<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File No. 0-13787
INTERMET CORPORATION
(Exact name of registrant as specified in its charter)
GEORGIA 58-1563873
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5445 Corporate Drive, Suite 200, Troy, Michigan 48098-2683
(Address of principal executive offices) (Zip code)
(248) 952-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At May 7, 1999 there were 25,357,824 shares of Common Stock, $0.10 par value,
outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Intermet Corporation
Interim Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
--------- ---------
(Unaudited)
(in thousands of dollars,
except per share data)
<S> <C> <C>
Net sales $ 245,227 $ 224,033
Cost of sales 211,090 194,058
--------- ---------
Gross profit 34,137 29,975
Operating expenses:
Selling 2,904 2,604
General and administrative 6,315 4,988
Other operating expenses 564 209
--------- ---------
9,783 7,801
--------- ---------
Operating profit 24,354 22,174
Other income (expense):
Interest income 56 50
Interest expense (3,261) (3,422)
Other, net (183) 1,075
--------- ---------
(3,388) (2,297)
--------- ---------
Income before income taxes 20,966 19,877
Provision for income taxes 8,833 8,606
--------- ---------
Net income $ 12,133 $ 11,271
========= =========
Income per common share - Basic $ 0.47 $ 0.44
========= =========
Income per common share - Diluted $ 0.47 $ 0.43
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
Intermet Corporation
Interim Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,683 $ 5,848
Accounts receivable:
Trade, less allowance for doubtful accounts of $4,619 in
1999 and $5,133 in 1998 125,725 105,678
Other 8,636 8,713
-------- --------
134,361 114,391
Inventories 64,779 65,898
Other current assets 13,329 11,293
-------- --------
Total current assets 220,152 197,430
Property, plant and equipment, at cost 486,785 485,082
Less:
Foreign industrial development grants, net of amortization 3,641 4,153
Accumulated depreciation and amortization 243,121 240,227
-------- --------
Net property, plant and equipment 240,023 240,702
Intangibles, net of amortization 126,044 126,896
Other noncurrent assets 18,575 18,987
-------- --------
$604,794 $584,015
======== ========
</TABLE>
3
<PAGE> 4
Intermet Corporation
Interim Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 5,000 $ 1,000
Accounts payable 71,769 90,205
Income taxes and other accrued liabilities 63,698 50,922
Long term debt due within one year 154,389 6,411
--------- ---------
Total current liabilities 294,856 148,538
Noncurrent liabilities:
Long term debt due after one year 25,891 156,690
Other noncurrent liabilities 56,137 59,445
--------- ---------
Total noncurrent liabilities 82,028 216,135
Minority interest 2,337 2,337
Shareholders' equity:
Common stock 2,583 2,583
Capital in excess of par value 63,382 63,382
Treasury stock (2,055) -
Retained earnings 162,231 151,131
Accumulated other comprehensive income (429) 72
Unearned restricted stock (139) (163)
--------- ---------
Total shareholders' equity 225,573 217,005
--------- ---------
$ 604,794 $ 584,015
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
Intermet Corporation
Interim Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
(Unaudited)
(in thousands of dollars)
<S> <C> <C>
Operating activities:
Net income $ 12,133 $ 11,271
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation 8,807 9,368
Amortization 905 591
Gain on sale of subsidiary 83 -
Other, including net gain on disposal of fixed assets (28) (574)
Changes in operating assets and liabilities excluding the effects of
acquisitions and dispositions:
Accounts receivable (21,730) (19,096)
Inventories 443 2,544
Accounts payable and accrued liabilities (11,447) 3,766
Other assets and liabilities 1,567 2,882
-------- --------
Net cash (used in) provided by operating activities (9,267) 10,752
Investing activities:
Additions to property, plant and equipment (9,743) (7,565)
Proceeds from disposal of fixed assets 7 1,395
Other (165) (707)
-------- --------
Net cash used in investing activities (9,901) (6,877)
Financing activities:
Net increase (decrease) in revolving credit facility 18,000 (1,000)
Reduction in debt (723) (1,188)
Net increase (decrease) in notes payable 4,000 (5,657)
Acquisition of treasury stock (2,055) -
Dividends paid (1,033) (1,020)
Issuance of common stock - 3,106
-------- --------
Net cash provided by (used in) financing activities 18,189 (5,759)
Effect of exchange rate changes on cash and cash equivalents 2,814 928
-------- --------
Net increase (decrease) in cash and cash equivalents 1,835 (956)
Cash and cash equivalents at beginning of period 5,848 7,022
-------- --------
Cash and cash equivalents at end of period $ 7,683 $ 6,066
======== ========
See accompanying notes.
