Wise Metals 10-Q 2005 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarter Ended September 30, 2005

WISE METALS GROUP LLC

(Exact name of Registrant as specified in its charter)

Delaware	52-2160047
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

857 Elkridge Road, Suite 600

Linthicum, Maryland 21090

(Address of principal executive offices and zip code)

(410) 636-6500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange

Act of 1934).    Yes  ¨    No  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets at September 30, 2005 and December 31, 2004	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and September 30, 2004	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and September 30, 2004	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 2.	Changes in Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits and Reports on Form 8-K	16
SIGNATURES		17

2

FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this report, including, without limitation, matters discussed under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Certain of these forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or the negative of these terms or other comparable terminology, or by discussions of strategy, plans or intention. Statements contained in this report that are not historical facts are forward-looking statements. Without limiting the generality of the preceding statement, all statements in this report concerning or relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, through the Company’s senior management, forward-looking statements are made concerning expected future operations, performance and other developments. Such forward-looking statements are necessary estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. Other factors may affect the accuracy of these forward-looking statements and actual results may differ materially from the results anticipated in these forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated include, but are not limited to, those factors or conditions described under this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Wise Metals Group LLC

Condensed Consolidated Balance Sheets

(In thousands)

	September 30, 2005			December 31, 2004
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	9,946		$	7,669
Restricted cash		1,537			250
Accounts receivable, less allowance		54,915			46,336
Inventories		152,008			175,809
Other current assets		10,317			9,601
Total current assets		228,723			239,665
Non-current assets:
Property and equipment, net		86,010			85,375
Other assets		10,123			9,147
Goodwill		283			283
Total non-current assets		96,416			94,805
Total assets	$	325,139		$	334,470
Liabilities and members’ deficit:
Current liabilities:
Accounts payable	$	49,224		$	57,855
Borrowing under revolving credit facility		112,587			101,675
Current portion of long-term debt		1,493			1,529
Accrued expenses, payroll and other		24,453			22,739
Total current liabilities		187,757			183,798
Non-current liabilities:
Senior secured notes		150,000			150,000
Term loans, less current portion		878			1,040
Other liabilities		11,383			12,397
Total non-current liabilities		162,261			163,437
Members’ deficit:		(24,879	)		(12,765	)
Total liabilities and members’ deficit	$	325,139		$	334,470

See accompanying notes.

4

Wise Metals Group LLC

Condensed Consolidated Statements of Operations

(In Thousands)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
Sales	$	203,663		$	192,140		$	656,378		$	587,309
Cost of sales		205,307			185,548			641,983			572,866
Gross (deficit) margin		(1,644	)		6,592			14,395			14,443
Operating expenses:
Selling, general, and administrative		2,609			3,500			8,427			8,616
Operating (loss) income		(4,253	)		3,092			5,968			5,827
Other income (expense):
Early extinguishment of debt		—			—			—			(7,455	)
Interest expense and fees, net		(6,386	)		(4,997	)		(18,654	)		(12,552	)
Unrealized gain (loss) on derivative instruments		174			1,906			1,478			(2,124	)
Net (loss) income	$	(10,465	)	$	1		$	(11,208	)	$	(16,304	)

See accompanying notes.

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Wise Metals Group LLC

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

	Nine months ended September 30,
	2005			2004
Cash flows from operating activities
Net loss	$	(11,208	)	$	(16,304	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		10,012			9,930
Amortization of deferred financing fees		892			4,579
LIFO provision		—			8,974
Unrealized (gains) losses on derivatives		(1,478	)		2,124
Changes in operating assets and liabilities:
Restricted cash		(1,287	)		(5,860	)
Accounts receivable		(8,579	)		(20,738	)
Inventories		23,801			(11,863	)
Other current assets		(823	)		(1,489	)
Accounts payable		(8,631	)		12,202
Accrued expenses, payroll and other		417			5,040
Net cash provided by (used in) operating activities		3,116			(13,405	)
Cash flows from investing activities
Purchase of equipment		(10,647	)		(5,936	)
Net cash used in investing activities		(10,647	)		(5,936	)
Cash flows from financing activities
Net issuance (repayment) of short-term borrowings		10,876			(49,914	)
Proceeds of senior secured notes offering, net of fees paid		—			141,816
Repayment of term debt		—			(22,500	)
Repayment of subordinated debt	��	—			(35,687	)
Payments on long-term obligations		(162	)		(346	)
Purchase of members’ equity		(906	)		(14,113	)
Net cash provided by financing activities		9,808			19,256
Net increase (decrease) in cash and cash equivalents		2,277			(85	)
Cash and cash equivalents at beginning of period		7,669			903
Cash and cash equivalents at end of period	$	9,946		$	818

