Intermet (INMTQ) 10-Q 2001 Q1 Quarterly report

TABLE OF CONTENTS

Employment Agreement

United States
Securities and Exchange Commission
Washington, D.C. 20549Form 10-Q

	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001, or
	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from                to               .

Commission File No. 0-13787INTERMET Corporation
(Exact name of registrant as specified in its charter)

Georgia (State or other jurisdiction of incorporation or organization)	58-1563873 (IRS Employer Identification No.)
5445 Corporate Drive, Suite 200, Troy, Michigan (Address of principal executive offices)	48098-2683 (Zip code)

(248) 952-2500
(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

At April 1, 2001 there were 25,393,824 shares of common stock, $0.10 par value, outstanding.

Part I — Financial Information

Item 1. Financial Statements

INTERMET CorporationInterim Condensed Consolidated Statements of Operations

		Three months ended
		March 31,			March 31,
		2001			2000
		(Unaudited)
		(in thousands of dollars, except per
		share data)
Net sales		$	223,925		$	302,245
Cost of sales			205,232			258,077
Gross profit			18,693			44,168
Operating expenses:
	Selling, general and
	administrative		7,964			9,859
	Goodwill amortization		1,558			1,588
	Other operating (income) expense		(115	)
						6,014
			9,407			17,461
Operating profit			9,286			26,707
Other income (expense):
	Interest (net)		(8,403	)		(10,306	)
	Other, net		293			900
			(8,110	)		(9,406	)
Income before income taxes			1,176			17,301
Provision for income taxes			837			7,805
Net income		$	339		$	9,496
Income per common share — basic		$	0.01		$	0.37
Income per common share — diluted		$	0.01		$	0.37

See accompanying notes.

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INTERMET CorporationInterim Condensed Consolidated Balance Sheets

				March 31,		December 31,
				2001		2000
				(Unaudited)
				(in thousands of dollars)
Assets
Current assets:
	Cash and cash equivalents			$	87,181	$	19,737
	Accounts receivable:
		Trade, less allowance for doubtful accounts of
			$8,135 in 2001 and $9,451 in 2000		134,383		125,745
		Other			2,664		9,136
					137,047		134,881
	Inventories				87,193		93,870
	Other current assets				36,503		31,960
Total current assets					347,924		280,448
Property, plant and equipment, at cost					640,610		636,132
Less:
	Accumulated depreciation and foreign industrial
	development grants, net				247,574		238,498
Net property, plant and equipment					393,036		397,634
Intangibles, net of amortization					223,315		224,873
Other noncurrent assets					14,146		15,841
				$	978,421	$	918,796

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INTERMET CorporationInterim Condensed Consolidated Balance Sheets

		March 31,			December 31,
		2001			2000
		(Unaudited)
		(in thousands of dollars)
Liabilities and shareholders’ equity
Current liabilities:
	Accounts payable	$	79,025		$	103,501
	Income taxes and other accrued liabilities		79,798			82,555
	Long term debt due within one year		216,452			216,479
Total current liabilities			375,275			402,535
Noncurrent liabilities:
	Long term debt due after one year		275,966			182,687
	Other noncurrent liabilities		48,554			54,166
Total noncurrent liabilities			324,520			236,853
Shareholders’ equity:
	Common stock		2,588			2,588
	Capital in excess of par value		57,110			57,110
	Retained earnings		219,602			220,279
	Accumulated other comprehensive income		(485	)		(363	)
	Unearned restricted stock		(189	)		(206	)
Total shareholders’ equity			278,626			279,408
		$	978,421		$	918,796
See accompanying notes

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INTERMET CorporationInterim Condensed Consolidated Statements of Cash Flows

			Three months ended
			March 31,			March 31,
			2001			2000
			(Unaudited)
			(in thousands of dollars)
Operating activities:
Net income			$	339		$	9,496
Adjustments to reconcile net income to cash provided by (used
	in) operating activities:
	Depreciation			12,601			12,228
	Amortization			1,826			2,018
	Gain on sale of assets			—			(133	)
	Changes in operating assets and liabilities:
		Accounts receivable		(3,894	)		(20,323	)
		Inventories		6,268			4,147
		Accounts payable and accrued taxes		(25,367	)		(7,568	)
		Other assets and liabilities		(7,363	)		(5,501	)
Net cash used in operating activities				(15,590	)		(5,636	)
Investing activities:
	Additions to property, plant and equipment			(10,698	)		(8,961	)
	Proceeds from sale of assets			—			10,989
	Other			—			(19	)
Net cash used in investing activities				(10,698	)		2,009
Financing activities:
	Net increase in revolving credit facility			93,284			5,799
	Dividends paid			(1,015	)		(1,015	)
	Issuance of common stock			—			380
Net cash provided by financing activities				92,269			5,164
Effect of exchange rate changes on cash and cash equivalents				1,463			1,058
Net increase in cash and cash equivalents				67,444			2,595
Cash and cash equivalents at beginning of period				19,737			3,416
Cash and cash equivalents at end of period			$	87,181		$	6,011
See accompanying notes

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INTERMET CorporationNotes to Interim Condensed Consolidated Financial StatementsSeptember 30, 2000 (Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of INTERMET Corporation and its subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes included in INTERMET’s annual report on Form 10-K for the year ended December 31, 2000.

