##### Table of Contents



United States
Securities and Exchange Commission  Form 10-Q [X]
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2004, or
 [   ]
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from            to             .
 Commission File No. 0-13787 INTERMET Corporation  Georgia
(State or other jurisdiction of
incorporation or organization)
    
    58-1563873
(IRS Employer
Identification No.)5445 Corporate Drive, Suite 200, Troy, Michigan
(Address of principal executive offices)
    
    48098-2683
(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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ] At July 31, 2004 there were 25,616,266 shares of common stock, $0.10 par value,
outstanding.




---



TABLE OF CONTENTS Part I - Financial InformationItem 1. Interim Condensed Consolidated Financial Statements (Unaudited)Notes to Interim Condensed Consolidated Financial Statements (Unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RisksItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 4. Submission of Matters to a Vote of Securities HoldersItem 6. Exhibits and Reports on Form 8-KSignaturesCertificationsExhibit IndexSection 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerCertification of Chief Executive Officer & Chief Financial Officer
  2




---



##### Table of Contents



Part I - Financial Information 
 Item 1. Financial Statements INTERMET Corporation
Interim Condensed Consolidated Statements of Operations Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003(Unaudited)(in thousands of dollars, except per share data)Net sales
    
    $
    217,185
    
    
    $
    182,118
    
    
    $
    427,831
    
    
    $
    375,158Cost of sales
    
    
    204,473
    
    
    
    164,195
    
    
    
    401,629
    
    
    
    335,994Gross profit
    
    
    12,712
    
    
    
    17,923
    
    
    
    26,202
    
    
    
    39,164Selling, general and administrative expenses
    
    
    10,778
    
    
    
    7,586
    
    
    
    21,501
    
    
    
    16,143Restructuring charge
    
    
    1,165
    
    
    
    
    
    
    
    1,165
    
    
    
    Operating profit
    
    
    769
    
    
    
    10,337
    
    
    
    3,536
    
    
    
    23,021Other expense (income):Interest expense, net
    
    
    7,991
    
    
    
    7,626
    
    
    
    17,193
    
    
    
    14,927Other expense (income), net
    
    
    146
    
    
    
    (111
    )
    
    
    (445
    )
    
    
    1618,137
    
    
    
    7,515
    
    
    
    16,748
    
    
    
    15,088(Loss) income from continuing operations
before income taxes and equity interest in a
joint venture
    
    
    (7,368
    )
    
    
    2,822
    
    
    
    (13,212
    )
    
    
    7,933Income tax benefit (expense)
    
    
    2,169
    
    
    
    (1,260
    )
    
    
    872
    
    
    
    (3,291
    )Equity interest in a joint venture
    
    
    
    
    
    
    492
    
    
    
    
    
    
    
    752(Loss) income from continuing operations
    
    
    (5,199
    )
    
    
    2,054
    
    
    
    (12,340
    )
    
    
    5,394Loss from discontinued operations, net of tax
    
    
    (1,255
    )
    
    
    (8,643
    )
    
    
    (1,967
    )
    
    
    (8,831
    )Net loss
    
    
    ($6,454
    )
    
    
    ($6,589
    )
    
    
    ($14,307
    )
    
    
    ($3,437
    )(Loss) earnings per common share:Basic:(Loss) earnings from continuing operations
    
    
    ($0.20
    )
    
    $
    0.08
    
    
    
    ($0.48
    )
    
    $
    0.21Loss from discontinued operations, net of
tax
    
    
    (0.05
    )
    
    
    (0.34
    )
    
    
    (0.08
    )
    
    
    (0.34
    )Loss per
share - basic
    
    
    ($0.25
    )
    
    
    ($0.26
    )
    
    
    ($0.56
    )
    
    
    ($0.13
    )Diluted:(Loss) earnings from continuing operations
    
    
    ($0.20
    )
    
    $
    0.08
    
    
    
    ($0.48
    )
    
    $
    0.21Loss from discontinued operations, net of
tax
    
    
    (0.05
    )
    
    
    (0.34
    )
    
    
    (0.08
    )
    
    
    (0.34
    )Loss per
share - diluted
    
    
    ($0.25
    )
    
    
    ($0.26
    )
    
    
    ($0.56
    )
    
    
    (0.13
    )Dividends declared per common share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.04Weighted average shares outstanding:Basic
    
    
    25,599
    
    
    
    25,589
    
    
    
    25,597
    
    
    
    25,568Diluted
    
    
    25,599
    
    
    
    25,589
    
    
    
    25,597
    
    
    
    25,568
 See accompanying notes.  3




---



##### Table of Contents



INTERMET Corporation
Interim Consolidated Statements of Comprehensive Income Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003(Unaudited)(in thousands of dollars)Net loss
    
    
    ($6,454
    )
    
    
    ($6,589
    )
    
    
    ($14,307
    )
    
    
    ($3,437
    )Other comprehensive (loss) income, net of
tax:Foreign currency translation adjustment
    
    
    (419
    )
    
    
    3,322
    
    
    
    (2,803
    )
    
    
    625Interest rate swap fair value adjustment
    
    
    
    
    
    
    253
    
    
    
    
    
    
    
    4,352(419
    )
    
    
    3,575
    
    
    
    (2,803
    )
    
    
    4,977Total comprehensive (loss) income
    
    
    ($6,873
    )
    
    
    ($3,014
    )
    
    
    ($17,110
    )
    
    $
    1,540
 See accompanying notes.  4




---



##### Table of Contents



INTERMET Corporation
Interim Condensed Consolidated Balance Sheets June 30,
    
    December 31,2004
    
    2003(Unaudited)(in thousands of dollars)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,345
    
    
    $
    1,035Accounts receivable:Trade, less allowance of $6,405 in 2004 and $6,528 in 2003
    
    
    96,998
    
    
    
    76,218Other
    
    
    5,994
    
    
    
    10,555102,992
    
    
    
    86,773Inventories
    
    
    74,200
    
    
    
    77,411Other current assets
    
    
    10,721
    
    
    
    10,748Total current assets
    
    
    197,258
    
    
    
    175,967Property, plant and equipment, net
    
    
    308,986
    
    
    
    324,080Goodwill
    
    
    165,933
    
    
    
    165,933Restricted cash
    
    
    35,819
    
    
    
    Other non-current assets
    
    
    27,825
    
    
    
    20,704Total assets
    
    $
    735,821
    
    
    $
    686,684LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    78,273
    
    
    $
    80,737Accrued liabilities
    
    
    64,482
    
    
    
    59,542Short-term lines of credit
    
    
    9,192
    
    
    
    9,992Long-term debt due within one year
    
    
    5,552
    
    
    
    4,303Total current liabilities
    
    
    157,499
    
    
    
    154,574Non-current liabilities:Long-term debt due after one year
    
    
    346,029
    
    
    
    279,248Retirement benefits
    
    
    84,482
    
    
    
    85,309Other non-current liabilities
    
    
    4,806
    
    
    
    5,416Total non-current liabilities
    
    
    435,317
    
    
    
    369,973Shareholders equity:Common stock
    
    
    2,603
    
    
    
    2,601Capital in excess of par value
    
    
    57,188
    
    
    
    57,165Retained earnings
    
    
    93,067
    
    
    
    109,428Accumulated other comprehensive loss
    
    
    (9,797
    )
    
    
    (6,994
    )Unearned restricted stock
    
    
    (56
    )
    
    
    (63
    )Total shareholders equity
    
    
    143,005
    
    
    
    162,137Total liabilities and shareholders equity
    
    $
    735,821
    
    
    $
    686,684
 See accompanying notes.  5




---



##### Table of Contents



INTERMET Corporation
Interim Condensed Consolidated Statements of Cash Flows Six Months EndedJune 30, 2004
    
    June 30, 2003(Unaudited)(in thousands of dollars)OPERATING ACTIVITIES:(Loss) income from continuing operations
    
    
    ($12,340
    )
    
    $
    5,394Adjustments to reconcile net (loss) income to cash provided
by operating activities:Depreciation and amortization
    
    
    25,309
    
    
    
    24,174Amortization of debt discount and issuance costs
    
    
    2,135
    
    
    
    1,196Results of equity investment
    
    
    
    
    
    
    (752
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (18,935
    )
    
    
    (11,333
    )Inventories
    
    
    2,280
    
    
    
    (699
    )Accounts payable and current liabilities
    
    
    4,475
    
    
    
    (14,680
    )Other assets and liabilities
    
    
    (8,488
    )
    
    
    2,427Net cash (used in) provided by continuing operating activities
    
    
    (5,564
    )
    
    
    5,727Net cash provided by (used in) discontinued operations
    
    
    223
    
    
    
    (134
    )Net cash (used in) provided by operating activities
    
    
    (5,341
    )
    
    
    5,593INVESTING ACTIVITIES:Additions to property, plant and equipment
    
    
    (12,547
    )
    
    
    (6,329
    )Additions to property, plant and equipment by discontinued
operations
    
    
    
    
    
    
    (141
    )Proceeds from sale of property, plant and equipment
    
    
    379
    
    
    
    Net cash used in investing activities
    
    
    (12,168
    )
    
    
    (6,470
    )FINANCING ACTIVITIES:Net (decrease) increase in lines of credit
    
    
    (49,424
    )
    
    
    6,000Proceeds from term loan
    
    
    120,000
    
    
    
    Repayment of term loan and other debts
    
    
    (2,661
    )
    
    
    (1,226
    )Funding of restricted cash
    
    
    (35,819
    )
    
    
    Payments of debt issuance costs
    
    
    (3,359
    )
    
    
    (405
    )Dividends paid
    
    
    (2,051
    )
    
    
    (2,044
    )Issuance of common stock
    
    
    13
    
    
    
    18Net cash provided by financing activities
    
    
    26,699
    
    
    
    2,343Effect of exchange rate changes on cash and cash equivalents
    
    
    (880
    )
    
    
    518Net increase in cash and cash equivalents
    
    
    8,310
    
    
    
    1,984Cash and cash equivalents at beginning of period
    
    
    1,035
    
    
    
