FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended October 1, 1995
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 Number 0-13787
INTERMET CORPORATION
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(Exact name of registrant as specified in its charter)
Georgia 58-1563873
- ---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
5445 Corporate Drive, Suite 200, Troy, Michigan 48098
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(Address of principal executive offices and zip code)
(810) 641-1900
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(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
----- ----
Shares outstanding of each of the issuer's classes of common stock at
November 10, 1995: 24,738,374 shares of Common Stock, $0.10 par value
share.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Intermet Corporation
Interim Condensed Consolidated Balance Sheets
December 31, October 1,
1994 1995
-------------------------------
(In thousands of dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 13,718 $ 14,647
Accounts receivable:
Trade, less allowance for doubtful accounts of
$687 in 1994 and $901 in 1995 65,851 64,435
Other 7,176 10,058
------------------------------
73,027 74,493
Inventories 32,626 29,076
Other current assets 3,246 3,058
------------------------------
Total current assets 122,617 121,274
Property, plant and equipment, at cost 349,097 368,218
Less:
Foreign industrial development grants, net of
amortization (5,280) (5,632)
Accumulated depreciation and amortization (177,934) (202,796)
------------------------------
Net property, plant and equipment 165,883 159,790
Other noncurrent assets 17,764 15,093
------------------------------
$ 306,264 $ 296,157
==============================
See accompanying notes
1
December 31, October 1,
1994 1995
-------------------------------
(In thousands of dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,034 $ 31,928
Income taxes 3,257 15,825
Accrued liabilities 31,553 35,027
Notes payable 7,670 1,565
Long-term debt due within one year 12,017 2,646
-------------------------------
Total current liabilities 93,531 86,991
Noncurrent liabilities:
Long-term debt due after one year 87,698 61,098
Retirement benefits 43,906 44,936
Other noncurrent liabilities 10,321 10,870
-------------------------------
Total noncurrent liabilities 141,925 116,904
Minority interest 2,837 2,837
Shareholders' equity:
Common stock 2,464 2,473
Capital in excess of par value 52,150 52,648
Retained earnings 11,730 31,164
Accumulated translation adjustments 2,959 4,429
Minimum pension liability adjustment (1,164) (1,164)
Unearned restricted stock (168) (125)
-------------------------------
Total shareholders' equity 67,971 89,425
-------------------------------
$306,264 $296,157
===============================
See accompanying notes.
2
Intermet Corporation
Interim Condensed Consolidated Statements of Income
Three months ended Nine months ended
------------------------ -------------------------
October 2, October 1, October 2, October 1,
1994 1995 1994 1995
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(In thousands of dollars, except per share data)
Net sales $120,990 $117,331 $364,461 $419,644
Cost of sales 110,248 104,604 324,958 357,807
-------------------------- --------------------------
Gross profit 10,742 12,727 39,503 61,837
Operating expenses:
Selling 1,356 1,047 4,246 3,418
General and administrative 6,598 4,263 20,427 17,615
-------------------------- --------------------------
7,954 5,310 24,673 21,033
-------------------------- --------------------------
Operating profit 2,788 7,417 14,830 40,804
Other income and expenses:
Interest income 38 117 125 181
Interest expense (1,962) (1,399) (4,926) (5,399)
Other, net 26 105 152 (5)
-------------------------- --------------------------
(1,898) (1,177) (4,649) (5,223)
Income before income taxes 890 6,240 10,181 35,581
Provision for income taxes 517 2,863 5,659 16,147
------------------------- --------------------------
Net income $ 373 $ 3,377 $4,522 $19,434
========================= ==========================
Earnings per share $ .02 $ .14 $ .18 $ .78
======================== ==========================
See accompanying notes.
