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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, 2002

¨    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)

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:

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  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.  ¨

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  x  No  ¨

        As of June 28, 2002 (the last business day of the Registrant’s most recently completed second fiscal quarter), the aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant was $124,331,330.

        Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of March 1, 2003.

Common Stock, $0.10 par value:  14,501,079 shares

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant’s definitive proxy statement relating to its 2003 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

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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.

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 majority-owned 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:

The Company converts scrap and dross into molten metal in furnaces at facilities owned or operated by it. 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.

Most 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 2002, approximately 59% 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).

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The Company’s aluminum business has benefited from the trend to include recycled materials in finished products 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.

Over the past decade, production of primary metal, aluminum recycling and imports have each accounted for roughly one-third of the total U.S. aluminum supply. Shipments to the transportation sector have risen in recent years because of the greater use of aluminum in vehicles. This sector continues to be the largest and fastest-growing market for aluminum. In 2001, the last year for which statistics are available, the transportation sector consumed approximately 37 percent of total U.S. aluminum supply, while containers and packaging, mainly the production of beverage cans, utilized some 23 percent of annual shipments; building and construction accounted for 15 percent. Exports, consumer durables, electrical and machinery and equipment are other important markets.

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. 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 General Motors Corporation (GM), Alcoa Inc., (Alcoa), Ford Motor Company (Ford), Commonwealth Aluminum Corporation (Commonwealth), Alcan Inc., (Alcan), ARCO Aluminum Inc., BMW Group, Contech (a unit of SPX Corporation) and Daimler Chrysler Corporation.

The Company’s zinc customers include some of the world’s major tire and rubber producers and galvanizers, steel companies and other processors, including Michelin Tire, The Sherwin-Williams Company, (Sherwin-Williams), Aztec Manufacturing Company, Goodyear Tire & Rubber Co. and Dow AgroSciences LLC.

INTERNET ADDRESS AND SEC FILINGS

The Company’s Internet website address is http://www2.imcorecycling.com. The Company makes available on its Internet website for no charge its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after the materials are electronically filed with or furnished to the Securities and Exchange Commission (SEC).

GROWTH OF BUSINESS

General. 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.

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The following table shows the Company’s growth since 1993:

* Includes the Company’s facilities in Swansea, Wales, Monterrey, Mexico and Pindamonhangaba, Brazil, as well as two facilities in Germany.

** Does not include 600 million pounds at two facilities located in Germany (VAW-IMCO).

Recent International Developments. During 2002, the Company’s growth was principally focused on its international operations:

CERTAIN FACTORS

For descriptions of certain factors affecting the Company, including commitments and contingencies which subject the Company to certain continuing risks, we refer you to the following sections of this Form 10-K:

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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 zinc segment represents all of the Company’s zinc melting, processing and brokering activities.

PRODUCTS AND SERVICES

Aluminum. The Company recycles new and old scrap 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 and automotive companies.

The Company manufactures specification aluminum alloy products at four dedicated U.S. 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 oxide, zinc dust and zinc metal:

Foreign Expansion. The Company continues to evaluate expansion opportunities in foreign countries where market conditions warrant. The Company anticipates further capacity expansion at its facilities in Germany and plans to enter into another long-term contract in the United Kingdom. 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.

SALES AND LONG-TERM AGREEMENTS

Aluminum-General. The Company’s principal aluminum customers use recycled aluminum to produce can sheet, building, automotive and other aluminum products. GM accounted for approximately 11% of the Company’s

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consolidated revenues during fiscal 2002. No other customer accounted for more than 10% of revenues in either 2001 or 2000.

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 Arrangements. The Company has long-term arrangements for its recycling services with Alcoa, Alcan, Commonwealth, GM, Aluminum Norf GmbH, Tomra Latasa, PBR Automotive, and Nemak, S.A. The remaining terms of these arrangements as of December 31, 2002 ranged from 1 year to 9 years, although many of the arrangements provided for extensions. Amounts melted under multi-year arrangements represented approximately 33% of the Company’s total aluminum volume for 2002. Many of the agreements for these arrangements contain cost escalation and cross-indemnity provisions, including provisions obligating the Company to indemnify the customer for certain environmental liabilities that the customer may incur. See NOTE L—“OPERATIONS” of Notes to Consolidated Financial Statements.

The Company plans to seek similar dedicated long-term arrangements with customers in the future. Increased emphasis on dedicated facilities and dedicated arrangements 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 2002. Most of the Company’s agreements 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 have adversely affected the Company’s results of operations since 2000. See ITEM 7. “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

The Company sells to both domestic and international customers. Sales to customers in foreign locations accounted for approximately 9%, 11% and 15% of consolidated revenues in 2002, 2001 and 2000 respectively. Aluminum shipments to customers located in Canada accounted for approximately 7%, 8% and 8% of consolidated revenues in 2002, 2001 and 2000, respectively. See 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 old scrap and then immediately switch to other types of material, and afterwards, switch back again. 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.

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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, 2002, the Company had the capacity to provide approximately 80% 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. These alloying facilities generate dross, which is then recycled at one of the Company’s other aluminum recycling facilities.

By-products. A by-product of processing aluminum materials in reverbatory 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.

After recovery of some metallic aluminum through a materials separation process, 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 salt cake disposal 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 then extract additional 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 process 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 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

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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 zinc oxide 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 recycling process at the Company’s Coldwater, Michigan zinc plant 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 new and old 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, 2002, approximately 65% of the Company’s total pounds of aluminum processed involved tolling. Compared to 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.”

