<PAGE>


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

            [X] Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the Fiscal Year Ended December 31, 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)

                                 (972) 401-7200
              (Registrant's telephone number, including area code)


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class                            Exchange on Which Registered
-------------------                            ----------------------------
Common Stock, $0.10 Par Value                  New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 1, 2002, the aggregate market value of voting and non-voting common
equity held by nonaffiliates of the Registrant was $97,739,206.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of March 1, 2002.

                   Common Stock, $0.10 par value, 14,650,603
                   -----------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to its 2002
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.

<PAGE>

ITEM                                                                        PAGE
----                                                                        ----

PART I
------
Item 1.    Business                                                            3

Item 2.    Properties                                                         13

Item 3.    Legal Proceedings                                                  14

Item 4.    Submission of Matters to a Vote of Security Holders                15

Item 4A.   Executive Officers of the Registrant                               15

PART II
-------
Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters                                                17

Item 6.    Selected Financial Data                                            18

Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                18

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk         36

Item 8.    Financial Statements and Supplementary Data                        39

Item 9.    Changes in and Disagreements With Accountants on
           Accounting and Financial Disclosure                                64

PART III
--------
Item 10.   Directors and Executive Officers of the Registrant                 64

Item 11.   Executive Compensation                                             64

Item 12.   Security Ownership of Certain Beneficial Owners and
           Management                                                         64

Item 13.   Certain Relationships and Related Transactions                     64

PART IV
-------
Item 14.   Exhibits, Financial Statement Schedules and Reports on
           Form 8-K                                                           65

Signatures                                                                    69

<PAGE>

PART I

This Annual Report on Form 10-K contains forward-looking statements as defined
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements should be read in conjunction with the cautionary statements and
other important factors included in this Form 10-K. See ITEM 7. "MANAGEMENT'S
                                                        ------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS" for
a description of important factors which could cause actual results to differ
materially from those contained in the forward-looking statements.
Forward-looking statements include statements about plans, objectives, goals,
strategies, future events or performance and assumptions underlying those
statements. These forward-looking statements may be identified by words such as
"anticipates," "estimates," "expects," "intends," "plans," "predicts,"
"projects," and similar expressions. The Company's expectations, beliefs and
projections are expressed in good faith and the Company believes it has a
reasonable basis to make these statements, through management's examination of
historical operating trends, data contained in the Company's records and other
data available from third parties, but there can be no assurance that
management's expectations, beliefs or projections will result or be achieved or
accomplished.

ITEM 1.   BUSINESS
------

GENERAL

IMCO Recycling Inc. recycles aluminum and zinc. Except where the context
otherwise requires, the term "Company" used in this Form 10-K means IMCO
Recycling Inc. and its subsidiaries. The Company is the largest aluminum
recycler in the United States and believes that it is the largest aluminum
recycler in the world. The Company's processing of aluminum includes used
aluminum beverage cans ("UBCs"), aluminum scrap and dross (a by-product of
aluminum production). The Company converts UBCs, scrap and dross into molten
metal in furnaces at facilities owned or operated by the Company. While the
aluminum is in molten form, the Company may blend in other metals to provide
specific desirable qualities such as increased strength, formability and wear
resistance. The Company then delivers the processed aluminum to customers in
molten form or ingots.

The Company is also one of the world's largest zinc recyclers. Its U.S. Zinc
Corporation subsidiary uses furnaces to convert zinc scrap and dross into
various value-added zinc products, such as zinc oxides, zinc dust and metal.

A majority of the Company's processing capacity is utilized to recycle
customer-owned materials, for which the Company charges a fee (a service called
"tolling"). During 2001, approximately 63% of the Company's total pounds of
metal melted involved tolling. The balance of the Company's business involves
the purchase of scrap and dross for processing and recycling by the Company for
subsequent resale ("product sales" business).

The Company's business has benefited from the growing trend to include recycled
materials in finished products, the growth in the production and recycling of
containers and packaging, and the increasing utilization of aluminum in
automotive components. Similar trends have been experienced in recent years in
domestic zinc recycling. Additionally, the use of recycled aluminum in
manufacturing operations in Europe and Latin America is increasing.

                                       3

<PAGE>

Over the past decade, production of primary metal, aluminum recycling and
imports have each accounted for roughly one-third of U.S. aluminum supply.
Shipments to the transportation sector now consume some 37% of total supply,
while container and packaging, mainly the manufacturing of beverage cans,
utilizes 23% of annual shipments and building and construction accounts for 15%.
During 2001, production of primary metal declined by 28% to a 15-year low
because of the shutdown of 10 smelters in the Pacific Northwest due to the high
cost and lack of availability of electric power.

The Company's aluminum customers include some of the world's major aluminum
producers and aluminum fabricators, diecasters, extruders, automotive companies
and other processors. Most of the aluminum metal processed by the Company is
used to produce products for the transportation, packaging and construction
industries, which constitute the three largest aluminum markets. Due to the
increasing use of aluminum in automotive components, much of the Company's
recent growth has been directed toward serving the transportation sector. The
Company's principal aluminum customers include Alcoa Inc., Commonwealth Aluminum
Corporation ("Commonwealth"), Ford Motor Company ("Ford"), General Motors
Corporation ("GM"), Toyota Tsusho America, Inc. and Wise Metals Company ("Wise
Metals").

The Company's zinc customers include some of the world's major tire and rubber
producers and galvanizers, steel companies and other processors, including
Goodyear Tire & Rubber Co., Michelin Tire and Dow Agrosciences.

GROWTH OF BUSINESS

Since its formation in 1988, the Company has increased its number of facilities
and capacity through acquisitions, construction of new facilities and expansion
of existing facilities. Implementation of this growth strategy was accelerated
during the mid-1990s. The Company has grown from owning and operating five
recycling plants having a total annual processing capacity of 735 million pounds
of aluminum and 50 million pounds of zinc and other metals in January 1993, to
21 U.S recycling and processing plants and foreign facilities in Swansea, Wales
and Monterrey, Mexico at December 31, 2001, which have a total annual melting
capacity of approximately 2.9 billion pounds of aluminum and 290 million pounds
of zinc. Due to prevailing economic and market conditions in 2001, three plants
ceased or suspended operations. See "Operations-General" below.

In December 2000, operations commenced at the Company's new aluminum alloying
facility near Saginaw, Michigan, which supplies molten aluminum to GM under a
long-term supply agreement that is being re-negotiated. This plant achieved its
rated capacity during the third quarter of 2001. The Company also owns a 50%
interest in an aluminum recycling joint venture in Germany, VAW-IMCO Guss
und Recycling GmbH ("VAW-IMCO"), which has an annual melting capacity of 600
million pounds. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    ------
CONDITION AND RESULTS OF OPERATIONS--VAW-IMCO." In October, the Company
completed the acquisition of a majority interest in a joint venture that
operates an aluminum recycling facility in Monterrey, Mexico.

                                       4

<PAGE>

CERTAIN FACTORS

For descriptions of certain factors affecting the Company, including commitments
and contingencies which subject the Company to certain continuing risks, see (i)
"ENVIRONMENTAL MATTERS" below, (ii) ITEM 3. "LEGAL PROCEEDINGS," (iii) ITEM 7.
                                    ------                             ------
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS" and
(iv) NOTE L--"OPERATIONS" of Notes to Consolidated Financial Statements.

SEGMENT REPORTING

The Company has two business segments that meet the reporting requirements of
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." See NOTE M--"SEGMENT INFORMATION" of
Notes to Consolidated Financial Statements. The aluminum segment represents all
of the Company's aluminum melting, processing, alloying, brokering and salt cake
activities. The Company's zinc segment represents all of the Company's zinc
melting, processing and brokering activities.

PRODUCTS AND SERVICES

Aluminum. The Company recycles aluminum and delivers the recycled metal to
--------
customers as molten aluminum or ingots. The Company's U.S. customers include
most of the major aluminum producers and aluminum diecasters, extruders,
automotive companies and other processors of aluminum products. In Europe, the
Company supplies recycled aluminum to major aluminum producers through long-term
contracts with its customers.

The Company manufactures specification aluminum alloy products at four dedicated
facilities for automotive equipment manufacturers and their suppliers. In
addition, two other plants manufacture a variety of aluminum products that are
ultimately used as metallurgical additions in the steel making process, such as
slag conditioners, deoxidizers, steel desulfurizers and hot topping compounds.
The major force behind increased demand for recycled aluminum in recent years
has been aluminum's increasing use in auto and truck components, including body
structures.

Zinc. Zinc is used in diecastings, in brass-making as an alloying metal with
----
copper and in chemical compounds to produce rubber, ceramics, paints and
fertilizer. However, its most unique quality is its natural ability to
metallurgically bond with iron and steel and protect these metals from
corrosion. The Company manufactures three value-added zinc products: zinc
oxides, zinc dust and zinc metal.

Zinc oxide is used predominantly in the tire and rubber industries and by the
----------
specialty chemical, motor oil and ceramics industries. The Company produces two
types of zinc dust: extra low lead dust, which is used in the industrial paint
         ---------
industry, and regular dust, which is used in paints, specialty chemical and
mining applications. Zinc metal recovered by the Company is used to galvanize
                     ----------
steel, and by-products (fines) generated in the zinc metal recycling process
serve the zinc sulfate industry as fertilizer additives.

                                        5

<PAGE>

Foreign Expansion. The Company continues to evaluate expansion opportunities in
-----------------
foreign countries where market conditions warrant. The Company anticipates
further capacity expansion at its VAW-IMCO facilities in Germany, plans to build
another facility in the United Kingdom, and is in the process of investigating
opportunities in Brazil. General political and economic conditions in foreign
countries may affect the business prospects and results of operations of the
Company. Foreign operations are generally subject to risks, including foreign
currency exchange rate fluctuations, environmental regulations, changes in the
methods and amounts of taxation, foreign exchange controls and government
restrictions on the repatriation of hard currency. See ITEM 7. "MANAGEMENT'S
                                                       ------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
VAW-IMCO."

SALES AND LONG-TERM CONTRACTS

Aluminum-General. The Company's principal aluminum customers use recycled
----------------
aluminum to produce can sheet, building, automotive and other products. No
single aluminum customer of the Company accounted for 10% or more of the
Company's consolidated revenues in fiscal 2001.

Customarily, agreements with customers in the aluminum recycling industry have
been short-term. These usually result from a bidding process where aluminum
producers and metal traders offer to sell materials or to have materials tolled.
Consequently, the Company historically has maintained no significant backlog of
orders.

Aluminum-Long-Term Contracts. The Company has secured long-term agreements for
----------------------------
its recycling services with Alcoa, Commonwealth, Aluminum Norf GmbH, Wise
Metals, PBR Automotive, GM and Nemak, S.A. The remaining terms of these
contracts as of December 31, 2001 ranged from 1 year to 10 years, although many
of the contracts provide for extension periods. Amounts melted under multi-year
contracts with its customers represented approximately 36% of the Company's
total aluminum volume for 2001. Many of these agreements contain cross-indemnity
provisions, including provisions obligating the Company to indemnify the
customer for certain environmental liabilities that the customer may incur.

The Company plans to seek similar dedicated long-term arrangements with
customers in the future. Increased emphasis on dedicated facilities and
dedicated contracts with customers carries the inherent risk of increased
dependence on a single or few customers with respect to a particular Company
facility. In such cases, the loss of such a customer, or the reduction of that
customer's business level, could have a material adverse effect on the Company's
financial condition and results of operation, and any timely replacement of
volumes could prove difficult.

Zinc. Most of the Company's zinc products are sold directly to end-users. No
----
single zinc customer accounted for more than 10% of the Company's consolidated
revenues in 2001. Most of the Company's contracts with zinc customers are for a
term of one year or less. The Company historically has maintained no significant
backlog of orders for zinc products.

General. The primary metals industry and the metals recycling industry are
-------
subject to cyclical fluctuations, depending upon the level of demand in metal
consuming industries. Reduced industrial demand and declines in U.S. production
adversely affected the Company's results of operations during 2001. See ITEM 7.
                                                                        ------
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."

                                       6

<PAGE>

The Company sells to both domestic and international customers. Sales to
customers in foreign locations accounted for approximately 11%, 15% and 14% of
consolidated revenues in 2001, 2000 and 1999 respectively, and aluminum
shipments to customers located in Canada accounted for approximately 8% of total
consolidated revenues for each of these years. See ITEM 7. "MANAGEMENT'S
                                                   ------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS" and
NOTE M -- "SEGMENT INFORMATION" of Notes to Consolidated Financial Statements.

THE RECYCLING/MANUFACTURING PROCESS

Aluminum. The Company uses two types of furnace technology: rotary and
--------
reverberatory. Rotary or barrel-like furnaces are able to pour a batch of melted
aluminum recovered from dross and then immediately switch to other types of
material, such as scrap. Reverberatory furnaces are stationary and use both
radiation and convection heating to melt the material being processed. Each of
these furnace technologies has advantages over the other, depending on the type
of material processed.

The recovered metal is poured directly into an ingot mold or hot metal crucible
for delivery to customers. Some of the Company's plants deliver molten aluminum
in crucibles directly to their customers' manufacturing facilities. As of
December 31, 2001, the Company had the capacity to provide approximately 79% of
its domestic processed aluminum in molten form. The molten aluminum is poured
from the crucible into the customer's furnace, saving the customer the time and
expense of remelting aluminum ingots. The Company normally charges an additional
fee for transportation and handling of molten aluminum.

Alloying. At the Company's metal alloying facilities in Coldwater, Michigan,
--------
Saginaw, Michigan and Shelbyville, Tennessee, additional materials are blended
with molten aluminum to produce a metal alloy. The alloyed aluminum is shipped
in either molten or ingot form to its customers. The Coldwater alloying facility
generates dross, which is then recycled at the Company's adjacent aluminum
recycling facility in Coldwater.

By-products. A by-product of processing primary aluminum materials through
-----------
reverberatory furnaces is aluminum dross, which is sent to the Company's rotary
furnaces for processing. The recycling process from the Company's rotary
furnaces produces a by-product called "salt cake," which is formed from the
contaminants and coatings on aluminum scrap and dross, and the salts added
during the aluminum recycling process. Salt cake is composed of salts, metallic
aluminum, aluminum oxide and small amounts of other materials.

The Company disposes of its salt cake and certain airborne contaminants (or
baghouse dust) in landfills that are used exclusively by the Company or that are
permitted specifically to handle the types of waste materials generated by the
Company. Salt cake is not listed as a "hazardous waste" under the Resource
Conservation and Recovery Act of 1976 ("RCRA") or as a "hazardous substance"
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"). The Company owns and operates a lined landfill at its
Morgantown, Kentucky facility; its design exceeds current requirements for
disposal of salt cake and meets RCRA Subchapter "C" hazardous waste standards.

The Company also owns and operates a facility adjacent to its Morgantown,
Kentucky plant to further process salt cake through the use of a materials
separation process, and extract additional

                                        7

<PAGE>

aluminum that is left after the melting process. The facility's process involves
crushing the salt cake and separating metallic aluminum out of the salt cake.
The residual non-metallic product is then landfilled in the Company's
Morgantown, Kentucky landfill.

Certain of the Company's other facilities also recycle salt cake and other
by-products from the aluminum recycling process into aluminum concentrates,
aluminum oxide and salt brine.

Zinc.
----
Zinc oxide is produced by melting top dross, a low iron-content zinc by-product
----------
of continuous galvanizing, and re-melt die cast, a high zinc-content alloy, in a
sweat or premelt furnace.

Zinc dust produced by the Company consists of extra low lead and regular dust.
---------
Zinc dust with extra low lead content is preferred by the domestic industrial
paint industry. It is produced by converting primary zinc into a molten form
using an electro-thermal furnace. Regular zinc dust is produced by processing
bottom dross, an iron-bearing zinc residue created during the galvanizing
process, and re-melt die cast in a pot or ladle.

Zinc metal is produced by placing pieces of oxidized zinc-bearing metals into a
----------
ball mill where the Company separates out the oxidic zinc. The oxide zinc is
then sold as fertilizer additives. After the ball mill process, the metallic
zinc-bearing material is melted, refined, poured into molds and shipped to
galvanizers.

The Company's Coldwater, Michigan zinc plant's recycling process involves
melting continuous galvanizers' top dross in an electric induction furnace which
is then transferred to a reactor which removes the impurities (iron and zinc
oxide, which are sold as by-products). The remaining molten zinc is poured into
a reverberatory holding furnace from which it is blended and cast into ingots,
which are either sold or returned to the customer.

OPERATIONS

Aluminum. In its aluminum tolling operations, the Company accepts UBCs, dross
--------
and scrap owned by its customers and processes this material for a tolling
charge per pound of incoming weight. In order to retain control of their metal
supplies, customers have often desired to toll, rather than sell, their scrap
materials. Tolling requires no metal inventory to be purchased or held by the
Company. In addition, tolling limits the Company's exposure to the risk of
fluctuating metal prices since the Company does not own the material processed.
For the year ended December 31, 2001, approximately 69% of the Company's total
pounds of aluminum processed involved tolling. Unlike product sales
transactions, tolling decreases the Company's exposure to the risk of
fluctuating metal prices and working capital requirements. See ITEM 7.
                                                               ------
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                -------
RISK."

Zinc. The Company's zinc operations primarily consist of product sales
----
transactions. The Company's product sales from zinc operations represent
approximately 97% of its total zinc production; the remainder is from tolling
transactions.

General. The Company's production network of plants has traditionally achieved
-------
high overall operating rates due to demand for the Company's services and
products and the strategic location

                                        8

<PAGE>

of many of the Company's plants near major customers' production facilities. The
Company's network of facilities in the U.S. enables it to better allocate
processing work among its facilities, thereby maximizing utilization of
available capacity. To achieve reductions in energy consumption and increases in
productivity, the Company began in 2000 to retrofit its older rotary furnaces
with new natural gas burner technology. This initiative is expected to be
substantially completed in early 2002.

During 2001, the Company closed its Bedford, Indiana aluminum recycling facility
and its Chicago, Illinois zinc oxide plant. It has temporarily shut down its
Wendover, Utah aluminum facility.

As a result of its increased emphasis on the product sales business in recent
years, the Company has also entered into metal brokerage transactions pursuant
to which the Company buys metal from primary and other producers and then sells
the metal to end-users. These transactions involve buying and selling metal
without processing it. Additionally, in order to facilitate acquiring metal for
its production process, the Company occasionally enters into "swap" transactions
whereby the Company agrees to exchange its recycled finished goods for scrap raw
materials.

When purchasing metals in the open market for its product sales business, the
Company attempts to reduce the risk of fluctuating metal prices by hedging
anticipated sales of aluminum and zinc and by avoiding large inventories, except
to the extent judged necessary to allow its plants to operate without
interruption. See ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                  -------
MARKET RISK."

COMPETITION

General. The aluminum and zinc recycling industries are fragmented and highly
-------
competitive. The Company believes that its position as the largest U.S. recycler
of secondary aluminum and zinc is a positive competitive factor.

The international recycling business is also fragmented and very competitive.
However, the Company believes it will be able to compete effectively in certain
international areas because of its technology. The Company intends to expand
internationally only when it has a long-term commitment from a customer.

Aluminum. The principal factors of competition in the aluminum segment are
--------
price, recovery rates, environmental and safety regulatory compliance, and types
of services (for example, the ability to deliver molten aluminum). Freight costs
also limit the geographic areas in which the Company can compete effectively.

The major aluminum producers, some of which are the Company's largest customers,
have generally discontinued processing dross, instead focusing their resources
on other aspects of aluminum production. UBCs and other scrap are processed by
both the secondary recycling industry and the major producers. In times of lower
demand, the major producers process a greater portion of the available scrap and
UBCs. The Company competes with other secondary recyclers and their customers
when purchasing and processing scrap for product sales business.

                                        9

<PAGE>

The amount of the Company's aluminum tolling business can vary depending upon
the extent that the major aluminum producers' used metal materials are
internally recycled. The aluminum producers generally vary their rate of
internal recycling depending upon furnace availability, inventory levels, the
price of aluminum and their own internal demand for metal. The major aluminum
producers are larger and have greater financial resources than the Company. A
decision by these producers to expand their recycling operations could reduce
demand for certain of the Company's products and services. Declines in can stock
demand for these major producers during 2001 adversely affected the Company's
tolling business.

The aluminum alloys business has experienced intense competition for both the
buying of scrap and sale of finished products. This has had a negative impact on
the Company's profitability in 2000 and 2001 as prices for its aluminum alloy
products fell and raw materials costs increased. As a result of these reduced
margins, total U.S. specification aluminum alloy industry capacity has been
reduced, but excess capacity still remains. Further capacity reductions are
possible. The Company's management believes that an improvement in economic
conditions and the long-term trend toward increasing aluminum content in
automotive products will ultimately correct the current over-capacity in this
business.

Zinc. The principal factors of competition in the zinc segment are price,
----
customer service and delivery schedules. Competition is generally regionally
focused due to high freight costs.

For zinc oxide, the Company's major competitors are Zinc Corporation of America,
a subsidiary of Horsehead Industries, Inc. and Zochem, a subsidiary of Hudson
Bay Mining & Smelting, Ltd. For zinc dust, the Company's major competitors are
Purity Zinc Metals Company, Ltd. and Meadowbrook Company, a subsidiary of T.L.
Diamond Company, Inc. For zinc metal, the Company considers both primary and
secondary zinc producers to be competitors.

SOURCE AND AVAILABILITY OF RAW MATERIALS AND ENERGY

Aluminum. The lower level of manufacturing activity in the U.S. during the past
--------
two years has had a negative impact on the Company's operations. Certain Company
facilities have operated at reduced levels because of a lack of raw materials
available for processing. In the case of product sales business, the primary
sources of aluminum for recycling and alloying are dross and scrap, which are
purchased from both the major aluminum producers and metal traders. Many of the
Company's aluminum suppliers are also customers of the Company.

Zinc. A significant portion of the Company's zinc products is produced from
----
secondary materials provided by the galvanizing and scrap metals industries.
These industries, like aluminum, have operated at lower levels during the past
two years, reducing the availability of profitable processing opportunities. The
Company also purchases primary zinc to produce high-grade zinc and for metals
brokerage purposes.

The Company purchases its zinc raw materials from numerous suppliers. Many of
the "hot dip" galvanizers, which supply the Company with approximately 40% of
its aggregate zinc raw materials, are also customers of the Company. The
Company's zinc brokerage unit also procures raw materials for use in the
Company's zinc manufacturing operations. The availability of zinc dross is
dependent upon the demand for galvanized steel, which has historically
paralleled fluctuations in customer demand in the automotive, appliance and
construction industries.

                                       10

<PAGE>

General. The Company's operations are fueled by natural gas, which represents
-------
the second largest component of its operating costs. In an effort to acquire the
most favorable natural gas costs, the Company has secured some of its natural
gas at fixed price commitments for its requirements. Occasionally, when
necessary, the Company purchases its natural gas on a spot-market basis. Most of
the Company's long-term supply contracts with its customers contain provisions
to reflect fluctuations in natural gas prices. See ITEM 7. "MANAGEMENT'S
                                                   ------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." The
-------
Company believes it will continue to have access to adequate energy supplies to
meet its needs for the foreseeable future.

SEASONALITY

Aluminum. UBC collections have historically been highest in the summer months
--------
and lowest in the winter months. The automotive industry has historically
experienced a decline in molten metal deliveries during periods when its
production facilities cease production to perform new model changeovers and
during the holidays in December.

Zinc. Historically, demand for the Company's zinc products used by paint
----
manufacturers and those used in fertilizers has been somewhat higher in the
summer months.

TRANSPORTATION

The Company receives incoming metal by rail and truck. Most of the Company's
plants own their own rail siding or have access to rail lines nearby. The
Company owns and leases various trucks and trailers to support its business.
Customarily, the transportation costs of scrap materials to be tolled are paid
by the Company's customers, while the transportation costs of metal purchased
and sold by the Company may be paid by either customers or the Company. The
Company contracts with third-party transportation firms for hauling some of its
solid waste for disposal.

