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Company Perspectives
INTERMET's vision is to be recognized as the world's leading supplier of cast metal components.
INTERMET Corporation (Intermet) is one of the largest independent foundry companies in the world, involved in producing ferrous and non-ferrous casting products for automotive and industrial manufacturers. Intermet produces ductile iron, aluminum, magnesium, and zinc castings at more than a dozen locations in the United States, Germany, and Portugal, deriving approximately 95 percent of its revenue from sales to the automotive market. The company's products include castings for steering and suspension components, camshafts, crankshafts, brake parts, electronic housing and enclosures, and instrument panel beams used in passenger and commercial vehicles. Soaring costs, particularly of scrap metal, forced Intermet to seek Chapter 11 bankruptcy protection in September 2004. The firm emerged from bankruptcy as a private entity in November 2005.
19th-Century Origins
Intermet's lineage winds its way through a tangle of subsidiaries and predecessor companies to one of the oldest chartered companies in the United States, Columbus Iron Works, established in 1846. As a founding predecessor, Columbus Iron Works lent Intermet the type of prestige only history can impart: Aside from manufacturing armor plate for military applications, the 19th-century metalworker was involved in the development of the first breech-loading cannon, and later, manufactured the cast iron pipe used in Manhattan Island's water system.
Intermet's modern-day origins begin in 1971, when Columbus Foundries, Inc. was founded, incorporating the link to the past, the 19th-century Columbus Iron Works. During its first decade of operation, Columbus Foundries' internal growth was augmented by a methodical acquisition campaign. A machinery facility was acquired in 1976, followed by the purchase in 1980 of a foundry located in Germany, and the acquisition of the Lynchburg Foundry Company in 1983, which owned three Virginia-based foundries. Intermet, founded by George Mathews, Jr., was formed a year after Columbus Foundries acquired the three Virginia foundries. The new company, which was based in Columbus, Georgia, assumed control over Columbus Foundries.
More than a century after Columbus Iron Works' pioneering military work, Intermet geared itself for an entirely different sort of existence. The company manufactured cast iron pieces for the automobile industry, operating as an automotive parts supplier to original equipment manufacturers (OEMs) such as Ford Motor Company, General Motors Corporation, and Chrysler Corporation. In 1985, a year after its formation, Intermet's stock began trading on the public market, touching off an energetic acquisition spree. In 1986 the company purchased Northern Castings Company, based in Hibbing, Minnesota, and New River Castings Company, based in Radford, Virginia. Two years later, Intermet acquired the Ironton Iron foundry in Ironton, Ohio, completing an initial surge of welcome additions to the company's fold. However, with the good came the bad. In an effort to extend its geographic reach and strengthen its capabilities and capacity, Intermet became involved in deals its management would later regret. Although the company eventually would rank as the largest concern of its kind in the world, its path to future dominance would not prove an easy road.
International Mistakes of the Late 1980s
As Intermet pursued an aggressive expansion campaign during its first decade of business, its zeal resulted in two acquisitions that represented notable failures. Intermet purchased a foundry in Sweden, intent on bolstering its international presence, but slackening demand by European automobile manufacturers delivered a fatal blow to the new acquisition. The foundry failed to attract sufficient business to remain profitable and, consequently, the entire facility was shuttered, save a machinery division.