    3,298Cash and cash equivalents at end of period
    
    $
    9,345
    
    
    $
    5,282
 See accompanying notes. 6




---



##### Table of Contents



INTERMET Corporation 
 Notes to Interim Condensed Consolidated Financial Statements June 30, 2004 (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States 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 accounting principles
generally accepted in the United States 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-month period and six-month period ended June
30, 2004 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2004. The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. See our 2003 Annual Report
and Form 10-K for complete financial statement and footnotes. Restricted Cash In accordance with our credit agreements, beginning January 8, 2004, $35.7
million of cash, and certain interest income on this cash, are used as
collateral for a letter of credit which secures $35.0 million of variable rate
limited obligation revenue bonds issued in connection with our Columbus
Foundry. If the Company were to retire the bonds, the letter of credit would no
longer be required and the restricted cash would be used for bond repayment.
See Note 7, Debt, for further information. Restricted cash is excluded from
cash and cash equivalents in the accompanying balance sheets. Stock-Based Compensation We grant stock options 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 Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and, accordingly, recognize no
compensation expense for the stock option grants. Had compensation expense for
these stock option grants been determined based on the fair values at the grant
dates for awards under the stock option plans consistent with the method of
SFAS No. 123, Accounting for Stock-Based Compensation, our pro forma net
loss, basic loss per share and diluted loss per share would be as follows: Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003(in thousands of dollars, except per share data)Net loss, as reported
    
    
    ($6,454
    )
    
    
    ($6,589
    )
    
    
    ($14,307
    )
    
    
    ($3,437
    )Less: Total stock-based
employee compensation
expense determined under
fair value method for all
awards, net of related tax
effects
    
    
    (267
    )
    
    
    (183
    )
    
    
    (503
    )
    
    
    (629
    )Pro forma net loss
    
    
    ($6,721
    )
    
    
    ($6,772
    )
    
    
    ($14,810
    )
    
    
    ($4,066
    )Loss per share:Basic - as reported
    
    
    ($0.25
    )
    
    
    ($0.26
    )
    
    
    ($0.56
    )
    
    
    ($0.13
    )Basic - pro forma
    
    
    ($0.26
    )
    
    
    ($0.26
    )
    
    
    ($0.58
    )
    
    
    ($0.16
    )Diluted - as reported
    
    
    ($0.25
    )
    
    
    ($0.26
    )
    
    
    ($0.56
    )
    
    
    ($0.13
    )Diluted - pro forma
    
    
    ($0.26
    )
    
    
    ($0.26
    )
    
    
    ($0.58
    )
    
    
    ($0.16
    )
 7




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements June 30, 2004 (Unaudited) 2. Balance Sheet Details Inventories: The components of inventories are as follows (in thousands of dollars): June 30,
    
    December 31,2004
    
    2003Finished goods
    
    $
    20,576
    
    
    $
    22,433Work in process
    
    
    9,576
    
    
    
    8,198Raw materials
    
    
    9,397
    
    
    
    8,113Supplies and patterns
    
    
    34,651
    
    
    
    38,667Total inventories
    
    $
    74,200
    
    
    $
    77,411
 Property, Plant and Equipment, Net: The components of net property, plant and equipment are as follows (in
thousands of dollars): June 30,
    
    December 31,2004
    
    2003Land
    
    $
    6,601
    
    
    $
    6,681Buildings and improvements
    
    
    142,546
    
    
    
    143,382Machinery and equipment
    
    
    523,930
    
    
    
    517,846Construction in progress
    
    
    26,467
    
    
    
    26,443Property, plant and equipment, at cost
    
    
    699,544
    
    
    
    694,352Less: Accumulated depreciation and
foreign industrial development grants, net
of amortization
    
    
    390,558
    
    
    
    370,272Property, plant and equipment, net
    
    $
    308,986
    
    
    $
    324,080
 8




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements June 30, 2004 (Unaudited) 3. Acquisition On June 25, 2003, we entered into an agreement with Estudos, Servicos e
Participacoes, S.A. to acquire 100% ownership of the shares of Fundicao
Nodular, S.A., which is located in Porto, Portugal (the Porto Foundry).
Previously we owned a 50% interest in the Porto Foundry. Under the terms of
the agreement, we acquired 25% of the shares for a cash investment of Euros 4.9
million (approximately $5.6 million) on July 1, 2003, increasing our ownership
from 50% to 75%. We had a call option to acquire, and Estudos, Servicos e
Participacoes, S.A. had a put option to sell, the remaining 25% ownership for
an additional cash investment of Euros 4.9 million (approximately $5.9 million
at the exchange rate on June 30, 2004) on July 1, 2004. Because of the put
option, we consolidate 100% of the financial results of the Porto Foundry
beginning in July 2003, and $5.9 million was included in Accounts payable in
the accompanying balance sheet as of June 30, 2004. On July 1, 2004, we
exercised the call option to acquire the remaining 25% ownership of the Porto
Foundry which will be paid in six equal installments beginning in July, 2004.
See Note 16, Subsequent Event, for further information. We accounted for the acquisition of the additional shares using the purchase
accounting method. The Porto Foundry became a consolidated subsidiary
beginning at July 1, 2003 and the results of its operations from July 1, 2003
are included in our consolidated results of operations. Our equity in the net
income of the Porto Foundry for the three months and six months ended June 30,
2003 is included in Equity interest in a joint venture in the accompanying
statements of operations. The pro forma effects of this acquisition are not
material to our consolidated results of operations. 4. Discontinued Operations Frisby On July 24, 2003, we sold substantially all the assets of Frisby P.M.C.,
Incorporated (Frisby) for $5.3 million, consisting of $3.9 million in cash
and $1.4 million in the form of a promissory note, the balance of which is due
to be paid in full by July 31, 2008. Frisby was a non-core operation, and is
included in our Corporate and Other segment in Note 12, Reporting for Business
Segments. The results of operations of Frisby are summarized as follows (in thousands of
dollars): Three Months Ended
    
    Six Months EndedJune 30, 2003
    
    June 30, 2003Sales
    
    $
    3,275
    
    
    $
    7,092Cost of sales
    
    
    3,323
    
    
    
    6,734Gross (loss) profit
    
    
    (48
    )
    
    
    358Expenses
    
    
    235
    
    
    
    463Loss before income taxes
    
    
    (283
    )
    
    
    (105
    )Income tax benefit
    
    
    110
    
    
    
    42Loss from discontinued operation, net of tax
    
    
    ($173
    )
    
    
    ($63
    )
 9




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements June 30, 2004 (Unaudited) 4. Discontinued Operations (continued) Radford In May 2003, we decided to permanently close our shell-molding plant in
Radford, Virginia (the Radford Foundry) due to changes in market conditions
and production technology, as well as a substantial investment in environmental
controls that would have been necessary for continued operation. The Radford
Foundry had approximately 41 salaried and 333 hourly employees. The facility
was closed, and all the hourly employees and substantially all the salaried
employees were terminated, by December 2003. The Radford Foundry is included in
the Ferrous Metals segment in Note 12, Reporting for Business Segments. As a result of this decision, we recorded an $11.6 million pre-tax
restructuring and impairment charge during the second quarter of 2003. The
charge included a write-down of $9.9 million to reduce the capital assets and
inventories to their fair values, $1.4 million for employee severance and
related contractually guaranteed benefit costs, and $0.3 million for employee
pension costs. In the fourth quarter of 2003, we accrued for an additional $0.1
million for employee severance costs. The accruals for the employee severance
and benefit costs are included in Accrued liabilities in the accompanying
balance sheet at June 30, 2004. In addition, we recorded pre-tax gains of $1.3
million and $0.7 million on the reduction of postretirement benefit obligations
when the employees were terminated in the third and fourth quarter of 2003,
respectively. No material additional restructuring charge was recorded in the
first six months of 2004. We expect to incur approximately $0.4 million for environmental remediation at
the Radford Foundry in the future, which is in addition to the $2.4 million
that is reserved for environmental remediation costs as discussed in Note 9,
Environmental and Legal Matters. Activities relating to the restructuring charges and liabilities related to the
Radford Foundry closure are as follows (in thousands of dollars): Impairment
    
    
    
    
    
    Employee
    
    Employeeof
    
    Write-down of
    
    Termination
    
    Postretirementfixed assets
    
    inventory
    
    Benefits
    
    Benefits
    
    Other
    
    TotalInitial charge in
second quarter of 2003
    
    $
    7,554
    
    
    $
    2,351
    
    
    $
    1,336
    
    
    $
    301
    
    
    $
    50
    
    
    $
    11,592Noncash charges
    
    
    (7,554
    )
    
    
    (2,351
    )
    
    
    
    
    
    
    (301
    )
    
    
    
    
    
    
    (10,206
    )Balance at June 30, 2003
    
    
    
    
    
    
    
    
    
    
    1,336
    
    
    
    
    
    
    
    50
    
    
    
    1,386Reduction of
post-retirement
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,278
    )
    
    
    
    
    
    
    (1,278
    )Noncash credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,278
    
    
    
    
    
    
    
    1,278Cash payments
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (50
    )
    
    
    (78
    )Balance at September
30, 2003
    
    $
    
    
    
    $
    
    
    
    $
    1,308
    
    
    $
    
    
    
    $
    
    
    
    $
    1,308
 10




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements June 30, 2004 (Unaudited) 4. Discontinued Operations (continued) Impairment
    
    
    
    
    
    Employee
    
    Employeeof
    
    Write-down of
    
    Termination
    
    Postretirementfixed assets
    
    inventory
    
    Benefits
    
    Benefits
    
    Other
    
    TotalBalance at September
30, 2003
    
    $
    
    
    
    $
    
    
    
    $
    1,308
    
    
    $
    
    
    
    $
    
    
    
    $
    1,308Additional charge
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    138Reduction of
post-retirement
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (719
    )
    
    
    
    
    
    
    (719
    )Noncash credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    719
    
    
    
    
    
    
    
    719Cash payments
    
    
    
    
    
    
    
    
    
    
    (892
    )
    
    
    
    
    
    
    
    
    
    
    (892
    )Balance at December 31,
2003
    
    
    
    
    
    
    
    
    
    
    554
    
    
    
    
    
    
    
    
    
    
    
    554Cash payments
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    
    
    
    
    
    
    
    
    (252
    )Balance at March 31,
2004
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Additional charge
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Noncash charge
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Cash payments
    
    
    
    
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    
    
    
    
    (156
    )Balance at June 30, 2004
    
    $
    
    
    
    $
    
    
    
    $
    146
    
    
    $
    
    
    
    $
    
    
    
    $
    146
 Major classes of assets and liabilities of the Radford Foundry are as follows
(in thousands of dollars): June 30, 2004
    
    December 31, 2003Accounts receivable
    
    $
    175
    
    
    $
    2,052Inventory
    
    
    229
    
    
    
    429Other current assets
    
    
    
    
    
    
    514Property, plant and equipment, net
    
    
    665
    
    
    
    673Total assets
    
    $
    1,069
    
    
    $
    3,668Accounts payable
    
    $
    21
    
    
    $
    491Accrued liabilities
    
    
    1,441
    
    
    
    1,611Retirement benefits
    
    
    2,199
    
    
    
    1,959Other non-current liabilities
    
    
    2,338
    
    
    
