UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7170
IMCO Recycling Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2008280
(I.R.S. Employer Identification No.)
5215 North O'Connor Blvd., Suite 1500
Central Tower at Williams Square
Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
(972) 401-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on October 31, 2001.
Common Stock, $0.10 par value, 14,751,466
-----------------------------------------
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT
------
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
2001 2000
------------------------- ---------------------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 5,226 $ 5,014
Accounts receivable, net of allowance of $2,422 and $2,421 at
September 30, 2001 and December 31, 2000, respectively. 42,344 21,229
Inventories 40,618 56,318
Deferred income taxes 6,649 3,726
Other current assets 8,667 10,450
------------------------- ---------------------------
Total Current Assets 103,504 96,737
Property and equipment, net 184,909 196,133
Excess of acquisition cost over the fair value of net assets
acquired, net of accumulated amortization of $20,356 and $17,215 at
September 30, 2001 and December 31, 2000, respectively. 115,687 117,845
Investments in joint ventures 17,066 15,249
Other assets, net 4,686 7,707
------------------------- ---------------------------
$425,852 $433,671
========================= ===========================
LIABILITES AND STOCKHOLDERS' EQUITY
Current Liablities
Accounts payable $ 64,004 $ 83,552
Accrued liabilities 16,897 13,097
Current maturities of long-term debt 75 112
------------------------- ---------------------------
Total Current Liabilities 80,976 96,761
Long-term debt 144,313 128,786
Deferred income taxes 17,374 15,899
Other long-term liabilities 10,874 10,368
STOCKHOLDERS' EQUITY
Preferred stock; par value $.10; 8,000,000 shares authorized;
none issued - -
Common stock; par value $.10; 40,000,000 shares authorized;
17,127,875 issued at September 30, 2001; 17,119,420 issued
at December 31, 2000 1,713 1,712
Additional paid-in captial 105,817 106,137
Retained earnings 101,513 100,807
Accumulated other comprehensive loss, net (10,745) (5,143)
Treasury stock, at cost; 2,379,774 shares at September 30, 2001;
1,789,152 shares at December 31, 2000 (25,983) (21,656)
------------------------- ---------------------------
Total Stockholders' Equity 172,315 181,857
------------------------- ---------------------------
$425,852 $433,671
========================= ===========================
Page 2
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except share data)
For the three months For the nine months
ended September 30, ended September 30,
--------------------------------- ------------------------------------
2001 2000 2001 2000
---------------- -------------- ------------------ --------------
Revenues $166,712 $205,619 $531,560 $654,697
Cost of sales 156,881 192,687 502,728 612,132
---------------- -------------- ------------------ --------------
Gross profits 9,831 12,932 28,832 42,565
Selling, general and administrative expense 5,713 6,864 16,639 20,468
Amortization expense 1,361 1,289 3,934 3,840
Interest expense 2,295 4,369 7,884 13,311
Fees on sales of receivables 720 - 2,847 -
Interest and other (income) 18 203 (458) (42)
Equity in net earnings of affiliates (484) (810) (2,381) (2,378)
---------------- -------------- ------------------ --------------
Earnings before provision for income taxes and
minority interests 208 1,017 367 7,366
Provision (benefit) for income taxes (69) (41) (529) 1,948
---------------- -------------- ------------------ --------------
Earnings before minority interests 277 1,058 896 5,418
Minority interests, net of provision for income taxes 122 41 190 299
---------------- -------------- ------------------ --------------
Net earnings $ 155 $ 1,017 $ 706 $ 5,119
================ ============== ================== ==============
Net earnings per common share:
Basic $ 0.01 $ 0.07 $ 0.05 $ 0.33
Diluted $ 0.01 $ 0.07 $ 0.05 $ 0.33
Weighted average shares outstanding:
Basic 14,779 15,322 15,091 15,362
Diluted 14,842 15,446 15,120 15,421
Dividends declared per common share $ - $ 0.06 $ - $ 0.18
Page 3
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(in thousands)
For the nine months ended
September 30,
-----------------------------------------------
2001 2000
------------------- ------------------
OPERATING ACTIVITIES
Net earnings $ 706 $ 5,119
Depreciation and amortization 21,748 21,322
Provision (benefit) for deferred income taxes 1,950 (260)
Equity in earnings of affiliates (2,381) (2,524)
Other non-cash charges 859 3,239
Changes in operating assets and liabilities:
Accounts receivable 6,577 (6,331)
Accounts receivable sold (28,600) -
Inventories 15,670 17,310
Other current assets 1,691 2
Accounts payable and accrued liabilities (24,699) (11,719)
-------------- ---------------
Net cash (used by) from operating activities (6,479) 26,158
INVESTING ACTIVITIES
Payments for property and equipment (6,054) (25,824)
Other 2,213 (1,125)
-------------- ---------------
Net cash used by investing activities (3,841) (26,949)
FINANCING ACTIVITIES
Net proceeds from long-term revolving credit facility 15,600 16,000
Principal payments of long-term debt (110) (155)
Dividends paid - (2,751)
Minority interests (240) -
Purchases of treasury stock (4,966) (9,120)
New debt issuance costs (18) (168)
Other 320 643
-------------- ---------------
Net cash from financing activities 10,586 4,449
-------------- ---------------
Effect of exchange rate differences on cash and cash equivalents (54) (258)
Net increase in cash and cash equivalents 212 3,400
Cash and cash equivalents at January 1 5,014 2,578
-------------- ---------------
Cash and cash equivalents at September 30 $ 5,226 $ 5,978
============== ===============
SUPPLEMENTARY INFORMATION
Cash payments for interest $ 8,295 $ 12,153
Cash payments for income taxes $ 593 $ 707
Page 4
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
(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 nine month period ended September 30,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. The accompanying financial statements include
the accounts of IMCO Recycling Inc. and all of its subsidiaries (collectively,
except where the context otherwise requires, 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, 2000. Certain reclassifications have been made to prior period
statements to conform to the current period presentation.
