $ 2,193 Cash payments for income taxes $ 390 $ 200 Fair value of the shares issued in the acquisition of Rock Creek Aluminum, Inc. $ - $ 7,125
Page 4 IMCO RECYCLING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1998 (DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. The accompanying financial statements include the accounts of IMCO Recycling Inc. and all of its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE B - INVENTORIES The components of inventories are: MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ Finished goods $ 19,435 $ 16,771 Raw materials 15,470 17,313 Supplies 429 472 --------- --------- $ 35,334 $ 34,556 --------- --------- --------- ---------
Page 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Most of the Company's processing consists of aluminum, magnesium and zinc tolled for its customers. To a lesser (but increasing) extent, the Company's processing also consists of buy/sell business, which involves purchasing scrap metal and dross for processing and resale. The Company's buy/sell business revenues include the cost of the metal, the processing cost and the Company's profit margin. Tolling revenues reflect only the processing cost and the Company's profit margin. Accordingly, tolling business produces lower revenues and costs of sales than does the buy/sell business. Variations in the mix of these two businesses can cause revenues to change significantly from period to period while not significantly affecting gross profit, since both types of business generally produce approximately the same gross profit per pound of metal processed. As a result, the Company considers processing volume to be a more important determinant of performance than revenues. The Company's aluminum alloying facility (acquired in November 1997) is primarily engaged in buy/sell business, as opposed to tolling; therefore, the Company has experienced higher levels of buy/sell business relative to tolling during 1998. Consequently, the higher level of buy/sell business has increased the Company's working capital requirements and subjected the Company to greater risks associated with price fluctuations in the aluminum market. The proposed acquisition of U.S. Zinc (if consummated) is also expected to increase the level of overall buy/sell business for the Company. The following table shows the total pounds of metal melted, the percentage of total pounds melted represented by tolled metal, total revenues and total gross profits: THREE MONTHS ENDED MARCH 31, ------------------------ 1998 1997 ---------- --------- Pounds of metal melted 579,388 432,434 Percentage of pounds tolled 72% 81% Revenues $ 127,232 $ 82,528 Gross profits $ 13,626 $ 10,152
ACQUISITION On April 22, 1998, the Company announced that it had entered into a non-binding letter of intent to acquire, in a privately negotiated transaction, all of the capital stock of U.S. Zinc Corporation and certain of its affiliated corporations ("U.S. Zinc") for a total purchase price currently estimated to be $75,000,000, consisting of approximately $46,000,000 in cash, the assumption of approximately $21,000,000 in debt and the issuance of 566,213 shares of the Company's common stock. In addition, the transaction provides for potential additional payments to the sellers payable over a three-year period commencing in 1999, depending upon future earnings performance, and issuance of a four- year warrant to purchase 1,500,000 shares of a newly authorized class of the Company's preferred stock. The acquisition will be accounted for using the purchase method of accounting. Page 6 U.S. Zinc, headquartered in Houston, Texas, is believed to be the world's largest zinc recycler and the second largest supplier of zinc oxide and zinc dust. It operates five production facilities located in Illinois, Texas and Tennessee and has an annual processing capacity of 200,000,000 pounds of zinc. The acquisition of U.S. Zinc is expected to increase the Company's total annual processing capacity in 1998 to approximately 2.7 billion pounds. The closing of the acquisition of U.S. Zinc is subject to the conditions contained in the letter of intent and in the definitive acquisition agreement to be entered into in connection with the acquisition. Although the Company believes that such conditions will be fully satisfied on or before the anticipated closing date of the acquisition of U.S. Zinc (currently estimated to be during the second quarter of 1998), many of these conditions are beyond the control of the Company, and there can be no assurance of when or whether the closing of the acquisition of U.S. Zinc will occur. Closing conditions will include the satisfaction of usual and customary closing conditions, including termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the absence of any injunction or other legal restraint, the consent of third parties and governmental entities, the accuracy in all material respects of the representations and warranties made in the definitive acquisition agreement and the performance of pre-closing agreements. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 PRODUCTION: The Company melted 34% more metal in the first quarter of 1998 than it did in the first quarter of 1997. Aluminum processing at the Company's newest plants in Coldwater, Michigan (which began production in the first quarter of 1997) and Swansea, Wales (which began production in the fourth quarter of 1997) and the Alchem facility (which was acquired in November 1997) accounted for 63% of the increase in production. The Idaho and Utah facilities (IMSAMET, Inc. plants) accounted for 13% of the increase in production primarily due the Idaho furnaces being shut-down during the first quarter of 1997 for furnace reline maintenance and the Utah facility experiencing greater production operating efficiencies in 1998. In addition, production increased at the Company's Bedford, Indiana facility due to the 1997 installation of a new furnace. REVENUES: In the first quarter of 1998, the Company's revenues totaled $127,232,000, which was 54% higher than revenues of $82,528,000 for the same period in 1997. The acquisition of Alchem and operations at the new Coldwater, Michigan and Swansea, Wales plants accounted for most of the increase, but this increase was partially offset by lower aluminum selling prices. Tolling activity represented 72% of the Company's pounds melted for the first quarter ended March 31, 1998, compared