    2,508Total liabilities
    
    $
    5,999
    
    
    $
    6,569
 11




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements June 30, 2004 (Unaudited) 4. Discontinued Operations (continued) The results of operations of the Radford Foundry are summarized as follows (in
thousands of dollars): Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Sales
    
    
    ($142
    )
    
    $
    11,373
    
    
    $
    33
    
    
    $
    21,620Cost of sales
    
    
    1,083
    
    
    
    11,707
    
    
    
    1,949
    
    
    
    22,319Gross loss
    
    
    (1,225
    )
    
    
    (334
    )
    
    
    (1,916
    )
    
    
    (699
    )Expenses
    
    
    30
    
    
    
    13,320
    
    
    
    51
    
    
    
    13,425Loss before income taxes
    
    
    (1,255
    )
    
    
    (13,654
    )
    
    
    (1,967
    )
    
    
    (14,124
    )Income tax benefit
    
    
    
    
    
    
    5,184
    
    
    
    
    
    
    
    5,356Loss from discontinued
operation, net of tax
    
    
    ($1,255
    )
    
    
    ($8,470
    )
    
    
    ($1,967
    )
    
    
    ($8,768
    )
 Corporate interest expense was allocated to Frisby and the Radford Foundry
based on the ratio of their net assets to the consolidated net assets of
INTERMET plus consolidated debt, excluding the net assets of the European
subsidiaries. The European subsidiaries were excluded because they were cash
flow positive and did not directly use the proceeds from the debt outstanding
during the periods covered by the financial statements. The total corporate
interest expenses allocated to Frisby and the Radford Foundry for the three
months and six months ended June 30, 2003 were $193,000 and $372,000,
respectively. No corporate interest expense was allocated to the Radford
Foundry for the three months and six months ended June 30, 2004. SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
provides that the results of operations of a component of an entity that has
been disposed of should be reported as a discontinued operation when the
operations and cash flows of the component have been eliminated from the
ongoing operations of the entity and the entity will not have any significant
continuing involvement in the operations of the component after the disposal
transaction. This occurred when Frisby was sold in July 2003 and when the
Radford Foundry was closed and abandoned in December 2003. As a result, the
results of operations of both Frisby and the Radford Foundry for all periods
presented have been reported as discontinued operations in the accompanying
statements of operations. 12




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements June 30, 2004 (Unaudited) 5. Havana Plant Closure In December 2003, we decided to permanently close our casting plant in Havana,
Illinois, (the Havana Foundry) in order to improve our capacity utilization.
The Havana Foundry had approximately 33 salaried and 141 hourly employees. The
facility was closed, and substantially all the hourly employees were
terminated, in June 2004. The facility is included in the Ferrous Metals
segment in Note 12, Reporting for Business Segments. The operating results of
the Havana Foundry are summarized as follows: Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Sales
    
    $
    5,061
    
    
    $
    7,017
    
    
    $
    11,406
    
    
    $
    14,143Net (loss) profit
    
    
    ($2,566
    )
    
    $
    52
    
    
    
    ($2,994
    )
    
    $
    198
 Because of our decision to close the Havana Foundry, we recorded an $8.5
million pre-tax charge during the fourth quarter of 2003. The charge included
a write-down of $8.0 million to reduce the capital assets and inventories to
their fair values, and $0.5 million for employee severance and related
contractually guaranteed benefit costs. During the second quarter of 2004, we
recorded a $1.2 million pre-tax charge which was reported as Restructuring
charge in the accompanying statement of operations. The charge included $1.1
million for facility closure costs and costs of product testing and validation
required to transfer production of products to other INTERMET facilities, and
$0.1 million for employee separation costs. The accrual for the employee
separation costs is included in Accrued liabilities in the accompanying
balance sheet at June 30, 2004. We expect to incur approximately $0.8 million
for additional product testing and facility closure costs in the future. Activities relating to the restructuring charges and liabilities related to the
Havana Foundry closure are as follows (in thousands of dollars): ProductionImpairment
    
    
    
    
    
    Employee
    
    Transferof
    
    Write-down
    
    Termination
    
    andfixed assets
    
    of inventory
    
    Benefits
    
    Other Costs
    
    TotalInitial charge in
fourth quarter of 2003
    
    $
    7,342
    
    
    $
    677
    
    
    $
    462
    
    
    
    
    
    
    $
    8,481Noncash charges
    
    
    (7,342
    )
    
    
    (677
    )
    
    
    
    
    
    
    
    
    
    
    (8,019
    )Balance at December 31,
2003 and March 31, 2004
    
    
    
    
    
    
    
    
    
    
    462
    
    
    
    
    
    
    
    462Additional charges
    
    
    
    
    
    
    
    
    
    
    105
    
    
    
    1,060
    
    
    
    1,165Cash payments
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (1,060
    )
    
    
    (1,081
    )Balance at June 30, 2004
    
    $
    
    
    
    $
    
    
    
    $
    546
    
    
    $
    
    
    
    $
    546
 13




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 6. Short-term Lines of Credit Columbus Neunkirchen Foundry GmbH, our wholly owned European subsidiary, has
various revolving lines of credit which are payable upon demand. These credit
lines provide for borrowings up to Euros 6.8 million (approximately $8.3
million) at June 30, 2004. There were no outstanding borrowings under these
agreements as of June 30, 2004. At June 30, 2004, the Porto Foundry maintained lines of credit with various
institutions for up to Euros 13.7 million (approximately $16.7 million). There
was approximately $9.2 million outstanding under these credit lines as of June
30, 2004. Interest accrues at various rates from approximately 3% to 5% on an
annual basis and is payable monthly. 7. Debt Long-term debt consists of the following (in thousands of dollars): June 30,
    
    December 31,2004
    
    2003INTERMET:Revolving credit facility
    
    $
    11,000
    
    
    $
    60,000Senior notes
    
    
    175,000
    
    
    
    175,000Term loan
    
    
    119,400
    
    
    
    Domestic subsidiaries:Industrial development bonds
    
    
    38,500
    
    
    
    39,350Capitalized leases
    
    
    737
    
    
    
    974Foreign subsidiaries:Bank term note
    
    
    6,299
    
    
    
    7,629Capitalized leases
    
    
    645
    
    
    
    598Total
    
    
    351,581
    
    
    
    283,551Less: Long-term debt due within one year
    
    
    5,552
    
    
    
    4,303Long-term debt due after one year
    
    $
    346,029
    
    
    $
    279,248
 As of December 31, 2003, we had a bank revolving credit agreement under which
we had a commitment amount of $190.0 million. That revolving credit agreement
provided for a maturity date of November 5, 2004 and was secured by all
domestic assets and a pledge of 65% of the stock of our foreign subsidiaries.
On January 8, 2004, we refinanced that revolving credit agreement by entering
into a new First Amended and Restated Credit Agreement, which provides for a
$90.0 million revolving credit line and a $120.0 million
term loan. The $90.0 million revolving credit portion matures on January 8, 2009, and the $120.0
million term loan has a maturity date of March 31, 2009. Also on January 8, 2004, we entered into a $35.7 million Letter of Credit
Facility Agreement, as well as a Cash Collateral Agreement in the same amount.
Under these agreements, $35.7 million of the proceeds from the term loan
portion of the First Amended and Restated Credit Agreement, and certain
interest income on this amount, are used as collateral for the issuance of a
$35.7 million letter of credit. This letter of credit was issued under our
prior bank revolving credit agreement and was issued to secure $35.0 million of
variable rate limited obligation revenue bonds issued in connection with our
Columbus Foundry. We are required to pay a fee of 0.625% per annum for the
Letter of Credit Facility Agreement. The agreement has a maturity
date of January 8, 2009. 14




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 7. Debt (continued) As a result of entering into the First Amended and Restated Credit Agreement
and the related agreements described above, we incurred debt issuance costs
during the first quarter and second quarter of 2004 of $2.4 million and $1.0
million, respectively. These costs are capitalized and included in Other
non-current assets in the accompanying balance sheet as of June 30, 2004. In
addition, capitalized debt issuance costs of $1.4 million related to our prior
bank revolving credit agreement were written off during the first quarter of
2004. The First Amended and Restated Credit Agreement and the related Letter of
Credit Facility Agreement include covenants that, among other things, require
us to maintain specified financial ratios and restrict the amount that we can
pay in dividends. On April 13, 2004, we amended our First Amended and Restated
Credit Agreement by entering into a First Amendment to First Amended and
Restated Credit Agreement. We also amended our $35.7 million Letter of Credit
Facility Agreement by entering into a First Amendment to Letter of Credit
Facility Agreement. The primary purpose of these amendments was to change our
financial ratio covenants to make them less restrictive for the six fiscal
quarters beginning with the quarter ended March 31, 2004. As of June 30, 2004,
we were in compliance with those financial covenants as amended. Our borrowings under the First Amendment to First Amended and Restated Credit
Agreement continue to be secured by all domestic assets and a pledge of 65% of
the stock of our foreign subsidiaries. Standby letters of credit reduce the
amount that we are able to borrow under this credit facility. At June 30,
2004, such standby letters of credit totaled $26.9 million. The interest rate
on the revolving loan is based on our leverage, and as of June 30, 2004 was
LIBOR plus 3.75%. We are also required to pay 0.75% per annum on any unused
portion of the revolving credit facility. The annual interest rate on the term loan
is LIBOR plus 4.25%. As of June 30, 2004, total borrowings and letter of credit obligations under
the $90.0 million revolving credit facility were $37.9 million. Maturities of long-term debt at June 30, 2004 and for each twelve-month period
thereafter are as follows (in thousands of dollars): Twelve-month period ending:June 30, 2005
    
    $
    5,552June 30, 2006
    
    
    5,934June 30, 2007
    
    
    8,088June 30, 2008
    
    
    15,607Thereafter
    
    
    316,400$
    351,581
 15




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information On June 13, 2002, we issued $175.0 million of senior notes, which will mature
in 2009. The senior notes are guaranteed by certain of our domestic
wholly-owned subsidiaries (Combined Guarantor Subsidiaries). The guarantees
are unconditional and joint and several. The senior notes are effectively
subordinated to the secured debt of the Company (Parent). Restrictions
contained in the indenture governing the senior notes include, but are not
limited to, restrictions on incurring additional secured debt, repurchasing of
our capital stock, disposal of assets, affiliate transactions, and transfer of
assets. As of June 30, 2004, the Parent and the Combined Guarantor
Subsidiaries had $167.6 million of secured debt outstanding and $52.1 million
of unused commitments, net of outstanding letters of credit, under our credit
facility. The secured debt of the Parent is also guaranteed by each of the
Combined Guarantor Subsidiaries. Certain of our domestic subsidiaries (Intermet International, Inc., Intermet
Holding Company, Transnational Indemnity Company, and Western Capital
Corporation) and all of our foreign subsidiaries are not guarantors of the
senior notes (Combined Non-Guarantor Subsidiaries). The Combined
Non-Guarantor Subsidiaries had $16.1 million of debt outstanding as of June 30,
2004. Presented below is summarized condensed consolidating financial information for
the Parent, the Combined Guarantor Subsidiaries, the Combined Non-Guarantor
Subsidiaries, and the Company on a consolidated basis as of June 30, 2004 and
December 31, 2003, and for the three months and six months ended June 30, 2004
and 2003. Investments in subsidiaries are presented using the equity method of
accounting. Separate financial statements of the Combined Guarantor
Subsidiaries are not provided as the condensed consolidating financial
information contained herein provides a more meaningful disclosure to allow
investors to determine the nature of the assets held by and the operations of
the combined group. 16