See accompanying notes.

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Wise Metals Group LLC

Notes to Condensed Consolidated Financial Statements

September 30, 2005

(Unaudited)

(Dollars in thousands)

1. Organization

Wise Metals Group LLC is a holding company formed for the purpose of managing the operations of Wise Alloys LLC and Wise Recycling LLC (collectively, the Company). Wise Alloys LLC (Alloys) principally manufactures and sells aluminum can sheet to aluminum can producers and also serves the transportation and building and construction markets. Wise Recycling LLC (Recycling) is engaged in the recycling and sale of scrap aluminum and other non-ferrous metals.

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are presented in accordance with generally accepted accounting principles for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the disclosures normally required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements have been prepared in accordance with the Company’s customary accounting practices and, in the opinion of management, all adjustments necessary to fairly present the financial position, results of operations and cash flows for the reported interim periods have been made and were of a normal recurring nature. Operating results for the nine month period ended September 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The accompanying condensed consolidated financial statements include the accounts of Wise Metals Group LLC and its subsidiaries. Intercompany transactions have been eliminated in consolidation.

Derivatives and Hedging Activity

The Company has entered into long-term contracts to supply can sheet to its largest customers. To reduce the risk of changing prices for purchases and sales of metal, including firm commitments under these supply contracts, the Company uses commodity futures and option contracts. In addition, the Company uses natural gas futures and option contracts as well as interest rate caps.

The Financial Accounting Standards Board issued Statement No. 133,Accounting for Derivative Instruments and Hedging Activity requires companies to recognize all derivative instruments as either assets or liabilities on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through the statement of operations. The Company has elected to not designate any of its derivative instruments as hedges.

In determining fair value, the Company uses market quotes for contracts of similar maturity. The market quotes for the aluminum futures and options are adjusted for premiums/discounts for various product grades, locations, and the closing times for various terminal markets.

A summary of the fair value of the Company’s derivative instruments is as follows:

Description of Derivative Instrument	Fair value at September 30, 2005		Fair value at December 31, 2004
Aluminum futures and options	$	5,295	$	4,745
Natural gas futures and options		171		(755	)
	$	5,466	$	3,990

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2. Significant Accounting Policies (continued)

Unrealized gain (loss) amounts recorded were as follows:

	Three months ended September 30					Nine months ended September 30
Description of Derivative Instrument	2005		2004			2005		2004
Aluminum futures and options	$	148	$	628		$	552	$	(2,903	)
Natural gas futures and options		26		1,283			926		794
Interest rate caps		—		(5	)		—		(15	)
	$	174	$	1,906		$	1,478	$	(2,124	)

In connection with the Company’s futures activity, the Company maintains lines of credit with brokers to cover unrealized losses on futures contracts and uses options to manage price exposure with respect to firm commitments to purchase or sell aluminum.

Inventories

Inventories consisted of the following:

	September 30 2005			December 31 2004
Manufacturing inventories:
Raw materials	$	54,120		$	71,867
Work in progress		53,737			55,623
Finished goods		73,222			77,458
LIFO reserve		(47,222	)		(47,222	)
Total manufacturing inventories		133,857			157,726
Supplies inventory		18,151			18,083
Total inventories	$	152,008		$	175,809

An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of expected year-end inventory levels and costs dependent upon prevailing aluminum costs and other factors which are beyond management’s control.