The Company also enters into metal brokerage transactions 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. 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.”

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

General. The Company believes that its production network of processing plants has been a positive factor in achieving higher overall facility operating rates. Many of the Company’s facilities are located strategically close to its major customers’ production facilities. The Company’s network of facilities in the U.S. also 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

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productivity, the Company began in 2000 to retrofit its older rotary furnaces with new natural gas burner technology. This initiative was substantially completed in early 2002.

Throughout 2002, the Company continued to provisionally suspend operations at its Wendover, Utah aluminum facility due to adverse market conditions. The Company intends to keep the Wendover plant idle during 2003 or until market conditions improve.

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 furnace and processing technology. The Company intends to expand internationally only when it has long-term commitments from customers. The expansions into Brazil and Mexico are examples of this strategy.

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. Both new and old scrap is processed by the secondary recycling industry and major producers. In times of lower demand, the major producers process a greater portion of the available old scrap. The Company competes both with other secondary recyclers and their customers when purchasing and processing scrap for product sales business.

The amount of the Company’s aluminum tolling business can vary depending upon the extent that the major aluminum producers’ internally process their own scrap. 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. One of these major producers did expand its recycling operations during 2002, which in turn reduced demand for certain of the Company’s services. Declines in can stock demand for major producers during 2002 also adversely affected the Company’s tolling business.

Zinc. The principal factors of competition in the zinc segment are price, customer service and delivery schedules. Competition is 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.

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SOURCE AND AVAILABILITY OF RAW MATERIALS AND ENERGY

Aluminum. The lower level of manufacturing activity in the U.S. during the past three 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 both 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 three 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 45% 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.

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. The Company purchases the majority of its natural gas on a spot-market basis. Most of the Company’s long-term metals supply arrangements 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.

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EMPLOYEES

As of December 31, 2002, the Company had 1,627 employees, consisting of 421 employees engaged in administrative and supervisory activities and 1,206 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:

ENVIRONMENTAL MATTERS

General. The Company’s operations are subject to environmental laws, regulations and ordinances in the plants’ locales of operations. 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 $2,021,000 in 2002, most of which was related to air pollution control equipment for its Loudon, Tennessee, Morgantown, Kentucky, and Uhrichsville, Ohio facilities. Environmental expenditures for 2003 and 2004, which primarily relate to the Company’s landfills and air pollution control equipment, are currently estimated to be approximately $3,200,000 and $4,700,000, respectively.

Aluminum. The processing of scrap generates solid waste in the form of salt cake and baghouse dust. This material is 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 would have to modify its handling and disposal practices. The Company might then also have to obtain a RCRA Subchapter “C” permit for its Morgantown, Kentucky landfill, obtain other permits (including transportation permits), and landfill 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 four years. The

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Company estimates that phase two of its Morgantown, Kentucky landfill cell has a remaining useful life of approximately one year. Remaining landfill life at Morgantown is estimated by using independent aerial photography and engineering calculations based on that photography. When the current Morgantown landfill was originally permitted, it was anticipated that there would be three phases to this landfill site. The Company is currently operating in the second phase. A planned expansion at this landfill in 2004 (the third phase) is anticipated to provide an additional six years of useful life.

Landfill closure costs for Company-owned landfills are currently estimated to be approximately $8,500,000. The current balance of landfill closure accrued costs is $3,100,000. This amount is included in the balance sheet classification “other long-term liabilities.” The Company is currently providing for this expenditure by accruing, on a current basis, these estimated costs as the landfills are used. In addition, the Company is reviewing the recently issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, which will change the method of accounting for landfill closure costs.

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.

ITEM 2. PROPERTIES

RECYCLING AND PROCESSING FACILITIES

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

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:

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In addition, the Company’s former joint venture in Germany operates two aluminum 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 wholly-owned facilities for 2002, 2001 and 2000 were 74%, 81% and 89%, respectively, of stated capacity. During 2002, the Company temporarily suspended operations at its Wendover, UT facilities and currently anticipates that this facility will remain idle during 2003 due to poor market conditions.

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 long-term supply agreement, Commonwealth has an option to purchase the Company’s Uhrichsville, Ohio facility, first exercisable in 2008. However, 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 event 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.

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.

In addition, under its long-term supply agreement with the Company, GM has an option to acquire the Company’s Saginaw, Michigan facility, which is exercisable under certain conditions beginning in 2006. If the Company’s supply agreement with GM were terminated, GM would have to pay the Company an amount which approximates the carrying value of the plant at the time of termination, and GM would have an option to take ownership of the Saginaw facility.

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 7 years, based on current utilization. The Company also owns a landfill at its Sapulpa, Oklahoma plant, which is estimated to have four 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.”

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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 three zinc brokerage and sales offices that it leases, located in California, Texas, and Pennsylvania.

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 sent zinc oxide for processing and resale. These subsidiaries have joined a group of PRPs that are planning to negotiate with the IEPA regarding the cleanup of the site. The site has not been fully investigated and final cleanup costs have not yet been determined.

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 aluminum specialty alloy production facilities in Coldwater, Michigan. The plaintiff claims 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 has filed an answer to the complaint and is in the discovery stage of the process. A motion for summary disposition has been filed raising legal and factual defenses to portions of the State’s complaint. The Company believes it has meritorious defenses to the claims and plans a vigorous defense. At this time, the Company is not able to determine the amount of damages, if any, it may incur.