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) Three Months Ended June 30, 2004Combined
    
    CombinedGuarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)INCOME STATEMENT DATANet sales
    
    $
    
    
    
    $
    176,350
    
    
    $
    44,112
    
    
    
    ($3,277
    )
    
    $
    217,185Cost of sales
    
    
    
    
    
    
    169,939
    
    
    
    37,811
    
    
    
    (3,277
    )
    
    
    204,473Gross profit
    
    
    
    
    
    
    6,411
    
    
    
    6,301
    
    
    
    
    
    
    
    12,712Selling, general and administrative expenses
    
    
    2,092
    
    
    
    5,210
    
    
    
    3,476
    
    
    
    
    
    
    
    10,778Restructuring charge
    
    
    
    
    
    
    1,165
    
    
    
    
    
    
    
    
    
    
    
    1,165Operating (loss) profit
    
    
    (2,092
    )
    
    
    36
    
    
    
    2,825
    
    
    
    
    
    
    
    769Other (income) expenses, net:Interest expense, net
    
    
    5,335
    
    
    
    2,301
    
    
    
    355
    
    
    
    
    
    
    
    7,991Other (income) expense, net
    
    
    (147
    )
    
    

    50
    
    
    
    243
    
    
    
    
    
    
    
    146(Loss) income from continuing operations before
income taxes
    
    
    (7,280
    )
    
    
    (2,315
    )
    
    
    2,227
    
    
    
    
    
    
    
    (7,368
    )Income tax benefit (expense)
    
    
    2,343
    
    
    
    (139
    )
    
    
    (35
    )
    
    
    
    
    
    
    2,169(Loss) income from continuing operations
    
    
    (4,937
    )
    
    
    (2,454
    )
    
    
    2,192
    
    
    
    
    
    
    
    (5,199
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (1,255
    )
    
    
    
    
    
    
    
    
    
    
    (1,255
    )Net (loss) income
    
    
    ($4,937
    )
    
    
    ($3,709
    )
    
    $
    2,192
    
    
    $
    
    
    
    
    ($6,454
    )
 17




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) Three Months Ended June 30, 2003Combined
    
    CombinedGuarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)INCOME STATEMENT DATANet sales
    
    $
    
    
    
    $
    162,386
    
    
    $
    25,748
    
    
    
    ($6,016
    )
    
    $
    182,118Cost of sales
    
    
    
    
    
    
    147,805
    
    
    
    22,406
    
    
    
    (6,016
    )
    
    
    164,195Gross profit
    
    
    
    
    
    
    14,581
    
    
    
    3,342
    
    
    
    
    
    
    
    17,923Selling, general and administrative expenses
    
    
    181
    
    
    
    5,588
    
    
    
    1,817
    
    
    
    
    
    
    
    7,586Operating (loss) profit
    
    
    (181
    )
    
    
    8,993
    
    
    
    1,525
    
    
    
    
    
    
    
    10,337Other (income) expenses, net:Interest expense (income), net
    
    
    5,464
    
    
    
    2,260
    
    
    
    (98
    )
    
    
    
    
    
    
    7,626Other income, net
    
    
    (31
    )
    
    
    (2
    )
    
    
    (78
    )
    
    
    
    
    
    
    (111
    )(Loss) income from continuing operations before
income taxes and equity interest in a joint venture
    
    
    (5,614
    )
    
    
    6,735
    
    
    
    1,701
    
    
    
    
    
    
    
    2,822Income tax benefit (expense)
    
    
    2,154
    
    
    
    (2,691
    )
    
    
    (723
    )
    
    
    
    
    
    
    (1,260
    )Equity interest in a joint venture
    
    
    
    
    
    
    
    
    
    
    492
    
    
    
    
    
    
    
    492(Loss) income from continuing operations
    
    
    (3,460
    )
    
    
    4,044
    
    
    
    1,470
    
    
    
    
    
    
    
    2,054Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (8,643
    )
    
    
    
    
    
    
    
    
    
    
    (8,643
    )Net (loss) income
    
    
    ($3,460
    )
    
    
    ($4,599
    )
    
    $
    1,470
    
    
    $
    
    
    
    
    ($6,589
    )
 18




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) Six Months Ended June 30, 2004Combined
    
    CombinedGuarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)INCOME STATEMENT DATANet sales
    
    $
    
    
    
    $
    347,513
    
    
    $
    86,564
    
    
    
    ($6,246
    )
    
    $
    427,831Cost of sales
    
    
    
    
    
    
    334,472
    
    
    
    73,403
    
    
    
    (6,246
    )
    
    
    401,629Gross profit
    
    
    
    
    
    
    13,041
    
    
    
    13,161
    
    
    
    
    
    
    
    26,202Selling, general and administrative
expenses
    
    
    3,595
    
    
    
    11,024
    
    
    
    6,882
    
    
    
    
    
    
    
    21,501Restructuring charge
    
    
    
    
    
    
    1,165
    
    
    
    
    
    
    
    
    
    
    
    1,165Operating (loss) profit
    
    
    (3,595
    )
    
    
    852
    
    
    
    6,279
    
    
    
    
    
    
    
    3,536Other (income) expenses, net:Interest expense, net
    
    
    11,617
    
    
    
    4,790
    
    
    
    786
    
    
    
    
    
    
    
    17,193Other income, net
    
    
    (344
    )
    
    
    (94
    )
    
    
    (7
    )
    
    
    
    
    
    
    (445
    )(Loss) income from continuing operations
before income taxes
    
    
    (14,868
    )
    
    
    (3,844
    )
    
    
    5,500
    
    
    
    
    
    
    
    (13,212
    )Income tax benefit (expense)
    
    
    2,072
    
    
    
    (324
    )
    
    
    (876
    )
    
    
    
    
    
    
    872(Loss) income from continuing operations
    
    
    (12,796
    )
    
    
    (4,168
    )
    
    
    4,624
    
    
    
    
    
    
    
    (12,340
    )Loss from discontinued operations, net of
tax
    
    
    
    
    
    
    (1,967
    )
    
    
    
    
    
    
    
    
    
    
    (1,967
    )Net (loss) income
    
    
    ($12,796
    )
    
    
    ($6,135
    )
    
    $
    4,624
    
    
    $
    
    
    
    
    ($14,307
    )
 19




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) Six Months Ended June 30, 2003Combined
    
    CombinedGuarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)INCOME STATEMENT DATANet sales
    
    $
    
    
    
    $
    333,872
    
    
    $
    52,715
    
    
    
    ($11,429
    )
    
    $
    375,158Cost of sales
    
    
    
    
    

    
    300,949
    
    
    
    46,474
    
    
    
    (11,429
    )
    
    
    335,994Gross profit
    
    
    
    
    
    
    32,923
    
    
    
    6,241
    
    
    
    
    
    
    
    39,164Selling, general and administrative expenses
    
    
    1,497
    
    
    
    10,928
    
    
    
    3,718
    
    
    
    
    
    
    
    16,143Operating (loss) profit
    
    
    (1,497
    )
    
    
    21,995
    
    
    
    2,523
    
    
    
    
    
    
    
    23,021Other (income) expenses, net:Interest expense (income), net
    
    
    10,708
    
    
    
    4,402
    
    
    
    (183
    )
    
    
    
    
    
    
    14,927Other expense (income), net
    
    
    187
    
    
    
    (7
    )
    
    
    (19
    )
    
    
    
    
    
    
    161(Loss) income from continuing operations before
income taxes and equity interest in a joint venture
    
    
    (12,392
    )
    
    
    17,600
    
    
    
    2,725
    
    
    
    
    
    
    
    7,933Income tax benefit (expense)
    
    
    4,537
    
    
    
    (6,932
    )
    
    
    (896
    )
    
    
    
    
    
    
    (3,291
    )Equity interest in a joint venture
    
    
    
    
    
    
    
    
    
    
    752
    
    
    
    
    
    
    
    752(Loss) income from continuing operations
    
    
    (7,855
    )
    
    
    10,668
    
    
    
    2,581
    
    
    
    
    
    
    
    5,394Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (8,831
    )
    
    
    
    
    
    
    
    
    
    
    (8,831
    )Net (loss) income
    
    
    ($7,855
    )
    
    $
    1,837
    
    
    $
    2,581
    
    
    $
    
    
    
    
    ($3,437
    )
 20




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) As of June 30, 2004Combined
    
    Combined Non-Guarantor
    
    GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)BALANCE SHEET DATAASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,892
    
    
    $
    204
    
    
    $
    7,249
    
    
    $
    
    
    
    $
    9,345Accounts receivable, net
    
    
    318
    
    
    
    71,740
    
    
    
    30,934
    
    
    
    
    
    
    
    102,992Inventories
    
    
    
    
    
    
    52,925
    
    
    
    21,334
    
    
    
    (59
    )
    
    
    74,200Other current assets
    
    
    193
    
    
    
    2,173
    
    
    
    10,586
    
    
    
    (2,231
    )
    
    
    10,721Total current assets
    
    
    2,403
    
    
    
    127,042
    
    
    
    70,103
    
    
    
    (2,290
    )
    
    
    197,258Other assets:Property, plant and equipment, net
    
    
    4,247
    
    
    
    236,944
    
    
    
    66,927
    
    
    
    868
    
    
    
    308,986Goodwill
    
    
    
    
    
    
    165,933
    
    
    
    
    
    
    
    
    
    
    
    165,933Restricted cash
    
    
    35,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,819Other non-current assets
    
    
    24,366
    
    
    
    2,183
    
    
    
    641
    
    
    
    635
    
    
    
    27,825Intercompany, net
    
    
    (60,598
    )
    
    
    87,619
    
    
    
    (30,782
    )
    
    
    3,761
    
    
    
    Investments in subsidiaries
    
    
    546,097
    
    
    
    
    
    
    
    
    
    
    
    (546,097
    )
    