3. Financing Arrangements

Debt consists of the following at:

	September 30 2005			December 31 2004
Revolving and secured credit facility	$	112,587		$	101,675
Senior secured 10.25% notes due 2012		150,000			150,000
Other notes payable		2,371			2,569
		264,958			254,244
Less current portion		(114,080	)		(103,204	)
	$	150,878		$	151,040

Effective May 5, 2004, the Company issued $150 million of 10.25% senior secured notes due 2012. In conjunction with issuing the notes, the Company, on the same date, amended and restated its secured credit facility reducing the revolving line of credit from $130 million to $75 million. On November 10, 2004, the secured credit facility was further amended and restated to increase the revolving line of credit to $125 million. Subsequent to the quarter-end and on October 31, 2005, the revolving line of credit was amended and further increased to $150 million.

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3. Financing Arrangements (continued)

Total financing costs associated with the issuance of the $150 million 10.25% senior secured notes were $8,184 and are included on the balance sheet as other long term assets.

As a result of amending and restating the secured credit facility in May 2004, the interest rate on the revolving line of credit was reduced from a variable rate of prime plus a range of .75% to 1.50% or LIBOR plus a range of 2.75% to 3.50% to a variable rate of prime plus a range of 0% to 0.50% or LIBOR plus a range of 2.25% to 2.75%.

4. Pension and Post Retirement Benefits

Effective April 1, 1999, the Company established a defined benefit pension plan that covers essentially all union employees. The plan provides certain levels of benefits based on years of service and wage levels, but does not provide benefits for any prior service. In addition, defined contribution plans for both union and nonunion employees were established.

In 2003 the Company negotiated defined contributions, for certain union employees, to multi-employer union pension plans. This was done in exchange for freezing service time and the pension factor in the aforementioned defined benefit plan as of the first quarter of 2004 and eliminating post retirement benefits for affected employees.

The Company also established post retirement benefit plans for all hourly and salaried employees effective April 1, 1999. The union employees who become eligible to retire under the defined benefit plan, and are not a part of the unions that have elected the multi-employer option, will retain health benefits and certain other benefits for life. Salaried employees who retire after age 60 with a combined 10 years service with Wise Alloys LLC and the previous owner of the Wise Alloys facilities will be eligible for medical benefits until age 65.

The Company’s funding policy for these plans is to contribute negotiated amounts to the multi-employer funds and amounts necessary to meet minimum funding requirements of the Employee Retirement Income Security Act for the defined benefit plans but not to exceed the maximum deductible amount allowed by the Internal Revenue Code. The Company contributed $1,766 to the multi-employer plans during 2004. Contributions to the defined benefit plan are expected to be $1,218 during 2005.

The 2005 and 2004 amounts shown below reflect the defined benefit pension and other postretirement benefit expense for the three and nine month periods ended September 30 for each year:

	Three months ended September 30												Nine months ended September 30
	Pension Benefits						Other Post Retirement Benefits						Pension Benefits						Other Post Retirement Benefits
	2005			2004			2005			2004			2005			2004			2005			2004
Service cost	$	277		$	267		$	348		$	370		$	831		$	801		$	1,044		$	1,110
Interest cost		194			164			115			100			582			492			345			300
Expected return on plan assets		(134	)		(103	)		—			—			(402	)		(309	)		—			—
Amortization of prior service cost		9			9			—			—			27			27			—			—
Net gain recognition		—			—			(6	)		(2	)		—			—			(18	)		(6	)
Net periodic benefit cost	$	346		$	337		$	457		$	468		$	1,038		$	1,011		$	1,371		$	1,404

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law which introduced a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the FASB issued Staff Position (“FSP”) No. FAS 106-2, which provides accounting guidance to sponsors of postretirement health care plans that are impacted by the Act. The FSP is effective for interim or annual periods beginning after June 15, 2004. Detailed regulations necessary to implement the Act had not been finalized as of December 31, 2004, and therefore at that time, the Company had not yet determined if the drug benefit offered to retirees would qualify for the federal subsidy under Medicare Part D. As a result at December 31, 2004, the accrued benefit obligation and net periodic postretirement costs did not reflect the effects of the Act.

