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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended December 31, 2004

Commission File No. 1-7170

Aleris International, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

75-2008280

(I.R.S. Employer Identification No.)

25825 Science Park Drive, Suite 400

Beachwood, Ohio 44122

(Address of principal executive offices) (Zip code)

(216) 910-3400

(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    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 30, 2004, the aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant was $171,157,537, based on the closing market price of $13.22 per share on June 30, 2004.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of March 1, 2005

Common Stock, $0.10 par value:    29,865,739 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to its 2005 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

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PART I

Introductory Note: 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 Annual Report on Form 10-K. See Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors,” 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. Our expectations, beliefs and projections are expressed in good faith and we believe we have a reasonable basis to make these statements, through our management’s examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our management’s expectations, beliefs or projections will result or be achieved.

The financial statements contained in this Form 10-K include the accounts of Aleris International, Inc. and all of its majority owned subsidiaries (which collectively, except where the context otherwise requires, are referred to herein as “we,” “us,” or “our”). The term “VAW-IMCO” refers to our German subsidiary, VAW-IMCO Guss und Recycling GmbH.

On December 9, 2004, Commonwealth Industries, Inc. merged with one of our wholly owned subsidiaries and we changed our name from IMCO Recycling Inc. to Aleris International, Inc. This merger resulted in the inclusion of the financial condition and results of operations of Commonwealth with ours effective December 1, 2004. In this Form 10-K, when we refer to 2003 and 2004 production data calculated, or 2003 and 2004 financial information presented, on a “pro forma” basis, we are giving pro forma effect to the merger with Commonwealth and the financing transactions related to the merger as if they had occurred on January 1, 2003, and are including the results of operations of Commonwealth (excluding that of its Alflex subsidiary, which was sold in July 2004) with ours for all of fiscal 2003 and 2004.

Information in this Annual Report on Form 10-K concerning processing volumes, production capacity, rankings and other industry and market information, including our general expectations concerning the common alloy sheet and aluminum and zinc recycling industries, are based on estimates prepared by us based on certain assumptions and our knowledge of these industries as well as data from third party sources. These data include, but are not limited to, data from The Aluminum Association and U.S. Geological Surveys. The sources of this information generally state that the information contained therein is believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein.

Company Overview

We are a global leader in aluminum recycling and the production of specification alloys and a leading manufacturer of common alloy sheet. We also are a recycler of zinc and a leading U.S. manufacturer of zinc oxide and zinc dust. We possess a combination of low cost and flexible recycling and manufacturing operations. Our facilities are strategically located and well-positioned to service our customers, which include a number of the world’s largest companies in the transportation, containers and packaging, building and construction and metal distribution industries. On a pro forma basis, revenues from our aluminum operations represented 91% of our total pro forma revenues of $2.3 billion for the year ended December 31, 2004.

We offer customers a wide range of metals recycling services and specification alloy products through our aluminum and zinc production facilities, which include both U.S. and international operations. Our aluminum recycling operations convert scrap and dross (a by-product of the aluminum melting process) and deliver the recycled aluminum in molten or ingot form. Our specification alloy operations purchase and convert aluminum

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scrap and other metals into molten or ingot form. Our specification alloys provide specific properties (including increased strength, formability and wear resistance), as specified by our customers for their particular applications. In addition, we recycle zinc metal for use in the manufacture of galvanized steel and produce value-added zinc products, primarily zinc oxide and zinc dust, which are used in the vulcanization of rubber products, the production of corrosion-resistant paint, and in other specialty chemical applications. For the fiscal year ended December 31, 2004, 59% of the total pounds processed by our recycling and alloy operations (formerly IMCO Recycling Inc.) total pounds processed were under “tolling” arrangements, where we convert customer-owned scrap and dross and return the recycled metal to our customers for a fee. Tolling arrangements eliminate our commodity exposure and reduce our overall working capital requirements. Our recycling and alloy production network operates 24 strategically located production plants, 19 of which are located in the United States, two in Germany, and one in each of Brazil, Mexico and Wales. For the fiscal year ended December 31, 2004, we processed 3.4 billion pounds of recycled metal, specification alloys and zinc products, which accounted for 50% of our total pro forma 2004 revenues.

We are also one of North America’s leading manufacturers of common alloy aluminum sheet, which we produce using the continuous casting process as well as the direct-chill rolling ingot casting process. Substantially all of our aluminum sheet products are tailored in response to specific customer orders, including the incorporation of value-added coatings. We sell the majority of our products to end-users for use in building and construction products, transportation equipment and automotive parts, and consumer durables, as well as to distributors. We have four production facilities located in the U.S. that provide common alloy sheet to all of the major aluminum consuming regions in the U.S. and Canada. Shipments of common alloy sheet products for the fiscal year ended December 31, 2004 on a pro forma basis, totaled 1.0 billion pounds and accounted for approximately 50% of our total pro forma 2004 revenues.

Internet Address and SEC Filings

Our Internet website address is http://www.aleris.com. We make available on our Internet website for no charge our annual reports 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). The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including our company.

Aluminum Industry Overview

The U.S. aluminum industry totaled 23.3 billion pounds of shipments in 2003 (the latest year for which industry information is available). Aluminum products include flat rolled sheet, castings and extrusions, serving a multitude of end uses. World growth in aluminum use has far exceeded that of competing metals. Since 1950, aluminum use has increased by a factor of 18 while uses of copper and steel have risen by factors of 13 and three, respectively. Today, aluminum is the world’s second most widely used metal. The U.S. aluminum industry has experienced significant growth as well. Annual U.S. aluminum supply (which includes primary, recycled and imported aluminum) increased 66% from 12.7 billion pounds in 1982 to 21.1 billion pounds in 2003, a compound annual growth rate of more than 2.5%.

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In the U.S., transportation, containers and packaging and building and construction are the three largest industrial segments for aluminum. In 2003, these segments accounted for about 69% of total industry shipments. Increasing aluminum content in vehicles has made the transportation segment the largest and fastest growing aluminum segment in the U.S. In 2003, transportation consumed about 33% of total shipments while containers and packaging, mainly the production of beverage cans, comprised some 21% of annual shipments and building and construction accounted for approximately 15%. Exports, consumer durables, electricity, machinery and equipment are other important segments for aluminum.