NOTE B - RECEIVABLES SALE
The net proceeds under the Company's Receivables Sale Agreement were $61,400,000
and $90,000,000 at September 30, 2001 and December 31, 2000, respectively. For
the three and nine month periods ending September 30, 2001, the Company incurred
fees on the sale of its receivables in the amount of $720,000 and $2,847,000,
respectively. See Item 2. - "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations - Fees on Sales of
Receivables."
Page 5
NOTE C - INVENTORIES
The components of inventories are:
September 30, December 31,
2001 2000
------------------- -------------------
Finished goods $19,498 $30,357
Raw materials 19,552 23,856
Supplies 1,568 2,105
------------------- -------------------
$40,618 $56,318
=================== ===================
NOTE D - INCOME TAXES
After excluding the effects of its interest in the VAW-IMCO joint venture which
is reported on an after tax basis, the Company recorded a tax benefit of 30% for
the nine month period ended September 30, 2001 compared to an effective tax rate
of 26% for the comparable period of 2000.
NOTE E - LONG-TERM DEBT
As of September 30, 2001, the Company had $129,500,000 of indebtedness
outstanding under the Second Amended and Restated Credit Agreement and had
approximately $42,924,000 available for borrowing. However, due to covenant
constraints at the end of the third quarter of 2001, the Company was unable to
draw on this credit source. At that time, the Company was engaged in discussions
with its lenders to amend the terms of its credit facility. The amendment was
approved in late October as described below.
On October 26, 2001 the Company amended the terms of this revolving credit
facility. The Third Amendment to the Second Amended and Restated Credit
Agreement (the "Third Amendment") reduced the maximum amount which could be
drawn down under the facility from $175,000,000 to $160,000,000, increased the
credit margins applied to alternate base rate loans and LIBOR loans, and amended
certain financial and other covenants. The Third Amendment added provisions
requiring the Company to prepay the facility from the proceeds of certain debt
or equity financings - the facility indebtedness would be reduced by an amount
equal to 100% of the proceeds from any permitted debt issuance and 25% of the
proceeds from any equity offering. The facility is currently scheduled to
expire by its terms on December 31, 2003.
The Credit Agreement, as amended by the Third Amendment, also imposes on the
Company: (i) additional prohibitions against incurring indebtedness, (ii)
further
Page 6
limitations on dividends on and repurchases of shares of capital stock, and
(iii) further limitations on capital expenditures, investments and acquisitions.
Funding of acquisitions by the Company will be permitted from future equity
offerings, so long as 25% of the proceeds from the equity offering are applied
to reduce the credit facility. Cash dividends on and repurchases of the
Company's capital stock will be prohibited until such time as the Company's
total debt to EBITDA ratio falls below 3.0 to 1.0, at which time the Company
will be permitted to pay up to $8,000,000 in dividends or stock repurchases for
each year so long as it remains in compliance with this ratio requirement, and
no default or event of default has occurred and is continuing or would result
therefrom. Capital expenditures will be limited to those funded by the Company's
internally generated cash and its international operations, plus up to $15
million per annum for maintenance and replacement of existing assets and for new
assets deemed necessary by the Company for the health and safety of its
employees or as required by law.
Further, the Third Amendment requires the Company to grant a first lien mortgage
in additional real property located at twelve of its operating plants as further
security for the indebtedness under the Credit Agreement . The indebtedness
under the Credit Agreement is currently secured by substantially all of the
Company's personal property (except for accounts receivables and certain related
assets sold under the Company's Receivables Sale Agreement), a first lien
mortgage on certain real property at seven of the Company's operating plants,
and a pledge of the capital stock of substantially all of the Company's
subsidiaries.
The terms of the Third Amendment also provide that if the Company's Receivables
Sale Facility commitment terminates or its availability terminates, or if the
total amount of the commitment or availability under the Receivables Sale
Facility is reduced by an amount greater than 30% of its availability or
commitment amount as of October 26, 2001, then any such event will be an event
of default under the Credit Agreement.
As of November 8, 2001, the Company had $129,000,000 of indebtedness outstanding
under the Credit Agreement and there was approximately $28,000,000 then
available for borrowing under the terms of the facility. The Company believes
that its cash on hand, the availability of funds under the credit facility and
its anticipated internally generated funds will be sufficient to fund its
current operational needs. However, the Credit Agreement, as amended by the
Third Amendment, imposes significant constraints on funding the Company's growth
plans in 2002 and beyond. Accordingly, management for the Company plans to seek
additional sources of funds, including debt and equity financing alternatives,
as a means to pay down the credit facility indebtedness under the Credit
Agreement and accomplish the Company's growth and capital spending plans. If
these sources of funds are not available, or are not available on terms
advantageous to the Company, then the Company may have to curtail its current
growth and expansion plans until economic or credit market conditions improve.