to 81% for the first quarter of 1997. As discussed above, a reduction in the tolling ratio will generally increase revenues. Prior to November 1997, materials processed for Alchem at the Company's Coldwater, Michigan facility were classified as tolling business, but because the Company acquired Alchem in November 1997, these pounds are now classified as buy/sell business. GROSS PROFIT: Gross profits were $13,626,000 for the first quarter of 1998, which was 34% higher than gross profits of $10,152,000 for the first quarter of 1997. The November 1997 Page 7 acquisition of Alchem and operations at the new Coldwater plant accounted for 89% of the increase in gross profits. SG&A EXPENSES: Selling, general and administrative expenses of $4,740,000 for the first quarter of 1998 were slightly higher than $4,578,000 for the first quarter of 1997. The increase was primarily due to higher selling and goodwill amortization expenses resulting from the November 1997 acquisition of Alchem. INTEREST: Interest expense was $1,998,000 for the first quarter of 1998, or 16% higher than $1,716,000 for the first quarter of 1997. The increase in interest expense was primarily the result of higher capitalized interest during the first quarter of 1997 in connection with the construction of the new plant in Coldwater, Michigan. EXTRAORDINARY ITEM: In connection with the plant acquisitions in January 1997, the Company borrowed funds under a new long-term credit facility. A portion of the sums borrowed under this credit facility was used to retire substantially all of the Company's outstanding indebtedness prior to its stated maturity. This early debt retirement generated an extraordinary loss of $1,318,000 (net of income tax benefit of $878,000) for the first quarter of 1997. There was no extraordinary item in 1998. NET EARNINGS/(LOSS): Earnings before the provision for income taxes, minority interests and extraordinary item was $7,455,000 for the first quarter of 1998, which was 88% higher than $3,958,000 for the first quarter of 1997. The increase was primarily the result of higher gross profits. The Company's effective income tax rate was 37% for the first quarter of 1998 compared to 40% for the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATIONS. Operations provided $13,778,000 of cash during the first quarter of 1998 compared to $9,066,000 of cash provided during the same period of 1997. Higher net earnings before extraordinary item in 1998 of $4,611,000 compared to $2,280,000 for 1997 accounted for approximately half of the increase in cash provided from operations. In addition, higher depreciation and amortization of $4,984,000 in 1998 compared to $3,837,000 for 1997 accounted for 24% of the increase in cash provided from operations. Changes in the components of operating assets and liabilities accounted for 18% of the increase in cash provided from operations. During the first quarter of 1998, changes in operating assets and liabilities generated $3,540,000 of cash, compared to generating $2,682,000 in cash for the first quarter of 1997. At March 31, 1998, the relationship of current assets to current liabilities, or current ratio, was 2.44 to 1, compared to 2.71 to 1 at December 31, 1997. For the reasons discussed above, working capital fluctuates as the mix of buy/sell business and tolling business changes. The Company's working capital requirements have increased in 1998 as a result of higher levels of buy/sell business and increased processing volumes due to the acquisition of Alchem and the initial operation of the new plant in Swansea, Wales. The acquisition of U.S. Zinc is also currently expected to increase the level of overall Company buy/sell business, and thereby further increase its working capital requirements. Nonetheless, the Company believes that its cash on hand, the availability of funds under its amended and restated credit facilities and its anticipated internally generated funds will be sufficient to fund its current needs and meet its obligations for the foreseeable future. Page 8 CASH FLOWS FROM INVESTING ACTIVITIES. For the first quarter of 1998, net cash used by investing activities was $6,790,000 compared to $71,850,000 for the same period in 1997, which primarily reflected the first quarter 1997 acquisition of IMSAMET for $58,251,000. In addition, the Company's total payments for property, plant and equipment in the first quarter of 1998 decreased to $7,535,000 compared to $12,008,000 spent in the first quarter of 1997. Capital expenditures for property, plant and equipment in 1998 are expected to be approximately $34,500,000. Major projects include the installation of a reverberatory furnace and delacquering equipment at the Morgantown, Kentucky facility, the purchase of environmental equipment, and the expansion of an existing Company-owned landfill and upgrades to various furnaces. CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided from financing activities decreased to $499,000 in the first quarter of 1998 compared to $58,525,000 in the first quarter of 1997. In connection with its January 1997 acquisitions, the Company entered into a new long-term credit agreement with certain lenders, borrowing $110,000,000 at the closing and using approximately $61,000,000 for the IMSAMET acquisition and $49,000,000 to retire substantially all of the Company's outstanding debt as of December 31, 1996. Financing activities also included cash payments of $825,000 in dividends for the first quarter of 1998. The Company expects to fund the cash portion of the acquisition of U.S. Zinc through borrowings under its long-term reducing revolving credit facility. Upon the closing of the acquisition, the Company also intends to repay U.S. Zinc's outstanding indebtedness under its working capital line of credit facility (expected to be approximately $17,000,000 at the time of the acquisition) through borrowings under the Company's long-term reducing revolving credit facility. As of March 31, 1998, the Company had $97,825,000 outstanding under its long- term reducing revolving credit facility. As of March 31, 1998, the floating interest rate was capped at 8% per annum for 41% of the total outstanding borrowings under the long-term reducing revolving credit facility. At March 31, 1998, the Company had standby letters of credit outstanding with Chase Bank Texas, NA and American National Bank and Trust Company in the amounts of $1,752,000 and $769,000, respectively. CONTINGENCIES. On May 8, 1997, Harvard Industries, Inc. ("Harvard") announced that it and its wholly-owned subsidiary, Doehler-Jarvis, Inc. ("Doehler- Jarvis") had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company sells aluminum to Doehler-Jarvis. At March 31, 1998, the Company had $3,492,000 of outstanding unsecured receivables from Doehler-Jarvis, net of related reserves. While the Company currently believes that Harvard's bankruptcy will not have a material adverse effect on the Company's financial position or results of operations, no assurance can be given as to the amount and timing of the Company's ultimate recovery, if any, of its claims. The Company's revenues from Doehler-Jarvis totaled $12,350,000 and $17,490,000 for the years ended December 31, 1997 and 1996, respectively. The Company believes that the loss of this customer would not have a material adverse effect on the Company's financial position or results of operations. NEW ACCOUNTING PRONOUNCEMENTS In 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," which is effective for periods beginning after December 31, 1997. Page 9 Statement 130 establishes standards for reporting and display of comprehensive income and its components. During the first quarter of 1998, the impact of Statement 130 was not material. In 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information," which is effective for periods beginning after December 15, 1997. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Based on management's review of the impact of Statement 131, this statement is not expected to affect the number of segments the Company is required to report. TECHNOLOGY FOR THE YEAR 2000 The Company relies heavily on software technology to deliver its services and has taken actions to evaluate the nature and extent of the work required to make its systems and infrastructure "Year 2000" compliant. The Company believes that its primary operations and accounting software vendors are Year 2000 compliant. However, the Company has identified potential Year 2000 issues with certain subsidiaries and a joint venture partner, and is currently developing plans to convert or modify those systems in order to achieve Year 2000 compliance. Based on preliminary information, the Company believes that it will be able to manage its total Year 2000 transition without any material adverse effect on its business, financial position or results of operations. The Company cannot presently determine the impact on its customers and suppliers in the event that they may be Year 2000 non-compliant, and in such event, whether such non-compliance may have a material adverse effect on the Company's results of operations or financial position. The Company has prepared and distributed a Year 2000 questionnaire to its customers and suppliers to determine their respective Year 2000 issues. Currently, the Company is in the process of evaluating the responses of the questionnaires received. CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS Certain information contained in this ITEM 2. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" (as well as certain oral statements made by or on behalf of the Company) may be deemed to be forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are subject to the "Safe Harbor" provisions in that enacted legislation. This information includes, without limitation, statements concerning future revenues, future earnings, future costs, future margins and future expenses; future acquisitions or corporate combinations (including the proposed acquisition of U.S. Zinc); expected effects of the proposed U.S. Zinc acquisition; plans for domestic or international expansion, facility construction schedules and projected completion dates, and anticipated technological advances; future capabilities of the Company to achieve "closed loop recycling" on a commercially efficient basis; prospects for the Company's joint venture partners to purchase a portion of the Company's interests; future (or extensions of existing) long-term supply contracts with its customers; the outcome of and any liabilities resulting from any claims, investigations or proceedings against the Company or its subsidiaries; future levels of dividends (if any); the future mix of business, future asset recoveries, future operations, future demand, future industry conditions, future capital expenditures, future Page 10 financial condition, and the impact of the "Year 2000" technology transition on the Company, its customers and suppliers. These statements are based on current expectations and involve a number of risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. When used in or incorporated by reference into this Quarterly Report on Form 10-Q, the words "anticipate," "estimate," "expect," "may," "project" and similar expressions are intended to be among the statements that identify forward- looking statements. Important factors that could affect the Company's actual results and cause actual results to differ materially from those results that might be projected, forecasted, estimated or budgeted by the Company in such forward-looking statements include, but are not limited to, the following: fluctuations in operating levels at the Company's facilities, the mix of buy/sell business as opposed to tolling business, retention and financial condition of major customers, effects of future costs, collectibility of receivables, the inherent unpredictability of adversarial or administrative proceedings, effects of environmental and other governmental regulations, currency exchange rate fluctuations, trends in the Company's key markets, the price of and supply and demand for aluminum and zinc (and their derivatives) on world markets, business conditions and growth in the aluminum and zinc industries and aluminum and zinc recycling industries, and future levels and timing of capital expenditures. These statements are further qualified by the following: *Estimates of future operating rates at the Company's plants are based on current expectations by management of the Company of future levels of volumes and prices for the Company's services or metal, and are subject to fluctuations in customer demand for the Company's services and prevailing conditions in the metal markets, as well as certain components of the Company's cost of operations, including energy and labor costs. Many of the factors affecting