UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File No. 0-13787

INTERMET CORPORATION

(248) 952-2500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
(Title of class)

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

Aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003 was $88,281,674 based on $3.45 per share, the closing sale price of the common stock as quoted on the Nasdaq National Market. For purposes of determining the aggregate market value of the Registrant’s voting stock held by non-affiliates, shares held by all current directors and executive officers of the Registrant have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be “affiliates” of the Registrant as defined by the Securities and Exchange Commission.

At March 1, 2004 there were 25,655,266 shares of common stock, $0.10 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2003 are incorporated by reference into Parts I and II. Portions of the registrant’s definitive proxy statement for the 2003 annual meeting of shareholders to be held April 15, 2004 are incorporated by reference into Part III.

TABLE OF CONTENTS

1

The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, 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 risk factors including, but not limited to:

•

General economic conditions, including any downturn in the markets in which we operate

•

Fluctuations in automobile and light and heavy truck production, which directly affect 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

•

Fluctuations in the cost of raw materials, including the cost of energy, aluminum, zinc, magnesium, alloys and scrap steel, and our ability, if any, to pass those costs on to our customers

•

The rising 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 profit margins

•

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 liquidity

•

Fluctuations in interest rates that may affect our borrowing costs

•

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 will we 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.

2

Part I

Item 1. Business

General

INTERMET is one of the largest independent producers of ductile iron, aluminum, magnesium and zinc castings in the world. In addition, we provide machining and tooling related to our casting business along with a range of other products and services to the automotive and industrial markets. We specialize in the design and manufacture of highly engineered, cast automotive components for the global light truck, passenger car, light vehicle and heavy-duty vehicle markets. These products are focused on structural safety components and are used in vehicle powertrain, chassis, brake, and body / interior parts.

INTERMET supplies cast products to a broad array of automotive and industrial customers. Original equipment manufacturers (“OEMs”) and Tier 1 and Tier 2 suppliers increasingly rely on their suppliers to design and engineer parts based on specific design parameters, including weight, size, cost and performance criteria. In addition, OEMs, Tier 1 and Tier 2 suppliers look to their suppliers to solve problems arising in the design and manufacturing processes. We believe that we are well positioned to benefit from these trends by providing a broad range of full-service capabilities, including advanced design and engineering, casting, machining and sub-assembly.

Our ferrous metals products include ductile iron castings and their related machining operations. These castings include crankshafts, brackets, bearing caps, steering knuckles, wheel spindles, differential carriers and cases, brake anchors and calipers, and suspension control arms. Our light metals products include aluminum, magnesium and zinc die-castings and their related machining operations. These castings include engine covers, brackets, instrument panel frames, connector housings, steering knuckles, airbag controller enclosures, heat sinks, steering column components and windshield wiper motor enclosures. We provide cast products used by automotive OEMs, including, but not limited to, DaimlerChrysler, Ford, General Motors, PSA Peugeot Citroën, Volkswagen, BMW, Honda and Toyota, and their leading suppliers throughout the world, such as Delphi, Visteon, PBR Automotive, TRW, Continental Teves, Knorr Bremse, Denso, Metaldyne and Dana.

As of December 31, 2003, our Ferrous Metals segment, excluding the Radford Foundry, had a total average straight time available casting capacity of 643,000 net tons, an increase of 40,000 net tons as compared to 603,000 net tons in 2002. The increase was because of the consolidation of the Porto Foundry’s operating results since July 2003. Our Light Metals segment had a total average straight time available casting capacity of 72,000 net tons as of December 31, 2003, the same as that in 2002.

Based on production, INTERMET’s casting facilities, including Europe, operated at an average annual capacity utilization of 68% in 2003, 70% in 2002, and 68% in 2001.

We believe that our leadership in core markets positions us to capitalize on domestic and international consolidation and OEM outsourcing trends. These trends are driven, in part, by the OEMs’ strategy to lower costs and maintain quality by selectively awarding contracts to suppliers that have full service capabilities and a significant global presence.

