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United States
Securities and Exchange CommissionWashington, D.C. 20549
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999, 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. 0-13787
Intermet Corporation
(Exact name of registrant as specified in its charter)
Georgia 58-1563873 (State or other jurisdiction of
incorporation or organization)(IRS Employer
Identification No.)5445 Corporate Drive, Suite 200, Troy, Michigan 48098-2683 (Address of principal executive offices) (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 October 31, 1999 there were 25,337,824 shares of Common Stock, $0.10 par value, outstanding.
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Part I — Financial Information
Item 1. Financial StatementsIntermet Corporation
Interim Condensed Consolidated Statements of Income
Three months ended Nine months ended September 30, September 30, September 30, September 30, 1999 1998 1999 1998 (in thousands of dollars, except per share data) (Unaudited) Net sales $ 225,350 $ 188,808 $ 716,275 $ 632,698 Cost of sales 201,361 166,314 625,003 548,729 Gross profit 23,989 22,494 91,272 83,969 Operating expenses: Selling 3,047 1,957 9,044 6,786 General and administrative 5,193 4,852 17,190 15,650 Other operating expenses 1,298 956 2,430 2,860 9,538 7,765 28,664 25,296 Operating profit 14,451 14,729 62,608 58,673 Other income (expense): Interest income 29 60 138 161 Interest expense (3,605 ) (2,543 ) (10,207 ) (8,822 ) Other, net 312 301 424 646 (3,264 ) (2,182 ) (9,645 ) (8,015 ) Income before income taxes 11,187 12,547 52,963 50,658 Provision for income taxes 3,745 3,233 16,762 17,736 Net income $ 7,442 $ 9,314 $ 36,201 $ 32,922 Income per common share — Basic $ 0.29 $ 0.36 $ 1.42 $ 1.29 Income per common share — Diluted $ 0.29 $ 0.36 $ 1.41 $ 1.27 See accompanying notes.
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Intermet Corporation
Interim Condensed Consolidated Balance Sheets
September 30, December 31, 1999 1998 (Unaudited) (in thousands of dollars) Assets Current assets: Cash and cash equivalents $ 4,443 $ 5,848 Accounts receivable: Trade, less allowance for doubtful accounts of $6,360 in 1999 and $5,133 in 1998 141,418 105,678 Other 8,316 8,713 149,734 114,391 Inventories 68,168 65,898 Other current assets 13,310 11,293 Total current assets 235,655 197,430 Property, plant and equipment, at cost 525,512 485,082 Less: Foreign industrial development grants, net of amortization 3,395 4,153 Accumulated depreciation and amortization 258,952 240,227 Net property, plant and equipment 263,165 240,702 Intangibles, net of amortization 124,234 126,896 Other noncurrent assets 23,760 18,987 $ 646,814 $ 584,015 3
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Intermet Corporation
Interim Condensed Consolidated Balance Sheets
September 30, December 31, 1999 1998 (Unaudited) (in thousands of dollars) Liabilities and shareholders’ equity Current liabilities: Notes payable $ 17,000 $ 1,000 Accounts payable 68,334 90,205 Income taxes and other accrued liabilities 50,038 50,922 Long term debt due within one year 6,388 6,411 Total current liabilities 141,760 148,538 Noncurrent liabilities: Long term debt due after one year 205,343 156,690 Other noncurrent liabilities 54,234 59,445 Total noncurrent liabilities 259,577 216,135 Minority interest 2,337 2,337 Shareholders’ equity: Common stock 2,585 2,583 Capital in excess of par value 63,493 63,382 Treasury stock (6,669 ) — Retained earnings 184,270 151,131 Accumulated other comprehensive income (448 ) 72 Unearned restricted stock (91 ) (163 ) Total shareholders’ equity 243,140 217,005 $ 646,814 $ 584,015 See accompanying notes. 4
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Intermet Corporation
Interim Condensed Consolidated Statements of Cash Flows
