Exhibit 13
FIVE YEAR FINANCIAL REVIEW
Years Ended December 31 1990 1991 1992 1993 1994
- ----------------------------------------------------------------------------------------------------------
Statement of Operations Data (in thousands)
Net sales $386,318 $319,784 $401,951 $444,214 $501,269
Restructuring charge 12,500 - - 24,000 -
Operating profit (loss) 1,034 7,563 5,830 (23,486) 1,728
Income (loss) before cumulative (10,389) 8,803 (1,515) (20,504) (10,985)
effect of accounting changes
Cumulative effect on prior years of - - (28,421) - -
changes in accounting methods
Net income (loss) (10,389) 8,803 (29,936) (20,504) (10,985)
- ----------------------------------------------------------------------------------------------------------
Share Data
Earnings (loss) per share before $ (.55) $ .42 $ (.06) $ (.83) $ (.45)
cumulative effect of accounting changes
Earnings (loss) per share (.55) .42 (1.31) (.83) (.45)
Cash dividends per share .20 .14 .16 .12 -
- ----------------------------------------------------------------------------------------------------------
Balance Sheet Data (in thoussands)
Total assets $214,875 $214,207 $274,457 $307,458 $306,264
Debt due after one year 45,138 32,906 69,478 93,391 87,698
Shareholders' equity 103,591 105,407 101,054 75,532 67,971
Results of Operations
- ---------------------
1994 Compared to 1993
- ---------------------
Net sales in 1994 climbed $57.1 million over 1993. This increase of almost 13%
occurred despite the fact the Company had fewer plants in operation during 1994
than in 1993. Sales actually increased 22% for plants operating in both years,
with all plants posting sales increases. The automotive market was
significantly stronger in 1994, both in the U.S. and in Europe, compared to
1993. Additional sales growth is expected in 1995, at least in the U.S.
However, most plants are operating at or near capacity so the growth rate will
be lower than in 1994.
Gross profit increased $7.1 million in 1994 over 1993. The consolidated gross
margin also improved slightly, rising to 8.5% of sales from 8% in 1993. Margins
improved at most of the Company's plants, especially at the Ironton, Ohio
foundry. Much of this improvement was offset by certain adjustments recorded in
the fourth quarter of 1994 and by losses at the Company's New River foundry in
Virginia. The fourth quarter adjustments affecting gross profit totaled $8.9
million, and were the result of equipment write downs and the write-off of
goodwill related to a 1992 acquisition. Without these adjustments the gross
margin would have been 10.3% of sales in 1994. The New River losses stemmed from
the startup of a new production line during 1994.
Operating expenses were $40.7 million in 1994 compared to $34.9 million in 1993.
The 1994 figure includes fourth quarter adjustments totaling $7.3 million. The
adjustments were for retirement payments to be made to the Company's former
Chairman and Vice Chairman, severance pay and benefits for planned terminations
due to a reorganization of the Company, and the write-off of an investment in a
joint venture. Without such adjustments, operating expenses would have declined
$1.5 million due largely to a reduced work force resulting from the Lower
Basin closing.
Operating profit was $1.7 million in 1994 compared to an operating loss of $23.5
million in 1993. The 1993 figure includes a restructuring charge of $24 million.
Without the effect of this restructuring charge and the 1994 fourth quarter
adjustments described above, operating profit would have been $18 million in
1994 and $0.5 million in 1993.
Operating results are expected to improve again in 1995. The reorganization of
the Company should lower the Company's cost structure and enhance operating
efficiency. Also, losses at the New River foundry should abate as the year
progresses. These expectations are based on the assumption the U.S. automotive
market will remain strong during 1995.
Interest expense for 1994 was $1.3 million higher than the prior year, due to
higher domestic borrowing levels and interest rates.
Capitalized interest related to the New River foundry expansion was $0.7 million
in 1994 and $1.0 million in 1993.
The Company recorded an income tax provision of $5.9 million despite reporting a
pretax loss of $5.1 million in 1994. The 1994 provision consists primarily of
state and foreign income taxes related to profitable subsidiaries. Due to the
domestic losses reported in each of the last three years, management did not
consider it appropriate to recognize the U.S. federal income tax benefit
related to the 1994 consolidated domestic loss. Management continues to believe
most of the Company's deferred income tax assets will eventually be realized,
even though valuation allowances have been established for a substantial portion
of these assets given the lack of available objective evidence considered
necessary to recognize such assets under generally accepted accounting
principles.