EMPLOYEES

As of December 31, 2001, the Company had 1,529 employees, consisting of 372
employees engaged in administrative and supervisory activities and 1,157
employees engaged in production and maintenance. Labor relations with employees
have been satisfactory. A few of the Company's production facilities are
represented by collective bargaining groups as set forth below:

<TABLE>
<CAPTION>
                                                                         CONTRACT
    FACILITY                       REPRESENTATIVE                        EXPIRES
----------------    ----------------------------------------------    --------------
<S>                 <C>                                               <C>
Rockwood, TN        United Steelworkers of America                    September 2003
Hillsboro, IL       Laborer's International Union of North America    August 2003
Saginaw, MI         United Auto Workers                               Currently in
                                                                      negotiations
Uhrichsville, OH    United Mine Workers of America                    January 2005
</TABLE>

                                       11

<PAGE>

ENVIRONMENTAL MATTERS

General. The Company's operations, like those of other basic industries, are
-------
subject to federal, state, local and foreign environmental laws, regulations and
ordinances. While the Company believes that current environmental control
measures at its facilities comply in all material respects with current legal
requirements, additional measures at some of the Company's facilities may be
required. See ITEM 3. "LEGAL PROCEEDINGS."
              ------

The Company's operations generate certain discharges and emissions, including in
some cases off-site dust and odors, which are subject to the Federal Clean Air
Act and other environmental laws. From time to time, operations of the Company
have resulted, or may result, in certain noncompliance with applicable
requirements under environmental laws. The Company may also incur liabilities
for off-site disposals of salt cake and other materials. In addition, historical
or current operations at, or in the vicinity of, the Company's facilities, may
have resulted in soil or groundwater contamination. See ITEM 3. "LEGAL
                                                        ------
PROCEEDINGS" and ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                ------
CONDITION AND RESULTS OF OPERATIONS."

Due to relatively high costs and limited coverage, the Company does not carry
environmental impairment liability insurance. The Company made capital
expenditures for environmental control facilities of approximately $1,000,000 in
2001, most of which was related to air pollution control equipment for the new
facility in Saginaw and additions to the Uhrichsville facility. Environmental
expenditures for 2002 and 2003, which primarily relate to the Company's
landfills and air pollution control equipment, are currently estimated to be
approximately $2,200,000 and $6,000,000, respectively.

Aluminum. The processing of UBCs, dross and scrap generates solid waste in the
--------
form of salt cake and baghouse dust. This material has been disposed of at
off-site landfills or at the Company's permitted disposal sites at two of its
facilities. If salt cake were ever classified as a hazardous waste or substance
under RCRA or CERCLA, the Company's handling and disposal of salt cake would be
required to be modified. To dispose of its salt cake, the Company may then be
required to take other actions including obtaining a RCRA Subchapter "C" permit
for its Morgantown, Kentucky landfill, obtaining other permits (including
transportation permits), and landfilling additional amounts of salt cake with
third parties not under the Company's direct control. Based on current annual
processing volumes, planned utilization rates and remaining landfill capacity,
the estimated remaining life of the Company's landfill at its Sapulpa, Oklahoma
plant is three years. The Company estimates that its Morgantown, Kentucky
landfill cell has a remaining useful life of approximately four years. A planned
expansion at Morgantown in 2003 or 2004 is anticipated to provide an additional
six years of useful life. Landfill closure costs for the Company-owned landfills
are currently estimated to be approximately $8,000,000. The Company is currently
providing for this expenditure by accruing, on a current basis, these estimated
costs as the landfills are used.

Zinc. Several of the zinc manufacturing processes create various by-products
----
which are either sold to downstream processors or re-used internally. There are
virtually no by-products requiring disposal.

                                       12

<PAGE>

ITEM 2.  PROPERTIES
------

RECYCLING AND PROCESSING FACILITIES

The Company's principal aluminum segment facilities are located in:

Sapulpa, Oklahoma                    Wendover, Utah
Rockwood, Tennessee                  Elyria, Ohio
Morgantown, Kentucky                 Rock Creek, Ohio
Uhrichsville, Ohio                   Coldwater, Michigan - (2)
Loudon, Tennessee                    Swansea, Wales  UK
Chicago Heights, Illinois            Shelbyville, Tennessee
Post Falls, Idaho                    Saginaw, Michigan
Goodyear, Arizona                    Monterrey, Mexico

These facilities recycle aluminum, manufacture specification aluminum alloy
products and manufacture aluminum products used in steelmaking.

The Company's zinc segment facilities are located in:

Houston, Texas -(2)                  Hillsboro, Illinois
Millington, Tennessee                Clarksville, Tennessee
Coldwater, Michigan

The Company also holds a 50% interest in a joint venture in Germany that
operates two recycling and foundry alloy plants. See ITEM 7. "MANAGEMENT'S
                                                     ------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
VAW-IMCO."

The average operating rates for all of the Company's facilities for 2001, 2000
and 1999 were 81%, 89% and 96%, respectively, of stated capacity. In January
2001, the Company determined to reduce some of its capacity, permanently closing
its Bedford, Indiana aluminum facility and its Chicago, Illinois zinc oxide
plant. In February 2001, it also temporarily shut down its Wendover, Utah
aluminum facility.

The Company believes that its facilities are suitable and adequate for its
operations. Substantially all of the Company's U.S. plants are mortgaged to
secure senior indebtedness of the Company. See ITEM 7. "MANAGEMENT'S DISCUSSION
                                               ------
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

Under a Supply Agreement with Commonwealth, the Company has granted Commonwealth
an option to purchase the Uhrichsville, Ohio facility, exercisable in 2008. In
the event of a "change of control" of the Company (as defined in the Supply
Agreement), the exercise date of this option would be accelerated to the date of
the "change of control" event. The exercise price is based on varying multiples
of earnings before interest, taxes, depreciation and amortization (EBITDA) for
the facility (five times EBITDA in the case of a non-change of control
exercise). In addition, the Company granted Commonwealth a right of first
refusal in the event the Company desires to sell the facility in a non-change of
control situation. In the event of a change of control of Commonwealth, then
Commonwealth's option and right of first refusal would automatically terminate.

                                       13

<PAGE>

The potential purchase price for Commonwealth's exercise of these rights may be
above or below the fair value of the Uhrichsville plant. Should Commonwealth
exercise these rights, there can be no assurance that the production or earnings
attributable to the Uhrichsville facility could be replaced, and the Company's
cash flows and net earnings could be adversely affected.

SOLID WASTE DISPOSAL

All of the waste generated from the Company's salt cake processing facility at
its Morgantown site is deposited in a landfill adjacent to this facility.
Management anticipates that this landfill, assuming it is expanded as scheduled,
will serve the Company's landfilling needs for the majority of the salt cake
generated by facilities owned by the Company in the Eastern United States for
the next 10 years, based on current utilization. The Company also owns a
landfill at its Sapulpa, Oklahoma plant, which is estimated to have three years
of useful life remaining, based on planned utilization. The Goodyear, Arizona
facility recycles its own salt cake and sells the by-products to third parties.
See ITEM 1. "BUSINESS--ENVIRONMENTAL MATTERS."
    ------

ADMINISTRATIVE

In Irving, Texas, the Company leases approximately 40,000 square feet of office
space for its principal executive, financial and management functions. This
lease expires in June 2007. In Houston, Texas, the Company owns approximately
30,000 square feet of office space for financial and management functions for
its zinc operations. The Company also has four zinc brokerage offices that it
leases, located in California, Texas, Pennsylvania and Canada.

ITEM 3.  LEGAL PROCEEDINGS
------

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 had sold zinc oxide for processing.
These subsidiaries have joined a group of PRPs that is planning to negotiate
with the IEPA regarding the cleanup of the site. Although the site has not been
fully investigated and final cleanup costs have not yet been determined, based
on current cost estimates and information regarding the amount and type of
materials sent to the site by the subsidiaries, the Company does not believe
that its liability at this site will have a material adverse effect on its
financial position or its 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,
concerning air permits and emissions at the specification aluminum alloy
production facilities in Coldwater. The plaintiffs claim injunctive relief and
penalties for alleged non-compliance with and violations of federal and state
environmental laws. The suit seeks compliance by the Company, as well as
potentially substantial monetary penalties. The Company has filed an answer to
the petition. Discovery is in the preliminary stages. 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.

                                       14

<PAGE>

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 facilities. The
NOV addresses the same instances of alleged noncompliance raised in the State of
Michigan lawsuit, alleging that the Company failed to obtain appropriate
preconstruction air quality permits prior to conducting modifications to
production facilities and exceeded permitted emission levels from both
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
the Coldwater site and at other 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.

The Company is also a party from time to time to what it believes are routine
litigation and proceedings considered part of the ordinary course of its
business. The Company believes that the outcome of such proceedings would not
have a material adverse effect on the Company's financial position or results of
operations.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------

No matters were submitted to a vote of security holders of the Company during
the quarter ended December 31, 2001.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT
-------

The executive officers of the Company are listed below, together with brief
accounts of their experience and certain other information. Executive officers
are appointed by the Board of Directors.

Name                  Age     Position
----                  ---     --------

Don V. Ingram          66     Chairman of the Board, Chief Executive Officer and
                              President

Richard L. Kerr        59     Executive Vice President; President, Aluminum
                              Operations

Paul V. Dufour         62     Executive Vice President, Chief Financial Officer
                              and Secretary

W. Lane Pennington     46     Executive Vice President; President, International

Robert R. Holian       49     Senior Vice President, Controller and Chief
                              Accounting Officer

James B. Walburg       48     Senior Vice President, Finance and Administration
                              and Treasurer

Barry K. Hamilton      49     President, U.S. Zinc Corporation

                                       15

<PAGE>

Don V. Ingram has served as a director of the Company since 1988 and as Chairman
of the Board since 1994. He was elected Chief Executive Officer of the Company
in February 1997 and assumed the role of President in May 2000. Mr. Ingram
played a major role in the formation of the Company in 1986.

Richard L. Kerr joined International Metal Co., a predecessor of the Company, in
April 1984. He was named Chief Operating Officer of the Company in 1991. In
1994, he became President of the Company's Metals Division. In 1997 he became
President of the Company, and in May 2000, he assumed the role of Executive Vice
President and President of the Specialty Alloys Division; in March 2001 he was
named Executive Vice President and President, Aluminum Operations.

Paul V. Dufour has served as Vice President, Chief Financial Officer and
Secretary of the Company since March 1987. He was promoted to Senior Vice
President in 1988 and to Executive Vice President in 1994.

W. Lane Pennington has served as Executive Vice President, International of the
Company since November 2001. Previously, Mr. Pennington was employed by Lennox
International Inc. where he served as President of Lennox Worldwide Heat
Transfer from 1999 to 2001 and Lennox Global Asia/Pacific from 1997 to 1999.

Robert R. Holian has served as Senior Vice President and Chief Accounting
Officer since 1999. He joined the Company in 1990 and was named Controller in
1992. He was promoted to Vice President and Controller in 1994.

James B. Walburg has served as Senior Vice President, Finance and Administration
of the Company since September 1999. He joined the Company as Vice President and
Treasurer in 1994.

Barry K. Hamilton was appointed President of the Company's U.S. Zinc Corporation
subsidiary in January 2002. Previously, Mr. Hamilton served as President of
Midwest Zinc Corporation, a subsidiary of U.S. Zinc Corporation, from 1997 to
2001.

                                       16

<PAGE>

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-------

The Company's Common Stock trades on the New York Stock Exchange (trading
symbol: IMR). The following table sets forth, for the fiscal quarters indicated,
the high and low sales prices for the Company's Common Stock, as reported on the
New York Stock Exchange composite tape from January 1, 2000 through December 31,
2001, and the dividends declared per share during the periods indicated:

<TABLE>
<CAPTION>
      CALENDAR                      PRICE RANGE                DIVIDENDS
                          ------------------------------
        YEAR                    HIGH             LOW           DECLARED
------------------------  ---------------   ------------  -----------------
<S>                       <C>               <C>           <C>
2000
----
  FIRST QUARTER               $   13.063       $  9.563   $    0.06
  SECOND QUARTER                  11.250          4.938        0.06
  THIRD QUARTER                    8.750          4.813        0.06
  FOURTH QUARTER                   6.125          4.063        0.06

2001
----
  FIRST QUARTER                    7.375          3.650   $       -
  SECOND QUARTER                   7.950          4.000           -
  THIRD QUARTER                    7.800          6.020           -
  FOURTH QUARTER                   8.150          5.500           -
</TABLE>

In March 2001, the Company's Board of Directors elected not to pay a quarterly
cash dividend in order to strengthen Company cash flows. Cash dividends and
repurchases of Common Stock are currently limited under the terms of the
Company's Amended and Restated Credit Agreement. See ITEM 7. "MANAGEMENT'S
                                                     ------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

On March 1, 2002, the outstanding shares of Common Stock were held of record by
427 stockholders.

During the fourth quarter of 2001, the Company made no unregistered sales of its
equity securities.

                                       17

<PAGE>

ITEM 6.       SELECTED FINANCIAL DATA
-------

<TABLE>
<CAPTION>
(In thousands, except per share data)

                                                            For the Year Ended December 31,
                                               ----------------------------------------------------------
                                                  2001        2000       1999        1998       1997
                                               ----------------------------------------------------------
<S>                                            <C>          <C>         <C>        <C>         <C>
Revenues                                         $ 689,337  $ 846,939   $ 764,831  $ 562,093   $ 337,377
Net earnings (loss)                                 (2,722)       283      20,796     19,590      14,127
Net earnings (loss) per common share:

      Basic                                          (0.18)      0.02        1.26       1.18        1.08
      Diluted                                        (0.18)      0.02        1.26       1.17        1.06
Total assets                                       406,954    433,671     543,637    456,558     332,536
Long-term debt (excluding current maturities)      125,314    128,786     214,993    168,700     109,194
Dividends declared per common share              $       -  $    0.24   $    0.24  $    0.21   $    0.20
</TABLE>

The Company's results of operations and financial position have been affected by
acquisitions of facilities and companies during certain periods presented. See
NOTE B-- "ACQUISITIONS/JOINT VENTURE FORMATION" of Notes to Consolidated
Financial Statements. See also ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                               ------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------
        OF OPERATIONS

GENERAL

Over 60% of the Company's processing volumes consist 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 involve processing,
recovery and specialty alloying of aluminum and zinc metal and the production of
value-added zinc products for sale by the Company. The revenues from these sales
transactions include the cost of the metal, as well as the processing cost and
the Company's profit margin. Accordingly, tolling business produces lower
revenues and costs of sales than product sales business. Variations in the mix
between tolling and product sales business could cause revenue amounts to change
significantly from period to period while not significantly affecting gross
profit. As a result, the Company considers processing volume to be a more
important determinant of performance than revenues.

Until 2001, the percentage of total volume of metals tolled had declined while
the percentage of metal volume sold by the Company in product sales had
increased. This was primarily a result of acquisitions by the Company of
facilities and firms engaged primarily in product sales businesses. This trend
resulted in higher levels of revenues, but also increased the Company's working
capital requirements. In turn, the Company was increasingly exposed to the
additional risks associated with price fluctuations in the aluminum and zinc
commodities markets. In 2001, the additional processing from the Saginaw plant,
which is currently operating as a tolling facility, increased the Company's
tolling percentage compared to tolling in 2000.

                                       18

<PAGE>

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):

                                   For the Years Ended December 31,
                           --------------------------------------------------
                               2001             2000             1999
                           -------------------------------------------------
Pounds processed                2,553,987        2,856,622         2,832,969
Percent of pounds tolled               63%              57%               61%
Revenues                       $  689,337       $  846,939        $  764,831
Gross profits                  $   33,324       $   47,353        $   70,638

In addition to its increased emphasis on the product sales business, the Company
has also entered into an increasing amount of metal brokerage transactions each
year under which the Company buys metal from primary and other producers and
then sells the metal to end-users. These transactions involve buying and selling
metal without processing it. Also, in order to facilitate acquiring metal for
its production process, the Company occasionally enters into metal "swap"
transactions whereby the Company agrees to exchange its recycled finished goods
for scrap raw materials. As with the product sales business, the brokerage
business increases the Company's working capital requirements and subjects the
Company to greater price risk associated with fluctuations in the metals
commodities markets. See ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES
                         -------
ABOUT MARKET RISK" and NOTE A--"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of
Notes to Consolidated Financial Statements.

The following table sets forth, for the periods indicated, aluminum and zinc
segment information for pounds processed, revenues, income and assets (in
thousands, except percentages):

                                          For the Year Ended December 31,
                                     ------------------------------------------
                                        2001            2000             1999
                                     ----------      ----------      ----------
Pounds Processed:
   Aluminum                           2,338,978       2,579,889       2,575,284
   Zinc                                 215,009         276,733         257,685
                                     ----------      ----------      ----------
Total Pounds Processed                2,553,987       2,856,622       2,832,969

Percentage Tolled:
   Aluminum                                  69%             63%             66%
   Zinc                                       3%              3%              5%
Total Percentage Tolled                      63%             57%             61%

Revenues:
   Aluminum revenues                 $  511,245      $  598,759      $  568,327
   Zinc revenues                        178,092         248,180         196,504
                                     ----------      ----------      ----------
Consolidated revenues                $  689,337      $  846,939      $  764,831
                                     ==========      ==========      ==========

                                       19

<PAGE>

<TABLE>
<S>                                                      <C>          <C>          <C>
Income (loss):
   Aluminum income                                       $  29,498    $  24,687    $  52,974
   Zinc income (loss)                                          (20)      13,052       12,788
   Unallocated general and administrative expenses         (20,845)     (19,788)     (21,775)
   Unallocated interest expense                             (9,970)     (16,668)     (12,478)
   Fees on receivables sale                                 (3,372)      (1,082)          --
   Unallocated interest and other income                        70          210          795
                                                         ---------    ---------    ---------
Net earnings (loss) before provision for income taxes,
   minority interests                                    $  (4,639)   $     411    $  32,304
                                                         =========    =========    =========
Assets:
   Aluminum                                              $ 250,825    $ 281,394    $ 415,614
   Zinc                                                    107,734      106,088      109,377
   Other unallocated assets                                 48,395       46,189       18,646
                                                         ---------    ---------    ---------
Consolidated assets                                      $ 406,954    $ 433,671    $ 543,637
                                                         =========    =========    =========
</TABLE>

The accounting policies of the reportable segments are the same as those
described in NOTE A--"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of Notes to
Consolidated Financial Statements. The Company evaluates performance based on
gross profit or loss from operations, net of selling expenses. Provision for
income taxes, interest, fees on receivables sale, corporate general and
administrative costs, including depreciation of corporate assets and
amortization of capitalized debt costs, are not allocated to the reportable
segments. Intersegment sales and transfers are recorded at market value; net
profits on intersegment sales and transfers were immaterial for the periods
presented. Consolidated cash, net capitalized debt costs, net current deferred
tax assets and assets located at the Company's corporate headquarters in Irving,
Texas are not allocated to the reportable segments. Also, see NOTE M--"SEGMENT
INFORMATION" of Notes to Consolidated Financial Statements for additional
segment disclosures.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts therein. The policies discussed below are considered
by management to be critical to an understanding of the Company's financial
statements because their application places the most significant demands on
management's judgment, with financial reporting results relying on estimation
about the effect of matters that are inherently uncertain. Management uses
historical experience and all available information to make these estimates and
judgments, and different amounts could be reported using different assumptions
and estimates.

Inventories:
------------
Inventories are stated at the lower of cost or market. The Company reviews its
inventory values on a regular basis. Cost is determined using either a specific
identification method or a weighted average costs per product sold, and includes
an allocation of average manufacturing labor and overhead costs to finished
goods. In assessing the ultimate realization of inventories, the Company is
required to make judgments as to future demand requirements and compare that
with the current or committed inventory levels. It is possible that changes in
demand requirements could lead to depressed market conditions and the Company
would be required to record the appropriate adjustment to inventory levels.

                                       20

<PAGE>

Property and Equipment:
----------------------

Property and equipment are stated at cost. Major renewals and improvements are
capitalized, while maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.

Landfill closure costs are currently estimated and are being accrued as space in
the landfills is used. The estimation of the closure costs is determined by an
engineering study conducted by a third party contracted by the Company. The
estimation is based on various factors including historical utilization. In the
event that current utilization changes drastically from the historical basis,
the Company would be required to record an adjustment to the accrual. The
construction costs of the landfills are depreciated as space in the landfills is
used.

The Company reviews its property and equipment for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is measured as the amount by which the carrying amount
of the asset exceeds the estimated fair value of the asset less disposal costs.

Credit Risk:
-----------

The majority of the Company's accounts receivable are due from companies in the
aluminum, zinc and automotive industries. Credit is extended based on evaluation
of the customers' financial condition and, generally, collateral is not
required. The Company is required to estimate the collectibility of its trade
receivables. A considerable amount of judgment is required in assessing the
ultimate realization of these receivables, including the current
credit-worthiness of each customer. Significant changes in required reserves
have been recorded in recent periods and may occur in the future due to the
current market environment.

Amortization of Intangibles
---------------------------

The excess of original acquisition costs over the fair value of net assets
acquired (goodwill) is amortized on a straight-line basis over the expected
life, currently from 15-40 years. Management regularly reviews the remaining
goodwill with consideration toward recovery through future operating results.
Goodwill is currently evaluated for recovery on an undiscounted cash flow basis
which as of December 31, 2001 indicated no impairment of our intangible assets.
In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires that
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests. Based on the estimated
fair market value of the Company's reporting units, preliminary indications from
required fair market valuations currently being conducted are that goodwill
impairment charges, which the Company expects to record in the first quarter of
2002 as a change in accounting principle, could be as much as $60,000,000.
However, amortization of goodwill will be eliminated as a result of the
Company's adoption of SFAS 142. The elimination of goodwill amortization is
expected to positively impact the Company's 2002 net earnings by approximately
$3,000,000 or $.15 per share, excluding the effects of possible impairment
charges.

Environmental
-------------

The accounting policy with respect to contingent environmental liabilities is to
record environmental liabilities when and if environmental assessment and/or
remediation costs are probable and can be reasonably estimated.
















Income Taxes
------------

The Company records deferred income taxes to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided to reduce certain deferred tax assets to amounts
that are more than likely not to be realized.

The Company does not provide taxes for undistributed earnings of the Company's
non-U.S. investment in a joint venture, as these earnings are considered
permanently reinvested.

Market Risk Management Using Financial Instruments:
--------------------------------------------------

In order to manage its price exposure for natural gas purchases, the Company has
fixed the future price of a portion of its natural gas requirements by entering
into financial hedge agreements. Under these agreements, payments are made or
received based on the differential between the monthly closing price on the New
York Mercantile Exchange, ("NYMEX") and the actual hedge price. These contracts
are accounted for as hedges, with all gains and losses recognized in cost of
sales when the gas is consumed. 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. At December 31, 2001,
the Company had outstanding swap agreements to hedge its anticipated domestic
natural gas requirements on approximately 3,700,000 MmBtu's of natural gas,
which represents approximately 62% of its expected 2002 fuel needs.

The Company has entered into futures 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 Morgantown, Kentucky and some of the aluminum generated from the processing
of other scrap metal. In addition, the Company has entered into futures
contracts with metal brokers to cover the future selling prices of zinc recycled
for certain zinc customers under fixed-price contracts. These contracts are
settled in the month of the corresponding production and/or shipment, with all
gains and losses recognized in revenues.

The counter-parties to the financial hedge agreements and futures contracts
discussed above expose the Company to losses in the event of non-performance;
however, the Company does not currently anticipate non-performance by the
counter-parties. The counter-parties are evaluated for creditworthiness and risk
assessment prior to initiating trading activities with the brokers. The Company
does not require collateral to support broker transactions.

Effective January 1, 2001, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS 138. The
Company enters into production derivatives to hedge the cost of energy and the
sales price of certain aluminum and zinc products, and evaluates and documents
each hedge item when entered into. It is the Company's policy not to speculate
in hedging activities.

                                       21

<PAGE>

The Company used what it believes are reasonable assumptions and where
applicable, established valuation techniques in making its estimates.

FISCAL 2001 SPECIAL FACTORS AND FISCAL 2002 OUTLOOK

Certain of the statements below contain projections and estimates based on
current expectations 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 entitled "CAUTIONARY STATEMENT FOR PURPOSES OF
FORWARD LOOKING STATEMENTS" below. These statements do not reflect the potential
impact of any acquisitions, investments or divestitures that may be completed,
or unforeseen events that may occur, after the date of this filing.

During 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 downturn in U.S. industrial production;
     .    high natural gas fuel costs during the first half of the year;
     .    weak market conditions for its customers serving the transportation,
          can sheet and construction sectors;
     .    low margins for its specification aluminum alloys business due to
          relatively high costs of scrap and low prices for finished products;
     .    the continuing over-capacity of specification aluminum alloy
          suppliers; and
     .    a decline in zinc prices and lower margins in the zinc segment.

For 2002, the Company expects many of the prevailing industry conditions to
persist, particularly during the first half of 2002. Continued weak domestic
industrial production will negatively impact the Company's results of
operations. However, the Company's ongoing cost reduction program, lower natural
gas costs, a more effective use of commodities hedges, further utilization of
efficient fuel-burning technologies for its furnaces, and the continued
reallocation of processing volumes among its facilities should have the effect
of further reducing overall operational costs. Two furnaces from a plant closed
by the Company in 2000 were removed and reinstalled at its new Mexico joint
venture facility.

The Company's international aluminum operations outperformed their U.S.
counterpart during 2001. The Company is continuing to pursue additional growth
opportunities in Europe and in Latin America through proposed new facilities,
expansion of its major customer relationships and project venture partnering
opportunities. The Company is commencing construction of a new facility in the
United Kingdom, and plans capacity additions at its Mexico joint venture
facility in the second half of 2002. It is currently negotiating adding a
facility in Brazil. See "VAW-IMCO" below.

The Company does not foresee any material improvement in its estimated results
of operations for the first half of 2002. Until U.S. industrial demand increases
(which is not currently expected until the second half of 2002), the Company's
overall domestic operations should be expected to remain weak. Profitability
should improve in the second half of 2002 assuming the slowdown in the U.S.
economy is short-lived, the Company can execute on its international expansion
program, and the cost savings implemented in 2000 and 2001 continue to be
realized. Additional unexpected defaults and insolvencies involving its
suppliers and customers would further weaken the Company's outlook for 2002.

                                       22

<PAGE>

The Company is currently constrained by the terms of the facilities for its
existing sources of capital with regards to expansion and acquisition
opportunities. Both its revolving credit and receivables sales facilities expire
by their terms in late 2003. See "LIQUIDITY AND CAPITAL RESOURCES" below.
Although management believes that alternative sources of capital funding are
available, no assurances can be given that the terms of those replacement
facilities would be comparable to the terms of its existing facilities or as
favorable to the Company.

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 occurring after
the date of this Form 10-K.

VAW-IMCO

The Company is a 50% joint venture shareholder in VAW-IMCO, with VAW aluminium
AG being the other shareholder. On March 15, 2002, Norsk Hydro ASA, a Norwegian
oil and energy, aluminum and fertilizer company, announced that it had completed
the purchase of VAW aluminium AG from its parent company. Under the terms of the
joint venture agreement and the joint venture's organizational documents, upon a
change of control of one shareholder, the remaining shareholder may, if certain
conditions are met, elect to cause the joint venture to redeem the shares held
by the shareholder whose control has changed. The redemption price, which is to
be paid out in five equal installments (plus interest) from current funds in
future cash flows of the joint venture, is to be determined by an evaluation
conducted under a standard issued by the Institute of German Certified Public
Accountants, with both shareholders having the right to commission an auditing
firm to perform their own evaluation.

The Company is currently reviewing its rights under the documents to elect to
cause the joint venture to redeem those shares. No understanding or agreement
has yet been made between the parties with respect to the valuation of these
shares. The redemption of the shares would make VAW-IMCO a wholly-owned
subsidiary of the Company, requiring consolidation of the results of operations
and financial condition of VAW-IMCO with those of the Company's, for financial
accounting purposes.

FISCAL 2001 CHARGES

During the fourth quarter of 2001, the Company recorded a loss of $3,400,000,
including a $2,600,000 charge related primarily to an increase in the reserve
for doubtful accounts related to customer bankruptcies, and to the closing of a
zinc brokerage office in Germany.

ACQUISITIONS

In February 1999, the Company acquired substantially all of the assets of an
aluminum alloying facility located in Shelbyville, Tennessee for approximately
$11,000,000 in cash (not including acquisition costs). Also in February 1999,
the Company acquired, through its wholly owned subsidiary, Midwest Zinc
Corporation, substantially all of the assets of a zinc oxide production facility
located in Clarksville, Tennessee for approximately $11,000,000 in cash (not
including acquisition costs). Both acquisitions were accounted for using the
purchase method of accounting.

In October 2001, the Company invested approximately $4,800,000 in a joint
venture with Reciclaje y Maquila, S.A. de C.V. The joint venture, in which the
Company owns a majority interest, is recycling aluminum drosses and other scrap
under a long-term contract with NEMAK, S.A., Monterrey, Mexico.

                                       23

<PAGE>

RESULTS OF OPERATIONS

Fiscal Year 2001 vs. Fiscal Year 2000
-------------------------------------

PRODUCTION. During 2001, the Company melted 2.55 billion pounds compared with
----------
2.86 billion pounds in 2000. The aluminum and zinc segments accounted for 80%
and 20%, respectively, of the overall production decrease for 2001. Tolling
activity in 2001 represented 63% of total pounds processed, compared to 57% in
2000.

The following table shows the total pounds processed and the percentage tolled
for the aluminum and zinc segments (in thousands, except percentages):

                                             For the year ended
                                                December 31,
                                        -----------------------------
                                            2001            2000
                                        --------------  -------------
Pounds Processed:
    Aluminum                                2,338,978       2,579,889
    Zinc                                      215,009         276,733
                                        -------------   -------------
Total Pounds Processed                      2,553,987       2,856,622
                                        =============   =============

Percentage Tolled:
    Aluminum                                       69%             63%
    Zinc                                            3%              3%
Total Percentage Tolled                            63%             57%


     ALUMINUM PRODUCTION: During 2001, the Company melted 9% less aluminum than
it did during 2000. An overall weakening in demand, caused by the slowing
economy, affected production. The increase in aluminum percentage tolled is
primarily due to the commencement of processing at the Saginaw facility, which
is currently almost 100% dedicated to toll processing.

     ZINC PRODUCTION: During 2001, the Company melted 22% less zinc than it did
during 2000. The decrease in zinc production was also due to lower levels of
industrial activity in the U.S. economy.

REVENUES. During 2001, the Company's consolidated revenues decreased 19% to
--------
$689,337,000 compared to revenues of $846,939,000 in 2000. The aluminum and zinc
segments accounted for 56% and 44%, respectively, of the overall decrease in
revenues.

                                       24

<PAGE>

The following table shows the total revenues for the aluminum and zinc segments
(in thousands):

                                             For the year ended
                                                December 31,
                                        ------------------------------
                                            2001            2000
                                        --------------  --------------
Revenues:
    Aluminum                            $     511,245   $     598,759
    Zinc                                      178,092         248,180
                                        -------------   -------------
Total Revenues                          $     689,337   $     846,939
                                        =============   =============


     ALUMINUM REVENUES: During 2001, the Company's aluminum revenues decreased
15% compared to 2000, due to fewer processing pounds, lower aluminum prices and
lower product sales in 2001.

     ZINC REVENUES: During 2001, the Company's zinc revenues decreased 28%
compared to 2000. This decrease was primarily due to lower zinc production
volumes and lower zinc product sale prices due to decreased demand for
value-added zinc products, such as zinc oxide.

GROSS PROFITS. During 2001, the Company's consolidated gross profits decreased
-------------
29% to $33,324,000 compared to gross profits of $47,353,000 in 2000. The zinc
segment contributed to the overall decline in segment income by recording
negative zinc segment income in 2001, compared to $13,052,000 positive zinc
segment income in 2000. This decline was offset by an increase of 19% in
aluminum segment income.

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):

                                                   For the year ended
                                                      December 31,
                                               ---------------------------
                                                   2001           2000
                                               -------------   -----------

Segment Income (Loss):
    Aluminum                                   $     29,498    $    24,687
    Zinc                                                (20)        13,052
                                               ------------    -----------
Total segment income                                 29,478         37,739

Items not included in gross profits:
    Plant selling expense                             4,944          5,442
    Management SG&A costs                             2,264          7,301
    Equity in earnings of affiliates                 (3,131)        (3,060)
    Other income                                       (231)           (69)
                                               ------------    -----------
Gross Profits                                  $     33,324    $    47,353
                                               ============    ===========

                                       25


<PAGE>

     ALUMINUM INCOME: During 2001, the Company's aluminum income increased 19%
compared to 2000. The increase was primarily due to increased volumes and
profitability in its specialty alloy business. The new Saginaw facility also
contributed to the increased income in 2001.

     ZINC INCOME (LOSS): During 2001, the Company's zinc results reflected a
loss of $20,000 compared to a profit of $13,052,000 in 2000. The decrease was
due to the reduced demand for value-added zinc products, lower volumes
processed, and lower zinc prices.

SG&A EXPENSE. Selling, general and administrative expense in 2001 decreased 17%
------------
to $22,686,000 compared to $27,334,000 in 2000. The decrease was primarily due
to lower payroll costs and other expense reductions.

AMORTIZATION EXPENSE. Amortization expense in 2001 increased 3% to $5,367,000
--------------------
compared to $5,196,000 in 2000. The increase is due to amortization of
additional organization cost recorded as a result of the investment in the joint
venture in Mexico (see "ACQUISITIONS" above) and to greater levels of
amortization of capitalized debt issuance costs.

INTEREST EXPENSE. Interest expense in 2001 decreased 40% to $9,970,000 compared
----------------
to $16,668,000 in 2000. The decrease is the result of changes in management of
working capital, lower capital spending, and lower prevailing interest rates in
2001. The effect of a full year of the receivables sale facility in 2001, as
compared to two months in 2000, also contributed to the decrease in interest
expense.

FEES ON RECEIVABLES SALE. In November 2000, the Company and certain of its
------------------------
originating subsidiaries entered into a Receivables Sale Facility with a
Qualified Special Purpose Entity ("QSPE") corporate subsidiary of the Company,
under which the originators sold their right, title and interest in and to
certain trade accounts receivable and other related assets to the QSPE, which in
turn sold undivided interests therein to unaffiliated financial institutions and
other entities. Fees in connection with these transfers for the year ended
December 31, 2001, were $3,372,000 as compared to $1,082,000 in 2000, due
primarily to the fact that this facility had only been in effect for two months
during 2000. The decline in receivables sold in 2001 compared to 2000 was due to
lower sales volumes, the Company's collection efforts and lower commodity
prices. The results of operations and financial condition of this subsidiary are
included in the consolidated financial statements of the Company (SEE NOTE
C--"SALE OF RECEIVABLES" of Notes to Consolidated Financial Statements.)

EQUITY IN EARNINGS. At December 31, 2001, earnings contributed by VAW-IMCO, the
------------------
Company's 50% joint venture, were $3,057,000 compared to $2,704,000 in 2000. SEE
ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA".
------

NET EARNINGS (LOSS). The Company experienced a net loss of $2,722,000 in 2001
------------------
compared to net earnings of $283,000 in 2000. The decrease was primarily the
result of lower profits in the zinc segment business (see "GROSS PROFITS" and
"ZINC INCOME" above).

In the fourth quarter of 2001, the Company recorded a loss of $3,400,000,
including a $2,600,000 charge related primarily to an increase in the reserve
for doubtful accounts related to customer bankruptcies, and to the closing of a
zinc trading office in Germany (see "FISCAL 2001

                                       26

<PAGE>

CHARGES" above).

Fiscal Year 2000 vs. Fiscal Year 1999
-------------------------------------

PRODUCTION. During 2000, the Company melted 2.86 billion pounds compared with
----------
2.83 billion pounds in 1999. The aluminum and zinc segments accounted for 19%
and 81%, respectively, of the overall production increase for 2000. Tolling
activity in 2000 represented 57% of total pounds processed compared to 61% in
1999.

The following table shows the total pounds processed and the percentage tolled
for the aluminum and zinc segments (in thousands, except percentages):

                                             For the year ended
                                                December 31,
                                        -----------------------------
                                            2000            1999
                                        --------------  -------------
Pounds Processed:
    Aluminum                                2,579,889       2,575,284
    Zinc                                      276,733         257,685
                                        -------------   -------------
Total Pounds Processed                      2,856,622       2,832,969
                                        =============   =============

Percentage Tolled:
    Aluminum                                       63%             66%
    Zinc                                            3%              5%
Total Percentage Tolled                            57%             61%


     ALUMINUM PRODUCTION: During 2000, the Company melted about the same amount
of aluminum as it did during 1999. The results reflected increases from the
Shelbyville, Tennessee facility, acquired in February 1999, and from the
Uhrichsville, Ohio facility. The increase in the Ohio facility was the result of
adding two new reverberatory furnaces in late 1999. These increases were offset
by decreases, primarily in the can stock business. Production declined at the
Rockwood, Tennessee and Post Falls, Idaho facilities due to the reduction in
volumes from a major toll customer at each of these locations. Additionally, an
overall weakening in demand, caused by the slowing economy, affected production.
The decrease in aluminum percentage tolled is primarily due to the addition of
the Shelbyville, Tennessee facility, the production of which is dedicated
primarily for product sales instead of tolling, and to a lesser extent,
increased product sales business at the plants where toll customers reduced
volumes.

     ZINC PRODUCTION: During 2000, the Company melted 7% more zinc than it did
during 1999. The increase in zinc production was due to strong demand for
value-added products, especially zinc oxide. The decrease in zinc percentage
tolled is primarily due to including a full year of production from the
Clarksville, Tennessee facility (acquired in February 1999), which is virtually
100% dedicated to product sales.

                                       27

<PAGE>

REVENUES. During 2000, the Company's consolidated revenues increased 11% to
--------
$846,939,000 compared to revenues of $764,831,000 in 1999. The aluminum and zinc
segments accounted for 37% and 63%, respectively, of the overall increase of
revenues.

The following table shows the total revenues for the aluminum and zinc segments
(in thousands):

                                             For the year ended
                                                December 31,
                                        -----------------------------
                                            2000            1999
                                        --------------  -------------
Revenues:
    Aluminum                            $     598,759   $     568,327
    Zinc                                      248,180         196,504
                                        -------------   -------------
Total Revenues                          $     846,939   $     764,831
                                        =============   =============


     ALUMINUM REVENUES: During 2000, the Company's aluminum revenues increased
5% compared to 1999, due to higher aluminum production volumes as a result of
facility expansions and the Shelbyville, Tennessee acquisition, and a decrease
in the proportion of volumes from tolling versus product sales (see "ALUMINUM
PRODUCTION" above).

     ZINC REVENUES: During 2000, the Company's zinc revenues increased 26%
compared to 1999. Zinc revenues increased primarily due higher zinc production
volumes and higher zinc product sale prices due to increased demand for
value-added zinc products such as zinc oxide.

GROSS PROFITS. During 2000, the Company's consolidated gross profits decreased
-------------
33% to $47,353,000 compared to gross profits of $70,638,000 in 1999. The
aluminum segment contributed to the overall decline in segment income by a
decrease of 53% over 1999. This decrease was offset by a slight increase of 2%
in zinc segment income.

                                       28

<PAGE>

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):

                                                   For the year ended
                                                      December 31,
                                               ----------------------------
                                                   2000           1999
                                               -------------  -------------

Segment Income:
    Aluminum                                   $     24,687   $     52,974
    Zinc                                             13,052         12,788
                                               ------------   ------------
Total segment income                                 37,739         65,762

Items not included in gross profits:
    Plant selling expense                             5,442          2,168
    Management SG&A costs                             7,301          5,613
    Equity in earnings of affiliates                 (3,060)        (2,265)
    Other income                                        (69)          (640)
                                               ------------   ------------
Gross Profits                                  $     47,353   $     70,638
                                               ============   ============


     ALUMINUM INCOME: During 2000, the Company's aluminum income decreased 53%
compared to 1999. The decrease was primarily due to weaker volumes at several
aluminum recycling plants, particularly those that serve can stock producers,
coupled with lower margins in the specification alloys business and much higher
natural gas costs at all plant locations. The weak aluminum alloys margins
resulted from both higher raw material costs and weaker selling prices for
aluminum alloys. Capacity increases in the aluminum alloys industry resulted in
heightened competition for available scrap metal units, which the Company uses
as raw material in its aluminum alloys production. This, in turn, produced
higher raw material purchase costs. In addition, the increased competition drove
selling prices of aluminum alloy products lower. Lower demand from a weakening
economy during 2000 was also a major contributor to the overall decline in
aluminum income.

     ZINC INCOME: During 2000, the Company's zinc income increased 2% compared
to 1999. The increase was primarily due to an increase in demand for value-added
zinc products.

SG&A EXPENSE. Selling, general and administrative expense in 2000 increased 10%
------------
to $27,334,000 compared to $24,924,000 in 1999. The increase was primarily due
to more production facilities on line in 2000 compared to 1999 and increased
incentive compensation expense for payments to certain senior management
employees of the Company's zinc segment under the terms of an earn-out
agreement. Selling expenses trended higher in 2000 as well, primarily due to the
increase in product sales. Product sales typically require additional marketing
efforts and associated expense, as opposed to tolling transactions.

                                       29

<PAGE>

AMORTIZATION EXPENSE. Amortization expense in 2000 increased 12% to $5,196,000
--------------------
compared to $4,653,000 in 1999. The increase is due almost entirely to
amortization of additional goodwill recorded as a result of the Shelbyville and
Clarksville, Tennessee acquisitions (see "ACQUISITIONS" above).

INTEREST EXPENSE. Interest expense in 2000 increased 34% to $16,668,000 compared
----------------
to $12,478,000 in 1999. The increase is the result of higher interest rates
during 2000 and greater amounts of debt outstanding in 2000 compared to 1999,
resulting primarily from additional working capital requirements and increased
capital spending levels.

FEES ON RECEIVABLES SALE. In November 2000, the Company and certain of its
------------------------
originating subsidiaries entered into a Receivables Sale Facility with a
Qualified Special Purpose Entity, under which the originators sold their
interest in certain accounts receivable to the subsidiary, which in turn sold
undivided interests therein to unaffiliated financial institutions and other
entities. Fees in connection with these transfers at December 31, 2000 were
$1,082,000.

NET EARNINGS. Net earnings decreased 99% to $283,000 in 2000 compared to
------------
$20,796,000 in 1999. The decrease was primarily the result of lower profits in
the aluminum segment business (see "GROSS PROFITS" and "ALUMINUM INCOME" above).
In addition, increases in amortization expense, interest expense, and selling,
general and administrative expense reduced net earnings.

In the fourth quarter, the Company recorded a write-down of assets and related
costs totaling $3,800,000, or $.25 per diluted common share, including non-cash
charges of $3,000,000.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations and capital expenditures
from internally generated cash and its working capital credit facilities. It has
traditionally financed its acquisitions and capacity expansions from a
combination of funds from long-term borrowings and stock issuances.

CASH FLOWS FROM OPERATIONS. During 2001, operations provided cash of $21,003,000
--------------------------
compared to $140,938,000 in 2000. Changes in operating assets and liabilities
for 2001 resulted in a use of cash in the amount of $7,837,000, compared with
providing $108,582,000 in cash in 2000. The change in net operating assets and
liabilities was mainly due to sales of accounts receivables under its
receivables sale facility in the amount of $90,000,000 in 2000, which amount
sold was reduced by $24,700,000 in 2001. The 2000 sales represented a source of
cash and the 2001 reduction represented a use of cash. As of December 31, 2001,
the relationship of current assets to current liabilities, or current ratio, was
approximately 1.00 to 1.00, which was similar to that at December 31, 2000.

CASH FLOWS FROM INVESTING ACTIVITIES. In 2001, cash used by investing activities
------------------------------------
was $13,998,000 compared with $39,115,000 used in 2000. During 2001, the Company
spent approximately $4,800,000 to acquire a majority interest in a recycling
facility in Monterrey,

                                       30

<PAGE>

Mexico. The balance of funds spent was for normal plant replacement capital
spending. For 2000, the major capital expenditure project was the construction
of the new Saginaw, Michigan alloying facility for approximately $16,500,000.
For 2002, the Company currently expects capital spending to approximate
$25,000,000, with the majority of the spending dedicated for the construction of
a new aluminum recycling facility in Warrington, England and the installation of
new recycling equipment at its joint venture facility in Monterrey, Mexico.

CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used by financing activities was
------------------------------------
$8,598,000 in 2001, compared to $99,248,000 in 2000. In 2001, the Company
reduced its long-term debt outstanding by approximately $3,400,000, and spent
$4,966,000 to repurchase shares of its common stock under the terms of a
previously-negotiated equity forward contract. In 2000, the Company used the
proceeds of the sale of accounts receivable under its receivables sale facility
(see NOTE C - "SALE OF RECEIVABLES" and NOTE G - "LONG-TERM DEBT" of Notes to
Consolidated Financial Statements) principally to pay down outstanding debt
under its revolving credit arrangement. In addition, during 2000, the Company
spent $9,120,000 to acquire shares of its common stock in open market
transactions.

Equity Purchases and Sales. In May 2001, the Company purchased 644,500 of its
--------------------------
shares from a financial institution under the terms of a forward share purchase
transaction it executed in May 2000. The Company paid $4,966,000 for these
shares. In 2000, the Company acquired 788,900 shares of its common stock for an
aggregate amount of $9,120,000. These shares acquired are to be held as treasury
shares to be used for the Company's stock option and other equity plans and for
general corporate purposes. Current terms of the Company's revolving credit
agreement limit further share repurchases.

Credit and Receivables Sale Facility. To fund its financing and working capital
------------------------------------
needs, the Company has in place a senior secured revolving credit facility and a
receivables sale facility. Under the receivables sales facility, the Company and
certain of its originating subsidiaries agreed to sell, from time to time, their
interest in certain trade accounts receivable and other related assets to a
wholly-owned subsidiary of the Company. In turn, this subsidiary sells an
undivided interest in the receivables and assets, in an aggregate amount of up
to $100,000,000, to unaffiliated third-party financial institutions and other
entities. The amount outstanding under the receivables sale facility at December
31, 2001 was $63,500,000. During fiscal 2001, the Company incurred fees on the
sale of its receivables in the amount of $3,372,000. This facility is scheduled
to terminate in November 2003. See NOTE C - "SALE OF RECEIVABLES" of Notes to
Consolidated Financial Statements.

The Company uses its senior revolving credit facility to provide funding for its
short-term liquidity requirements and for letters of credit. The average amount
of borrowings outstanding under the Second Amended and Restated Credit Agreement
during 2001 was approximately $128,600,000. The average interest rate on loans
outstanding under the Credit Agreement during 2001 was approximately 6.59% per
annum. As of March 1, 2002, there were $129,000,000 of borrowings
outstanding under the Credit Agreement as well as outstanding letter of credit
obligations of $2,763,000 and remaining availability of approximately
$28,237,000 under the line of credit. The term of the Credit Agreement expires
on December 31, 2003. It is the Company's intention to extend or replace the
Credit Agreement prior to its expiration.

In October 2001, the Company amended the terms of this 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

                                       31

<PAGE>

$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 Credit Agreement, as amended by the Third Amendment, also imposes on the
Company: (i) additional prohibitions against incurring indebtedness, (ii)
limitations on cash dividends 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 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 cash 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 or would result. Capital expenditures are limited
to those funded by the Company's internally generated cash and its international
operations, plus up to $15,000,000 each year for maintenance and replacement of
existing assets and for new assets deemed necessary for the health and safety of
its employees or as required by law.

The Company also agreed to grant a first lien mortgage on twelve U.S. operating
plants, not previously mortgaged, as further security for the indebtedness under
this credit facility agreement. All of the Company's personal property (except
for accounts receivables and certain related assets sold under the Company's
receivables sale facility), a mortgage on seven of the Company's operating
plants, and a pledge of the capital stock of substantially all of the Company's
subsidiaries had previously been granted as collateral under this facility.

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 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.