</TABLE>
5
<PAGE> 6
Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements
March 31, 1999 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Intermet Corporation ("Intermet") and its subsidiaries have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in Intermet's annual report on Form
10-K for the year ended December 31, 1998.
Inventories
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Finished goods $13,884 $14,701
Work in process 20,472 18,522
Raw materials 8,621 8,467
Supplies and patterns 21,802 24,208
------- -------
$64,779 $65,898
======= =======
</TABLE>
Property, Plant and Equipment
Net property, plant and equipment consist of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Land $ 4,556 $ 4,567
Buildings and improvements 92,224 93,667
Machinery and equipment 352,915 357,545
Construction in progress 37,090 29,303
-------- --------
$486,785 $485,082
======== ========
</TABLE>
6
<PAGE> 7
Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements (continued)
March 31, 1999 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets consist principally of costs in excess of net assets acquired
of $126,044,000 and $126,896,000 (net of accumulated amortization of $8,052,000
and $7,147,000) at March 31, 1999 and December 31, 1998, respectively. Such
costs are being amortized using the straight-line method principally over forty
years. Intermet periodically assesses the recoverability of the cost of its
intangibles based on a review of projected undiscounted cash flows of the
related operating entities.
2. REPORTING FOR BUSINESS SEGMENTS
Intermet's management evaluates the operating performance of its business units
individually. Under the provisions of segment reporting for GAAP, we have
aggregated operating units that have similar characteristics, which has resulted
in one reportable segment. The foundry segment consists of foundry operations,
which include both iron and aluminum castings and their related machining
operations. The operating units that comprise other are all nonfoundry
operations, and none of them constitutes a reportable segment on its own.
This information is displayed in the table below.
<TABLE>
<CAPTION>
Foundry Other Consolidated
------- ----- ------------
(in thousands of dollars)
<S> <C> <C> <C>
Three month period ended March 31, 1999
Net sales $224,609 $20,618 $245,227
Net income 11,467 666 12,133
Three month period ended March 31, 1998
Net sales $186,682 $37,351 $224,033
Net income 10,778 493 11,271
</TABLE>
7
<PAGE> 8
Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements (continued)
March 31, 1999 (Unaudited)
3. DEBT
Long term debt consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Intermet $168,000 $150,000
Subsidiaries 12,280 13,101
-------- --------
Total long-term debt 180,280 163,101
Less amounts due within one year (a) 154,389 6,411
-------- --------
Long-term debt due after one year $ 25,891 $156,690
======== ========
</TABLE>
(a) Of the total due within one year at March 31, 1999, $148,000 relates to the
revolving credit facility, which is due January 1, 2000. Thus, the entire
amount is a current liability at March 31, 1999 and was a noncurrent
liability at December 31, 1998.
4. COMPREHENSIVE INCOME
Intermet adopted Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" as of January 1,
1998. However, the adoption of this Statement had no impact on our net income or
shareholders' equity.
<TABLE>
<CAPTION>
Three months ended
-----------------------------------
March 31, March 31,
1999 1998
------------ -------------
(in thousands of dollars)
<S> <C> <C>
Net income $12,133 $11,271
Other comprehensive loss:
Foreign currency translation
adjustment (501) (77)
Minimum pension liability adjustment - -
------- -------
Total other comprehensive loss (501) (77)
======= =======
Total comprehensive income $11,632 $11,194
======= =======
</TABLE>
8
<PAGE> 9
Intermet Corporation
Notes to Interim Condensed Consolidated Financial Statements (continued)
March 31, 1999 (Unaudited)
5. ENVIRONMENTAL AND LEGAL MATTERS
Intermet is a party to a number of environmental matters and legal proceedings
in the ordinary course of its business. We do not believe there are any pending
or threatened legal proceedings to which we are a party, or to which any of our
property is subject, that will have a material adverse effect on our
consolidated financial position, results of operations or liquidity taken as a
whole.
6. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. The dilutive earnings per share calculation reflects the assumed
exercise of stock options.