Results of Operations
- ---------------------
1993 Compared to 1992
- ---------------------
Net sales in 1993 rose $42.3 million over 1992. This growth was the result of an
increase in shipments to the Company's U.S. automotive customers of almost 20%,
approximately one-third of which related to a major new order from Ford which
was only in production for part of 1992. Partially offsetting this growth was a
20% drop in shipments from the Company's German foundry due to the recession in
Europe.
Gross Profit fell $4.8 million in 1993 despite the higher sales, reducing the
consolidated gross margin to 8% of sales from 10% in 1992. Losses at the
Ironton, Ohio foundry were one reason for the lower gross profit. These losses
were the result of continuing startup costs and manufacturing problems related
to the additions of both a new production line for the Ford order noted above
and a second shift on the existing production line at that plant in the last
half of 1992. The workload also became unbalanced among certain plants when U.S.
sales surged in the first half of 1993. This led to inefficient utilization of
the Company's domestic foundry capacity. In addition, profits and margins fell
at the German foundry as a result of the sharp decline in sales from that plant.
Offsetting these factors was a significant improvement in the operating results
of the Columbus, Georgia foundry after replacement of the molding lines there
was completed in early 1993.
Operating expenses were relatively unchanged in 1993 compared to 1992 and, as a
result, fell as a percent of sales from 8.5% to 7.8%.
The Company reported an operating loss of $23.5 million in 1993. In 1992 the
Company had an operating profit of $5.8 million. While the factors noted above
contributed to the loss, the principal reason for the loss was a $24 million
restructuring
charge. This charge was primarily related to the Company's decision to close the
Lower Basin foundry in Virginia. A number of factors led to this decision,
including the amount of capital expenditures that would have been required at
the plant in the next few years, its location in a flood plain and the uncertain
outlook for profitable operations. The restructuring charge included provisions
totaling $8 million for severance pay and employee benefits related to the
termination of approximately 650 employees from Lower Basin and other areas that
supported the plant's operation, write-down of Lower Basin capital assets and
inventories of $6 million, provisions for operating losses until closing of $4.5
million, building demolition and remediation costs of $3.3 million and other
items totaling $2.2 million.
Net interest expense for 1993 increased $1.4 million over the prior year, due
largely to higher borrowing levels used to fund capital expenditures. The effect
of higher borrowing levels was offset in part by capitalized interest of
approximately $1 million related to the expansion of the New River foundry in
Virginia.
The Company recorded an income tax benefit of $8.5 million on a pretax loss of
$29.1 million in 1993. Deferred tax assets increased $14 million during the year
to more than $50 million. Management did not believe it was necessary to fully
reserve all of the 1993 increase because it believed it was more likely than not
that sufficient pretax income (approximately $25 million) could be generated
through future profitable operations or tax planning strategies. The 1993 income
tax benefit was also affected by a decrease in the German tax rate.
The Company adopted Statements of Financial Accounting Standards Nos. 106 and
109 in 1992. These statements changed the methods of accounting for
postretirement benefits and income taxes, and their adoption resulted in a net
charge against 1992 results of $28.4 million for the cumulative effect on prior
years.
Liquidity and Capital Resources
- -------------------------------
Certain balance sheet data is summarized below (in thousands of dollars):
December 31 1992 1993 1994
- ----------- ---- ---- ----
Funded debt $ 76,751 $106,593 $107,385
Shareholders' equity 101,054 75,532 67,971
Net working capital 30,406 31,161 29,086
Borrowings remained relatively flat in 1994 due in part to a decline in the
amount of capital expenditures. The major capital expenditure program started
three years ago was completed with the startup of the new production line at New
River. Capital expenditures are expected to be at or below the level of
depreciation in 1995, and borrowings are expected to decline
based on forecasted operating results and working capital needs.
Shareholders' equity has declined over $33 million since the end of 1992,
largely as a result of the losses reported in the last two years. However, a
significant portion of those losses represented noncash charges. Approximately
half of the cumulative loss before income taxes in the last two years consists
of noncash charges to write off or revalue assets.