revenues and costs are outside of the control of the Company, including weather conditions, general economic and financial market conditions, and governmental regulation and factors involved in administrative and other proceedings. The future mix of buy/sell vs. tolling business is dependent on customers' needs and overall demand, world and U.S. market conditions then prevailing in the respective metal markets, and the operating levels at the Company's various facilities at the relevant time. *The price of primary aluminum and other metals is subject to worldwide market forces of supply and demand and other influences. Prices can be volatile, which could affect the Company's buy/sell aluminum business. The Company's use of contractual arrangements including long-term agreements and forward contracts may reduce the Company's exposure to this volatility but does not eliminate it. *The markets for most aluminum products are highly competitive. The major primary aluminum producers are larger than the Company in terms of total assets and operations and have greater financial resources. In addition, aluminum competes with other materials such as steel, vinyl, plastics and glass, among others, for various applications in the Company's key markets. Unanticipated actions or developments by or affecting the Company's competitors and/or willingness of customers to accept substitutions for Page 11 aluminum products could affect the Company's financial position and results of operations. *Fluctuations in the costs of fuels, raw materials and labor can affect the Company's financial position and results of operations. *The Company's key transportation market is cyclical, and sales to that market in particular can be influenced by economic conditions. *A strike at a customer facility or a significant downturn in the business of a key customer supplied by the Company could affect the Company's financial position and results of operations. *The Company spends substantial capital and operating amounts relating to ongoing compliance with environmental laws. In addition, the Company is involved in certain investigations and actions in connection with environmental compliance and past disposals of solid waste. Estimating future environmental compliance and remediation costs is imprecise due to the continuing evolution of environmental laws and regulatory requirements and uncertainties about their application to the Company's operations, the availability and applicability of technology and the allocation of costs among principally responsible parties. Unanticipated material legal proceedings or investigations could affect the Company's financial position and results of operations. REVIEW BY INDEPENDENT ACCOUNTANTS The Company's independent accountants, Ernst & Young LLP, have reviewed the Company's consolidated financial statements at March 31, 1998, and for the three month period then ended prior to filing, and their report is included herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risks include (1) floating interest rate risk on its long- term debt, (2) foreign currency risk from its operations outside the United States, (3) price risk for natural gas used in its production process, (4) price risk for aluminum in its buy/sell and by-product processing businesses and (5) credit risk from customers. The Company uses derivative financial instruments to manage some of these risks; these financial instruments are not used for speculative purposes. In order to reduce the fluctuating interest rate exposure on the term loan under the January 1997 Credit Agreement (See ITEM 2. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES"), the Company entered into an interest rate cap transaction ("Rate Cap Transaction") agreement with Chase Bank Texas, NA on April 7, 1997. The cost associated with this Rate Cap Transaction is being amortized as interest expense over the four year term of the agreement. As of March 31, 1998, the floating interest rate was capped at 8% per annum for 41% of the total outstanding borrowings under the Amended and Restated Credit Agreement. Page 12 During the first quarter of 1998, the financial impact of gains and losses from foreign currency exchange rate fluctuations associated with the construction and operation of the Company's Wales facility and VAW-IMCO was immaterial. Natural gas is the Company's second largest cost component. In order to manage its price exposure for natural gas purchases, the Company has, at times, fixed the future price of a portion of its natural gas requirements by entering into firm-priced physical commitments. In addition, the Company has cost escalators included in some of its long-term supply contracts with its customers, which limit the Company's exposure to natural gas price risk. As of March 31, 1998, approximately 54% of the Company's projected natural gas requirements were locked-in at fixed delivery prices for the remainder of 1998. Aluminum ingot is an internationally priced, sourced and traded commodity, and its principal trading market is the London Metal Exchange. From time to time, the Company has entered into forward sale contracts and a series of put and call option contracts with metal brokers to cover the future selling prices on a portion of the aluminum generated by the Company's salt cake processing facility in Kentucky. These contracts are settled in the month of the corresponding production. The contracts did not have a significant effect on the Company's financial position or results of operations for the first quarter of 1998. Based upon the Company's increased amount of buy/sell business in recent years and expected as a result of the U.S. Zinc acquisition (if consummated), it is likely that the degree of the Company's metals hedging activities will increase during the remainder of 1998 and for the foreseeable future. In May 1997, one of the Company's customers filed for protection under Chapter 11 of the U.S. Bankruptcy Code--see "LIQUIDITY AND CAPITAL RESOURCES" above. Because the Company is not yet required to provide the disclosures otherwise mandated under Item 305 of Regulation S-K promulgated by the Securities and Exchange Commission (pursuant to General Instruction 1. of General Instructions to Paragraphs 305(a), 305(b), 305(c), 305(d) and 305(e)), the foregoing disclosures under this ITEM 3. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK" do not and are not intended to comply with Item 305. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The Company paid $825,000 in dividends during the first quarter of 1998. During the three months ended March 31, 1998, the Company made no unregistered sales of its equity securities. Page 13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein: 10.1 Executive Option Exercise Loan Program dated March 10, 1998 15.1 Acknowledgment letter regarding unaudited financial information from Ernst & Young LLP 27 Financial Data Schedule (b) Reports on Form 8-K: None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMCO Recycling Inc. (Registrant) Date: May 5, 1998 By: /s/ Robert R. Holian ----------------------------------- Robert R. Holian Vice President and Controller (Principal Accounting Officer) Page 14 Independent Accountants' Review Report Stockholders and Board of Directors IMCO Recycling Inc. We have reviewed the accompanying consolidated balance sheet of IMCO Recycling Inc. as of March 31, 1998, and the related consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of IMCO Recycling Inc. as of December 31, 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended, [not presented herein], and in our report dated February 2, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ ERNST & YOUNG LLP Dallas, Texas April 27, 1998 15 EX-10.1 2 EXHIBIT 10.1 IMCO RECYCLING INC. EXECUTIVE OPTION EXERCISE LOAN PROGRAM (As Adopted March 10, 1998) PURPOSE: The purpose of the IMCO Recycling Inc. Executive Option Exercise Loan Program (the "Program") is to more closely align the goals and motivation of management holding options under the Company's Amended and Restated Option Plan with those of other Company stockholders and to provide such management with a long-term capital accumulation opportunity. This purpose is accomplished by providing selected management employees with loans to permit them to exercise their Company stock options under the Amended and Restated Option Plan and to pay federal and state taxes realized upon such exercises. DEFINITIONS: "BOARD" shall mean the Board of Directors of the Company, as constituted from time to time. "COMMON STOCK" shall mean the common stock of the Company, par value $.10 per share. "COMPANY" shall mean IMCO Recycling Inc., or any subsidiary thereof. "COMPENSATION COMMITTEE" shall mean the Compensation Committee of the Board of Directors of the Company, as constituted from time to time. "ELIGIBLE EMPLOYEE" shall mean any management employee of the Company holding a stock option under the Plan that the Compensation Committee has determined may be granted a loan pursuant to the Program. "EXERCISE LOAN" shall have the meaning assigned to it in Section 2 of this Program. "EXERCISE NOTE" shall mean a Promissory Note evidencing an Exercise Loan made to a Participant by the Company pursuant to the terms of this Program, in the form attached hereto as EXHIBIT 1A. "FEDERAL RATE" means the annual rate equal to the Internal Revenue Service mid-term applicable federal rate under Section 1274 of the Internal Revenue Code of 1986, as amended, as announced from time-to-time. "LOAN" shall mean a loan made to a Participant pursuant to this Program and evidenced by one or more Promissory Notes, and that will be comprised of either or both of a Tax Loan and/or an Exercise Loan. "PARTICIPANT" shall refer to an Eligible Employee that has a Loan outstanding. "PLAN" shall mean the Company's Amended and Restated Option Plan. "PROGRAM ADMINISTRATOR" shall mean the person or persons designated as such by the Compensation Committee. If no person has been formally designated, the Program Administrator shall be the Secretary of the Company. "PROMISSORY NOTE" shall mean either an Exercise Note or a Tax Note. "PURCHASED SHARES" shall mean all of the shares of Common Stock purchased by a Participant upon exercise at the time a Loan was made to such Participant hereunder. "TAX LOAN" shall have the meaning assigned to it in Section 2 of this Program. "TAX NOTE" shall mean a Promissory Note evidencing a Tax Loan made to a Participant by the Company pursuant to the terms of this Program, in the form attached hereto as EXHIBIT 1B. PROGRAM: 1. SELECTION OF ELIGIBLE EMPLOYEES. From time to time, the Compensation Committee shall determine the Eligible Employees who may be granted Loans hereunder and the maximum amount of the Loans, which amount will be stated in terms of the maximum number of shares of Common Stock that each may exercise under the Plan utilizing Loans as provided hereunder. As soon as practicable after the determination by the Compensation Committee, the Program Administrator will notify each Eligible Employee in writing of his or her eligibility and the outstanding stock options under the Plan that he or she may exercise utilizing Loans under the terms of the Program. An Eligible Employee shall cease being an Eligible Employee on the date on which he or she ceases to be an employee of the Company. The rights of an Eligible Employee to borrow money hereunder are not transferable and may not be exercised by any person other than the Eligible Employee. The Board or the Compensation Committee may revoke or reduce the availability of Loans to an Eligible Employee at any time. 2. THE LOAN. An Eligible Employee may borrow from the Company 100% of the cost of exercising one or more Company stock options under the Plan held by that Eligible Employee (vested portions only) (an "EXERCISE LOAN"), plus 100% of the -2- amount of any federal or state tax payable by the Eligible Employee as a result of the exercise (a "TAX LOAN"). The Eligible Employee may only borrow funds from the Company under the Program if they are used to exercise Company options under the Plan and/or pay taxes resulting from such exercise. If Regulation G (or any successor provision) promulgated by the Board of Governors of the Federal Reserve System is deemed applicable to the Loans made pursuant hereto, the Company and each Eligible Employee shall take such actions as the Company deems necessary or advisable in order to comply with Regulation G. Each Loan will be evidenced by a Promissory Note. The terms of each Promissory Note shall be as follows: (a) GENERAL. The following terms shall be applicable to both Tax Notes and Exercise Notes. (i) INTEREST. Interest on the unpaid principal balance of each Promissory Note will accrue at the Federal Rate in effect as of the date of the making of the applicable