IMPACT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). Under the new standards, SFAS 141 eliminates
the pooling of interest method of accounting for business combinations. SFAS 142
requires that goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests. In
October 2001, the Financial Accounting Standards Board issued Statement No. 144
"Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS 144").
This statement establishes new rules for determining impairment of certain other
long-lived assets, including intangible assets subject to amortization, property
and equipment and long-term prepaid assets. These new standards are all
effective for fiscal years beginning after December 15, 2001. The Company has
adopted these statements effective January 1, 2002. At the present time,
management believes that SFAS 141 will have no material impact on the Company.

                                       32

<PAGE>

Preliminary indications from required evaluations currently being conducted are
that intangible asset impairment charges, which the Company expects to record in
the first quarter of 2002 as a change in accounting principle, could be as much
as $60,000,000. However, amortization of goodwill will be eliminated as a result
of the Company's adoption of SFAS 142. The elimination of goodwill amortization
is expected to positively impact the Company's 2002 net earnings by
approximately $3,000,000 or $.15 per share. The adoption of SFAS 144 is not
expected to have a significant effect on the operating results or financial
position of the Company, excluding the effects of possible impairment charges.

ENVIRONMENTAL

The Company's operations, like those of other basic industries, are subject to
federal, state, local and foreign laws, regulations and ordinances. These laws
and regulations (1) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes and (2) impose liability
for costs of cleaning up, and certain damages resulting from past spills,
disposals or other releases of hazardous substances. It can be anticipated that
more rigorous environmental laws will be enacted that could require the Company
to make substantial expenditures in addition to those described in this Form
10-K. See ITEM 1. "BUSINESS - ENVIRONMENTAL MATTERS."
          ------

From time to time, operations of the Company have resulted, or may result, in
certain non-compliance with applicable requirements under such environmental
laws. However, the Company believes that any such non-compliance with such
environmental laws would not have a material adverse effect on the Company's
financial position or results of operations.

SEE NOTE L--"OPERATIONS" of Notes to Consolidated Financial Statements.

CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS

Certain information contained in ITEM 1. "BUSINESS," ITEM 3. "LEGAL PROCEEDINGS"
                                 ------              ------
and this ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         ------

AND RESULTS OF OPERATIONS" (as well as certain oral statements made by or on
behalf of the Company from time to time) may be deemed to be forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995 and are subject to the "Safe Harbor" provisions in that legislation. This
forward-looking information includes statements regarding the timing of any
improvements in the current economic and business conditions affecting the
Company's aluminum and zinc segments; future financing sources for the Company's
capital and expansion plans; the future redemption of VAW aluminium AG's shares
in VAW-IMCO; future effects of cost reductions from commodities hedge programs,
work reallocation among the Company's facilities and technology changes
affecting fuel usage; anticipated margin improvement in 2002 in the aluminum
specification alloy and zinc businesses; expected increased demand from the
automotive sector; the costs of the Company's natural gas fuel prices; trends
for domestic can sheet demand; international demand for the Company's products
and services; future effects from changes in accounting principles; potential
expansion opportunities and estimated net earnings and cash flows.

Other forward-looking information includes, without limitation, statements
concerning future profit margins, plant capacity, volumes, revenues, earnings,
costs and expenses (including capital expenditures); future costs for scrap and
prices for metals; the ability of the Company to be able to continue to grow its
domestic and foreign business through expansion, acquisition or partnering;
access to adequate energy supplies at advantageous rates; anticipated

                                       33

<PAGE>

benefits from new technologies; the expected effects of strikes, work stoppages
or production shutdowns at Company or customer facilities; future divestitures,
acquisitions or corporate combinations and their expected effects; projected
dates for completion of projects and introduction of anticipated technological
advances; future (or extensions of existing) long-term supply contracts with
customers; anticipated environmental control measures; the outcome of and
liabilities resulting from any claims, investigations or proceedings against the
Company; effects of the Company's metals brokerage activities on its results of
operations and financial condition; the future mix of business (product sales
vs. tolling); future costs and asset recoveries; future operations, demand and
industry conditions; and future financial condition. When used in or
incorporated by reference into this Annual Report on Form 10-K, the words
"anticipate," "estimate," "expect," "may," "project" and similar expressions are
intended to be among the statements that identify forward-looking statements.

These forward-looking statements are based on current expectations and involve a
number of risks and uncertainties. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct.

Important factors that could affect the Company's actual results and cause
actual results to differ materially from those results that might be projected,
forecasted, estimated or budgeted by the Company in these forward-looking
statements include, but are not limited to, the following: uncertainties in the
U.S. and worldwide economies and aluminum and zinc markets; the financial
condition of the Company's customers and suppliers; current industry production
capacity exceeding the demand for aluminum spec alloy products and aluminum
recycling services; the effects of future energy prices and related fuel costs;
the ability of the Company to successfully hedge against energy price
fluctuations; competition for raw materials costs and pricing pressures from
competitors; fluctuations in operating levels at the Company's facilities;
fluctuations in demand from the automotive, construction and packaging markets,
which are more subject to cyclical pressures; the mix of product sales business
as opposed to tolling business; unforeseen difficulties in the operation or
performance of the Company's internal enterprise resources software system, and
the Company's other operational and reporting systems; retention of major
customers; collectibility of its outstanding receivables; the inherent
unpredictability of adversarial or administrative proceedings; effects of
environmental and other governmental regulations; currency exchange rate and
interest rate fluctuations; trends in the Company's key markets and the price of
and supply and demand for aluminum and zinc (and their derivatives) on world
markets; the effects of shortages and oversupply in used aluminum beverage
containers and can scrap; the continuation of reduced spreads between primary
aluminum prices and aluminum scrap prices; 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. Many of the factors affecting revenues and
     costs are outside of the control of the Company, including commodity
     prices, weather conditions, general economic and financial market
     conditions; work stoppages, customer defaults and insolvencies, production
     shutdowns at Company and customer facilities; governmental regulation and
     factors involved in administrative and adversarial

                                       34

<PAGE>


     proceedings. The future mix of product sales and 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 Company's operations are capital-intensive and the Company currently
     has constrained resources to significant sources of capital for its
     expansion and acquisition plans. The terms of the Company's revolving
     credit and receivables sales facilities expire in late 2003. New credit
     facilities would have to be put in place, possibly at terms less favorable
     to the Company than the terms of the facilities currently in effect.

   * A continuation or worsening of the downturn in U.S. and foreign industrial
     production will have the effect of weakening the financial condition of
     many of the Company's suppliers and customers, and could lead to further
     defaults in payments owing to the Company for its products and services.
     The Company incurred higher levels of expense for uncollectible amounts in
     2001, compared to prior years. See Note A of Notes to Consolidated
     Financials Statements.

   * The price of primary aluminum, zinc and other metals is subject to
     worldwide market forces of supply and demand and other influences. An
     increase in demand for raw materials can and has adversely affected profit
     margins for the Company's product sales business. Prices can be volatile,
     which could affect the Company's product sales business. The Company's use
     of contractual arrangements, including long-term agreements, hedges and
     forward contracts, may reduce the Company's exposure to this volatility but
     does not eliminate it. Lower market prices for primary metals have
     previously adversely affected demand for the Company's recycling services
     and recycled metals.

   * The Company's average annual growth rate from 1995 through 2000 should not
     be expected to be achieved in 2002 because of the current constraints in
     place on further borrowing and limited access to other capital sources.

   * The markets for most aluminum and zinc products are highly competitive. The
     major primary aluminum producers are larger than the Company in terms of
     total assets and operations and have greater financial resources. In
     addition, aluminum competes with other materials such as steel, vinyl,
     plastics and glass, among others, for various applications in the Company's
     key markets. Unanticipated actions or developments by or affecting the
     Company's competitors and/or willingness of customers to accept
     substitutions for aluminum products could affect the Company's financial
     position and results of operations.

   * Fluctuations in the costs of fuels, raw materials and labor can materially
     affect the Company's financial position and results of operations from
     period to period.

   * The Company's transportation market is cyclical, and sales within that
     market in particular can be influenced by economic conditions. Strikes and
     work stoppages by automotive customers of the Company may have a material
     adverse effect on the Company's financial condition and results of
     operations.

                                       35

<PAGE>

   * 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 remaining useful lives of the Company's two
     primary landfill sites, Sapulpa and Morgantown, are three and four years
     each, respectively, although one landfill site can be expanded to provide
     up to an additional six years of useful life.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------

In the ordinary course of its business, the Company is exposed to potential
losses arising from changes in the price of aluminum, zinc and natural gas, and
the level of interest rates. The Company uses derivative instruments, such as
futures, options, swaps and interest rate caps to manage the effect of such
changes. See NOTE A--"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of Notes to
Consolidated Financial Statements.

Risk Management. All derivative contracts are held for purposes other than
---------------
trading, and are used primarily to mitigate uncertainty and volatility, and
cover underlying exposures. The Company's commodity and derivative activities
are subject to the management, direction and control of the Company's Risk
Management Committee, which is composed of the chief executive officer, the
chief financial officer, the treasurer and other officers and employees that the
chief executive officer designates. The Risk Management Committee reports to the
Company's Board of Directors, which has supervisory authority over all of its
activities.

Counter-parties. The Company is exposed to losses in the event of
---------------
non-performance by the counter-parties to the derivative contracts discussed
below. Although non-performance by counter-parties is possible, the Company does
not anticipate non-performance by any of these parties. Counter-parties are
evaluated for creditworthiness and risk assessment prior to the Company
initiating contract activities. The counter-parties' creditworthiness is then
monitored on an ongoing basis, and credit levels are reviewed to ensure that
there is not an inappropriate concentration of credit outstanding to any
particular counter-party.

Metal Commodity Price Risk. Aluminum and zinc ingots are internationally
--------------------------
produced, priced, and traded commodities, with their principal trading market
being the London Metal Exchange ("LME"). As part of its efforts to preserve
margins, the Company enters into futures and options contracts.

Aluminum. The Company enters into futures sale contracts with metal brokers to
--------
fix the margin on a portion of the aluminum generated by the Company's salt cake
processing facility in Morgantown, Kentucky and some of the aluminum generated
for sale from the processing of

                                       36

<PAGE>

other scrap metal. These futures sale contracts are settled in the month of
shipment. Estimated 2001 total production covered under these futures sale
contracts as of December 31, 2001 was 2,475 metric tonnes (mt) with a fair value
gain of $62,000 ($39,000 after tax). The impact of a 10% change in the December
31, 2001 LME price of aluminum ingot would not be material to the Company's
estimated gross profit for the year ending December 31, 2002.

Zinc. In the normal course of business, the Company enters into fixed-price
----
forward sale contracts with a number of its zinc customers. At December 31,
2001, estimated total production covered under these futures sale contracts was
22,111 mt with a fair value loss of $2,257,000 ($1,422,000 net of tax). In order
to hedge the risk of higher metal prices, the Company enters into long
positions, principally using future purchase contracts. These contracts are
settled in the month of the corresponding production or shipment. At December
31, 2001, the contracts hedging 2002 deliveries totaled 18,767 mt. The impact of
a 10% change in the December 31, 2001 LME price of zinc ingot would not be
material to the Company's estimated gross profit for the year ending December
31, 2002.

Natural Gas. The Company's earnings are affected by changes in the price and
-----------
availability of natural gas, which is the Company's second largest cost
component. In an attempt to acquire the most favorable natural gas costs, the
Company has utilized natural gas swap contracts. Under the terms of the swap
contracts, the Company has fixed the price for approximately 62% of its expected
2002 U.S. natural gas requirements. The Company makes or receives payments based
on the difference between the month-end closing price on the New York Mercantile
Exchange ("NYMEX") and the fixed price agreed to in the swap contracts. At
December 31, 2001, these contracts totaled 5,460,000 MmBtu's with a fair value
loss of $5,339,000 ($3,364,000 net of tax). The impact of a 10% change in the
December 31, 2001 NYMEX closing price would not be material to the Company's
estimated gross profit for the year ending December 31, 2002.

Interest. Approximately 92% of the Company's outstanding long-term debt as of
--------
December 31, 2001 bears interest at floating rates related to LIBOR plus a
margin.

The Company's earnings are affected by changes in interest rates due to the
impact those changes have on its interest expense from variable-rate debt
instruments. If interest rates increased 10% from the floating rates prevailing
as of December 31, 2001, interest expense for the year ended December 31, 2002
would increase by approximately $609,000. These amounts are determined by
considering the impact of hypothetical interest rates on the Company's
variable-rate long-term debt outstanding, as of December 31, 2001, adjusted for
known cash commitments during 2002.

Market risk for fixed-rate long-term debt is estimated as the potential increase
in fair value resulting from a hypothetical decrease in market interest rates.
With respect to the Company's fixed-rate long-term debt outstanding at December
31, 2001, a 10% decline in market interest rates would result in an increase to
the fair value of the Company's fixed-rate long-term debt of approximately
$1,040,000. The fair values of the Company's long-term debt were estimated using
discounted future cash flows based on the Company's incremental borrowing rates
for similar types of borrowing arrangements.

The Company did not enter into any interest rate swaps or similar financial risk
contracts during 2001.

                                       37

<PAGE>

The Company is also increasingly subject to exposure from fluctuations in
foreign currencies, but, when considered appropriate by management, has utilized
foreign currency exchange contracts to hedge the variability in cash flows from
forecasted payment or receipts of currencies.

                                       38

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------

INDEX OF FINANCIAL STATEMENTS

IMCO RECYCLING INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                       ----
<S>                                                                                      <C>
Report of Ernst & Young LLP, Independent Auditors                                        40

Consolidated Balance Sheets at December 31, 2001 and 2000                                41

Consolidated Statements of Operations for the three years ended
  December 31, 2001                                                                      42

Consolidated Statements of Cash Flows for the three years ended
  December 31, 2001                                                                      43

Consolidated Statements of Changes in Stockholders' Equity for the
  three years ended December 31, 2001                                                    44

Notes to Consolidated Financial Statements                                               45

VAW-IMCO:
--------

Report of Arthur Andersen, Independent Auditors                                         F-1
Balance Sheet as of December 31, 2001                                                   F-2
Statement of Income for the Year Ended December 31, 2001                                F-3
Statement of Shareholders' Equity for the Year Ended December 31, 2001                  F-4
Statement of Cash Flows for the Year Ended December 31, 2001                            F-5
Notes to Financial Statements for the Year Ended December 31, 2001                      F-6
</TABLE>

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

                                       39

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Stockholders and
Board of Directors
IMCO Recycling Inc.

We have audited the accompanying consolidated balance sheets of IMCO Recycling
Inc. and subsidiaries as of December 31, 2001 and December 31, 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of VAW-IMCO Guss und Recycling GmbH
(VAW-IMCO), (a corporation in which the Company has a 50% interest), have been
audited by other auditors whose report has been furnished to us; in so far as
our opinion on the consolidated financial statements relates to data included
for VAW-IMCO, it is based solely on their report. In the consolidated financial
statements, the Company's investment in VAW-IMCO is stated at $17,747,000 and
$15,179,000 respectively, at December 31, 2001 and 2000, and the Company's
equity in the net income of VAW-IMCO is stated at $3,057,000 and $2,704,000 for
the years then ended.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of IMCO Recycling Inc.
and subsidiaries at December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

                                                  /s/ Ernst & Young LLP

Dallas, Texas
February 4, 2002

                                       40

<PAGE>

                      IMCO RECYCLING INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                   ----------------------
                                                                     2001         2000
                                                                   ---------    ---------
<S>                                                                <C>          <C>
ASSETS
Current Assets
     Cash and cash equivalents                                     $   3,301    $   5,014
     Accounts receivable (net of allowance of $2,488 and $2,421
         at December 31, 2001 and 2000, respectively)                 23,569       21,229

     Inventories                                                      39,214       56,318
     Deferred income taxes                                             6,879        3,726
     Other current assets                                              7,570       10,450
                                                                   ---------    ---------
        Total Current Assets                                          80,533       96,737
Property and equipment, net                                          186,931      196,133
Excess of acquisition cost over the fair value of net assets
     acquired, net of accumulated amortization of $21,448 and
     $17,215 at December 31, 2001 and 2000, respectively             115,562      117,845
Investments in joint ventures                                         17,892       15,249
Other assets, net                                                      6,036        7,707
                                                                   ---------    ---------
                                                                   $ 406,954    $ 433,671
                                                                   =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Accounts payable                                              $  67,299    $  83,552
     Accrued liabilities                                              13,908       13,097
     Current maturities of long-term debt                                 75          112
                                                                   ---------    ---------
        Total Current Liabilities                                     81,282       96,761
Long-term debt                                                       125,314      128,786
Deferred income taxes                                                 19,157       15,899
Other long-term liabilities                                           12,308       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;
     17,131,240 issued at December 31, 2001; 17,119,420
     issued at December 31, 2000                                       1,713        1,712
Additional paid-in capital                                           105,800      106,137
Retained earnings                                                     98,085      100,807
Accumulated other comprehensive loss from foreign currency
     translation adjustments and deferred hedging gains/losses        (9,890)      (5,143)
Treasury stock, at cost; 2,494,952 shares at December 31, 2001;
     1,789,152 shares at December 31, 2000                           (26,815)     (21,656)
                                                                   ---------    ---------
        Total Stockholders' Equity                                   168,893      181,857
                                                                   ---------    ---------
                                                                   $ 406,954    $ 433,671
                                                                   =========    =========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       41

<PAGE>

                      IMCO RECYCLING INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                   For the Year Ended December 31,
                                                                 -----------------------------------
                                                                   2001         2000         1999
                                                                 ---------    ---------    ---------
<S>                                                              <C>          <C>          <C>
Revenues                                                         $ 689,337    $ 846,939    $ 764,831
Cost of sales                                                      656,013      799,586      694,193
                                                                 ---------    ---------    ---------
Gross profits                                                       33,324       47,353       70,638

Selling, general and administrative expense                         22,686       27,334       24,924
Amortization expense                                                 5,367        5,196        4,653
Fees on receivables sale                                             3,372        1,082            -
Interest expense                                                     9,970       16,668       12,478
Interest and other income                                             (301)        (278)      (1,456)
Equity in earnings of affiliates                                    (3,131)      (3,060)      (2,265)
                                                                 ---------    ---------    ---------
Earnings (loss) before provision for (benefit from) income
    taxes and minority interests                                    (4,639)         411       32,304
Provision for (benefit from) income taxes                           (2,243)        (424)      11,162
                                                                 ---------    ---------    ---------
Earnings (loss) before minority interests                           (2,396)         835       21,142
Minority interests, net of provision for income taxes of $147,
     $74, and $182 at December 31, 2001, 2000, and 1999,
     respectively                                                      326          552          346
                                                                 ---------    ---------    ---------
Net earnings (loss)                                              $  (2,722)   $     283    $  20,796
                                                                 =========    =========    =========


Net earnings (loss) per common share:
    Basic                                                        $   (0.18)   $    0.02    $    1.26
                                                                 =========    =========    =========

    Diluted                                                      $   (0.18)   $    0.02    $    1.26
                                                                 =========    =========    =========

Weighted average shares outstanding:
    Basic                                                           14,978       15,353       16,448
    Diluted                                                         14,978       15,436       16,555

Dividends declared per common share                              $       -    $    0.24    $    0.24
</TABLE>

See Notes to Consolidated Financial Statements.

                                       42

<PAGE>

                      IMCO RECYCLING INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        For the Year Ended December 31,
                                                                      -----------------------------------
                                                                         2001         2000         1999
                                                                      ---------    ---------    ---------
<S>                                                                   <C>          <C>          <C>
OPERATING ACTIVITIES
Net earnings (loss)                                                   $  (2,722)   $     283    $  20,796
Depreciation and amortization                                            29,197       29,708       27,038
Provision for deferred income taxes                                       2,106           76        3,369
Equity in earnings of affiliates                                         (3,131)      (3,060)      (2,265)
Other noncash charges                                                     3,390        5,349        2,370
Changes in operating assets and liabilities:
     Accounts receivable                                                 19,024       13,476      (39,588)
     Accounts receivable sold                                           (24,700)      90,000            -
     Inventories                                                         18,367       18,055      (20,962)
     Other current assets                                                 2,869       (1,373)        (129)
     Accounts payable and accrued liabilities                           (23,397)     (11,576)      27,604
                                                                      ---------    ---------    ---------
Net cash from operating activities                                       21,003      140,938       18,233

INVESTING ACTIVITIES

Payments for property and equipment                                      (9,858)     (37,701)     (30,856)
Acquisitions of businesses and investments                               (4,823)           -      (21,480)
Other                                                                       683       (1,414)      (1,803)
                                                                      ---------    ---------    ---------
Net cash used for investing activities                                  (13,998)     (39,115)     (54,139)

FINANCING ACTIVITIES

Net (payments of) proceeds from long-term revolving credit facility      (3,400)     (86,100)      44,377
Net (payments of) proceeds from issuance of long-term debt                 (110)        (164)         679
Debt issuance costs                                                        (978)        (813)      (1,041)
Dividends paid                                                                -       (3,555)      (3,931)
Purchases of treasury stock                                              (4,966)      (9,120)      (7,080)
Other                                                                       856          504         (599)
                                                                      ---------    ---------    ---------
Net cash (used for) from financing activities                            (8,598)     (99,248)      32,405

Effect of exchange rate differences on cash and cash equivalents           (120)        (139)           4
                                                                      ---------    ---------    ---------

Net increase (decrease) in cash and cash equivalents                     (1,713)       2,436       (3,497)
Cash and cash equivalents at January 1                                    5,014        2,578        6,075
                                                                      ---------    ---------    ---------
Cash and cash equivalents at December 31                              $   3,301    $   5,014    $   2,578
                                                                      =========    =========    =========

SUPPLEMENTARY INFORMATION
Cash payments for interest                                            $  10,870    $  16,674    $  13,417
Cash payments for income taxes                                        $     807    $   1,323    $   9,825
</TABLE>

See Notes to Consolidated Financial Statements.

                                       43

<PAGE>

                      IMCO RECYCLING INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                          ADDITIONAL
                                                         COMMON STOCK      PAID-IN     RETAINED        TREASURY STOCK      TOTAL
                                                     -------------------                          ----------------------
                                                       SHARES    AMOUNT    CAPITAL     EARNINGS     SHARES      AMOUNT    DOLLARS
                                                     ---------- -------- -----------  ----------  ----------  ---------- ----------
<S>                                                  <C>        <C>      <C>          <C>         <C>         <C>        <C>
BALANCE AT DECEMBER 31, 1998                         17,048,585 $  1,705 $   106,046  $   86,312    (530,539) $  (6,755) $  187,308
Comprehensive income:
    Net earnings                                              -        -           -      20,796           -          -      20,796
    Other comprehensive loss, net of tax:
      Foreign currency translation adjustments                -        -           -      (2,229)          -          -      (2,229)
                                                                                                                         ----------
Net comprehensive income                                                                                                     18,567
                                                                                                                         ----------
Cash dividend                                                 -        -           -      (3,931)          -          -      (3,931)
Purchase of B&F Metals, Inc.                             17,890        2         268           -           -          -         270
Issuance of common stock for services                     7,945        1         122           -       4,000         51         174
Exercise of stock options                                36,200        3         165           -      21,120        252         420
Executive option exercise loan program                        -        -        (264)          -           -          -        (264)
Tax benefit from the exercise of non-
    qualified stock options                                   -        -         218           -           -          -         218
Common stock repurchased                                      -        -           -           -    (576,500)    (7,080)     (7,080)
Other                                                         -        -          (6)          -      (1,487)       (20)        (26)
                                                     ---------- -------- -----------  ----------  ----------  ---------  ----------
BALANCE AT DECEMBER 31, 1999                         17,110,620    1,711     106,549     100,948  (1,083,406)   (13,552)    195,656

Comprehensive income:
    Net earnings                                              -        -           -         283           -          -         283
    Other comprehensive loss, net of tax:
     Foreign currency translation adjustments                 -        -           -      (2,012)          -          -      (2,012)
                                                                                                                         ----------
Net comprehensive loss                                                                                                       (1,729)
                                                                                                                         ----------
Cash dividend                                                 -        -           -      (3,555)          -          -      (3,555)
Issuance of common stock for services                     8,800        1          62           -           -          -          63
Common stock repurchased                                      -        -           -           -    (788,900)    (9,120)     (9,120)
Other Stock issued in connection with ESPP                    -        -        (474)          -      83,154      1,016         542
                                                     ------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                         17,119,420    1,712     106,137      95,664  (1,789,152)   (21,656)    181,857

Comprehensive loss:
    Net loss                                                  -        -           -      (2,722)          -          -      (2,722)
    Other comprehensive income (loss), net of tax:
      Deferred hedging gain/(loss)                                                        (4,923)                            (4,923)
      Foreign currency translation adjustments                -        -           -         176           -          -         176
                                                                                                                         ----------
Net comprehensive loss                                                                                                       (7,469)
                                                                                                                         ----------
Issuance of common stock for services                    11,820        1          73           -           -          -          74
Common stock repurchased                                      -        -           -           -    (644,500)    (4,966)     (4,966)
Stock issued in connection with ESPP                          -        -        (410)          -      60,134        681         271
Other                                                         -        -           -           -    (121,434)      (874)       (874)
                                                     ==============================================================================
BALANCE AT DECEMBER 31, 2001                         17,131,240 $  1,713 $   105,800  $   88,195  (2,494,952) $ (26,815) $  168,893
                                                     ==============================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       44

<PAGE>

                      IMCO RECYCLING INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001
           (dollars in tables are in thousands, except per share data)

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation:
-----------------------

The accompanying consolidated financial statements include the accounts of IMCO
Recycling Inc. and all of its majority owned subsidiaries and joint ventures
(the "Company"). All significant intercompany accounts and transactions have
been eliminated upon consolidation. Investments in affiliated companies, owned
50% or less, are accounted for using the equity method.

The Company's principal business involves the ownership and operation of
aluminum recycling and alloying facilities and zinc manufacturing facilities.
Aluminum scrap material is recycled for a fee and then the material is returned
to its customers, some of whom are the world's largest aluminum and automotive
companies. Aluminum and zinc scrap is also purchased on the open market,
recycled and sold.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash Equivalents:
-----------------

All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents. The carrying amount of cash
equivalents approximates fair value because of the short maturity of those
instruments.

Receivable Sales:
-----------------

Trade accounts receivables are sold through a qualified special purpose entity,
a wholly owned subsidiary of the Company. The fair value of the trade accounts
receivable balances retained by the Company approximate the carrying value less
any reserves required for credit losses.

Credit Risk:
------------

The majority of the Company's accounts receivable are due from companies in the
aluminum, zinc and automotive industries. Credit is extended based on evaluation
of the customers' financial condition and, generally, collateral is not
required. Accounts receivable are net of a valuation reserve that represents an
estimate of amounts considered uncollectible. Expense for such uncollectible
amounts was $2,565,000, $1,502,000 and $1,602,000 in 2001, 2000 and 1999,
respectively.

                                       45

<PAGE>

Inventories:
------------

Inventories are stated at the lower of cost or market. Cost is determined using
either a specific identification method or a weighted average cost per product
sold, and includes an allocation of average manufacturing labor and overhead
costs to finished goods.

Property and Equipment:
-----------------------

Property and equipment are stated at cost. Major renewals and improvements are
capitalized, while maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.

Landfill closure costs are currently estimated to be approximately $8,000,000
and are being accrued as space in the landfills is used. The construction costs
of the landfills are depreciated as space in the landfills is used.

The Company reviews its property and equipment for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is measured as the amount by which the carrying amount
of the asset exceeds the estimated fair value of the asset less disposal costs.

Interest is capitalized in connection with the construction of major facilities.
Capitalized interest costs for 2001, 2000 and 1999 were $336,000, $1,067,000 and
$520,000, respectively.

Amortization of Intangibles:
----------------------------

The excess of original acquisition costs over the fair value of net assets
acquired (goodwill) is amortized on a straight-line basis over the expected
life, currently from 15-40 years. Management regularly reviews the remaining
goodwill with consideration toward recovery through future operating results.
Goodwill is evaluated for recovery on an undiscounted basis. Deferred debt
issuance costs, included in other assets, are being amortized over the term of
the long-term debt.

Revenue Recognition:
--------------------

Revenues are recognized when products are shipped or when services are performed
for customers.

Stock-Based Compensation:
-------------------------

The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for its employee stock options. Under APB 25, if the exercise price of employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recorded.

Market Risk Management Using Financial Instruments:
---------------------------------------------------

In order to manage its price exposure for natural gas purchases, the Company has
fixed the future price of a portion of its natural gas requirements by entering
into financial hedge agreements. Under these agreements, payments are made or
received based on the differential between the monthly closing price on the New
York Mercantile Exchange, ("NYMEX") and the actual hedge

                                       46

<PAGE>

price. These contracts are accounted for as hedges, with all gains and losses
recognized in cost of sales when the gas is consumed. 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. At
December 31, 2001, the Company had outstanding swap agreements to hedge its
anticipated domestic natural gas requirements on approximately 3,700,000 Mmbtus
of natural gas, which represents approximately 62% of its expected 2002 fuel
needs.

The Company has entered into futures 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 Morgantown, Kentucky and some of the aluminum generated for sale from the
processing of other scrap metal. At December 31, 2001, estimated 2002 total
production covered under these futures sales contracts was 2,475 metric tonnes
(mt). In addition, the Company has entered into futures contracts with metal
brokers to cover the future selling prices of zinc recycled for certain zinc
customers under fixed-price contracts. At December 31, 2001, such contracts had
metal deliveries committed during 2002 of 18,767 mt. In conjunction with these
futures sales contracts, the Company has also entered into options contracts
covering 475 mt. These contracts are settled in the month of the
corresponding production and/or shipment, with all gains and losses recognized
in revenues.

The Company is exposed to losses in the event of non-performance by the
counter-parties to the financial hedge agreements and futures contracts
discussed above; however, the Company does not anticipate non-performance by the
counter-parties. The counter-parties are evaluated for creditworthiness and risk
assessment prior to initiating trading activities with the brokers. The Company
does not require collateral to support broker transactions.

The fair value of the Company's financial hedging agreements at December 31,
2001, representing the amount the Company would pay net of tax to terminate the
agreements, totaled $4,923,000.

The Company engages in activities that expose it to various market risks,
including the effects of natural gas prices and future selling prices of
aluminum and zinc. These financial exposures are managed as an integral part of
the Company's risk management program, which seeks to reduce the potentially
adverse effects that the volatility of the markets may have on operating
results. The Company does not engage in speculative transactions, nor does it
regularly hold or issue financial instruments for trading purposes. The Company
maintains a natural gas pricing strategy to minimize significant fluctuations in
earnings caused by the volatility of gas prices. The Company also maintains a
metal pricing strategy to minimize significant, unanticipated fluctuations in
earnings caused by the volatility of aluminum and zinc prices.

Effective January 1, 2001, the Company adopted SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 138. The
Company, which enters into production derivatives to hedge the cost of energy
and the sales price of certain aluminum and zinc products, evaluates and
documents each hedge item when entered into. It is the Company's policy not to
speculate in hedging activities. The adoption of SFAS 133 did not have a
material impact on the Company's consolidated balance sheet or statement of
operations in fiscal 2001.

                                       47

<PAGE>

Foreign Currency Translation:
-----------------------------

The Company's foreign subsidiaries in the U.K., Germany, Netherlands, Mexico and
its equity investee in Germany use the local currency as their functional
currency. Adjustments resulting from the translation into U.S. dollars are
reflected as a separate component of stockholders' equity, and foreign currency
transaction gains and losses are reflected in the Statements of Operations. The
gains and losses on foreign currency exchange rate fluctuations and the
translation adjustments for the three years ended 2001 were immaterial. As of
December 31, 2001, the Company's accumulated foreign currency translation
adjustment totaled $4,967,000 and the annual change is included in other
comprehensive income in the Statements of Changes in Stockholders' Equity.

New Accounting Pronouncements:
------------------------------

In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). Under the new standards, SFAS 141 eliminates
the pooling of interest method of accounting for business combinations. SFAS 142
requires that goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests. In
October 2001, the Financial Accounting Standards Board issued Statement No. 144
"Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS 144").
This statement establishes new rules for determining impairment of certain other
long-lived assets, including intangible assets subject to amortization, property
and equipment and long-term prepaid assets. These new standards are all
effective for fiscal years beginning after December 15, 2001. The Company will
adopt these statements on January 1, 2002. At the present time, management
believes that SFAS 141 will have no material impact on the Company.

Preliminary indications from required evaluations currently being conducted are
that intangible asset impairment charges, which the Company expects to record in
the first quarter of 2002 as a change in accounting principle, could be as much
as $60,000,000. However, amortization of goodwill will be eliminated as a result
of the Company's adoption of SFAS 142. The elimination of goodwill amortization
is expected to positively impact the Company's 2002 net earnings by
approximately $3,000,000 or $.15 per share. The adoption of SFAS 144 is not
expected to have a significant effect on the operating results or financial
position of the Company, excluding the effects of possible impairment charges.

NOTE B--ACQUISITIONS / JOINT VENTURE FORMATION

In October 2001, the Company invested approximately $4,800,000 in a recycling
operation in the form of a joint venture with Reciclaje y Maquila, S.A. de C.V.
The joint venture, in which the Company has a majority interest is known as IMCO
Reciclaje de Nuevo Leon S. de R.L. de C.V., and is recycling aluminum drosses
and other scrap under a contract with NEMAK, S.A, Monterrey, Mexico. The joint
venture has been included in the Company's consolidated financial statements
since the date of formation.

In February 1999, the Company acquired substantially all the assets of an
aluminum alloying facility located in Shelbyville, Tennessee for approximately
$11,000,000 in cash (not including acquisition costs). Also in February 1999,
the Company acquired, through its wholly owned subsidiary, Midwest Zinc
Corporation, substantially all the assets of a zinc oxide production facility
located in Clarksville, Tennessee for approximately $11,000,000 in cash (not
including

                                       48

<PAGE>

acquisition costs). Both acquisitions were accounted for using the purchase
method of accounting, and their results of operations are included herein since
their dates of acquisitions. Pro forma results from these acquisitions would not
vary significantly from actual results for 1999 and 1998.



NOTE C--SALE OF RECEIVABLES

On November 2, 2000, the Company entered into a Receivables Purchase and Sale
Agreement with a newly formed subsidiary of the Company organized as a Qualified
Special Purpose Entity (QSPE). Under the Receivables Purchase and Sale
Agreement, the Company agreed to sell, from time to time, their right, title and
interest in certain trade accounts receivable and related assets (Pooled
Receivables) to the QSPE. On November 2, 2000, the Company and the QSPE entered
into a Receivables Purchase Agreement with a third party financial institution.
Under the Receivables Purchase Agreement, the QSPE agreed to sell undivided
interests in the Pooled Receivables, up to $100,000,000, to third party
financial institution. The sales price of the Pooled Receivables to the third
party financial institutions is calculated as the total outstanding balance
times a discount rate based on total days outstanding of the Pooled Receivables,
as defined, and the prime interest rate plus .25%. Under the Receivables
Purchase Agreement, the Company agreed to service and collect the Pooled
Receivables for a servicing fee calculated as .5% per annum of the daily average
aggregate outstanding balance of the Pooled Receivables. The amount retained is
calculated on a monthly basis as the eligible pool balance less the greater of
the customer concentration reserve and the performance reserve. The third party
financial institution has no recourse to the Company's other assets for failure
of debtors to pay when due. The QSPE's retained interest in the Pooled
Receivables are subordinate to the third party financial institution's interest.
The value of the Pooled Receivables is subject to credit risk.

At December 31, 2001, the receivables retained by the QSPE were $24,700,000,
compared to $17,226,000 in 2000. The amount outstanding under the Receivables
Sale Facility at December 31, 2001 was $65,300,000. The net proceeds under this
sale at December 31, 2000 were $90,000,000. During fiscal 2001 and 2000, the
Company incurred fees on the sale of its receivables in the amount of $3,372,000
and $1,082,000, respectively. This facility is scheduled to terminate in
November 2003.




NOTE D--INVENTORIES

The components of inventories are:

                                                        December 31,
                                              --------------------------------
                                                  2001               2000
                                              -------------     --------------
Finished goods                                    $  18,073           $ 30,357
Raw materials                                        19,477             23,790
Supplies                                              1,664              2,171
                                              -------------     --------------
                                                  $  39,214           $ 56,318
                                              =============     ==============

                                       49

<PAGE>

NOTE E--PROPERTY AND EQUIPMENT

The components of property and equipment are:

                                                    December 31,
                                          ------------------------------
                                             2001              2000
                                          ------------     -------------
Land, buildings and improvements             $ 164,678         $ 153,795
Production equipment and machinery             135,427           136,152
Office furniture, equipment and other           17,550            17,376
                                          ------------     -------------
                                               317,655           307,323
Accumulated depreciation                      (130,724)         (111,190)
                                          ------------     -------------
                                             $ 186,931         $ 196,133
                                          ============     =============

Depreciation expense for 2001, 2000 and 1999 was $23,830,000, $24,512,000 and
$22,405,000, respectively.

Estimated useful lives for buildings and improvements range from 15 to 39 years,
machinery and equipment range from 3 to 20 years and office furniture and
equipment range from 3 to 10 years.




NOTE F--INCOME TAXES

 The provision (benefit) for income taxes was as follows:


                                    For the Year Ended December 31,
                                --------------------------------------
                                   2001          2000          1999
                                -----------   -----------  -----------
Current:
    Federal                     $    (4,922)   $   (1,095)   $   7,238
    State                                57           390          500
    Foreign                            (366)          204           55
                                -----------   -----------  -----------
                                     (5,231)         (501)       7,793

Deferred:
    Federal                           2,406           320        3,221
    State                              (815)         (576)         577
    Foreign                           1,397           333         (429)
                                -----------   -----------  -----------
                                      2,988            77        3,369
                                -----------   -----------  -----------
                                $    (2,243)   $     (424)   $  11,162
                                ===========   ===========  ===========

                                       50

<PAGE>

The income tax expense, computed by applying the federal statutory tax rate to
earnings before income taxes, differed from the provision (benefit) for income
taxes as follows:

<TABLE>
<CAPTION>
                                                          For the Year Ended December 31,
                                                      ----------------------------------------
                                                         2001           2000          1999
                                                      ------------   ----------    -----------
<S>                                                   <C>            <C>           <C>
Income taxes (benefit) at the federal statutory rate      $ (1,786)   $    (308)    $   11,231
Foreign taxes at the statutory rate                              3          537             67
Goodwill amortization, nondeductible                           596          864            807
State income taxes, net                                       (492)        (162)           693
Foreign income not currently taxable                          (864)      (1,130)          (871)
Other, net                                                     300         (225)          (765)
                                                      ------------   ----------    -----------
Provision (benefit) for income taxes                      $ (2,243)   $    (424)    $   11,162
                                                      ============   ==========    ===========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:


                                                         December 31,
                                                   -------------------------
                                                      2001          2000
                                                   ------------  -----------

Deferred tax liabilities:
-------------------------
  Accelerated depreciation and amortization           $ 23,482      $ 19,473
  Federal effect of state income taxes                   1,690         1,232
  Other                                                  1,366         1,150
                                                   ------------  -----------
Total deferred tax liabilities                          26,538        21,855

Deferred tax assets:
--------------------
  State net operating loss carryforwards                 2,774         2,171
  Tax credit carryforwards                               2,798         2,041
  Expenses not currently deductible                      5,812         5,433
  Federal effect of state income taxes                   1,323         1,150
  Deferred hedge gain/(loss)                             2,883             -
                                                   -----------   -----------
Total deferred tax assets                               15,590        10,795
Valuation allowance                                     (1,330)       (1,113)
                                                   -----------   -----------
Net deferred tax assets                                 14,260         9,682

                                                   -----------   -----------
Net deferred tax liability                            $ 12,278      $ 12,173
                                                   ===========   ===========

At December 31, 2001 and 2000, the Company had a $1,330,000 and $1,113,000
valuation allowance, respectively, to reduce certain deferred tax assets to
amounts that are more than likely not to be realized. The majority of the
valuation allowance relates to the Company's potential inability to utilize
state recycling credits.

At December 31, 2001, the Company had approximately $1,277,000 of unused net
operating loss carryforwards for foreign tax purposes, which do not expire, and
had approximately $34,157,000 for state purposes, which expire in 2002 to 2021.
At December 31, 2001, the Company had $2,798,000 of unused state tax credit
carryforwards, $679,000 of which expire in 2002 to 2019,

                                       51

<PAGE>

and $2,120,000 of which do not expire. At December 31, 2001 and 2000, the
Company had a $3,994,000 and $3,957,000 federal income tax receivable,
respectively.

Undistributed earnings of the Company's non-United States investment in a joint
venture amounted to approximately $5,405,000 at December 31, 2001. These
earnings are considered permanently reinvested and, accordingly, no additional
United States income taxes or non-U.S. withholding taxes have been provided.
Determination of the amount of additional taxes that would be payable if such
earnings were not considered indefinitely reinvested is not practicable.

NOTE G--LONG-TERM DEBT

Long-term debt is summarized as follows:

                                                              December 31,
                                                        -----------------------
                                                            2001        2000
                                                        -----------   ---------

Revolving credit loans                                    $ 110,500   $ 113,900
7.65% Morgantown, Kentucky Solid Waste
     Disposal Facilities Revenue Bonds-1996 Series            5,699       5,696
7.45% Morgantown, Kentucky Solid Waste
     Disposal Facilities Revenue Bonds-1997 Series            4,600       4,600
6.00% Morgantown, Kentucky Solid Waste
     Disposal Facilities Revenue Bonds-1998 Series            4,100       4,100
Other                                                           490         602
                                                        -----------   ---------
Subtotal                                                    125,389     128,898

Less current maturities                                          75         112
                                                        -----------   ---------
Total                                                     $ 125,314   $ 128,786
                                                        ===========   =========



As of December 31, 2001, the Company had $110,500,000 of indebtedness
outstanding under the Credit Agreement and had $46,924,000 available for
borrowing. At December 31, 2001, the Company had standby letters of credit
outstanding in the aggregate amount of $3,306,000. 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 to the Second Amended and Restated Credit Agreement, imposes
significant constraints on funding the Company's growth plans in 2002 and
beyond.

The Company uses its senior revolving credit facility to provide funding for its
short-term liquidity requirements and for letters of credit. The average amount
of borrowings outstanding under the Credit Agreement during 2001 was
approximately $128,600,000. The average interest rate on loans outstanding under
the Credit Agreement during 2001 was approximately 6.59% per annum. As of March
1, 2002, there were $129,000,000 of borrowings outstanding under the Credit
Agreement as well as outstanding letter of credit obligations of $2,763,000 and
remaining availability of approximately $28,237,000 under the line of credit.
The term of the Credit Agreement expires on December 31, 2003.

                                       52

<PAGE>

The fair value of the Company's outstanding indebtedness under the Credit
Agreement approximates its carrying value due to its recent issuance, floating
rate and relatively short maturity. The fair value of the Company's fixed rate
Revenue Bonds based on discounted cash flows and incremental borrowing rates
totals approximately $16,787,000.

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 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
offerings 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 $15,000,000 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 as of October 26, 2001, then any such event will be an event of
default under the Credit Agreement.

                                       53

<PAGE>

Scheduled maturities of long-term debt subsequent to December 31, 2001 are as
follows:

2002                                                            $      75
2003                                                              110,610
2004                                                                  105
2005                                                                  165
After 2006                                                         14,434
                                                                ---------
Total                                                           $ 125,389
                                                                =========


NOTE H--NET EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings
(loss) per share:


<TABLE>
<CAPTION>
                                                           2001             2000           1999
                                                       ------------     -----------    -----------
<S>                                                    <C>              <C>            <C>
Numerators for basic and diluted earnings (loss)
  per share:
    Net earnings (loss)                                $     (2,722)    $       283    $    20,796
                                                       ============     ===========    ===========

Denominator:
    Denominator for basic earnings (loss) per share--
      weighted-average shares                            14,978,120      15,353,383     16,447,949
    Dilutive potential common shares--stock options               -           4,204        106,740
    Dilutive potential common shares-equity forward               -          78,861              -
                                                       ------------     -----------    -----------
    Denominator for diluted earnings (loss) per share    14,978,120      15,436,448     16,554,689
                                                       ============     ===========    ===========

Net earnings (loss) per share:
    Basic                                              $      (0.18)    $      0.02    $      1.26
                                                       ============     ===========    ===========
    Diluted                                            $      (0.18)    $      0.02    $      1.26
                                                       ============     ===========    ===========
</TABLE>

The following stock options were excluded from the computation of diluted
earnings (loss) per share because the effect would have been anti-dilutive, as
the options' exercise price was greater than the average market price of the
common stock:

                                                   2001       2000       1999
                                                ---------   ---------  ---------

Anti-dilutive stock options as of December 31   1,321,022   2,182,388  2,099,996
                                                =========   =========  =========


NOTE I--EMPLOYEE BENEFIT PLANS

With the exception of the employees at the U.S. Zinc facilities, the Company's
profit-sharing retirement plan covers most of its employees who meet defined
service requirements. Contributions are determined annually by the Board of
Directors and may be as much as 15% of covered salaries. Contributions for 2001
and 1999 were $412,000 and $2,302,000, respectively. There were no contributions
made for 2000.

                                       54

<PAGE>

Subject to certain dollar limits, employees may contribute a percentage of their
salaries to this plan, and the Company matches a portion of the employees'
contributions. The Company's match of employee contributions totaled $907,000,
$1,053,000 and $876,000 for 2001, 2000 and 1999, respectively.

NOTE J--STOCKHOLDERS' EQUITY

In 1990, the Company adopted an Amended and Restated Stock Option Plan. This
plan expired in 1997, and no further grants of options may be made under the
plan. This plan provided for the granting of nonqualified and incentive stock
options. The number of shares of common stock authorized for issuance under the
plan was 1,200,000 shares. Options granted under the plan had various vesting
periods and are exercisable for a period of 10 years from the date of grant,
although options may expire earlier because of termination of employment.

In 1992, the Company adopted the 1992 Stock Option Plan, which provides for the
granting of nonqualified and incentive stock options to employees, officers,
consultants and non-employee members of the Board of Directors. Options granted
to employees under this plan have various vesting periods. Annually,
non-employee directors will be granted nonqualified stock options exercisable
after six months from the date of grant, equal to the number of shares
determined by dividing the annual retainer fee amount by the fair market value
of a share of common stock as of the date of grant. All options granted under
this plan, once vested, are exercisable for a period of up to 10 years from the
date of grant, although options may expire earlier because of termination of
employment or service. The 1992 Stock Option Plan will expire in December 2002.

In 1996, the Company adopted the Annual Incentive Program, which provided
certain of the Company's key employees with annual incentive compensation tied
to the achievement of pre-established and objective performance goals. This plan
provides for the granting of stock options to key management employees on a
discretionary basis. Nonqualified and incentive stock options may be granted,
and the terms of the plan concerning the stock options are substantially the
same as the corresponding terms of the 1992 Stock Option Plan.

The 1992 Stock Option Plan and the 1996 Annual Incentive Program allow for the
payment of all or a portion of the exercise price and tax withholding
obligations in shares of the Company's common stock delivered and/or withheld.
Such payment or withholding will be valued at fair market value as of the date
of exercise. Participants making use of this feature will automatically be
granted a reload stock option to purchase a number of shares equal to the number
of shares delivered and/or withheld. When a reload stock option is granted, a
portion of the shares issued to the participant will be designated as restricted
stock for a period of five years, although the restriction may be removed
earlier under certain circumstances. Reload stock options have an exercise price
equal to the fair market value as of the date of exercise of the original
options and will expire on the same date as the original options.

In March 1998, the Company adopted the Executive Option Exercise Loan Program in
order to encourage option exercises and share retention by management employees
holding certain options under the Company's Amended and Restated Stock Option
Plan and to provide such management employees with a long-term capital
accumulation opportunity. This program provides loans to permit the exercise of
certain Company stock options under the Amended and Restated Stock Option Plan
and to pay federal and state taxes realized upon such exercises. Under this loan
program 35,000 and 196,800 shares were exercised in 1999 and 1998, respectively.
As of December 31, 2001, the Company had extended $2,266,000 in executive loans
to these individuals ($1,624,000 of which represented a reduction to additional
paid-in

                                       55

<PAGE>

capital and $642,000 of which was included in other long-term assets) and
recorded $32,000 in interest income during the year.

During 1999, the Company repurchased 576,500 shares of its common stock in open
market or privately negotiated transactions at an aggregate purchase price of
$7,080,000. In January 2000, the Company's Board of Directors authorized an
increase in the aggregate maximum amount to be expended by the Company under its
share repurchase program to $35,000,000. During 2000, the Company spent
$9,120,000 to repurchase a total of 788,900 shares. In May 2000, the Company
entered into a forward share contract, which was settled in May 2001. The
forward share contract was concluded when the Company purchased 644,500 of the
Company's shares from a financial institution at an average price of $7.70 for a
total consideration of $4,966,000.

In October 2000 and February 2001, the Company awarded to certain officers,
650,000 shares of restricted Common Stock of the Company. The restricted stock
grants were made pursuant to the terms of the officers' Employment Agreements.
These shares cannot be transferred or pledged and are subject to purchase by the
Company if the officers' employment with the Company terminates before the
restriction period for the awards expires. These awards vest and the restriction
period expires on the second anniversary of the date of a "change in control" of
the Company as defined in the agreements. Upon a change in control, all
unexercised Company stock options owned by these officers as of the date of
grant of their restricted stock will automatically terminate. These shares are
not included in the calculation of earnings per share.

Transactions under the option plans are as follows:

<TABLE>
<CAPTION>
                                           2001                    2000                    1999
                                  ----------------------- -----------------------  ---------------------
                                              Weighted                Weighted                Weighted
                                               Average                 Average                Average
                                              Exercise                Exercise                Exercise
                                   Options      Price      Options      Price       Options    Price
                                  ----------------------- -----------------------  ---------------------
<S>                               <C>         <C>          <C>        <C>           <C>        <C>
Options outstanding Jan. 1         2,208,799  $  14.40      2,342,028   $ 14.56     2,240,363  $  14.71
Options granted                      533,500  $   5.53         26,711   $  4.56       214,832  $  11.49
Options exercised                          -  $      -              -   $     -       (62,647) $   8.05
Options canceled
                                    (877,912) $  15.35       (159,940)  $ 15.00       (50,520) $  16.34
                                   ---------                ---------              ----------
Options outstanding Dec. 31        1,864,387  $  11.41      2,208,799   $ 14.40     2,342,028  $  14.56
                                   =========                =========              ==========
Options exercisable Dec. 31        1,346,976  $  13.51      1,881,050   $ 14.82     1,571,098  $  15.17
                                   =========                =========              ==========
</TABLE>


Information related to options outstanding at December 31, 2001, is summarized
below:

<TABLE>
<CAPTION>
                                Options Outstanding               Options Exercisable
                     ----------------------------------------    ---------------------
                                       Weighted
                                        Average       Weighted                Weighted
                                       Remaining      Average                 Average
       Range of                       Contractual     Exercise                Exercise
    Exercise Prices      Options         Life          Price     Options       Price
---------------------------------     -----------    --------    -------    ----------
<S>                      <C>         <C>             <C>         <C>        <C>
$  4.39 - $  4.75        242,165          9.1        $ 4.3986     18,865     $ 4.5000
$  4.75 - $  7.12        301,200          9.9        $ 6.4004     53,000     $ 6.1462
$  9.50 - $ 11.88        148,309          8.0        $10.9078    102,398     $10.8965
</TABLE>


                                       56

<PAGE>

$11.88  -  $14.25        862,843     4.7     $13.1665      862,843     $13.1665
$14.25  -  $16.62        247,388     5.6     $15.8502      247,388     $15.8502
$16.62  -  $19.00          5,835     6.0     $17.1250        5,835     $17.1250
$21.38  -  $23.75         56,647     3.9     $22.7580       56,647     $22.7580
                   -------------                       -----------
                       1,864,387     6.5     $11.4148    1,346,976     $13.5098
                   =============                       ===========


The fair value of the Company's outstanding stock options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions:

                                               2001        2000       1999
                                             ---------   ---------  ---------

     Expected option life in years               4.0         2.0        3.9
     Risk-free interest rate                    3.82%       5.36%      5.94%
     Volatility factor                         0.442       0.439      0.329
     Dividend yield                             0.00%       5.30%      2.11%


The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period.

The Company's pro forma information is as follows:


<TABLE>
<CAPTION>
                                                                              December 31,
                                                                 ---------------------------------------
                                                                    2001          2000         1999
                                                                 -----------   -----------   -----------
<S>                                                              <C>           <C>           <C>
Net earnings(loss):
    As reported                                                   $   (2,722)    $     283     $  20,796
    Pro forma                                                     $   (3,307)    $    (526)    $  19,629

Net earnings(loss) per common share:
    As reported--basic                                            $    (0.18)    $    0.02     $    1.26
    As reported--diluted                                          $    (0.18)    $    0.02     $    1.26

    Pro forma--basic                                              $    (0.22)    $   (0.03)    $    1.19
    Pro forma--diluted                                            $    (0.22)    $   (0.03)    $    1.19


Weighted-average fair value of options granted during the year    $     2.16     $    1.00    $    3.25
</TABLE>


                                       57

<PAGE>

NOTE K--EMPLOYEE STOCK PURCHASE PLAN

Effective July 1, 1999, the Company adopted a qualified, non-compensatory
employee stock purchase plan, which allows employees to acquire shares of common
stock through payroll deductions over a six-month period. The purchase price is
equal to 85% of the fair market value of the common stock on either the first or
last day of the offering period, whichever is lower. Purchases under the plan
are limited to 15% of an employee's eligible compensation. A total of 800,000
shares are available for purchase under the plan. The Company issued 60,134
shares under the plan in 2001.

NOTE L--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-K.

From time to time, operations of the Company have resulted, or may result, in
certain noncompliance with applicable requirements under environmental laws.
However, the Company believes that any such noncompliance under such
environmental laws would not have a material adverse effect on the Company's
financial position or results of operations.

In 1997, the Illinois Environmental Protection Agency ("IEPA") notified the
Company that two of the Company's zinc subsidiaries are potentially responsible
parties ("PRP") pursuant to the Illinois Environmental Protection Act for the
cleanup of contamination at a site in Marion County, Illinois to which these
subsidiaries, among others, in the past sent zinc oxide for processing and
resale. These subsidiaries have joined a group of PRPs that is planning to
negotiate with the IEPA regarding the cleanup of the site. Although the site has
not been fully investigated and final cleanup costs have not yet been
determined, based on current cost estimates and information regarding the amount
and type of materials sent to the site by the subsidiaries, the Company does not
believe, while there can be no assurance, that its liability at this site 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 Company's Alchem Aluminum Inc.
subsidiary and Michigan environmental authorities concerning air emission
control permits at the subsidiary's specification aluminum alloy production
facility 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. 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,

                                       58

<PAGE>

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.

Additionally, there is the possibility that expenditures could be required at
the Coldwater site and at other 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.

The Company is also a party from time to time to what it believes are routine
litigation and proceedings considered part of the ordinary course of its
business. The Company believes that the outcome of such proceedings will not
have a material adverse effect on the Company's financial position or results of
operations.

NOTE M--SEGMENT INFORMATION

Description of the Types of Products and Services from which Each Reportable
----------------------------------------------------------------------------
Segment Derives its Revenues:
-----------------------------
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 investment in joint
ventures. The Company delivers aluminum in molten and ingot form to aluminum
producers, diecasters, extruders, steel and automotive companies and other
aluminum customers in the packaging, construction and transportation industries.
The Company's zinc segment represents all of the Company's zinc melting,
processing and brokering activities. The Company sells zinc dust, oxides and
metal to customers in the tire and rubber, industrial paint, specialty chemical,
mining and steel galvanizing industries.

Measurement of Segment Profit or Loss and Segment Assets:
---------------------------------------------------------
The accounting policies of the reportable segments are the same as those
described in NOTE A. The Company evaluates performance based on gross profit or
loss from operations, net of selling expenses. Provision for income taxes,
interest, corporate general and administrative costs, including depreciation of
corporate assets and amortization of capitalized debt costs, are not allocated
to the reportable segments. Intersegment sales and transfers are recorded at
market value; net profits on intersegment sales and transfers were immaterial
for the periods presented. Consolidated cash, net capitalized debt costs, net
current deferred tax assets and assets located at the Company's headquarters
office in Irving, Texas are not allocated to the reportable segments.

Factors Management Used to Identify the Company's Reportable Segments:
----------------------------------------------------------------------
The Company's reportable segments are business units that offer different types
of metal products and services. The reportable segments are each managed
separately, because they produce distinct products and services and sell to
different types of customers.

Reportable Segment Information:
-------------------------------
Selected reportable segment disclosures for the three years ended December 31,
2001 are as follows:

                                       59

<PAGE>

                                            ALUMINUM       ZINC         TOTALS
                                           ----------   ----------   ----------
2001
----
Revenues from external customers           $  511,245    $ 178,092   $  689,337
Segment income (loss)                      $   29,498    $    (20)   $   29,478
Depreciation and amortization expense      $   21,611    $   4,645   $   26,256
Equity in earnings of affiliates           $    3,131    $       -   $    3,131
Segment assets                             $  250,825    $ 107,734   $  358,559
Equity investments in joint ventures       $   17,892    $       -   $   17,892
Payments for plant and equipment           $    7,808    $   1,180   $    8,988

2000
----
Revenues from external customers           $  598,759    $ 248,180   $  846,939
Segment income                             $   24,687    $  13,052   $   37,739

Depreciation and amortization expense      $   22,472    $   4,913   $   27,385
Equity in earnings of affiliates           $    3,060    $       -   $    3,060
Segment assets                             $  281,394    $ 106,088   $  387,482
Equity investments in joint ventures       $   15,249    $       -   $   15,249
Payments for plant and equipment           $   28,288    $   6,582   $   34,870

1999
----
Revenues from external customers           $  568,327    $ 196,504   $  764,831
Segment income                             $   52,974    $  12,788   $   65,762
Depreciation and amortization expense      $   20,718    $   4,615   $   25,333
Equity in earnings of affiliates           $    2,265    $       -   $    2,265
Segment assets                             $  415,614    $ 109,377   $  524,991
Equity investments in joint ventures       $   13,901    $       -   $   13,901
Payments for plant and equipment           $   19,612    $   3,670   $   23,282

Reconciliations of total reportable segment disclosures to the Company's
consolidated financial statements are as follows:

<TABLE>
<CAPTION>
                                                                     2001          2000          1999
                                                                  -----------   -----------   -----------
PROFITS
-------
<S>                                                               <C>           <C>           <C>
Total profits for reportable segments                                $ 29,478     $  37,739     $  65,762
Unallocated amounts:
    General and administrative expense                                (20,845)      (19,788)      (21,775)
    Interest Expense                                                   (9,970)      (16,668)      (12,478)
    Fees on receivables sale                                           (3,372)       (1,082)            -
 Interest and other income                                                 70           210           795
                                                                  -----------   -----------   -----------
Income (loss) before provision for income taxes and minority
interests                                                            $ (4,639)          411      $ 32,304
                                                                  ===========   ===========   ===========

DEPRECIATION AND AMORTIZATION EXPENSE
-------------------------------------
Total depreciation and amortization expense for reportable
    segments                                                         $ 26,256     $  27,385      $ 25,333
Other depreciation and amortization expense                             2,941         2,323         1,705
                                                                  -----------   -----------   -----------
Total consolidated depreciation and amortization expense             $ 29,197     $  29,708      $ 27,038
                                                                  ===========   ===========   ===========
</TABLE>

                                       60

<PAGE>

<TABLE>
<CAPTION>
ASSETS
------
<S>                                                             <C>          <C>           <C>
Total assets for reportable segments                               $358,559    $ 387,482     $ 524,991
Other assets                                                         48,395       46,189        18,646
                                                                -----------  -----------   -----------
Total consolidated assets                                          $406,954    $ 433,671     $ 543,637
                                                                ===========  ===========   ===========

PAYMENTS FOR PLANT AND EQUIPMENT
--------------------------------
Total payments for plant and equipment for reportable segments     $  8,988    $  34,870     $  23,282
Other payments for plant and equipment                                  870        2,831         7,574
                                                                -----------  -----------   -----------
Total consolidated payments for plant and equipment                $  9,858    $  37,701     $  30,856
                                                                ===========  ===========   ===========
</TABLE>

Geographic Information:
-----------------------
The following table sets forth the geographic breakout of revenues (based on
customer location) and property and equipment (net of accumulated depreciation):

                                       2001            2000          1999
                                 -------------    -------------  -----------
REVENUES
--------
Domestic                            $  614,389       $ 719,863     $ 658,261
Foreign                                 74,948         127,076       106,570
                                 -------------    ------------   -----------
Consolidated total                  $  689,337       $ 846,939     $ 764,831
                                 =============    ============   ===========

PROPERTY AND EQUIPMENT
----------------------
Domestic                              $173,417       $ 187,041     $ 180,342
Foreign                                 13,514           9,092         9,645
                                 -------------    ------------   -----------
Consolidated total                  $  186,931       $ 196,133     $ 189,987
                                 =============    ============   ===========

Aluminum shipments to customers located in Canada accounted for approximately 8%
of consolidated revenues for 2001. Substantially all of the Company's foreign
property and equipment are located at the Company's aluminum facility in
Swansea, Wales. Earnings from foreign operations, including foreign joint
ventures, for the fiscal years ending 2001, 2000 and 1999 amounted to
$3,586,000, $4,990,000 and $3,049,000 respectively.


Major Customers:
----------------
During 2000 and 2001, no single customer accounted for more than 10% of
consolidated revenues.

                                       61

<PAGE>

NOTE N--VAW-IMCO

The Company owns a 50% interest in an aluminum recycling joint venture in
Germany, VAW-IMCO Guss und Recycling GmbH ("VAW-IMCO"). At December 31, 2001 and
2000, the Company's equity in the net income of VAW-IMCO is stated at $3,047,000
and $2,704,000, respectively. The following table represents the condensed
balance sheets and income statements of VAW-IMCO as of December 31, 2001. See
VAW-IMCO financial statements included here in.


                                      2001             2000             1999
                                 ---------------------------------------------
Assets
  Current assets                      55,351        $  57,075        $  48,122
  Long-term assets                    28,224           28,220           25,643
                                 ---------------------------------------------
                                   $  83,575        $  85,295        $  73,765
                                 =============================================

Liabilities
  Current liabilities              $  22,731        $  25,680        $  13,073
  Long-term liabilities               30,669           31,470           36,608
  Total stockholders' equity          30,175           28,145           24,084
                                 ---------------------------------------------
                                   $  83,575        $  85,295        $  73,765
                                 =============================================
Revenues                           $ 225,352        $ 214,625        $ 170,527
Gross Profit                       $  21,701        $  19,744        $  15,661
Net Income                         $   6,010        $   5,646        $   3,418


The Company is a 50% joint venture shareholder in VAW-IMCO, with VAW aluminium
AG being the other shareholder. On March 15, 2002, Norsk Hydro ASA, a Norwegian
oil and energy, aluminum and fertilizer company, announced that it had completed
the purchase of VAW aluminium AG from its parent company. Under the terms of the
joint venture agreement and the joint venture's organizational documents, upon a
change of control of one shareholder, the remaining shareholder may, if certain
conditions are met, elect to cause the joint venture to redeem the shares held
by the shareholder whose control has changed. The redemption price, which is to
be paid out in five equal installments (plus interest) from current funds in
future cash flows of the joint venture, is to be determined by an evaluation
conducted under a standard issued by the Institute of German Certified Public
Accountants, with both shareholders having the right to commission an auditing
firm to perform their own evaluation. The Company is currently reviewing its
rights under the documents to elect to cause the joint venture to redeem those
shares.

NOTE O--RELATED PARTY TRANSACTION

In July 2000, the Company entered into an agreement with one of the Company's
former executive officers and his brother, both former stockholders of the
Company's U.S. Zinc Corporation subsidiary, under which the Company sold real
property for $2,450,000 in exchange for cash and a secured promissory note. The
Company believed the sale price of the property was equivalent to sale prices of
comparable properties in the area. The $2,440,000 note, which was due on June
30, 2002, bore interest at a rate of 8% per annum, was payable in monthly
installments, and was secured by a first lien mortgage on the property. The
transaction resulted in an after-tax gain of approximately $295,000 recorded in
1999. In April 2001, the secured promissory note was paid in full by the
purchasers, and the mortgage has been released. The purchasers may, under
certain conditions, require the Company to repurchase the real property until
June 30, 2002.

                                       62

<PAGE>

    NOTE P--QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>
                                       First       Second         Third         Fourth            Total
                                      Quarter      Quarter       Quarter      Quarter (1)          Year
                                    -----------  -----------   -----------  --------------    -------------
2001:
-----
<S>                                 <C>           <C>          <C>          <C>               <C>    <C>
Revenues                              $ 187,352    $ 177,496      $166,712       $ 157,777        $ 689,337
Gross profits                         $   7,856    $  11,145      $  9,831       $   4,492        $  33,324
Net earnings (loss)                   $    (367)   $     918      $    155       $  (3,428)       $  (2,722)
Net earnings (loss) per common
share:
   Basic                              $   (0.02)   $    0.06      $   0.01       $   (0.23)       $   (0.18)
   Diluted                            $   (0.02)   $    0.06      $   0.01       $   (0.23)       $   (0.18)


2000:
-----
Revenues                              $ 223,259    $ 225,819      $205,619       $ 192,242        $ 846,939
Gross profits                         $  16,102    $  13,531      $ 12,932       $   4,788        $  47,353
Net earnings                          $   2,564    $   1,537      $  1,017       $  (4,835)       $     283
Net earnings per common share:
   Basic                              $    0.17    $    0.10      $   0.07       $   (0.32)       $    0.02
   Diluted                            $    0.17    $    0.10      $   0.07       $   (0.32)       $    0.02
</TABLE>

   (1) During the fourth quarter of 2000, the Company recorded pretax charges of
   ---
      $5.6 million, comprised primarily of $3.7 million related to the shutdown
      of the Bedford facility and other asset write downs. During the fourth
      quarter of 2001, the Company recorded pretax charges of $3.9 million,
      mainly due to an increase in the reserve for doubtful accounts
      related to customer bankruptcies, and to closing of a zinc trading office
      in Germany.

                                       63

<PAGE>

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------
            FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------

The information required by this item with respect to directors and nominees for
director of the Company appears under the captions "Election of Directors" and
"Remuneration of Directors and Officers -- Compliance with Section 16(a)" in the
definitive Proxy Statement (herein so called) of the Company relating to the
Company's 2002 Annual Meeting of Stockholders, to be filed with the Securities
and Exchange Commission (SEC) pursuant to Regulation 14A of the Securities
Exchange Act of 1934, which information is incorporated herein by reference. It
is anticipated that the Proxy Statement will be publicly available and mailed to
stockholders in April 2002. Certain information as to executive officers of the
Company is included herein under PART I, ITEM 4A. "EXECUTIVE OFFICERS OF THE
                                         --------
REGISTRANT."

ITEM 11.    EXECUTIVE COMPENSATION
--------

The information required by this item appears under the caption "Remuneration of
Directors and Officers" in the definitive Proxy Statement, which information is
incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------

The information required by this item appears under the caption "Voting and
Principal Stockholders" in the definitive Proxy Statement, which information is
incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------

The information required by this item appears under the captions "Remuneration
of Directors and Officers--Stock Options", and "--Certain Transactions" in the
definitive Proxy Statement, which information is incorporated herein by
reference.

                                       64

<PAGE>

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
--------

  (a)   The following documents are filed as part of this Annual Report on Form
        10-K:

     1. Consolidated Financial Statements: See Index to Consolidated Financial
        Statements and Financial Statement Schedules in ITEM 8 - "FINANCIAL
                                                        ------
        STATEMENTS AND SUPPLEMENTARY DATA" thereof.

     2. Consolidated Financial Statement Schedules: See index to Consolidated
        Financial Statements and Financial Statement Schedules in ITEM 8 -
                                                                  ------
        "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" thereof.

     3. Exhibits:
        --------


   EXHIBIT
   NUMBER                              DESCRIPTION

     3.1    Certificate of Incorporation of IMCO Recycling Inc., as amended
            May 13, 1998, filed as Exhibit 3.1 to the Company's Quarterly
            Report on Form 10-Q for the quarterly period ended June 30,
            1998, and incorporated herein by reference.

     3.2    By-laws of IMCO Recycling Inc., as amended, effective as of March
            24, 1999, filed as Exhibit 3.2 to the Company's Annual Report on
            Form 10-K for the year ended December 31, 1999, and incorporated
            herein by reference.

     3.3    Amendment to By-laws of IMCO Recycling Inc. adopted in August 2000,
            filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for
            the year ended December 31, 2000 and incorporated herein by
            reference.

  **10.1    IMCO Recycling Inc. Amended and Restated Stock Option Plan, filed as
            Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
            year ended December 31, 1997, and incorporated herein by reference.

  **10.2    Specimen Split-Dollar Life Insurance Agreement, filed as Exhibit
            10.7 to the Company's Annual Report on Form 10-K for the year
            ended December 31, 1999, and incorporated herein by reference. This
            agreement is virtually identical to agreements between the Company
            and Richard L. Kerr, Paul V. Dufour, Thomas W. Rogers, C. Lee
            Newton, Robert R. Holian and James B. Walburg.

    10.3    Agreement, effective as of January 1, 1994, between IMCO
            Recycling Inc. and Aluminum Company of America, filed as
            Exhibit 10.11 to the Company's Annual Report on Form 10-K for
            the year ended December 31, 1999, and incorporated herein by
            reference.

                                       65

<PAGE>

  **10.4    IMCO Recycling Inc. 1992 Stock Option Plan, as amended December 15,
            1994, February 28, 1996, February 25, 1997, May 13, 1997 and
            May 13, 1998, filed as Exhibit 10.2 to the Company's Quarterly
            Report on Form 10-Q for the quarterly period ended June 30, 1998,
            and incorporated herein by reference.

  **10.5    Amendment to the IMCO Recycling Inc. 1992 Stock Option Plan dated
            February 12, 2001, filed as Exhibit 10.5 to the Company's
            Annual Report on Form 10-K for the year ended December 31, 2000 and
            incorporated herein by reference.

  **10.6    IMCO Recycling Inc. Annual Incentive Program, as amended February
            25, 1997, April 1, 1997, May 13, 1997 and May 13, 1998, filed
            as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
            the quarterly period ended June 30, 1998, and incorporated herein by
            reference.

  **10.7    Amendment to the IMCO Recycling Inc. Annual Incentive Program dated
            February 12, 2001, filed as Exhibit 10.7 to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2000 and
            incorporated herein by reference.

  **10.8    Registration Rights Agreement dated as of November 14, 1997 among
            IMCO Recycling Inc. and the former shareholders of Alchem Aluminum,
            Inc., filed as Exhibit 10.4 to the Company's Current Report on Form
            8-K/A-2 dated September 18, 1997, and incorporated herein by
            reference.

  **10.9    Executive Option Exercise Loan Program, dated March 10, 1998,
            filed as Exhibit 10.1 to the Company's Quarterly Report for the
            quarterly period ended March 31, 1998, and incorporated herein by
            reference.

    10.10   Memorandum of Purchase and Sale Agreement by and among IMCO
            Recycling Inc., The Minette and Jerome Robinson Community Property
            Trust, The Minette and Jerome Robinson Foundation, The Minette and
            Jerome Robinson Charitable Remainder Trust, M. Russ Robinson, Howard
            Robinson and Mindy Robinson Brown, dated July 21, 1998, filed as
            Exhibit 2.1 to the Company's Current Report on Form 8-K, dated
            August 4, 1998, and incorporated herein by reference.

    10.11   Form of Common Stock Purchase Warrant, dated July 21, 1998, filed as
            Exhibit 2.2 to the Company's Current Report on Form 8-K, dated
            August 4, 1998, and incorporated herein by reference.

    10.12   Second Amended and Restated Credit Agreement, by and among the
            Company; Subsidiary Guarantors named therein; the Lenders
            thereunder; Bank of America, N.A.; PNC Bank, National Association
            and Chase Bank of Texas National Association dated October 25, 1999,
            filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
            for the quarterly period ended September 30, 1999, and incorporated
            herein by reference.

    10.13   First Amendment dated January 5, 2000 to the Second Amended and
            Restated Credit Agreement, by and among the Company; Subsidiary
            Guarantors named therein; the Lenders thereunder; Bank of America,
            N.A.; PNC Bank, National Association and Chase Bank of Texas
            National Association dated October 25, 1999, filed as Exhibit

                                       66

<PAGE>

          10.13 to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1999, and incorporated by reference.

  10.14   Second Amendment to Second Amended and Restated Credit Agreement dated
          October 20, 2000 by and among the Company, the Subsidiary Guarantors
          named therein, the Lenders party thereto and The Chase Manhattan Bank
          in its capacity as Administrative Agent under the Credit Agreement,
          filed as Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
          for the nine months ended September 30, 2000 and incorporated herein
          by reference.

  10.15   Receivables Purchase Agreement dated as of November 2, 2000 by and
          among IMCO Funding Corporation as the Seller, the Company as the
          Servicer, Market Street Funding Corporation as the Issuer and PNC
          Bank, National Association as the Administrator, filed as Exhibit 10.2
          to the Company's Quarterly Report on Form 10-Q for the nine months
          ended September 30, 2000 and incorporated herein by reference.

  10.16   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 under the
          Credit Agreement, filed as Exhibit 10.1 to the Company's Quarterly
          Report on Form 10-Q for the nine months ended September 30, 2001 and
          incorporated herein by reference.

**10.17   IMCO Recycling Inc. Annual Incentive Compensation Plan, filed as
          Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended June 30, 1999, and incorporated herein by
          reference.

  10.18   Employee Stock Purchase Plan, filed as Exhibit 4.4 to the Company's
          Form S-8 dated June 30, 1999, and incorporated herein by reference.

  10.19   Registration Rights Agreement dated as of July 21, 1998 among IMCO
          Recycling Inc. and the former shareholders of U.S. Zinc Corporation,
          filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for
          the year ended December 31, 1999, and incorporated by reference.

**10.20   Split-Dollar Life Insurance Agreement between Steve B. Ingram, Trustee
          of the Ingram Family Insurance Trust No. 1 and the Company, filed as
          Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year
          ended December 31, 1999 and incorporated by reference.

**10.21   IMCO Recycling Inc. Performance Share Unit Plan, filed as Exhibit
          10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
          ended March 31, 2000, and incorporated by reference.

**10.22   IMCO Recycling Inc. 2000 Restricted Stock Plan, filed as Exhibit 10.19
          to the Company's Annual Report on Form 10-K for its fiscal year ended
          December 31, 2000 and incorporated herein by reference.

**10.23   Employment Agreement between the Company, IMCO Management Partnership
          L.P. and Don V. Ingram dated September 1, 2000 filed as Exhibit 10.20
          to the

                                       67

<PAGE>

          Company's Annual Report on From 10-K for its fiscal year ended
          December 31, 2000 and incorporated herein by reference.

**10.24   Restricted Stock Award Agreement between the Company and Don V. Ingram
          dated October 12, 2000 filed as Exhibit 10.21 to the Company's Annual
          Report on From 10-K for its fiscal year ended December 31, 2000 and
          incorporated herein by reference. This agreement is virtually
          identical (except as to dates and number of shares of restricted stock
          awarded) to Restricted Stock Award Agreements between the Company and
          (i) Paul V. Dufour dated October 12, 2000 and (ii) Richard L. Kerr
          dated February 1, 2001.

**10.25   Employment Agreement between the Company, IMCO Management Partnership
          L.P. and Paul V. Dufour dated September 1, 2000 filed as Exhibit 10.22
          to the Company's Annual Report on From 10-K for its fiscal year ended
          December 31, 2000 and incorporated herein by reference.

**10.26   Employment Agreement between the Company, IMCO Management Partnership
          L.P. and Richard L. Kerr dated February 1, 2001 filed as Exhibit 10.23
          to the Company's Annual Report on From 10-K for its fiscal year ended
          December 31, 2000 and incorporated herein by reference.

*21       Subsidiaries of IMCO Recycling Inc. as of March 1, 2002

*23.1     Consent of Ernst & Young LLP.

*23.2     Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
          Steurberatungsgessellschaft Mbh

*23.3     Letter concerning certain representations of Arthur Andersen
          Wirtschaftsprufungsgesellschaft
          Steurberatungsgesellschaft
          Mbh

-----------------
*  Filed herewith.
** Management contract or compensatory plan or arrangement.


                                       68

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

Dated:  March 22, 2002                 IMCO Recycling Inc.



                                       By: /s/ ROBERT R. HOLIAN
                                          -------------------------------------
                                       Robert R. Holian, Senior Vice President,
                                       Controller and Chief Accounting Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
          Signature                                      Title                                  Date
------------------------------     --------------------------------------------------    --------------------
<S>                                <C>                                                   <C>
/s/ DON V. INGRAM                  Director, Chairman of the Board, Chief Executive
------------------------------     Officer and President
Don V. Ingram                                                                               March 22, 2002

______________________________     Director
John J. Fleming                                                                             March 22, 2002


/s/ DON NAVARRO                    Director
------------------------------
Don Navarro                                                                                 March 22, 2002

/s/ JAMES C. COOKSEY
------------------------------     Director
James C. Cooksey                                                                            March 22, 2002

/s/ JOHN E. GRIMES                 Director
------------------------------
John E. Grimes                                                                              March 22, 2002

______________________________     Director
Jeb Hensarling                                                                              March 22, 2002

______________________________     Director
William Warshauer                                                                           March 22, 2002

/s/ HUGH G. ROBINSON
------------------------------     Director
Hugh G. Robinson                                                                            March 22, 2002

                                   Executive Vice President, Chief Financial
                                   Officer and Secretary (Principal Financial
/s/ PAUL V. DUFOUR                 Officer)
------------------------------
Paul V. Dufour                                                                              March 22, 2002

                                   Senior Vice President, Controller and Chief
                                   Accounting Officer (Principal Accounting
/s/ ROBERT R. HOLIAN               Officer)
------------------------------
Robert R. Holian                                                                            March 22, 2002
</TABLE>

                                       69

<PAGE>


VAW-IMCO Guss und Recycling GmbH, Grevenbroich,
Germany

Financial statements as of December 31, 2001 and 2000
together with report of independent public accountants

<PAGE>


CONTENTS

                                                                           Page
                                                                           ----
Report of independent public accountants                                    F-1
Balance sheets as of December 31, 2001 and 2000                             F-2
Statements of income for the years ended December 31, 2001 and 2000         F-3
Statements of shareholders' equity for the years ended
   December 31, 2001 and 2000                                               F-4
Statements of cash flows for the years ended December 31, 2001
   and 2000                                                                 F-5
Notes to financial statements for the years ended December 31,
   2001 and 2000                                                            F-6


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and
Board of Directors of VAW-IMCO Guss und Recycling GmbH:

We have audited the accompanying balance sheets of VAW-IMCO Guss und Recycling
GmbH (a limited liability corporation, Grevenbroich, Germany) as of December 31,
2001 and 2000, and the related statements of income, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VAW-IMCO Guss und Recycling
GmbH as of December 31, 2001 and 2000, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.

                                    Arthur Andersen
                                    Wirtschaftspruefungsgesellschaft
                                    Steuerberatungsgesellschaft mbH

                                    /S/ GERD LUETZELER /S/ PPA. MARCUS SENGHAAS


Cologne, Germany January 25, 2002



                                       F-1

<PAGE>


                        VAW-IMCO Guss und Recycling GmbH
                                 BALANCE SHEETS
                 AS OF DECEMBER 31, 2001 and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                   2001     2001     2000
                                                                            Note  USD 1)    EUR      EUR
                                                                            ----  ------  -------  -------
A S S E T S
-----------
<S>                                                                         <C>   <C>     <C>      <C>
   Current Assets

     Cash and cash equivalents                                                    14,736   16,557   12,991
     Accounts receivable, net of allowance for doubtful
        accounts of 2001: EUR 415 (2000: EUR 142)                                 21,225   23,848   23,709
     Inventories                                                             2    18,147   20,390   22,528
     Other receivables                                                               409      460      703
     Other current assets                                                    6       115      129       27
     Receivables from affiliates                                                     719      808      760
                                                                                  ------  -------  -------
          Total Current Assets                                                    55,351   62,192   60,718
   Property and equipment, net                                               3    27,584   30,993   29,241
   Intangible assets, net                                                            640      719      780
                                                                                  ------  -------  -------
                                                                                  83,575   93,904   90,739
                                                                                  ======  =======  =======
L I A B I L I T I E S  A N D  S H A R E H O L D E R S'  E Q U I T Y
-------------------------------------------------------------------

   Current Liabilities
     Accounts payable                                                             14,708   16,526   20,437
     Accrued liabilities                                                           3,452    3,879    3,413
     Accrued taxes                                                           4     1,642    1,845        0
     Deferred income taxes                                                   4     1,076    1,209    2,175
     Current maturities of long-term debt                                    5       790      888      888
     Payables to affiliates                                                          674      757      406
     Other liabilities                                                       6       388      436        0
                                                                                  ------  -------  -------
          Total Current Liabilities                                               22,731   25,540   27,319
                                                                                  ------  -------  -------
   Long-term debt                                                            5    19,441   21,844   22,732
   Deferred income taxes                                                     4     3,027    3,401    2,215
   Pension and other long-term liabilities                                   7     8,200    9,214    8,532

   Shareholders' Equity
     Share capital                                                                 9,105   10,230   10,226
     Additional paid-in capital                                                    7,340    8,247    8,251
     Retained earnings                                                            14,077   15,817   11,464
     Accumulated other comprehensive income (loss)                           8      (346)    (389)       0
                                                                                  ------  -------  -------
          Total Shareholders' Equity                                              30,175   33,905   29,941
                                                                                  ------  -------  -------
                                                                                  83,575   93,904   90,739
                                                                                  ======  =======  =======
</TABLE>

1)   The financial information expressed in US Dollars (USD) is presented for
     the convenience of the reader and is translated from Euro (EUR) at the noon
     buying rate in New York City for cable transfers in EUR as certified by the
     Federal Reserve Bank of New York on December 31, 2001 which was EUR 1.00 to
     USD 0.89.

The accompanying notes to the financial statements are an integral part of these
financial statements.



                                       F-2

<PAGE>

                        VAW-IMCO Guss und Recycling GmbH
                              STATEMENTS OF INCOME
                FOR THE YEARS ENDED DECEMBER 31, 2001 and 2000(1)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        2001        2001        2000
                                                             Note      USD 1)       EUR         EUR
                                                             ----     -------     -------     -------
<S>                                                          <C>      <C>         <C>         <C>
Revenues                                                              225,352     253,204     228,324
Cost of sales                                                        (203,651)   (228,821)   (207,694)
                                                                      -------     -------     -------
Gross profits                                                          21,701      24,383      20,630
-------------

Selling, general and administrative expenses                          (10,474)    (11,769)    (10,781)
Other operating income                                                  2,964       3,330       3,278
Other operating expense                                                (3,631)     (4,080)     (1,833)
                                                                      -------     -------     -------
Income from operations                                                 10,560      11,864      11,294
----------------------

Interest expense                                                       (1,368)     (1,537)     (1,587)
Interest and other income                                                 392         441         302
                                                                      -------     -------     -------
Income before provision for income taxes                                9,584      10,768      10,009
----------------------------------------

Provision for income taxes                                    4        (3,574)     (4,015)     (4,003)
                                                                      -------     -------     -------
Net Income                                                              6,010       6,753       6,006
----------                                                            =======     =======     =======
</TABLE>

1)   The financial information expressed in US Dollars (USD) is presented for
     the convenience of the reader and is translated from Euro (EUR) at the noon
     buying rate in New York City for cable transfers in EUR as certified by the
     Federal Reserve Bank of New York on December 31, 2001 which was EUR 1.00 to
     USD 0.89.

The accompanying notes to the financial statements are an integral part of these
financial statements.



                                       F-3

<PAGE>

                        VAW-IMCO Guss und Recycling GmbH
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED DECEMBER 31, 2001 and 2000(1)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                           Additional                      Other
                                              Share         Paid-in      Retained      Comprehensive
                                             Capital        Capital      Earnings          Income          Total          Total
                                               EUR            EUR           EUR             EUR             EUR           USD 1)
                                          -------------  ------------- -------------   -------------   -------------   ------------
<S>                                       <C>            <C>           <C>             <C>             <C>            <C>
Balance at January 1, 2000                       10,226          5,618         8,091             -            23,935        21,302
--------------------------
Net income                                            -              -         6,006             -             6,006         5,345
Cash dividend                                         -              -       (2,633)             -            (2,633)       (2,343)
Capital contribution                                  -          2,633             -             -             2,633         2,343
                                          -------------  ------------- -------------   -------------   -------------   -----------
Balance at December 31, 2000                     10,226          8,251        11,464             -            29,941        26,647
----------------------------              -------------  ------------- -------------   -------------   -------------   ------------
Net income                                            -              -         6,753
Net gains and losses on cash flow hedges                                                        (389)
Total comprehensive income                            -              -             -                           6,364         5,664
Cash dividend                                         -              -        (2,400)              -          (2,400)       (2,136)
Other                                                 4             (4)            -               -               -             -
                                          -------------  ------------- -------------   -------------   -------------   -----------
Balance at December 31, 2001                     10,230          8,247        15,817            (389)         33,905        30,175
----------------------------              =============  ============= =============   =============   =============   ===========
</TABLE>

1)   The financial information expressed in US Dollars (USD) is presented for
     the convenience of the reader and is translated from Euro (EUR) at the noon
     buying rate in New York City for cable transfers in EUR as certified by the
     Federal Reserve Bank of New York on December 31, 2001 which was EUR 1.00 to
     USD 0.89.

The accompanying notes to the financial statements are an integral part of these
financial statements.


                                       F-4

<PAGE>

                        VAW-IMCO Guss und Recycling GmbH
                            STATEMENTS OF CASH FLOWS
               FOR THE YEARS ENDED DECEMBER 31, 2001 and 2000 (1)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                     2001       2001       2000
                                                                    USD 1)      EUR        EUR
                                                                    ------     ------     ------
<S>                                                                  <C>        <C>        <C>
Operating activities
--------------------
Net income                                                           6,010      6,753      6,006
Depreciation and amortization                                        2,774      3,116      3,418
Provision for deferred income taxes                                    196        220      1,810
Changes in operating assets and liabilities:
   Accounts receivable                                                (124)      (139)    (1,601)
   Inventories                                                       1,903      2,138     (7,007)
   Other receivables                                                   216        243       (291)
   Other current assets                                                (50)       (56)        39
   Receivables from affiliates                                         (43)       (48)     2,633
   Accounts payable                                                 (3,481)    (3,911)    11,660
   Accrued liabilities                                                 415        466     (1,382)
   Accrued taxes                                                     1,642      1,845          0
   Payables to affiliates                                              313        352        325
   Pension and other long term liabilities                             607        682        899
                                                                    ------     ------     ------
Net cash provided by operating activities                           10,379     11,661     16,509

Investing activities
--------------------
Payments for property and equipment
   and proceeds of sale/ disposal thereof                           (4,278)    (4,807)    (7,975)
                                                                    ------     ------     ------
Net cash used in investing activities                               (4,278)    (4,807)    (7,975)

Financing activities
--------------------
Principal payments on long-term debt                                  (790)      (888)    (1,686)
Capital contribution                                                     0          0      2,633
Dividends paid                                                      (2,136)    (2,400)    (2,633)
                                                                    ------     ------     ------
Net cash used in investing activities                               (2,926)    (3,288)    (1,686)

Net increase in cash and cash equivalents                            3,174      3,566      6,848
Cash and cash equivalents at January 1                              11,562     12,991      6,143
                                                                    ------     ------     ------
Cash and cash equivalents at December 31                            14,736     16,557     12,991
                                                                    ======     ======     ======

Supplementary information
-------------------------
Cash payments for interest                                           1,368      1,537      1,565
Cash payments for income taxes                                       1,698      1,908      2,150


Supplemental Schedule of Noncash Activities
-------------------------------------------
Change in fair value of derivatives, net of cash                       346        389          0

</TABLE>

1)   The financial information expressed in US Dollars (USD) is presented for
     the convenience of the reader and is translated from Euro (EUR) at the noon
     buying rate in New York City for cable transfers in EUR as certified by the
     Federal Reserve Bank of New York on December 31, 2001 which was EUR 1.00 to
     USD 0.89.

The accompanying notes to the financial statements are an integral part of these
financial statements.


                                       F-5

<PAGE>

VAW-IMCO GUSS UND RECYCLING GMBH, GREVENBROICH, GERMANY
-------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
-------------------------------------------------
DECEMBER 31, 2001 AND 2000
--------------------------

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------

Organization and nature of business
-----------------------------------

The accompanying financial statements represent the accounts of VAW-IMCO Guss
und Recycling GmbH, Grevenbroich, Germany (hereinafter also referred to as the
`Company' or `VAW-IMCO Guss und Recycling GmbH').

The Company's principal business activities include the ownership and operation
of aluminum recycling and remelting facilities in Europe. Aluminum scrap
material is recycled for a fee and then the material is returned to its
customers, some of whom are the world's largest aluminum and automotive
companies. Aluminum scrap is also purchased on the open market, recycled and
sold. Aluminum remelting, alloying, tolling of aluminum dross and scrap recovery
activities represent the Company's only operating segment.

The Company is a joint-venture of IMCO Recycling Holding B.V., Amsterdam,
Netherlands, which is a affiliate of IMCO RECYCLING INC., Delaware, and VAW
aluminium AG, Bonn, Germany. VAW aluminium AG is a 100 % subsidiary of E.ON AG,
Duesseldorf, Germany. Both joint venture partners hold 50 % each of the Company.

Basis of presentation
---------------------

The financial statements have been prepared according to accounting principles
generally accepted in the United States ("U.S. GAAP") and are presented in the
principal currency Euro (EUR) and in amounts thousands of Euro.

Use of estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates in the accompanying financial statements include: pensions
and early retirement accruals.

Reclassifications
-----------------

Certain prior year amounts have been reclassified to conform with the current
period presentation.

Revenue recognition
-------------------

Revenues are generally unconditional sales that are recorded in compliance with
the Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements", when product is shipped and invoiced to independently owned and
operated customers, provided, among other things, persuasive evidence of an
agreement exists, the price is fixed or otherwise determinable, and
collectability is reasonably assured. Sales are recognized net of sales tax,
trade discounts and returns. Provisions for warranty are estimated and accrued
at the time



                                       F-6

<PAGE>

of sale. Actual warranty costs do not materially differ from estimates.
Provisions are recorded for returns and bad debts.

Cost of sales
-------------

Cost of sales primarily consists of the cost of purchased raw materials,
production costs and material costs and direct manufacturing overheads in
relation to manufactured products sold.

Cash and cash equivalents
-------------------------

All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents. The carrying amount approximates fair
value because of the short maturity of those instruments.

Accounts receivable and credit risk
-----------------------------------

The majority of the Company's accounts receivable are due from companies in the
aluminum and automotive industries. Credit is extended based on evaluation of
the customers' financial condition and, generally, collateral is not required.
The Company performs ongoing credit evaluations of its customers' financial
condition and maintains an allowance for bad debt which management believes is
adequate to provide for the risk of loss that is present in the accounts
receivable at December 31, 2001 (see Note 9).

Inventories
-----------

Inventories are stated at the lower of cost or market value. Cost is determined
using the average cost method taking the average cost of the production
quantities and the purchased raw material quantities and includes all applicable
costs incurred in bringing goods to their present location and condition. Cost
of work-in-progress and finished goods includes manufacturing overheads.

Property and equipment
----------------------

Property and equipment are stated at cost less accumulated depreciation. Major
additions and improvements are capitalized, while maintenance and repairs which
do not improve or extend the life of the respective assets are expensed when
incurred. Major replacements or charges for the significant improvements to
property and equipment are capitalized. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Interest is capitalized in connection with the construction of major facilities.

Low value items (cost below EUR 409) are expensed immediately. This policy does
not have a material effect on the accompanying financial statements.

The Company reviews its property and equipment for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is measured as the amount by which the carrying amount
of the asset exceeds the estimated fair value of the asset.



                                       F-7

<PAGE>

Intangible assets
-----------------

Intangible assets (purchased software) are amortized on a straight-line basis
over the expected life, currently from 3 to 5 years.

Pensions
--------

VAW-IMCO Guss und Recycling GmbH maintains a defined benefit pension plan for
its employees. This plan is based on final pay and service, but some executives
are entitled to received enhanced pension benefits. It is a book reserve plan,
i.e. no plan assets are provided and the employer sets up a book reserve
(pension accrual) for payment of the benefits. Under Statement of Financial
Accounting Standards (SFAS) No. 87 "Employers' Accounting for Pensions" a book
reserve plan under German law is an unfunded plan and a liability item has to be
recognized as unfunded accrued pension cost. This amount is covered by a pension
insurance association if the Company itself is unable to fulfill its
obligations.

Disclosures are made in accordance with SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits".

Early retirement
----------------

Based on the "Early Retirement-Law" and the collective agreement of the chemical
industry in Germany, employees have the opportunity to shorten their working
life time without reducing the net wages by receiving additional compensation.
Since the compensation is paid without a return from the employee's side, the
compensation is treated as `post employment benefit' as defined by SFAS No. 87
"Employers' Accounting for Postemployment Benefits". The amount of the
compensation payments is accrued proportionally over the remaining service
period of the individual employees.

Income taxes
------------

The Company utilizes the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes". Under the liability
method, deferred taxes are determined based on the differences between the
financial statements and tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.

Derivative financial instruments
--------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which was
amended in June 1999 by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB No. 133" and in June
2000 by SFAS No. 138, "Accounting for certain Derivative Instruments and certain
Hedging Activities".

SFAS No. 133, as amended, establishes accounting and reporting standards for
derivative instruments and hedging activities. These standards require that an
entity recognizes all derivatives as either assets or liabilities in the
statement of financial condition and measures those instruments at fair value.
The changes in fair value of those instruments are reported in earnings or other
comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. The accounting for gains and losses associated
with changes in the fair value of the derivative and the effect on the financial
statements depend on its hedge designation and whether the hedge is highly
effective in achieving offsetting changes in the fair value of cash flows of the
asset or liability hedged.


                                       F-8

<PAGE>

The Company has adopted SFAS No. 133, as amended, effective January 1, 2001. All
derivatives held by the Company are designated as hedges, have high correlation
with the underlying exposure and are highly effective in offsetting underlying
price movements. Accordingly, gains and losses from changes in derivative fair
values are recorded as a component of comprehensive income and reclassified into
earnings when the hedged transaction affects earnings. Gains or losses are then
recognized in the income statement. The Company currently utilizes the following
derivative financial instruments:

-    Mark-to-market interest rate derivatives (interest rate swaps) to reduce
     interest rate risk and
-    Aluminum forward hedge contracts (London Metal Exchange LME HG Aluminum
     [EUR]) to hedge the market risk of changing prices for purchases or sales
     of aluminum.

Forward contracts are contracts negotiated between the Company and reputable
metal brokers to purchase and sell a specific quantity of aluminum at a price
specified at origination of the contract, with delivery and settlement at a
specified future date. In many cases, the Company enters into these contracts on
behalf of its customers with agreed-upon terms. The Company does not hold or
issue derivative financial instruments for trading purposes.

Before adoption of SFAS No. 133, these transactions qualify and are accounted
for as hedges based on SFAS No. 80 "Accounting for future contracts" (fixed
rate, amount of cash inflows/ outflows is certain and not effected by changes in
market interest rate). The cumulative change in the market value on the
effective date as of December 31, 2000 was shown as a gain/ loss of the aluminum
purchase/ sale (anticipated transaction). Evidence at December 31, 2000
indicates recovery on sale of the finished goods.

See Note 6 for additional information regarding the Company's derivative
holdings.

Comprehensive income
--------------------

SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The objective of SFAS No. 130 is to report a measure of all changes in equity of
an enterprise that result from transactions and other economic events of the
period other than transactions with shareholders ("comprehensive income").
Comprehensive income is the total of net income and all other non-owner changes
in shareholders' equity.

For the Company, other comprehensive income consists only of unrealized gains
and losses on derivatives.


                                       F-9

<PAGE>

Earnings per share
------------------

Since the Company is a German GmbH (limited liability corporation), there are no
authorized or issued shares outstanding. Therefore, earnings per share
information has not been presented in the accompanying financial statements.

Fair value disclosures
----------------------

The FASB has issued several statements concerning financial instruments. SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments", requires
reporting entities to disclose the fair value of financial instruments, and as
amended by SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", includes the disclosure requirements of credit risk concentrations
from SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk". In addition to amending SFAS No. 107, SFAS No. 133 supersedes SFAS No.
105 and SFAS No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments".

The carrying values of cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value due to the short maturity of
those instruments. See Notes 5 and 6 for disclosures regarding long-term debt
and derivative instruments.

Recently issued accounting pronouncements
-----------------------------------------

In July 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the
purchase method of accounting for all business combinations initiated after June
30, 2001. SFAS No. 141 requires intangible assets to be recognized if they arise
from contractual or legal rights or are "separable", i.e., it is feasible that
they may be sold, transferred, licensed, rented, exchanged or pledged. As a
result, it is likely that more intangible assets will be recognized under SFAS
No. 141 than its predecessor, APB Opinion No.16 although in some instances
previously recognized intangibles will be subsumed into goodwill.

Under SFAS No. 142, goodwill will no longer be amortized on a straight line
basis over its estimated useful life, but will be tested for impairment on an
annual basis and whenever indicators of impairment arise. The goodwill
impairment test, which is based on fair value, is to be performed on a reporting
unit level. A reporting unit is defined as a SFAS No. 131 operating segment or
one level lower. Goodwill will no longer be allocated to other long-lived assets
for impairment testing under SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. Additionally,
goodwill on equity method investments will no longer be amortized; however, it
will continue to be tested for impairment in accordance with Accounting
Principles Board Opinion No. 18, The Equity Method of Accounting for Investments
in Common Stock. Under SFAS No. 142 intangible assets with indefinite lives will
not be amortized. Instead they will be carried at the lower cost or market value
and tested for impairment at least annually. All other recognized intangible
assets will continue to be amortised over their estimated useful lives.

SFAS No. 142 is effective for fiscal years beginning after December 15, 2001
although goodwill on business combinations consummated after July 1, 2001 will
not be amortized. The Company does not believe these Statements will have an
impact on its results of operations or financial position.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair


                                       F-10

<PAGE>

value can be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. An entity shall measure changes
in the liability for an asset retirement obligation due to passage of time by
applying an interest method of allocation to the amount of the liability at the
beginning of the period. The interest rate used to measure that change shall be
the credit-adjusted risk-free rate that existed when the liability was initially
measured. That amount shall be recognized as an increase in the carrying amount
of the liability and as an expense classified as an operating item in the
statement of income. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company does not anticipate that adoption of SFAS No. 143
will have a material impact on its results of operations or its financial
position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 establishes a single accounting
model for long-lived assets to be disposed of by sale consistent with the
fundamental provisions of SFAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". Whilst it supersedes APB
Opinion 30 "Reporting the Results of operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" it retains the presentation of discontinued
operations but broadens that presentation to include a component of an entity
(rather than a segment of a business). However, discontinued operations are no
longer recorded at net realizable value and future operating losses are no
longer recognized before they occur. Under SFAS No. 144 there is no longer a
requirement to allocate goodwill to long-lived assets to be tested for
impairment. It also establishes a probability weighted cash flow estimation
approach to deal with situations in which there are a range of cash flows that
may be generated by the asset being tested for impairment. SFAS No. 144 also
establishes criteria for determining when an asset should be treated as held for
sale.

SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years, with early application encouraged.
The provisions of the Statement are generally to be applied prospectively. The
Company currently has no plans to dispose of any operations and accordingly,
does not anticipate that adoption of SFAS No. 144 will have a material impact on
its results of operations or its financial position.

NOTE 2 -- INVENTORIES
---------------------

The components of inventories as of December 31, 2001 and 2000 are as follows:

                                        2001    2000
                                        KEUR    KEUR
                                       ------  ------
Raw materials and supplies             11,362  12,825
Work-in-process                        2,103   3,114
Finished goods                         6,925   6,589
                                       ------  ------
                                       20,390  22,528
                                       ======  ======


                                       F-11

<PAGE>

NOTE 3 -- PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
------------------------------------------------------

The components of property and equipment at December 31, 2001 and 2000 are as
follows:

                                                           2001         2000
                                                           KEUR         KEUR
                                                          -------      -------
Land, buildings and improvements                            7,015        5,832
Production equipment and machinery                         34,021       30,794
Office furniture, equipment and other                       5,206        4,825
Construction-in-progress                                      382          585
                                                          -------      -------
                                                           46,624       42,036
Accumulated depreciation                                  (15,631)     (12,795)
                                                          -------      -------
                                                           30,993       29,241
                                                          =======      =======

Major investments during the year 2001 were the purchase of land and building in
Toeging, Germany, for plant expansion.

Estimated useful lives for buildings and improvements range from 10 to 25 years,
machinery and equipment as well as office furniture and equipment, range from 3
to 15 years.

Depreciation expense for 2001 (Property and equipment) amounts to KEUR 2,837 and
3,154 for 2001 and 2000, respectively.

Intangible assets as of December 31, 2001 and 2000, includes purchased software
in the amount of KEUR 1,407, thereof payments on account amounting to KEUR 221
and KEUR 1,179, thereof payments on account amounting to KEUR 9, respectively.
As of December 31, 2001 and 2000, the accumulated amortization on purchased
software amounts to KEUR 688 and KEUR 408, respectively.

Amortization expense for intangible assets in 2001and 2000 amounts to KEUR 279
and KEUR 264, respectively.

NOTE 4 -- INCOME TAXES
----------------------

German trade tax on income is levied on a company's taxable income adjusted for
certain revenues which are not taxable for trade tax purposes and for certain
expenses which are not deductible for trade tax purposes. The trade tax rate is
dependent on the municipality in which the company operates. The effective
statutory trade tax rate was 16.7 % for fiscal year 2001. Trade tax is
deductible for corporate income tax purposes which is reflected in the rate
shown above.

Until December 31, 2000, German corporations were subject to corporate income
tax at a rate of 40% on non-distributed profits, 30% on distributed profits.
Effective January 1, 2001, the corporate income tax rate in Germany has changed
to 25 % on non-distributed and on distributed profits. In addition, since
January 1, 1998 German corporations are subject to a surtax in connection with
the reunification of Germany of 5.5 % of aggregate income tax liabilities.


                                       F-12

<PAGE>

The provisions for income taxes for the years ended December 31, 2001 and 2000
are as follows:

                                                        2001       2000
                                                        KEUR       KEUR
                                                        -----      -----
Current:
--------
   Corporate                                            2,173      1,211
   Trade                                                1,622        982
                                                        -----      -----
                                                        3,795      2,193
Deferred:
---------
   Corporate                                              125        924
   Trade                                                   95        886
                                                        -----      -----
                                                          220      1,810
                                                        -----      -----
                                                        4,015      4,003
                                                        =====      =====

The provision for income taxes is different from that which would be obtained by
applying the German statutory income tax rates of 39% for 2001 and 43% for 2000
to income before income taxes, as follows:

                                                        2001       2000
                                                        KEUR       KEUR
                                                        -----      -----
Income taxes at the statutory rate                      4,162      4,304
Current taxes last year                                   (42)         0
Change in tax rate for deferred taxes                       0       (458)
Other                                                    (105)       157
                                                        -----      -----
                                                        4,015      4,003
                                                        =====      =====


                                       F-13

<PAGE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 2001 and
2000 are as follows:

<TABLE>
<CAPTION>
                                                                      2001      2000
                                                                      KEUR      KEUR
                                                                      -----     -----
<S>                                                                   <C>       <C>
Deferred tax liabilities:
-------------------------
   Accumulated depreciation                                           3,610     2,523
   Inventories                                                        1,247     1,582
   Accrued liabilities                                                  191       661
   Accounts receivable                                                    5         0
                                                                      -----     -----
Total deferred tax liabilities                                        5,053     4,766

Deferred tax assets:
--------------------
   Pension                                                               85       172
   Accrued liabilities                                                  358       204
                                                                      -----     -----
Total deferred tax assets                                               443       376
                                                                      -----     -----
Net deferred tax liability
     thereof current: KEUR 1,209 for 2001 and KEUR 2,175 for 2000
     and long-term: KEUR 3,401 for 2001 and KEUR 2,215 for 2000       4,610     4,390
                                                                      =====     =====
</TABLE>

At December 31, 2001 and 2000, management believes that it is more likely than
not that the deferred tax assets will be realized; therefore, no valuation
allowance has been recorded at December 31, 2001 and 2000.

The increase in taxable differences results mainly from different depreciation
methods for US-GAAP and German tax purposes. Additionally, the provision for
pensions under SFAS 87 is higher than the amount accrued in the tax books, which
reflects the calculation under the German tax law.


                                       F-14

<PAGE>

NOTE 5 -- LONG-TERM DEBT
------------------------

Long-term debt at December 31, 2001 and 2000 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                        2001      2000
                                                                                        KEUR      KEUR
                                                                                       ------    ------
<S>                                                                                    <C>       <C>
(1) Commerzbank bank loan,
     interest rate at 6-month-LIBOR (weighted average interest
     rate of 4.465 % and 4.472 %, respectively fixed with a swap,
     see Note 6) with semiannual interest rate payments and
     repayment of KEUR 10,226 at maturity, matures on May 15, 2003                     10,226    10,226
(2) Landesbank Rheinland-Pfalz bank loan,
     interest rate at 6-month-LIBOR (weighted average interest rate
     of 4.465 % and 4.472 %, respectively, fixed with a swap, see Note 6)
     with semiannual interest rate payments and repayment of KEUR 10,226
     at maturity matures on May 15, 2003                                               10,226    10,226
(3) Various Commerzbank investment credits:
     Investment credit,
        fixed interest rate of 4.2 % per annum with quarterly interest
        payments and semiannual repayments of KEUR 189
        matures March 31, 2004                                                            946     1,324
     Investment credit,
        fixed interest rate of 5.875 % per annum with quarterly
        interest payments and quarterly repayments of KEUR 66
        matures September 30, 2004                                                        728       993
     Investment credit,
        fixed interest rate of 4.5 % per annum with quarterly interest
        payments and semiannual repayments of KEUR 89
        matures March 31, 2004                                                            445       623
     Investment credit,
        fixed interest rate of 4.5 % per annum with quarterly interest
        payments and semiannual repayments of KEUR 21
        matures March 31, 2004                                                            107       149
     Investment credit,
        fixed interest rate of 5.45 % per annum with quarterly
        interest payments and quarterly repayments of KEUR 6
        matures March 31, 2004                                                             54        79
                                                                                       ------    ------
   Total various Commerzbank investment credits                                         2,280     3,168
                                                                                       ------    ------
Subtotal                                                                               22,732    23,620
Less current maturities                                                                  (888)     (888)
                                                                                       ------    ------
Long-term debt                                                                         21,844    22,732
                                                                                       ======    ======
</TABLE>

The purpose of long-term debts (1) and (2) are for investments in furnaces as
well as for necessary working capital, whereas long-term debts (3) are for
equipment investments only. The debt obligations are unsecured. However,
financial ratios and other covenants have to be met according to credit loan
agreements. As of December 31, 2001 and 2000 VAW-IMCO Guss und Recycling GmbH is
in compliance with all financial ratios and other covenants related to the above
debt arrangements.

The fair value of the long-term debt approximates its fair value due to its
variable rate and its interest rate resets according to LIBOR. The Company uses
interest rate swaps to convert its variable rate debt to fixed rates. See Note 6
for additional information regarding the Company's hedging activities.


                                       F-15

<PAGE>

In addition, the Company has available a KEUR 10,226 short-term working capital
line of credit with Commerzbank which is not utilized as of December 31, 2001or
2000.

For the years ended 2001 and 2000, the total amount of interest cost amounting
to KEUR 1,537 KEUR 1,587, respectively, incurred during the period was charged
to expense. Scheduled maturities of long-term debt subsequent to December 31,
2002 are as follows:

                                                                      KEUR
                                                                     ------
Mature in 2003                                                       21,340
Mature in 2004                                                          504
                                                                     ------
Total                                                                21,844
                                                                     ======

NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS
-----------------------------------------

Interest rate swaps
-------------------

The Company uses the following hedging strategies to reduce the potentially
adverse effects that market volatility may have on its operating results:

Financial instruments utilized by the company are designated as cash flow
hedges. The company uses interest rate swaps to convert its variable rate
financing activities to fixed rates. The Company assumes that there will be no
hedge ineffectiveness in the cash flow hedging relationship between the
floating-rate debt and the swap because the requirements under SFAS 133 have
been met (short-cut-method) and adjust the carrying amount of the swap (included
in other liabilities) to its fair value and adjust other comprehensive income by
an offsetting amount.

As of December 31, 2001 and 2000, the Company had the following interest rate
swap contracts outstanding: Interest rate swap contracts relating to a variable
rate loan with Landesbank Rheinland-Pfalz and relating to another variable rate
loan with Commerzbank. These agreements convert the variable rate on LIBOR to a
fixed rate of 6.210% for Landesbank Rheinland-Pfalz and 6.144% for Commerzbank
on a notional amount of KEUR 10,226 each and mature both on May 15, 2003.

Based on current interest rates for similar transactions, mark-to-market net
present value of these interest rate swaps at December 31, 2001 were KEUR (360)
and at December 31, 2000 were KEUR (320), related to the Landesbank
Rheinland-Pfalz loan and at December 31, 2001 were KEUR (350) and at December
31, 2000 were KEUR (301), related to the Commerzbank loan. The fair value of the
swaps is recorded in long-term debt.

Market value of the swaps is the same as carrying value as SFAS No. 133 requires
derivatives to be recognized in the financial statements at market value. Credit
and market risk exposures are limited to the net interest differentials.

Forward contracts
-----------------

VAW-IMCO Guss und Recycling GmbH acts in the aluminum recycling industry and
hedges fixed sales prices of customers' orders with future delivery date as well
as metal input (quantity and pricing) for producing the order quantity to
maintain the margin of these sales. The Company uses forward contracts
designated as cash flow hedges to hedge the risk exposure of changes in the
LME-quotation with buying/ selling Aluminum forward contracts (LME HG Aluminum
EUR). All derivatives held by the Company are designated as hedges,


                                       F-16

<PAGE>

have high correlation with the underlying exposure and are highly effective in
offsetting underlying price movements. Accordingly, derivative gains and losses
from changes in derivative fair values included in other comprehensive income
are reclassified into cost of sales at the time when the underlying physical
transaction takes place. The unrealized gains or losses are reflected on the
balance sheet in other current assets or liabilities. If the above hedging
activities no longer qualify for deferral, the contracts are marked to market to
other income in the current period.

The Company has forward contracts for aluminum outstanding as of December 31,
2001 and 2000. As of December 31, 2001 and 2000, purchase contracts call for the
payment of KEUR 2,650 and KEUR 11,738 in 2001 and 2000, respectively at notional
value and sales contracts call for the repayment of KEUR 1,050 and KEUR 11,338,
respectively at notional value. These contracts mature between January and June
2002 (January and December 2001, respectively for 2000). The fair value of these
contracts at December 31, 2001 and 2000 is KEUR 75 and KEUR 357, respectively,
based on quoted market prices as of December 31, 2001 and 2000. The net
derivative gains included in other comprehensive income at December 31, 2001
will be reclassified into earnings based on when the related hedged item is
recognized in earnings, all of which is expect to occur within the next twelve
months. The fair value of the forward contracts are recorded in other current
assets and liabilities.

The Company's credit risk associated with these contracts is generally limited
to the unrealized gain/ loss should any counter party fail to perform as
contracted. The counter party to the Company's forward contract consists of
major international broker institutions. The Company continually monitors the
credit quality of these institutions and does not expect non-performance by the
counter party.

A part of forward contracts is handled by the Metal services division of VAW
aluminium AG, Bonn, who only works with reputable metal brokers. Apart from VAW
aluminium AG, Bonn, as counterpart, 1,050 tons of forward purchase contracts and
500 tons of open forward sales contracts are concluded with Prudential Bache
International Ltd., London.

Market value on the forward contracts is the same as carrying value as SFAS No.
133 requires derivatives to be recognized in the financial statements at market
value.

NOTE 7 -- PENSION PLAN
----------------------

The Company maintains a defined benefit pension plan for its employees.

Pension cost for the Company's defined pension plan includes the following
components:

                                                       2001      2000
                                                       KEUR      KEUR
                                                       -----     -----
Service cost                                             255       258
Interest cost                                            565       499
                                                       -----     -----
Net periodic pension cost                                820       757
                                                       =====     =====


                                       F-17

<PAGE>

Change in Projected Benefit Obligation (PBO):
                                                       2001      2000
                                                       KEUR      KEUR
                                                       -----     -----
PBO at January 1                                       7,777     7,539
Planned transfer of assets                                 0       158
Service cost                                             255       258
Interest cost                                            565       499
Actuarial loss/ (gain)                                   181      (647)
Benefits paid                                           (111)      (30)
                                                       -----     -----
PBO at December 31                                     8,667     7,777
Unrecognized net loss                                   (262)      (80)
Provision for pension insurance                           59        51
Transfer of assets                                       (13)        0
Other                                                    104       113
                                                       -----     -----
Pension liability at December 31                       8,555     7,861
                                                       =====     =====

Actuarial assumptions as of December 31, 2001 and 2000 are as follows:

                                                       2001      2000
                                                       -----     -----

Interest rate                                            7.0%      7.0%
Compensation increase                                    3.0%      3.0%
Cost-of-living increase for pensions                     2.0%      2.0%

The computation of the accrual is based on the following retirement ages which
reflect present legal early retirement provisions in Germany:

Change in Projected Benefit Obligation (PBO):

Males                     63 years
Females                   60 years
Disabled                  60 years

The PBO as of December 31, 2001 and 2000 includes an unrealized loss amounting
to KEUR 262, and KEUR 80, respectively. The loss does not exceed 10 % of the
PBO, so an amortization is not required.


                                       F-18

<PAGE>

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------

For the year ended 2001, the re-tax amount of net hedging losses arising during
the period amounts to KEUR 635 including the tax benefit of KEUR 246 the after
tax amount is equal KEUR 389 . Accumulated other comprehensive loss consists of
unrealized gains and losses on derivatives. As a result of the adoption of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" on
January 1, 2001, the Company recorded a net-of-tax cumulative loss adjustment of
KEUR 162 in accumulated other comprehensive earnings to recognize at fair value
all derivatives that were designated as cash-flow hedging instruments. The
related net change associated with current period hedging transactions as of
December 31, 2001 amounts to a loss adjustment of KEUR 227. During 2001, the
net-of-tax cumulative gain reclassified out of Other Comprehensive Income into
earnings amounted to KEUR 267.

NOTE 9 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

Regulatory and legal environment
--------------------------------

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 possibly require the
Company to make substantial expenditures in the future. At December 31, 2001 and
2000, the Company is in compliance with all environmental laws and management is
not aware of any amendments of laws which might result in noncompliance in the
future.

Purchase commitments
--------------------

Purchase commitments for raw materials (aluminum (LME), aluminum scrap material
and other services) with maturities within one year amount to KEUR 33,237 as of
December 31, 2001 and KEUR 30,839 as of December 31, 2000.

Major customers
---------------

In the fiscal year 2001, there are two major customers with revenues above 10 %
of the total revenues (representing 15 % and 14 % of the total revenues). In the
fiscal year 2000, there were three major customers with revenues above 10 % of
the total revenues (representing 14 %, 12% and 10% of the total revenues).
Although unlikely, the loss of one of these customers could have a material
adverse effect upon the business of the Company and its future operating
results.


                                       F-19

<PAGE>

NOTE 10 -- SEGMENT INFORMATION
------------------------------

The Company adopted SFAS No. 131 "Disclosure About Segments of an Enterprise and
Related Information". These rules establish revised standards for public
companies relating to the reporting of financial information about operating
segments. The Company's business consists solely of aluminum recycling and
alloying (one integrated process), therefore the product-line segment disclosure
has been omitted. This product has been manufactured in Germany, where the
Company operates, for various customers in Europe.

Description of types of products
--------------------------------

The aluminum segment represents all of the Company's aluminum remelting and
recycling of aluminum dross and scrap recovery activities. The Company delivers
aluminum in molten (just-in-time delivery) and ingot form to aluminum producers.
It primarily serves the

European car makers and car suppliers industry but also supplies the
construction sector and other markets.

Geographic information
----------------------

The following table sets forth the geographic breakout of revenues (based on
customer location):

                                                              2001      2000
                                                              KEUR      KEUR
                                                             -------   -------
Revenues from external customers
--------------------------------

   Domestic (Germany)                                        193,530   182,377
   European Union and other Europe
     Netherlands                                               8,047     3,647
     Turkey                                                    3,865     2,432
     France                                                    3,845     2,453
     Austria                                                   3,031     1,728
     Other                                                     5,741     4,852
                                                             -------   -------
                                                              24,529    15,112
   Other countries                                               483         0
                                                             -------   -------
Total                                                        218,542   197,489
                                                             -------   -------
Revenues from related parties (Germany)                       34,662    30,835
---------------------------------------                      -------   -------
                                                             253,204   228,324
                                                             =======   =======

Most of the non domestic revenues to third parties (71% in 2001 and 76% in
2000) was realized within the European Union.


                                       F-20

<PAGE>

NOTE 11 -- RELATED PARTY TRANSACTIONS
-------------------------------------

In fiscal years 2001 and 2000, the Company purchased certain materials from IMCO
Recycling UK Ltd. (affiliate of IMCO RECYCLING INC., Delaware) in the total
amount of KEUR 372 and KEUR 1,775 , respectively. As of December 31, 2001 and
2000, payables due to IMCO Recycling UK Ltd. amount to KEUR 0 and KEUR 190,
respectively. These purchases were made on an arms length basis in the normal
course of business. IMCO RECYCLING INC., Delaware, has no common control, since
it does not own greater than a 50 % equity interest in the Company. Furthermore,
there is no management control by IMCO RECYCLING INC., Delaware.

Further, certain transactions as described below have been undertaken with VAW
aluminium AG, Bonn and various subsidiaries thereof. VAW aluminium AG, Bonn has
no common control, since it does not own greater than a 50 % equity interest in
the Company.

Furthermore, there is no management control by VAW aluminium AG. These purchases
are made at arms length basis in the normal course of business:

o    Metal Services Division of VAW aluminium AG, Bonn is the main counter party
     for handling forward contracts described in Note 6, below.
o    With Aluminium Norf GmbH, Neuss-Norf (50 % subsidiary of VAW aluminum AG),
     the Company has entered into an agreement for tolling aluminum dross.
o    There are various commercial agreements with VAW aluminium AG, Bonn as well
     as service agreements with other subsidiaries of VAW aluminium AG, Bonn.

NOTE 12 - SUBSEQUENT EVENTS
---------------------------

In January 2002, E.ON AG, Duesseldorf, signed a contract, selling its shares of
VAW aluminium AG (one of the joint venture shareholders of the Company) to Norsk
Hydro ASA, Oslo, a competitor to IMCO RECYCLING INC., (the parent of the
Company's other joint venture shareholder, IMCO Recycling Holding B.V.). The
closing date of the share transfer assignment of is not fixed due to a
precondition yet to be fulfilled by E.ON AG, Duesseldorf. According to the joint
venture agreement, in the event that there exists an undesirable competitive
situation between the shareholders of the Company, IMCO RECYCLING INC/ B.V. has
the option to purchase the shares directly from VAW aluminium AG (and therefore
own 100% of the Company) or, alternatively, to submit or to redeem VAW aluminium
AG's shares. The price or the share redemption amount is based on a defined
valuation formula. If the Company exercises the share redemption option, it
would be settled through a five-year payment schedule and those payments may
have impact on the Company's compliance with bank loan covenants. Moreover,
there are several intercompany transactions (delivery and services) between the
Company and VAW aluminium AG, which might be terminated and/or modified due to
changes in the future shareholder structure.

Management is unable to estimate how the share redemption, if exercised, might
influence future capability to raise additional funds since the redemption
amounts are yet to be determined. Management is unable to determine the impact
this transaction may have on the results of operations or financial position of
the Company.

                                       F-21