September 30, September 30, 1999 1998 (Unaudited) (in thousands of dollars) Operating activities: Net income $ 36,201 $ 32,922 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation 26,631 25,467 Amortization 2,898 2,207 Other 189 (644 ) Changes in operating assets and liabilities excluding the effects of acquisitions and dispositions: Accounts receivable (37,229 ) (39,274 ) Inventories (2,978 ) (640 ) Accounts payable and accrued liabilities (18,193 ) 4,876 Other assets and liabilities (10,300 ) 570 Net cash (used in) provided by operating activities (2,781 ) 25,484 Investing activities: Additions to property, plant and equipment (50,666 ) (32,560 ) Proceeds from the sale of subsidiaries — 22,971 Investment in PortCast joint venture (4,500 ) (2,000 ) Other (1,607 ) 3,757 Net cash used in investing activities (56,773 ) (7,832 ) Financing activities: Net increase (decrease) in revolving credit facility 50,000 (25,000 ) Reduction in debt (1,262 ) (1,987 ) Net increase in notes payable 16,000 7,000 Acquisition of treasury stock (6,669 ) — Dividends paid (3,062 ) (3,071 ) Issuance of common stock 113 4,503 Net cash provided by (used in) financing activities 55,120 (18,555 ) Effect of exchange rate changes on cash and cash equivalents 3,029 (3,363 ) Net decrease in cash and cash equivalents (1,405 ) (4,266 ) Cash and cash equivalents at beginning of period 5,848 7,022 Cash and cash equivalents at end of period $ 4,443 $ 2,756 See accompanying notes. 5
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Intermet Corporation
Notes to Interim Condensed Consolidated Financial StatementsSeptember 30, 1999 (Unaudited)1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Intermet Corporation (“Intermet”) 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 (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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, 1998.
Inventories
Inventories consist of the following (in thousands of dollars):
September 30, December 31, 1999 1998 Finished goods $ 14,194 $ 14,701 Work in process 21,283 18,522 Raw materials 8,416 8,467 Supplies and patterns 24,275 24,208 $ 68,168 $ 65,898 Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands of dollars):
September 30, December 31, 1999 1998 Land $ 4,556 $ 4,567 Buildings and improvements 92,660 93,667 Machinery and equipment 367,268 357,545 Construction in progress 61,028 29,303 $ 525,512 $ 485,082 6
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Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements — (Continued)
September 30, 1999 (Unaudited)1. Summary of Significant Accounting Policies — (continued)
Intangible Assets
Intangible assets of $124,234,000 and $126,896,000 (net of accumulated amortization of $9,862,000 and $7,147,000) at September 30, 1999 and December 31, 1998, 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. Intermet periodically assesses the recoverability of the cost of its intangibles based on a review of projected undiscounted cash flows of the related operating entities.
2. Reporting for Business Segments
Intermet’s management evaluates the operating performance of its business units individually. Under the provisions of segment reporting, we have aggregated operating units that have similar characteristics, which has resulted in one reportable segment. The foundry segment consists of foundry operations, which include both iron and aluminum castings and their related machining operations. The operating units that comprise other are all nonfoundry operations, and none of them constitutes a reportable segment on its own. This information is displayed in the table below.
Foundry Other Consolidated (in thousands of dollars) Three-month period ended September 30, 1999 Net sales $ 203,772 $ 21,578 $ 225,350 Net income 6,472 970 7,442 Three-month period ended September 30, 1998 Net sales $ 168,469 $ 20,339 $ 188,808 Net income 8,941 373 9,314 Nine-month period ended September 30, 1999 Net sales $ 651,919 $ 64,356 $ 716,275 Net income 33,477 2,724 36,201 Nine-month period ended September 30, 1998 Net sales $ 540,351 $ 92,347 $ 632,698 Net income 31,464 1,458 32,922 7
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Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements — (Continued)
September 30, 1999 (Unaudited)3. Debt
Long term debt consists of the following (in thousands of dollars):
September 30, December 31, 1999 1998 Intermet $ 200,000 $ 150,000 Subsidiaries 11,731 13,101 Total long-term debt 211,731 163,101 Less amounts due within one year 6,388 6,411 Long-term debt due after one year $ 205,343 $ 156,690 On November 5, 1999, Intermet signed a five-year $300 million unsecured revolving credit agreement with a bank group. This agreement replaces the $200 million unsecured revolving credit facility, which was to expire January 1, 2000. In addition, we executed a $100 million 364-day unsecured revolving credit agreement. Standby letters of credit reduce the borrowing limits of these two agreements.