Loan. Interest will be calculated as simple interest and shall not compound, whether or not accrued interest is paid on an annual basis or otherwise. (ii) ACCELERATION. The Company will have the option of accelerating the maturity of a Promissory Note and declaring that the entire unpaid principal balance of, and all accrued unpaid interest on, that Promissory Note, are and shall be immediately due and payable, on (A) the Participant's termination of employment with the Company for any reason; or (B) the date the Participant sells or otherwise disposes or attempts to dispose of all of the Purchased Shares. If only a portion of the Purchased Shares is to be sold, the Participant may request that only a pro rata portion of the proceeds be utilized to repay the applicable Loan. (iii) SECURITY. The Promissory Notes executed by each Participant will be secured by a Security Agreement granting the Company a first lien security interest in and to the Purchased Shares. (iv) PREPAYMENT. The Participant may prepay each Loan in whole or in part at any time without penalty. At the option of the Compensation Committee, Loans may be repaid by the tender of Company Common Stock owned by the Participant. (v) APPLICATION OF PAYMENTS. All payments made or applied on a Promissory Note shall be applied first to pay accrued and unpaid interest thereon and then to the unpaid principal balance thereof. -3- (vi) MATURITY. Except as otherwise provided herein, each Promissory Note shall mature and be due and payable in full on the date that is five years after the date of that Promissory Note. (b) PAYMENT TERMS FOR TAX NOTES. Accrued unpaid interest on each Tax Note shall be due and payable annually on each anniversary date of that Tax Note, and at maturity. (c) PAYMENT TERMS FOR EXERCISE NOTES. Accrued unpaid interest on each Exercise Note shall be due and payable at maturity (whether by acceleration, stated maturity or otherwise); PROVIDED HOWEVER, that portions of the interest accruing on the principal balance outstanding of each Exercise Note as of the particular date of determination shall be automatically forgiven, extinguished and discharged without further action on the part of the Participant or the Company in the event that the Participant remains in the employ of the Company and has not disposed of any of the Purchased Shares as of the time of determination, in accordance with the following schedule: The first anniversary of 50% of the interest accrued the date of the making of interest the Exercise Note Each anniversary of the 50% of the accrued during the date of the making of the most recent twelve-month Exercise Note after the period, plus the remaining first anniversary interest accrued for the prior twelve-month period which had not been forgiven The scheduled maturity All remaining accrued interest date of the Exercise Note to the maturity date 3. EXERCISE OF OPTIONS. An Eligible Employee may borrow funds as set forth above to purchase shares of Common Stock by means of the exercise of outstanding and vested options under the Plan on the following terms: (a) An Eligible Employee that wishes to borrow funds pursuant to this Program to acquire Common Stock by means of exercising options under the Plan or to pay taxes upon exercise may do so by giving written notice to the Program Administrator indicating the Eligible Employee's name, the number of shares of Common Stock he or she desires to acquire hereunder and any other information reasonably requested by the Program Administrator. (b) Following the approval by the Program Administrator of the Loan requested by the Eligible Employee, the Eligible Employee will (i) execute and deliver the applicable Promissory Note(s) to the Program Administrator; and (ii) execute and deliver the Security Agreement to the Program Administrator. -4- (c) The certificate(s) representing the Purchased Shares will be registered in the name of the Participant, but will be held by the Company and pledged to the Company under the Security Agreement to secure payment of the Promissory Note(s). So long as the Participant owns the Purchased Shares and is not in default under the Loan, he or she shall retain the right to vote, and to receive dividends on and distributions with respect to, the Purchased Shares. 4. MISCELLANEOUS. (a) The Board may amend or terminate this Program at any time; provided, however, no such termination or amendment shall affect any Loan or Promissory Note outstanding at the time the Program is amended or terminated, unless the Participant who obtained the Loan and issued the Promissory Note so agrees. (b) The Program Administrator may make Loans hereunder upon the authority of the Compensation Committee. APPROVAL: This Program was adopted by the Board of Directors of the Company at its meeting duly held on March 10, 1998. /s/ DON V. INGRAM ------------------------------- DON V. INGRAM Chairman of the Board and Chief Executive Officer -5- EXHIBIT 1A FULL RECOURSE PROMISSORY NOTE (EXERCISE LOAN) $_________________ _______________ (amount) (date) FOR VALUE RECEIVED, _____________ (the "Promisor") hereby promises to pay to the order of IMCO Recycling Inc. (the "Holder") the principal sum of____ ____________ Dollars ($______), plus simple interest accrued (commencing the date hereof) on the unpaid principal balance hereof at a rate of_____% per annum (that percentage amount being the Internal Revenue Service mid-term "applicable federal rate" as of the date of this Promissory Note). All principal and accrued interest shall be paid on or before the earlier of the _________anniversary date of this Promissory Note or the date the Promisor ceases to be employed by the Holder; PROVIDED HOWEVER, that a portion of the accrued interest hereon may be forgiven from time to time during the term of this Promissory Note, provided that the conditions for such forgiveness are satisfied in accordance with the terms of the IMCO Recycling Inc. Amended and Restated Option Plan Executive Option Loan Program (the "Loan Program"), to which this Promissory Note and the indebtedness evidenced hereby are expressly made subject in all respects. The Promisor reserves and shall have the right to prepay the unpaid principal balance of this Promissory Note, together with accrued interest thereon to the date of such prepayment, at any time without premium or penalty. All proceeds from the sale of stock pledged under the Loan Program shall be applied