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 purportedly failed to obtain appropriate preconstruction air quality permits prior to conducting modifications to the Alchem production facilities and exceeded permitted emission levels from the two Company facilities located in Coldwater. In September 2001, the Company filed its response with Region V of the Environmental Protection Agency. The Company believes that the federal action mirrors the State action. Therefore, resolution of the federal action depends upon the ultimate resolution of the State’s case.

The Company was a defendant in a personal injury case in state court in Missouri. In August 2001, the trial court entered a final judgment against the Company for $4,000,000. On January 10, 2003, the Company posted a security bond of approximately $4,223,000. The Company is also currently involved in litigation with certain of its former insurance carriers and brokers with regards to the ultimate liability in this

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matter, and management currently believes that the Company will be reimbursed (subject to deductible limitations) for its losses as to this matter.

The Company is also a party from time to time to what it believes is 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, 2002.

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.

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

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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.

J. Tomas Barrett has served as Senior Vice President and Assistant Chief Financial Officer since September 2002. Previously, Mr. Barrett served as President and Chief Financial Officer of Chemical Lime Company, a subsidiary of Lhoist Group, the largest lime and dolime company in the world, from 1997 through 2001. Prior to then, he served as General Manager of Neste Trifinery, an asphalt producer in Texas, and was President of Cemex U.S.A. (the U.S. operations of CEMEX, S.A. de C.V., a leading global producer of cement and ready-mix products).

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 Senior Vice President and 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, from 1997 to 2001.

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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, 2001 through December 31, 2002. No dividends were declared or paid for those periods.

Cash dividends and repurchases of Common Stock are currently restricted under the terms of the Company’s senior revolving credit facility. See ITEM 7. “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

On March 1, 2003, the outstanding shares of Common Stock were held of record by 384 stockholders.

During the fourth quarter of 2002, the Company made no unregistered sales of its equity securities.

See also, Item 12. “SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.”

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ITEM 6.    SELECTED FINANCIAL DATA

(In thousands, except per share data)

The Company’s results of operations and financial position have been affected by acquisitions of facilities and companies during certain periods presented. For information, see NOTE B—“ACQUISITIONS/JOINT VENTURE FORMATION” and NOTE G—“LONG-TERM DEBT” of Notes to Consolidated Financial Statements. See NOTE K—“IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS” of the Notes to Consolidated Financial Statements regarding the goodwill impairment charge recorded as a cumulative effect of an accounting change. See also ITEM 7. “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

GENERAL

Tolling and Product Sales Business

Approximately 59% of the Company’s total processing volumes consists of aluminum tolled for its customers. Tolling revenues reflect only the processing cost and the Company’s profit margin. The Company’s 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

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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.

In 2002, the Company experienced a decrease in the percentage of metals tolled, compared to 2001. The Post Falls, Loudon and Coldwater facilities all had large percentage reductions in tolling volume due to the loss of business from key tolling customers. This tolling volume reduction was offset by increased product sales volumes at the Rockwood, Coldwater and Shelbyville facilities, in addition to the new product sales business at Monterrey, Mexico and Pindamonhangaba, Brazil.

Over the past three years, the Company has taken steps to counter the reduced demand it has experienced at its U.S. operations. The Company has closed two aluminum recycling facilities, one zinc recycling facility, provisionally suspended operations at an aluminum recycling facility and has reduced the number of furnaces it operates at other domestic facilities. The Company has redeployed some of these assets to its joint venture in Monterrey, Mexico. While the Company had restructuring events, it took no special restructuring expense and recorded the cost associated with these activities into current operations as cost of goods sold.

As a result of the Company’s restructuring activities, the Company has achieved a higher rate of units processed per employee, lower unit operating costs and has improved its overall profitability.

The following table shows information concerning total pounds processed, total revenues and total gross profits (in thousands, except percentages):

In addition to its product sales business, the Company also enters into metal brokerage transactions 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 processing, the Company occasionally enters into metal “swap” transactions where 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.

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SEGMENT INFORMATION

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):

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. Inter-segment sales and transfers are typically recorded at market value. Net profits on inter-segment 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,

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see NOTE M—“SEGMENT INFORMATION” of Notes to Consolidated Financial Statements for additional segment disclosures.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. 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 available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

Areas of uncertainty that require judgments, estimates and assumptions include credit risk of its customers, accounting for inventories, property and equipment, accounting for derivatives, environmental matters, the testing of goodwill and other intangible assets for impairment, and tax matters. A summary of the Company’s significant accounting policies and additional information concerning the estimates and judgments required are included in Note A—“SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” of Notes to Consolidated Financial Statements.

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 cost 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.

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 estimated and accrued as space in the landfills is used. The Company uses aerial photography and engineering calculations based on that photography to determine the space used. The construction costs of the landfills are depreciated as space in the landfills is used. The estimation of the closure costs is determined by an engineering study conducted by an independent third party engaged by the Company. The estimation is based on various factors, including historical utilization of the landfill. In the event that the current utilization rate changes drastically from historical rates, the Company would be required to record an adjustment to the accrual.

The Company currently has some assets classified as available for sale. These assets are recorded at the lower of cost or fair value. Assets held in this category are actively marketed, and the Company’s policy is to expeditiously sell those assets not intended for future use in income producing activities. 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.