    
    Total assets
    
    $
    552,334
    
    
    $
    619,721
    
    
    $
    106,889
    
    
    
    ($543,123
    )
    
    $
    735,821LIABILITIES ANDSHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,989
    
    
    $
    52,408
    
    
    $
    22,199
    
    
    
    ($323
    )
    
    $
    78,273Accrued liabilities
    
    
    13,983
    
    
    
    36,893
    
    
    
    13,226
    
    
    
    380
    
    
    
    64,482Short-term lines of credit
    
    
    
    
    
    
    
    
    
    
    9,192
    
    
    
    
    
    
    
    9,192Long-term debt due within one year
    
    
    1,550
    
    
    
    1,177
    
    
    
    2,825
    
    
    
    
    
    
    
    5,552Total current liabilities
    
    
    19,522
    
    
    
    90,478
    
    
    
    47,442
    
    
    
    57
    
    
    
    157,499Non-current liabilitiesLong-term debt due after one year
    
    
    305,850
    
    
    
    36,060
    
    
    
    4,119
    
    
    
    
    
    
    
    346,029Retirement benefits
    
    
    83,415
    
    
    
    1,067
    
    
    
    
    
    
    
    
    
    
    
    84,482Other non-current liabilities
    
    
    542
    
    
    
    4,264
    
    
    
    
    
    
    
    
    
    
    
    4,806Total non-current liabilities
    
    
    389,807
    
    
    
    41,391
    
    
    
    4,119
    
    
    
    
    
    
    
    435,317Shareholders equity
    
    
    143,005
    
    
    
    487,852
    
    
    
    55,328
    
    
    
    (543,180
    )
    
    
    143,005Total liabilities and shareholders equity
    
    $
    552,334
    
    
    $
    619,721
    
    
    $
    106,889
    
    
    
    ($543,123
    )
    
    $
    735,821
 21




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) As of December 31, 2003Combined
    
    Combined Non-Guarantor
    
    GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)BALANCE SHEET DATAASSETSCurrent assets:Cash and cash equivalents
    
    
    ($2,674
    )
    
    $
    127
    
    
    $
    3,582
    
    
    $
    
    
    
    $
    1,035Accounts receivable, net
    
    
    7
    
    
    
    64,457
    
    
    
    22,309
    
    
    
    
    
    
    
    86,773Inventories
    
    
    
    
    
    
    58,030
    
    
    
    19,440
    
    
    
    (59
    )
    
    
    77,411Other current assets
    
    
    7,319
    
    
    
    1,677
    
    
    
    1,751
    
    
    
    1
    
    
    
    10,748Total current assets
    
    
    4,652
    
    
    
    124,291
    
    
    
    47,082
    
    
    
    (58
    )
    
    
    175,967Non-current assets:Property, plant and equipment, net
    
    
    3,765
    
    
    
    247,681
    
    
    
    71,766
    
    
    
    868
    
    
    
    324,080Goodwill
    
    
    
    
    
    
    165,933
    
    
    
    
    
    
    
    
    
    
    
    165,933Other non-current assets
    
    
    15,834
    
    
    
    1,378
    
    
    
    2,049
    
    
    
    1,443
    
    
    
    20,704Intercompany, net
    
    
    (65,291
    )
    
    
    86,241
    
    
    
    (24,711
    )
    
    
    3,761
    
    
    
    Investments in subsidiaries
    
    
    550,411
    
    
    
    
    
    
    
    
    
    
    
    (550,411
    )
    
    
    Total assets
    
    $
    509,371
    
    
    $
    625,524
    
    
    $
    96,186
    
    
    
    ($544,397
    )
    
    $
    686,684LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,151
    
    
    $
    58,504
    
    
    $
    20,398
    
    
    
    ($316
    )
    
    $
    80,737Accrued liabilities
    
    
    27,671
    
    
    
    29,041
    
    
    
    224
    
    
    
    2,606
    
    
    
    59,542Short-term lines of credit
    
    
    
    
    
    
    
    
    
    
    9,992
    
    
    
    
    
    
    
    9,992Long-term debt due within one year
    
    
    350
    
    
    
    983
    
    
    
    2,970
    
    
    
    
    
    
    
    4,303Total current liabilities
    
    
    30,172
    
    
    
    88,528
    
    
    
    33,584
    
    
    
    2,290
    
    
    
    154,574Non-current liabilitiesLong-term debt due after one year
    
    
    237,000
    
    
    
    36,991
    
    
    
    5,257
    
    
    
    
    
    
    
    279,248Retirement benefits
    
    
    84,135
    
    
    
    1,174
    
    
    
    
    
    
    
    
    
    
    
    85,309Other non-current liabilities
    
    
    (4,073
    )
    
    
    4,843
    
    
    
    3,838
    
    
    
    808
    
    
    
    5,416Total non-current liabilities
    
    
    317,062
    
    
    
    43,008
    
    
    
    9,095
    
    
    
    808
    
    
    
    369,973Shareholders equity
    
    
    162,137
    
    
    
    493,988
    
    
    
    53,507
    
    
    
    (547,495
    )
    
    
    162,137Total liabilities and shareholders equity
    
    $
    509,371
    
    
    $
    625,524
    
    
    $
    96,186
    
    
    
    ($544,397
    )
    
    $
    686,684
 22




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) Six Months Ended June 30, 2004Combined
    
    CombinedGuarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)CASH FLOW DATACash (used in) provided by continuing
operating activities
    
    
    ($23,722
    )
    
    $
    9,746
    
    
    $
    8,412
    
    
    $
    
    
    
    
    ($5,564
    )Cash provided by discontinued operations
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    223Net cash (used in) provided by operating
activities
    
    
    (23,722
    )
    
    
    9,969
    
    
    
    8,412
    
    
    
    
    
    
    
    (5,341
    )Investing activities:Additions to property, plant and
equipment
    
    
    (1,196
    )
    
    
    (8,884
    )
    
    
    (2,467
    )
    
    
    
    
    
    
    (12,547
    )Proceeds from sale of property, plant
and equipment
    
    
    300
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    379Net cash used in investing activities
    
    
    (896
    )
    
    
    (8,805
    )
    
    
    (2,467
    )
    
    
    
    
    
    
    (12,168
    )Financing activities:Net decrease in lines of credit
    
    
    (49,000
    )
    
    
    
    
    
    
    (424
    )
    
    
    
    
    
    
    (49,424
    )Proceeds from term loan
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000Repayment of term loan and other debts
    
    
    (600
    )
    
    
    (1,087
    )
    
    
    (974
    )
    
    
    
    
    
    
    (2,661
    )Funding of restricted cash
    
    
    (35,819
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,819
    )Payment of debt issuance costs
    
    
    (3,359
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,359
    )Dividends paid
    
    
    (2,051
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,051
    )Issuance of common stock
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Net cash provided by (used in) financing
activities
    
    
    29,184
    
    
    
    (1,087
    )
    
    
    (1,398
    )
    
    
    
    
    
    
    26,699Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (880
    )
    
    
    
    
    
    
    (880
    )Net increase in cash and cash equivalents
    
    $
    4,566
    
    
    $
    77
    
    
    $
    3,667
    
    
    $
    
    
    
    $
    8,310
 23




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 8. Supplemental Condensed Consolidating Financial Information (continued) Six Months Ended June 30, 2003Combined
    
    CombinedGuarantor
    
    Non-GuarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(in thousands of dollars)CASH FLOW DATACash (used in) provided by continuing
operating activities
    
    
    ($2,925
    )
    
    $
    8,590
    
    
    $
    62
    
    
    $
    
    
    
    $
    5,727Cash used in discontinued operations
    
    
    
    
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    (134
    )Net cash (used in) provided by operating
activities
    
    
    (2,925
    )
    
    
    8,456
    
    
    
    62
    
    
    
    
    
    
    
    5,593Investing activities:Additions to property, plant and
equipment
    
    
    (547
    )
    
    
    (5,386
    )
    
    
    (396
    )
    
    
    
    
    
    
    (6,329
    )Additions to property, plant and
equipment by discontinued operations
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    
    
    
    
    (141
    )Net cash used in investing activities
    
    
    (547
    )
    
    
    (5,527
    )
    
    
    (396
    )
    
    
    
    
    
    
    (6,470
    )Financing activities:Net increase in revolving credit facility
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Net (decrease) increase in other debts
    
    
    (1,100
    )
    
    
    (1,153
    )
    
    
    1,027
    
    
    
    
    
    
    
    (1,226
    )Payment of debt issuance costs
    
    
    (405
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )Dividends paid
    
    
    (2,044
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,044
    )Issuance of common stock
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Net cash provided by (used in) financing
activities
    
    
    2,469
    
    
    
    (1,153
    )
    
    
    1,027
    
    
    
    
    
    
    
    2,343Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    
    
    
    
    518
    
    
    
    
    
    
    
    518Net (decrease) increase in cash and cash
equivalents
    
    
    ($1,003
    )
    
    $
    1,776
    
    
    $
    1,211
    
    
    $
    
    
    
    $
    1,984
 24




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 9. Environmental and Legal Matters We are subject to federal, state, local and foreign environmental laws and
regulations concerning, among other things, air emissions, effluent discharges,
storage treatment and disposal of hazardous materials and remediation of
contaminated soil and groundwater. At some of our industrial sites, hazardous
materials have been managed for many years. Consequently, we are subject to
various environmental laws that impose compliance obligations and can create
liability for historical releases of hazardous substances. It is likely that we
will be subject to increasingly stringent environmental standards in the future
and that we will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis. 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 we own. We are in the process
of reviewing Maximum Achievable Control Technology Standards that will be
applicable to our industry. We also have current and former operating entities (for which we may be
responsible) that are potentially responsible for clean-up of known
environmental sites. These include third-party-owned sites, as well as sites
that are currently owned, or formerly owned, by us or our subsidiaries. For
known environmental sites, we have recorded reserves to cover estimated future
environmental expenditures. Environmental reserves were $6.8 million as of
June 30, 2004. These reserves include a $3.1 million cash escrow account
acquired as a part of our acquisition of Ganton Technologies in 1999 that is
being used to fund the clean-up of an inactive property located in Addison,
Illinois. We currently expect that the clean-up will occur and the account will
be settled in 2004. The reserves also include $2.4 million for the closed
Radford Foundry, which is discussed below. There can be no assurance that costs
in excess of these accruals will not be incurred, or that unknown conditions
will not be discovered that result in material additional expenditures by us
for environmental matters. On March 14, 2002, we entered into a Consent Order with the U.S. Environmental
Protection Agency (USEPA), which will require investigation of the nature and
extent of any hazardous waste disposed of at our Radford Foundry. We entered
into this Consent Order in connection with the USEPAs Corrective Action
Program, which is being undertaken on a nationwide basis by USEPA pursuant to
the Resource Conservation and Recovery Act of 1976. The Corrective Action
Program requires facilities that have historically generated or handled
hazardous waste to determine whether those activities have or could adversely
affect groundwater or human health. Because we historically disposed of waste
material at this site, it is probable that remedial action will be required
with respect to that on-site disposal. We have accrued $2.4 million for such
remediation activity based on our investigation to date. However, our
investigation of this site will continue and it is possible that ultimate
remediation costs could exceed the amounts that we have accrued. We are a party to other legal proceedings associated with environmental,
employment, commercial, product liability or other matters in the ordinary
course of our business. At the present time, we do not believe that any of
such proceedings will have a material adverse effect on our results of
operations. It is possible, however, that future results of operations for any
particular quarterly or annual period could be materially affected by changes
in our assumptions related to these proceedings. 25