The 1994 activity in the restructuring reserve had little effect on the
Company's cash flow. Approximately $6 million was charged against the reserve in
1994. Of this amount, Lower Basin operating losses were approximately $3.7
million with the balance comprised mostly of severance payments and related
benefit costs. These charges were funded by working capital previously used to
support Lower Basin operations. While the operating losses incurred prior to
closing were higher than originally expected, it now appears the severance and
benefit costs will be less than expected by a similar amount. Most of the
foundry equipment and supplies inventories are expected to be removed and
disposed of during 1995. Demolition of the building has yet to be scheduled but
will probably take place in 1996. The Company expects to spend approximately $3
million in 1995 and $4 million in 1996 to fund items accrued as part of the
restructuring, primarily for severance, benefits and building demolition.
As noted previously, the Company recorded an accrual in 1994 for retirement pay
and for severance costs related to additional planned terminations.
Approximately $4.3 million of the amount accrued in 1994 will be funded during
1995. The Company expects to fund these retirement and severance payments and
the restructuring activity noted in the preceding paragraph with cash provided
by operations.
At December 31, 1994 the Company and its subsidiaries had approximately $14
million of unused borrowing capacity under various credit agreements, and an
additional $15 million available if certain financial ratios are attained.
The Environmental Protection Agency ("EPA") filed a complaint against one of the
Company's subsidiaries in August 1991. The complaint alleged various violations,
the most significant of which related to the treatment of certain hazardous
wastes at two foundries. The complaint demanded a penalty of approximately
$1,500,000. The Company and the EPA have reached an agreement for a reduced
penalty of $330,000 which is expected to be paid in 1995.
In March 1994 the Company entered into negotiations with the Ohio Attorney
General's office concerning past violations of Ohio water pollution laws and
regulations at the Ironton foundry. The Attorney General's office advised the
Company it could avoid litigation with respect to these violations by entering
into a consent order. The Company expects to eventually enter into a
consent order providing for monetary penalties. Management does not expect this
matter to have a material adverse effect on the Company's consolidated financial
position or results of operations.
The Company also incurs recurring costs to manage and dispose of waste
(principally nonhazardous waste) generated as part of ongoing operations. In
1994 and 1993 such costs totaled approximately $12 million and $10 million,
respectively. Although the Company continues to take various steps to control
these costs, they are expected to increase in the future. In addition, a portion
of the Company's capital expenditures are regularly incurred to limit or monitor
pollution, principally for ventilation and dust control equipment. Such
expenditures were approximately $4.5 million in 1994, and were estimated to be
approximately $10 million in 1993.
Report of Independent Auditors
The Board of Directors and Shareholders
Intermet Corporation
We have audited the accompanying consolidated balance sheets of Intermet
Corporation as of December 31, 1994 and 1993, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intermet
Corporation at December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 9 and 10 to the consolidated financial statements, in 1992
the Company changed its methods of accounting for postretirement benefits other
than pensions and income taxes.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 8, 1995
Intermet Corporation
Consolidated Balance Sheets
DECEMBER 31
1994 1993
--------------------------------
(In Thousands of Dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 13,718 $ 11,240
Accounts receivable:
Trade, less allowance for doubtful accounts of
$687 in 1994 and $518 in 1993 65,851 47,440
Other 7,176 5,502
--------------------------------
73,027 52,942
Inventories:
Finished goods 4,350 6,316
Work in process 4,032 7,154
Raw materials 6,566 5,345
Supplies and patterns 17,678 18,417
--------------------------------
32,626 37,232
Other current assets 3,246 7,215
--------------------------------
Total current assets 122,617 108,629
Property, plant and equipment, at cost:
Land 3,699 3,520
Buildings and improvements 77,514 62,669
Machinery and equipment 253,518 218,733
Construction in progress 14,366 43,743
--------------------------------
349,097 328,665
Less:
Foreign industrial development grants, net of
amortization 5,280 5,275
Accumulated depreciation and amortization 177,934 150,093
--------------------------------
Net property, plant and equipment 165,883 173,297
Other noncurrent assets 17,764 25,532
--------------------------------
$306,264 $307,458
================================
DECEMBER 31
1994 1993
--------------------
(In Thousands of Dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,034 $ 34,784
Accrued wages, severance and benefits 19,577 13,092
Accrued restructuring costs 2,362 7,316
Other accrued liabilities 12,871 9,074
Notes payable 7,670 10,739
Long-term debt due within one year 12,017 2,463
--------------------
Total current liabilities 93,531 77,468
Noncurrent liabilities:
Long-term debt due after one year 87,698 93,391
Retirement benefits 43,906 45,624
Other noncurrent liabilities 10,321 12,606
--------------------
Total noncurrent liabilities 141,925 151,621
Minority interests 2,837 2,837
Shareholders' equity:
Preferred stock; 5,000,000 shares
authorized; none issued - -
Common stock, $.10 par value;
50,000,000 shares authorized; 24,644,719 and
24,572,219 shares issued in 1994 and 1993,
respectively 2,464 2,457
Capital in excess of par value 52,150 51,742
Retained earnings 11,730 22,715
Accumulated translation adjustments 2,959 1,499
Minimum pension liability adjustment (1,164) (2,881)
Unearned restricted stock (168) -
--------------------
Total shareholders' equity 67,971 75,532
--------------------
$306,264 $307,458
====================
See accompanying notes.