Intermet's progress was hobbled by another misguided overseas adventure, a joint venture named INTAT Precision. The company was formed through a partnership agreement between Intermet and a Japanese concern named Aisin Takaoda. Together, Intermet and Aisin Takaoda invested $25 million in an automotive parts facility located in Indiana, with Intermet controlling 60 percent of the joint venture and Aisin Takaoda controlling the remainder. Through INTAT Precision, automotive parts were to be manufactured first for Toyota, then for Honda Motor Co., Ltd., Mitsubishi Motors Corporation, and Nissan Motor Co., Ltd., and finally for Japanese brake manufacturers. Under the terms of the agreement, Aisin Takaoda assumed control over the marketing and sales of the products manufactured by INTAT Precision, convincing Intermet officials that Aisin Takaoda's management possessed a greater understanding of the Japanese market and business customs governing trade in Japan. Ceding control to Aisin Takaoda proved to be a costly mistake, as Mathews later acknowledged in a March 1992 interview with Business Atlanta, saying, "We were asleep at the switch when we made the rudiments of that transaction." Projected sales of the new joint venture failed to materialize, but Intermet's partners preached patience, promising that sales would recover. Mathews and his staff waited, but eventually the losses became too significant to endure, forcing Intermet to withdraw from the joint venture with only financial losses to show for its efforts. "It drained our money from the company and drained theirs, too," Mathews explained in his interview with Business Atlanta. "Only thing, it was draining 40 percent of theirs and 60 percent of ours," he added.
Despite the costly miscues, Intermet's stature within the industry was impressive. By the early 1990s, the company was generating in excess of $320 million a year in sales through its worldwide operations. Intermet employed 3,600 workers spread among 12 foundries and two machining operations, primarily involving itself in ductile iron casting, which was stronger and lighter than traditional gray iron. Although the company manufactured housings, hubs, gear boxes, and other parts for farm and construction equipment, as well as parts for industrial manufacturers, the overwhelming majority of its sales were derived from OEM car and truck manufacturers. The company's major customers included Ford, Chrysler, General Motors, Toyota, Honda, Caterpillar Inc., and Bendix Corporation. For these and other customers, Intermet manufactured casting products such as brake parts, steering and transmission components, camshafts, and crankshafts, earning distinction not so much for the particular products it produced but more for the manufacturing processes it employed. The company was capable of producing a broad range of casting products, from small castings to castings weighing up to 400 pounds, which enabled Intermet to pursue a commensurately broad range of contracts.
The opportunities available to Intermet promised to increase significantly as the company's management surveyed the industry during the early 1990s. Domestically, the automotive market was mired in a decisive slump during the early years of the decade. In 1991 the industry sold 12.3 million cars and light trucks, 11 percent less than it had sold the previous year. Further, the one-year drop in sales appeared to be part of an unwelcome trend: unit sales had peaked at 16.3 million in 1987, then began a five-year decline that intensified during the economically recessive early 1990s. At first blush, the anemic performance of Intermet's mainstay market pointed toward a commensurate decline in Intermet's business; a likely scenario considering OEM suppliers would suffer along with the manufacturers they supplied products to. For Intermet, however, the recessive conditions worked to the company's benefit. Because of the economic decline, major automobile manufacturers were forced to implement sweeping measures to improve efficiency and reduce costs. As they scaled down their operations, the automobile manufacturers increasingly turned to outside suppliers for the components they had traditionally produced on their own, using outsourcing as a means to reduce costs. For Intermet, the trend toward outsourcing not only led to an increase in business but also reduced the strength of some of the company's largest competitors. In addition to competing against other independent foundry companies, Intermet battled for market share with companies such as General Motors' Central Foundries, which dramatically reduced the scope of its operations in the midst of the recessive early 1990s. Accordingly, while the automotive market suffered, Intermet increased its market share, exuding a vitality that was exemplified by the announcement in 1992 of a three-year, $100 million capital expenditure program.
Diversification into Aluminum: Early 1990s
From an early 1990s vantage point, there were other positive developments that pointed toward promising growth for Intermet in the years ahead. The company was searching to add to its already formidable market position in iron casting by diversifying into aluminum, which was expected to be a high-growth segment of the automotive market in the future. During the early 1990s, a typical car manufactured in the United States contained 175 pounds of aluminum, a proportion that was expected to double to 350 pounds per vehicle by 2000 as automobile manufacturers sought to reduce the weight of their various models. Intermet was intent on tapping into the burgeoning aluminum castings market and took its first steps into the business during the early 1990s. In 1992 the company formed a new division, Intermet Aluminum Inc., to produce cast aluminum chassis parts and signed a joint venture agreement with Australia-based Comalco Ltd. The joint venture, named ICA Castings, comprised a pilot plant and a smelting and rolling facility in Kentucky, which were to be used to make cast aluminum cylinder heads and engine blocks for U.S. automobile manufacturers. The agreement was terminated two years later, however, primarily because manufacturers were reluctant to place orders until further competition in the industry ensured competitive prices. Although its initial foray into aluminum suffered a setback, Intermet was determined to push ahead. In 1995 the company achieved its goal.