to the repayment of amounts outstanding under all indebtedness owed by the Promisor under the Loan Program (including that evidenced by this Promissory Note). The unpaid principal balance of, together with all accrued unpaid interest on, this Note, shall, at the option of the Holder, be immediately due and payable upon the occurrence of any one or more of the following events: (a) the Promisor shall make a general assignment for the benefit of creditors; (b) the Promisor shall become or be adjudicated bankrupt or shall voluntarily file a petition for bankruptcy; (c) the Promisor shall apply for the appointment of a receiver or a trustee for any substantial portion of the Promisor's property or assets or shall permit the appointment of any such receiver or trustee who is not discharged within a period of 30 days after such appointment; (d) any event of default shall occur under the terms of the Security Agreement between the Holder and the Promisor bearing even date herewith, which secures the indebtedness evidenced by this Promissory Note; or (e) the Holder exercises its right to accelerate the maturity of this Promissory Note pursuant to SECTION 2(a)(ii)(A) of the Loan Program (or, pursuant to SECTION 2(a)(ii)(B) of the Loan Program, and if only a portion of the loan evidenced by this Promissory Note is to be repaid, then only that portion of this Promissory Note shall be subject to acceleration). The Promisor hereby waives demand, presentment, notice of non-payment, protest, notice of protest, notice of dishonor and diligence in collection, notice of default, notice of intent to accelerate and notice of acceleration. Furthermore, in any action or proceeding based upon the Note, the Holder shall be entitled to recover reasonable attorneys' fees and all other reasonable costs of collection. THIS NOTE IS SECURED BY A SECURITY AGREEMENT OF EVEN DATE HEREOF BETWEEN THE HOLDER AND THE PROMISOR. ------------------------------- PROMISOR -2- EXHIBIT 1B FULL RECOURSE PROMISSORY NOTE (TAX LOAN) $_________________ _______________ (amount) (date) FOR VALUE RECEIVED, _____________ (the "Promisor") hereby promises to pay to the order of IMCO Recycling Inc. (the "Holder") the principal sum of ____ ____________ Dollars ($_______), plus simple interest accrued (commencing the date hereof) on the unpaid principal balance hereof at a rate of_____% per annum (that percentage amount being the Internal Revenue Service mid-term "applicable federal rate" as of the date of this Promissory Note). The accrued unpaid interest on this Note shall be payable annually on each anniversary date hereof. All principal and accrued interest shall be paid on or before the earlier of the _________ anniversary date of this Promissory Note or the date the Promisor ceases to be employed by the Holder. This Promissory Note and the indebtedness evidenced hereby are expressly made subject in all respects to the terms of the IMCO Recycling Inc. Amended and Restated Option Plan Executive Option Loan Program (the "Loan Program"). The Promisor reserves and shall have the right to prepay the unpaid principal balance of this Note, together with accrued interest thereon to the date of such prepayment, at any time without premium or penalty. All proceeds from the sale of stock pledged under the Loan Program shall be applied to the repayment of amounts outstanding under all indebtedness owed by the Promisor under the Loan Program (including that evidenced by this Promissory Note). The unpaid principal balance of; together with all accrued unpaid interest on, this Note, shall, at the option of the Holder, be immediately due and payable upon the occurrence of any one or more of the following events: (a) the Promisor shall make a general assignment for the benefit of creditors; (b) the Promisor shall become or be adjudicated bankrupt or shall voluntarily file a petition for bankruptcy; (c) the Promisor shall apply for the appointment of a receiver or a trustee for any substantial portion of the Promisor's property or assets or shall permit the appointment of any such receiver or trustee who is not discharged within a period of 30 days after such appointment; (d) any event of default shall occur under the terms of the Security Agreement between the Holder and the Promisor bearing even date herewith, which secures the indebtedness evidenced by the Promissory Note; or (e) the Holder exercises its right to accelerate the maturity of this Promissory Note pursuant to SECTION 2(a)(ii)(A) of the Loan Program (or, pursuant to SECTION 2(a)(ii)(B) of the Loan Program, and if only a portion of the loan evidenced by this Promissory Note is to be repaid, then only that portion of this Promissory Note shall be subject to acceleration). The Promisor hereby waives demand, presentment, notice of non-payment, protest, notice of protest, notice of dishonor and diligence in collection, notice of default, notice of intent to accelerate and notice of acceleration. Furthermore, in any action or proceeding based upon the Note, the Holder shall be entitled to recover reasonable attorneys' fees and all other reasonable costs of collection. THIS NOTE IS SECURED BY A SECURITY AGREEMENT OF EVEN DATE HEREOF BETWEEN THE HOLDER AND THE PROMISOR. ------------------------------- PROMISOR -2- EXHIBIT 2 SECURITY AGREEMENT _____________________,(the "Borrower") hereby grants to IMCO Recycling Inc. (the "Secured Party") a security interest in those certain assets of Borrower described in Section 1 below (collectively referred to hereinafter as the "Collateral"). This security interest is granted to secure payment to the Secured Party of the indebtedness evidenced by that certain [those certain] Promissory Note(s) dated _______________________ in the original principal amount of _______________ Dollars ($__________________) (the "Secured Obligations"). 1. COLLATERAL. The Collateral subject to this Agreement consists of ___________ shares (the "Pledged Shares") of IMCO Recycling Inc. common stock, all certificates representing the Pledged Shares, and all proceeds of any of the foregoing, including any property issued in exchange or substitution for the Pledged Shares (all of the foregoing being collectively referred to herein as the "Collateral"). 