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4. Pension and Post Retirement Benefits (continued)

Detailed regulations necessary to implement the Act were finalized during the first quarter of 2005. The Company has determined that the drug benefit offered to its hourly retirees will qualify for the federal subsidy under Medicare Part D, while the drug benefit offered to its salaried retirees will not qualify for the federal subsidy. The resulting effect of the federal subsidy on the hourly plan is not significant and therefore, as of September 30, 2005, the accrued benefit obligation and net periodic postretirement costs do not reflect the effects of the Act. The effects of the Act will be recognized by the Company in the accumulated benefit obligation of the hourly plan at its next plan measurement date during the fourth quarter of 2005 as permitted under SFAS 106, “Employers Accounting for Postretirement Benefit Plans other than Pensions.” The impact of the federal subsidy associated with the hourly plan will not have a material impact on the Company’s financial position, cash flows or results of operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are the third largest producer of aluminum beverage can sheet in the world and one of the largest aluminum scrap recyclers in the United States. Beverage can sheet is aluminum sheet specifically designed and engineered for the production of aluminum beverage cans. We estimate that in 2003 and 2004, respectively, we supplied approximately 13% and 14% of the North American market for aluminum can sheet as measured by volume and own one of only five beverage can sheet facilities in North America, providing valuable capacity to meet volume demands in a consolidated industry. We further estimate that our market share for 2005 has remained consistent, while also increasing our market presence in the common alloy markets.

Quarterly Information

Our quarterly revenues tend to fluctuate period to period based in large part on changes in aluminum prices. These changes generally do not affect our cash flow because we seek to match our hedging positions to our contractually-obligated sales agreements. We also pass aluminum cost increases to customers through an indexed pricing mechanism and/or by fixing the cost of metal through forward contracts on the London Metals Exchange (LME). Our net income may also fluctuate period to period based on the mark to market adjustment caused by our hedged position on aluminum and natural gas. Because we do not designate our forward contracts as hedges under Financial Accounting Standard No. 133 (FAS 133), we are required to recognize the non-cash mark to market adjustment in our current earnings and these may be material.

Critical Accounting Policies

We have prepared our financial statements in conformity with accounting principles generally accepted in the United States. These statements include some amounts that are based on informed judgments and estimates of management. Our critical accounting policies are discussed in Note 2 of the notes to our consolidated financial statements included in our Annual Report on Form 10-K. Since the date of our 2004 Form 10-K, there have been no changes to our critical accounting policies or the methodologies and assumptions applied under them.

Operating Results

Conversion Revenue and Conversion Margin

There are two components to our pricing under industry standards for can sheet pricing. Shipments of can sheet accounted for a substantial portion of our Listerhill facility’s output in 2004 and in the first three quarters of 2005. The first component of can sheet pricing is the market price for aluminum that we pass on to our customers, subject to an industry-wide ceiling price which did not affect first quarter pricing, but did impact second and third quarter pricing. The ceiling price will also affect fourth quarter pricing, however, the ceiling is not expected to impact first quarter 2006 pricing. The remainder of 2006 may be impacted by the ceiling on existing contracts depending upon resulting market conditions. Under this industry formula, the metal transfer price is changed twice annually, on April 1 and on October 1. The metal transfer price for the period April 1 through September 30 is determined based on the average published Midwest P1020 aluminum price for the preceding six-month period ended the last day of February. Likewise, the metal transfer price for the period October 1 through the following March 31 is determined based on the average published Midwest P1020 aluminum price for the immediately prior six month period ended the last day of August. We reduce our exposure to aluminum price fluctuations by passing cost increases to customers through this indexed sales pricing mechanism and by fixing the cost of metal through forward contracts on the London Metals Exchange (LME). Although the spread differential between prime metal and scrap cannot be cost effectively hedged in the financial markets, we minimize market price risk with respect to scrap aluminum we receive from our customers and reprocess at a fixed conversion spread.