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 10. Retirement Benefits We maintain six noncontributory defined benefit pension plans for certain of
our U.S. employees. Our policy is to fund amounts as required under applicable
laws and regulations. In addition, we provide health care and life insurance
benefits to certain retired U.S. employees and their dependents. The components of net periodic benefit cost are as follows (in thousands of
dollars): OtherPension Benefits
    
    Postretirement BenefitsThree Months Ended June 30,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    704
    
    
    $
    682
    
    
    $
    112
    
    
    $
    255Interest cost
    
    
    1,673
    
    
    
    1,592
    
    
    
    608
    
    
    
    686Expected return on plan assets
    
    
    (1,512
    )
    
    
    (1,482
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    260
    
    
    
    193
    
    
    
    (91
    )
    
    
    (15
    )Amortization of loss (gain)
    
    
    606
    
    
    
    380
    
    
    
    38
    
    
    
    (52
    )Net periodic benefit cost
    
    $
    1,731
    
    
    $
    1,365
    
    
    $
    667
    
    
    $
    874
 OtherPension Benefits
    
    Postretirement BenefitsSix Months Ended June 30,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    1,291
    
    
    $
    1,293
    
    
    $
    224
    
    
    $
    509Interest cost
    
    
    3,230
    
    
    
    3,097
    
    
    
    1,216
    
    
    
    1,373Expected return on plan assets
    
    
    (2,934
    )
    
    
    (2,895
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    486
    
    
    
    377
    
    
    
    (182
    )
    
    
    (30
    )Amortization of loss (gain)
    
    
    1,148
    
    
    
    705
    
    
    
    75
    
    
    
    (104
    )Net periodic benefit cost
    
    $
    3,221
    
    
    $
    2,577
    
    
    $
    1,333
    
    
    $
    1,748
 We previously disclosed in our 2003 annual report that we expected to
contribute $14.9 million to our pension plans in 2004. As of June 30, 2004,
$2.7 million of contributions have been made. We presently expect to
contribute an additional $10.5 million, for a total of $13.2 million, to fund
our pension plans in 2004. We provide prescription drug benefits to some of our retirees and will,
therefore, be affected by the provisions of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Medicare Reform Act), which
was enacted on December 8, 2003. The Medicare Reform Act provides for a
federal subsidy to sponsors of retiree health care benefit plans that provide
a benefit at least actuarially equivalent to the benefit established by the
Medicare Reform Act, and therefore may reduce our postretirement benefit
obligations. In May 2004, Financial Accounting Standards Board (FASB)
issued FASB Staff Position (FSP) 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. In accordance with the transition provisions of
FAS 106-2, we elected to defer recognition of the effects of the Medicare
Reform Act on our postretirement benefit obligation and net periodic
postretirement benefit cost in our consolidated financial statements, and we
will account for the effects of the Medicare Reform Act in our consolidated
financial statements beginning July 1, 2004. We do not expect the effects of
adoption to be significant. 26




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 11. Income Taxes Beginning in 2004, federal tax expense or benefit will not be recorded until
the pre-tax profit of our domestic operations exceeds our accumulated tax loss
and credits carryforward. As a result of the accumulation of losses in the past
three years, the deferred tax asset derived from the pre-tax loss of our
domestic operations is fully reserved. During the second quarter of 2004, we recorded tax refunds of $2.7 million.
These tax refunds were identified after the United States Internal Revenue
Service completed their examination of our tax year 2001. 12. Reporting for Business Segments We evaluate our financial results in two business segments, the Ferrous
Metals segment and the Light Metals segment. Our segment reporting is
consistent with the manner in which our business is managed and our resources
are allocated by management. 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 Corporate and Other segment includes
operations that do not fall within the Ferrous Metals segment or Light Metals
segment, and the corporate business unit and its related expenses and
eliminations. Selected financial information of our business segments is
displayed in the following table: Ferrous
    
    Light
    
    CorporateMetals
    
    Metals
    
    and Other
    
    Consolidated(in thousands of dollars)Three-month period ended June 30, 2004:Net sales
    
    $
    145,383
    
    
    $
    71,802
    
    
    $
    
    
    
    $
    217,185Operating profit (loss)
    
    $
    3,276
    
    
    
    ($358
    )
    
    
    ($2,149
    )
    
    $
    769Interest expense, net
    
    
    (347
    )
    
    
    (18
    )
    
    
    (7,626
    )
    
    
    (7,991
    )Other (expense) income, net
    
    
    (282
    )
    
    
    (14
    )
    
    
    150
    
    
    
    (146
    )Income tax (expense) benefit
    
    
    (93
    )
    
    
    (81
    )
    
    
    2,343
    
    
    
    2,169Loss from discontinued operations, net of tax
    
    
    (1,255
    )
    
    
    
    
    
    
    
    
    
    
    (1,255
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ($6,454
    )Three-month period ended June 30, 2003:Net sales
    
    $
    124,140
    
    
    $
    57,978
    
    
    $
    
    
    
    $
    182,118Operating profit (loss)
    
    $
    8,079
    
    
    $
    2,869
    
    
    
    ($611
    )
    
    $
    10,337Interest expense, net
    
    
    (941
    )
    
    
    (1,207
    )
    
    
    (5,478
    )
    
    
    (7,626
    )Other income, net
    
    
    80
    
    
    
    
    
    
    
    31
    
    
    
    111Income tax (expense) benefit
    
    
    (2,771
    )
    
    
    (723
    )
    
    
    2,234
    
    
    
    (1,260
    )Equity interest in a joint venture
    
    
    492
    
    
    
    
    
    
    
    
    
    
    
    492Loss from discontinued operations, net of tax
    
    
    (8,470
    )
    
    
    
    
    
    
    (173
    )
    
    
    (8,643
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ($6,589
    )
 27




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 12. Reporting for Business Segments (continued) Ferrous
    
    Light
    
    CorporateMetals
    
    Metals
    
    and Other
    
    Consolidated(in thousands of dollars)Six-month period ended June 30, 2004:Net sales
    
    $
    286,533
    
    
    $
    141,298
    
    
    $
    
    
    
    $
    427,831Operating profit (loss)
    
    $
    6,594
    
    
    $
    1,631
    
    
    
    ($4,689
    )
    
    $
    3,536Interest expense, net
    
    
    (771
    )
    
    
    (40
    )
    
    
    (16,382
    )
    
    
    (17,193
    )Other income (expense), net
    
    
    112
    
    
    
    (4
    )
    
    
    337
    
    
    
    445Income tax (expense) benefit
    
    
    (1,012
    )
    
    
    (188
    )
    
    
    2,072
    
    
    
    872Loss from discontinued operations, net of tax
    
    
    (1,967
    )
    
    
    
    
    
    
    
    
    
    
    (1,967
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ($14,307
    )As of June 30, 2004:Total assets
    
    $
    380,451
    
    
    $
    278,933
    
    
    $
    76,437
    
    
    $
    735,821Six-month period ended June 30, 2003:Net sales
    
    $
    254,281
    
    
    $
    120,877
    
    
    $
    
    
    
    $
    375,158Operating profit (loss)
    
    $
    18,528
    
    
    $
    6,912
    
    
    
    ($2,419
    )
    
    $
    23,021Interest expense, net
    
    
    (1,836
    )
    
    
    (2,356
    )
    
    
    (10,735
    )
    
    
    (14,927
    )Other (expense) income, net
    
    
    (201
    )
    
    
    
    
    
    
    40
    
    
    
    (161
    )Income tax (expense) benefit
    
    
    (6,119
    )
    
    
    (1,895
    )
    
    
    4,723
    
    
    
    (3,291
    )Equity interest in a joint venture
    
    
    752
    
    
    
    
    
    
    
    
    
    
    
    752Loss from discontinued operations, net of tax
    
    
    (8,768
    )
    
    
    
    
    
    
    (63
    )
    
    
    (8,831
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ($3,437
    )As of December 31, 2003:Total assets
    
    $
    372,812
    
    
    $
    281,396
    
    
    $
    32,476
    
    
    $
    686,684
 28




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 13. Loss per Share Loss per share are computed as follows: Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003(in thousands of dollars, except per share data)Numerator:Net loss
    
    
    ($6,454
    )
    
    
    ($6,589
    )
    
    
    ($14,307
    )
    
    
    ($3,437
    )Denominator:Denominator for basic and
diluted loss per share 
weighted average shares
    
    
    25,599
    
    
    
    25,589
    
    
    
    25,597
    
    
    
    25,568Basic loss per share
    
    
    ($0.25
    )
    
    
    ($0.26
    )
    
    
    ($0.56
    )
    
    
    ($0.13
    )Fully diluted loss per share
    
    
    ($0.25
    )
    
    
    ($0.26
    )
    
    
    ($0.56
    )
    
    
    ($0.13
    )
 The fully diluted loss per share reflects the assumed exercise of stock
options and unearned restricted stock. 29