Aluminum has several characteristics that provide value in many diverse applications. Compared to several substitute metals, it is light-weight, has a high strength-to-weight ratio and is resistant to corrosion. These and other qualities have made aluminum the material of choice for dozens of different industries and thousands of different products.

Aluminum’s greatest advantage, however, is that it can be recycled again and again without any material decline in performance or quality. About two-thirds of all aluminum ever produced—440 million tons of a total of 680 million tons manufactured since 1886—is still in use. Recycling of aluminum provides energy savings of approximately 95% compared to the production of the primary metal, and it lowers capital equipment costs by 90%. In addition, solid wastes associated with the primary production process (like bauxite residue and spent potlinings) are avoided. Due to these benefits, annual production of recycled aluminum has increased by 69%, from 3.7 billion pounds to 6.2 billion pounds over the last two decades. U.S. primary aluminum production has declined significantly over this period as well because of increases in energy, environmental and labor costs. As a result of this decline, primary aluminum’s role in total U.S. aluminum supply has decreased while those of recycled aluminum and imports have expanded. In 2003, the primary aluminum industry accounted for 28% of total domestic aluminum supply while recycled metal provided 30% and imports provided 42% of total domestic aluminum supply.

Competitive Strengths

Leading positions in attractive industrial segments

We are a global leader in aluminum recycling and the production of specification alloys and a leading manufacturer of common alloy sheet. Aluminum industry shipments in the U.S. have grown 2.5% per annum on average since 1982. We believe aluminum’s growth prospects remain attractive due to its superior strength to weight ratio, corrosion resistance and its ability to be recycled. Furthermore, in certain industrial segments, such as transportation, aluminum is being used as a substitute for other materials. For example, the amount of aluminum used in the average automobile has increased from 166 pounds in 1991 to 290 pounds in 2004.

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Additionally, annual production of recycled aluminum has increased by 69%, from 3.7 billion pounds to 6.2 billion pounds, over the last two decades. We believe the trend toward aluminum recycling will continue, driven by its energy savings and lower capital equipment costs as compared to those of primary aluminum producers, and by what we expect will be lower output from domestic primary aluminum producers. We believe we will continue to benefit from growth opportunities both in our domestic and international businesses.

Flexible, efficient processing operations

We benefit from the flexibility and efficiency of our manufacturing and recycling operations. Our recycling operations rely on a network of facilities that have rotary and reverbatory melting furnaces which are among the lowest cost and most efficient furnaces in the industry. We have significant expertise in continuous casting of aluminum, which makes us one of the industry’s lowest cost common alloy sheet manufacturers. Additionally, our flexible direct chill process enables us to produce a wide breadth of products. We believe that the vertical integration of these lower-cost, efficient operations following the merger will allow for significant operating synergies.

Scrap recycling-based business model

Unlike the majority of U.S. common alloy sheet manufacturers and global specification alloy suppliers, we have the advantage of being able to use either primary or scrap aluminum. Historically, scrap aluminum has consistently been less expensive than primary aluminum. We believe that our use of scrap aluminum will continue to offer cost advantages for our rolled products business. Furthermore, assuming primary domestic aluminum production continues to decline, our aluminum recycling and spec alloy business units will offer our customers the logistical benefits of a domestic source of aluminum supply.

Geographically well-positioned manufacturing and distribution networks

Our U.S. facilities are strategically positioned in manufacturing regions where the majority of aluminum and zinc consumers are located. Moreover, we are situated within close proximity to a number of our large customers, which gives us the ability to provide superior service, including just-in-time delivery of molten metal. Our international operations benefit from similar strategic locations. Examples of our strategic positioning include the following:

Reduced exposure to commodity price fluctuations

Our management seeks to mitigate the impact of metal price fluctuations by:

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These techniques minimize both margin and inventory risk consistent with the need to allow for continuous operation of production facilities. Additionally, we seek to mitigate the effects of natural gas volatility through the use of financial derivatives as well as through price escalators contained in many of our long-term supply agreements with our recycling customers.

Long-term customer relationships

We have long-standing relationships with many of our largest customers including Alcoa Inc. (“Alcoa”), General Motors Corporation (“GM” or “General Motors”), Novelis, Inc., DaimlerChrysler Corporation (DaimlerChrysler), NEMAK, Integris Metals, Ken-Mac Metals, and BMW. We believe these relationships are mutually beneficial, offer us a consistent base of customer demand and allow us to plan and manage our operations more effectively. Long-term customer relationships also allow us to be more effective in handling our customers’ needs, thereby providing our customers with superior service. Our close working relationships allow us to offer just-in-time inventory management to customers serving multiple industries. We believe these mutually beneficial relationships also lead to significantly higher customer switching costs. Furthermore, as our customer base has expanded globally, a number of our long-term customers have encouraged us to expand our operations to service them.

Experienced management team with proven new senior leadership

As a result of the merger we have the benefit of talented people from each organization, many of whom have a broad base of metals industry experience, to promote best practices and achieve efficiencies and growth within our company. Additionally, we are led by an executive management team with a prior record of achievement at Noveon International, Inc., a specialty chemical company with $1.2 billion in revenues in 2003. At Noveon, from approximately 2001 to mid-2004, this management team implemented cost saving initiatives that reduced manufacturing overhead by more than $20.0 million, de-layered the organization, reduced working capital as a percentage of sales by approximately 33%, refocused capital spending and introduced a Six Sigma-based productivity initiative.

Business Strategy

Achieve operating synergies through focused integration

We expect to achieve approximately $25.0 million of annual cost savings to be fully realized within 18 to 24 months. We anticipate that we will achieve these cost savings by adopting new metals sourcing initiatives, leveraging purchasing volume, eliminating duplicative costs resulting from shared services and integrating our recycling and alloy business with our rolled products business.

Focus on productivity improvements and capacity utilization

We believe there are significant opportunities to reduce our manufacturing costs by implementing Six Sigma-based initiatives, lean manufacturing practices and expanded preventative maintenance practices. We place considerable emphasis on maximizing capacity utilization rates at our plants as a means of increasing profitability. We seek to improve capacity utilization by pursuing long-term contractual arrangements with many of our largest customers, and additional recycling opportunities with new customers. In addition, our production network enables us to reallocate processing work among our various facilities, thereby maximizing capacity utilization and balancing demand. We believe these productivity processes will also enable us to optimize working capital and increase cash flow.