Midway through the decade, Intermet's iron castings business was growing robustly, enabling it to reach the half-billion-dollar mark in sales, which ranked the company as one of the largest independent foundry concerns in the world. In late 1995 Intermet added to its massive iron castings business by acquiring the Bodine-Robinson Aluminum Foundry, marking the company's formal entry into aluminum castings production. Based in Alexander City, Alabama, the foundry, which was renamed Alexander City Casting Company, Inc., was equipped to make automotive intake manifolds, transmission clutch parts, marine engine components, and castings for lawn and garden engines, possessing an annual capacity of more than 12 million pounds of light-alloy castings. For Intermet, the Bodine-Robinson acquisition represented an important first step into aluminum, touching off further aluminum acquisitions to follow, but the company's acquisitive activities were not restricted to building a presence in the fast-growing light-alloy market. The 1990s were heady years for Intermet, highlighted by an aggressive expansion campaign that cemented the company's standing as a global giant, particularly after a significant transaction in 1996 was completed.
Roughly a year after the Bodine-Robinson acquisition, Intermet struck again, purchasing Cleveland, Ohio-based Sudbury, Inc. for a reported $195 million. The acquisition lifted Intermet past all rivals, pushing its annual sales to $845 million and making it the largest independent ferrous castings foundry in the United States. Sudbury, a manufacturer of castings and machined parts and a provider of powder coating services primarily to the automotive industry, comprised five operating companies employing 2,300 workers, the largest of which, Wagner Castings Company, made the same kind of ductile iron castings as Intermet. Aside from adding substantially to Intermet's casting capacity, the Sudbury acquisition also expanded Intermet's product lines and capabilities to include zinc and aluminum die-casting, cantilevered cranes, and specialty service truck bodies.
Late 1990s Expansion
During the late 1990s, Intermet continued with its prevailing theme of the decade: expansion through acquisition. In May 1998 the company entered a joint venture for PortCast, a foundry company located in Portugal. In December 1998 the company completed another strengthening move overseas when it purchased an iron foundry in Eastern Germany, but the biggest development of the month was Intermet's announcement that it was acquiring the Minnesota-based Tool Products division belonging to Quadion Corp. The purchase represented another important step toward the expansion of Intermet's aluminum business, giving the company the capacity to produce an additional 17 to 18 million pounds of aluminum castings annually. Tool Products, with plants in New Hope, Minnesota, and Jackson, Tennessee, manufactured precision die-castings for automotive and industrial electronic products, as well as small castings for anti-skid braking systems, fuel pumps, and steering wheel cores, deriving 60 percent of its annual revenue from the automotive market.
Intermet ended its most prolific decade of growth with yet another aluminum acquisition, leading some industry observers to speculate that the company would eventually abandon ferrous castings. The acquisition, announced in November 1999, included two companies, Ganton Technologies, Inc. and Diversified Diemakers, Inc., which, combined, were expected to generate $235 million in sales in 1999. Ganton Technologies, one of North America's largest aluminum die casters, operated three manufacturing facilities, two located in Wisconsin and another in Tennessee, and an engineering center in Wisconsin. Diversified Diemakers specialized in magnesium die-cast products such as brake pedal brackets, instrument panel frames, and housings used by automotive, commercial, and electronics industries, operating three production facilities in Michigan. With the addition of the two companies, Intermet's annual revenues were expected to reach $1.3 billion by the end of 2000, four times the total generated eight years earlier. The growth, however, was not being achieved at the expense of the company's longstanding involvement in the iron castings business, according to Intermet officials. Although the company announced the closure of its Ironton Iron foundry in December 1999 because of declining business, Intermet management scotched rumors that it was pursuing a long-term strategy that excluded the company's involvement in ferrous castings. Instead, the company declared it was pursuing a growth strategy that would shape Intermet into a full-service metal caster.