NOTE F - NET EARNINGS PER SHARE
Page 7
The following table sets forth the reconciliation between weighted average
shares used for calculating basic and diluted earnings per share (EPS):
Three months ended Nine months ended
September 30, September 30,
--------------------------------- --------------------------------
2001 2000 2001 2000
--------------- --------------- -------------- ---------------
Weighted average shares outstanding
for basic earnings per share 14,779 15,322 15,091 15,362
Effect of equity forward contract - 124 - 53
Effect of employee stock options 63 - 29 6
--------------- --------------- -------------- ---------------
Weighted average shares outstanding
for diluted earnings per share 14,842 15,446 15,120 15,421
=============== =============== ============== ===============
NOTE G - 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 and the Company's Form 10-K for the year ended December 31, 2000.
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 these types of incidents of 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 are 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
Page 8
regarding the amount and type of materials sent to the site by the subsidiaries,
the Company does not believe that its potential liability at this site, if any,
will have a material adverse effect on its financial position or results of
operations.
On February 15, 2001, the State of Michigan filed a lawsuit against the Company
in the State Circuit Court for the 30th District, Ingham County, Michigan. The
lawsuit arises out of disputes between the Michigan Department of Environmental
Quality and two of the Company's subsidiaries (Alchem Aluminum Inc. and IMCO
Recycling of Michigan LLC), concerning air permits and emissions at their
specification aluminum alloy production facilities in Coldwater, Michigan. The
plaintiffs claim injunctive relief and penalties for alleged noncompliance with
and violations of federal and state environmental laws. The suit seeks to
enforce the Company to comply with these laws as well as potentially substantial
monetary penalties for these alleged violations. The Company believes it has
meritorious defenses to the claims and plans a vigorous defense. While no
assurances can be given, the Company does not believe that this action will have
a material adverse effect on its financial condition or results of operation.
In addition, on April 27, 2001, the U. S. Environmental Protection Agency,
Region V, issued to the Company a Notice of Violation ("NOV") alleging
violations of the federal Clean Air Act, primarily for violations of the
Michigan State Implementation Plan at the Company's Coldwater, Michigan
facilities. The NOV addresses the same instances of alleged noncompliance
raised in the State of Michigan lawsuit, alleging that the Company purportedly
failed to obtain appropriate preconstruction air quality permits prior to
conducting modifications to the Alchem production facilities and exceeded
permitted emissions from both the Alchem and IMCO Michigan facilities located in
Coldwater. The Company is currently investigating the allegations contained in
the NOV.
Further, there is the possibility that expenditures could be required at Company
facilities from time to time, because of new or revised regulations that could
require that additional expenditures be made for compliance purposes. These
expenditures could materially affect the Company's results of operations in
future periods.
NOTE H - OTHER COMPREHENSIVE INCOME
Three months ened Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Net income $ 155 $ 1,017 $ 706 $ 5,119
Hedging, net of tax (1,141) - (5,785) -
Foreign currency translation
adjustment and other 807 (2,814) 183 (3,822)
-------------- -------------- -------------- --------------
Comprehensive (loss) income $ (179) $(1,797) $(4,896) $ 1,297
============== ============== ============== ==============
Page 9
NOTE I - SEGMENT REPORTING
The Company has two reportable segments: aluminum and zinc. The aluminum
segment represents all of the Company's aluminum melting, processing, alloying,
brokering and salt cake recovery activities, including investments in joint
ventures. 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 2001.
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
REVENUES:
Aluminum $124,172 $142,391 $389,464 $467,560
Zinc 42,540 63,228 142,096 187,137
-------------- -------------- -------------- --------------
Total revenues $166,712 $205,619 $531,560 $654,697
============== ============== ============== ==============
INCOME:
Aluminum $ 8,016 $ 6,822 $ 23,077 $ 23,369
Zinc 1,014 3,311 2,350 11,718
-------------- -------------- -------------- --------------
Total segment income $ 9,030 $ 10,133 $ 25,427 $ 35,087
============== ============== ============== ==============
Unallocated amounts:
General and administrative expenses $ (4,506) $ (3,665) $(10,650) $(11,087)
Amortization expense (1,361) (1,289) (3,934) (3,840)
Interest expense (2,295) (4,369) (7,884) (13,311)
Fees on sale of receivables (720) - (2,847) -
Interest and other income 60 207 255 517
-------------- -------------- -------------- --------------
Income before provision for income
taxes and minority interests $ 208 $ 1,017 $ 367 $ 7,366
============== ============== ============== ==============
NOTE J - VAW-IMCO
The Company owns a 50% interest in an aluminum recycling joint venture in
Germany, VAW-IMCO Guss und Recycling GmbH ("VAW-IMCO"). For the nine month
periods
Page 10
ended September 30, 2001 and 2000, the Company's equity in the net income of
VAW-IMCO was $2,376,000 and $1,991,000, respectively. The following table
represents the condensed income statements for VAW-IMCO for the three and nine
month periods ended September 30, 2001 and 2000.