Enhance business and product mix

We believe we have numerous opportunities to improve our mix of business. We will seek to enhance the capabilities of our continuous casting operations through manufacturing improvements to produce higher value common alloy sheet. We believe that increasing the range of alloys produced by this aluminum rolling process

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could significantly improve our competitiveness, since it is a lower cost manufacturing technique. We also intend to continue to supply higher value alloys targeting the transportation industry, taking advantage of increasing aluminum content per vehicle. Additionally, we will seek to expand our tolling business, which allows for meaningful profit growth potential without significant investment in working capital or exposure to commodity price risk.

Expand in selected international regions

As our customer base continues to expand globally, a number of our customers have encouraged us to expand our operations into these regions as well. We plan to selectively pursue these opportunities where we are able to secure long-term processing arrangements and where we believe we can achieve attractive returns. To date, our international expansion has been tied primarily to our largest customers. For example:

We will continue to pursue expansion opportunities in this disciplined, deliberate manner. One opportunity we announced in late 2004 involves establishing a new facility near Stuttgart, Germany to support DaimlerChrysler and other European customers. Additionally, we believe that the combination of our efficient furnaces and processing techniques and our low cost continuous cast technologies provides us with a highly competitive business model that we might consider exporting to emerging economies.

Opportunistically pursue acquisition targets and strategic alliances

In recent years, the aluminum industry has seen significant global consolidation among the larger, primary producing suppliers. We believe that a number of potential consolidation opportunities exist in both the rolled products and recycling and alloy businesses. We will prudently evaluate these opportunities as potential enhancements to our existing operating platforms. We will also consider strategic alliances, where appropriate, to achieve operational efficiencies or expand our product offerings.

Business Segments

Our business is organized into four reportable operating segments: aluminum recycling, rolled products, international and zinc. See Note N—“Segment Information” of the Notes to Consolidated Financial Statements.

On a pro forma basis, the percentages of total revenues by segment for the last three fiscal years were as follows:

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Following is a list of each segment’s principal products and services, end uses, major customers, and competitors:

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Aluminum Recycling

We offer customers a wide range of metals recycling services and specification alloy products through our aluminum production facilities. Many of our plants in this segment are located near our major customers’ facilities. The close proximity of these plants to our customers’ facilities allows us to provide deliveries of molten aluminum by customized trucks with hot metal crucibles. The molten aluminum is then poured from the crucible into the customer’s furnace, saving the customer the time and expense of re-melting ingots. This delivery method lowers our customers’ energy and capital expenses as well as metal melt loss, thereby increasing their productivity. For the fiscal year ended December 31, 2004, 66% of our aluminum recycling segment’s pounds processed were under “tolling” arrangements, where we convert customer-owned scrap and dross and return the recycled metal to our customers for a fee. Additionally, for the fiscal year ended December 31, 2004, our aluminum recycling business processed 577 million pounds of aluminum pursuant to long- term contractual arrangements, which represented approximately 17% of its total pounds processed.

Rolled Products

Our aluminum sheet products are produced using the continuous casting process at our facilities located in Uhrichsville, Ohio, and Carson, California, and by the conventional, direct-chill rolling ingot casting process at our multi-purpose aluminum rolling mill at Lewisport, Kentucky, one of the largest in North America. We operate coating lines at the Lewisport mill and at our facilities in Bedford, Ohio, and Carson, California. Other than for depot sales, which are for standard size products, substantially all of our aluminum sheet products are produced in response to specific customer orders. For the fiscal year ended December 31, 2004, on a pro forma basis, our North American industry sales of aluminum sheet products were approximately 1.0 billion pounds.

International

Our German subsidiary, VAW-IMCO, supplies specification alloys to the European automobile industry and serves other European aluminum industries from two plants which have an annual processing capacity in excess of 700 million pounds. Our Swansea, Wales, facility supplies aluminum to a variety of customers. Our facility in Pindamonhangaba, Brazil supplies Brazil’s only can sheet rolling mill and recycles used beverage cans and production scrap for a facility owned by Brazil’s largest manufacturer of aluminum cans. Our facility in

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Monterrey, Mexico recycles aluminum dross and scrap under a long-term agreement with NEMAK, the largest caster of aluminum cylinder heads and engine blocks in the Western Hemisphere. Each of these facilities has an annual processing capacity of approximately 100 million pounds of aluminum.

Zinc

We recycle zinc metal for use in the manufacture of galvanized steel and produce value-added zinc products, primarily zinc oxide and zinc dust, which are used in the vulcanization of rubber products, the production of corrosion-resistant paint, and in other specialty chemical applications.

Sales and Marketing

Aluminum Recycling and International

Principal customers of these segments’ operations use recycled aluminum to produce can sheet, building, automotive and other aluminum products. Customarily, agreements with customers in the aluminum recycling industry are 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, we have historically maintained no significant backlog of orders in this segment.

However, we have long-term contractual arrangements for our aluminum recycling services with a number of our largest customers in these segments. The remaining terms of these arrangements as of December 31, 2004 ranged from one year to seven years, although many of them provide for extensions. The majority of our pounds processed under long-term contractual arrangements in these segments are subject to price escalators directly related to production costs such as labor, natural gas and supplies. Many of these contractual arrangements contain provisions obligating us to indemnify the customer for certain environmental liabilities that it may incur.

Sales of our products and services are made by our dedicated U.S. and international sales force, which continues to seek long-term arrangements with customers.

See Note N—“Segment Information” to the Notes to Consolidated Financial Statements for certain financial information by geographic area.

Rolled Products

Our aluminum sheet products manufactured by this segment are sold to distributors, as well as end-users, principally for use in building and construction, transportation and consumer durables. Building and construction is the largest industry sector for our common alloy aluminum sheet products. Many of the aluminum sheet end-uses for this segment are seasonal. Demand in the building and construction and transportation sectors is generally stronger in the spring and summer seasons than in the fall and winter seasons. Such factors typically result in higher operating income in the spring and summer months.