4. Comprehensive Income
Intermet 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.
Three months ended Nine months ended September 30, September 30, September 30, September 30, 1999 1998 1999 1998 (in thousands of dollars) Net income $ 7,442 $ 9,314 $ 36,201 $ 32,922 Other comprehensive income (loss): Foreign currency translation adjustment 131 371 (520 ) 317 Minimum pension liability adjustment — — — — Total other comprehensive income (loss) 131 371 (520 ) 317 Total comprehensive income $ 7,573 $ 9,685 $ 35,681 $ 33,239 8
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Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements — (Continued)
September 30, 1999 (Unaudited)5. 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 its 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.
6. 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 Nine months ended September 30, September 30, September 30, September 30, 1999 1998 1999 1998 (in thousands, except per share data) Numerator: Net income $ 7,442 $ 9,314 $ 36,201 $ 32,922 Denominator: Denominator for basic earnings per share — weighted average shares 25,360 25,679 25,529 25,565 Effect of dilutive securities: Stock options 70 297 105 374 Denominator for diluted earnings per share — adjusted weighted average shares and assumed exercise of options 25,430 25,976 25,634 25,939 Basic earnings per share $ 0.29 $ 0.36 $ 1.42 $ 1.29 Diluted earnings per share $ 0.29 $ 0.36 $ 1.41 $ 1.27 9
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Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements — (Continued)
September 30, 1999 (Unaudited)7. Subsequent Events
On November 5, 1999, Intermet signed a five-year $300 million unsecured revolving credit agreement with a bank group. This agreement replaces the $200 million unsecured revolving credit facility, which was to expire January 1, 2000. In addition, we executed a $100 million 364-day unsecured revolving credit agreement. Standby letters of credit reduce the borrowing limits of these two agreements. The revolving credit agreement provides us with several interest rate-pricing mechanisms. We must also pay a fee, at rates of 0.20% per annum and 0.175% per annum, on any unused portion of the $300 million and $100 million loan commitments, respectively. These revolving credit agreements require us to maintain specified financial ratios and impose limitations on activities.
Forward Looking StatementThe following Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 3. 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 this section, 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. In addition, readers are cautioned that 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 in the markets in which Intermet operates | |
| • | fluctuations in worldwide or regional automobile and light and heavy truck production | |
| • | labor disputes involving Intermet or its significant customers | |
| • | changes in practices and/or policies of Intermet’s significant customers toward outsourcing automotive components and systems | |
| • | foreign currency and exchange fluctuations | |
| • | interest rate fluctuations | |
| • | commodity price fluctuations | |
| • | ability to bring additional foundry capacity on line as scheduled | |
| • | ability to secure all regulatory permits on a timely basis with respect to ongoing capital expenditures for additional foundry capacity | |
| • | factors affecting the ability of Intermet or its key suppliers to resolve Year 2000 issues in a timely manner, and | |
| • | other risks detailed from time to time in Intermet’s filings with the Securities and Exchange Commission. |
Intermet does not intend to update these forward-looking statements.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Material Changes in Financial Condition
Operating activities used net cash of $2.8 million during the nine-month period ended September 30, 1999. Depreciation and amortization expense was $29.5 million. Accounts receivable increased $37.2 million from December 31, 1998 because sales during September 1999 were higher than those of December 1998. This is due primarily to the traditional holiday shutdown in December. In addition, because September has only 30 days, customer payments that would have been received on the 31st day of the last month of the quarter were received on the first day of the next quarter. Accounts payable and accrued liabilities decreased $18.2 million from the beginning of 1999 due to the timing of payments. Our investing activities for the first nine months of 1999 used cash of $56.8 million. Of that amount, $50.7 million related to property, plant and equipment additions. Furthermore, we spent an additional $4.5 million for our investment in PortCast. Net cash provided by financing activities was $55.1 million for the first three quarters of 1999. The borrowings under the bank revolver and note payable increased $66.0 million in the aggregate. We used this cash to finance working capital and fund additions to property, plant and equipment during the first nine months of 1999. In addition, we paid $6.7 million for the acquisition of Intermet stock [pursuant to its stock buyback program] and paid $3.1 million in dividends during the first nine months of 1999.