Intangible Assets

Intangible assets are stated at cost. The Company annually performs an impairment review to estimate the fair value of the Company’s reporting units. The valuation entails a discounted cash flow model to determine the fair value of the Company’s reporting units, utilizing a discount rate based on a risk-

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adjusted weighted average cost of capital for each unit. When estimating future cash flows, the Company uses internal projections and budgets. These projections include assumptions about aluminum and zinc prices, as well as natural gas and other operating costs. Due to the inherit volatility of commodity prices, actual results may vary from these projections, and could require an adjustment to be recorded.

In the event that a reporting unit’s valuation was determined to be lower than the net book value of such reporting unit, the Company would be required to perform a purchase price allocation of the reporting unit’s fair value and liabilities to the estimated fair value of its assets. Any goodwill recorded in excess of the resulting goodwill from the purchase price allocation is deemed impaired. See “IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS” below.

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 if the Company’s evaluation of a client’s ability to pay proves to be incorrect.

Environmental

The accounting policy with respect to contingent environmental liabilities is to record the Company’s environmental liabilities when and if environmental assessment and/or remediation costs are probable and can be reasonably estimated. The Company’s estimate of these liabilities is based on various assumptions and judgments. The Company often cannot predict with certainty the total costs, liability with respect to these total costs, or the timing of the ultimate disposition of the matter. Due to these uncertainties, the precision of the estimated liability may be subject to significant changes.

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, in the Company’s estimate, are more likely than not to be realized.

In assessing the need for a valuation allowance, the Company estimates future taxable income and future tax rates. In the event that the Company’s future income is more or less than estimated, the Company’s future tax expense could increase or decrease to reflect the change in these estimated valuation allowances.

The Company has not recorded a provision for taxes for undistributed earnings of the Company’s non-U.S. investment in its German joint venture, since these earnings have been 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

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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 cash flow 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 many of its long-term supply contracts with its customers, which limit the Company’s exposure to natural gas price risk. In 2002, 2001 and 2000, natural gas hedging activities increased (decreased) cost of goods sold by the following respective amounts: $3,105,000, $2,173,000 and $(2,638,000), respectively.

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, as well as 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 accounted for as cash flow hedges, and 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, Company management currently knows of no reason to anticipate any non-performance by existing counter-parties. The counter-parties are evaluated for creditworthiness and risk assessment prior to initiating trading activities with the brokers. Typically, the Company does not require collateral or post collateral to support broker transactions. See ITEM 7A, “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.”

Effective January 1, 2001, the Company adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS 138. As discussed above, 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.

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

FISCAL 2002 SPECIAL FACTORS AND FISCAL 2003 OUTLOOK

Certain of the statements below contain projections and estimates based on current expectations. 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 2002, factors that adversely affected the Company’s results of operations and financial condition included:

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For 2003, the Company expects many of these industry conditions to persist. A continuation of the recession affecting domestic U.S. industrial production will have a negative impact on the Company’s results of operations and financial condition.

The Company continues to seek ways to reduce its operational costs through its expense reduction programs. Factors that have positively affected the Company’s cost structure in recent periods have included:

The use of more efficient fuel-burning technologies for its furnaces offset the effect of increased natural gas prices experienced at Company plants during 2002.

A positive contributor to Company results of operations during 2002 was the Company’s aluminum specialty alloys business, which experienced increased volumes, higher prices for its alloy products and lower scrap costs. This business remained stronger than expected during 2002, due to the continued high rate of production for auto manufacturers, both in the U.S. and overseas. Margins in the Company’s specialty alloys business are expected to tighten in 2003, but the performance of this business will largely depend on the level of U.S. auto production.

If current estimates of lower U.S. automotive sales in 2003 prove correct, management does not expect the Company’s aluminum specialty alloys business to perform in 2003 as well as it did in 2002. In March 2003, Ford and GM announced production cutbacks for the second quarter of 2003. However, the use of aluminum in automobiles continues to increase, and is expected to increase overall by 7% this year, to an average of 284 pounds of aluminum per vehicle, according to industry sources.

Continuing deterioration in the U.S. national aluminum recycling rate and slower demand for the Company’s aluminum recycling services has caused the Company’s percentage of tolling activities relative to its total volumes processed to decline in recent periods. As this trend continues, the Company will be exposed to increased working capital requirements that are required for increased levels of product sales. Additionally, the Company may experience more volatility in earnings and cash flows since it will experience additional market and commodity risk through its ownership of the metal units to be sold.

The Company plans to continue to seek growth opportunities in Europe and in Latin America. In March 2003, the redemption price for the interest owned by its joint venture in VAW-IMCO was finalized, and the Company acquired effective operational and voting control of VAW-IMCO.

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The results of operation of VAW-IMCO will now be consolidated with the Company’s consolidated results of operation, and management believes that this will be a positive factor as to further growth in Europe. The Company’s new processing plant at its 85%-owned joint venture facility in Monterrey, Mexico has been processing aluminum dross and scrap under a new long-term recycling contract with a major producer of automobile engine components, that was finalized in the second half of 2002. Construction of a new facility in the United Kingdom, delayed in 2002, is projected to begin in 2003. Expansion will require further sources of capital for the Company.

Company management currently expects that the Company’s results of operations for 2003 should outperform 2002’s results. The degree of improvement will depend in large part upon a recovery in demand for U.S. industrial production, the rate of production in the U.S. automotive sector, and the Company’s ability to successfully integrate its foreign operations. For any significant improvement in results to occur, higher plant operating rates and increased demand and prices for the Company’s products and services over those currently prevailing will be required. Assuming that (i) the U.S. economy recovers in 2003, (ii) the Company can continue its international expansion program as planned, and (iii) the cost savings experienced in 2001 and 2002 continue to be realized, overall Company profitability should improve. However, if the economy further weakens, the Company’s results of operations and financial condition would be adversely affected. Unexpected defaults and insolvencies involving its suppliers and customers, which occurred in 2001 and 2002, could further diminish the Company’s prospects.