The second component is a fixed conversion, or value added, price. The fixed conversion price is calculated annually using Alcoa’s list price as a basis and is the most significant factor influencing our profitability. Conversion pricing under our supply agreement is subject to renegotiation each year as well as at such times that our major competitors change their published conversion prices. Because of the importance of the conversion price to our operating results, we measure conversion margin to evaluate our performance.

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Conversion margin is determined as conversion revenue (sales less metal cost and the effect of LIFO) less conversion cost (cost of sales less metal costs). The following table is a reconciliation of these non-GAAP financial measures to their related GAAP basis measures.

	Three months ended September 30						Nine months ended September 30
	2005			2004			2005			2004
Sales	$	203,663		$	192,140		$	656,378		$	587,309
Less:
Metal costs		(141,595	)		(134,152	)		(456,243	)		(404,863	)
LIFO adjustment		—			—			—			8,974
Conversion revenue	$	62,068		$	57,988		$	200,135		$	191,420
Cost of sales	$	205,307		$	185,548		$	641,983		$	572,866
Less:
Metal costs		(141,595	)		(134,152	)		(456,243	)		(404,863	)
Conversion costs	$	63,712		$	51,396		$	185,740		$	168,003
Conversion revenue	$	62,068		$	57,988		$	200,135		$	191,420
Conversion costs		(63,712	)		(51,396	)		(185,740	)		(168,003	)
Conversion margin	$	(1,644	)	$	6,592		$	14,395		$	23,417
Shipments (000s)		173,210			191,276			569,155			570,102
Conversion margin per pound shipped	$	.0095	)	$	.0345		$	.0253		$	.0411

Three months ended September 30, 2005 and 2004

Sales.Our sales increased from $192.1million in the three months ended September 30, 2004, to $203.7 million in the comparable period in 2005, an increase of $11.6 million, or 6.0%. The increase was primarily a result of higher aluminum prices which contributed to a 15% increase in the metal component of our sales under the industry-standard six-month lag formula to can sheet customers, our primary product. Also contributing to the increase were higher can sheet conversion prices implemented April 1, 2005. Offsetting this increase was an approximate 9% decrease in shipment volumes caused primarily by a significant curtailment of orders from one of our major can sheet customers. Shipments and orders to this customer have returned for the fourth quarter to historical contracted levels. Shipments by Wise Recycling to third parties increased approximately 24% for the quarter.

Cost of Sales. Cost of sales increased from $185.5 million in the three months ended September 30, 2004, to $205.3 million in the three months ended September 30, 2005, an increase of $19.8 million, or 10.7%. Metal costs, representing 72% of cost of sales in the third quarter of 2004 and 69% in the comparable period in 2005, increased from $134.2 million in 2004 to $141.6 million in 2005, an increase of $7.4 million or 5.5%. Conversion costs, which exclude metal, but include employment, energy, materials and other costs increased from $51.4 million in the third quarter of 2004 to $63.7 million in 2005, an increase of $12.3 million or 23.9%. Conversion revenue increased primarily as a result of decreased metal costs as a percentage of revenue along with higher shipments of common alloy products and Recycling shipments, offset by reduced can sheet volumes sold at increased prices effective April 1, 2005. Conversion costs as a percentage of conversion revenue increased from 88.6% in the third quarter of 2004 to 102.6% in 2005. Resulting conversion margin decreased from $6.6 million to a conversion loss of $1.6 million, a decrease of $8.2 million or 124%. The increase in conversion costs and the resulting decrease in conversion margin were a result of significantly higher input costs primarily for energy and coatings and the effect of reduced production volumes stemming from the customer curtailment. As a result of the customer curtailment, production volumes in the quarter were reduced resulting in less volume available for fixed cost absorption. These higher costs on a per pound basis lead to increased conversion costs as a percentage of conversion revenue, with conversion costs exceeding conversion revenue in the quarter. As these events were unusual and of a non-recurring nature and because the production volumes are expected to return in the fourth quarter, the conversion costs as a percentage of conversion revenue is expected to improve and return to a positive margin.

