5215 North O'Connor Boulevard, Suite 94
In its relatively short history, IMCO has achieved an impressive record of meeting our customers' needs and steadily increasing our capacity, diversification and earnings capability. Most important, we have the people, the facilities and the strategy to build on those past achievements and to create further success. The company strategy includes: A commitment to more profitable operations through the Operational Excellence Program, which improves efficiencies at all phases of the business; The company's continued emphasis on supplying the auto industry; And growing through expansion and acquisition activities that have greatly increased IMCO's leadership role within the metals recycling industry.
IMCO Recycling, Incorporated is the world's largest recycler of both aluminum and zinc. The company also processes magnesium. IMCO has 23 production facilities in the United States, and owns an aluminum recycling plant in Swansea, Wales, as well as 50 percent of a joint venture that operates two recycling and foundry alloy plants in Germany. IMCO's primary business entails the processing of aluminum, which includes used beverage cans (UBCs), scrap, and dross (a byproduct of aluminum production). In its zinc operations, the company uses furnaces to convert zinc scrap and dross into various value-added zinc products including zinc oxides, dust, and metal. Most of IMCO's processing capacity is utilized to recycle customer-owned materials, for which the company charges a fee--a service called 'tolling.' Approximately 68 percent of IMCO's total pounds of metal melted involves tolling. The balance of the company's business involves the purchase of scrap and dross for processing, recycling, and reselling. Principal customers of aluminum operations include major aluminum companies as well as manufacturers of automobiles and their suppliers. They, in turn, produce products for transportation, packaging, and construction. A 1991 Forbes magazine listing of the 200 best small U.S. companies ranked IMCO 33rd out of the 4,400 publicly traded companies considered for the listing.
Organized as Frontier Texas Corporation in 1985, the company entered the metals arena in September 1986 by purchasing International Metal Company, a recycler of aluminum and magnesium, and renaming itself IMCO. Ralph L. Cheek, formerly the vice-president of the sheet and rod divisions of Kaiser Aluminum and Chemical Corporation, led the company as CEO. By 1987, IMCO was operating two recycling production facilities and reporting revenues of about $40 million. IMCO began developing its network of tolling arrangements with primary producers, as well as expanding its production facilities. To the company's advantage was its capacity to deliver metal in molten form, enabling customers to avoid the cost of remelting.
In response to the increasing demand for its services, the company spent $3.7 million to upgrade and expand its Rockwood, Tennessee aluminum recycling facility in 1992, increasing the plant's capacity by 20 percent. The increased demand for IMCO's services resulted in part from stepped-up production of aluminum can stock by the company's customers, and customer satisfaction with the quality of IMCO's recovery product. In addition to building a new furnace at the Rockwood facility, new shredding and de-lacquering equipment was installed, increasing the plant's ability to recover metal from used beverage cans while improving the quality of metal generated from them.
1992: Support of National Deposit Law
Following the company's facility upgrade at Rockwood, IMCO was prepared for an increased recycling rate. Ten states had already legislated recycling laws, increasing recycling rates to an average of 90 percent. In the other states, recycling rates averaged only 40 to 50 percent, prompting president-elect Bill Clinton, who advocated environmental protection efforts, to speak in favor of mandatory national deposit legislation. Speaking for the recycling industry, Cheek told the New York Society of Security Analysts that 'The president-elect is on record favoring national deposit legislation,' adding, 'Passage of the law could result in a 44 percent increase in the recycling rate to the 90 percent level over the next two to three years,' according to Edward Worden of American Metal Market. A spokesperson for the Aluminum Company of America stated that a national deposit law would increase beverage prices, inconvenience consumers, and reduce consumer recycling choices. Opposition to mandatory deposits was formidable, especially from lobbyists representing the supermarket industry and the soft drink companies. IMCO, calling itself the 'world's largest independent' recycler of UBCs, processed 56.8 billion cans in 1991, although it rarely took ownership of the cans and was not a direct player in the can scrap market. Ralph Cheek explained, 'We don't compete with our customers for used beverage cans. We don't buy them. So we have to assume that if we have national deposit legislation, our customers would require additional capacity, and we'd like to offer it.'
IMCO's management evaluated various methods of increasing growth, including the construction of more dedicated capacity operations near customers' plants, expanding facilities, and making acquisitions outside the aluminum recycling area. Operating at near-capacity, the company implemented a secondary stock offering, yielding $5.3 million to finance growth opportunities. In preparation for increased demand, IMCO added 50 percent to its recycling capacity when it opened a $12 million plant in Uhrichsville, Ohio. The new plant added 265 million pounds of annual processing capacity, producing molten aluminum from scrap tolled for the nearby Barmet Aluminum Company. IMCO entered into a contract agreement with Barmet, which gave IMCO the exclusive right to recycle Barmet's scrap over a ten-year period. Scrap delivered by truck to the plant was run through machines that broke the bales, shredded the scrap, removed ferrous materials, and stripped off any coatings before being charged into IMCO's rotary furnaces. The molten metal was then transported in specially designed crucibles to Barmet's holding furnaces, where it remained until cast and rolled into sheet and coil products.
Although the company's zinc recycling segment was operating at only 55 percent of capacity, IMCO's management predicted higher levels of production by hot-dip galvanizers, suppliers of the feedstock, for 1993. The company then acquired Interamerican Zinc, Inc. of Adrian, Michigan, for $5 million cash.
IMCO was honored when it became the 1993 recipient of the Kentucky Governor's Environmental Excellence Award for Industrial Environmental Leadership. American Metal Market reported that 'in making the award, the state called the company's Morgantown, Kentucky plant `an environmental success story,' and praised IMCO Recycling as a company dedicated to environmental protection.' Accepting the award, Executive Vice-President Richard Kerr said that the facility had a landfill built to hazardous waste standards to store saltcake, a non hazardous byproduct of aluminum recycling. He commented, 'It protects our customers from third-party mixed landfill clean-up problems and it eliminates the possibility of saltcake leaching into groundwater supplies.' The company committed further resources into developing a 'closed loop' production system in which virtually all materials used in the aluminum recycling process would be reclaimed or consumed, greatly reducing the need for landfilling, as well as reducing disposal costs. Byproducts generated in zinc manufacturing, oxides and zinc fines, are either sold to third parties or melted in another process in the zinc manufacturing cycle.
Wall Street analysts were generally optimistic about the outlook for IMCO, describing the company as solid with conservative management practices. When it became apparent that it was time to follow opportunities in the international marketplace, IMCO undertook an executive management reorganization. Ralph Cheek stepped down from his domestic leadership position in order to pursue international opportunities for the company. Replacing him as interim CEO was Don V. Ingram, formerly a chairman of International Metal Company, IMCO board member, and a major shareholder of IMCO stock, with ownership interest of about 11 percent. In 1994, Frank H. Romanelli, former executive vice-president, commercial, for Occidental Chemical Corporation in Dallas, was named president and CEO of IMCO. Romanelli had also served as executive vice-president, petrochemicals, and managed Occidental Chemical's international division, which operated 15 plants in seven countries. Romanelli said he would continue to stress profitable expansion of recycling capacity and cost containment while emphasizing quality service to aluminum industry customers. Richard L. Kerr was named president of the metals division and chief operating officer. Formerly, Kerr had worked for a period of 15 years with Aluminum Company of America, followed by executive management positions with IMCO.
1995: Supplying the Transportation Industry
The U.S. aluminum industry continued to grow rapidly, largely through the use and recycling of beverage cans. The company expected the recycling rate for UBCs to continue to grow, especially compared to other materials such as glass or plastic. IMCO anticipated increased possibilities in other countries as well. In 1995 primary aluminum accounted for 35 percent of the metal used to make aluminum cans, down from 73 percent in the prior decade. During that period recycling and imports supplied the metal for growth. One of the hurdles the industry faced was the intense competition from makers of polyethylene terephthalate bottles. Responding to competition from plastic container producers, aluminum recyclers began looking to the transportation industry as a growth market through the wider use of aluminum parts in automobiles and trucks. The aluminum castings market was expected to rise significantly because of the transportation industry's interest in producing lighter-weight vehicles.
IMCO began focusing on the aluminum scrap-based manufacture of specification aluminum ingot for die casters as part of its latest strategy. At the close of 1995, IMCO formed a 50 percent joint venture with VAW Aluminum AG, the largest aluminum company in Germany. VAW owned and operated two recycling and foundry alloy facilities, and principally served the European automotive markets. The company also acquired five aluminum recycling plants. The five facilities had a combined annual capacity of 390 million pounds. Four were obtained through the purchase of privately held Alumar Associates, Inc., of Chicago Heights, Illinois, owner of Metals Mark, Inc., which operated aluminum recycling plants in Chicago Heights, Illinois; Pittsburg, Kansas; Sikeston, Missouri; and had a 50 percent-owned facility in East Chicago, Indiana. IMCO also acquired Phoenix Smelting Corporation, an aluminum recycling plant in Loudon, Tennessee. IMCO announced that its 'recently purchased' aluminum recycling plant in Pittsburgh, Kansas, was 'outdated and inefficient,' and would be closed down--and the scrap processed at that facility was shifted to the company's other facilities. The company then began making financial arrangements for the purchase of three western U.S. aluminum recycling plants and other assets from EnviroSource Inc. for $58 million. The companies were among the few in North America capable of treating nonhazardous byproducts of primary and secondary aluminum smelting, such as cake and drosses, which otherwise were shipped to landfills.
1996: Restructuring into Four Business Segments
IMCO established four company segments: commercial (which encompassed sales, marketing, customer relations, business development, emerging technologies, international activities, metal procurement, and trading, headed by Richard Kerr); manufacturing; purchasing, chasing and engineering; and finance. After about two years in office, Frank Romanelli resigned from his position as IMCO president, CEO, and board member. A press release stated that he 'left to pursue other business interests.' U.S. exports of aluminum remelt secondary ingot (RSI) became flat during that period, largely due to China's withdrawal from the market. Japan had been a driving force in the RSI export market until 1996 when demand dried up because of Japan's excess smelter furnace capacity being put to use in providing UBC/RSI to can sheet rolling mills. Following the loss of the Asian business IMCO shut down its RSI plant in Corona, California. The company began construction of an aluminum recycling facility in Coldwater, Michigan, for a joint venture with Alchem and reached full operating capacity by the end of 1997. Through its IMCO Recycling Ltd. subsidiary in the United Kingdom, IMCO constructed an aluminum recycling facility in Swansea, Wales, adjacent to a plant owned by a subsidiary of Alcoa, the Swansea facility's principal customer under a long-term tolling agreement.
In late 1997 the company sold more than 2.6 million shares of common stock in a public offering and modified agreements with lenders to make as much as $200 million available for acquisitions. In the following year, IMCO purchased Houston, Texas-based U.S. Zinc Corporation and its subsidiaries, for $72 million, giving the company a second business segment, and adding five production facilities in Illinois, Texas, and Tennessee. IMCO also acquired all the assets of a zinc oxide production facility from North American Oxide in Clarksville, Tennessee. Two Aluminum recycling businesses, IMSAMET and Rock Creek Aluminum Inc., were acquired. IMSAMET owned or had a majority interest in three plants located in Idaho, Arizona, and Utah. The company had a 50 percent interest in SALTS, a Utah facility that used a proprietary process to reclaim materials from salt cake. Rock Creek operated two facilities in Ohio that utilized milling, shredding, blending, testing, and packaging equipment to process various types of raw materials, including aluminum dross and scrap, into aluminum products used as metallurgical additions in the steelmaking process for steel producers. Through IMCO's purchase of Alchem, the company increased its participation in the automotive industry, broadening its customer base and expanding its product range to include specification alloys.
1999: Two Major Contracts Signed
Production of recycled aluminum creates energy savings of 95 percent when compared with production of primary aluminum from ore. About 65 percent of the aluminum used in vehicles is recycled metal, and it can be recycled again and again without loss of its original properties. In order to meet production requirements for supplying the auto industry, IMCO's subsidiary Alchem Aluminum announced plans to build a large smelting plant on a Saginaw, Michigan site, but was stymied by protests from the community. Public concern centered on the potential dangers presented by the large number of trucks carrying molten metal that would be in the area. The smelting facility was scheduled to have opened by the first quarter of 2000, but was delayed until a more suitable site could be found. IMCO needed a plant capable of producing secondary aluminum specification alloys for General Motors, including cylinder blocks and heads for the automaker's 'Atlas' I-6 overhead-cam engines for light-duty trucks. General Motors signed a 13-year contract with IMCO, representing $1 billion worth of recycled aluminum. The company responded to potential production delays by temporarily shifting the GM order to its other alloy-producing facilities in Michigan and Tennessee. By 1999, the transportation sector represented about 30 percent of the company's annual scrap processing volume, compared to less than five percent in 1994.
In addition to broadening its customer base via the automotive industry, IMCO stepped up production of aluminum products needed in the building and construction industry. A major plant expansion and upgrade was implemented in IMCO's Uhrichsville, Ohio facility to better serve that market. The company signed a ten-year contract with Alcan Aluminum Ltd. to buy primary aluminum--from wheels to body panels--at predictable prices for ten years. IMCO would then supply more than three billion pounds of recycled aluminum to a rolling mill owned by Commonwealth Industries.
Volume at facilities that served the auto and truck component market were quite strong in 1999, but production levels at some of the company's plants that served the can market were negatively affected by the narrow spread between the aluminum scrap price and the primary metal price which reduced customer demand for recycled metal. IMCO adjusted by changing operating and employment levels. In an effort to meet the long-term agreement with GM, IMCO finalized plans to build a $22 million plant in Zilwaukee, Michigan. The company expected aluminum content in GM vehicles to rise seven percent or more a year for the foreseeable future. GM and Alcan agreed to share technology on new alloys that could lead to more aluminum being used in cars and trucks, and to work together in recycling that aluminum. A company report quoted John Stiles, GM executive director of worldwide purchasing-metallic, 'Our engineers will be able to take advantage of the newest technology as they plan future cars and trucks because we will have a steady supply of aluminum,' adding that 'The increased use of aluminum is helping to significantly reduce the weight of our cars and trucks.' The amount of IMCO's capacity dedicated to recycled aluminum alloys for the transportation industry continued to grow--and was expected to triple over the next several years.
Principal Subsidiaries: Alchem Aluminum Incorporated; Alchem Aluminum Shelbyville, Incorporated; Imsamet Incorporated; Interamerican Zinc, Incorporated; Mark Metal Incorporated; U.S. Zinc Corporation; Pittsburgh Aluminum, Incorporated; Rock Creek Aluminum, Incorporated; IMCO Energy Corporation; IMCO Investment Company; IMCO Management Partnership L.P.; IMCO Recycling of California, Incorporated; IMCO Recycling of Ohio, Incorporated.
Principal Competitors: Kaiser Aluminum Corporation; Alcoa Aluminum Corporation.