3
Intermet Corporation
Interim Condensed Consolidated Statements of Cash Flows
Nine months ended
October 2, October 1,
1994 1995
--------------------------
(In thousands of dollars)
OPERATING ACTIVITIES
Net income $ 4,522 $ 19,434
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,167 25,075
Deferred income taxes (1,300) (147)
Other 159 (167)
Changes in assets and liabilities:
Accounts receivable (24,943) (63)
Inventories 1,419 4,025
Accounts payable and accrued liabilities (341) 6,943
Other assets and liabilities 2,696 810
--------------------------
Net cash provided by operating activities 3,379 55,910
INVESTMENT ACTIVITIES
Additions to property, plant and equipment (17,948) (16,720)
Proceeds sale of property, plant and equipment 491 4,496
Other (403) (176)
----------------------------
Net cash used in investing activities (17,860) (12,400)
FINANCIAL ACTIVITIES
Increase in borrowings 6,397 15,000
Reduction in borrowings (1,901) (58,789)
Issuance of common stock 128 507
Other (30) (316)
-----------------------------
Net cash provided by (used in) financing activities 4,594 (43,598)
Effect of exchange rate changes on cash and cash
equivalents 8 1,017
-----------------------------
Net increase (decrease) in cash and cash equivalents (9,879) 929
Cash and cash equivalents at beginning of period 11,240 13,718
-----------------------------
Cash and cash equivalents at end of period $ 1,361 $ 14,647
==============================
See accompanying notes.
4
Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements
October 1, 1995
1. The condensed consolidated balance sheet at December 31,
1994 has been derived from audited consolidated financial
statements. The interim condensed consolidated financial
statements at October 1, 1995 and for the three and nine
month periods ended October 2, 1994 and October 1, 1995
are unaudited; however, in the opinion of management,
all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation have been
included. The results of operations for the nine month
period ended October 1, 1995 are not necessarily indicative
of the results to be expected for the full year.
2. Inventories consist of the following (in thousands of
dollars):
December 31, October 1,
1994 1995
--------------------------
Finished goods $ 4,350 $ 4,583
Work in process 4,032 3,816
Raw materials 6,566 4,941
Supplies and patterns 17,678 15,736
---------------------------
$32,626 $29,076
===========================
3. Property, plant and equipment consist of the following (in
thousands of dollars):
December 31, October 1,
1994 1995
--------------------------
Land $ 3,699 $ 3,712
Buildings and improvements 77,514 79,766
Machinery and equipment 253,518 265,537
Construction in progress 14,366 19,203
--------------------------
$ 349,097 $368,218
==========================
5
Notes to Interim Condensed Consolidated Financial Statements
(continued)
4. Long-term debt consists of the following (in thousands of
dollars):
December 31, October 1,
1994 1995
--------------------------
Intermet $ 85,162 $ 52,634
Subsidiaries 14,553 11,110
--------------------------
Total long-term debt 99,715 63,744
Less amounts due within one year 12,017 2,646
--------------------------
$ 87,698 $ 61,098
===========================
5. On October 6, 1995, the Company's wholly-owned
subsidiary, PBM Industries, Inc. (PBM), sold
substantially all of its assets to PBM Acquisition
Limited. A loss of $1.4 million resulted from the sale.
In exchange therefore, the Company received
$5.3 million in cash plus a $2.5 million subordinated
promissory note of PBM Acquisition Limited. Neither
PBM nor the Company nor any of their affiliates,
directors or officers has any material relationship
with PBM Acquisition Limited. PBM had sales of $35
million in 1994. The Company filed Form 8-K on the
sale on dated October 6, 1995.
On October 18, 1995, the Company's wholly-owned
subsidiary, InterMotive Technologies, Inc.
(InterMotive), sold its property, plant and equipment
to Ricardo - North America Detroit, Inc. and Ricardo
Group, plc. In exchange therefor, the Company received
$4.4 million in cash, which covered the net book value of
the property, plant and equipment. Neither InterMotive
nor the Company nor any of their affiliates, directors or
officers has any material relationship with Ricardo -
North America Detroit, Inc. InterMotive had sales of
$5 million in 1994. The Company filed Form 8-K on the
sale dated October 18, 1995.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Materials Changes in Financial Condition
- ----------------------------------------
The Company's financial position continues to improve. Sales are
up $55.2 million for nine months versus the comparable period for
1994. Earnings for nine months are $19.4 million versus $4.5
million for 1994. Funded debt has been reduced over $42 million
and the debt-to-capital ratio dropped to 42% compared to 61% on
December 31, 1994.