Intermet has committed capital not yet spent of approximately $17.5 million as of September 30, 1999. Of this amount, approximately $4.0 million relates to two new disamatics, which are high-speed vertical casting machines, for our Columbus Foundry subsidiary. In addition, $5.4 million relates to the construction of an aluminum die-castings facility for our Tool Products subsidiary. During the second half of 1998, Columbus Foundry began having capacity issues due to increased customer demand, above historical levels, for products already in place. Management addressed the over-capacity issue and put a plan into place to purchase the two disamatics. The process of purchasing and readying a disamatic for production takes approximately one and one half to two years. Intermet expects the disamatics to be in full production by the end of 1999. Tool Products is building an additional aluminum die-castings facility in response to increased demand for existing products as well as for newly awarded products. Tool Products’ two current aluminum die-castings plants are running at capacity and cannot be expanded to handle additional capacity. Intermet expects this third Tool Products facility will become operational in early 2000.
Intermet declared a cash dividend of $0.04 per share (approximately $1.0 million in aggregate) for the holders of record on December 1, 1999.
On November 5, 1999, Intermet signed a five-year $300 million unsecured revolving credit agreement with a bank group. This agreement replaces the $200 million unsecured revolving credit facility, which was to expire January 1, 2000. In addition, we executed a $100 million 364-day unsecured revolving credit agreement. Standby letters of credit reduce the borrowing limits of these two agreements.
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Material Changes in Results of Operations
Sales in the third quarter of 1999 were $225.4 million compared to $188.8 million during the same period in 1998. Sales for the nine-month period ended September 30, 1999 and 1998 were $716.3 and $632.7 million, respectively. Foundry segment sales during the three-month and nine-month periods ended September 30, 1999, excluding acquisitions or dispositions in 1999 or 1998, were $15.1 million (9.0%) and $60.0 million (11.3%) greater than sales during the same periods in 1998, respectively. This is primarily a result of strong domestic and European light truck sales, which are two of the largest markets we supply. Non-foundry segment sales, excluding acquisitions or dispositions in 1999 or 1998, increased $1.2 million (6.1%) and $1.0 million (1.6%) for the three and nine months ended September 30, 1999 versus the same periods in 1998, respectively.
Domestic sales during the quarter ended September 30, 1999, excluding acquisitions or dispositions in 1999 or 1998, were approximately $16.0 million (9.6%) greater than the third quarter of 1998. Domestic sales during the nine months ended September 30, 1999, excluding acquisitions or dispositions in 1999 or 1998, were approximately $56.6 million (10.8%) greater than the same period in 1998. U.S. light vehicle sales are projected by the industry to reach record levels for 1999.
European sales during the three and nine months ended September 30, 1999, in local currency, increased 8.5% and 4.9%, respectively, from the same periods in the prior year, excluding acquisitions or dispositions in 1999 or 1998. This is due primarily to the increase in European light truck sales. During the second half of 1998, we increased our presence in Europe with the acquisition of Vorpommersche Eisenwerke GmbH Ueckermunde (“VEGU”) in December and the joint venture with PortCast in June, both of which are iron foundries. The effect of changes in the exchange rates on consolidated European sales was an unfavorable $1.7 million (6.3%) and $1.1 million (1.3%) for the three and nine-month periods ended September 30, 1999, respectively, when compared using exchange rates for the same period in 1998.
Gross profit for the quarter ended September 30, 1999 was $24.0 million, an increase of $1.5 million from that of the same period in 1998. Gross profit as a percentage of sales for the three months ended September 30, 1999 and 1998 was 10.6% and 11.9%, respectively. Gross profit for first nine months of 1999 was $91.3 million, an increase of $7.3 million from that of the same period in 1998. Gross profit as a percentage of sales for the nine months ended September 30, 1999 and 1998 was 12.7% and 13.3%, respectively. Performance problems at several operating units negatively affected gross profit during the first nine months of 1999. Many of these problems were caused by facilities having to run over-capacity. We anticipate that the new disamatics will alleviate some of these problems. In addition, several facilities had excessive labor costs during the third quarter of 1999. One facility has had continuous labor difficulties throughout 1999.