The Company is currently constrained by the terms of its credit facilities for its sources of capital with regards to many expansion and acquisition opportunities. Both its revolving credit and receivables sales facilities expire by their terms in late 2003, and all outstanding indebtedness under the revolving credit facility has been reclassified as a current liability. See “– LIQUIDITY AND CAPITAL RESOURCES” below. Although management believes that alternative facilities for capital funding are available and will be in place before the end of the first half of 2003, it should be expected that the Company’s borrowing costs will increase in 2003 compared to its borrowing costs for 2002.

No assurances can be made that any of these anticipated results will actually be achieved, and if so, when and the degree that they can be accomplished. 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 was a 50% joint venture shareholder in VAW-IMCO; VAW aluminium AG had been the other 50% shareholder. See NOTE N – “VAW-IMCO” of Notes to Consolidated Financial Statements. 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 from its parent company. Under the terms of the joint venture agreement and VAW-IMCO’s organizational documents, upon a change of control of one shareholder, the remaining shareholder may, if certain conditions are met, elect to cause VAW-IMCO to redeem the shares held by the shareholder that experienced the change in control. The redemption price, which is to be paid in five equal annual installments (plus interest) from current funds and future cash flows of VAW-IMCO, 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.

On June 19, 2002, the Company announced that it had begun the process through which it would obtain 100% ownership of VAW-IMCO by exercising its right to elect to cause the joint venture to redeem the interest owned by VAW aluminium (now Hydro Aluminum Deutschland GmbH). The valuation process to determine the

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redemption price commenced in the summer of 2002. In March 2003, the parties completed their evaluation procedures and negotiations, resulting in a redemption price of 30,407,500 euros (approximately US $32,300,000 based on prevailing exchange rates). The first principal payment of 6,081,500 euros, plus accrued interest, was paid by VAW-IMCO on March 18, 2003. Hydro Aluminum Deutschland will continue to have certain shareholder rights, including limited voting and economic rights until the redemption price is fully paid. Voting control of VAW-IMCO is currently effectively vested in the Company, and as a result, effective March 1, 2003, the result of operations and financial condition of VAW-IMCO will be consolidated with that of the Company’s and reflected within the consolidated financial statements of the Company. Prior to then, the results of operations of VAW-IMCO have been reflected in the Company’s financial statements under the equity method of accounting.

For 2002, VAW-IMCO reported total sales of $271,970,000 and a net income of $4,736,000.

ACQUISITIONS

In October 2001, the Company invested approximately $4,800,000 in a newly formed joint venture with Reciclaje y Maquila, S.A. de C.V. The joint venture, in which the Company owns an 85% interest, is recycling aluminum drosses and other scrap under a long-term contract with NEMAK, S.A., Monterrey, Mexico.

On May 31, 2002, the Company acquired, through a wholly-owned subsidiary, all of the capital stock of Recipar in consideration for its assumption of approximately $12,100,000 in short-term debt. In addition, the transaction provides for future contingent payments to the seller, dependent on Recipar’s realization of certain tax benefits through May 31, 2007. Recipar’s primary assets are a production facility located in Pindamonhangaba, São Paulo State, Brazil, which processes old scrap for two customers under long-term agreements.

RESULTS OF OPERATIONS

Fiscal Year 2002 vs. Fiscal Year 2001

PRODUCTION. During 2002, the Company melted 2.54 billion pounds, virtually unchanged from the 2.55 billion pounds in 2001. The aluminum segment reported a 2% reduction in pounds processed, while the zinc segment had a 9% increase in 2002 over 2001. Tolling activity in 2002 represented 59% of total pounds processed, compared to 63% in 2001.

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

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        ALUMINUM PRODUCTION: During 2002, the Company melted 2% less aluminum than it did during 2001. An overall weakening in demand, caused by the slowing economy, affected production. The decrease in aluminum percentage tolled is primarily due to the reduction in volume at the Post Falls facility, which is related to the loss of tolling business from a major customer in the Pacific Northwest and weakness in the can recycling market. This was offset by increases at the Company’s specification alloy plants, particularly at the Saginaw facility which is currently almost 100% dedicated to toll processing, and increased volumes from Mexico and Brazil.

        ZINC PRODUCTION: During 2002, the Company melted 9% more zinc than it did during 2001. The increase can be attributed to greater demand from customers in the zinc oxide and zinc dust businesses.

REVENUES. In 2002, the Company’s consolidated revenues of $687,168,000 were about equal to revenues of $689,337,000 in 2001. The aluminum segment reported a 4% increase over 2001 aluminum revenues, while the zinc segment recorded a 12% decrease in revenues over 2001’s zinc revenues.

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

ALUMINUM REVENUES: During 2002, the Company’s aluminum revenues increased 4%, due to a higher percentage during 2002 of product sales business compared to tolling and additions to revenues from the Brazil and Mexico operations.

ZINC REVENUES: During 2002, the Company’s zinc revenues decreased 12%. This decrease was primarily due to lower zinc selling prices and a lower level of zinc trading activity than the same period last year.