INTERMET’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on or through our web site at http://www.intermet.com.

Acquisition of Porto Foundry

In June 2003, we entered into an agreement to acquire 100% interest in Fundicao Nodular, S.A. (“PortCast”) in Porto, Portugal. Previously we owned 50% interest in PortCast. Our ownership in PortCast increased from 50% to 75% in July 2003. Since our acquisition of majority ownership, we refer to this operation as our “Porto Foundry”. We have a call option to acquire the remaining 25% ownership in July 2004. See additional discussion in the Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 to the Consolidated Financial Statements, Acquisition.

Sale of Frisby Assets

In July 2003, we sold substantially all the assets of Frisby P.M.C., Incorporated (“Frisby”). See additional discussion in the Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 4 to the Consolidated Financial Statements, Discontinued Operations.

3

Radford Closure

In May 2003, we decided to permanently close our iron shell-molding plant in Radford, Virginia. The final plant closure occurred in December 2003. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 5 to the Consolidated Financial Statements, Restructuring and Impairment Charges.

Havana Closure

In December 2003, we decided to permanently close our ductile-iron casting plant in Havana, Illinois. The plant closure is expected to occur in the second quarter of 2004. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 5 to the Consolidated Financial Statements, Restructuring and Impairment Charges.

Financial Information about Segments

Sales and net loss for the Ferrous Metals segment in 2003 were $493.4 million and $1.0 million, respectively, compared with sales and net income of $484.1 million and $15.3 million, respectively, in 2002. Sales and net loss in the Light Metals segment in 2003 were $237.8 million and $45.3 million, respectively, compared with sales and net income of $271.6 million and $9.4 million, respectively, in 2002. See additional discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations and disclosure in Note 14 to the Consolidated Financial Statements, Reporting for Business Segments.

Products, Markets and Sales

We focus on value-added cast metal products, which we supply mainly to the automotive market. In 2003, 2002 and 2001, approximately 94.1%, 95.2%, and 94.1% of our sales, respectively, were attributable to the automotive market. Within the automotive market, our products generally fall into four major categories:

•

Chassis and suspension components such as steering knuckles, control arms, steering gear housings, torsion bar adjusters, spindle carriers and spring seats

•

Powertrain components such as electronic control module housings, engine crankshafts, bearing caps, front covers and camcovers; transmission housings, retainers and bodies; and differential cases, carriers and bearing caps

•

Brake components such as light vehicle and heavy vehicle calipers, anchors, and brackets

•

Interior / Body components such as instrument panel frames, steering column and lock housings, mirror supports, and brackets

INTERMET also manufactures a variety of products for the industrial and appliance markets. In 2003, 2002, and 2001, approximately 5.9%, 4.8%, and 5.9% of our sales, respectively, were attributable to the industrial and appliance markets.

Reportable segment sales for continuing operations by market for 2003 were as follows:

Reportable segment sales for continuing operations by market for 2002 were as follows:

4

Reportable segment sales for continuing operations by market for 2001 were as follows:

INTERMET has a long-standing quality assurance program. All of our foundry facilities that supply the automotive industry have QS-9000 and ISO-9001 or ISO-9002 certification. Our European operations have been certified to the new TS-16949 quality standard, and our North American plants are expected to complete this registration in 2004 or as required by their customers. In addition, we received various quality awards from our customers during 2003, including:.

•

Toyota Best in Class Award 2003

•

Hitachi Supplier Performance Award 2003

•

Ortech Quality Excellence — Quality and Delivery Excellence 2002

•

GM Service Parts Operations — 100% On Time Delivery 2002

We primarily market our products through our own sales and customer service staff. To a limited degree, we use independent sales representatives in Europe and the United States. INTERMET’s principal sales offices are in Troy, Michigan and Saarbrucken, Germany, but are also supported by a smaller sales office in Tokyo, Japan. We primarily produce to customer orders and do not maintain any significant inventory of finished goods not on order.