Selling, General and Administrative. Selling, general and administrative expenses decreased from $3.5 million in the third quarter of 2004 to $2.6 million in the third quarter of 2005, a decrease of $0.9 million or 25.7%.

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Interest Expense and Fees. Interest expense and fees increased from $5.0 million in the third quarter of 2004 to $6.4 million in 2005 due to higher outstanding amounts on our line of credit which increased from $64.4 million at September 30, 2004, to $112.6 million at September 30, 2005. The increase was due to higher working capital needs caused by higher metal prices.

Mark-to-Market for Contracts under SFAS No. 133.This income (expense) represents the non-cash gain (loss) we recognized pursuant to SFAS No. 133. The unrealized gains (losses) were primarily a result of forward contracts entered into to hedge the cost of natural gas and aluminum. The fair value increase during the third quarter of 2005 was $0.2 million compared to an increase of $1.9 million during the third quarter of 2004.

Nine months ended September 30, 2005 and 2004

Sales.Our sales increased from $587.3 million in the nine months ended September 30, 2004, to $656.4 million in the comparable period in 2005, an increase of $69.1 million, or 11.8%. The increase was primarily a result of higher aluminum prices which contributed to an average 18% increase in the metal component of our sales under the industry-standard six-month lag formula to can sheet customers, our primary product. Also contributing to the increase were higher can sheet conversion prices implemented April 1, 2005. Shipments for the nine months ended September 30, 2005, by Wise Recycling were approximately 23.5% higher than the nine months ended September 30, 2004.

Cost of Sales. Cost of sales increased from $572.9 million in the nine months ended September 30, 2004, to $642.0 million in the nine months ended September 30, 2005, an increase of $69.1 million, or 12.1%. Metal costs, representing 71% of cost of sales in the nine months ended September 30, 2004, and 2005, increased from $404.9 million in 2004 to $456.2 million in 2005, an increase of $51.3 million or 12.7%. Conversion costs, which exclude metal, but include employment, energy, materials and other costs increased from $168.0 million in the nine months ended September 30, 2004, to $185.7 million in the nine months ended September 30, 2005, an increase of $17.7 million or 10.5%. While shipments for the nine months ended September 30, 2005 have remained relatively level compared to the nine months ended September 30, 2004, both conversion revenue and conversion costs have increased. Conversion revenue has increased as a result of increased can sheet prices implemented on April 1, 2005. Conversion costs as a percentage of conversion revenue increased from 87.8% in the nine months ended September 30, 2004, to 92.8% in 2005. Resulting conversion margin decreased from $23.4 million to $14.4 million. The reasons for this decrease are primarily increased conversion costs due to higher supplier costs of coatings for can sheet and higher natural gas prices, partially offset by increased conversion prices.

Selling, General and Administrative. Selling, general and administrative expenses decreased slightly from $8.6 million in the nine months ended September 30, 2004, to $8.4 million in the nine months ended September 30, 2005, a decrease of $0.20 million or 2.3%.

Interest Expense and Fees. Interest expense and fees increased from $12.6 million in the nine months ended September 30, 2004, to $18.7 million in 2005 due to the higher interest rate on our senior secured notes which closed on May 5, 2004, compared to the prior year’s short term financing costs, combined with higher outstanding amounts on our line of credit which increased from $64.4 million at September 30, 2004, to $112.6 million at September 30, 2005. The increase was due to higher working capital needs caused by higher metal prices.

Mark-to-Market for Contracts under SFAS No. 133.This income (expense) represents the non-cash gain (loss) we recognized pursuant to SFAS No. 133. The unrealized gains (losses) were primarily a result of forward contracts entered into to hedge the cost of natural gas and aluminum. The fair value increase during the nine months ended September 30, 2005, was $1.5 million compared to a decrease of $2.1 million during the nine months ended September 30, 2004 which is a result of fluctuating aluminum and natural gas prices.