GROSS PROFITS. During 2002, the Company’s consolidated gross profits increased 39% to $46,472,000 compared to gross profits of $33,324,000 in 2001. Higher aluminum alloys prices, and lower natural gas costs and other operating cost reductions were the primary reasons for the increase in gross profit.

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):

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ALUMINUM INCOME: During 2002, the Company’s aluminum segment income increased 24% compared to 2001, due primarily to higher gross margin performance by the Company’s specialty alloys business coupled with overall lower natural gas and other operating costs.

ZINC INCOME: During 2002, the Company’s zinc income increased to $3,677,000, significantly higher than the $20,000 loss reported for 2001. This positive variance reflected higher processing volumes and lower natural gas and other operating costs during 2002, which more than offset the effect of 2002’s lower zinc selling prices.

SG&A EXPENSE. Selling, general and administrative expense in 2002 increased 17% to $26,549,000 compared to $22,686,000 in 2001. The increase was primarily due to higher costs associated with incentive compensation and profit-sharing plan contributions for employees.

AMORTIZATION EXPENSE. During 2002, the Company had no charge from amortization compared to a $4,299,000 amortization charge it incurred in 2001. The discontinuation of this expense resulted from the Company’s adoption of Financial Accounting Standard No. 142 in 2002. See “Earnings Before Cumulative Effect of Accounting Change” below.

INTEREST EXPENSE. Interest expense in 2002 decreased 12% to $9,727,000 compared to $11,038,000 in 2001. Additional debt and interest expense resulting from the Brazilian plant acquisition were offset in 2002 by a decrease in overall debt costs due to improvements in management of working capital and lower prevailing interest rates.

FEES ON RECEIVABLES SALE. In 2000, the Company and certain of its subsidiaries entered into a receivables sale facility with a special purpose subsidiary of the Company and a financial institution and its affiliate. Under this facility, the Company and each of its subsidiaries sells receivables and other related assets to the special purpose subsidiary that, in turn, sells undivided interests therein to certain financial institutions and other entities. Fees incurred in connection with these transfers for 2002 were $1,698,000. This was almost 50% lower than the $3,372,000 recorded for 2001. This decrease is mainly due to lower prevailing interest rates throughout 2002. The results of operations and financial condition

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of this special purpose 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. As of December 31, 2002, earnings contributed by VAW-IMCO, the Company’s 50% owned joint venture, were $2,181,000 compared to $3,057,000 in 2001. The Company’s total equity earnings were $2,403,000 in 2002 compared to $3,131,000 in 2001. See ITEM 8. “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.”

EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.

Earnings before the cumulative effect of accounting change increased to $6,864,000 for 2002 compared to net loss of $2,722,000 for the same period in 2001. The increase was primarily the result of the increased profit margins as discussed above, as well as the elimination of goodwill amortization under Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). See NOTE K—“IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS” of Notes to Consolidated Financial Statements. The Company’s effective tax rate, excluding the impact of equity income related to VAW-IMCO, increased to 38% in 2002 from a benefit of 31% in 2001. The primary reason for the difference is due to the amount of the Company’s domestic U.S. net loss recorded during 2001 as compared to the level of expenses not deductible for tax purposes.

NET LOSS.

The net loss for 2002 was $51,866,000, significantly higher than the loss of $2,722,000 for the same period in 2001. The primary reason for this increase was the goodwill impairment recorded for the adoption of FAS 142 for $58,730,000 net of tax. See NOTE K—“IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS” of Notes to Consolidated Financial Statements.

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):

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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 was primarily due to the commencement of processing at the Saginaw facility, which was almost 100% 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 manufacturing levels 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.

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

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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):

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

ZINC INCOME: During 2001, the Company’s zinc results were a loss of $20,000 compared to a profit of $13,052,000 in 2000. The decrease was due to the decrease in demand for value-added zinc products.

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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 is primarily due to lower payroll costs and other expense reductions.

AMORTIZATION EXPENSE. Amortization expense in 2001 was approximately the same as compared to 2000.

INTEREST EXPENSE. Interest expense in 2001 decreased 37% to $11,038,000 compared to $17,490,000 in 2000. The decrease is the result of improved management of working capital, lower capital spending, and lower prevailing interest rates in 2001.

FEES ON RECEIVABLES SALE. Fees incurred in connection with transfers of receivables under the Company’s Receivables Sale Facility for the year ended December 31, 2001, were $3,372,000 compared to $1,082,000 in 2000, due to the fact that this facility was in effect for only two months during 2000. 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 as 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 the lower profits in the zinc segment business.

In the fourth quarter of 2001, the Company recorded a net loss of $3.4 million, including a $2.6 million 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 CHARGES” in NOTE P—“QUARTERLY FINANCIAL DATA” of Notes to Consolidated Financial Statements.)

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 2002, operations provided cash of $38,443,000 compared to $21,003,000 in 2001. Earnings before cumulative effect of accounting change were $6,864,000 for 2002, compared to a loss of $2,722,000 for 2001. Depreciation and amortization 2002 charges were $5,551,000 less than they were in 2001. Changes in operating assets and liabilities for 2002 resulted in a net cash provision of $6,203,000, compared with a use of cash in the amount of $7,837,000 in 2001. The 2002 change in operating assets and liabilities was primarily due to increases in accounts payable and accrued liabilities, which are a source of cash. Accounts payable and accrued liabilities increased $14,989,000 for 2002, compared to a decrease of $23,397,000 in 2001.

