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United States
Securities and Exchange Commission

Form 10-Q

Commission File No. 0-13787

INTERMET Corporation
(Exact name of registrant as specified in its charter)

(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 May 9, 2003 there were 25,602,391 shares of common stock, $0.10 par value, outstanding.

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Part I – Financial Information

Item 1. Financial Statements

INTERMET Corporation
Interim Condensed Consolidated Statements of Income
(Unaudited)

See accompanying notes.

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INTERMET Corporation

Interim Condensed Consolidated Balance Sheets

See accompanying notes.

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INTERMET Corporation

Interim Condensed Consolidated Balance Sheets

See accompanying notes.

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INTERMET Corporation

Interim Condensed Consolidated Statements of Cash Flows

See accompanying notes.

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2003 (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 ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

The balance sheet at December 31, 2002 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. Refer to our 2002 Annual Report and Form 10-K for complete financial statement and footnotes.

New Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have adopted the new disclosure requirements of SFAS No. 148.

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2003 (Unaudited)

1. Basis of Presentation (continued)

Stock-Based Compensation

We grant stock options to employees and directors with exercise prices equal to the fair values of the shares at the dates 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, we recognize no compensation expense for the stock option grants. Had compensation expense been determined based on the fair values of these stock options at the grant dates consistent with the method of SFAS No. 123, our pro forma net income, basic earnings per share and diluted earnings per share would have been the following:

2. Inventories

Net inventories consist of the following (in thousands of dollars):

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

3. Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands of dollars):

4. Goodwill

We have goodwill consisting of costs in excess of net assets acquired of $217.0 million at both March 31, 2003 and December 31, 2002. On January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Under this statement, goodwill is no longer amortized but is subject to annual impairment tests (or more frequent tests if impairment indicators arise). As required under SFAS No. 142, we wrote off negative goodwill of $481,000, net of taxes, in the first quarter of 2002 as a cumulative effect of a change in accounting principle. During the second quarter of 2002, we performed our initial impairment test on our goodwill. In addition, we performed our annual impairment test as of November 30, 2002. Both tests apply a combination of valuation techniques including an income method and a market method. The results of our tests indicated that goodwill is not impaired.

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

5. Debt

On June 13, 2002, we completed a senior note offering of $175 million. The notes bear a fixed rate of interest at 9.75% and will mature on June 15, 2009. Interest is due June 15 and December 15, commencing December 15, 2002. The notes are unsecured and rank equally with all of our existing and future unsecured senior debt. The net proceeds of the senior note offering were used to pay the remaining balance on a bank term loan ($161.7 million) and for working capital purposes. Debt issuance costs of $5.9 million were capitalized in connection with the debt offering and are included in “other noncurrent assets” in the accompanying balance sheet and are being amortized over seven years. See note 11 for additional information regarding the senior unsecured notes.

During the first quarter of 2003, we amended our secured bank revolving credit agreement. The credit agreement facility was reduced from $300 million to $225 million. In addition, two financial covenants were modified to provide less restrictive terms.

Long term debt consists of the following (in thousands of dollars):

Maturities of long-term debt at March 31, 2003 and for each twelve-month period thereafter are as follows (in thousands of dollars):

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

6. Derivative Financial Instruments

We enter into various derivative transactions pursuant to our risk management policies. We do not use derivative financial instruments for trading purposes.

We have an interest rate swap agreement with a notional amount of $50 million to manage our exposure to the interest rate risk associated with our debt. We have designated this swap transaction as a cash flow hedge. This hedge is considered to be perfectly effective. Therefore, the entire change in the fair value of the swap agreement has been recognized in Other Comprehensive Income (Loss), and no hedge ineffectiveness is recorded in earnings.

To hedge foreign currency risks, we periodically use over-the-counter forward contracts. At March 31, 2003, we had outstanding foreign exchange contracts with a notional amount of $10.9 million (10.0 million Euros) to hedge our European operations. We have designated these forward contracts as fair value hedges. The fair value of such foreign exchange contracts was minimal at March 31, 2003.

7. Comprehensive Income

Total comprehensive income consisted of the following (in thousands of dollars):

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

8. Reporting for Business Segments

We individually evaluate the operating performance of our business units. Under the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” we have aggregated operating segments that have similar characteristics, including manufacturing processes and raw materials. The Ferrous Metals segment consists of ferrous foundry operations and their related machining operations, including the operations of PortCast-Fundicao Nodular, S.A. (“PortCast”), our 50% owned Portuguese equity investment. Our equity in earnings of PortCast in the first quarter of 2003 and 2002 was $260,000 and $175,000, respectively. The Light Metals segment consists of aluminum, magnesium and zinc casting operations and their related machining operations. The Corporate and Other segment includes operations which do not fall within the Ferrous Metals or Light Metals segments, and includes the corporate business unit and its related expenses and eliminations. Certain administrative costs such as interest and amortization are included within the Corporate and Other segment. This information is displayed in the following table:

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

9. Environmental and Legal 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, Virginia, facilities. We have entered into this Consent Order in connection with the USEPA’s Corrective Action Program. The Corrective Action Program 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 adversely affect human health. Because we historically disposed of waste material at this site, it is possible that fines or penalties could be assessed, or that remedial action could be required, with respect to that on-site disposal. At this time we cannot predict the amount of potential fines or penalties or the cost of remedial action, if any.

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 (including Maximum Achievable Control Technology standards for our industry and other requirements under the Clean Air Act Amendments of 1990, storm-water permit programs and toxic use reduction programs) 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. Until federal and state governments adopt final regulations, including Maximum Achievable Control Technology standards for our industry, and until we are able to evaluate necessary control measures, it is not possible to estimate these costs.

We also have current and former operating entities (for which we may be responsible) that are potentially responsible for cleanup 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 accrued $5.5 million to cover estimated future environmental expenditures. This amount includes a $3.2 million cash escrow account acquired as a part of the acquisition of Ganton Technologies in 1999 that is being used to fund the clean-up of an inactive property located in Addison, Illinois. 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 June 14, 2000, the Virginia Department of Environmental Quality issued a new air emissions permit for our Radford foundry which, as amended on July 23, 2002, requires that new air emission controls be installed in the Radford foundry and be operational by December 31, 2004. Our best current estimates are that the cost of these new emission controls will be in the range of $3 to $5 million, although the cost could be substantially higher than our estimates. We are evaluating the future business prospects for the Radford foundry in light of this required capital investment.

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

9. Environmental and Legal Matters (continued)

We are a party to a number of other 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.

10. Earnings per Share

Basic earnings per share is computed by dividing income available to shareholders of common stock by the weighted average number of common shares outstanding for the period. The dilutive earnings per share calculation reflects the assumed exercise of stock options and issuance of unearned restricted stock.

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

11. Supplemental Condensed Consolidating Financial Information

On June 13, 2002, we issued $175 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 covering 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 March 31, 2003, the Parent and the Combined Guarantor Subsidiaries had approximately $109.4 million of secured debt outstanding and approximately $95.6 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 notes (“Combined Non-Guarantor Subsidiaries”). The Combined Non-Guarantor Subsidiaries had approximately $0.3 million of debt outstanding as of March 31, 2003.

Presented below are 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 March 31, 2003 and December 31, 2002, and for the three months ended March 31, 2003 and 2002.

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.

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)

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INTERMET Corporation

Notes to Interim Condensed Consolidated Financial Statements (continued)

March 31, 2003 (Unaudited)