Liquidity and Capital Resources

Our principal sources of cash to fund liquidity needs is net cash provided by operating activities and availability under our revolving secured facility. We anticipate that our primary liquidity needs will be for debt service, working capital and capital expenditures. Our debt service costs increased as a result of the offering of the senior secured notes. We believe that cash generated from operations and available borrowings under our senior secured credit facility, as amended and restated, in connection with the offering of the senior secured notes, will be sufficient to enable us to meet our liquidity requirements in the foreseeable future.

As of September 30, 2005, the outstanding balance on our revolving line of credit was $112.6 million. In addition, we had approximately $3.0 million of outstanding letters of credit against our $125 million revolving credit line. During the third quarter we significantly reduced production volumes and inventory levels due to seasonal demand combined with the

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curtailment of shipments to one of our major cansheet customers. While these shipments are expected to return to historical contracted levels in the fourth quarter, we do not expect to significantly increase our inventory levels due to improved efficiencies in our production scheduling requiring less inventory levels to meet customer shipments.

Furthermore, effective October 31, 2005 we have executed an increase to our available revolving line of credit. As a result, our revolving credit line has increased from $125 million to $150 million with an option to increase to $175 million, subject to certain conditions. We are also able to enter into lease transactions and sale-leaseback transactions up to $20 million that also would result in reducing our outstanding balance under the revolving credit line.

However, our liquidity could be hampered if aluminum prices were to substantially increase or if we incurred significant unexpected increases in necessary capital expenditures. Significant increases in volumes could also impact our liquidity. See “Risk Factors” included in our 2004 Annual Report Form 10-K filed with the Securities and Exchange Commission for certain circumstances that could adversely affect our liquidity. In particular, a default under our senior secured credit facility or decreased sales or lower margins from our sales to customers and other competitive factors could have a material adverse effect on our liquidity.

Nine months ended September 30, 2005 and 2004.

Operating Activities. During the nine months ended September 30, 2005, net cash provided by operating activities was $3.1 million as compared to $13.4 million used in operating activities during the nine months ended September 30, 2004. Fluctuations in cash used in and provided by operating activities are subject to changing working capital requirements especially for accounts receivable and inventories. During the nine months ended September 30, 2005, accounts receivable increased from $46.3 million at December 31, 2004, to $54.9 million at September 30, 2005, representing an increase of $8.6 million. This increase is a result of seasonality whereby shipments and corresponding accounts receivable are lower around the year-end holidays. In addition, payments by our customers are made at periodic times during the week and month, not everyday, nor exactly in 30 days, so the balance in receivables can fluctuate significantly at the end of a quarter depending on the timing of cash receipts.

Investing Activities. In the nine months ended September 30, 2005, our capital expenditures were $10.6 million as compared to $5.9 million during the same period in 2004. The increase in capital expenditures is due to our 2004 plan to minimize discretionary spending while focusing on higher production levels to meet an increased level of can sheet demand as we expanded our can sheet customer base. The 2005 capital plan calls for similar to slightly higher spending as the overall spending in 2004, however, these expenditures will continue to be more evenly spaced throughout the year.

Financing Activities. Net cash provided by financing activities was $9.8 million in the nine months ended September 30, 2005, compared with $19.3 million in the first nine months of 2004. Net cash provided by financing activities was related to increased borrowing from the revolving line of credit to fund increased working capital needs due primarily to higher aluminum prices and capital expenditures.

Quantitative and Qualitative Disclosures About Market Risk

Cost of Aluminum. As a condition of sale for a substantial majority of our sales, our customers require us to enter into short and long-term fixed price commitments. Under these agreements, the pricing terms of the aluminum component can be based on “band” pricing which contains an industry standard six-month lag formula and may contain an upper and lower limit, a fixed price or an upper limit only. Accordingly, the price of the aluminum component can be set as much as six months or more prior to the actual sale date, leaving us exposed to the risk of fluctuating aluminum prices between the time the price on the order is determined and the time that the order is fulfilled.