CASH FLOWS FROM INVESTING ACTIVITIES. In 2002, cash used by investing activities was $16,344,000 compared with $13,998,000 used in 2001. During 2002, the Company spent approximately $7,318,000 to complete the construction of its Mexican joint venture facility. The balance of funds spent was for normal plant replacement capital spending. This spending was partially offset in 2002 by the receipt of a dividend distribution of $2,500,000 from its equity investment in VAW-IMCO included in

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other investing activities. For 2003, the Company currently expects capital spending to approximate $19,000,000. This amount is anticipated to be applied at U.S. facilities for environmental improvements, as well as to carry out numerous projects that are intended to lower operating costs and raise productivity.

CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used by financing activities was $18,381,000 in 2002 compared to $8,598,000 in 2001. In 2002, the primary reason for this increase was that the Company reduced its long-term debt outstanding by approximately $16,500,000. At December 31, 2002, the Company had $94,000,000 in indebtedness outstanding under its revolving credit facility. Due to covenant constraints under this facility, the Company believes that only approximately $25,000,000 is currently available for borrowing. In addition, there were standby letters of credit outstanding with several banks totaling $3,305,000. The $94,000,000 outstanding was re-classified to a current liability at year end due to the long-term credit facility’s scheduled expiration in 2003.

The redemption obligations of VAW-IMCO are expected to be funded through its internally generated cash and its other cash resources. The first payment of 6,081,500 euros plus interest, was paid in March 2003, and the next payment of 6,081,500 euros is due March 2004.

STOCKHOLDERS’ EQUITY. Principally as a result of the intangibles impairment loss recorded for the adoption of FAS 142 in 2002 and foreign currency translation losses in 2002, the Company’s stockholders’ equity declined from $168,893,000 at December 31, 2001 to $118,243,000 at December 31, 2002.

CREDIT AND RECEIVABLES SALE FACILITIES. The Company currently 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 to unaffiliated third-party financial institutions and other entities. On October 31, 2002, the Company amended the terms of the Receivables Purchase Agreement, reducing the Purchase Limit (the aggregate amount of receivables that can be sold) from $100,000,000 to $75,000,000. The amount outstanding under the receivables sale facility at December 31, 2002 was $61,300,000. During 2002, the Company incurred fees on sales of its receivables in the aggregate amount of $1,698,000. This facility is scheduled to expire in November 2003. If the receivables sale facility is not renewed or if a replacement facility through another financial institution is not obtained by November 2003, the Company would be required to borrow additional funds. If the Company were to borrow funds for these purposes under its senior revolving credit facility, the terms of this facility are not as favorable to the Company as those under the receivables sales facility.

On April 26, 2002, the Company amended the terms of its revolving credit agreement. The Fourth Amendment to the Credit Agreement added new provisions and modified existing provisions to reclassify certain of the Company’s existing foreign subsidiaries and permit other subsidiaries to be classified as “unrestricted subsidiaries.” The Company’s unrestricted subsidiaries are not subject to certain covenants and other restrictions to which the Company and its other subsidiaries are subject under the Credit Agreement, but revenues and earnings from these unrestricted subsidiaries will generally not be included in calculating the Company’s compliance with certain financial covenants under the Credit Agreement (except to the extent that cash distributions are received by the Company or its restricted subsidiaries). Under this amendment, VAW-IMCO is classified as an “unrestricted subsidiary” commencing in March 2003.

The maximum amount which can be borrowed under the facility is $160,000,000. At December 31, 2002, the Company had $94,000,000 in indebtedness outstanding under this facility, which is classified as a current liability because the credit facility expires on December 31, 2003. However, due to financial covenant constraints under this facility, the Company believes that only approximately $25,000,000 is currently available for borrowing. In addition, there were standby letters of credit outstanding with several banks totaling $3,305,000. The Company is required to prepay the facility from the proceeds of certain debt or equity financings. The facility indebtedness must 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 also imposes on the Company: (i) prohibitions against incurring certain indebtedness, (ii) limitations on dividends and repurchases of shares of capital stock, and (iii) limitations on capital expenditures, investments and acquisitions. Funding of acquisitions by the Company will be permitted from future equity offerings, so long as 25% of the proceeds from the equity offering are applied to reduce the credit facility. Cash dividends on and cash repurchases of the Company’s capital stock are prohibited until such time as the Company’s total debt to EBITDA ratio falls below 3.0 to 1.0, at which time the Company will be permitted to expend up to $8,000,000 in dividends or stock repurchases for each year so long as it remains in compliance with this ratio requirement. Domestic capital expenditures for the Company and its restricted subsidiaries are limited to those funded by the Company’s internally generated cash and its international operations, plus up to $15 million per year 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.

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The indebtedness under the Credit Agreement is secured by substantially all of the Company’s personal property (except for accounts receivables and certain related assets subject to sale under the Company’s receivables sale facility), and first lien mortgages on 19 of the Company’s operating facilities, plus a pledge of the capital stock of substantially all of the Company’s subsidiaries.

If the Company’s receivables sales facility commitment terminates or its availability terminates, or if the total amount of the commitment or availability under the receivables sales 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.

The Company’s revolving credit facility and its receivables sales facility both expire in the fourth quarter of 2003. The Company is exploring various options to obtain satisfactory financing arrangements in sufficient amounts to meet the Company’s financing requirements. The Company currently expects to complete this process by the end of the third quarter of 2003. The replacement of these existing financial facilities is, however, expected to increase the Company’s overall borrowing costs for the near term.