Sales of aluminum sheet products are made through the segment’s own sales force which is strategically located to provide North American coverage. The majority of our customer sales agreements in this segment are for a term of one year or less.

Zinc

Most of our zinc products are sold directly to end-users. Most of our agreements with zinc customers are for a term of one year or less. We historically have maintained no significant backlog of orders for zinc products.

Competition

The worldwide aluminum and zinc industries are highly competitive. Aluminum also competes with other materials such as steel, plastic and glass for various applications.

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Aluminum Recycling

The principal factors of competition in our aluminum recycling segment are price, metal recovery rates, proximity to customers, molten metal delivery capability, environmental and safety regulatory compliance and other types of services. Freight costs also limit the geographic areas in which we can compete effectively. Our largest domestic aluminum competitor is Wabash Alloys, a secondary aluminum processor, followed by several smaller competitors.

Rolled Products

Our aluminum rolled product business competes in the production and sale of common alloy aluminum sheet products. In the sectors in which we compete, the industry leaders include Alcoa, our company, Novelis, Quanex and Jupiter. In addition, we compete with imported products. We compete with other rolled products suppliers on the basis of quality, price, timeliness of delivery and customer service.

International

The international recycling business is highly fragmented and very competitive. However, we believe we will be able to compete effectively in certain international areas because of our processing technology.

Zinc

The principal factors of competition in the zinc segment are price, customer service and product quality. Competition is regionally focused due to high freight costs. The zinc recycling industry in the U.S. is concentrated among a small number of competitors. For zinc metal, we consider both primary and secondary zinc producers to be competitors.

Raw Materials and Supplies

Aluminum Recycling, International and Zinc

Aluminum and zinc scrap and dross represent the largest component of cost of sales for these segments. The availability and price of scrap and dross depend on a number of factors outside of our control, including general economic conditions, foreign demand for these materials and internal recycling activities by primary aluminum producers. Changes in domestic and worldwide supply and demand for aluminum and zinc scrap have had and will continue to have an effect on the prices that we pay for these raw materials.

The primary sources of aluminum scrap and dross for these segments’ activities include automotive component manufacturers, can stock producers, used beverage cans and aluminum smelters. Many of our aluminum suppliers are also our customers. We also buy aluminum scrap from metal scrap traders on the open market.

A significant portion of our zinc products are produced from zinc dross and other secondary materials provided by the galvanizing and scrap metals industries. In addition, we purchase primary zinc to produce high-grade zinc and for metals distribution purposes. We purchase our zinc raw materials from numerous suppliers. Many zinc galvanizers, which supply us with zinc raw materials, are also our customers. 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.

Rolled Products

A significant part of the aluminum metal used by this segment’s rolling mills is purchased, principally from or through aluminum scrap dealers or brokers, in the form of aluminum scrap. We believe that this segment is

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one of the largest users of aluminum scrap (other than beverage can scrap) in the U.S. and that the volume of its purchases assists it in obtaining scrap at competitive prices. The remaining requirements of this segment are met with purchased primary metal, including metal produced domestically and internationally.

We have six years remaining on a 10-year supply agreement with Glencore Ltd., a leading diversified trading and industrial company, for the purchase of primary aluminum. Under the agreement, we committed to purchase a minimum of 120 million pounds of primary aluminum at current market prices from Glencore each year over the 10-year term, which began in January 2001. To date, we have met or exceeded the minimum purchase quantity for each year of the contract.

Energy Supplies

Our operations are fueled by natural gas, which represents the third largest component of our cost of sales, after metal and labor costs. We purchase the majority of our natural gas on a spot-market basis. However, in an effort to acquire the most favorable natural gas costs, we have secured some of our natural gas at fixed price commitments. We use forward contracts and options, as well as contractual price escalators, to reduce the risks associated with our natural gas requirements.

Seasonality

Many of our rolled products and aluminum recycling segment markets are seasonal. Demand in the rolled products segment is generally stronger in the spring and summer seasons due to higher demand in the building and construction and transportation markets. Our aluminum recycling segment experiences greater demand in the winter and spring seasons due to stronger automotive demand. Such factors typically result in higher operating income in the first half of the year.

Employees

As of December 31, 2004, we had a total of approximately 3,200 employees, consisting of approximately 900 employees engaged in administrative and supervisory activities and 2,300 employees engaged in manufacturing, production and maintenance functions. Collectively, approximately 1,000 of our domestic employees are covered by collective bargaining agreements. One of these agreements covering 16 employees will expire and require renegotiation in September 2005. Labor relations with employees have been satisfactory.

Environmental

Our operations are subject to federal, state, local and foreign environmental laws and regulations, which govern, among other things, air emissions, wastewater discharges, the handling, storage, and disposal of hazardous substances and wastes, the remediation of contaminated sites, and employee health and safety. Future environmental regulations may be expected to impose stricter compliance requirements on the industries in which we operate. Additional equipment or process changes at some of our facilities may be needed to meet future requirements.

We have been named as a potentially responsible party in certain proceedings initiated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes and may be named a potentially responsible party in other similar proceedings in the future. It is not anticipated that the costs incurred in connection with the presently pending proceedings will, individually or in the aggregate, have a material adverse effect on our financial condition or results of operations.

We are performing operations and maintenance (O&M) at two Superfund sites for matters arising out of past waste disposal activity associated with closed facilities. We are also under orders by agencies in four states for environmental remediation at five sites, two of which are located at our operating facilities.

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Our aggregate loss contingency accrual for environmental matters was $6.4 million and $1.0 million at December 31, 2004 and 2003, respectively, which covered all environmental loss contingencies that we have determined to be probable and reasonably estimable. Although the outcome of any such matters, to the extent they exceed any applicable accrual, could have a material adverse effect on our consolidated results of operations or cash flows for the applicable period, we currently believe that any such outcome would not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

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 permitted landfills at our Sapulpa, Oklahoma and Morgantown, Kentucky facilities. If salt cake were ever classified as a hazardous waste in the U.S., the costs to manage and dispose of it would increase, which could result in significant increased expenditures.

Our two landfill sites have finite lives and we incur costs related to retiring them. The amounts recognized for landfill asset retirement obligations, as of December 31, 2004, were $4.9 million for our Morgantown, Kentucky landfill and $0.8 million for our Sapulpa, Oklahoma landfill. The related asset retirement cost for each facility was capitalized as a long- lived asset (asset retirement cost), which is to be amortized over the remaining useful life of the landfills. We spent $2.4 million in 2004 and expect to spend approximately $2.5 million in 2005 for expansion of our landfill at Morgantown, Kentucky. Our accruals related to our landfills are not required by any government or court order or administrative action. See Note L—“Asset Retirement Obligations” of the Notes to Consolidated Financial Statements.

Our expected total expenditures for capital improvements regarding environmental control facilities for 2005 and 2006 are currently expected to be $7.5 million.

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Our production and manufacturing facilities are listed below by segment.

Substantially all of our real property, fixtures and equipment at our domestic aluminum recycling and zinc facilities are mortgaged to secure indebtedness under our 10.375% senior secured notes due 2010. See Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operation—Credit Facilities and Refinancing.”

The average operating rates for our wholly owned domestic aluminum recycling and zinc facilities for 2004, 2003 and 2002 were 84%, 73% and 79% of stated capacity. As a result of our Bedford, Indiana facility ceasing melting operations in 2001, certain of its assets were transferred to our other facilities. During 2002, we provisionally suspended operations at our Wendover, Utah facility, and during the fourth quarter of 2003, we permanently closed the facility. In addition, in August 2003, we provisionally suspended operations at our Rockwood, Tennessee plant, which we permanently closed in December 2004.

General Motors has an option to acquire our Saginaw, Michigan facility under its long-term supply agreement with us. This option is exercisable under certain conditions beginning in 2006. If the supply agreement with GM were terminated, GM would then have an option to acquire ownership of the Saginaw facility.

In Louisville, Kentucky, we currently lease approximately 26,000 square feet for our rolled products segment offices. In Irving, Texas, we currently lease approximately 40,000 square feet of office space for

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financial, accounting and administrative support functions. In Houston, Texas, our zinc segment owns approximately 30,000 square feet of office space for financial and management functions for our zinc operations. We also have three zinc distribution and sales offices that we lease, which are located in Los Angeles, California, Chicago, Illinois and Pittsburgh, Pennsylvania.

In December 2004, we relocated our principal executive corporate offices to Beachwood, Ohio, and have leased approximately 20,000 square feet there for those purposes. Our aluminum recycling segment offices will also be based at that location while the rolled products segment will be moving to smaller commercial headquarters in Louisville, Kentucky in April 2005 when the current lease expires. It is anticipated that the Irving, Texas location will be consolidated to a smaller area through the course of 2005 and the remaining space is expected to be sublet.

We believe that our facilities are suitable and adequate for our operations.

We are a party from time to time to what we believe are routine litigation and proceedings considered part of the ordinary course of our business. We believe that the outcome of such existing proceedings would not have a material adverse effect on our financial position or results of operations.

IMCO held a special meeting of stockholders on December 8, 2004. The IMCO stockholders approved the following proposals: (i) the issuance of shares of IMCO common stock to Commonwealth stockholders in connection with the Merger, (ii) the amendment to IMCO’s certificate of incorporation to increase the authorized number of shares of common stock, (iii) the IMCO 2004 Equity Incentive Plan and (iv) the IMCO 2004 Annual Incentive Compensation Plan.

The shares voted with respect to each such proposal were as follows:

For: 10,905,889

Against: 398,157

Abstain: 15,028

Broker Non-Votes: 4,276,422

For: 13,798,651

Against: 703,115

Abstain: 15,963

Broker Non-Votes: 1,077,767

For: 8,080,015

Against: 3,183,925

Abstain: 55,134

Broker Non-Votes: 4,276,422

For: 8,746,698

Against: 2,485,382

Abstain: 86,994

Broker Non-Votes: 4,276,422

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PART II

Our Common Stock trades on the New York Stock Exchange (trading symbol: ARS). The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for our Common Stock, as reported on the New York Stock Exchange composite tape transactions from January 1, 2003 through December 31, 2004. No dividends were declared or paid for those periods.

Cash dividends and repurchases of Common Stock are currently restricted under the terms of our senior credit facilities. See Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “—Credit Facilities and Refinancing.”

On March 1, 2005, our outstanding shares of Common Stock were held of record by 386 stockholders.

During the fourth quarter of 2004, we made no unregistered sales of our equity securities and did not repurchase any shares of our Common Stock.

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Our financial position and results of operations have been affected by acquisitions of facilities and companies during certain periods presented. For more information, see Note B—“Acquisitions / Joint Venture Formation” and Note G—“Long Term Debt” of the Notes to Consolidated Financial Statements. See Note P—“Goodwill” of the Notes to Consolidated Financial Statements regarding the goodwill impairment charge recorded in 2002 as a cumulative effect of an accounting change.

The following is a discussion of our financial condition and results of operations for the periods presented. This discussion should be read in conjunction with the financial statements and notes and other financial information appearing elsewhere or incorporated by reference in this Annual Report on Form 10-K. Our discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products and services and our projected results. These statements are based on certain assumptions that we consider reasonable. For information about these assumptions and other risks relating to our businesses and our company, you should refer to our section entitled “—Risk Factors.”

Executive Summary

We are a global leader in aluminum recycling and the production of specification alloys and a leading manufacturer of common alloy sheet. We also are a recycler of zinc and a leading U.S. manufacturer of zinc oxide and zinc dust. Our December 2004 acquisition of Commonwealth Industries, Inc. created a vertically integrated aluminum recycler and sheet manufacturer having 28 facilities worldwide with combined pro forma revenues for 2004 of $2.3 billion. Revenues from our aluminum operations represented approximately 91% of our total combined pro forma revenues for the year ended December 31, 2004.

During 2004, primarily as a result of increased worldwide demand for aluminum and zinc, our total consolidated volume of pounds of metal processed increased by 14% over 2003’s volumes, and our total consolidated revenues increased from $892.0 million in 2003 to $1.2 billion in 2004, representing a 38% increase. Total 2004 revenues were impacted by the addition of $95.1 million in December revenues from the Commonwealth acquisition. Gross profits for 2004 improved by $23.4 million, or 43%, over 2003’s gross profits.