Three months ended Nine months ended
September 30, September 30,
----------------------------- ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- --------------
Revenues $52,337 $48,690 $172,566 $143,437
Gross Profit $ 3,835 $ 4,244 $ 14,642 $ 13,538
Net Income $ 1,011 $ 1,441 $ 4,686 $ 4,010
============= ============= ============= ==============
NOTE K - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 142 "Goodwill and Other Intangible Assets",
effective for fiscal years beginning after December 15, 2001. Under the
provisions of the new standard, goodwill and certain other intangibles will no
longer be amortized, but instead will be reviewed at least annually for
impairment at the reporting unit level and written down (expensed against
earnings) when the implied fair value of a reporting unit, including goodwill
and other related intangibles is less than its carrying amount. The Company will
adopt the new standard on January 1, 2002. The Company has not completed an
analysis of the potential impact of application of the impairment test on its
current goodwill. The probable effects of such analysis for goodwill
impairments, if any, cannot presently be determined. However, no assurances can
be given that a provision for impairment will not be required upon completing
such analysis. Amortization of existing goodwill which was approximately
$1,031,000 and $2,944,000 for the three and nine months ended September 30,
2001, respectively, and is currently estimated to be $3,924,000 for fiscal 2001,
will cease upon adoption of the new standard.
NOTE L - SUBSEQUENT EVENTS
On October 26, 2001, the Company amended the terms of its long-term revolving
credit facility with its lenders (see NOTE E - LONG-TERM DEBT).
On November 1, 2001, the Company and one of its subsidiaries amended the terms
of the Receivables Purchase Agreement under its receivables sales facility (see
NOTE B - RECEIVABLES SALE). Amendment No. 1 to Receivables Purchase Agreement
(the "RPA Amendment") amends certain defined terms concerning reserve
percentages and fee arrangements contained in the Receivable Purchase Agreement.
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------
CONDITION AND RESULTS OF OPERATIONS
A majority of the Company's processing volumes 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 both lower revenues and lower costs of sales than the product
sales business. Variations in the mix between these two types of transactions
could cause revenue amounts to change significantly from period to period. As a
result, the Company has traditionally considered processing volume to be a more
important determinant of performance than revenues. The following table shows
total pounds processed, the percentage of total pounds processed represented by
tolled metals, total revenues and total gross profits (in thousands, except
percentages):
Three months ended Nine months ended
September 30, September 30,
------------------------------------ ---------------------------------------
2001 2000 2001 2000
----------------- --------------- ----------------- ------------------
Pounds processed 647,823 696,358 1,902,732 2,187,038
Percentage of pounds tolled 64% 59% 62% 57%
Revenues $166,712 $205,619 $ 531,560 $ 654,697
Gross profits $ 9,831 $ 12,932 $ 28,832 $ 42,565
================= =============== ================= ==================
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000, AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
PRODUCTION. For the three month period ended September 30, 2001, the Company
-----------
melted 647.8 million pounds, 7% less than the 696.4 million pounds melted during
the same period in 2000. For the nine month period ended September 30, 2001,
the Company melted 1.9 billion pounds, 13% less metal compared to 2.2 billion
pounds during the same period in 2000. The aluminum and zinc segments accounted
for 72% and 28%, respectively, of the overall production decrease for the three
month period and 82% and 18%, respectively, for the nine month period. Tolling
activity for both the three and nine month periods ended September 30, 2001
represented 64% and 62%, respectively, of total pounds processed, compared to
59% and 57% for the same periods of 2000.
Page 12
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 Nine months ended
September 30, September 30,
--------------------------------- -------------------------------------
2001 2000 2001 2000
-------------- --------------- ----------------- ----------------
Pounds Processed:
Aluminum 588,185 623,038 1,740,747 1,972,620
Zinc 59,638 73,320 161,985 214,418
-------------- --------------- ----------------- ----------------
Total Pounds Processed 647,823 696,358 1,902,732 2,187,038
============== =============== ================= ================
Percentage Tolled:
Aluminum 70% 66% 67% 63%
Zinc 3% 3% 3% 4%
Total Percentage Tolled 64% 59% 62% 57%
ALUMINUM PRODUCTION: For the three month period ended September 30, 2001, the
Company melted 6% less aluminum than it did during the same period in 2000. For
the nine month period ended September 30, 2001, the Company melted 12% less
aluminum than in the first nine months of 2000. The decrease in aluminum
production for the three and nine month periods was due mostly to a general
slowdown in the U.S. economy which has reduced industrial production and reduced
the amount of scrap available for processing. Production was also negatively
impacted by the Company's closure of the Bedford, Indiana facility and the
temporary shutdown of the Wendover, Utah facility in early 2001. The Wendover
facility was temporarily closed due to the shutdown of primary aluminum
production capacity in the Pacific Northwest.
The increase in aluminum percentage tolled in 2001 compared to the three and
nine month periods ended September 30, 2000 is primarily due to the increased
capacity and volumes at the new Saginaw, Michigan plant, which supplies aluminum
under a tolling supply agreement to General Motors.
ZINC PRODUCTION: For the three and nine month periods ended September 30, 2001,
the Company melted 19% and 24% less zinc, respectively, than it did during the
same period in 2000, mainly due to the slowdown of U.S. industrial zinc
production and lower demand for the Company's zinc products and services, higher
natural gas costs and lower zinc prices which limited profitable processing
opportunities.
REVENUES. For the three month period ended September 30, 2001, the Company's
---------
consolidated revenues decreased 19% to $166,712,000 compared to $205,619,000 for
the
Page 13
same period in 2000. For the nine month period ended September 30, 2001,
revenues decreased 19% to $531,560,000 compared to $654,697,000 for the same
period in 2000. The aluminum and zinc segments accounted for 47% and 53%,
respectively, of the overall revenue decrease for 2001's three month period and
63% and 37%, respectively, for 2001's nine month period. The reasons for the
declines in revenue were the same as the reasons for the declines in processing
volumes described above.
The following table shows the total revenues for the aluminum and zinc segments
(in thousands) (See NOTE I - SEGMENT REPORTING):
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- --------------- -------------- ---------------
Revenues:
Aluminum $124,172 $142,391 $389,464 $467,560
Zinc 42,540 63,228 142,096 187,137
-------------- --------------- -------------- ---------------
Total Revenues $166,712 $205,619 $531,560 $654,697
============== =============== ============== ===============
ALUMINUM REVENUES: For the three and nine month periods ended September 30,
2001, the Company's aluminum revenues decreased 13% and 17%, respectively,
compared to the same periods in 2000. The decrease was due principally to lower
production volumes and a higher tolling percentage for the reasons described
above.
ZINC REVENUES: For the three and nine month periods ended September 30, 2001,
the Company's zinc revenues decreased 33% and 24%, respectively, compared to the
same periods in 2000. This decrease was also due to lower zinc production
volumes and selling prices.
GROSS PROFITS. For the three month period ended September 30, 2001, the
--------------
Company's consolidated gross profits decreased 24% to $9,831,000 as compared to
$12,932,000 for the same period in 2000. For the nine month period ended
September 30, 2001, consolidated gross profits decreased 32% to $28,832,000
compared to $42,565,000 for the first nine months of 2000.
Page 14
The following table shows the total income for the aluminum and zinc segments
and a reconciliation of segment income to the Company's consolidated gross
profits (in thousands) (See NOTE I - SEGMENT REPORTING):
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Segment Income:
Aluminum $8,016 $ 6,822 $23,077 $23,369
Zinc 1,014 3,311 2,350 11,718
-------------- -------------- -------------- --------------
Total segment income $9,030 $10,133 $25,427 $35,087
============== ============== ============== ==============
Items not included in gross profits:
Plant selling expense $1,256 $ 1,380 $ 3,817 $ 4,109
Management SG&A expense (49) 1,819 2,174 5,275
Equity in earnings of affiliates (484) (810) (2,381) (2,378)
Other income 78 410 (205) 472
-------------- -------------- -------------- --------------
Gross Profits $9,831 $12,932 $28,832 $42,565
============== ============== ============== ==============
ALUMINUM INCOME: For the three month period ended September 30, 2001, the
Company's aluminum income increased 17% as compared to the same period in 2000.
For the nine month period ended September 30, 2001, aluminum income decreased 1%
as compared to the same period of 2000. In the third quarter of 2001, a better
performance by the specialty alloys division, due to production at the Company's
new Saginaw facility and the absence of negative charges recorded in last year's
third quarter helped to offset the decline in volumes, and resulted in the
increased income. For the first nine months of 2001, higher natural gas costs
and lower processing volumes resulted in the decrease in income compared to the
first nine months of 2000.
ZINC INCOME: For the three and nine month periods ended September 30, 2001, the
Company's zinc income decreased 69% and 80%, respectively, as compared to the
same periods in 2000. These decreases were due to low processing volumes ,
increases in natural gas fuel costs, and significantly lower prevailing prices
for the Company's zinc products.
SG&A EXPENSES. Selling, general and administrative expenses for the three month
--------------
period ended September 30, 2001 were $5,713,000, a decrease of 17% from
$6,864,000 for the comparable period in 2000. For the nine month period ended
September 30, 2001, selling, general and administrative expenses decreased by
19% to $16,639,000 as compared to $20,468,000 in the same period of 2000. The
decrease in these periods was
Page 15
primarily a result of a reduction in headcount and reduced employee incentive
compensation costs.
AMORTIZATION EXPENSE. Amortization expense for the three month period ended
---------------------
September 30, 2001 was $1,361,000, an increase of 6% as compared to the
$1,289,000 recorded in the same period last year. For the nine month period
ended September 30, 2001, amortization expense was $3,934,000, about equal to
the $3,840,000 recorded in the same period last year.
FEES ON SALES OF RECEIVABLES. On November 2, 2000, the Company and certain of
----------------------------
its subsidiaries entered into a Receivables Sale Facility with a special purpose
subsidiary of the Company. Under this arrangement, the Company and each of its
subsidiaries have sold receivables and other related assets to the special
purpose subsidiary that, in turn, has sold undivided interests in these
receivables and other related assets to certain financial institutions and other
entities. Fees incurred in connection with these transfers for the three and
nine month periods ended September 30, 2001 were $720,000 and $2,847,000,
respectively (see NOTE B-RECEIVABLES SALE).
INTEREST EXPENSE. Interest expense for the three month periods ended September
-----------------
30, 2001 and 2000 was $2,295,000 and $4,369,000, respectively, representing a
decrease of 47% in 2001. For the first nine months of 2001, interest expense
decreased 41% to $7,884,000 as compared to $13,311,000 in the same period of
2000. The decrease in these periods is due mainly to lower prevailing interest
rates and lower amounts of debt outstanding. The Company reduced its long-term
debt under its principal credit facility from proceeds from sales of receivables
in 2000 under its Receivables Sales Facility.
INCOME TAXES. After excluding the effects of its interest in the VAW-IMCO
-------------
joint venture which is reported on an after-tax basis, the Company recorded a
tax benefit of 30% for the nine month period ended September 30, 2001 compared
to an effective tax rate of 26% for the comparable period of 2000.
EQUITY INCOME. Equity income for the three month periods ended September 30,
--------------
2001 and 2000 was $484,000 and $810,000, respectively. Equity income for the
nine month periods ended the same dates was $2,381,000 and $2,378,000,
respectively. The majority of the Company's equity income is generated from
VAW-IMCO. (See NOTE J - VAW-IMCO).