Troubled Times in the New Century
The heady years of the 1990s gave way to darker days in the early 2000s. Tragedy struck Intermet in March 2000 when a gas explosion at the New River foundry cost the lives of three workers and injured several others. Casting production halted for several months. A serious fire at the Neunkirchen, Germany, foundry in May disrupted production there for more than three months. Further impacting financial results for the year was the botched launch of two new products for automotive engines at Intermet's Alexander City, Alabama, aluminum casting plant. Intermet still managed to post strong results--$40.9 million in net income on revenues of $1.04 billion, the firm's first billion-dollar-plus year--but the various difficulties led investors to pummel Intermet's stock price.
The North American auto industry fell into one of its periodic downturns starting in 2001 as production dropped sharply, by almost two million vehicles. This downturn, coupled with continued production problems stemming from the aftermath of the New River explosion, led to a sharp reduction in revenue at Intermet: $843.2 million for the year. The operational difficulties at the Alexander City plant continued into 2001 as well, and Intermet elected to close down that facility late in the year. A $12.9 million charge taken in connection with this closure contributed to a net loss for the year of $8.7 million. Intermet slashed its workforce by 25 percent as part of an effort to shore up profits.
The struggles continued in 2002 as the company eked out a profit of $9 million on still lower sales of $814.9 million. In June 2003 Gary F. Ruff was promoted from president and chief operating officer to CEO, succeeding John Doddridge, who remained chairman until the following year, when Ruff took on the chairmanship as well. Seeking to shore up its long-term profitability, Intermet further rationalized its production portfolio in 2003, closing plants in Radford, Virginia, and Havana, Illinois, and selling off Frisby PMC, Inc., which operated a machining plant. Charges for the year of more than $61 million led to a net loss of $98.9 million on sales of $731.2 million. Also during the year, Intermet bought out its joint venture partner in Portugal.
In 2004 Intermet fell victim to sharply rising prices for scrap metal. The company's cost of ferrous scrap had risen from $160 a ton to $210 a ton during 2003, but then the cost skyrocketed to $395 a ton by the end of August 2004. As a result, Intermet was forced to seek protection under Chapter 11 of the bankruptcy code, making its filing in September. Operating under Chapter 11, the company closed several more facilities in 2005: its machining plant in Midland, Georgia; its die-casting and machining plants in Sturtevant, Wisconsin; and its Decatur, Illinois, foundry. Intermet also renegotiated metal surcharges with its customers in order to insulate itself from renewed raw material price spikes. Having secured $285 million in new loans, Intermet emerged from bankruptcy in November 2005 as a private company with two hedge funds as its primary owners: R2 Investments L.D.C. and Stanfield Capital Partners L.L.C.
Principal Subsidiaries
Lynchburg Foundry Company; Northern Castings Corporation; Ironton Iron, Inc.; Intermet International, Inc.; Columbus Foundry, L.P.; SUDM, Inc.; Alexander City Casting Company, Inc.; Tool Products, Inc.; Sudbury, Inc.; Cast-Matic Corporation; Frisby P.M.C., Incorporated; Transnational Indemnity Company; Wagner Castings Company; Wagner Havana, Inc.; Diversified Diemakers, Inc.; Ganton Technologies, Inc.; Intermet Netherlands, B.V.; Intermet European Foreign Holdings Corporation, B.V. (Netherlands); Intermet Holding, B.V. (Netherlands); Intermet Europe GmbH (Germany); Intermet Neunkirchen Foundry GmbH (Germany); Fundico Nodular, SA (Portugal; 75%).
Principal Competitors
Citation Corporation; Grede Foundries, Inc.; Worthington Industries, Inc.
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