<TABLE>
<CAPTION>
Three months ended
--------------------------------------
March 31, 1999 March 31, 1998
----------------- -----------------
(in thousands, except per share data)
<S> <C> <C>
Numerator:
Net income $12,133 $11,271
Denominator:
Denominator for basic earnings per
share - weighted average shares 25,828 25,404
Effect of dilutive securities:
Stock options 112 548
======= =======
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 25,940 25,952
======= =======
Basic earnings per share $0.47 $0.44
======= =======
Diluted earnings per share $0.47 $0.43
======= =======
</TABLE>
9
<PAGE> 10
FORWARD LOOKING STATEMENT
The following Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 3. Quantitative and Qualitative
Disclosures about Market Risk contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. When used in
this section, the words "anticipate," "believe," "estimate" and "expect" and
similar expressions are generally intended to identify forward-looking
statements. Readers are cautioned that any forward-looking statements, including
statements regarding the intent, belief or current expectations of Intermet or
its management, are not guarantees of future performance and involve risks and
uncertainties. In addition, readers are cautioned that actual results may differ
materially from those in the forward-looking statements as a result of various
factors including, but not limited to:
- - general economic conditions in the markets in which Intermet operates
- - fluctuations in worldwide or regional automobile and light and heavy truck
production
- - labor disputes involving Intermet or its significant customers
- - changes in practices and/or policies of Intermet's significant customers
toward outsourcing automotive components and systems
- - foreign currency and exchange fluctuations
- - interest rate fluctuations
- - commodity price fluctuations
- - 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Material Changes in Financial Condition
For the first three months of 1999, operating activities used net cash of $9.3
million. Depreciation and amortization expense was $9.7 million. Accounts
receivable increased $21.7 million from December 31, 1998 because the sales
during March 1999 were higher than those of December 1998. This is due primarily
to the traditional holiday shutdown in December. Accounts payable and accrued
liabilities decreased $11.5 million from the beginning of 1999 due to the timing
of payments. Our investing activities for the first three months of 1999 used
cash of $9.9 million. Additions to property, plant and equipment were $9.7
million. Financing activities provided cash of $18.2 million for the first
quarter of 1999. The bank revolver and note payable increased $22.0 million in
the aggregate. We used this cash to finance working capital and fund additions
to property, plant and equipment during the quarter. We paid $2.1 million for
the purchase of treasury stock and paid $1.0 million in dividends during the
first three months of 1999.
Cash and cash equivalents increased to $7.7 million at March 31, 1999 from $5.8
million at December 31, 1998. Intermet declared a cash dividend of $0.04 per
share ($1.0 million in aggregate) for the holders of record on June 1, 1999.
Working capital at March 31, 1999 was negative $74.1 million versus a positive
$48.9 million at December 31, 1998. The revolving credit facility is due January
1, 2000. Thus, the entire amount is a current liability at March 31, 1999 and
was a noncurrent liability at December 31, 1998. Management intends to extend
the due date of the revolving credit line or replace the debt agreement
completely.
10
<PAGE> 11
Material Changes in Results of Operations
Sales in the first quarter of 1999 were $245.2 million compared to $224.0
million during the same period in 1998. Foundry segment sales during the three
months ended March 31, 1999, excluding acquisitions or dispositions in 1999 or
1998, were $24.7 (13.7%) million greater than sales during the same period in
1998. Non-foundry segment sales, excluding acquisitions or dispositions in 1998
or 1999, decreased $0.8 million (3.6%) for the first quarter of 1999 versus the
first quarter of 1998. Domestic sales during the three months ended March 31,
1999, excluding acquisitions or dispositions in 1999 or 1998, were approximately
$20.9 million (or 13.3%) greater than the first quarter of 1998. This is a
result of an increase in domestic vehicle sales, primarily light trucks and
sport utility vehicles, including Ford F-Series, Mercedes SUV and Dodge Durango
programs. Sales into Europe during the first quarter of 1999 are even with those
of the same quarter in 1998, excluding acquisitions or dispositions in 1999 or
1998. The effect of changes in the exchange rates on all sales into Europe was
positive $1.2 million (or 4.4%) for the three month period ended March 31, 1999
compared to exchange rates for the same period in 1998.
Gross profit for the quarter ended March 31, 1999 was $34.1 million, an increase
of $4.2 million from that of the same period in 1998. Gross profit as a
percentage of sales for the three months ended March 31, 1999 and 1998 were
13.9% and 13.4%, respectively. Gross profit was negatively affected by
performance problems at three of the operating units, which slowed production,
limited product output and resulted in increased costs during the first quarter
of 1999.
Operating expenses as a percentage of sales were 4.0% and 3.5% for the three
months ended March 31, 1999 and 1998, respectively. This increase over the prior
year is due primarily to acquisitions that took place at the end of 1998.
Operating expenses as a percentage of sales, for operations in place both years,
were 3.7% and 3.6% for the three months ended March 31, 1999 and 1998,
respectively.
