EXHIBIT 13
DISCUSSION OF FINANCIAL INFORMATION
RESULTS OF OPERATIONS
1995 Compared to 1994
- ---------------------
Record sales in 1995 were $40.5 million (8%) higher than 1994 reflecting the
relatively strong economy in North America, the strengthening economy in Europe
and favorable exchange rate changes. The Company was able to utilize the
additional capacity gained earlier in the year by going to a three-shift foundry
operation as well as the new production line started up at the Company's New
River Castings plant in late 1994 to meet customer demand. This increase
occurred despite the decline in sales resulting from the sale of two businesses.
Sales actually increased 13% for plants operating in both years, although the
automotive market was weaker in 1995 compared to 1994. Sales in 1996 from
continuing businesses are expected to have modest growth in an automotive market
that is expected to be relatively flat compared to 1995.
Gross profit increased $42 million in 1995 over 1994. The consolidated gross
margin also improved substantially, rising to 15.6% of sales from 8.5% in 1994
(10.3% before fourth quarter 1994 adjustments of $8.9 million for equipment
write-downs and write-off of goodwill related to a 1992 acquisition). Margins
improved at all foundry operations in the Company, especially the Company's New
River Castings foundry in Virginia. This improvement stems from operational
improvements and focused cost reduction programs addressing yield rates,
scrappage, and procurement procedures.
Operating expenses were $31.6 million in 1995 compared to $40.7 million in 1994.
The majority of previously performed corporate functions were decentralized or
eliminated during 1995. Expenses were lowered $5.8 million from reduction in
staffing and targeted corporate cost reduction programs despite the one-time
expense of relocating the Corporate offices from Atlanta to Detroit. The
remaining decline in operating expense resulted from the fourth quarter 1994
charge of $7.3 million for retirement payments for the Company's former Chairman
and Vice-Chairman, severance pay and benefits per planned terminations due to a
reorganization, and a joint venture write-off.
As expected, operating profit improved to $52.8 million versus the 1994
operating profit of $1.7 million ($18 million before the adjustments described
above) despite the Company's purchasing and beginning operation of an aluminum
castings business in fourth quarter 1995 and the unexpected costs of handling
the G.W.M., Inc. and Kelso & Company, L.P acquisition proposal ($0.6 million).
Operating results are expected to improve in 1996 as the full year's impact of
the decentralization and cost reduction programs implemented in early 1995 are
realized. These expectations are based on the assumption that the automotive
market demand will continue near the same level as in 1996 as was experienced
during the last half of 1995.
Interest expense for 1995 was $0.5 million less than in the prior year, due to a
lower level of borrowing and decreasing interest rates toward the end of the
current year. In addition, only $88 thousand of interest was capitalized for
1995 versus the $0.7 million in capitalized interest in 1994 related to the New
River Castings expansion.
The Company recorded a consolidated income tax provision of $20.1 million in
1995 which reflects a return to profitable domestic operations after three years
of reported losses. The consolidated tax rate is higher than the domestic
income tax rates due to the higher foreign tax rates on related earnings. No
U.S. federal income tax benefit related to consolidated domestic loss was
recognized in 1994. Management continues to believe that most of the Company's
deferred income tax assets will be realized. However, such assets continue to
be heavily reserved until a consistent record of profitability has been
established.
RESULTS OF OPERATIONS
1994 Compared to 1993
- ---------------------
Net sales in 1994 rose $57.1 million over 1993. This increase of nearly 13%
occurred despite the Company's operating with fewer plants during 1994 than in
1993. For those plants operating in both years, sales actually increased 22%.
This growth was the result of a significantly stronger automotive market in both
the U.S. and Europe in 1994 as compared to 1993.
Gross profit increased $7.1 million in 1994 over 1993 with the increased sales
volume. There was an overall slight improvement in margin from 8.0% to 8.5%
with the improved margins realized at most plants, particularly the Ironton,
Ohio foundry, being offset by the startup losses recorded in the fourth quarter
at the Company's New River Castings 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 1994 gross margin would have been
10.3% of 1994 sales.
Operating expenses were $40.7 million 1994, $5.8 million higher than in 1993.
However, the 1994 amount includes adjustments totaling $7.3 million. These
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 as a result of the 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
adjustments described above, operating profit would have been $18 million in
1994 and $0.5 million in 1993. While the operating profit was positive in 1994,
the reorganization of the Company was to allow better operating efficiencies and
lower cost structure.
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 Castings foundry expansion was $0.7 million in 1994 and
$1.0 million in 1993.
The Company recorded a $5.9 million income tax provision despite reporting a
pretax loss of $5.1 million in 1994. This 1994 tax provision consists primarily
of state and foreign incomes taxes related to profitable subsidiaries. Due to
the U.S. losses reported in each of the last three years, management viewed as
inappropriate the recognition of a U.S. federal income tax benefit related to
the consolidated domestic loss. Management expects to realize most of the
Company's deferred income tax assets although there was a lack of available
objective evidence considered necessary to recognize such assets under generally
accepted accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
Certain balance sheet date is summarized below (in thousands of dollars):
DECEMBER 31 1992 1993 1994 1995
- ---------------------- -------- -------- -------- -------
Funded Debt $ 76,751 $106,593 $107,385 $35,284
Shareholders' equity 101,054 75,532 67,971 98,028
Net working capital 30,406 31,161 29,086 11,874
Outstanding debt was reduced in 1995 by $72 million principally as a result of
improved operating results as well as a reduction in working capital. In
addition, the Company continued its liquidation of idle and non-strategic assets
by selling two businesses not aligned with its castings business. At the same
time the Company purchased an aluminum castings business using internally
generated funds. Capital expenditures for the Company were below the level of
depreciation as expected. All of the above allowed the Company to improve its
debt-to-capital ratio to 27% compared to 61% at December 31, 1994.
Shareholders' equity increased $30 million from $68 million at December 31, 1994
to $98 million at December 31, 1995, building back nearly to the level reported
in late 1992. Shareholders' equity had declined over $33 million since the end
of 1992, largely as a result of losses reported in the last three years.
However, over half of the cumulative losses before income taxes represented
noncash write-offs or revaluations of assets.
The 1995 activity in the restructuring reserve established in 1993 reduced the
Company's cash flows by $2 million, while $6 million was charged against the
reserve in 1994. These charges were funded by working capital previously used to
support Lower Basin operations. Most of the foundry equipment and supplies
inventory were removed and disposed of during 1995. Demolition of the foundry
was started and is expected to be completed in 1996. The Company expects to
have completed almost all of the above-mentioned restructuring, consisting
primarily of the demolition of the remaining buildings and severance in 1996.
As noted previously, the Company recorded an accrual in 1994 for retirement pay
and severance costs related to additional planned terminations. Operations in
1995 funded approximately $2.4 million of the amount accrued in 1994. In
addition, the Company expects to fund $1.7 million accrued at December 31, 1995,
for the headquarters relocation out of cash generated in 1996 from operations.
At December 31, 1995 the Company and its subsidiaries had approximately $75
million of unused borrowing capacity under various revolving credit agreements.
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 Company and the EPA reached agreement
for a reduced penalty of $330,000 which was paid in 1995.
In March 1994, the Company entered negotiations with the Ohio Attorney General's
office concerning past violations of Ohio water pollution laws and regulations
at the Ironton foundry. In November 1995, the Company agreed to pay the State
of Ohio a determined fine of $285,000 to settle this and all other water
discharge violations at Ironton. The Company has accrued this liability at
December 31, 1995 and expects to pay this in 1996 on receipt of the State
decree. In addition, the Company has submitted a plan to the Ohio EPA to bring
its facility into compliance with all applicable air emission requirements,
after that agency had advised management of several violations of air pollution
regulations. It is not known whether the agency will eventually demand the
payment of civil penalties for these past violations.
The Company also incurs recurring costs related to environmental concerns,
particularly the management and disposition of waste (principally nonhazardous
waste) generated as part of ongoing operations. In 1995 and 1994 such costs
totaled approximately $9 million and $12 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 $2.0 million in 1995 and $4.5 million in 1994. The Company
expects to spend $5.1 million in capital in this area in 1996.
Consolidated Financial Statements
Intermet Corporation
Years ended December 31, 1995, 1994 and 1993
--------------------------------------------
with Report of Independent Auditors
-----------------------------------
Intermet Corporation
Consolidated Financial Statements
Years ended December 31, 1995, 1994 and 1993
CONTENTS
Report of Independent Auditors............................................ l
Consolidated Financial Statements
Consolidated Balance Sheets............................................... 2
Consolidated Statements of Operations..................................... 4
Consolidated Statements of Cash Flows..................................... 5
Consolidated Statements of Shareholders' Equity........................... 7
Notes to Consolidated Financial Statements................................ 8
F-2
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, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Detroit, Michigan
January 26, 1996
F-3
Intermet Corporation
Consolidated Balance Sheets
DECEMBER 31,
1995 1994
------------------
(In Thousands of Dollars)
-------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,173 $ 13,718
Accounts receivable:
Trade, less allowance for doubtful accounts of
$1,267 in 1995 and $687 in 1994 49,814 65,851
Other 5,298 7,176
-----------------
55,112 73,027
Inventories:
Finished goods 5,616 4,350
Work in process 3,989 4,032
Raw materials 3,975 6,566
Supplies and patterns 15,575 17,678
-----------------
29,155 32,626
Other current assets 7,632 3,246
-----------------
Total current assets 103,072 122,617
Property, plant and equipment, at cost:
Land 3,585 3,699
Buildings and improvements 77,649 77,514
Machinery and equipment 254,140 253,518
Construction in progress 8,914 14,366
-----------------
344,288 349,097
Less:
Foreign industrial development grants, net of
amortization 5,469 5,280
Accumulated depreciation and amortization 189,625 177,934
------------------
Net property, plant and equipment 149,194 165,883
Other noncurrent assets 21,805 17,764
------------------
$274,071 $306,264
==================
F-4
DECEMBER 31,
1995 1994
-------------------------
(In Thousands of Dollars)
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,640 $ 39,034
Accrued wages, severance and benefits 19,432 19,577
Accrued restructuring costs 7,334 2,362
Income taxes payable 16,000 3,300
Other accrued liabilities 17,183 9,571
Notes payable 13 7,670
Long-term debt due within one year 2,596 12,017
--------------------
Total current liabilities 91,198 93,531
Noncurrent liabilities:
Long-term debt due after one year 32,675 87,698
Retirement benefits 43,621 43,906
Other noncurrent liabilities 5,712 10,321
--------------------
Total noncurrent liabilities 82,008 141,925
Minority interest 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; 25,050,374 and 24,644,719 shares
issued in 1995 and 1994, respectively 2,505 2,464
Capital in excess of par value 56,431 52,150
Retained earnings 37,125 11,730
Accumulated translation adjustments 3,765 2,959
Minimum pension liability adjustment (1,636) (1,164)
Unearned restricted stock (162) (168)
---------------------
Total shareholders' equity 98,028 67,971
---------------------
$274,071 $306,264
=====================
See accompanying notes.
- ----------------------
F-5
Intermet Corporation
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------------------
(In Thousands of Dollars, Except Per Share Data)
-----------------------------------------------
Net sales $541,749 $501,269 $444,214
Cost of sales (Note 12) 457,337 458,823 408,835
---------------------------------
Gross profit 84,412 42,446 35,379
Operating expenses:
Selling 4,957 5,520 6,114
General and administrative (Note 12) 26,640 35,198 28,751
Restructuring charge (Note 3) - - 24,000
---------------------------------
Operating profit (loss) 52,815 1,728 (23,486)
Other income and expenses:
Interest income 382 149 135
Interest expense (6,461) (6,952) (5,625)
Other, net (1,216) (14 ) (159)
---------------------------------
(7,295) (6,817 ) (5,649)
---------------------------------
Income (loss) before income taxes,
and minority interest 45,520 (5,089) (29,135)
Provision (benefit) for income taxes 20,125 5,896 (8,512)
---------------------------------
Income (loss) before minority interest 25,395 (10,985) (20,623)
Minority interest in loss of
subsidiaries - - 119
---------------------------------
Net Income (loss) $ 25,395 $(10,985) $(20,504)
=================================
Income (loss) per common share $ 1.02 $ (.45) $ (.83)
=================================
See accompanying notes.
- -----------------------
F-6
Intermet Corporation
Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31,
1995 1994 1993
-------- -------- --------
(In Thousands of Dollars)
-------------------------
OPERATING ACTIVITIES
Net income (loss) $ 25,395 $(10,985) $(20,504)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization 28,115 29,035 26,583
Restructuring charge - - 24,000
Loss on sale of subsidiaries 1,272 - -
Write down equipment and goodwill - 8,945 -
Write off investment in joint venture - 2,001 -
Loss on sale of assets 219 26 1,053
Deferred income taxes 3,234 (800) (4,640)
Minority interest in loss of subsidiaries - - (119)
Changes in operating assets and liabilities
excluding the effects of acquisitions
and dispositions:
Accounts receivable 13,474 (18,877) (9,221)
Inventories 1,533 5,204 (4,929)
Accounts payable and accrued liabilities (2,586) 12,521 5,358
Other assets and liabilities 12,615 565 183
-------- -------- --------
Cash provided by operating activities 83,271 27,635 17,764
INVESTING ACTIVITIES
Additions to property, plant and
equipment (24,442) (24,873) (41,018)
Purchase of Alexander City Castings (2,704) - -
Proceeds from sales of plant, property
& equipment 4,462 965 1,012
Proceeds from sale of subsidiaries 9,750 - -
Other, net (3,759) (833) (877)
-------- -------- --------
Cash used in investing activities (16,693) (24,741) (40,883)
F-7
Intermet Corporation
Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31,
YEAR ENDING DECEMBER 31,
1995 1994 1993
------------------------------
(Thousands of Dollars)
----------------------
FINANCING ACTIVITIES
Increase in debt - 5,203 35,579
Reduction in long term debt (64,159) (5,197) (4,482)
Issuance of common stock 903 127 273
Dividends paid - - (2,947)
Net decrease in note payable (7,656) - -
Other, net - (30 ) (140)
------------------------------
Cash (used in) provided by financing
activities (70,912) 103 28,283
Effect of exchange rate changes on cash 1,789 (519) (21)
------------------------------
Net increase (decrease) in cash and cash
equivalents (2,545) 2,478 5,143
Cash and cash equivalents at beginning of year 13,718 11,240 6,097
------------------------------
Cash and cash equivalents at end of year $ 11,173 $13,718 $11,240
==============================
See accompanying notes.
- -----------------------
F-8
Intermet Corporation
Consolidated Statements of Shareholders' Equity
YEAR ENDED DECEMBER 31,
1995 1994 1993
------------------------------
(In Thousands of Dollars)
-------------------------
COMMON STOCK
Beginning balance $ 2,464 $ 2,457 $ 2,453
Exercise of options to purchase 124,500; 22,500 and 45,000
shares of common stock in 1995,1994 and 1993, respectively 12 2 4
Exercise of options purchased with common stock (2) - -
Issuance of 310,000 shares of common stock 31 - -
Issuance of 50,000 shares of common stock - 5 -
------------------------------
Ending balance 2,505 2,464 2,457
CAPITAL IN EXCESS OF PAR VALUE
Beginning balance 52,150 51,742 51,473
Exercise of options to purchase 124,500; 22,500 and 45,000
shares of common stock in 1995, 1994 and 1993, respectively 891 125 269
Exercise of options purchased with common stock (265) - -
Issuance of 310,000 shares of common stock 3,655 - -
Issuance of 50,000 shares of common stock - 283 -
------------------------------
Ending balance 56,431 52,150 51,742
RETAINED EARNINGS
Beginning balance 11,730 22,715 46,166
Net income (loss) 25,395 (10,985) (20,504)
Cash dividends ($.12 per share in 1993) - - (2,947)
------------------------------
Ending balance 37,125 11,730 22,715
ACCUMULATED TRANSLATION ADJUSTMENTS
Beginning balance 2,959 1,499 2,636
Translation adjustments 1,321 2,640 (1,779)
Related income tax effect (515) (1,180) 642
------------------------------
Ending balance 3,765 2,959 1,499
MINIMUM PENSION LIABILITY ADJUSTMENT
Beginning balance (1,164) (2,881) (1,674)
Adjustment (774) 2,815 (2,023)
Related income tax effect 302 (1,098) 816
------------------------------
Ending balance (1,636) (1,164 ) (2,881)
------------------------------
UNEARNED RESTRICTED STOCK
Beginning balance (168) - -
Issuance of 10,000 and 50,000 shares of common stock
in 1995 and 1994, respectively (86) (173) -
Amortization 92 5 -
------------------------------
Ending balance (162) (168) -
------------------------------
Total shareholders' equity $98,028 $ 67,971 $ 75,532
==============================
See accompanying notes.
- -----------------------
F-9
Intermet Corporation
Notes to Consolidated Financial Statements
Years ended December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements, presented in conformity with
generally accepted accounting principles (GAAP), include the accounts of
Intermet Corporation ("Intermet") and its subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on the
last-in, first-out (LIFO) method as to 17% and 14% of the December 31, 1995 and
1994 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. 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 $1,504,000 and $ 1,257,000 at December 31, 1995 and
1994, 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 $6,090,000 and $5,207,000 (net of accumulated amortization of
$1,372,000 and $1,619,000) at December 31, 1995 and 1994, respectively. Such
costs are being amortized using the straight-line method over periods ranging
from ten to forty years (see Note 12).
F-10
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable and current portion of
long-term debt approximate fair values. The fair value of the Company's long-
term debt approximates the reported amounts in the accompanying 1995
consolidated balance sheet as their respective interest rates approximate the
December 31, 1995 market rates for similar debt instruments.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share amounts are based on the weighted average
number of shares outstanding during the period, after giving effect to the
exercise of options (see Note 7) and assuming the repurchase, at fair market
value, of shares using the proceeds from such exercise, unless the effect is
antidilutive.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees and
directors with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
2. ACQUISITIONS AND DISPOSITIONS
In November 1995 the Company acquired certain operating assets and the aluminum
foundry businesses of Bodine Robinson and Robinson Foundry, Inc. The aggregate
purchase price of $6,304,000 was funded by a cash payment of $2,704,000 and
300,000 shares of Intermet common stock. These assets form the base of the
Company's wholly-owned subsidiary, Alexander City Castings, Inc. ("Alexander
City"). This transaction has been accounted for as a purchase. The consolidated
financial statements include the results of operations of Alexander City since
the date of acquisition.
F-11
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In September and October 1995 the Company sold substantially all the operating
assets of its subsidiaries, PBM Industries, Inc. ("PBM") and InterMotive
Technologies, Inc. ("InterMotive"), respectively, in exchange for an aggregate
of $9,750,000 in cash and a $2,500,000 note and recognized a pre-tax loss of
$1,432,000.
The following represents the (unaudited) pro forma consolidated results of
operations for the Company for the years ended December 31, 1995 and 1994,
assuming the acquisitions and dispositions described above occurred on January
1, 1994 (in thousands of dollars, except for per share data):
1995 1994
---------------------
Net sales $537,644 $483,614
Net income (loss) 28,107 (3,769)
Net income (loss) per common share 1.13 (0.15)
These pro forma results are presented for comparative purposes only. They are
not necessarily
indicative of what would have occurred had the acquisitions actually been made
on January 1, 1994, or of future results of operations.
3. RESTRUCTURING
In August 1993 the Company decided to close its oldest plant, 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, its
location in a flood plain and the uncertain outlook for profitable operations.
The decision to close this foundry was the principal reason for recording a
$24,000,000 restructuring charge in the third quarter of 1993. The charge
included provisions totaling $8,000,000 for severance pay and employee benefits
(including adjustments to pension and postretirement benefit liabilities)
related to the termination of approximately 650 employees, write-down of Lower
Basin capital assets and inventories of $6,000,000, provisions for operating
losses until closing of $4,500,000, building demolition and remediation costs of
$3,300,000 and other items totaling $2,200,000.
The Lower Basin foundry incurred operating losses prior to its closing in 1994
of approximately $1,500,000 in 1993 and $3,700,000 in 1994 which were charged
against the accrual. Severance and benefit payments to date have totaled
approximately $3,775,000. 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 have been removed and disposed of during
1995. Demolition of the building has begun and is expected to be completed in
1996. The restructuring liabilities include $7,334,000 and $2,362,000 in
current liabilities at December 31, 1995 and 1994, respectively, and $6,330,000
was included in other noncurrent liabilities at December 31, 1994.
F-12
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
4. JOINT VENTURE AND MINORITY INTEREST
The Company and an Australian company had, through subsidiaries, formed a joint
venture, ICA Castings ("ICA"). ICA constructed a pilot casting line in Kentucky
for the manufacture of aluminum automotive castings. The Company accounted for
its 50% interest in ICA under the equity method which was written off in 1994
(see Note 12). During 1995 the Company transferred its interest in ICA to the
other partner in the joint venture in exchange for $750,000 in cash.
In 1988, the Company purchased all of the common stock of Ironton Iron, Inc.
("Ironton"), a foundry company in Ohio. As a part of the transaction, the
previous common stockholders of Ironton received an equivalent number of shares
of Ironton's new 5% cumulative preferred stock with an aggregated par value of
$2,337,000. The preferred shares are to be retired at par value from net income
of Ironton, if available. No shares have been retired and no dividends have
been paid to date since Ironton has incurred a cumulative net loss since 1988.
The preferred shares are included in minority interest in the consolidated
balance sheet.
F-13
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
5. CASH FLOW INFORMATION
All short-term investments with original maturities of less than 90 days are
deemed to be cash equivalents for purposes of the statements of cash flows.
There were no noncash investing and financing activities in 1994 or 1993. Such
activities in 1995 were as follows (in thousands of dollars):
Fair value of assets acquired $3,625
Costs in excess of net assets acquired 2,736
Less:
Liabilities assumed 57
Common stock of the Company 3,600
-------
Net cash paid for acquisition $2,704
=======
6. DEBT
Notes payable consist of the following (in thousands of dollars):
1995 1994
-----------------
Bank lines of credit $ - $7,230
Neunkirchen bank loans 13 440
-----------------
$ 13 $7,670
=================
The Company has borrowings available under line of credit agreements with two
banks. The agreements provide for loans up to $15,000,000 bearing interest at
the prime rate or other specified rates. There were no borrowings outstanding at
December 31, 1995 . The availabilities of these lines, which are normally
renewed on an annual basis, are at the discretion of the banks. Borrowings are
payable on demand.
The Company's German subsidiary, Columbus Neunkirchen Foundry GMbH
("Neunkirchen") has various revolving credit agreements which permit borrowings
up to DM18,898,000 (approximately $13,200,000) at December 31, 1995. These
lines of credit are payable on demand. The revolving credit lines bear interest
at current market rates (7.6% as of December 31, 1995).
F-14
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
Long-term debt consists of the following (in thousands of dollars):
1995 1994
------------------
Intermet:
Term loan with insurance company (a) $25,000 $25,000
Revolving credit bank loan (b) - 60,162
Subsidiaries:
Lynchburg revenue bonds (c) 5,700 6,350
Neunkirchen term notes (d) 3,664 6,252
IMI promissory notes (e) 907 1,951
-------------------
Total 35,271 99,715
Less long-term debt due within one year 2,596 12,017
-------------------
Long-term debt due after one year $32,675 $87,698
===================
(a) The Company has a term loan agreement with The Prudential Insurance Company
of America. The loan bears interest at a base rate plus an additional lender
margin in certain circumstances, with interest payable in quarterly
installments. The interest rate at December 31, 1995 was 8.05%. Principal
amounts are to be repaid in five equal annual installments beginning in
December 1998. The term loan agreement requires the Company to maintain
certain financial ratios and imposes limitations on dividends and certain
activities of the Company.
F-15
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
(b) The Company also has a revolving credit agreement with a bank consortium
which was refinanced in August 1995. The agreement, which expires in August
1998, provides for loans up to $70,000,000 and DM8,000,000 (approximately
$5,600,000) at December 31, 1995. The borrowing limit is reduced by
$5,000,000 in August 1996 and $10,000,000 in August 1997, and certain
standby letters of credit issued by the Company. At December 31, 1995 such
standby letters of credit totaled $8,666,000. Interest rates on both the
U.S. dollar and deutsche mark facilities are based on various market rates,
and in most cases, include additional lender margins. There were no
borrowings under this agreement as of December 31, 1995. The Company also
must pay a fee at an annual rate of .375% on any unused portion of the loan
commitment. The revolving credit agreement requires the Company to maintain
certain financial ratios and imposes limitations on dividends and certain
activities.
(c) Lynchburg Foundry Company ("Lynchburg"), a wholly-owned subsidiary of the
Company, issued $4,400,000 of 6 1/4% Pollution Control Revenue Bonds Series
1973 maturing in December 1998 and $4,800,000 of 7% Industrial Revenue Bonds
maturing in June 2006. Bonds in the aggregate amount of $3,480,000 are
subject to mandatory redemption prior to maturity in annual amounts ranging
from $175,000 to $745,000 in 1996 through 2005. The bonds are also subject
to optional redemption prior to maturity. Intermet has agreed to indemnify
Lynchburg's former owner for any liability that may be incurred with respect
to its guarantee of the bonds.
(d) The term notes bear interest at rates ranging from 5% to 7.3% and mature at
various times through March 2003. These borrowings are secured by property,
plant and equipment with net book values aggregating to $32,800,000 at
December 31, 1995.
F-16
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
(e) Intermet Machining, Inc., a wholly-owned subsidiary of Intermet, issued
various promissory notes totaling $2,900,000 to the selling shareholders of
PBM and InterMotive. The notes bear interest at 8%. The balance currently
outstanding is payable on March 31, 1996. The principal amounts are subject
to adjustment for the outcome of certain contingencies. The amounts
outstanding at December 31, 1995 and 1994 reflect adjustments for certain
such items.
Maturities of long-term debt at December 31, 1995 are as follows (in thousands
of dollars):
1996 $2,596
1997 1,719
1998 6,758
1999 5,323
2000 5,323
Thereafter 13,552
-------
$35,271
=======
Interest paid totaled $6,485,000, $7,693,000 and $6,654,000 in 1995, 1994 and
1993, respectively. Interest of $88,000, $668,000 and $1,032,000 was capitalized
in 1995, 1994 and 1993, respectively.
The Company is in compliance with the terms and restrictions of its various loan
and credit agreements. At December 31, 1995, approximately $87,870,000 of the
Company's retained earnings were restricted and unavailable for the payment of
dividends under these agreements.
F-17
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
7. SHAREHOLDERS' EQUITY
The Company has a Key Individual Stock Option Plan ("Individual Plan") and a
Directors Stock Option Plan ("Directors Plan"). The Company has also granted
options to purchase common stock to certain individuals that are not covered
under these two plans. The Individual Plan, which provided for the granting of
options for 1,440,000 shares of common stock, expired in 1994 except as to
options still outstanding. A new plan was approved April 27, 1995 which
provided for granting of options for 1,500,000 shares of common stock. The
Directors Plan provides for the granting of options to purchase 100,000 shares
of common stock. Information regarding stock options is as follows:
PRICE PER SHARE NUMBER OF SHARES
--------------- ----------------
Outstanding at December 31, 1992 $ 5.69-12.62 806,000
Granted 10.75-11.83 304,000
Exercised 5.69 - 8.87 (45,000)
Canceled or expired 5.69-10.75 (82,000)
----------
Outstanding at December 31, 1993 5.69-12.62 983,000
Granted 5.75-10.11 426,000
Exercised 5.69 (22,500)
Canceled or expired 5.69-10.75 (137 ,500)
----------
Outstanding at December 31, 1994 5.69-12.62 1,249,000
Granted 8.56-9.00 391,000
Exercised 5.69-10.75 (124,500)
Canceled or expired 5.69-11.83 (323,000)
----------
Outstanding at December 31, 1995 5.69-12.62 1,192,500
==========
Options granted under the Individual Plan vest over a four-year period. All
other options granted were exercisable at the grant date. At December 31, 1995
options for 602,500 shares were exercisable, while 1,134,000 shares were
available for future grants.
F-18
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
7. SHAREHOLDERS' EQUITY (CONTINUED)
The Company has an Employee Stock Ownership Plan ("ESOP") for certain of its
United States employees who are not covered by collective bargaining agreements.
The ESOP requires contributions by the Company equal to 3% of the annual
compensation of the ESOP participants. The Company may, at its discretion, make
additional contributions within specified limits. Contributions to the Plan of
$685,000, $719,000 and $786,000 were expensed in 1995, 1994 and 1993,
respectively.
On October 6, 1995 the Company's Board of Directors declared a dividend of one
Right for each share of Intermet Common Stock held of record at the close of
business on October 17, 1995, pursuant to a Shareholder Protection Rights
Agreement dated October 6, 1995. The Rights are generally not exercisable until
10 days after an announcement by the Company that a person, as defined
(excluding, with certain limitations, any current 10% or more shareholders who
do not acquire additional shares, any of the Company's ESOP's or benefit plans,
and the Company or any of its wholly-owned subsidiaries), has acquired 10% of
the Company's Common Stock or announces a tender offer which could result in the
ownership of 10% or more of the Company's Common Stock. Each Right, should it
become exercisable, will entitle the owner to buy 1/100th of a share of
Participating Preferred Stock, a new series of the Company's Preferred Stock, at
an exercise price of $40.
In the event the Rights become exercisable as a result of the acquisition of
shares, each Right will entitle the owner, other than the acquiring person, to
buy at the Rights' then current exercise price a number of shares of Common
Stock with a market value equal to twice the exercise price. In addition,
unless the acquiring person owns more than 50% of the outstanding shares of
Common Stock, the Board of Directors may elect to exchange all outstanding
Rights (other than those owned by such acquiring person or affiliates thereof)
at an exchange ratio of one share of Common Stock per Right. Unless the Company
merges with another company under certain conditions or redeems or exchanges the
Rights before October 6, 2005, the Rights will expire on such date.
F-19
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under building and equipment operating
leases that have initial or remaining noncancelable lease terms in excess of one
year at December 31, 1995 are as follows (in thousands of dollars):
1996 $2,322
1997 2,365
1998 1,540
1999 900
2000 717
Thereafter 1,852
------
$9,696
======
Total rental expense under operating leases aggregated $2,671,000,
$2,938,000 and $2,847,000 in 1995, 1994 and 1993, respectively.
At December 31, 1995 the Company had commitments for the purchase of equipment
totaling approximately $7,500,000.
The Environmental Protection Agency ("EPA") filed a complaint against Lynchburg
in August 1991. The complaint alleged various violations, the most significant
of which related to the treatment of certain hazardous waste at two foundries.
The Company and the EPA reached an agreement for a reduced penalty of $330,000
which was paid in 1995.
In March, 1994, the Company entered negotiations with the Ohio Attorney
General's office concerning past violations of Ohio water pollution laws and
regulations at the Ironton foundry. In November 1995, the Company agreed to
pay the State of Ohio the determined fine of $285,000 to settle this and all
other water discharge violations at Ironton. The Company has accrued this
liability at December 31, 1995 and expects to pay this in 1996 on receipt of the
State decree. In addition, the Company has submitted a plan to the Ohio EPA to
bring its facility into compliance with all applicable air emission
requirements, after that agency had advised management of several violations of
air pollution regulations. It is not known whether the agency will eventually
demand the payment of civil penalties for these past violations.
The Company is also engaged in various legal proceedings and other matters
incidental to its normal business activities.
The Company does not believe any of these above-mentioned proceedings or matters
are material in relation to the Company's consolidated financial position or
results of operations.
F-20
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
9. RETIREMENT PLANS AND BENEFITS
The Company maintains several noncontributory defined benefit pension plans for
certain of its U.S. employees covered by collective bargaining agreements. The
benefits are based on years of service. The Company's policy is to fund amounts
as required under applicable laws and regulations.
Net pension expense included the following components (in thousands of dollars):
1995 1994 1993
---------------------------
Service cost $ 693 $ 685 $ 917
Interest cost on projected benefit obligations 1,709 1,554 1,253
Return on plan assets (2,842) (381) (1,227)
Net amortization and deferral 1,847 (409 ) 598
----------------------------
$ 1,407 $1,449 $ 1,541
============================
The reconciliation of the plans' funded status to the amounts reported in the
Company's consolidated balance sheets at December 31, 1995 and 1994 is as
follows (in thousands of dollars):
1995 1994
-------------------
Actuarial present value of accumulated benefit
obligations:
Vested $22,668 $19,224
Nonvested 2,009 1,201
-------------------
Total accumulated benefit obligations $24,677 $20,425
===================
Projected benefit obligations $24,677 $20,425
Plan assets at fair value 17,895 14,102
-------------------
Excess of projected benefit obligations
over assets 6,782 6,323
Unrecognized prior service cost (1,382) (1,298)
Unrecognized net actuarial loss (2,682) (1,519)
Unrecognized transition obligation (328) (380)
Additional minimum liability 4,392 3,197
--------------------
Pension liabilities included in consolidated
balance sheets $ 6,782 $ 6,323
===================
F-21
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
9. RETIREMENT PLANS AND BENEFITS (CONTINUED)
The above pension liabilities include $4,336,000 and $5,284,000 shown in
noncurrent liabilities in the Company's consolidated balance sheets at December
31, 1995 and 1994, respectively.
The discount rate used in determining the actuarial present value of the
projected benefit obligations was 7.5% in 1995 and 8.25% in 1994. The expected
long-term rate of return on assets used in determining net pension expense was
9% in 1995, 1994 and 1993. Plan assets consist of publicly traded stocks and
bonds, cash equivalents and insurance contracts.
The Company maintains several defined contribution plans for certain hourly
employees. Contributions to these plans are accrued based on hours worked by
each employee, and totaled $635,000, $597,000 and $520,000 in 1995, 1994 and
1993, respectively. Some of the plans allow participants to make contributions,
on a pretax basis, of up to 20% of their compensation.
The Company also maintains a defined contribution plan for domestic salaried
employees. The Company contributes a specified percentage of the annual
compensation of participants. Participants are also allowed to make
contributions to the plan, on a pretax basis, of up to 10% of their
compensation. The Company matches 50% of participant contributions, up to a
specified limit. The Company accrued contributions to the plan of $1,023,000,
$1,077,000 and $1,024,000 in 1995, 1994 and 1993, respectively.
In addition to providing pension benefits, the Company provides health care and
life insurance benefits to certain retired U.S. employees and their dependents.
Salaried employees can become eligible for retiree health care benefits at age
55 depending on years of service. Certain hourly employees currently can become
eligible for retiree health care benefits at age 60 depending on years of
service. Retirees receive substantially the same health care benefits as active
employees. The medical plans generally pay 80% of most medical expenses less
deductible amounts. Salaried employees also contribute to the cost of dependent
coverage. The salaried employee coverage converts to a Medicare supplement at
age 65, while most hourly employee coverage ceases at age 65.
F-22
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
9. RETIREMENT PLANS AND BENEFITS (CONTINUED)
Net postretirement benefit expense for 1995, 1994 and 1993 included the
following components (in thousands of dollars):
1995 1994 1993
---------------------------
Service cost $ 909 $1,151 $1,217
Interest cost on accumulated benefit
obligation 2,414 2,426 2,745
Amortization (715) 31 51
---------------------------
$2,608 $3,608 $4,013
===========================
The reconciliation of the postretirement benefit plans' funded status to the
amounts reported in the Company's consolidated balance sheets at December 31,
1995 and 1994 is as follows (in thousands of dollars):
1995 1994
------------------
Present value of accumulated postretirement
benefit obligation:
Retirees $15,081 $11,977
Fully eligible active participants 2,373 3,891
Other active participants 16,291 17,158
------------------
33,745 33,026
Unrecognized net gain 5,540 5,596
------------------
Postretirement benefit liability included in
consolidated balance sheets $39,285 $38,622
==================
The discount rate used in determining the present value of the accumulated
postretirement benefit obligation was 7.5 % at December 31, 1995 and 8.25% at
December 31, 1994. The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 11.5% in 1995, declining by
0.5% per year to an ultimate rate of 6% for all employees under age 65 and 7.75%
in 1995, declining by .25% per year to an ultimate rate of 6.0% for all
employees 65 years and older. If the assumed health care cost trend rate were
increased 1% in all future years, the accumulated postretirement benefit
obligation would increase by $2,435,000 and postretirement benefit expense would
increase by $274,000.
F-23
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in thousands
of dollars).
1995 1994 1993
-----------------------------
Current:
Federal $ 7,436 $ 651 $(6,609)
State 2,058 1,629 1,394
Foreign 7,397 4,416 1,343
-----------------------------
16,891 6,696 (3,872)
Deferred:
Federal 3,288 (651) (3,100)
State 96 - (1,241)
Foreign (150) ( 149 ) (299)
-----------------------------
3,234 (800) (4,640)
-----------------------------
$20,125 $ 5,896 $(8,512)
=============================
Income taxes paid (refunded) were approximately $8,407,000; $3,067,000
and $(626,000) in 1995, 1994 and 1993, respectively.
F-24
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differs from the amount computed by
applying statutory U.S. federal income tax rates to income before income taxes
for the following reasons (in thousands of dollars):
1995 1994 1993
--------------------------
Provision (benefit) for income taxes
at U.S. statutory rate $15,932 $(1,781) $(10,197)
Losses with no tax effect (Note 12) 2,517 3,683 -
Other charges with no tax effect 803 1,938 1,244
Difference between U.S. and
foreign tax rates 3,081 998 (85)
Utilization of NOL and credit
carryforwards (3,608) - -
State income taxes, net of federal
income tax benefits 1,400 1,059 99
Other - (1) 427
-----------------------------
$20,125 $ 5,896 $ (8,512)
=============================
F-25
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The tax effects of the types of temporary differences and carryforwards which
give rise to deferred income tax assets (liabilities) at December 31, 1995 and
1994 are as follows (in thousands of dollars):
1995 1994
--------------------
Compensation and benefit items,
primarily related to SFAS 106 $ 21,653 $ 20,839
Operating loss, capital loss and AMT
credit carryforwards 13,269 16,877
Other temporary differences 4,901 10,413
--------------------
Gross deferred income tax assets 39,823 48,129
--------------------
Depreciation and related items (10,863) (14,963)
Other temporary differences (2,798) (3,161)
---------------------
Gross deferred income tax liabilities (13,661) (18,124)
Valuation allowance (26,332) (26,332)
---------------------
Net deferred income taxes $ (170) $ 3,673
=====================
These amounts are included in the consolidated balance sheets as follows (in
thousands of dollars):
1995 1994
------------------
Other current assets $ 3,774 $ 2,579
Other noncurrent assets 1,260 5,813
Other noncurrent liabilities (5,204) (4,719)
-------------------
$ (170) $ 3,673
==================
F-26
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The net change in the valuation allowance during 1994 was a decrease
of $4,188,000. This decrease was primarily the result of a decrease in net
deferred income tax assets during 1994.
There are certain limitations on the use of most of the tax loss carryforwards
noted above. Tax loss carryforwards with a value of approximately $11,248,000
expire in various amounts between 1997 and 2010, while others with a value of
approximately $2,021,000 may be used indefinitely.
Approximately $1,900,000 of the deferred income tax asset valuation allowance
will be allocated to costs in excess of net assets acquired if the related
future tax benefits are subsequently recognized.
F-27
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
11. GEOGRAPHIC AREA AND MAJOR CUSTOMER INFORMATION
The Company produces iron castings, principally for automotive manufacturers in
North America and Europe. All sales are to unaffiliated customers. Revenue and
income amounts for the three years ended December 31, 1995, and identifiable
assets at the end of each year, were as follows for U.S. and foreign operations
(in thousands of dollars):
1995 1994 1993
--------------------------------
Net sales:
U.S $448,447 $433,067 $383,182
Foreign 93,302 68,202 61,032
Operating profit (loss):
U.S 36,763 (9,051) (29,015)
Foreign 16,052 10,779 5,529
Income (loss) before income taxes,
minority interest, and cumulative
effect of accounting changes:
U.S. 30,394 (14,476) (32,524)
Foreign 15,126 9,387 3,389
Identifiable assets:
U.S. 220,548 250,498 261,195
Foreign 53,523 55,766 46,263
Net sales to customers exceeding 10% of consolidated net sales were as follows
(as a percentage of consolidated net sales):
CUSTOMER 1995 1994 1993
---------------------------------------------------
Chrysler 20% 23% 23%
General Motors 18 14 12
Ford 18 23 23
F-28
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
12. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------------------------------------------
(In Thousands of Dollars, Except Per Share Data)
-----------------------------------------------
1995
Net sales $153,278 $149,035 $117,331 $122,105
Gross profit 21,650 27,460 12,727 22,575
Net income 6,520 9,537 3,377 5,961
Net income per common
share .26 .39 .14 .24
Share prices (NASDAQ):
High 8.125 9.75 12.625 14.125
Low 6.25 7.625 9.50 9.50
1994
Net sales $118,889 $124,582 $120,990 $136,808
Gross profit 13,587 15,174 10,742 2,943
Net income (loss) 1,710 2,439 373 (15,507)
Net income (loss) per common
share .07 .10 .02 (.63)
Share prices (NASDAQ):
High 10.5 9.5 8 7.5
Low 8.5 7.5 6.25 4.75
Third and fourth quarter sales are usually lower than the first and second
quarter sales due to plant closings by automotive manufacturers for vacations
and model changeovers. The above share price information represents inter-
dealer transactions in The Nasdaq National Market without retail markup,
markdown or commission.
F-29
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
The Company's previous Chairman and Vice-Chairman retired in the fourth quarter
of 1994. The Company provided them with retirement pay and other benefits for
specified periods and accrued $1,700,000 related to these arrangements. The
Company also accrued $3,612,000 for severance pay and benefits for the planned
termination of salaried employees related to a reorganization of the Company.
The amount of this accrual was based on the terms of an existing severance plan
and employment agreement. Both of these amounts were included in general and
administrative expenses in the 1994 consolidated statement of operations.
In the fourth quarter of 1994 it became apparent certain idle equipment, most of
which the Company tried to sell, had a recoverable value below its then current
net book value. The Company also determined the net book value of certain other
equipment still in use could not be fully recovered over its remaining useful
life. The Company recorded a 1994 fourth quarter charge of $4,552,000 related
to these items. The Company also wrote off the remaining cost in excess of net
assets of PBM in the fourth quarter; resulting in a charge to earnings of
$4,393,000. The write-off was recorded largely as the result of the probable
loss of a significant production contract at PBM. Both this charge and the
write-down of equipment are included in cost of sales in the 1994 consolidated
statement of operations.
During the fourth quarter of 1994 the Company notified its Australian partner of
the Company's intention to withdraw from the aluminum joint venture described in
Note 4. As a result of this decision, the Company wrote off the remaining value
of its investment in the joint venture. The charge to earnings of $2,001,000 is
included in general and administrative expenses in the 1994 consolidated
statement of operations.
The adjustments described above resulted in a loss before income taxes for the
Company's domestic operations in 1994. In light of this loss and the losses
reported in the preceding two years, the Company did not consider it appropriate
to recognize the federal income tax benefit related to the 1994 loss. The
deferred income tax asset valuation reserve was therefore increased $3,683,000
to offset the net deferred income tax asset generated by the 1994 domestic loss.
The Company was granted a retroactive price increase on certain products in
December 1993. Had this price increase been in effect at the beginning of 1993,
first, second and third quarter net income (loss) would each have been favorably
affected by $.01 per share.
F-30