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 14. Derivative Financial Instruments Under our risk management policy, the use of derivatives for managing risk is
confined to hedging the exposure related to variable rate funding activities,
hedging the foreign currency exposure of inter-company payables and
receivables, and hedging purchase commitments relating to raw materials used in
our production processes and related energy costs. Specifically, we review our
liability structure on a recurring basis and make the determination as to
whether our risk exposure should be adjusted using derivative instruments. We
do not participate in speculative derivatives trading. At June 30, 2004, we had outstanding foreign exchange contracts with a notional
amount of Euros 11.5 million (approximately $14.0 million) to hedge our
European operations. We have designated these contracts as fair value hedges.
The market value of such contracts was minimal at June 30, 2004. In addition to the above derivative financial instruments, we have other
contracts that have the characteristics of derivatives but are not required to
be accounted for as derivatives. These contracts for the physical delivery of
commodities qualify for the normal purchases and normal sales exception under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as
we take physical delivery of the commodity and use it in the production
process. This exception is an election and, if not elected, these contracts
would be carried in the balance sheet at fair value with changes in the fair
value reflected in earnings. These contracts are for the purchase of our raw
materials and energy purchases. 15. Related Party Transactions We receive management and technical support fees from the Porto Foundry, our
previously 50% owned Portuguese joint venture, for providing administrative
service and technical support to them. We also had an outstanding
interest-bearing loan to and other receivables from the Porto Foundry, mainly
consisting of management and technical support fee receivables and advances
made by us to finance the Porto Foundrys operations. Interest rates on the
loan and other receivables ranged from three-month European Interbank Offered
Rate (EURIBOR) plus 0.8% to three-month EURIBOR plus 1.0%. On July 1, 2003, our ownership in the Porto Foundry increased from 50% to 75%.
Therefore, beginning July 1, 2003, our related party transactions with the
Porto Foundry were eliminated from our consolidated financial statements. The related party transactions with the Porto Foundry are summarized as follows
(in thousands of dollars): Three Months Ended
    
    Six Months EndedJune 30, 2003
    
    June 30, 2003Management fee
    
    $
    81
    
    
    $
    162Technical support fee
    
    $
    105
    
    
    $
    210Interest income
    
    $
    49
    
    
    $
    98
 There were no other material transactions with, or material balances due to or
from, any other related party. 30




---



##### Table of Contents



INTERMET Corporation Notes to Interim Condensed Consolidated Financial Statements (continued) June 30, 2004 (Unaudited) 16. Subsequent Events In accordance with an agreement with Estudos, Servicos e Participacoes, S.A.
dated June 25, 2003, we exercised a call option to acquire the remaining 25%
ownership of Porto Foundry on July 1, 2004 for a consideration of Euros 4.9
million (approximately $5.9 million at the exchange rate on June 30, 2004). The
consideration, together with interest accruing at EURIBOR, will be paid in six
equal monthly installments beginning July 2004. On July 15, 2004, our Board of Directors voted to reduce our quarterly dividend
payment from $0.04 per share to $0.01 per share, beginning with the dividend
payable on October 1, 2004. 31




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Quantitative and Qualitative Disclosures about Market Risks
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.
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, including any downturn in the markets in which we operate
    
    The high cost of scrap steel, one of our primary raw materials, and the possibility that scrap steel costs will remain at
high levels or continue to increase, which would have a negative
effect on our profitability, cash flow, liquidity and ability to
borrow
    
    Fluctuations in the cost of other raw materials, including the cost of energy, aluminum, zinc, magnesium and alloys, and
our ability, if any, to pass those costs on to our customers
    
    Our ability to meet the financial covenants set forth in our debt agreements, and our ability to negotiate less restrictive
covenants if necessary, all of which have an effect on our continuing ability to borrow and liquidity
    
    Fluctuations in automobile and light and heavy truck production which directly affects demand for our products
    
    Changes in procurement practices and policies of our customers for automotive components, including the risk of the loss of
any of our major customers or the loss of a significant vehicle program
    
    Pricing practices of our customers, including continuing demands for price concessions as a condition to retaining current
business or obtaining new business, and the negative effect that price concessions have on our profit margins
    
    Increases in interest rates that may affect our borrowing costs
    
    Deterioration in the market share of any of our major customers
    
    Fluctuations in foreign currency exchange rates
    
    Work stoppages or other labor disputes that could disrupt production at our facilities or those of our customers
    
    Continuing changes in environmental regulations to which we are subject, and the costs we will incur in meeting more
stringent regulations
    
    Factors or presently unknown circumstances that may result in impairment of our assets, including further write downs of
our goodwill
    
    Other risks as detailed from time to time in our filings with the Securities and Exchange Commission We do not intend to update these forward-looking statements. 32




---



##### Table of Contents



Material Changes in
Results of Operations  Three months ended June 30, 2004 Sales for the second quarter of 2004 were $217.2 million, an increase of $35.1
million or 19.3% as compared to sales in the same period in 2003 of $182.1
million. Ferrous Metals segment sales were $145.4 million during the second
quarter of 2004 compared to $124.1 million for the same period last year,
representing an increase in sales of $21.3 million or 17.2%. Included as part
of Ferrous Metals segment sales, European sales during the three months ended
June 30, 2004 were $44.1 million, an increase of $18.4 million or 71.6% as
compared to European sales of $25.7 million for the same period last year. The
overall increase in Ferrous Metals segment sales is mainly attributable to the
consolidation of the Porto Foundrys sales of $10.6 million during the second
quarter of 2004, favorable foreign currency exchange on other European sales of
$1.9 million, and incremental growth in the sales volume. Light Metals segment
sales were $71.8 million during the second quarter of 2004, an increase of
$13.8 million or 23.8% compared to $58.0 million for the same period last year.
The increase in sales is mainly attributable to new product launches along with
growth of our pressure-counter-pressure casting (PCPCTM) process. Gross profit for the three months ended June 30, 2004 and 2003 was $12.7
million and $17.9 million, respectively. Gross profit as a percentage of sales
for the three months ended June 30, 2004 and 2003 was 5.9% and 9.8%,
respectively. The decrease in gross profit margin is mainly due to the
significant increase in scrap steel and other raw materials costs, and to a
lesser extent lower selling prices of our products. Increases in
scrap steel prices have negatively affected our gross margin by
approximately $6.6 million for the three months ended
June 30, 2004. Our margins were also
negatively affected during the second quarter by quality issues at certain
plants, which resulted in warranty costs, premium freight and overtime. We
continue to be negatively affected by the high cost of scrap steel, which has
risen dramatically since 2003. For further discussion on the effects of high
scrap steel costs, see Item 3. Quantitative and Qualitative Disclosures about
market risks. Selling, general and administrative expenses for the three months ended June
30, 2004 and 2003 were 5.0% and 4.2% of sales, respectively. The increase is
mainly due to the consolidation of the Porto Foundrys financial results
beginning July 2003, the new European Engineering Center established in July
2003, and increased operating expenses including accounting fees and legal and
environmental expenses. A restructuring charge of $1.2 million was incurred for the closure of Havana
Foundry during the second quarter of 2004. The charge included costs to
transfer the production of Havana Foundry to our other facilities and employee
separation costs. Net interest expense for the second quarter of 2004 was $8.0 million, which was
$0.4 million more than the same period last year. The increase was due to the
consolidation of the Porto Foundrys financial results beginning July 2003. Our effective income tax rate was 29.4% and 44.6% for the second quarter of
2004 and 2003, respectively. The income tax benefit in the second quarter of
2004 was due to the recording of tax refunds of $2.7 million. These tax refunds
were identified after the United States Internal Revenue Service completed
their examination of our tax year 2001 during the second quarter of 2004.
Excluding this amount, income tax expense in the second quarter of 2004 was
$0.5 million which was mainly comprised of state tax expense on our domestic
operations. No federal tax benefit was recorded on the pre-tax loss of our
domestic operations. Federal tax expense or benefit will not be recorded until
the pre-tax profit of our domestic operations exceeds our accumulated tax loss
and credits carryforward. As a result of the accumulation of losses in the past
three years, the deferred tax asset derived from the pre-tax loss of our
domestic operations is fully reserved. The effective income tax rate in the
second quarter of 2003 was higher than the statutory rate because of state
taxes. 33




---



##### Table of Contents



Material Changes in
Results of Operations  Six months ended June 30, 2004 Sales for the six months ended June 30, 2004 were $427.8 million, an increase
of $52.6 million or 14.0% as compared to sales in the same period in 2003 of
$375.2 million. Ferrous Metals segment sales were $286.5 million during the
six months ended June 30, 2004 compared to $254.3 million for the same period
last year, representing an increase in sales of $32.2 million or 12.7%.
Included as part of Ferrous Metals segment sales, European sales during the six
months ended June 30, 2004 were $86.6 million, an increase of $33.9 million or
64.3% as compared to European sales of $52.7 million for the same period last
year. The overall increase in Ferrous Metals segment sales is mainly
attributable to the consolidation of the Porto Foundrys sales of $20.4 million
during the six months ended June 30, 2004, favorable foreign currency exchange
on other European sales of $6.5 million, and incremental growth in the sales
volume of our domestic operations. Light Metals segment sales were $141.3
million during the six months ended June 30, 2004, an increase of $20.4 million
or 16.9% compared to $120.9 million for the same period last year. The increase
in sales is mainly attributable to new product launches both domestically and
in Europe along with sales growth of our PCPCTM process. Gross profit for the six months ended June 30, 2004 and 2003 was $26.2 million
and $39.2 million, respectively. Gross profit as a percentage of sales for the
six months ended June 30, 2004 and 2003 was 6.1% and 10.4%, respectively. The
decrease in gross profit margin is mainly due to the significant increase in
scrap steel and other raw materials costs, and to a lesser extent lower selling
prices of our products. Increases in scrap steel prices have
negatively affected our gross margin by approximately
$14.0 million for the six months ended June 30, 2004. Our margins were also negatively affected by quality
issues at certain plants, which resulted in warranty costs, premium freight and
overtime. We continue to be negatively affected by the high cost of scrap
steel, which has risen dramatically since 2003. For further discussion on the
effects of high scrap steel costs, see Item 3. Quantitative and Qualitative
Disclosures about market risks. Selling, general and administrative expenses for the six months ended June 30,
2004 and 2003 were 5.0% and 4.3% of sales, respectively. The increase is mainly
due to the consolidation of the Porto Foundrys financial results beginning
July 2003, the new European Engineering Center established in July 2003, and
increased operating expenses including accounting fees and legal and
environmental expenses. A restructuring charge of $1.2 million was incurred for the closure of Havana
Foundry during the second quarter of 2004. The charge included costs to
transfer the production of Havana Foundry to our other facilities and employee
separation costs. Net interest expense for the six months ended June 30, 2004 was $17.2 million,
which was $2.3 million more than the same period last year. The increase was
due to the write-off of $1.4 million of capitalized debt issuance costs related
to our prior bank revolving credit agreement during the first quarter of 2004,
amortization of the debt issuance costs incurred during the six months ended
June 30, 2004, and the consolidation of the Porto Foundrys financial results
beginning July 2003. Our effective income tax rate was 6.6% and 41.5% for the six months ended June
30, 2004 and 2003, respectively. The income tax benefit in the six months
ended June 30, 2004 was due to the recording of tax refunds of $2.7 million
identified after the United States Internal Revenue Service completed their
examination of our tax year 2001. Excluding this amount, income tax expense in
the six months ended June 30, 2004 was $1.8 million which was mainly comprised
of state tax expense on our domestic operations and the income tax expense on
our profitable foreign operations. No federal tax benefit was recorded on the
pre-tax loss of our domestic operations. Federal tax expense or benefit will
not be recorded until the pre-tax profit of our domestic operations exceeds our
accumulated tax loss and credits carryforward. The effective income tax rate in
the six months ended June 30, 2003 was higher than the statutory rate because
of state taxes. 34




