Intermet files for Chapter 11 bankruptcy, announces plans to close Columbus Machining plant.

In response to the rise in raw material costs, particularly for scrap steel, in North America and Europe, Intermet Corp., Troy, Mich., filed for Chapter 11 bankruptcy.

Through the reorganization process, Intermet expects manufacturing operations to continue without interruption. The company's European operations are not included in the Chapter 11 filing. Intermet's restructuring plan will address raw-material cost-recovery practices that will be developed in cooperation with its customers and that more accurately reflect current market conditions, improvements in the company's manufacturing operations and a revised capital structure.

"After a thorough review of our options, we decided to file under Chapter 11 because it provides a measure of stability and the best protection to all our constituents by allowing us to pursue a comprehensive restructuring," said Gary Ruff, chairman and CEO. "The company thus far has made every effort to mitigate the rise in the cost of raw materials, especially scrap steel."

The company said its cost of scrap steel has increased from an average of approximately $160/ton at the beginning of 2003 to approximately $395/ton at the end of August 2004. Officials also announced that raw material price increases have been the major contributor to a projected loss for the third quarter of 2004.

To continue its supply of products to its customers, Intermet entered into a credit agreement with Deutsche Bank Trust Co. Americas, New York, and The Bank of Nova Scotia, Toronto, for a $60-million debtor-in-possession (DIP) revolving credit facility. Intermet may borrow up to $20 million immediately from the lending companies, while the remaining $40 million is subject to various additional conditions and limitations, including the lenders' satisfaction and final approval by the Bankruptcy Court in the Eastern District of Michigan.

Ruff said the $60 million is $10 million more than Intermet initially anticipated receiving. "The orders entered by the Bankruptcy Court, coupled with our anticipated DIP financing, will provide us with needed liquidity as we design and implement our restructuring plan," he said. "This agreement with the lenders gives (Intermet) the financial flexibility necessary not only for maintaining critical customer deliveries, but also for continuing with efforts to reorganize and strengthen the company."

In lieu of the company's emergence from Chapter 11, it announced that its Columbus Machining plant in Midland, Ga., will close during the first quarter of 2005. The closure of the facility, which employs 86 people, is to rationalize excess production capacity and reduce costs.

"This is a necessary decision for the company to make at this time," Ruff said. "The plant has been operating at a much-reduced capacity with very high overhead costs."

Ruff continued that the company plans to consolidate machining and assembly operations into designated areas in its metalcasting facilities. "This allows for better utilization of lean manufacturing and one-piece flow concepts," he said. "As such, it is our intention to move certain strategic Columbus Machining programs into other Intermet facilities, such as the Columbus Foundry."