During the nine months ended October 1, 1995 the Company charged a
total of $3.8 million against reserves established in 1993 and 1994 for
restructuring, severance and retirement pay and related benefit
costs. This activity will continue throughout the balance of the
year.
Material Changes in Results of Operations
- -----------------------------------------
Sales for the third quarter were down slightly ($3.6 million)
from the year-a-ago quarter. However, as mentioned above year-
to-date sales are up $55.2 million or (15%). Sales were higher
both in the U.S. and Europe as the Company's principal market,
automobiles and light trucks, remained relatively strong. Over
$28 million of the year-to-date growth resulted from the new
production line added at the Company's New River Foundry in
Virginia. This line was not operating in the comparable nine
months of 1994. In addition, a stronger German mark contributed
over $7 million to the year-to-date sales figure. As expected
the sales growth in the second half of 1995 has slowed relative
to sales in the first half. Sales are somewhat parallel to
automotive and truck sales. The introduction of new automotive
casting components, such as those introduced at New River
Foundry, allows for continued sales growth.
Gross profit was up for the third quarter and is up significantly
for nine months. The nine month results over 1994 are largely
due to the higher results in the first half of 1995. Overall
margins for nine months of 1995 are 14.7% compared to 10.8% for
the comparable period in 1994. Most plants have contributed
to the improved results for 1995.
Improved margins combined with higher sales led to operating
profit more than doubling for the third quarter as well as nine
months of 1995 as compared to the comparable period in 1994.
Management expects the sales and profit momentum to continue
for the balance of 1995.
Interest expense for the third quarter was down $.5 million from
the second quarter of 1995 and $600,000 from the same
period last year. Most of this decrease is attributable to the
reduction in debt. Interest expense on a year-to-date basis is
$500,000 higher than for the same period a year ago. Higher
interest rates in 1995 as well as the increase in business
activity resulted in higher interest expense over the nine months
ended October 2, 1994.
7
The Company's effective income tax rate was 46% in the third
quarter and 45% for nine months of 1995. In 1994 the effective
rate was approximately 58% for the third quarter and 56% for the
nine month period ended October 2, 1994. A greater portion of
consolidated pretax income was earned in the U.S. in 1995. This
reduced the effect of higher foreign tax rates on the overall effective
income tax rate. Higher pretax income also mitigated the effect
on the overall tax rate of nondeductible charges and differences
in state income tax rates among the U.S. subsidiaries.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In August 1991 Lynchburg Foundry Company ("Lynchburg"),
a wholly-owned subsidiary of the Registrant, was served
with a complaint (the "Complaint") by the United States
Environmental Protection Agency (the "EPA"). The
Complaint alleged certain violations by Lynchburg of
the Resource Conservation and Recovery Act, the most
significant of which related to the treatment of
certain hazardous waste at two of Lynchburg's
foundries. In November 1994 Lynchburg signed a consent
order agreeing to pay a penalty of $330,000. Payment
of this amount was made in September 1995.
The Registrant has entered into negotiations with the
Office of the Ohio Attorney General with respect to
certain past violations by the Registrant's Ironton,
Ohio foundry of Ohio water pollution laws and
regulations. The Attorney General's office has advised
the Registrant that it could avoid litigation with
respect to such violations by entering into a consent
order. The parties have tentatively agreed to a
penalty of $285,000 and documentation to effectuate the
settlement is being prepared.
A complaint was filed on October 6, 1995 in the
Superior Court of Fulton County, Georgia by Brickell
Partners, a Florida partnership, against the Registrant
and each director of the Registrant except George W.