NET EARNINGS. Net earnings decreased 85% to $155,000 for the three month period
-------------
ended September 30, 2001, compared to net income of $1,017,000 for the same
period in 2000. For the nine month period ended September 30, 2001, net
earnings decreased 86% to $706,000 compared to $5,119,000 for the same period in
2000. The decrease in these periods was primarily the result of lower
production volumes caused by the slowdown in the U.S. economy, higher natural
gas fuel costs at Company facilities, and lower metal prices.
Page 16
SPECIAL FACTORS AND OUTLOOK
Certain of the statements below contain projections and estimates based on
current expectations for the remainder of 2001 and for 2002. These statements
are forward-looking in nature and actual results may differ materially due to a
number of reasons, as more fully described under the section titled "CAUTIONARY
STATEMENT FOR PURPOSES OF FORWARD LOOKING STATEMENTS" below. These statements
do not reflect the potential impact of any acquisitions or divestitures that may
be completed or unforeseen events that may occur after the date of this filing.
During the first nine months of 2001, market factors that negatively affected
the Company's results of operations and financial condition included:
. reduced volumes at its aluminum and zinc facilities principally due to
the continuing decline in U.S. industrial production;
. higher natural gas fuel costs;
. weaker market conditions for its customers serving the transportation,
can sheet and construction sectors;
. a precipitous drop in zinc prices;
. continuing over-capacity of specialty alloy suppliers; and
. lower margins, particularly in the zinc segment.
For the rest of 2001 and into 2002, the Company expects many of the prevailing
industry conditions to continue. Continued weak domestic industrial production
should continue to negatively impact the Company's results of operations.
However, the Company's ongoing cost reduction program, lower natural gas costs
and increasing uses of natural gas hedges, further utilization of efficient
fuel-burning technologies for its furnaces, and the reallocation of processing
volumes among its facilities should continue to have the effect of reducing
overall operational costs.
The Company's international operations have outperformed their U.S. counterpart
during 2001. The Company is continuing to pursue growth opportunities in Europe
and in Latin America through expansion of its major customer relationships and
project venture partnering opportunities.
The Company does not foresee any improvement in its estimated results of
operations for the fourth quarter of 2001. Until U.S. industrial demand
increases, the Company's overall domestic operations should be expected to
remain weak. Profitability should improve in 2002 assuming the slowdown in the
U.S. economy is short-lived, the
Page 17
Company can execute on its international expansion program, and additional cost
savings are accomplished.
No assurances can be made that any of these anticipated results will actually be
achieved. In addition, the Company disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS. The Company's operations used $6,479,000 of net
--------------------------
cash during the first nine months of 2001 as compared to providing cash of
$26,158,000 during the same period of 2000. Changes in operating assets and
liabilities resulted in a net cash use of $29,361,000 for the nine months ended
September 30, 2001, compared to a use of $738,000 for the same period in 2000.
Accounts receivable decreased by $6,577,000 for the first nine months of 2001,
which was offset by a reduction of $28,600,000 in cash proceeds from the
Company's Receivable Sale Facility, compared to an increase in accounts
receivable representing a use of $6,331,000 in cash in the third quarter of
2000. Reductions in 2001 in inventory of $15,670,000 represented a source of
cash. However, decreases in accounts payable and accrued liabilities were also
a contributing factor to the overall change. Decreases in accounts payable and
accrued liabilities were $24,699,000 for the nine month period ended September
30, 2001, as compared to $11,719,000 for the comparable 2000 period. Net income
of $706,000 for the first nine months of 2001 compared to net income of
$5,119,000 for the comparable 2000 period also increased the amount of cash used
by operations.
CASH FLOWS FROM INVESTING ACTIVITIES. During the nine month period ended
------------------------------------
September 30, 2001, net cash used by investing activities was $3,841,000 as
compared to $26,949,000 for the same period in 2000. The difference in these
two periods is primarily due to a reduction in payments for property, plant and
equipment in 2001. The Company's total payments for property, plant and
equipment in the first nine months of 2001 decreased to $6,054,000, as compared
to $25,824,000 in the first nine months of 2000. Total capital expenditures for
property, plant and equipment in 2001 are expected to approximate $12,000,000.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities
------------------------------------
was $10,586,000 for the nine month period ended September 30, 2001, as compared
to $4,449,000 for the same period of 2000. As of November 8, 2001, the Company
had $129,000,000 in indebtedness outstanding under its long-term revolving
credit facility and had approximately $28,000,000 available for borrowing. In
addition, there were standby letters of credit outstanding with several banks
totaling $3,416,000. The Company is currently able to use all of the borrowing
capacity available under its Credit Agreement within the limitations imposed
under the agreement by its debt covenants.
Page 18
Uses of cash in financing activities for the first nine months in 2000 included
cash payments of $2,751,000 for dividends. Due to the Company's Board of
Directors' decision to suspend cash dividends on its common stock in February
2001, there were no dividend payments for the first nine months of 2001. During
the nine month period ended September 30, 2000, $9,120,000 was expended to
purchase 790,100 shares of the Company's common stock in open market
transactions. On June 7, 2001, the Company purchased 644,500 shares of its
common stock for a total consideration of $4,966,000, settling its forward share
repurchase agreement entered into in 2000.