Positive factors on Aleris’ results of operations and financial condition during 2004 included:

However, negatively impacting Aleris’ results of operations for 2004 were the following:

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In December 2004, following our acquisition of Commonwealth, we began evaluating and reviewing our results of operations based on four reportable business segments:

During the fourth quarter of 2004, we determined that the future cash flows expected to be generated by our Shelbyville, Tennessee aluminum recycling facility were insufficient to support its book value and, as a result, we recorded a $3.7 million impairment charge to reduce the affected assets to their estimated fair values at December 31, 2004. In addition, we wrote down the realizable value of our Mexican dross pile by $0.7 million and we decided to permanently close our Rockwood, Tennessee aluminum recycling plant, resulting in a $0.4 million impairment charge. Both impairment charges were recorded as additional depreciation expense in the aluminum recycling segment.

As a result of the acquisition of Commonwealth, we announced plans to relocate our corporate headquarters from Irving, Texas to Beachwood, Ohio and restructure and consolidate certain duplicative administrative functions. The charges related to these restructuring initiatives, including the termination of certain executives concurrently with the completion of the merger, totaled $10.8 million. The charges cover the reduction of corporate personnel and the retirement of our former interim chief executive officer and former chief financial officer.

Interest expense was higher in 2004, as a result of the refinancing of our debt in October 2003 which resulted in higher overall indebtedness as well as higher interest rates. We expect to incur increased interest expense in 2005 due to the higher levels of indebtedness that we have incurred related to the merger. In November 2004 we issued $125 million of new senior unsecured notes to refinance indebtedness in connection with the merger. We also refinanced outstanding indebtedness under our senior revolving credit facility and amended and restated the terms of that facility. As a result, we now have additional sources of capital available for growth and for our capital expenditures. However, the terms of our new senior unsecured notes, our existing senior secured notes and our amended and restated senior revolving credit facility contain a number of provisions that impose limitations on our ability to grow and expand our businesses.

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The following provides our overview of key fiscal 2004 financial metrics, for Aleris as a whole, and our four reportable business segments (in thousands, except per share amounts and percentages):

Pro forma Rolled Product Segment (formerly Commonwealth) operating results:

Cash and cash equivalents for the fiscal year ended December 31, 2004 totaled $17.8 million, an increase from the December 31, 2003 balance of $14.8 million. We generated positive operating cash flow of $2.1 million during 2004, primarily due to improved operating results, excluding non-cash charges.

On a combined pro forma basis, assuming that Aleris and Commonwealth had been operating together on a consolidated basis since January 1, 2003, and after giving effect to our 2004 financing transactions as if they had occurred at that time, our total pro forma revenues for 2004 would have increased over total pro forma 2003 revenues by $581.5 million, and pro forma gross profits for 2004 would have increased over pro forma 2003 gross profits by $52.5 million. However, the pro forma net loss for 2004 would have increased by $20.1 million over 2003’s pro forma net loss, principally due to merger-related costs. See, “—Effects of Merger with Commonwealth Industries, Inc.” below.

We anticipate improvement in our results of operations in 2005 as compared to pro forma 2004 results, largely driven by our rolled products segment which is expecting higher margins in 2005 compared to 2004. We are forecasting improvements in all of our business segments for 2005, assuming continued improvement in the U.S. manufacturing sector and higher metal prices in 2005.

We intend that the discussion of our financial condition and results of operations that follows will provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.

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For a discussion of factors that could impact our future operating results and financial condition, see the section entitled “Risk Factors” below.

Effects of Merger with Commonwealth Industries, Inc.

In December 2004, we acquired all of the outstanding common stock of Commonwealth Industries, Inc., with Commonwealth merging with an indirect wholly-owned subsidiary of Aleris. We also changed our name from IMCO Recycling Inc. to Aleris International, Inc. The merger created a vertically integrated aluminum recycler and sheet manufacturer with combined pro forma revenues for 2004 in excess of $2 billion, approximately 3,200 employees and 28 facilities worldwide. Our corporate headquarters are now located in Beachwood, Ohio, a suburb of Cleveland. Activities at our former corporate headquarters in Irving, Texas and Louisville, Kentucky, will be reduced accordingly. As a result of the acquisition, operations from the former businesses of Commonwealth have been included in a fourth reportable business segment, rolled products.

Under the terms of the merger, we issued approximately 13.6 million shares of Aleris common stock to former Commonwealth stockholders (based on an exchange ratio of 0.815 Aleris shares for each share of Commonwealth). In connection with the merger, we recognized approximately $10.8 million of employee severance and other charges associated with the reduction of corporate personnel at our former headquarters in Irving, Texas and the retirement of our former interim chief executive officer and former chief financial officer. Additionally, interest expense increased with the assumption of debt associated with the rolled products business and because of additional debt incurred to finance costs associated with the merger.

As a result of the merger, we expect to benefit from the adoption of best practices company-wide (particularly in metal melting), procurement savings due to our greater size, the elimination of redundant selling, general and administrative costs, greater technological capabilities and improved access to lower-cost capital. We anticipate that annual cost savings of $25 million as a result of the merger could be realized over the next 18 to 24 month period.

The following table presents certain pro forma condensed combined operating results of our company as if the merger and related financing transactions had occurred on January 1, 2003 (in thousands):

Effects of Consolidation of VAW-IMCO

Prior to 2003, the share capital of VAW-IMCO had been 50% owned by us and 50% by Hydro Aluminium Deutschland GmbH (and its predecessors). In March 2003, we entered into an agreement under which VAW-IMCO became obligated to redeem the shares owned by Hydro Aluminium Deutschland. The redemption liability was to be paid over a period of years. As a result of this agreement, we acquired voting control of

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VAW-IMCO, and effective March 1, 2003, the financial condition and results of operations of VAW-IMCO were consolidated with ours. Prior to March 1, 2003, the results of operations of VAW-IMCO were reflected in our consolidated financial statements under the equity method of accounting.

In November 2003, we funded VAW-IMCO’s prepayment to Hydro Aluminium Deutschland of this redemption obligation. VAW-IMCO paid Hydro Aluminium Deutschland a total of approximately $28.3 million in exchange for the payment in full of the outstanding share redemption liability, plus an aluminum recycling furnace, related assets, and real estate located on and adjacent to a VAW-IMCO facility.