---



##### Table of Contents



Material Changes in Financial Condition, Liquidity and Capital Resources Through the second quarter of 2004, net cash used in operations totaled $5.3
million compared to net cash provided by operations of $5.6 million for the
same period last year. Depreciation and amortization expense for the six
months ended June 30, 2004 and 2003, excluding depreciation expense related to
our discontinued operations, was $25.3 million and $24.1 million, respectively.
For the six months ended June 30, 2004, after adjusting for the effect of
exchange rates, accounts receivable increased by $18.9 million, inventory
decreased by $2.3 million, accounts payable decreased by $1.2 million, and
accrued liabilities increased by $5.7 million. The increase in accounts
receivable was a result of higher sales volume in the second quarter of 2004 as
compared to the last quarter of 2003 in which sales were lower due to fewer
working days. The decrease in inventory was due to our effort to reduce our
working capital and optimize our liquidity. During the first six months of
2004, we spent $12.5 million for the purchase of property, plant and equipment.
The Company has committed capital not yet spent of $7.1 million as of June 30,
2004. We anticipate that the funds needed for the committed capital spending
will be provided by operations or bank financing. Cash and cash equivalents at June 30, 2004 were $9.3 million, as compared to
$1.0 million at December 31, 2003. This increase in our cash balances resulted
from the fact that the cash receipts of our European operations for a few days
before June 30, 2004 had not yet been applied to reduce our borrowings under
our lines of credit. On January 8, 2004, we refinanced our then-existing revolving credit agreement
by entering into a new First Amended and Restated Credit Agreement, which
provides for a $90.0 million revolving credit line and a $120.0 million term
loan. The term loan has quarterly amortization and the principal balance was
reduced by $600,000 during the six months ended June 30, 2004. The $90.0
million revolving credit portion matures on January 8, 2009, and the $120.0
million term loan has a final maturity date of March 31, 2009. Also, on January
8, 2004, we entered into a First Amendment to Letter of Credit Facility
Agreement, under which $35.7 million of the proceeds of the term loan, and
certain interest income on this amount, are used as collateral for the issuance
of a $35.7 million letter of credit. For further details on our bank credit
agreements, please refer to Note 7 to our consolidated financial statements,
Debt, incorporated herein by reference. In addition, our European subsidiaries have short-term lines of credit in the
total amount of Euro 20.5 million, or approximately $25.0 million. For further
details on these short-term lines of credit, please refer to Note 6 to our
consolidated financial statements, Short-term Lines of Credit, incorporated
herein by reference. High scrap steel prices continue to have a significant negative effect on our
profit margins and, consequently, a significant negative effect on the
financial ratios that we are required to maintain under our credit agreements.
During the first quarter of 2004 we entered into negotiations with our lenders
to modify our required financial ratios in order to make them less restrictive.
As a result, on April 13, 2004, we entered into a First Amendment to First
Amended and Restated Credit Agreement, which amended our financial covenants to
make them less restrictive for the six fiscal quarters beginning with the
quarter ended March 31, 2004. As of June 30, 2004, we were in compliance with
those covenants, as amended, as set forth below. However, continued uncertainty
with regard to scrap steel prices, and the possibility that prices will remain
at high levels or increase even more, could cause us to be in default of our
credit agreements if we are unable to negotiate waivers or
further amendments with our lenders. Financial Covenants
    
    Requirement
    
    ActualSenior Funded Debt to Consolidated EBITDA
    
    
    £ 3.50
    
    
    
    2.73Funded Debt to Consolidated EBITDA
    
    
    £ 6.25
    
    
    
    5.43Consolidated EBITDA to Consolidated Interest Expense
    
    
    3 1.65
    
    
    
    2.02
 35




---



##### Table of Contents



Our covenant ratios are calculated based on the last twelve months activities.
EBITDA is not a financial measure prepared in accordance with accounting
principles generally accepted in the United States (GAAP), but is used by our
lenders to evaluate our liquidity and operating performance in relation to the
financial covenants on a quarterly basis. EBITDA is defined generally as the
sum of net income (excluding certain non-cash charges), income taxes, interest
expense, and depreciation and amortization. For a complete definition of
EBITDA and description of our financial covenants as of June 30, 2004, see our
First Amended and Restated Credit Agreement dated January 8, 2004, included as
Exhibit 10.18 to our annual report on Form 10-K filed on March 15, 2004, and
our First Amendment to First Amended and Restated Credit Agreement dated April
13, 2004, included as Exhibit 10.1 to our quarterly report Form 10-Q filed on
May 10, 2004. EBITDA should not be considered a substitute for income from
operations, net income, cash flows or other measures of financial performance
prepared in accordance with GAAP. It is presented here because it is an
important measure in determining our ability to borrow, and, therefore, our
liquidity position. As of June 30, 2004, $37.9 million of our revolving credit facility was
outstanding, consisting of borrowings of $11.0 million and letters of credit of
$26.9 million. As of June 30, 2004, we had committed and uncommitted bank
credit facilities with unused borrowing capacity of $67.9 million, consisting
of $52.1 million in borrowing capacity under our revolving credit facility, and
$15.8 million in borrowing capacity under our European short-term lines of
credit. However, due to financial covenant restrictions, as of June 30, 2004,
we would have been able to borrow only $53.2 million of our total unused
capacity of $67.9 million. As discussed above and also in Item 3. Quantitative and Qualitative Disclosures
about Market Risks, we have been and continue to be affected by the high cost
of scrap steel. Continued high costs of this raw material would likely
continue to have a material effect on our profitability and our cash flow. Due
to the uncertainty with respect to scrap steel costs, there is no guarantee
that we will be able to meet our financial covenants, including the less
restrictive covenants applicable to the six fiscal quarters beginning with the
quarter ended March 31, 2004, and it may be necessary for us to seek further
amendments or waivers from our lenders. On July 15, 2004, our Board of Directors voted to reduce our quarterly dividend
payment from $0.04 per share to $0.01 per share, beginning with the dividend
payable on October 1, 2004. This will have the effect of reducing the cash paid
out from $4.1 million to $1.0 million on an annual basis. Critical Accounting Policies and Use of Estimates Our interim condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States,
which require management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. We
evaluate estimates used in the preparation of our financial statements on a
continual basis. Actual results may differ from the estimates. Our critical
accounting policies, and our methods and policies used to establish estimates
and assumptions, were previously disclosed in Item 7, Managements Discussion
and Analysis of Financial Condition and Results of Operations  Critical
Accounting Policies and Use of Estimates in our annual report on Form 10-K for
the year ended December 31, 2003, and have not changed. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risks We have exposure to four types of market risk. The first is the risk of
interest rate changes and how it impacts our interest expense and current
results. Second, we have risk with regard to foreign currency and its impact on
our European operating results. Third, we have risk related to commodity
pricing, including energy costs, and the costs of scrap steel, aluminum,
magnesium and zinc. The cost of scrap steel has increased steadily since early
2002 and represents a risk to our operating results, liquidity and ability to
borrow, as discussed further above and below. Lastly, we have consumer risk.
We operate principally in the cyclical automotive industry, which is affected
by economic conditions and consumer spending. A weakening of the economy
represents a risk to our operating results. We continue to be affected by the high cost of scrap steel, which is the
primary raw material used in our Ferrous Metals segment. Our cost of scrap
steel has increased from an average of approximately $160 per ton at the 36




---



##### Table of Contents



beginning of 2003, and approximately $210 per ton at the end of 2003, to more
than $250 per ton at June 30, 2004. We use approximately 30,000 tons of scrap
steel per month in our Ferrous Metals operations worldwide. Therefore, for
each $10 increase in scrap steel cost per ton, we experience an increase in
cost of raw materials of approximately $3.6 million on an annualized basis,
assuming we are unable to recover any cost increases from our customers. We have contractual arrangements with many of our customers to pass through
some of the increases in the cost of scrap steel. However, there is a delay
between the time when we experience price increases and the time when we are
able to begin charging the relevant customer. This time delay varies by
customer, but is generally from 30 days to 180 days. In addition, we are not
able to pass through all of the cost increases in all cases. The actual amount
of the total scrap steel price increases that we are able to pass through
depends on the amount and timing of the price movements, the base price from
which increases are measured, the amount of the increase that is recoverable,
and the amount of scrap steel we use on each particular customer program.
Notwithstanding our ability to pass through a portion of our cost increases,
the high cost of scrap steel has had a material negative effect, and continued high costs of scrap steel, or further escalation of prices,
will likely have a material negative effect on our profitability, cash flow, liquidity and
ability to borrow. Other than the continued volatility in the cost of scrap steel, there has been
no material change to our exposures to market risk since December 31, 2003. 
 Item 4. Controls and Procedures We carried out an evaluation, under the supervision and with the participation
of management, including our principal executive officer and principal
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined under Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30,
2004. Based upon that evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures are effective in timely alerting them and our management to
information relating to the Company (including our consolidated subsidiaries)
that is required to be included in our periodic Securities Exchange Commission
reports and filings. There was no change in our internal control over financial reporting that
occurred during the quarter ended June 30, 2004 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting. 37




---



##### Table of Contents



Part II  Other Information 
 Item 1. Legal Proceedings See Note 9, Environmental and Legal Matters, incorporated herein by
reference, for a description of environmental matters, including
environmental matters relating to our Radford Foundry. There have been no other material changes in matters reported in the Form 10-K
for the year ended December 31, 2003. We are a party to a number of legal proceedings associated with
environmental, employment, commercial, product liability and other matters in
the ordinary course of our business. We do not believe that such pending or
threatened legal proceedings to which we are a party, or to which any of our
property is subject, will have a material adverse effect on our consolidated
financial position or results of operations or liquidity, taken as a whole.
It is possible, however, that future results of operations for any particular
quarterly or annual period could be materially affected by changes in our
assumptions related to these proceedings. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. 
 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) Exhibits ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Periodic Financial Report by the Chief
Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 (b) Reports on Form 8-K On July 15, 2004, we filed a current report on Form 8-K containing a press
release announcing the financial results for the second quarter of 2004. 38




---



##### Table of Contents



Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. INTERMET CorporationBy:
    /s/ Robert E. BeltsRobert E. Belts
Vice President of Finance and
Chief Financial OfficerDate: August 9, 2004 39




---



##### Table of Contents



Exhibit Index  ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxely Act of 200232
    
    Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxely Act of 2002