Some amounts previously reported in the financial statements for the period ended March 31, 2000 have been reclassified to conform to the 2001 presentation.

2. Inventories

Net inventories consist of the following (in thousands of dollars):

	March 31,		December 31,
	2001		2000
Finished goods	$	14,153	$	17,865
Work in process		20,922		21,816
Raw materials		6,843		8,940
Supplies and patterns		45,275		45,249
	$	87,193	$	93,870

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INTERMET CorporationNotes to Interim Condensed Consolidated Financial Statements (continued)September 30, 2000 (Unaudited)

3. Property, Plant and Equipment

Gross property, plant and equipment consist of the following (in thousands of dollars):

	March 31,		December 31,
	2001		2000
Land	$	5,389	$	5,408
Buildings and improvements		116,737		116,181
Machinery and equipment		462,174		467,819
Construction in progress		56,310		46,724
	$	640,610	$	636,132

4. Intangible Assets

Intangible assets of $223,315,000 and $224,873,000 (net of accumulated amortization of $17,089,000 and $15,531,000) at March 31, 2001 and December 31, 2000, respectively, consist principally of costs in excess of net assets acquired. Such costs are being amortized using the straight-line method, principally over forty years.

5. Debt

On March 3, 2000 we signed a seven month $15 million unsecured term loan agreement with The Bank of Nova Scotia. We used the proceeds to pay off the $15 million outstanding balance on a note due to Prudential. The new term loan agreement matured on October 2, 2000 and has been rolled over with a new maturity date of June 29, 2001. Additionally, the term loan related to the purchase of Ganton and Diemakers, which was issued for $200 million, is due on June 20, 2001. Accordingly, the debt has been included with current liabilities. We intend to refinance this debt prior to its expiration.

Long term debt consists of the following (in thousands of dollars):

	March 31,		December 31,
	2001		2000
Total debt		492,418		399,166
Less amounts due within one year		216,452		216,479
Debt due after one year	$	275,966	$	182,687

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INTERMET CorporationNotes to Interim Condensed Consolidated Financial Statements (continued)September 30, 2000 (Unaudited)

6. Comprehensive Income

We adopted Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” as of January 1, 1998. However, the adoption of this Statement had no impact on our net income or shareholders’ equity.

Effective January 1, 2001, INTERMET has adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires that all derivative instruments be reported on the balance sheet at fair value. The effect of adoption to INTERMET was to decrease Other Comprehensive Income by $412,000, net of related taxes. The adoption of SFAS 133 had no impact on the income statement as of March 31, 2001, since the hedge entered into was perfectly effective and thus the short cut method of accounting for derivatives was utilized in accounting for the transaction.

Our risk management policy is to protect our long-term debt at the lowest cost options available. We assess market conditions periodically to determine whether it is beneficial to enter into transactions which protect against interest rate fluctuations on the variable portion of our long-term debt.

		Three months ended
		March 31,			March 31,
		2001			2000
		(in thousands of dollars)
Net income		$	339		$	9,496
Other comprehensive income (loss):
	Adoption of SFAS 133		(412	)		0
	Foreign currency translation adjustment		290			(686	)
Total other comprehensive loss			(122	)		(686	)
Total comprehensive income (loss)		$	217		$	8,810

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INTERMET CorporationNotes to Interim Condensed Consolidated Financial Statements (continued)September 30, 2000 (Unaudited)

8. Reporting for Business Segments

We evaluate the operating performance of our business units individually. Under the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, we have aggregated operating segments that have similar characteristics, including manufacturing processes and raw materials. Theferrous-metals segment consists of ferrous foundry operations and their related machining operations.The light-metals segment consists of aluminum, magnesium and zinc casting operations and their related machining operations. Due to changes in the makeup of the of theother segment, the Company has realigned the other segment to include the operations which don’t fall within the ferrous metals segment or the Light metals segment. These operations have been combined with the corporate business unit and its related expenses and eliminations. This realigned segment will be referred to ascorporate and other. Note that certain administrative costs such as interest and amortization are included within thecorporate and other segment while in previous periods these cost have been allocated to one of the three previous operating segments. This information is displayed in the following table:

		Ferrous Metals		Light Metals		Corporate and			Consolidated
						Other
				(in thousands of dollars)
Three months ended March 31, 2001
	Net sales	$	141,105	$	79,058	$	3,762		$	223,925
	Operating profit		11,606		1,125		(3,445	)		9,286
	Interest, net						(8,403	)		(8,403	)
	Other, net						293			293
	Taxes						(837	)		(837	)
	Net Income									339
Three months ended March 31, 2000
	Net sales	$	190,015	$	90,734	$	21,496		$	302,245
	Operating profit		17,686		7,463		(997	)		24,152
	Interest, net						(10,306	)		(10,306	)
	Other, net						3,455			3,455
	Taxes						(7,805	)		(7,805	)
	Net Income									9,946

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INTERMET CorporationNotes to Interim Condensed Consolidated Financial Statements (continued)September 30, 2000 (Unaudited)

9. Environmental and Legal Matters

INTERMET and its subsidiaries are a party to a number of environmental matters and legal proceedings in the ordinary course of business. We do not believe there are any pending or threatened legal proceedings to which we are a party, or to which any of our property is subject, that will have a material adverse effect on our consolidated financial position, results of operations or liquidity taken as a whole.

10. Earnings per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. The dilutive earnings per share calculation reflects the assumed exercise of stock options.

			Three months ended
			March 31,		March 31,
			2001		2000
			(in thousands, except per share data)
Numerator:
	Net income		$	339	$	9,496
Denominator:
	Denominator for basic
		earnings per share —
		weighted average shares		25,365		25,355
	Effect of dilutive securities:
		Stock options		32		74
	Denominator for diluted
		earnings per share —
		adjusted weighted average
		shares and assumed
		exercise of options		25,397		25,429
Fully diluted earnings per share			$	0.01	$	0.37
Basic earnings per share			$	0.01	$	0.37

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INTERMET CorporationNotes to Interim Condensed Consolidated Financial Statements (continued)September 30, 2000 (Unaudited)

11. Impairment of Assets and Shutdown

In December of 1999, INTERMET announced plans to permanently close it’s Ironton Iron, Inc. foundry. The decision to close this foundry was the principal reason for treating the assets as held for sale and valuing them at the estimated fair market value. Also at December 31, 1999, the Company recorded a shut down accrual for the building demolition and remediation costs.

During the period of January 1, 2001 through March 31, 2001, the Company paid approximately $0.5 million primarily for remediation, which was included principally in “Income taxes and accrued liabilities” at December 31, 2000 in the accompanying balance sheet. The remaining shutdown costs accrued of $1.0 million at March 31, 2001 is management’s estimate of the remaining costs for remediation.

The $1.9 million of assets included as “Other current assets” on the accompanying balance sheet at March 31, 2001, represents the estimated fair value of the remaining assets held for sale.

12. Insurance Claim

As discussed in the December 31, 2000 annual report, INTERMET has substantially completed the rebuild of our New River and Neunkirchen facilities. As of the date of this report, INTERMET has not yet reached complete settlement with its insurance company related to the accident at New River facility. The Neunkirchen facility has complete settlement with the insurance carrier, as discussed in the annual report. Refer to the December 31, 2000 annual report for further discussion.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Quantitative and Qualitative Disclosures about Market Risk contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in these sections, the words “anticipate,” “believe,” “estimate” and “expect” and similar expressions are generally intended to identify forward-looking statements. Readers are cautioned that any forward-looking statements, including statements regarding the intent, belief or current expectations of INTERMET or its management, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to:

• General economic conditions, including any economic downturn in the markets in which we operate

• Fluctuations in worldwide or regional automobile and light and heavy truck production

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• Changes in practices or policies of our significant customers toward outsourcing their requirements for automotive components

• Changes in the sourcing and pricing practices of our major customers, including demands for price concessions as a condition to retaining current business or obtaining new business

• Fluctuations in foreign currency exchange rates

• Fluctuations in interest rates that may affect our borrowing costs

• Fluctuations in the cost of raw materials, including the cost of energy, and our ability, if any, to pass those costs on to our customers

• Work stoppages or other labor disputes that could disrupt production at our facilities or those of our major customers

• Factors or presently unknown circumstances that may affect the charges related to the impairment of assets

• Our ability to fully utilize the capacity available from the rebuilding of our New River and Neunkirchen facilities within the timeframes we are projecting

• Other risks as detailed from time to time in our filings with the Securities and Exchange Commission

We do not intend to update these forward-looking statements.