General

For the year ended December 31, 2004, approximately 59% of our aggregate recycling volumes in our aluminum recycling, international and zinc segments, consisted of products tolled for our customers. Tolling revenues reflect only our processing costs and profit margin. Our recycling activities also involve processing, recovery and alloying of aluminum and zinc metal and the production of value-added zinc products for sale by us. The revenues from these sales transactions include the cost of the metal, as well as the processing cost and our profit margin. Accordingly, tolling business produces lower revenues and costs of sales than product sales business. Variations in the mix between tolling and product sales business could cause revenue amounts to change significantly from period to period while not significantly affecting gross profit. As a result, in these three recycling segments, we consider processing volume to be a more important determinant of performance than revenues. In the rolled products segment, our activities include manufacturing common alloy aluminum sheet for distributors and customers in the transportation, construction and consumer durables end-use industries, and our comparable volume measure is packed pounds, or pounds produced, at these facilities.

In 2004, we experienced an increase in the percentage of metals tolled, compared to 2003. This increase was principally the result of increased tolling volume at our aluminum recycling facilities, and an increase in tolling volume at our Mexican and German international facilities.

In prior years, recycling volumes had been declining, and we took steps to counter reduced demand. We closed four aluminum recycling facilities and one zinc recycling facility, and have reduced the number of furnaces we operate at other aluminum recycling facilities. We have redeployed some of these assets to our other operations. As processing volumes increased in 2004, these steps resulted in higher segment profitability.

The following table shows information concerning total pounds processed, percentage of total pounds processed under tolling agreements, total rolled products packed pounds, total revenues and total gross profits (in thousands, except percentages):

In addition to our product sales business, we also enter into metal brokerage transactions under which we buy metal from primary and other producers and then sell the metal to end-users. These transactions involve buying and selling metal without processing it. Also, in order to facilitate acquiring metal for our production processing, we occasionally enter into metal “swap” transactions where we agree to exchange our recycled finished goods for scrap raw materials. As with the product sales business, the brokerage business increases our working capital requirements and subjects us 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 the Notes to Consolidated Financial Statements.

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Segment Information

Following the December 2004 acquisition of Commonwealth Industries, Inc., we now have four business segments that meet the reporting requirements of Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” See Note N—“Segment Information” of the Notes to Consolidated Financial Statements. Reportable segments are defined as components of an enterprise about which separate, discrete financial information is available for evaluation.

Our aluminum recycling segment represents all of our aluminum melting, processing, alloying, trading and salt cake recovery activities, including investments in joint ventures, within the United States. Under this segment, we have two operating segments—specification alloys and aluminum recycling—which have been aggregated for financial reporting purposes into one reportable business segment. Our international segment represents all of our aluminum melting, processing, alloying, and trading activities outside of the United States. Our rolled products segment manufactures aluminum sheet for distributors in the transportation, construction and consumer durables end-use industries. Our zinc segment represents all of our zinc melting, processing and trading activities.

The following table sets forth, for the periods indicated, aluminum recycling, international, rolled products (whose results reflect only the month of December 2004), and zinc segment information for pounds processed, tolling percentage, revenues, income and assets (in thousands, except percentages):

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The accounting policies of the reportable segments are the same as those described in Note A—“Summary Of Significant Accounting Policies” of the Notes to Consolidated Financial Statements. We evaluate segment performance based on gross profit or loss from operations, net of selling expenses. 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 our corporate headquarters are not allocated to the reportable segments. Also, see Note N— “Segment Information” of the Notes to Consolidated Financial Statements for additional segment disclosures.

Results of Operations

2004 vs. 2003 and 2003 vs. 2002

Production

During 2004, within our aluminum recycling, international and zinc segments, we melted 3.38 billion pounds, an increase of 14% from 2.96 billion pounds in 2003. During 2003, we melted 2.96 billion pounds, an increase of 17% from 2.54 billion pounds in 2002.

During December, 2004, we completed our acquisition of Commonwealth, and in that month we shipped 76.7 million pounds of aluminum products from our rolled products segment. The rolled products segment represents the facilities that were acquired in the merger with Commonwealth.

Our tolling percentage has increased from 2003 returning to a level comparable to that experienced in 2002. This increase is due to more tolling volume at both our aluminum recycling and international facilities as a result of improved economic conditions.

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The following table shows the total pounds processed for the recycling segments, the percentage change from the prior period, the percentage tolled for the aluminum and zinc segments and the packed pounds for the rolled products segment (in thousands, except percentages):

Aluminum Recycling Production

Our aluminum recycling production rose 8% in 2004 compared to 2003 after decreasing 10% in 2003 compared to 2002. In 2004, this business experienced increased volume at almost all production facilities as the U.S. manufacturing sector rebounded from the prolonged low level of U.S. industrial activity. In addition, scrap availability, which had been reduced as a result of foreign buying, increased.

Within this segment we have closed capacity over the prior three years and have redeployed assets where practicable to maximize their value to us. These actions included provisionally suspending our Rockwood, Tennessee aluminum recycling facility in 2003, and permanently closing this facility in 2004. In addition, we closed our Wendover, Utah aluminum recycling facility in the fourth quarter of 2003. Materials that normally would be processed at these facilities have instead been shipped to our other facilities for processing.

Total volumes processed at our specialty alloy facilities in this segment have increased yearly since 2002. We continue to experience high demand for spec alloys from the auto manufacturing industry, which is served principally by our spec alloy plants. A capital project to expand the Saginaw, Michigan alloying facility is expected to be completed in 2005. In early 2005, however, we have seen reductions in U.S. automotive production which, if continued, would negatively impact our specialty alloy business.

International Production

Metal processed at our foreign facilities has increased sharply since 2002, reflecting our recent acquisition of operations in Monterrey, Mexico, Pindamonhangaba, Brazil, and VAW-IMCO in Germany, as well as expansions in both Mexico and Germany.

Additionally, we are planning in 2005 to begin processing magnesium in Töging, Germany. The design capacity of this plant is 15,000 metric tons of annual magnesium production. The production from this facility will serve customers in the automotive industry. Another facility in Germany is scheduled to be built and become operational in 2006.