AMENDMENT TO CREDIT FACILITY. On October 26, 2001 the Company amended the terms
-----------------------------
of its revolving credit facility. The Third Amendment to the Second Amended and
Restated Credit Agreement (the "Third Amendment") reduced the maximum amount
which could be drawn down under the facility from $175,000,000 to $160,000,000,
increased the credit margins applied to alternate base rate loans and LIBOR
loans, and amended certain financial and other covenants. The Third Amendment
added provisions requiring the Company to prepay the facility from the proceeds
of certain debt or equity financings - the facility indebtedness would be
reduced by an amount equal to 100% of the proceeds from any permitted debt
issuance and 25% of the proceeds from any equity offering. The facility is
currently scheduled to expire by its terms on December 31, 2003.
The Credit Agreement, as amended by the Third Amendment, also imposes on the
Company: (i) additional prohibitions against incurring indebtedness, (ii)
further limitations on dividends on and repurchases of shares of capital stock,
and (iii) further limitations on capital expenditures, investments and
acquisitions. Funding of acquisitions by the Company will be permitted from
future equity offerings, so long as 25% of the proceeds from the equity offering
are applied to reduce the credit facility. Cash dividends on and repurchases of
the Company's capital stock will be prohibited until such time as the Company's
total debt to EBITDA ratio falls below 3.0 to 1.0, at which time the Company
will be permitted to pay up to $8,000,000 in dividends or stock repurchases for
each year so long as it remains in compliance with this ratio requirement, and
no default or event of default has occurred and is continuing or would result
therefrom. Capital expenditures will be limited to those funded by the
Company's internally generated cash and its international operations, plus up to
$15 million per annum for maintenance and replacement of existing assets and for
new assets deemed necessary by the Company for the health and safety of its
employees or as required by law.
Further, the Third Amendment requires the Company to grant a first lien mortgage
in additional real property located at twelve of its operating plants as further
security for the indebtedness under the Credit Agreement. The indebtedness under
the Credit Agreement is currently secured by substantially all of the Company's
personal property (except for accounts receivables and certain related assets
sold under the Company's Receivables Sale Agreement), a first lien mortgage on
certain real property at seven of the Company's operating plants, and a pledge
of the capital stock of substantially all of the Company's subsidiaries.
Page 19
The terms of the Third Amendment also provide that if the Company's Receivables
Sale Facility commitment terminates or its availability terminates, or if the
total amount of the commitment or availability under the Receivables Sale
Facility is reduced by an amount greater than 30% of its availability or
commitment as of October 26, 2001, then any such event will be an event of
default under the Credit Agreement.
As of November 8, 2001, the Company had $129,000,000 of indebtedness outstanding
under the Credit Agreement and there was approximately $28,000,000 available for
borrowing under the terms of the facility. The Company believes that its cash on
hand, the availability of funds under the credit facility and its anticipated
internally generated funds will be sufficient to fund its current operational
needs. However, the Credit Agreement, as amended by the Third Amendment,
imposes significant constraints on funding the Company's growth plans in 2002
and beyond. Accordingly, management for the Company plans to seek additional
sources of funds, including debt and equity financing alternatives, as a means
to pay down the credit facility indebtedness under the Credit Agreement and
accomplish the Company's growth and capital spending plans. If these sources of
funds are not available, or are not available on terms advantageous to the
Company, then the Company may have to curtail its current growth and expansion
plans until economic or credit market conditions improve.
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 should be anticipated
that more rigorous environmental laws will be enacted that could require the
Company to make substantial expenditures for compliance purposes.
From time to time, operations of the Company have resulted, or may result, in
noncompliance in varying degrees 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 IEPA notified the Company that two of the Company's zinc
subsidiaries are PRPs 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
Page 20
and information regarding the amount and type of materials sent to the site by
the subsidiaries, the Company does not believe that its potential liability at
this site, if any, will have a material adverse effect on its financial position
or results of operations.
On February 15, 2001, the State of Michigan filed a lawsuit against the Company
in the State Circuit Court for the 30th District, Ingham County, Michigan. The
lawsuit arises out of disputes between the Michigan Department of Environmental
Quality and the Company's subsidiaries located in Coldwater , Michigan (Alchem
Aluminum Inc. and IMCO Recycling of Michigan LLC), concerning air permits and
emissions at the specification aluminum alloy production facilities in
Coldwater, Michigan. The plaintiffs claim injunctive relief and penalties for
alleged noncompliance with and violations of federal and state environmental
laws. The suit seeks compliance by the Company as well as potentially
substantial monetary penalties. On May 16, 2001, the Company filed with the
Court its answer to the complaint. In August 2001, the State amended its
complaint, adding Alchem Aluminum Inc. and IMCO Recycling of Michigan LLC as
named party-defendants. The Company believes it has meritorious defenses
and plans a vigorous defense. While no assurances can be given, the Company does
not believe that this action will have a material adverse effect on its
financial condition or results of operation.
In addition, on April 27, 2001, the U. S. Environmental Protection Agency,
Region V, issued to the Company a Notice of Violation ("NOV") alleging
violations of the federal Clean Air Act, primarily for violations of the
Michigan State Implementation Plan at the Company's Coldwater, Michigan
facilities. The NOV addresses the same instances of noncompliance raised in the
State of Michigan lawsuit, alleging that the Company purportedly failed to
obtain appropriate preconstruction air quality permits prior to conducting
modifications to the Alchem production facilities and exceeded permitted
emissions from both the Alchem and IMCO Michigan facilities located in
Coldwater. In September, 2001, the Company filed its response with Region V of
the Environmental Protection Agency.