2. BORROWER'S SPECIFIC AGREEMENTS. Borrower agrees that: (a) All certificates or instruments representing or evidencing the Collateral shall be delivered to and held by or on behalf of Secured Party. Unless there is then existing an Event of Default (as defined below) by the Borrower, the Pledgor shall be entitled to vote the Pledged Shares. Upon the occurrence of any Event of Default, all voting rights shall revert to the Secured Party. (b) The Borrower agrees from time to time to promptly execute and deliver all further instruments and documents, and take all further action, that Secured Party may reasonably request in order to exercise and enforce its rights and remedies under this Agreement. (c) The Borrower agrees that until the Secured Obligations have been paid in full, Borrower will not sell, assign or otherwise dispose of; or grant any option with respect to, any of the Collateral, or create or permit to exist any lien, security interest, option or other charge or encumbrance upon any of the Collateral, except for this Security Agreement. 3. EVENTS OF DEFAULT. The Secured Obligations shall become immediately due and payable without notice or demand upon the occurrence of any of the following events of default: (a) Borrower shall make a general assignment for the benefit of creditors. (b) Borrower shall become or be adjudicated bankrupt or shall voluntarily file a petition for bankruptcy. (c) Borrower shall apply for the appointment of a receiver or a trustee for any substantial portion of his or her property or assets or shall permit the appointment of any such receiver or trustee who is not discharged within a period of 30 days after such appointment. (d) Borrower shall cease to be an employee of IMCO Recycling Inc. 4. REMEDIES. (a) Borrower recognizes that in the event he or she violates any of the warranties, covenants, terms and conditions of this Agreement, no remedy at law will provide adequate relief to the Secured Party and Borrower hereby agrees that the Secured Party shall be entitled to temporary and permanent injunctive relief in case of any breach without the necessity of proving actual damages. (b) Upon the occurrence of any such event of default, and at any time thereafter, the Secured Party shall have the rights and remedies of a secured party under the Texas Business and Commerce Code and under any and all other applicable laws in addition to the rights and remedies provided herein or in any other instrument or document executed by Borrower. All rights, powers and remedies hereunder or in any other instrument or document provided are cumulative and none is exclusive. 5. TERM; BINDING EFFECT; GOVERNING LAW. (a) This Agreement, upon acceptance by the Secured Party, shall continue in effect until the Secured Obligations have been paid in full. (b) This Security Agreement shall be binding and inure to the benefit of the parties hereto and their respective heirs, successors, representatives and assigns. (c) The validity, interpretation, enforcement and effect of this Security Agreement shall be governed by the laws of the State of Texas. 6. SEPARABILITY. In the event that any provision hereof is deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision and the invalidity of such provision shall not affect the validity of any provision hereof and any and all provisions hereof which are otherwise lawful and valid shall remain in full force and effect. -2- This Agreement has been executed and delivered at ________________, _________ this ________ day of ________________, 199____. ------------------------------- BORROWER Accepted at Irving, Texas this _____ day of _____________, 19___. IMCO RECYCLING INC. By ----------------------------- Its ---------------------------- -3- EX-15.1 3 EXHIBIT 15.1 EXHIBIT 15.1 Stockholders and Board of Directors IMCO Recycling Inc. We are aware of the incorporation by reference in the Registration Statements (Form S-8 No. 33-26641, Form S-8 No. 33-34745, Form S-8 No. 33-76780, Form S-8 No. 333-00075, and Form S-8 No. 333-07091) pertaining to the Nonqualified Stock Option Plan of IMCO Recycling Inc., the IMCO Recycling Inc. Amended and Restated Stock Option Plan, the IMCO Recycling Inc. 1992 Stock Option Plan, the IMCO Recycling Inc. Amended and Restated 1992 Stock Option Plan, and the IMCO Recycling Inc. Annual Incentive Program of our report dated April 27, 1998 relating to the unaudited condensed consolidated interim financial statements of IMCO Recycling Inc. which are included in its Form 10-Q for the quarter ended March 31, 1998. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ ERNST & YOUNG LLP Dallas, Texas May 6, 1998 EX-27.1 4 EX-27.1
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 7,901 74 56,953 1,669 35,334 103,934 204,370 58,823 347,313 42,647 110,762 0 0 1,654 171,238 347,313 127,232 127,232 113,606 113,606 0 315 1,998 7,455 2,756 4,611 0 0 0 4,611 0.28 0.28
EX-27.2 5 EX-27.2
5 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 811 2,781 3,753 0 85 85 49,428 47,698 43,807 226 771 816 15,291 16,596 14,669 69,150 69,999 64,550 165,414 168,887 175,913 45,876 48,866 51,737 262,823 267,421 268,475 39,621 34,631 37,521 110,181 115,391 110,824 0 0 0 0 0 0 1,264 1,264 1,264 94,658 97,624 101,259 262,823 267,421 268,475 82,528 159,127 236,588 82,528 159,127 236,588 72,376 136,850 201,468 72,376 136,850 201,468 0 0 0 40 590 635 1,716 3,659 5,596 3,958 10,088 17,086 1,583 4,033 6,789 2,280 5,847 9,978 0 0 0 (1,318) (1,318) (1,318) 0 0 0 962 4,529 8,660 0.08 0.36 0.69 0.08 0.36 0.68
EX-27.3 6 EX-27.3
5 1,000 YEAR YEAR 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996 DEC-31-1996 DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996 5,070 8,678 8,998 9,075 6,900 0 0 0 0 0 33,735 27,501 29,396 28,209 30,441 80 59 60 62 111 11,847 9,146 9,291 15,808 16,077 53,316 47,917 50,444 55,904 56,022 128,899 111,758 113,830 115,978 119,206 42,591 32,989 35,480 38,043 40,235 164,707 139,877 142,271 159,876 159,969 20,667 19,919 20,471 15,480 16,934 48,202 29,754 29,231 49,185 48,658 0 0 0 0 0 0 0 0 0 0 1,202 1,196 1,196 1,201 1,202 87,133 82,080 84,582 86,991 85,654 164,707 139,877 142,271 159,876 159,969 210,871 141,167 50,718 101,183 154,872 210,871 141,167 50,718 101,183 154,872 185,333 110,228 42,828 85,486 136,550 185,333 110,228 42,828 85,486 136,550 0 0 0 0 0 35 40 7 15 23 3,421 1,073 610 1,590 2,559 10,852 20,363 4,750 9,043 8,038 4,132 7,983 1,787 3,482 3,275 6,720 12,470 2,963 5,561 4,763 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,720 12,470 2,963 5,561 4,763 0.57 1.08 0.25 0.47 0.40 0.55 1.05 0.24 0.45 0.38
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