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

Material Changes in Financial Condition

During the first quarter of 2001 INTERMET used $15.6 million in operations while using $5.6 million for the same period last year. Depreciation and amortization expense was $14.4 million for the period. As compared to December 31, 2000, accounts receivable increased $3.9 million while inventory decreased $6.3 million. These fluctuations are a result of higher sales in March of 2001 than December of 2000, which is related to the traditional holiday shutdowns during the fourth quarter operating cycle. Accounts payable and accrued taxes decreased $25.4 million from the beginning of 2001 due primarily to the decreased operating activity within the entire auto industry. Investing activities for the first three months of 2001 used cash of $10.3 million. During the period we spent $10.7 million for the purchase of property, plant and equipment. Net cash provided by financing activities was $92.3 million for the first three months of 2001. Borrowings under our bank revolver increased $93.3 million. We used this cash to improve our liquidity while refinancing the debt agreement, which is to expire in June of 2001. Additionally, we paid $1.0 million in dividends during the first quarter of 2001. We have committed capital not yet spent of approximately $15.5 million as of March 31, 2001. We anticipate that the funds needed for the committed capital spending will come from operations.

Material Changes in Results of Operations — Three months ended September 30, 2000

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Sales for the first quarter of 2001 were $223.9 million, down from $302.2 million in the first quarter of 2000. This represents a decrease of approximately $78.3 million (25.9%). This decrease is directly correlated to the slowdown in the North American automotive market. Including only those operations that were in place for the both quarters entirely, sales were down $47.9 million (18.1%).Ferrous-metals segment sales were $141.1 million and $190.0 million for the first quarter of 2001 and 2000, respectively. This is a decrease of $48.9 million or 25.7%. Excluding sales of New River (which suffered the explosion in the first quarter of 2000), sales for our ferrous segment decreased $35.0 million (20.8%).Light-metals segment sales decreased $11.7 million (12.9%) for the three months ended March 31, 2001 as compared to the same period last year.

Domestic sales during the quarter ended March 31, 2001 were $198.4 million down from $272.4 million in the first quarter of 2000. This is a decrease of $74.0 million (27.2%). This decrease is the result of the decreased production by the North American Automotive market and the divestiture of Iowa Mold Tool Co. Inc. from ourother segment. For operations in place both years, sales decreased $43.6 million or 18.6%.European sales during the three months ended March 31, 2001, in local currency, decreased 8.6% when compared to the same period last year. The effect of changes in the exchange rates on consolidated European sales was an unfavorable $2.0 million for the three-month period ended March 31, 2001, when compared using exchange rates for the same period in 2000.

During the first quarter of 2001, INTERMET took a restructuring charge of $0.6 million for the closure of a plant in Mexico and for the downsize of another manufacturing location. These operational changes are necessary to lower the company’s breakeven point and to position itself for future opportunities.

Gross profits for the quarter ended March 31, 2001 and 2000 were $18.7 million and $44.2 million, respectively. Gross profit as a percentage of sales for the three months ended March 31, 2001 and 2000 was 8.3% and 14.6%, respectively. The resulting decreased gross profit percentage is a result of the decrease in the North American automotive production.

Operating expenses as a percentage of sales were 4.2% and 5.8% for the three months ended March 31, 2001 and 2000, respectively.

The effective income tax rate was 71.1% and 45.1% for the first quarters ended March 31, 2001 and 2000, respectively. The high effective rates are a result of the nondeductible goodwill the Company continues to amortize related to various acquisitions INTERMET has completed.

Insurance Update in 2001

As discussed in the December 31, 2000 annual report, INTERMET has substantially completed the rebuild of our New River and Neunkirchen facilities. As of the date of this report, INTERMET has not yet reached complete settlement with its insurance company related to the accident at our New River facility. The Neunkirchen facility, as noted in the annual report, has completed settlement with the insurance carrier.

The Impact of SFAS 133

Effective January 1, 2001, INTERMET adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires that all derivative instruments be reported on the

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balance sheet at fair value. The effect of adoption, to INTERMET, was to decrease Other Comprehensive Income by $412,000, net of related taxes. The adoption of SFAS 133 had no impact on the income statement as of March 31, 2001, since the hedge entered into was perfectly effective and thus the short cut method of accounting for derivatives was utilized in accounting for the transaction.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in market risk with regard to interest rate and foreign exchange since December 31, 2000.

Part II — Other Information

Item 1. Legal Proceedings

There have been no material changes in matters reported in the Form 10-K for the year ended December 31, 1999.

We are engaged in various legal proceedings and other matters incidental to our normal business activities. We do not believe there are any pending or threatened legal proceedings to which we are a party, or to which any of our property is subject, that will have a material effect on our consolidated financial position, results of operations or liquidity taken as a whole.

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 Securities Holders

None

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

None.

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Signatures

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

INTERMET Corporation

By:      /s/ Ronald C. Ryninger, Jr.

            Ronald C. Ryninger, Jr.
            Corporate Controller
            (Principal Accounting Officer)

Date:   May 13, 2001

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Exhibits Index

Exhibit
Number	Description of Exhibit
10.1(c)	Employment agreement between INTERMET Corporation and Terry Graessle

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