Our aluminum commodity risk management policy is to hedge the aluminum price risk associated with these fixed-price firm commitments. At September 30, 2005, these LME options and futures contracts covered approximately 152,200 metric tons with an unrealized fair value gain of approximately $5.3 million.

We do not enter into derivative contracts for speculative purposes.

Backlog of Customer Business

We maintain long-term supply agreements with our key customers in the aluminum can sheet market and we believe the general terms of our customer contracts are standard for the industry. These contracts are supply arrangements whereby specific quantities and product pricing are negotiated and agreed to on an annual basis under the terms of the multi-year master supply agreement.

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Under the terms of our customer contracts, we use an industry standard for pricing the metal component of all aluminum can sheet sold. This standard is described above in “—Conversion Revenue and Conversion Margin.” Accordingly, at any given point of time, we may have seven months of delivery priced under the master contract, the exact specifications and delivery locations to be specified as described below.

We receive orders from our customers which provide detailed specifications as to metal characteristics and specific plant location. Although all orders are placed pursuant to the contract, quantities and specifications will vary by plant and more specifically by production line within the plant. These orders are generally provided with a two to three month lead time. The majority of all orders, specifically can sheet orders, that are processed by Alloys are made to a specific customer order. Due to seasonal considerations, the first and second quarters are generally the highest sales volume for Alloys.

We earlier announced a five-percent can sheet conversion price increase effective April 1, 2005, as well as our intent to begin moving away from providing ceiling coverage, or price caps, on the metal transfer price offered to can sheet customers. For the remainder of 2005 the metal transfer price has been and will be above the ceiling. Confidential discussions are ongoing and are continuing with customers on implementing these and other changes which we expect to become effective January 1, 2006. However, we can give no assurances as to the outcomes of these discussions. Other can sheet suppliers have also made announcements regarding similar intentions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 4. CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (the “Evaluation”) as of the end of the period covered by this Report. Based upon the Evaluation, the Company’s Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported as and when required. In addition, they concluded that there were no significant deficiencies or material weaknesses in the design or operation of internal controls which could significantly affect the Company’s ability to record, process, summarize and report financial information. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

There were no changes in the Company’s internal control over financial reporting during the quarterly period ended September 30, 2005, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a defendant from time to time in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on our business, results of operations or financial condition.

We are defendants in an action brought by Merrill Lynch, Pierce, Fenner & Smith Incorporated pending in the New York Supreme Court, County of New York. In this action, Merrill Lynch seeks $931,893 for out-of-pocket costs and expenses allegedly incurred pursuant to a letter agreement between Wise Metals and Merrill Lynch dated January 31, 2002, in which Merrill Lynch alleges that Wise Metals agreed to reimburse Merrill Lynch for such costs and expenses. We have hired counsel and intend to vigorously contest this law suit and believe we have meritorious defenses. We have filed an answer to the complaint denying the material allegations and alleging several affirmative defenses and counterclaims including fraud and breach of fiduciary duty. These counterclaims exceed in amount the sum sought by Merrill Lynch. Merrill Lynch moved to dismiss the Wise Metals’ counterclaims of fraud and was awarded that dismissal. This was then later overturned in favor of Wise Metals as a result of an appeal filed by Wise Metals to reinstate the counterclaims of fraud. The counterclaims of breach of fiduciary duty have not as of yet been heard. Discovery proceedings are continuing.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits

10.1	Amendment No. 4 to Amended and Restated Loan Agreement dated as of October 31, 2004 by and among the Issuers, Guarantors and Wachovia Bank, National Association.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

None.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WISE METALS GROUP LLC
Dated: November 14, 2005	/s/ David D’Addario
	David D’Addario
	Chairman and Chief Executive Officer

/s/ Danny Mendelson

Danny Mendelson

Executive Vice President, Chief Financial Officer and Secretary

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