Mathews, Jr. This complaint was brought on behalf of
the plaintiff and, purportedly, public stockholders of
the Registrant, as a class. The complaint alleges that
the named directors breached their fiduciary duties by
failing to properly consider an offer for Registrant by
GWM Inc. and Kelso & Company. The complaint alleges
the named directors deprived the plaintiff and the
class of the receipt of maximum value for their shares.
The plaintiff demands that the named directors be
ordered to carry out their fiduciary duties, that
damages in an unspecified amount be awarded to the
plaintiff and the class and that attorney's fees and
costs be granted to the plaintiff. The Registrant's
response to the complaint is due December 22, 1995.
9
Item 2. Changes in Securities
---------------------
On October 6, 1995, the Registrant's Board of Directors
declared a dividend of one right ("Right") for each
share of common stock of the Registrant, held as of the
close of business on October 17, 1995. Each Right will
be issued pursuant to a Shareholder Protection Right
Agreement between the Registrant and Trust Company Bank
as Rights Agent. The terms of the Rights are
summarized in a Form 8-K filed by the Registrant on
October 11, 1995.
On October 6, 1995, the Registrant's Board of Directors
amended the Registrant's Bylaws to add Article I,
Section 9 regarding advance notice of shareholder
proposals.
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Securities Holders
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None
Item 5. Other Information
-----------------
On August 21, 1995, the Company amended and restated
its revolving credit agreement with its bank
lending group. The agreement continues to provide
loans up to $75 million and DM 8 million (approximately
$5.6 million). The borrowing limit is reduced by
certain standby letters of credit issued by the
Company. The Company's uncommitted line of credit
agreement has been revised to provide for loans up to
$15 million which is up from a $12 million limit. The
Company's term loan agreement with Prudential Insurance
Company of America remains at $25 million.
The Company's German subsidiary revolving credit
agreement remains in place which permits borrowings up
to DM 24 million (approximately $16.8 million).
10
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) The following Exhibits are filed as of part of this
report:
Exhibit
Number Description
--------- ----------------------------
3.1 and 4.1 Bylaws of the Registrant, as amended
4.2 Shareholder Protection Rights Agreement
("Rights Agreement"), dated as of October 6,
1995 between Intermet Corporation and Trust
Company Bank, as Rights Agent (previously
filed with the Commission on the Registrant's
Form 8-K related to the Rights Agreement, dated
October 6, 1995, and incorporated herein by
reference).
10.1 Asset Purchase Agreement ("Asset Purchase Agreement")
among the Registrant, Intermet Machining, Inc., PBM
Industries, Inc. and PBM Acquisition Limited,
dated September 6, 1995, (previously filed
with the Commission on the Registrant's Form
8-K related to the Asset Purchase Agreement, dated
October 6, 1995, and incorporated herein by reference).
10.2 Amended and Restated Credit Agreement, dated
August 21, 1995, by and among the Registrant,
Trust Company Bank as lender and agent and
the various lenders named therein.
10.3 Amendment dated August 21, 1995 to Note
Purchase Agreement, dated December 11, 1992
by and between the Registrant and The
Prudential Insurance Company of America.
11.1 Computation of Earnings per Common Share
27.1 Financial Data Schedule
(b) None
11
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
INTERMET CORPORATION
--------------------
By:/s/Doretha J. Christoph
Doretha J. Christoph
Vice-President Finance
(Principal Financial Officer)
DATE: November 15, 1995
13
EXHIBIT INDEX
Exhibit
Number Description
--------- ---------------------------
3.1 and 4.1 Bylaws of the Registrant, as amended
10.2 Amended and Restated Credit Agreement, dated
August 21, 1995, by and among the Registrant,
Trust Company Bank as lender and agent and
the various lenders named therein.
10.3 Amendment dated August 21, 1995 to Note
Purchase Agreement, dated December 11, 1992
by and between the Registrant and The
Prudential Insurance Company of America.
11.1 Computation of Earnings per Common Share
27.1 Financial Data Schedule