Additionally, there is the possibility that expenditures could be required at
Company facilities from time to time, because of new or revised regulations that
could require that additional expenditures be made for compliance purposes.
These expenditures could materially affect the Company's results of operations
in future periods.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in ITEM 2. "MANAGEMENT'S DISCUSSION AND ANALYSIS
-------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" (as well as certain oral
statements made by or on behalf of the Company) may be deemed to be forward-
looking statements within the meaning of The Private Securities Litigation
Reform Act of 1995, as amended, and are subject to the "Safe Harbor" provisions
in that enacted legislation.
Page 21
This information includes, without limitation, statements concerning future
volumes, revenues, earnings, profit margins, costs, energy costs, and expenses
(including capital expenditures); the length of the worldwide economic slowdown
and its effect on the Company's customers; downward price pressures on aluminum
and zinc; increased aluminum content in automobiles; automotive business
slowdowns; anticipated results of the Company's cost reduction program; future
access to adequate energy supplies at advantageous rates; anticipated effects of
recent accounting pronouncements, including those which may require additional
asset write-downs; anticipated cost savings from new and modified furnace
designs; the Company's ability to continue to grow its domestic and foreign
business through expansion, acquisition or partnering; ability of the Company to
fund its growth plan and strategic opportunities; future sources of capital;
anticipated environmental control measures; the outcome of and any liabilities
resulting from any claims, investigations or proceedings against the Company or
its subsidiaries; and the future mix of business (product sales vs. tolling).
When used in or incorporated by reference into this Quarterly Report on Form 10-
Q, the words "anticipate," "estimate," "expect," "may," "project" and similar
expressions are intended to be among the statements that identify forward-
looking statements.
These forward-looking statements are based on current expectations and involve a
number of risks and uncertainties. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Important
factors that could affect the Company's actual results and cause actual results
to differ materially from those that might be projected, forecasted, estimated
or budgeted by the Company in these forward-looking statements include, but are
not limited to, the following: continuation of weakened economic conditions in
the U.S. and Europe; continued weakening of metal prices; negative impact of
terrorist attacks and threats or actual war; the effects of any additional
capacity reductions or reductions in headcount; special charges from cost
reduction initiatives; pricing pressures from competitors; effects of higher
future energy prices; weakness in demand from the automotive, construction and
packaging markets; retention and financial condition of major customers;
collectibility of receivables; the inherent unpredictability of adversarial or
administrative proceedings; effects of new or modified environmental and other
governmental regulations; currency exchange rate fluctuations; strikes, work
stoppages or labor shutdowns at Company or customer plants; the effects of
shortages and oversupply in used aluminum beverage containers and can scrap at
facilities; 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. Certain of
the factors affecting
Page 22
revenues and costs are to a large degree outside of the control of the
Company, including energy commodity prices, 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. Prices can be
volatile, which could affect the Company's product sales business. Lower
market prices for primary metals may adversely affect the demand for the
Company's recycling services and recycled metals. An increase in demand for
raw materials can and has adversely affected profit margins for the Company's
product sales business.
* The markets for 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. The market for zinc processing and sales is highly cyclical.
* Fluctuations in the costs of fuels, raw materials and labor can materially
affect the Company's financial position and results of operations from period
to period.
* The Company's key transportation market is cyclical, and sales within that
market in particular can be influenced by economic conditions. Seasonal
production shutdowns, 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. The Company's amended
Page 23
credit facility contains certain constraints on the Company's ability to make
capital expenditures for certain environmental equipment.
Page 24
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Ernst & Young LLP, have reviewed the
Company's consolidated financial statements at September 30, 2001, and for the
three and nine month periods then ended prior to filing, and their report is
included herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
-------
MARKET RISK
There have been no material changes regarding market risk and the Company's
derivative instruments during the first nine months of 2001. Accordingly, no
additional disclosures have been provided in accordance with Regulation S-K Item
305 (c).
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-------
On October 26, 2001 the Company amended the terms of its long-term revolving
credit facility with its lenders. The Third Amendment to the Second Amended and
Restated Credit Agreement (the "Third Amendment") reduced the maximum amount
which could be drawn down under the facility from $175,000,000 to $160,000,000,
increased the credit margins applied to alternate base rate loans and LIBOR
loans; and amended certain financial and other covenants. Under the Third
Amendment, cash dividends on and repurchases of the Company's capital stock are
prohibited until such time as the Company's total debt to EBITDA ratio falls
below 3.0 to 1.0, at which time the Company will be permitted to pay up to
$8,000,000 in dividends or stock repurchases each year so long as it remains in
compliance with this ratio requirement, and no default or event of default has
occurred and is continuing or would result therefrom . See "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources - Amendment to Credit Facility."
Page 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------
(a) The following exhibits are included herein:
10.1 Third Amendment to the Second Amended and Restated Credit Agreement
dated as of October 26, 2001 by and among the Company, the Subsidiary
Guarantors named therein, the Lenders party thereto and The Chase
Manhattan Bank in its capacity as Administrative Agent.
15.1 Acknowledgment letter regarding unaudited financial information from
Ernst & Young LLP
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the quarter ended
September 30, 2001.
Page 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMCO Recycling Inc.
(Registrant)
Date: November 14, 2001 By: /s/ Robert R. Holian
-------------------------------------
Robert R. Holian
Senior Vice President
Controller and Chief Accounting Officer
Page 27