Intermet Corporation
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31
1994 1993 1992
------------------------------------
(In Thousands of Dollars, Except Per Share Data)
Net sales $501,269 $444,214 $401,951
Cost of sales (Note 12) 458,823 408,835 361,807
------------------------------------
Gross profit 42,446 35,379 40,144
Operating expenses:
Selling 5,520 6,114 6,684
General and administrative (Note 12) 35,198 28,751 27,630
Restructuring charge (Note 3) - 24,000 -
------------------------------------
Operating profit (loss) 1,728 (23,486) 5,830
Other income and expenses:
Interest income 149 135 289
Interest expense (6,952) (5,625) (4,343)
Other, net (14) (159) 531
------------------------------------
(6,817) (5,649) (3,523)
Income (loss) before income taxes, minority
interest and cumulative effect of
accounting changes (5,089) (29,135) 2,307
Provision (benefit) for income taxes 5,896 (8,512) 4,310
------------------------------------
Loss before minority interest and cumulative
effect of accounting changes (10,985) (20,623) (2,003)
Minority interest in loss of subsidiaries - 119 488
------------------------------------
Loss before cumulative effect of accounting
changes (10,985) (20,504) (1,515)
Cumulative effect on prior years of changes
in accounting for:
Postretirement benefits - - (34,544)
Income taxes - - 6,123
------------------------------------
Net loss $(10,985) $(20,504) $(29,936)
====================================
Amounts per common share:
Loss before cumulative effect of
accounting changes $ (.45) $ (.83) $ (.06)
Cumulative effect on prior years of
changes in accounting for:
Postretirement benefits - - (1.52)
Income taxes - - .27
------------------------------------
Net loss $ (.45) $ (.83) $ (1.31)
====================================
See accompanying notes.
Intermet Corporation
Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31
1994 1993 1992
---------------------------------
(In Thousands of Dollars)
OPERATING ACTIVITIES
Net loss $(10,985) $(20,504) $(29,936)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 29,035 26,583 22,996
Restructuring charge - 24,000 -
Cumulative effect of accounting
changes - - 28,421
Write down equipment and goodwill 8,945 - -
Write off investment in joint
venture 2,001 - -
Loss on sale of assets 26 1,053 891
Deferred income taxes (800) (4,640) (853)
Minority interest in loss of
subsidiaries - (119) (488)
Changes in operating assets and
liabilities excluding the effects of
acquisitions:
Accounts receivable (18,877) (9,221) (3,262)
Inventories 5,204 (4,929) (5,423)
Accounts payable and accrued
liabilities 12,521 5,358 (1,609)
Other assets and liabilities 565 183 (933)
---------------------------------
Cash provided by operating activities 27,635 17,764 9,804
INVESTING ACTIVITIES
Additions to property, plant and
equipment (24,873) (41,018) (51,783)
Cost of acquisitions - - (6,750)
Proceeds from sale of assets 965 1,012 220
Other, net (833) (877) (1,478)
---------------------------------
Cash used in investing activities (24,741) (40,883) (59,791)
Intermet Corporation
Consolidated Statements of Cash Flows (continued)
YEARS ENDED DECEMBER 31
1994 1993 1992
-----------------------------------
(In Thousands of Dollars)
FINANCING ACTIVITIES
Increase in debt 5,203 35,579 51,835
Reduction in debt (5,197) (4,482) (31,248)
Issuance of common stock 127 273 31,399
Dividends paid - (2,947) (3,634)
Other, net (30) (140) (407)
-----------------------------------
Cash provided by financing activities 103 28,283 47,945
Effect of exchange rate changes on cash (519) (21) (367)
-----------------------------------
Net increase (decrease) in cash and cash
equivalents 2,478 5,143 (2,409)
Cash and cash equivalents at beginning of
year 11,240 6,097 8,506
-----------------------------------
Cash and cash equivalents at end of year $13,718 $11,240 $6,097
===================================
See accompanying notes.