Year 2000 Readiness Disclosure
Intermet has conducted an evaluation of its Informational Technology ("IT") and
non-IT computer systems with respect to the "Year 2000" issue. This issue arises
because many electronic systems use two digits rather than four to determine
dates. This could cause information technology systems such as software
applications, hardware, network systems and embedded systems to misread
important dates beginning in the year 2000, which could cause system failures
and disruption of operations.
We have completed a Year 2000 readiness assessment of our business critical IT
and non-IT systems. As a result of the assessment, we are in the process of
implementing corrective action plans designed to address Year 2000 issues. These
plans include modification, upgrade and replacement of our critical
administrative, production, and research and development computer systems to
make them Year 2000 ready. Implementation of corrective action plans has begun,
and we expect to have our critical systems Year 2000 ready by the end of June
1999.
Because our operations depend on the uninterrupted flow of materials and
services from our suppliers, we have requested and have been receiving and
analyzing information from our suppliers with regard to their progress toward
Year 2000 readiness. We intend to continue to monitor the progress of our key
suppliers toward Year 2000 readiness.
A small number of our products incorporate electronic components that are
purchased from third parties. The Year 2000 readiness of these purchased
components is also being assessed.
11
<PAGE> 12
Intermet began addressing Year 2000 issues in 1995, and prior to 1999, spent
approximately $4.7 million on Year 2000 readiness. In the first quarter of 1999,
we spent less than $1.0 million to address the Year 2000 issue. We estimate that
we will spend in total between $7.5 and $8.0 million to become Year 2000 ready.
The majority of this spending is for required upgrades or for new business
systems required in the ordinary course of business, which will also be Year
2000 ready. It is possible that the actual cost of our Year 2000 readiness
effort could exceed these estimates.
Although we have a process in place to assess Year 2000 readiness on the part of
our suppliers, we consider the most reasonably likely worst case scenario is
that one or more of our suppliers might encounter a Year 2000 problem and be
unable to supply materials. If this were to occur and we could not obtain the
same materials from another vendor, production could be interrupted, which could
result in lost sales and profits. However, it is likely that we could obtain the
same materials from another vendor. In addition, while we are taking action to
correct deficiencies in our own systems, it is possible that one or more of our
facilities or critical business systems might not achieve Year 2000 readiness as
anticipated. This could also result in disruption of operations and lost sales
and profits.
Contingency plans are being or will be developed that are intended to avoid or
mitigate the risks that either we or our key suppliers might not achieve Year
2000 readiness in time to avoid disruption of our operations.
Readers are cautioned that forward looking statements contained in this Year
2000 discussion should be read in conjunction with Intermet's disclosures under
the cautionary statement for the purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995, included before Management's
Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Intermet is subject to market risk with regard to interest rate, foreign
exchange and commodity pricing. We have analyzed the effect of these risks on
the balance sheet, results of operations and cash flows and we estimate that the
impact would be immaterial.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Intermet is engaged in various legal proceedings and other matters incidental to
its normal business activities. We do not believe there are any pending or
threatened legal proceedings to which we are a party, or to which any of our
property is subject, that will have a material effect on our consolidated
financial position, results of operations or liquidity taken as a whole.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
12
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this Report pursuant to Item 601 of
Regulation S-K:
Exhibit
Number Description of Exhibit
------ ----------------------
27 Financial Data Schedule.
(b) Intermet filed a Form 8-K on January 14, 1999, File No. 0-13787, having an
event date of December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Intermet
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Intermet Corporation
By: /s/ Ronald C. Ryninger Jr.
--------------------------
Ronald C. Ryninger Jr.
Corporate Controller
(Principal Accounting Officer)
Date: May 14, 1999
13
<PAGE> 14
Exhibits Index
Exhibit Number Description of Exhibit
- -------------- ----------------------
27 Financial Data Schedule.
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,683
<SECURITIES> 0
<RECEIVABLES> 130,344
<ALLOWANCES> 4,619
<INVENTORY> 64,779
<CURRENT-ASSETS> 220,152
<PP&E> 486,785
<DEPRECIATION> 243,121
<TOTAL-ASSETS> 604,794
<CURRENT-LIABILITIES> 294,856
<BONDS> 0
0
0
<COMMON> 2,583
<OTHER-SE> 222,990
<TOTAL-LIABILITY-AND-EQUITY> 604,794
<SALES> 245,227
<TOTAL-REVENUES> 245,227
<CGS> 211,090
<TOTAL-COSTS> 220,873
<OTHER-EXPENSES> 3,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,261
<INCOME-PRETAX> 20,966
<INCOME-TAX> 8,833
<INCOME-CONTINUING> 12,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,133
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