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Rolled Products Production

During December 2004, we completed our merger with Commonwealth, and in that month we packed 72.5 million pounds of aluminum products from our rolled products segment. Packed pounds represent production from our rolled products facilities. On a full year pro forma basis, rolled products packed pound volumes increased 28% in 2004 compared to 2003. Greater demand in the building and construction business transportation and distribution industries were the principal drivers of this increase.

Zinc Production

Zinc production increased 3% in 2004 compared to 2003 and it increased 2% in 2003 compared to 2002. These increases mainly reflect greater demand from customers for our zinc oxide and zinc dust products. As is the case with of our other segments, we have also installed a number of new furnaces in these operations to increase productivity and efficiency.

During 2004 we ceased zinc oxide production at our Hillsboro, Illinois leased facility. Production normally done at this facility has been moved to our Millington and Clarksville facilities. There was no impairment charge associated with ceasing production at Hillsboro—our productive assets at this facility were fully depreciated.

Revenues

The following table shows the total revenue for our four reportable business segments since 2002 and the percentage change from the prior period (in thousands, except percentages):

Our total consolidated revenue has increased by 78% since 2002. This increase is more than the percentage increase in our metal processed, primarily due to the acquisition of Commonwealth, the consolidation of our German operations (which through March 2003 had been accounted for under the equity method of accounting) and higher zinc and aluminum prices.

Aluminum Recycling Revenues

Revenues increased $73.4 million, or 15%, in 2004 as compared to 2003. This increase is due to increases in volumes processed at both our aluminum recycling and specification alloy facilities as well as higher aluminum prices in 2004 compared to 2003.

The principal reasons for the 5% decline in revenues in 2003 compared to 2002 were lower processing volumes, due to lower aluminum can recycling rates, the closure of customer facilities in the Pacific Northwest due to higher energy costs in that region and the low level of U.S. industrial activity during most of that time. Further, the closure of our Wendover, Utah facility reduced revenue in this segment.

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International Revenues

Revenues from our international segment increased $115.3 million, or 45%, in 2004 as compared to 2003. This increase is a result of our foreign acquisitions and expansions and increased volumes. Most of this growth is due to our consolidation of VAW-IMCO, and, to a lesser degree, reflects our increasing operations in Mexico, as well as operations in Brazil. With the consolidation of VAW-IMCO, the majority of our revenues in this segment represent product sales as opposed to tolling fees. VAW-IMCO’s revenues are closely tied to the European auto industry, since approximately 60% of its annual output is provided to that industry.

Rolled Products Revenues

During December 2004, we acquired Commonwealth, and in that month, revenues totaled $95.1 million. Pro forma full year revenues for this segment in 2004 totaled $1,139.8 million, an increase of $322.1 million or 39% over 2003 pro forma revenues. The increased pro forma revenues resulted from a 28% increase in volumes shipped as well as higher per pound selling prices.

Zinc Revenues

Our zinc segment revenues increased by $50.8 million, or 33%, in 2004. This increase is due almost entirely to the overall increase in the LME price of zinc. Since the end of 2003, the overall price of zinc has increased approximately 27%.

Gross Profits

The following table shows the total income for our segments, the percentage change from the prior period and a reconciliation of segment income to our consolidated gross profits (in thousands, except percentages):

Aluminum Recycling Segment Income

In 2004, our aluminum recycling segment benefited from favorable spreads between scrap purchase prices and metal prices, higher volumes and lower impairment charges. In 2004 this segment recorded impairment charges of $3.7 million for the Shelbyville, Tennessee plant and $0.4 million for the Rockwood Tennessee facility, which was permanently closed. In 2003, impairment charges of $5.9 million were recorded. The 2003 charges were the result of permanently closing our Wendover facility as well as impairment charges for certain other assets held for sale in this segment that were written down to their appraised values. See Note E—“Property and Equipment” of the Notes to Consolidated Financial Statements. Segment income for 2004 was negatively impacted by

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INTERMET Corporation’s bankruptcy filing in September 2004. We did not recognize approximately $3.2 million of revenues from shipments of specification aluminum alloys to that customer as a result.

Our 2003 segment income was considerably below 2002’s primarily due to lower margins for our spec alloy products as we found it more difficult in 2003 to obtain suitable scrap metal at favorable prices due to significant scrap purchases by foreign buyers. We also continued to be affected by the shutdown of primary smelter capacity in the Pacific Northwest and we experienced reduced demand for our recycling services in the southeastern U.S. Finally, a 13% increase in natural gas prices on a per unit basis in 2003 compared to 2002 also reduced results in this segment.

International Segment Income

Income from our international segment increased 26% in 2004 compared to 2003 due to improved results at our Latin American and German plants. Increased volumes and revenues at these locations generated the majority of the increase. In addition, VAW-IMCO’s results included a full year in 2004 versus only 10 months in 2003, as this operation was fully consolidated beginning in March 2003. We anticipate further expansion of VAW-IMCO’s operations in the near term as a new magnesium facility was added in late 2004, and another German facility will be built during 2005 for operations in 2006.

In 2003, the consolidation of VAW-IMCO and the improved results in Mexico drove our income significantly higher than in 2002. In 2002, VAW-IMCO’s results were reported on the equity method and only 50% of its after-tax income was included in this segment. Our Mexico facility has increased its profitability due to our expansion of this operation in 2002 and the installation of our furnace technology, which has increased metal recoveries.

Rolled Products Segment Income

Rolled products reported a $0.5 million segment loss for the period from the acquisition of Commonwealth to December 31, 2004. These results include $5.4 million of additional cost of sales related to the amortization of the write-up of acquired inventory to selling prices less costs to complete and sell, as required by SFAS 141 “Business Combinations”, as well as unrealized gains on derivative financial instruments of $2.6 million. From a business standpoint, metal margins increased in the period and we expect them to show further improvement in 2005.

Zinc Segment Income

Our zinc segment income increased $7.1 million or 144% in 2004. The overall supply/demand situation for zinc improved late in 2003 and, as a result, zinc prices rose all during the year. This price action increased the overall margins for our zinc products. In 2004, we closed our Hillsboro, Illinois oxide facility, but oxide volumes increased as our Clarksville and Millington, Tennessee facilities were able to offset the decline from Hillsboro.

Other Expense and Income Items

(in thousands, except percentages)