The Company believes that its cash on hand, the receivables sales facility, the availability of funds from various financing sources and the Company’s anticipated internally-generated funds will be sufficient to fund its operational needs during 2003. During 2003, the current terms of the revolving credit facility impose more stringent financial covenants on the Company, primarily with regards to the total debt to EBITDA ratio which allowed for a 4.0 to 1.0 ratio as of December 31, 2002. The Company was in compliance with this ratio requirement as of December 31, 2002. As of March 31, 2003, the total debt to EBITDA ratio requirement lowers to 3.0 to 1.0. It is possible that the Company will not be able to meet such requirement, and that the Company will be required to request a waiver for such non-compliance. While the Company believes it will receive a waiver, if necessary, no assurances can be given that a waiver will be obtained. Furthermore, if new or additional sources of credit financing prove not to be available, or not available on terms advantageous to the Company, then the Company may, among other things, have to curtail its growth and expansion plans until economic or credit market conditions improve, and resort to alternative means to obtain funds to retire its outstanding credit facility indebtedness, such as selling assets or equity securities.

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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS. The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements and unconditional purchase obligations. The following tables represent the significant contractual cash obligations and other commercial commitments of the Company as of December 31, 2002.

For further information on long-term debt obligations see NOTE G—“LONG-TERM DEBT” of Notes to Consolidated Financial Statements. Operating lease obligations are payment obligations under leases classified as operating. Most leases are primarily for items used in the Company’s manufacturing processes. Purchase obligations are agreements to purchase goods or services that are enforceable and legally binding on the Company that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. See Note L—“OPERATIONS” of Notes to Consolidated Financial Statemens. Purchase obligation amounts are based on metal prices as of December 31, 2002. The “Other Long-Term Liabilities on the Company’s Balance Sheet” amounts consist of primarily two items: (i) an accrual for $3,100,000 for landfill closure costs at Company-owned landfills (see Item 1. “Business—Environmental Matters”), and (ii) an accrued liability for the disposal of salt cake at its Goodyear, Arizona facility. The timing of these two obligations are based on management estimates.

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For further information on the Company’s lines of credit and other commercial commitments, see NOTE C—“SALE OF RECEIVABLES” and NOTE G—“LONG-TERM DEBT” of Notes to Consolidated Financial Statements.

IMPACT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

Effective January 1, 2002, the Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. Instead, FAS 142 requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of FAS 142 and annually thereafter. The Company will perform its annual impairment review as of December 31 of each year. No further impairment is indicated based upon this review which was completed in January 2003. See NOTE K—“IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS” of Notes to Consolidated Financial Statements.

Under FAS 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. In connection with its adoption of FAS 142, the Company engaged a third-party valuation firm to estimate the fair value of the Company’s reporting units. The valuation firm used a discounted cash flow model to determine the fair value of the Company’s reporting units with a discount rate based on a risk-adjusted weighted average cost of capital for each unit. Because the fair value of the Company’s reporting units, as determined by the valuation firm, was less than the carrying value of the reporting unit net assets, the Company performed the second step of the impairment test required by FAS 142 and determined that an impairment charge was required for each reporting unit. The cumulative effect adjustment recognized as a result of the impairment charge was $58,730,000 (after tax), consisting of write-offs for the impairment of goodwill in the aluminum and zinc segments.

The following table sets forth a reconciliation of net income (loss) before cumulative effect of the accounting change for the year ended December 31, 2002 and pro forma income (loss) before cumulative effect of the accounting change per share for the two years ended December 31, 2001 as though SFAS No. 142 had been in effect at the beginning of fiscal 2000:

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The amount of the SFAS No. 142 goodwill impairment charge primarily reflected the decline in the Company’s stock price over the last several years. This decline was the result of several unforeseen factors which reduced the Company’s earnings. These factors included increased competition in the specification alloys business, increases in the supply of zinc over the past several years which has led to severe price declines in the selling prices for zinc, and energy related closures caused by drought conditions in the U.S. Pacific Northwest which has caused capacity reductions for some of the Company’s major customers.

Effective January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement amends previous accounting and disclosure requirements for impairments and disposals of long-lived assets. The provisions of this new standard are generally applied prospectively. The adoption of this standard had no material impact on the Company’s operations.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (FAS 143). FAS 143 applied to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. Under FAS 143, a liability for an asset retirement obligation should be recognized in the period in which it is incurred and should be initially measured at fair value. The offset to the liability should be capitalized as part of the carrying amount of the related long-lived asset. FAS 143 is effective for financial statements for fiscal years beginning after June 15, 2002 (January 1, 2003 for calendar year-end companies). The Company is evaluating the impact of the new standard.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“FAS 146”): “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. FAS 146 replaces EITF Issue No. 94-3. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the

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obligation undertaken in issuing the guarantee. FIN 45 also expands the disclosures required to be made by a guarantor about its obligations under certain guarantees that it has issued. Initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified. The Company does not expect FIN 45 to have a material effect on its results of operations.

In January 2003, the FASB issued Interpretation 46 – “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest in after that date. The related disclosure requirements are effective immediately. The Company is evaluating the impact of this new interpretation.

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” and Item 3. “LEGAL PROCEEDINGS.”

From time to time, operations of the Company have resulted, or may result, in non-compliance in certain instances with applicable requirements under such environmental laws. However, the Company believes that any such noncompliance 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 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 following:

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Other forward-looking information includes the following:

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 the following: