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EXHIBIT 13
- - -----------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995 1994
- - ----------------------------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
Statement of Operations Data (in thousands of dollars)
Net sales $956,832 $841,598 $813,729 $534,478 $541,749 $501,269
Operating profit 62,161 75,649 75,198 56,103 52,815 1,728
Net income (loss) 36,377 40,989 40,013 43,153 25,395 (10,985)
Share Data (in thousands, except per share data)
Income (loss) per common share - diluted $1.42 $1.58 $1.55 $1.69 $1.02 ($0.45)
Cash dividends per share $0.16 $0.16 $0.16 $0.08 - -
Weighted average shares outstanding - diluted 25,571 25,947 25,783 25,594 24,893 24,591
Balance Sheet Data (in thousands of dollars)
Total assets $957,292 $584,015 $539,446 $526,312 $274,071 $306,264
Long-term debt due after one year 448,634 156,690 167,295 149,477 32,675 87,698
Total long-term debt 455,040 163,101 177,833 162,153 35,271 99,715
Shareholders' equity 242,377 217,005 175,428 141,102 98,028 67,971
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
THE CHAIRMAN'S LETTER, THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND THE QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN
THESE SECTIONS, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "EXPECT" AND
SIMILAR EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. READERS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF INTERMET OR
ITS MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS INCLUDING, BUT NOT
LIMITED TO:
- - - GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH INTERMET OPERATES
- - - FLUCTUATIONS IN WORLDWIDE OR REGIONAL AUTOMOBILE AND LIGHT AND HEAVY TRUCK
PRODUCTION
- - - LABOR DISPUTES INVOLVING INTERMET OR ITS SIGNIFICANT CUSTOMERS
- - - CHANGES IN PRACTICES AND/OR POLICIES OF INTERMET'S SIGNIFICANT CUSTOMERS
TOWARD OUTSOURCING AUTOMOTIVE COMPONENTS AND SYSTEMS
- - - FOREIGN CURRENCY AND EXCHANGE FLUCTUATIONS
- - - INTEREST RATE FLUCTUATIONS
- - - MATERIALS PRICE FLUCTUATIONS
- - - ABILITY TO BRING ADDITIONAL FOUNDRY CAPACITY ON LINE AS SCHEDULED
- - - ABILITY TO SECURE ALL REGULATORY PERMITS ON A TIMELY BASIS WITH RESPECT TO
ONGOING CAPITAL EXPENDITURES FOR ADDITIONAL FOUNDRY CAPACITY
- - - FACTORS OR PRESENTLY UNKNOWN CIRCUMSTANCES THAT MAY AFFECT THE CHARGES RELATED
TO THE IMPAIRMENT OF ASSTS AND SHUTDOWN OF IRONTON
- - - FACTORS AFFECTING THE ABILITY OF INTERMET OR ITS KEY SUPPLIERS TO RESOLVE
YEAR-2000 ISSUES IN A TIMELY MANNER, AND
- - - OTHER RISKS DETAILED FROM TIME TO TIME IN INTERMET'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
INTERMET DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
Results of Operations
1999 Compared to 1998
Sales in 1999 were $956.8 million compared to 1998 sales of $841.6 million, an
increase of $115.2 million or 13.7%. Sales for operations in place both years
were 8.3% higher in 1999 than in 1998. Ferrous-metals segment sales for 1999,
excluding acquisitions or dispositions in 1999 or 1998, were $69.1 million
(10.0%) higher than for 1998. This is primarily a result of strong domestic
light truck sales and European vehicle sales, which are two of the largest
markets we supply. Light-metals segment sales for 1999, excluding acquisitions
or dispositions in 1999 or 1998, were $3.7 million (12.9%) lower than for 1998.
The acquisition of Tool Products at the end of 1998 increased our light-metals
segment sales 256% for 1999 over 1998 levels. Other segment sales, for
operations in place both years, were up 2.9% over 1998.
Sales for our domestic operations were up 15.4% in 1999 from the prior year.
Excluding acquisitions or dispositions in either year, sales in 1999 for
domestic operations increased 8.9% from 1998 primarily because North American
light vehicle production was an all-time record. In 1999, North American
light-vehicle production was 17 million units and exceeded 15 million units for
the sixth consecutive year.
European sales during 1999, in local currency and excluding acquisitions or
dispositions in 1999 and 1998, increased 5.7% from 1998. This set a new record
for our European-based operations compared to previous years. This is due
primarily to an increase in production and sales of light- and heavy-duty
vehicles in Europe. The
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effect of changes in exchange rates on 1999 consolidated European sales was an
unfavorable $4.9 million (4.2%) when compared using exchange rates for the same
period in 1998.
Looking forward to 2000, industry analysts expect light-vehicle production in
North America to taper off slightly but still to exceed 15 million units. These
analysts anticipate that light-trucks will make up slightly more than one half
of this production. Industry analysts project that automotive sales in Europe
will increase 3% over 1999 levels. Actual results may differ materially.
Gross profit increased to $122.2 million in 1999 from $110.7 million in 1998.
Gross profit for operations in place both years was $2.7 million lower in 1999
than in 1998. This decrease was due primarily to the higher costs associated
with operating some facilities in excess of capacity and the difficulty of
obtaining qualified labor in a full employment economy. Gross profit as a
percentage of sales was 12.8% in 1999 versus 13.2% in 1998.
Operating expenses as a percentage of sales were 6.3% and 4.2% for 1999 and
1998, respectively. During December 1999, we announced the shutdown of our
Ironton Iron, Inc. facility (see Asset Impairment and Shutdown section of
Management's Discussion and Analysis). Without the charges for the Ironton asset
impairment and shutdown and the charges related to a recapitalization of our
international operations, the operating expenses as a percentage of sales would
have been 4.3% for 1999.
Interest expense for the years ended December 31, 1999 and 1998 was $15.2
million and $11.3 million, respectively. This change was a result of an increase
in borrowings to purchase fixed assets and two companies at the end of 1999.
The net of other income and expenses was net income of $1.2 million and $0.6
million in 1999 and 1998, respectively.
Diluted earnings per share for 1999 were $1.42. During the year, we were able to
utilize two non-recurring tax benefits of $8.5 million in aggregate ($0.33 per
diluted share). These benefits are discussed further in Note 10 of the Notes to
Consolidated Financial Statements. The after-tax effect of the charges for the
asset impairment and shutdown of Ironton was $12.1 million or $0.47 per diluted
share (see Asset Impairment and Shutdown section of Management's Discussion and
Analysis).
For additional information concerning the provision for income taxes as well as
information regarding differences between effective tax rates and statutory
rates, see Note 10 of the Notes to Consolidated Financial Statements.
Results of Operations
1998 Compared to 1997
Sales in 1998 were $841.6 million compared to 1997 sales of $813.7 million, an
increase of 3.4%. Sales from operations in place both years were 6.9% higher in
1998 than in 1997. Ferrous-metals segment sales for 1998, excluding acquisitions
or dispositions in either year, were $57.8 million (9.1%) higher than for 1997.
North American light-vehicle production for 1998 was greater than 15 million
units for the fifth consecutive year. Sales from our light-metals segment
decreased $2.3 million or 7.3% from 1997 to 1998. Other segment sales, for
operations in place both years, were down 5.2% over 1997 levels, due primarily
to a decrease in market demand.
European sales from continuing operations increased 13.5% in local currency and
increased 11.8% in U.S. dollars for 1998 over 1997. This set a new record
compared to previous years. Exchange rates negatively impacted these sales by
$1.5 million.
Gross profit increased to $110.7 million in 1998 from $107.0 million in 1997.
Gross profit, excluding
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acquisitions and dispositions in both years, was $6.2 million higher in 1998
than in 1997. This improvement was due primarily to higher sales. Gross profit
was negatively affected by production inefficiencies resulting from operating
some facilities in excess of capacity and the cost associated with launching in
excess of 100 parts. Gross profit as a percentage of sales was 13.2 % in 1998
versus 13.1% in 1997.
Operating expenses in 1998 were $35.1 million, an increase of $3.3 million over
1997. This increase relates primarily to the write-off of assets at IWESA.
Operating expenses as a percentage of sales for the years ended December 31,
1998 and 1997 were 4.2% and 3.9%, respectively. Operating expenses include
expenses related to acquisition investigations of $0.5 and $0.4 million in 1998
and 1997, respectively.
Interest expense for the years ended December 31, 1998 and 1997 was $11.4
million and $12.4 million, respectively. This change was a result of a decrease
in borrowings due to cash provided by operating activities and the sale of
Industrial Powder Coatings, Inc.
The net of other income and expenses was income of $0.6 million in 1998 compared
to $2.0 million of net expense in 1997. This change relates primarily to net
losses in our equity investments in 1997 of $3.2 million.
For information concerning the provision for income taxes as well as information
regarding differences between effective tax rates and statutory rates, see Note
10 of the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
On December 20, 1999 we acquired all of the issued and outstanding stock of
Diversified Diemakers, Inc. and Ganton Technologies, Inc. These acquisitions did
not materially affect our consolidated results of operations in 1999; however,
the impact on our consolidated balance sheet at December 31, 1999 was
significant. Following is summarized consolidated balance sheet information at
December 31, 1999, which will illustrate the impact of the acquisition.
Intermet Impact of Intermet
Pre-Acquisitions Acquisitions Post-Acquisitions
---------------- ------------ -----------------
(in thousands of dollars)
Current assets $222,013 $82,507 $304,520
Net property, plant and equipment 263,262 106,469 369,731
Other assets (1) 151,781 131,260 283,041
Current liabilities, excluding debt 165,276 36,792 202,068
Debt 185,050 270,000 455,040
(1) Other assets include intangibles. For more information on intangibles, see
Note 1 of the Notes to Consolidated Financial Statements.
During 1999, net cash provided by operating activities was $70.3 million. Net
non-cash charges (principally depreciation, amortization and impairment expense)
were $44.9 million. Accounts receivable increased primarily because of higher
sales at the end of 1999 compared to those in the same period in 1998. Accounts
payable and current liabilities increased from December 31, 1998 primarily for
the same reason. The impairment of assets and shutdown costs relate to the
shutdown of Ironton and were $18.6 million in aggregate. Our investing
activities for 1999 used cash of $357.0 million. This included $274.3 million
paid for the purchase of businesses and related expenses and $78.8 million for
property, plant and equipment additions. Furthermore, we spent an additional
$4.5 million to complete our initial investment in PortCast. Primarily because
of these purchases, bank borrowings increased $289.8 million, in the aggregate,
from the end of 1998. In addition, we paid $6.8 million for the acquisition of
Intermet stock pursuant to our stock buyback program and paid $4.1 million for
dividends during 1999 ($0.04 per share per quarter).
Cash and cash equivalents decreased to $3.4 million at December 31, 1999 from
$5.8 million at December 31, 1998.
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Outstanding funded debt moved from a low in mid-1999 of $179.2 million to a high
at December 31, 1999 of $455.0 million. The increase in borrowings at the end of
the year was expected and related primarily to funds required for the Ganton and
Diemakers acquisitions. Our debt-to-equity ratio increased from 43% at December
31, 1998 to 65% at December 31, 1999 (45% without Ganton and Diemakers).
Shareholders' equity increased $25.4 million from $217.0 million at December 31,
1998, to $242.4 million at December 31, 1999.
We have recurring costs related to environmental matters, particularly the
management and disposition of waste (principally non-hazardous waste) generated
as part of ongoing operations. In 1999 and 1998, such costs totaled
approximately $15.1 and $14.4 million, respectively. Although we continue to
take various steps to control environmental costs, they are expected to increase
in the future. In addition, a portion of our capital expenditures is regularly
incurred to limit or monitor pollution, principally for ventilation and dust
control equipment. Such expenditures were approximately $5.7 million in 1999 and
$5.2 million in 1998. We expect to spend approximately $4.5 million in capital
expenditures related to environmental matters in 2000. Sales volume levels and
available engineering resources, among other factors, will influence the actual
amount of capital expenditures.
In addition, some of our operating and non-operating subsidiaries have been
named as potentially responsible parties liable for cleanup of known
environmental conditions. For known environmental conditions, Intermet, with the
assistance of environmental engineers and consultants, has accrued $10.2 million
to cover estimated future environmental expenditures. This reserve includes $3.7
million related to the shutdown of Ironton. There could exist, however, more
extensive or unknown environmental situations at existing or previously owned
businesses for which the future cost is not known or accrued at December 31,
1999.
In addition to these recurring and anticipated expenditures, the 1990 amendments
to the Federal Clean Air Act, and regulations promulgated thereunder are
expected to have a major impact on the compliance cost of many U.S. companies,
including foundries of the type owned by Intermet. Until Federal and state
governments adopt final regulations implementing those amendments and until
certain control measures under existing regulations are determined, it is not
possible to estimate such costs.
We are also a party to certain lawsuits and claims arising out of the conduct of
our business, including those relating to commercial transactions, product
liability, environmental, safety and health matters. We self-insure a
significant portion of our health care, property and casualty insurance risks.
However, we purchase additional insurance for catastrophic losses.
While the ultimate result of the contingencies described above cannot be
predicted with certainty, Intermet's management does not expect such known
contingencies to have a material adverse effect on its consolidated financial
position, results of operations or cash flows. However, we cannot be assured
that our activities will not give rise to actions by governmental agencies or
private parties that could cause us to incur fines, penalties, operational
shutdowns, damages, cleanup costs or other similar expenses. In addition, our
ability to increase foundry capacity levels is dependent upon our ability to
maintain or obtain increases under applicable permits for air emissions and
water discharges.
At December 31, 1999, we had commitments for the purchase of operating equipment
of approximately $3.5 million, which we expect to fund through cash flow from
operations. We have unsecured revolving credit agreements with bank groups that
provide for loans up to $400.0 million in the aggregate and an unsecured
eighteen-month term loan that provides for loans up to $200.0 million in the
aggregate. We had $455.0 million of long-term debt outstanding at December 31,
1999. Of this amount, we are scheduled to pay $6.4 million during 2000. We had
committed and uncommitted bank credit facilities with outstanding borrowing
capacity of approximately $169.4 million at December 31, 1999.
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Quantitative and Qualitative Disclosures about Market Risks
Intermet is subject to market risk with regard to interest rate, foreign
exchange and commodity pricing. We have analyzed the effect of these risks on
the balance sheets, results of operations and cash flows and we consider the
impact to be immaterial with respect to the commodity pricing risk.
Our earnings are affected by changes in interest rates because we have long-term
debt agreements with variable interest rates. A portion of this risk is offset
using interest rate swap agreements. A 1% change in interest rates on the debt
not covered by swap agreements would change net income approximately $1.0
million and $0.5 million for 1999 and 1998, respectively. Our sensitivity
analysis does not consider the effects of the reduced or increased level of
overall economic activity that could result from a change in interest rates.
Our earnings are also affected by fluctuations in the value of the U.S. dollar
as compared to foreign currencies, predominately in Germany, as a result of the
sales of our products in foreign markets. The result of an average 5% change in
the value of the dollar relative to the currencies in which our sales are
denominated would have resulted in a change in net income of approximately $0.5
million and $0.3 million for the years ended December 31, 1999 and 1998,
respectively. Our sensitivity analysis of the effects of the changes in foreign
currency exchange rates does not factor in a potential change in the sales
levels or local currency sales prices.
Asset Impairment and Shutdown
On December 7, 1999, Intermet announced plans to permanently close its Ironton
Iron, Inc. foundry. Ironton is included in the ferrous metals segment of the
Reporting for Business Segments footnote. Ironton has had enduring operational
difficulties and, as a result, has incurred significant operating losses since
Intermet purchased it in 1988. Because of Ironton's continuing operational
difficulties, customers representing a significant portion of its sales volumes
had informed Intermet and Ironton in late 1999 that they had decided to place
their business with alternate sources. The foundry is one of our oldest
facilities and the cost to modernize would further impact already negative
operating results. Ironton had revenues of $57 million , $55 million and $51
million and net operating losses of approximately $35 million, $10 million and
$7 million for the years ended December 31, 1999, 1998 and 1997, respectively.
The net loss of $35 million for 1999 includes the charges for asset impairment
and shutdown. We anticipate that the foundry will cease operations by the end of
the first quarter of 2000.
The decision to close this foundry was the principal reason for recording a
$10,811,000 charge for impairment of assets and a $7,789,000 charge for shutdown
costs in the fourth quarter of 1999. All but $101,000 of the charges are
included in operating expenses; the remainder is included in cost of goods sold.
The charge included a write-down of $10,811,000 to fair value for capital assets
(as determined by an outside consultant) and inventories; building demolition
and remediation costs of $6,637,000; and provisions totaling $1,152,000 for
severance pay and employee benefits related to the termination of approximately
100 salaried employees. Ironton's land, machinery and equipment used in the
production of ferrous castings and related replacement parts are segregated on
our consolidated balance sheet as assets held for sale. Intermet did not
provided for severance pay and employee benefits for approximately 500 union
employees because the amount was not then determinable. We anticipate that any
such charges will be recorded in the first quarter of 2000. The accrual for
shutdown costs of $7,789,000 is included in current liabilities at December 31,
1999.
Intermet intends that subsequent to the closing of the foundry, the assets will
be sold. We also expect at the earliest practical date after sale of assets, but
most likely during the fourth quarter of 2000, demolition of the building will
begin. We anticipate that demolition would be complete in 2001.
We do not expect to incur material additional charges related to the impairment
and shutdown of Ironton, excluding any losses it may incur while still
operating.
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Readers are cautioned that forward looking statements contained in this Asset
Impairment and Shutdown discussion should be read in conjunction with our
disclosures under the cautionary statement for the purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995, included
elsewhere in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Year 2000 Issue
Intermet conducted an evaluation of its Informational Technology ("IT") and
non-IT computer systems with respect to the "Year 2000" ("Y2K") issue. We
completed a Y2K readiness assessment of our business critical IT and non-IT
systems. We developed and implemented corrective action plans designed to
address Y2K issues. These plans included modification, upgrade and replacement
of our critical administrative, production, and research and development
computer systems to make them Y2K ready. We implemented corrective action plans,
and had our critical systems Y2K ready prior to December 31, 1999. We also
developed contingency plans intended to avoid or mitigate the risks that either
we might not or our key suppliers might not achieve Y2K readiness in time to
avoid disruption of our operations.
We began addressing Y2K issues in 1995 and, by December 31, 1999, we spent
approximately $7.5 million to address the Y2K issue. The majority of this
spending was for required upgrades to or for new business systems required in
the ordinary course of business, which were also Y2K ready.
To date, we have not experienced any significant problems or disruptions due to
Y2K issues either internally or with our suppliers. We do not expect to
experience any significant problems or disruptions related to Y2K problems, nor
do we anticipate spending any additional significant amounts related to these
issues. Actual results may differ materially.
Readers are cautioned that forward looking statements contained in this
Year-2000 Issue discussion should be read in conjunction with our disclosures
under the cautionary statement for the purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995, included elsewhere in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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Consolidated Financial Statements
Intermet Corporation
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
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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, 1999 and 1998, and the related consolidated
statements of operations, comprehensive income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Detroit, Michigan
January 26, 2000
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Intermet Corporation
Consolidated Statements of Operations
Years ended December 31,
1999 1998 1997
----------------- ---------------- --------------
(in thousands of dollars, except per share data)
Net sales $956,832 $841,598 $813,729
Cost of sales 834,545 730,857 706,771
----------------- ---------------- --------------
Gross profit 122,287 110,741 106,958
Operating expenses:
Selling 11,938 8,878 9,810
General and administrative 29,689 26,214 21,950
Asset impairment and shutdown costs 18,499 - -
----------------- ---------------- --------------
Operating profit 62,161 75,649 75,198
Other income and expenses:
Interest income 305 230 546
Interest expense (15,210) (11,305) (12,396)
Other, net 1,197 614 (1,959)
----------------- ---------------- --------------
(13,708) (10,461) (13,809)
----------------- ---------------- --------------
Income before income taxes 48,453 65,188 61,389
Provision for income taxes 12,076 24,199 21,376
----------------- ---------------- --------------
Net income $36,377 $40,989 $40,013
================= ================ ==============
Income per common share - Basic $1.43 $1.60 $1.59
================= ================ ==============
Income per common share - Diluted $1.42 $1.58 $1.55
================= ================ ==============
See accompanying notes.
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Intermet Corporation
Consolidated Statements of Comprehensive Income
Years ended December 31,
1999 1998 1997
----------------- ---------------- --------------
(in thousands of dollars, except per share data)
Net income $36,377 $40,989 $40,013
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (1,155) 348 (1,440)
Minimum pension liability adjustment 849 (837) 473
----------------- ---------------- --------------
Total other comprehensive loss (306) (489) (967)
----------------- ---------------- --------------
Comprehensive income $36,071 $40,500 $39,046
================= ================ ==============
Comprehensive income per common share - Basic $1.42 $1.58 $1.55
================= ================ ==============
Comprehensive income per common share - Diluted $1.41 $1.56 $1.51
================= ================ ==============
See accompanying notes.
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Intermet Corporation
Consolidated Balance Sheets
December 31,
1999 1998
--------------- -------------
(in thousands of dollars)
ASSETS
Current assets:
Cash and cash equivalents $3,416 $5,848
Accounts receivable:
Trade, less allowances of $7,426 in 1999 and $5,133 in
1998 154,742 105,678
OTHER 19,649 8,713
--------------- -------------
174,391 114,391
Inventories:
Finished goods 24,235 14,701
Work in process 19,054 18,522
Raw materials 15,313 8,467
Supplies and patterns 44,200 24,208
--------------- -------------
102,802 65,898
Deferred income taxes 10,047 2,829
Assets held for sale 8,093 -
Other current assets 5,771 8,464
--------------- -------------
Total current assets 304,520 197,430
Property, plant and equipment, at cost:
Land 5,411 4,567
Buildings and improvements 110,777 93,667
Machinery and equipment 422,215 357,545
Construction in progress 67,818 29,303
--------------- -------------
606,221 485,082
Less:
Foreign industrial development grants, net of amortization 3,533 4,153
Accumulated depreciation and amortization 232,957 240,227
--------------- -------------
Net property, plant and equipment 369,731 240,702
Intangible assets, net of amortization 248,864 126,896
Other noncurrent assets 34,177 18,987
=============== =============
$957,292 $584,015
=============== =============
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Intermet Corporation
Consolidated Balance Sheets
December 31,
1999 1998
--------------- -------------
(in thousands of dollars,
except share and per share data)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $114,105 $ 90,205
Notes payable - 1,000
Accrued wages, severance and benefits 33,449 24,117
Income taxes payable 4,190 5,684
Other accrued liabilities 42,535 21,121
Shutdown costs 7,789 -
Long-term debt due within one year 6,406 6,411
------------- -----------
Total current liabilities 208,474 148,538
Noncurrent liabilities:
Long-term debt 448,634 156,690
Retirement benefits 46,628 45,964
Other noncurrent liabilities 11,179 13,481
------------- -----------
Total noncurrent liabilities 506,441 216,135
Minority interest - 2,337
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized; none issued
Common stock, $0.10 par value; 50,000,000 shares
authorized; 25,846,824 and 25,832,824 shares issued in
1999 and 1998, respectively 2,585 2,583
Capital in excess of par value 56,661 63,382
Retained earnings 183,432 151,131
Accumulated other comprehensive income (loss) (234) 72
Unearned restricted stock (67) (163)
------------- -----------
Total shareholders' equity 242,377 217,005
------------- -----------
$957,292 $584,015
============= ===========
See accompanying notes.
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Intermet Corporation
Consolidated Statements of Cash Flows
Years ended December 31,
1999 1998 1997
-------------- ------------- --------------
(in thousands of dollars)
Operating activities:
Net income $ 36,377 $ 40,989 $ 40,013
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 35,140 31,975 32,482
Amortization 4,978 3,868 3,849
Impairment of assets 10,811 - -
Results of equity investments (337) 351 3,199
Deferred income taxes (6,391) (2,406) (2,577)
Dissolution of foreign holding - 4,282 -
(Gain) loss on sale of subsidiary and other assets 692 (575) (320)
Changes in operating assets and liabilities excluding the
effects of acquisitions and dispositions:
Accounts receivable (18,688) (13,944) (6,098)
Inventories (4,811) (78) (5,608)
Accounts payable and current liabilities 10,305 35,078 (6,219)
Shutdown costs 7,789 - -
Other assets and liabilities (5,606) (3,095) 4,094
------------ ----------- ------------
Cash provided by operating activities 70,259 96,445 62,815
Investing activities:
Additions to property, plant and equipment (78,743) (49,496) (40,585)
Purchase of businesses, net of cash acquired (274,338) (60,339) (36,396)
Investment in joint venture (4,500) (2,000) -
Proceeds from sales of property, plant and equipment 1,032 1,441 815
Proceeds from sale of subsidiary - 22,860 -
Other, net (418) (915) (616)
------------ ----------- ------------
Cash used in investing activities (356,967) (88,449) (76,782)
Financing activities:
Proceeds from revolving credit facility 193,500 5,000 6,600
Proceeds from term loan 200,000 - -
Payment on revolving credit facility (130,000) - -
Net increase in debt 31,342 (7,787) (12,576)
(Payment on) proceeds from notes payable (5,000) (4,000) 5,000
Acquisition of treasury stock (6,833) - -
Issuance of common stock 114 5,263 877
Dividends paid (4,076) (4,100) (4,038)
Other, net 849 (836) 420
------------ ----------- ------------
Cash provided by (used in) financing activities 279,896 (6,460) (3,717)
Effect of exchange rate changes on cash and cash equivalents 4,380 (2,710) 1,221
------------ ----------- ------------
Net decrease in cash and cash equivalents (2,432) (1,174) (16,463)
Cash and cash equivalents at beginning of year 5,848 7,022 23,485
------------ ----------- ------------
Cash and cash equivalents at end of year $ 3,416 $ 5,848 $ 7,022
============ =========== ============
See accompanying notes.
6
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Intermet Corporation
Consolidated Statements of Shareholders' Equity
Years ended December 31,
1999 1998 1997
----------------- -------------- --------------
(in thousands of dollars, except share and per share data)
Common stock
Beginning balance $ 2,583 $ 2,526 $ 2,517
Exercise of options to purchase 14,000, 576,450 and 88,500
shares of common stock in 1999, 1998 and 1997, respectively 2 57 9
-------------- -------------- --------------
Ending balance 2,585 2,583 2,526
Capital in excess of par value
Beginning balance 63,382 58,176 57,308
Exercise of options to purchase shares of common stock 112 5,206 868
Purchase of 509,000 shares of treasury stock (6,833) - -
-------------- -------------- --------------
Ending balance 56,661 63,382 58,176
Retained earnings
Beginning balance 151,131 114,242 78,267
Net income 36,377 40,989 40,013
Cash dividends of $0.16 per share in 1999, 1998 and 1997 (4,076) (4,100) (4,038)
-------------- -------------- --------------
Ending balance 183,432 151,131 114,242
Accumulated translation adjustment
Beginning balance 921 573 3,548
Translation adjustment (1,777) 535 (4,575)
Related income tax effect 622 (187) 1,600
-------------- -------------- --------------
Ending balance (234) 921 573
Minimum pension liability adjustment
Beginning balance (849) (12) (485)
Adjustment 1,306 (1,379) 776
Related income tax effect (457) 542 (303)
-------------- -------------- --------------
Ending balance - (849) (12)
Unearned restricted stock
Beginning balance (163) (77) (53)
Issuance of 8,000 and 7,500 shares of common stock in 1998
and 1997, respectively - (155) (115)
Amortization 96 69 91
-------------- -------------- --------------
Ending balance (67) (163) (77)
-------------- -------------- --------------
Total shareholders' equity $242,377 $217,005 $175,428
============== ============== ==============
See accompanying notes.
7
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Intermet Corporation
Notes to Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements, presented in conformity with
accounting principles generally accepted in the United States ("GAAP"), include
the accounts of Intermet Corporation and its subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Business
Intermet produces ferrous metals, including ductile and gray iron, and light
metals castings, including aluminum, magnesium and zinc. In addition, we perform
value-added services, principally for automotive manufacturers in North America
and Europe. We also supply cranes, truck bodies and related equipment, and
precision-machined components to automotive and other industrial customers.
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.
Reclassification
Certain amounts previously reported in the 1998 financial statements and notes
thereto have been reclassified to conform to the 1999 presentation.
Revenue Recognition
We recognize revenue upon shipment of products.
Income per Common Share
Basic and diluted earnings per share are calculated in accordance with the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share".
Cash and Cash Equivalents
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.
8
17
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the
last-in, first-out ("LIFO") method for 31% and 34% of the December 31, 1999 and
1998 inventories, respectively. Certain raw materials and supplies inventories
are valued on a weighted average cost basis; average production cost is used for
certain work in process and finished goods inventories and other inventories are
valued by the first-in, first-out ("FIFO") method. The specific identification
method is used for pattern inventories. If LIFO inventories were valued using
the same cost methods used for other inventories, their carrying values would
have increased by $1,343,000 and $1,105,000 at December 31, 1999 and 1998,
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. 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 estimated useful lives of the related
assets.
Intangible Assets
Intangible assets of $248,864,000 and $126,896,000 (net of accumulated
amortization of $10,867,000 and $7,147,000) at December 31, 1999 and 1998,
respectively, consist principally of costs in excess of net assets acquired. We
amortize these costs using the straight-line method over periods ranging
principally from ten to forty years. In setting the life of intangibles, we
consider the long term strategic value of the acquired assets. We periodically
assess the recoverability of the cost of our intangibles based on a review of
projected undiscounted cash flows of the related operating entities.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value. The fair value of our debt approximates the reported amounts in the
accompanying consolidated balance sheets as their respective interest rates
approximate the respective year end market rates for similar debt instruments.
We obtain the fair value of the interest rate swaps, as noted in Note 6, from
dealer quotes. These values represent the estimated amount we would receive or
pay to terminate agreements taking into consideration current interest rates,
the creditworthiness of the counter-parties and current foreign currency
exchange rates.
Stock-Based Compensation
We generally grant 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. We account for stock option grants in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees", and, accordingly, recognize
no compensation expense for the stock option grants.
9
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". We expect to adopt SFAS No. 133 effective
January 1, 2001. SFAS No. 133 will require us to recognize all derivatives on
the balance sheet at fair value. We do not anticipate that the adoption of this
SFAS will have a significant effect on our results of operations or financial
position.
2. Reporting for Business Segments
Intermet's management evaluates the operating performance of its business units
individually. Under the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", we have aggregated operating segments
that have similar characteristics, including manufacturing processes and raw
materials. The ferrous-metals segment consists of ferrous foundry operations and
their related machining operations. The light-metals segment consists of
aluminum, magnesium and zinc casting operations and their related machining
operations. The operating units that comprise other are all non-foundry
operations, and none of them constitutes a reportable segment on its own.
Previously, we had one segment, but with the acquisitions at the end of 1999, we
now have two segments. We have restated 1998 and 1997 segment disclosure to
conform to the new segment disclosure structure. This information is displayed
in the following table.
Ferrous Metals Light Metals Other Consolidated
-------------- ------------ ----- ------------
(in thousands of dollars)
Year ended December 31, 1999
Net sales $770,393 $102,239 $84,200 $956,832
Depreciation expense 28,685 3,925 2,530 35,140
Amortization expense 4,812 166 - 4,978
Provision for income taxes 8,397 1,415 2,264 12,076
Net income 31,077 1,851 3,449 36,377
Purchases of property, plant and equipment 62,141 13,661 2,941 78,743
December 31, 1999
Total assets $526,733 $388,055 $42,504 $957,292
Year ended December 31, 1998
Net sales $702,679 $28,785 $110,134 $841,598
Depreciation expense 27,220 1,505 3,250 31,975
Amortization expense 3,722 146 - 3,868
Provision for income taxes 24,470 (863) 592 24,199
Net income 41,650 (1,602) 941 40,989
Purchases of property, plant and equipment 42,414 2,958 4,124 49,496
December 31, 1998
Total assets $521,945 $22,919 $39,151 $584,015
Year ended December 31, 1997
Net sales $635,618 $31,065 $147,046 $813,729
Depreciation expense 26,767 1,057 4,658 32,482
Amortization expense 3,704 145 - 3,849
Provision for income taxes 22,049 (3,712) 3,039 21,376
Net income 41,764 (6,861) 5,110 40,013
Purchases of property, plant and equipment 30,094 2,622 7,869 40,585
December 31, 1997
Total assets $443,907 $21,483 $74,056 $539,446
10
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
3. Acquisitions and Dispositions
On December 20, 1999 we acquired all of the issued and outstanding stock of
Diversified Diemakers, Inc. and Ganton Technologies, Inc. for a purchase price
of $110,000,000 and $160,000,000, respectively. The balance sheets of Diemakers
and Ganton are subject to review, which may result in adjustments to the
purchase prices in fiscal year 2000.
We accounted for these transactions using purchase accounting and, accordingly,
the purchase price has been allocated to the assets purchased and the
liabilities assumed based upon the estimated fair values at the date of
acquisitions. The excess of the purchase price, including acquisition costs of
$5.5 million, over the estimated fair values of net assets acquired was
$125,635,000, which has been recorded as goodwill and is being amortized on a
straight-line basis over 40 years. The results of operations of Ganton and
Diemakers from the date of acquisition to December 31, 1999 are included in
Intermet's consolidated results of operations.
Intermet accrued approximately $3.7 million for severance and office closing
costs. Sales, engineering and certain other administrative and operating
functions of Ganton and Diemakers are being combined with Intermet's existing
functions. As a result of this combination of activities, we will eliminate
duplicate activities during fiscal year 2000.
Ganton is a Wisconsin-based supplier of die-cast aluminum components to the
automotive industry. Ganton operates three manufacturing facilities, two located
in Wisconsin and one in Tennessee. Ganton also has an engineering center in
Wisconsin. Diemakers, with headquarters in Missouri, is a leading manufacturer
of magnesium die-cast automotive components. Diemakers has three production
facilities and a product development center, all in Missouri.
11
20
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
3. Acquisitions and Dispositions (continued)
On December 31, 1998, Intermet acquired certain operating assets and the
aluminum die-casting business of Quadion Corporation for $56,951,000 and certain
operating supplies inventories for $1,353,000, both in cash. These assets form
the base of our wholly owned subsidiary, Tool Products, Inc. This transaction
was accounted for as a purchase and, accordingly, the purchase price was
allocated to the assets purchased and the liabilities assumed based upon the
estimated fair values at the date of acquisition. The excess of the purchase
price over the fair value of tangible net assets acquired was approximately
$39,105,000 and was recorded as goodwill, which is being amortized on a
straight-line basis over 40 years. The consolidated financial statements include
the balance sheet of Tool Products as of December 31, 1998.
Also on December 31, 1998 we acquired 100% of the outstanding shares of
Vorpommersche Eisenwerke GmbH Ueckermunde ("VEGU") for DM 6,000,000 in cash. We
accounted for this transaction using purchase accounting and, accordingly, the
purchase price was allocated to the assets purchased and the liabilities assumed
based upon the estimated fair values at the date of acquisition. The fair values
of net assets acquired exceeded the purchase price and resulted in negative
goodwill of approximately DM 3,300,000, which is being amortized on a
straight-line basis over five years. The consolidated financial statements
include the balance sheet of VEGU as of December 31, 1998. VEGU is a ferrous
foundry company located in eastern Germany.
In June 1998 we sold substantially all the operating assets of our subsidiary,
Industrial Powder Coatings, for $22,860,000 in cash and recognized a net gain of
approximately $115,000.
The following represents our unaudited pro forma consolidated results of
operations (in thousands of dollars, except per share data) for 1999 and 1998,
assuming the above acquisitions and disposition occurred on January 1 of each
year presented.
1999 1998
------------- ------------
Net sales $1,182,044 $1,102,286
Net income $36,339 $40,693
Income per common share - Basic $1.43 $1.59
Income per common share - Diluted $1.42 $1.57
These unaudited pro forma results are presented for comparative purposes only.
They are not necessarily indicative of what would have occurred had the
acquisitions and disposition actually been made on the dates indicated or of
future results of operations.
12
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
3. Acquisitions and Dispositions (continued)
During the second quarter of 1998, we entered into an agreement with Portuguese
Grupo Jorge de Mello, creating a joint venture company called PortCast-Fundicao
Nodular, S.A. PortCast is located in Porto, Portugal and increased our ferrous
capacity in Europe. As of December 31, 1999, we spent $6,500,000 of capital for
our investment in a 50% equity interest in PortCast, as agreed upon with
Portuguese Grupo Jorge de Mello. Our investment in PortCast is accounted for on
the equity method. The previous owners of PortCast have contributed property,
plant and equipment (after these fixed assets were cleared of liens in the
fourth quarter of 1999) for their 50% share in PortCast. We have managerial
control. Our equity in net loss of PortCast for 1999 is approximately $719,000
and is included in other income and expense in the accompanying statements of
operations.
In the first half of 1998, we wrote-off certain assets related to IWESA, an
82.4% owned subsidiary. In May 1998, IWESA entered bankruptcy proceedings
whereby the receiver assumed all remaining assets and obligations, without cash
effect, in accordance with German bankruptcy laws.
4. Impairment of Assets and Shutdown
On December 7, 1999, Intermet announced plans to permanently close its Ironton
Iron, Inc. foundry. Ironton is included in the ferrous-metals segment of the
Reporting for Business Segments footnote. Ironton has had enduring operational
difficulties and, as a result, has incurred significant operating losses since
Intermet purchased it in 1988. Because of Ironton's continuing operational
difficulties, customers representing a significant portion of its sales volumes
had informed Intermet and Ironton in late 1999 that they had decided to place
their business with alternate sources. The foundry is one of our oldest
facilities and the cost to modernize would further impact already negative
operating results. Ironton had revenues of $57 million, $55 million and $51
million and net losses of approximately $35 million, $10 million and $7 million
for the years ended December 31, 1999, 1998 and 1997, respectively. The net loss
of $35 million for 1999 includes the charges for asset impairment and shutdown.
We anticipate that the foundry will cease operations by the end of the first
quarter of 2000.
13
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
4. Impairment of Assets and Shutdown (continued)
The decision to close this foundry was the principal reason for recording a
$10,811,000 charge for impairment of assets and a $7,789,000 charge for shutdown
costs in the fourth quarter of 1999. All but $101,000 of the charges are
included in operating expenses; the remainder is included in cost of goods sold.
The charge included a write-down of $10,811,000 to fair value for capital assets
(as determined by an outside consultant) and inventories; building demolition
and remediation costs of $6,637,000; and provisions totaling $1,152,000 for
severance pay and employee benefits related to the termination of approximately
100 salaried employees. Ironton's land, machinery and equipment used in the
production of ferrous castings and related replacement parts are segregated on
our consolidated balance sheet as assets held for sale. Intermet did not
provided for severance pay and employee benefits for approximately 500 union
employees because the amount was not then determinable. We anticipate that any
such charges will be recorded in the first quarter of 2000. The accrual for
shutdown costs of $7,789,000 is included in current liabilities at December 31,
1999.
Intermet intends that subsequent to the closing of the foundry, the assets will
be sold. We also expect at the earliest practical date after sale of assets, but
most likely during the fourth quarter of 2000, demolition of the building will
begin. We anticipate that demolition would be complete in 2001.
As part of the 1988 purchase of Ironton, the previous common stockholders of
Ironton received an equivalent number of shares of Ironton's 5% cumulative
preferred stock with an aggregated stated value of $2,337,000. The obligation of
Ironton to redeem the preferred stock was dependent on Ironton generating
positive cumulative net income. Because Ironton has incurred significant
cumulative net losses since 1988, no portion of the preferred stock has been
redeemed. No dividends have been paid on the preferred stock.
5. Notes Payable
Columbus Neunkirchen Foundry GmbH, a wholly owned subsidiary of Intermet, has
various revolving note agreements which are payable upon the earlier of demand
or December 31, 2000, unless extended. These notes provide for borrowings up to
DM 14,000,000 (approximately $7,192,000) at December 31, 1999. There were no
outstanding borrowings under these agreements as of December 31, 1999 and 1998.
Until November 1999, we maintained various other uncommitted bank lines of
credit, which were payable on demand. As a result of the new revolving credit
agreement dated November 5, 1999 (see Note 6), we extinguished these uncommitted
bank lines of credit. At December 31, 1998, our borrowings under the lines of
credit totaled $1,000,000.
14
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt
Long-term debt consisted of the following at December 31, (in thousands of
dollars):
1999 1998
-------------- --------------
Intermet:
Revolving credit facility $193,500 $130,000
Term loan 200,000 -
Prudential note 15,000 20,000
Domestic subsidiaries:
Bonds 42,400 8,075
Capitalized leases 3,262 3,781
Other - 3
Foreign subsidiaries:
Foreign bank term notes 878 1,242
-------------- --------------
Total 455,040 163,101
Less: long-term debt due within one year 6,406 6,411
-------------- --------------
Long-term debt due after one year $448,634 $156,690
============== =============
On November 5, 1999, Intermet signed a five-year $300 million unsecured
revolving credit agreement with a bank group. This agreement replaced the $200
million unsecured revolving credit facility, which was to expire January 1,
2000. At the same time, we executed a $100 million 364-day unsecured revolving
credit agreement. Standby letters of credit reduce the borrowing limits of these
two agreements. At December 31, 1999, such standby letters of credit totaled
$44,324,716. Interest on outstanding borrowings on the revolving credit
agreement, for the first six months after the acquisitions, is LIBOR plus 2%.
After the first six-month period, interest rates are based on grid pricing.
Unused commitment fees for the revolving credit agreements are 0.375% and 0.35%,
per annum, for the first six months after the acquisitions. After the first
six-month period, unused commitment fees for the revolving credit agreement
revert to a range of 0.15% to 0.375% per annum, based on leverage. These
revolving credit agreements require us to maintain specified financial ratios
and imposes limitations on certain activities.
In order to facilitate the financing of Ganton and Diemakers, we borrowed an
additional $200 million in the form of an eighteen-month unsecured term loan.
This loan, dated December 20, 1999, is with a consortium of banks. Interest on
outstanding borrowings for the first six months is LIBOR plus 2%. After the
first six-month period, interest rates are based on grid pricing. The term loan
requires us to maintain financial ratios and imposes limitations on specified
activities.
The Prudential note is unsecured and bears interest at a rate of 8.05% per
annum, payable quarterly. Annual principal payments of $5,000,000 are required.
The note agreement requires us to maintain certain financial ratios and imposes
limitations on certain activities. The final principal payment on this note is
due December 11, 2002.
On December 23, 1999, Columbus Foundry, L.P., a wholly owned subsidiary of
Intermet, issued $35,000,000 of variable rate limited obligation revenue bonds.
Under the terms of the indenture, Columbus Foundry is required to make
interest-only payments at a variable rate. The interest rate for the period
outstanding in 1999 was 6.75%. The entire principal is due December 1, 2019.
15
24
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt (continued)
Under the terms of a bond indenture entered into by Lynchburg Foundry Company, a
wholly owned subsidiary of Intermet, Lynchburg Foundry Company is required to
redeem various amounts of industrial development revenue bonds on an annual
basis through June 2006. These amounts range from $175,000 to $350,000 per year,
with a final payment at maturity of $1,650,000. The balance outstanding as of
December 31, 1999 was $3,400,000. The bonds are subject to optional redemption
prior to maturity.
As part of our acquisition of Tool Products, we assumed $4,500,000 of industrial
development revenue bond debt. We are required to make annual principal payments
of $500,000, with a final maturity date of January 1, 2007. The balance as of
December 31, 1999 was $4,000,000.
We also have capital leases of approximately $3,262,000 at December 31, 1999,
which relate to assets with net book values of approximately $3,401,000.
Interest rates for these leases range from 7.50% to 8.58%.
The foreign bank term notes bear an interest rate of 5.0% per annum. These
borrowings are secured by property, plant and equipment with net book values
aggregating to approximately $18,393,000 at December 31, 1999.
Maturities of long-term debt and capital leases at December 31, 1999 are as
follows (in thousands of dollars):
2000 $ 6,406
2001 206,402
2002 6,617
2003 1,561
2004 194,912
Thereafter 39,142
------------
Totals $455,040
============
Interest paid totaled approximately $12,953,000, $10,398,000 and $11,500,000 in
1999, 1998 and 1997, respectively.
At December 31, 1999, approximately $25,000,000 plus 50% of fourth quarter net
income was available for the payment of dividends.
Interest rate swaps are contractual agreements between parties to exchange fixed
and floating interest rate payments periodically, over the life of the
agreements, without the exchange of underlying principal amounts. At December
31, 1999, we have two interest rate swap transaction arrangements in effect for
which we pay a fixed interest rate of 6.75% and 6.755% per annum with respect to
notional amounts, and off balance sheet risk, of $40,000,000 and $30,000,000,
respectively. These swaps are used to partially hedge an underlying debt
obligation and are not marked to market. We do not expect to terminate the swaps
prior to maturity. Had the swaps been terminated at December 31, 1999, we would
have been obligated to the counter-parties for approximately $230,000.
The swap transactions terminate in May 2000.
16
25
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
7. Shareholders' Equity
We have a Key Employee Stock Option Plan ("Employee Plan") and a Directors'
Stock Option Plan ("Directors' Plan"). The Employee Plan, which permits the
grant of options and restricted shares for up to 1,500,000 shares of common
stock, was approved by the shareholders of Intermet on April 27, 1995. The
Directors' Plan was approved by the shareholders of Intermet on April 10, 1997
and permits the grant of options to purchase up to 150,000 shares of common
stock. Options granted under the Employee Plan vest over a four-year period.
Options under the Directors' Plan were exercisable at the grant date. Certain
options also remain outstanding from prior stock option plans. At December 31,
1999 options for 784,500 shares were exercisable, while 100,500 Employee Plan
shares and 114,000 Directors' Plan shares were available for future grant.
We apply Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for the stock option plans. Accordingly, we have not recognized
compensation expense for our stock option plans. Had compensation expense for
these plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, our pro
forma net income, basic earnings per share and diluted earnings per share would
have been $35,733,000, $40,290,000 and $39,413,000; $1.40, $1.57 and $1.56; and
$1.40, $1.55 and $1.53 in 1999, 1998 and 1997, respectively.
The fair values of our stock options, as disclosed above, were estimated as of
the date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for 1999, 1998 and 1997: risk-free interest rates
ranging from 5.25% to 6.4%; a dividend yield of 1.0%; volatility factor of the
expected market price of our common stock ranging from .32 to .451; and a
weighted average expected life of the options of 6 years. For purposes of the
pro forma disclosures required under SFAS No. 123, the estimated fair value of
the options is amortized over the options' vesting period.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
18
26
Intermet Corporation
Notes to Consolidated Financial Statements (continued)
7. Shareholders' Equity (continued)
A summary of our stock option activity for the three years ended December 31,
1999 is as follows:
Weighted
Number of Average Exercise
Options Exercise Price Price Range
---------------- ----------------- -------------------
Outstanding at January 1, 1997 1,390,000 $ 9.87
Granted 219,500 16.27 $15.375-$17.00
Exercised (88,500) 7.22 5.69-12.75
Forfeited (41,500) 10.12 9.00-12.75
================
Outstanding at December 31, 1997 1,479,500 $9.87
================
Exercisable at December 31, 1997 856,375 $9.36
Weighted average fair value of
options granted during 1997 $6.48
Outstanding at January 1, 1998 1,479,500 $ 9.87
Granted 305,750 18.11 $18.06-$19.38
Exercised (576,450) 8.79 5.69-12.75
Forfeited (24,750) 13.74 9.00-17.00
================
Outstanding at December 31, 1998 1,184,050 $13.64
================
Exercisable at December 31, 1998 557,050 $11.14
Weighted average fair value of
options granted during 1998 $7.91
Outstanding at January 1, 1999 1,184,050 $13.64
Granted 323,000 14.28 $12.75-$14.31
Exercised (14,000) 8.05 5.69-10.75
Forfeited (43,500) 15.94 12.75 - 18.06
================
Outstanding at December 31, 1999 1,449,550 $13.76
================
Exercisable at December 31, 1999 784,500 $12.14
Weighted average fair value of
options granted during 1999 $14.31
Exercise prices for options outstanding as of December 31, 1999 ranged
principally from $9.00 to $10.65 and $12.75 to $18.10, with weighted-average
remaining contractual lives of those options ranging from 2.7 to 5.2 years and
6.6 to 8.5 years.
19
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
7. Shareholders' Equity (continued)
We have an Employee Stock Ownership Plan and Trust ("ESOP") for some of our
United States employees who are not covered by collective bargaining agreements.
The ESOP requires that we make contributions equal to 3% of the annual
compensation of the ESOP participants. We may, at our discretion, make
additional contributions within specified limits. Contributions to the ESOP of
$984,000, $872,000 and $827,000 were expensed in 1999, 1998 and 1997,
respectively.
On October 6, 1995 our 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 Intermet that a person, as defined (excluding, with certain
limitations, certain holders of 10% or more of our common stock who do not
acquire additional shares, any of our ESOPs or benefit plans, and Intermet or
any of its wholly-owned subsidiaries), has acquired 10% of our common stock or
announces a tender offer which could result in the ownership of 10% or more of
our 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 our preferred stock, at an exercise price of $40. On October 16, 1997, we
amended the rights agreement to provide that certain institutional investors who
own in excess of 10%, but less than 15% of our common stock, are not "Acquiring
Persons", as defined by the rights agreement.
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 we merge with
another company under certain conditions or redeem or exchange the rights before
October 6, 2005, the rights will expire on such date.
8. Commitments and Contingencies
Future minimum rental payments required under building and equipment operating
leases that have initial or remaining non-cancelable lease terms in excess of
one year at December 31, 1999 are as follows (in thousands of dollars):
2000 $5,527
2001 3,956
2002 2,868
2003 1,726
2004 1,087
Thereafter 920
-------
Total $16,084
=======
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
8. Commitments and Contingencies (continued)
Total rental expense under operating leases aggregated $5,242,000, $5,255,000
and $5,445,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999 we had commitments to purchase capital equipment of
approximately $3,500,000 in the aggregate.
Some of our subsidiaries have been named as potentially responsible parties
liable for cleanup of known environmental conditions. For known environmental
situations, Intermet, with the assistance of environmental engineers and
consultants, has recorded reserves to cover estimated future environmental
expenditures. Environmental reserves at December 31, 1999 and 1998 approximated
$10,198,000 and $4,633,000 respectively. The environmental reserve at December
31, 1999 includes $3,705,000 related to the shutdown of Ironton Iron. Also
included is an environmental reserve of $3,257,000 acquired as part of the
purchase of Ganton, which is fully covered by specifically identified liquid
assets. We also have corrective action plans and/or preventive environmental
projects to ensure the safe and lawful operation of our facilities. There could
exist, however, more extensive or unknown environmental situations at existing
or previously owned businesses for which the future cost is not known or exceeds
amounts accrued at December 31, 1999.
In addition to these recurring and anticipated expenditures, the 1990 amendments
to the Federal Clean Air Act, and regulations promulgated thereunder are
expected to have a major impact on the compliance cost of many U.S. companies,
including foundries of the type owned by Intermet. Until Federal and state
governments adopt final regulations implementing those amendments and until
certain control measures under existing regulations are determined, it is not
possible to estimate such costs.
We are also engaged in various legal proceedings and other matters incidental to
our normal business activities. We do not believe any of these above-mentioned
proceedings or matters will have a material adverse effect on our consolidated
financial position or results of operations or cash flows.
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
9. Retirement Plans and Benefits
We maintain several noncontributory defined benefit pension plans for certain of
our U.S. employees covered by collective bargaining agreements. The benefits are
based on years of service. Our policy is to fund amounts as required under
applicable laws and regulations. In addition to providing pension benefits, we
provide health care and life insurance benefits to certain retired U.S.
employees and their dependents. Certain 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 most medical expenses less deductible and co-pay amounts. Salaried and
hourly employees also contribute to the cost of dependent coverage. Certain
salaried employee coverage converts to a Medicare supplement at age 65, while
most hourly employee coverage ceases at age 65.
Years ended December 31,
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(in thousands of dollars)
Change in benefit obligation
Benefit obligation at beginning of year $61,927 $55,246 $37,951 $35,191
Service cost 1,434 1,204 749 707
Interest cost 4,335 4,044 2,535 2,490
Amendments - 772 - (358)
Actuarial (gains)/losses (3,270) 3,865 (3,449) 3,133
Acquisition 4,763 - 789 183
Benefits paid (3,239) (3,204) (3,357) (3,395)
-----------------------------------------------------------
Benefit obligation at end of year $65,950 $61,927 $35,218 $37,951
Change in plan assets
Fair value of plan assets at beginning of year $61,019 $58,962
Actual return on plan assets 10,176 3,315
Company contributions 1,030 1,945
Acquisition 3,738 -
Benefits paid (3,239) (3,203)
-------------------------
Fair value of plan assets at end of year $72,724 $61,019
Funded status of the plan (under-funded) $ 6,774 ($908) ($35,218) ($37,951)
Unrecognized net actuarial loss/(gain) (6,281) 1,504 (13,507) (11,038)
Unrecognized transition obligation 120 171 - -
Unrecognized prior service cost 2,074 2,348 (77) (90)
Minimum liability (513) - - -
-----------------------------------------------------------
Prepaid (accrued) benefit cost $ 2,174 $3,115 ($48,802) ($49,079)
===========================================================
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
9. Retirement Plans and Benefits (continued)
The discount rate used in determining the actuarial present value of the
projected benefit obligations was 8.0% in 1999 and 7.125% in 1998. The expected
long-term rate of return on assets used in determining net pension expense was
9.5% in 1999 and 9.0% to 9.5% in 1998. Plan assets consist of publicly traded
stocks and bonds, cash equivalents and insurance contracts.
The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 6.0% to 7.5% in 1999, declining by 0.5%
per year to an ultimate rate of 5.0% for the applicable employee age groups.
Certain subsidiaries providing a dental benefit assumed a 5.25% cost trend rate
for dental in 1999, declining to 5.0% in 2000.
Years ended December 31,
Pension Benefits Other Benefits
---------------- --------------
Components of net periodic cost: 1999 1998 1997 1999 1998 1997
------- ------- ------- ------ ------ -------
(in thousands of dollars)
Service cost $1,434 $1,204 $1,232 $749 $707 $949
Interest cost 4,335 4,044 3,855 2,535 2,490 2,924
Expected return on plan assets (5,665) (5,062) (10,198) - - -
Amortization of prior service cost and
net transition obligation 344 283 6,264 (13) (508) 11
Recognized net actuarial gain - - - (980) (813) (783)
----------------------------------------------------------------
Benefit cost $448 $469 $1,153 $2,291 $1,876 $3,101
================================================================
The assumed health care cost trend rate has a significant effect on the amounts
reported. A one-percentage-point change in the assumed health care cost trend
rate would have the following effects:
One Percentage One Percentage
Point Increase Point Decrease
---------------------- -------------------
(in thousands of dollars)
Effect on total service and interest cost
components in 1999 $255 ($208)
Effect on postretirement benefit obligation as of
December 31, 1999 $2,231 ($1,862)
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
9. Retirement Plans and Benefits (continued)
Amounts recognized for pension benefits in the consolidated balance sheets
consist of:
December 31,
1999 1998
---------------- --------------
(in thousands of dollars)
Prepaid benefit cost $3,895 $3,115
Accrued benefit liability (2,234) (3,910)
Intangible asset 513 2,519
Accumulated other comprehensive income (pretax) - 1,391
---------------- --------------
Net amount recognized $2,174 $3,115
================ ==============
Because we aggregate the disclosures for our pension plans with plans with
accumulated benefit obligations in excess of plan assets (underfunded plans),
the following additional disclosures are applicable to our pension plans with
accumulated benefit obligations in excess of plan assets, in thousands of
dollars, as of December 31, 1999:
Projected benefit obligation $8,291
Accumulated benefit obligation 7,598
Fair value of plan assets 7,019
We maintain several defined contribution plans for certain hourly employees.
Contributions to these plans, which are principally based on hours worked by
each employee, totaled $1,308,000, $1,034,000 and $1,173,000 in 1999, 1998 and
1997, respectively. Some of the plans allow participants to make pretax
contributions as a percentage of their compensation.
We also maintain defined contribution plans for domestic salaried employees. In
certain plans we contribute a specified percentage of the annual compensation of
participants. Participants are also allowed to make pretax contributions to the
plans, as a percentage of their compensation. We match participant contributions
up to a specified limit. Certain plans provide for a discretionary
profit-sharing contribution. We accrued contributions to the plans of
$1,838,000, $1,602,000 and $1,297,000 in 1999, 1998 and 1997, respectively.
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
10. Income Taxes
The provision for income taxes consists of the following (in thousands of
dollars):
Years ended December 31,
1999 1998 1997
-------------- -------------- --------------
Current:
Federal $14,890 $22,317 $13,489
State 3,716 3,555 2,811
Foreign (139) 733 7,653
-------------- -------------- --------------
18,467 26,605 23,953
Deferred:
Federal (7,406) (5,651) (1,769)
State (922) (467) (71)
Foreign 1,937 3,712 (737)
-------------- -------------- --------------
(6,391) (2,406) (2,577)
-------------- -------------- --------------
Totals $12,076 $24,199 $21,376
============== ============== ==============
We paid income taxes of approximately $14,949,000, $15,245,000 and $2,931,000 in
1999, 1998 and 1997, respectively.
The provision for income taxes differs from the amount computed using the
statutory U.S. federal income tax rate for the following reasons (in thousands
of dollars):
Years ended December 31,
1999 1998 1997
------------- -------------- -------------
Provision for income taxes at U.S. statutory
rate $16,959 $22,816 $21,486
(Income) loss with no tax effect (118) (267) 1,160
Difference between U.S. and foreign tax rates
82 84 1,561
Utilization of NOL and credit carryforwards
(190) - (4,862)
State income taxes, net of federal income
tax benefits 2,810 2,030 1,781
Reduction in valuation allowance (9,018) - (1,246)
Other 1,551 (464) 1,496
------------- -------------- -------------
Totals $12,076 $24,199 $21,376
============= ============== =============
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
10. Income Taxes (continued)
The tax effects of temporary differences and carryforwards that give rise to
deferred income tax assets (liabilities) at December 31, 1999 and 1998 are as
follows (in thousands of dollars):
1999 1998
--------------- --------------
Compensation and benefit items, primarily related to SFAS
No. 106 $22,274 $22,896
Operating loss, capital loss, foreign tax credit and AMT
credit carryforwards 8,192 23,092
Ironton asset impairment and shutdown costs 9,164 -
Deductible goodwill 2,178 -
Other temporary differences 17,124 7,929
--------------- --------------
Gross deferred tax assets 58,932 53,917
Depreciation and related items (23,200) (19,935)
Other temporary differences (14,533) (13,590)
--------------- --------------
Gross deferred tax liabilities (37,733) (33,525)
--------------- --------------
Net deferred tax asset 21,199 20,392
Valuation allowance (3,728) (16,240)
--------------- --------------
Net deferred income taxes $17,471 $4,152
=============== ==============
Net deferred income taxes at December 31, 1999 increased $13,319,000 from
December 31, 1998, $6,928,000 of which relates to the acquisition of Ganton and
Diemakers. During 1999, we reversed a valuation allowance of $4,518,000, due to
a change in German tax law in 1999, which allowed us to utilize 100% of the NOL
for VEGU. In addition, we reduced the valuation allowance approximately
$4,500,000 as a result of a recapitalization of our international operations.
This recapitalization will allow us to utilize foreign tax credits that would
have otherwise expired. Also, we reduced the deferred tax assets and the related
valuation allowance by approximately $3,494,000 for expired capital loss
carryforwards. Tax loss carryforwards with a value of approximately $3,728,000
expire in various amounts between 2000 and 2010. There are certain limitations
on the use of most of the tax loss carryforwards noted above. We provided a
valuation allowance for the full amount of the tax loss carryforwards at
December 31, 1999.
These income tax amounts are included in the consolidated balance sheets as
follows (in thousands of dollars):
December 31,
1999 1998
-------------- ------------
Current assets $10,047 $2,829
Other noncurrent assets 7,424 4,449
Other noncurrent liabilities - (3,126)
-------------- ------------
Totals $17,471 $4,152
============== ============
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
11. Geographic Area and Major Customer Information
All sales are to unaffiliated customers. Revenue and income amounts for each of
the three years ended December 31, 1999, and identifiable assets at the end of
each year, were as follows from North America, principally United States, and
other international, principally Germany, source operations:
As of and for the years ended December 31,
1999 1998 1997
-------- -------- --------
(in thousands of dollars)
Net sales:
North America $846,876 $733,889 $723,644
Other international 109,956 107,709 90,085
Operating profit:
North America 41,708 61,413 59,466
Other international 20,453 14,236 15,732
Income before income taxes:
North America 29,263 53,239 50,972
Other international 19,190 11,949 10,417
Assets:
North America 888,720 517,515 453,992
Other international 68,572 66,500 85,454
Net sales to customers exceeding 10% of consolidated net sales in 1999, 1998 or
1997, and other major customers, were as follows (as a percentage of
consolidated net sales):
1999 1998 1997
--------- --------- ----------
Customer:
DaimlerChrysler 17% 20% 18%
Ford 16% 18% 18%
Delphi 7% 4% - %
TRW 5% 6% 6%
General Motors 2% 2% 8%
For 1999, Ford sales include sales to Ford Motor Company (8%) and Visteon
Automotive Systems (8%). For 1998, Ford sales include sales to Ford Motor
Company (10%) and Visteon Automotive Systems (8%). These sales are generated by
the ferrous-metals and the light-metals segments.
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
12. Earnings per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Dilutive earnings per share reflects the assumed exercise of stock
options and unearned restricted stock.
Years ended December 31,
1999 1998 1997
------------- ----------- ------------
(in thousands, except per share data)
Numerator:
Net income $36,377 $40,989 $40,013
Denominator:
Denominator for basic earnings per
share - weighted average shares 25,480 25,610 25,211
Effect of dilutive securities:
Employee stock options and unearned
restricted stock 91 337 572
------------ ----------- ------------
Denominator for diluted earnings per share
- adjusted weighted average shares and
assumed conversions 25,571 25,947 25,783
============ =========== ============
Basic earnings per share $1.43 $1.60 $1.59
============ =========== ============
Diluted earnings per share $1.42 $1.58 $1.55
============ =========== ============
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Intermet Corporation
Notes to Consolidated Financial Statements (continued)
13. Quarterly Data and Share Information (Unaudited)
First Second Third Fourth
Quarter Quarter (1) Quarter Quarter (2)
------------- ------------ ------------ -------------
(in thousands of dollars, except per share data)
1999
Net sales $245,227 $245,698 $225,350 $240,557
Gross profit 34,137 33,146 23,989 31,015
Net income 12,133 16,626 7,442 176
Net income per common share - Basic 0.47 0.65 0.29 0.01
Net income per common share - Diluted 0.47 0.65 0.29 0.01
Share prices (Nasdaq):
High 14.813 15.750 15.750 11.813
Low 10.063 13.250 8.219 8.813
1998
Net sales $224,033 $219,857 $188,808 $208,900
Gross profit 29,975 31,500 22,494 26,772
Net income 11,271 12,337 9,314 8,067
Net income per common share - Basic 0.44 0.48 0.36 0.31
Net income per common share - Diluted 0.43 0.47 0.36 0.31
Share prices (Nasdaq):
High 22.500 23.750 20.188 17.125
Low 16.000 16.875 12.625 8.500
1. During the second quarter of 1999, we were able to use a one-time tax
benefit of $4.5 million related to a change of tax law in Germany.
Without this benefit, results for the second quarter of 1999 would have
been as follows:
Net income (in thousands) $12,108
Net income per common share - Basic $0.48
Net income per common share - Diluted $0.47
2. During the fourth quarter of 1999, we recapitalized our international
operations, which resulted in a one-time tax benefit of $4.0 million.
Also, for the fourth quarter of 1999, we recorded asset impairment and
shutdown costs for the closure of Ironton totaling $18.6 million before
taxes. Without these items, results for the fourth quarter of 1999
would have been as follows:
Net income (in thousands) $8,286
Net income per common share - Basic $0.33
Net income per common share - Diluted $0.33
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.
29