Intermet Corporation
Consolidated Statements of Shareholders' Equity
YEARS ENDED DECEMBER 31
1994 1993 1992
----------------------------------
(In Thousands of Dollars)
COMMON STOCK
Beginning balance $ 2,457 $ 2,453 $2,089
Issuance of 3,639,750 shares of common
stock - - 364
Exercise of options to purchase 22,500
and 45,000 shares of common stock in
1994 and 1993, respectively 2 4 -
Issuance of 50,000 shares of common
stock 5 - -
----------------------------------
Ending balance 2,464 2,457 2,453
CAPITAL IN EXCESS OF PAR VALUE
Beginning balance 51,742 51,473 20,438
Issuance of 3,639,750 shares of common
stock - - 31,035
Exercise of options to purchase 22,500
and 45,000 shares of common stock in
1994 and 1993, respectively 125 269 -
Issuance of 50,000 shares of common stock 283 - -
----------------------------------
Ending balance 52,150 51,742 51,473
RETAINED EARNINGS
Beginning balance 22,715 46,166 79,736
Net loss (10,985) (20,504) (29,936)
Cash dividends ($.12 per share in 1993
and $.16 per share in 1992) - (2,947) (3,634)
----------------------------------
Ending balance 11,730 22,715 46,166
ACCUMULATED TRANSLATION ADJUSTMENTS
Beginning balance 1,499 2,636 3,144
Translation adjustments 2,640 (1,779) (1,028)
Related income tax effect (1,180) 642 520
----------------------------------
Ending balance 2,959 1,499 2,636
MINIMUM PENSION LIABILITY ADJUSTMENT
Beginning balance (2,881) (1,674) -
Adjustment 2,815 (2,023) (2,700)
Related income tax effect (1,098) 816 1,026
----------------------------------
Ending balance (1,164) (2,881) (1,674)
UNEARNED RESTRICTED STOCK
Beginning balance - - -
Unearned restricted stock, net of
amortization (168) - -
----------------------------------
Ending balance (168) - -
----------------------------------
Total shareholders' equity $ 67,971 $ 75,532 $101,054
==================================
See accompanying notes.
Intermet Corporation
Notes to Consolidated Financial Statements
December 31, 1994, 1993, and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Intermet Corporation ("Intermet") and its subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) method as to 14% and 24% of the December 31, 1994
and 1993 inventories, respectively. For other inventories, raw materials and
supplies are valued on a weighted average cost basis, while average production
cost is used for work in process and finished goods valuation. The specific
identification method is used for patterns. If LIFO inventories were valued
using the same cost methods used for other inventories, their carrying values
would have increased by $1,257,000 and $1,042,000 at December 31, 1994 and 1993,
respectively.
PROPERTY, PLANT AND EQUIPMENT
The provision for depreciation and amortization of property, plant and equipment
is determined on the basis of estimated useful lives using the straight-line
method. Certain industrial development grants provided by the Federal and state
governments of Germany are included as reductions of property, plant and
equipment and are being amortized over the period the related assets are being
depreciated.
INTANGIBLE ASSETS
Intangible assets consist principally of costs in excess of net assets acquired
which totaled $5,207,000 and $10,678,000 (net of accumulated amortization of
$1,619,000 and $2,156,000) at December 31, 1994 and 1993, respectively. Such
costs are being amortized using the straight-line method over periods from ten
to forty years (see Note 12).