Operating expenses as a percentage of sales were 4.2% and 4.1% for the three months ended September 30, 1999 and 1998, respectively. Operating expenses as a percentage of sales were 4.0% for both nine-month periods ended September 30, 1999 and 1998.
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The effective income tax rate was 33.5% and 25.8% for the third quarters ended September 30, 1999 and 1998, respectively. The effective income tax rate for the nine months ended September 30, 1999 and 1998 was 31.6% and 35.1%, respectively. During the second quarter of 1999, we were able to use a one-time tax benefit of $4.5 million related to a change of tax law in Germany. We continue to use tax planning to reduce the effective tax rates. During the second and third quarters of 1998, we were able to use tax benefits related to the IWESA bankruptcy. Without these tax benefits, the effective tax rates would have been 46.8% and 39.9% for the three months and 43.3% and 41.4% for the nine months ended September 30, 1999 and 1998, respectively.
Intermet has conducted an evaluation of its Informational Technology (“IT”) and non-IT computer systems with respect to the “Year 2000” issue. This issue arises because many electronic systems use two digits rather than four to determine dates. This could cause information technology systems such as software applications, hardware, network systems and embedded systems to misread important dates beginning in the year 2000, which could cause system failures and disruption of operations.
We have completed a Year 2000 readiness assessment of our business critical IT and non-IT systems. As a result of the assessment, we are implementing corrective action plans designed to address Year 2000 issues. These plans include modification, upgrade and replacement of our critical administrative, production, and research and development computer systems to make them Year 2000 ready. We believe that our critical systems are Year 2000 ready. We continue to test the readiness of these critical systems. We expect to have our non-critical systems Year 2000 ready by the end of November 1999.
Because our operations depend on the uninterrupted flow of materials and services from our suppliers, we have requested and have been receiving and analyzing information from our suppliers with regard to their Year 2000 readiness. Based on this information, we are confident that our suppliers will be able to continue to provide materials and services. We intend to continue to monitor the Year 2000 readiness of our key suppliers.
A small number of our products incorporate electronic components that are purchased from third parties. Our suppliers have assured us that these electronic components are Year 2000 ready.
Intermet began addressing Year 2000 issues in 1995, and prior to 1999, spent approximately $4.7 million on Year 2000 readiness. In the nine-month period ended September 30, 1999, we spent approximately $2.0 million to address the Year 2000 issue. We estimate that we will spend in total approximately $7.0 to $7.5 million to become Year 2000 ready. The majority of this spending is for required upgrades or for new business systems required in the ordinary course of business. It is possible that the actual cost of our Year 2000 readiness effort could exceed this estimate.
Although we have a process in place to assess Year 2000 readiness on the part of our suppliers, we consider the most reasonably likely worst case scenario is that one or more of our suppliers might encounter a Year 2000 problem and be unable to supply materials. If this was to occur and we could not obtain the same materials from another vendor, production could be interrupted, which could result in lost sales and profits. However, it is likely that we could obtain the same materials from another vendor. In addition, while we are taking action to correct deficiencies in our own systems, it is possible that one or more of our facilities or critical business systems might not achieve Year 2000 readiness as anticipated. This could also result in disruption of operations and lost sales and profits.
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We have developed and are continually refining contingency plans for our critical systems. These contingency plans are intended to avoid or mitigate the risks that either we or our key suppliers might not achieve Year 2000 readiness in time to avoid disruption of our operations.
Readers are cautioned that forward looking statements contained in this Year 2000 discussion should be read in conjunction with Intermet’s disclosures under the cautionary statement for the purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995, included before Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Intermet is subject to market risk with regard to interest rate, foreign exchange and commodity pricing. We have analyzed the effect of these risks on the balance sheet, results of operations and cash flows and we anticipate that the impact will be immaterial.
Intermet is engaged in various legal proceedings and other matters incidental to its 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.
None.
None.
None.
None.
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(a) The following exhibits are filed with this Report pursuant to Item 601 of Regulation S-K:
| Exhibit | ||||
| Number | Description of Exhibit | |||
| 27 | Financial Data Schedule. | |||
(b) Intermet filed no reports on Form 8-K for the quarter ended September 30, 1999.
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) |
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| Date: November 12, 1999 | ||
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| Exhibit Number | Description of Exhibit | |||||
| 27 | Financial Data Schedule. | |||||
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