Our own sales staff acts as a liaison between our customers and our production personnel. Through our applications and product engineering groups, we offer complete engineering and design capabilities or customer assistance at the design stage of customer programs. We utilize quality assurance representatives and engineers to work with our customers’ manufacturing personnel to detect and avoid potential problems as well as to evaluate new product opportunities for us. In addition to working with our customers’ design engineers and other technical staff, our product engineers frequently work closely with customers’ purchasing personnel and our sales personnel to present INTERMET’s ideas and secure production purchase orders.

INTERMET supplies cast products to automotive OEMs directly or through Tier 1 and Tier 2 suppliers. Net sales to customers exceeding 10% of consolidated net sales, and sales to other major customers, were as follows (as a percentage of consolidated net sales):

The loss of any of these customers or a substantial reduction in their purchases could have a material adverse effect on us. Our six largest customers accounted for approximately 52%, 56%, and 58% of consolidated net sales during 2003, 2002, and 2001, respectively. We are continually working to diversify our customer base to match sales and marketing trends and ensure a global presence.

5

Net sales by market were as follows (as a percentage of consolidated net sales):

Sales of ferrous metals castings for continuing operations were 455,000, 429,000, and 422,000 net tons in 2003, 2002, and 2001, respectively. The increase in net tons sold in 2003 compared to 2002 is because of the consolidation of the Porto Foundry’s operating results since July 2003. The increase in net tons sold in 2002 compared to 2001 was mainly due to the launch of new products, partially offset by the loss of business with certain customers.

Sales of light metals castings were 34,000, 41,000, and 43,000 net tons in 2003, 2002, and 2001, respectively. The decrease in net tons sold in 2003 compared to 2002 was due to lower market demand and the conversion of one high volume magnesium component to plastic by a customer. The decrease in net tons sold in 2002 compared to 2001 is more than accounted for by a plant closure in the fourth quarter of 2001.

Design, Manufacturing and Machining

We have a technical center in Lynchburg, Virginia, and engineering centers in Troy, Michigan, Saarbrucken, Germany, and Tokyo, Japan that provide development, engineering and design services to our customers. In addition, we provide technical support to all of our plants worldwide. We furnish our customers with design support using their native computer-aided design and engineering languages as well as our cast metal process simulation software. Our design and engineering teams also assist our customers in the initial stages of product creation and modification.

Our capabilities include computer-aided engineering analysis, design optimization, prototyping, modeling enhancements and testing. We use three-dimensional solid modeling software in conjunction with rapid prototype development, among other advanced computer-aided design techniques, to support our customers in the initial stages of product design and prototype creation. These techniques greatly enhance design and flexibility to provide optimized manufacturability, as well as quality and product performance. In addition, we can substantially reduce the time required to produce sample castings, particularly with complex products. INTERMET’s goal is to continually improve product quality and performance. We also strive to reduce costs by offering new product solutions that optimize designs, reduce weight, consider the use of alternative materials or incorporate more efficient manufacturing processes. INTERMET’s product and manufacturing process development work includes the development of new products, materials and processes that can broaden our overall product offerings and capabilities. We believe that our advanced design and engineering capabilities serve as a significant competitive advantage as our customers continue to outsource these critical activities to their suppliers.

Our Ferrous Metals segment produces ductile iron castings. Our ferrous metal castings range from small parts weighing only a few ounces each to products weighing up to 75 pounds each. Ductile iron’s use as a higher strength substitute for gray iron and a lower-cost substitute for steel has grown steadily. The ferrous metals cast production process involves melting steel scrap and pig iron in a cupola melter or an electric furnace, adding various alloys and pouring the molten metal into molds made primarily of sand. The molten metal cools and solidifies in the molds. The molds are then broken apart and the castings are removed.

Our Light Metals segment produces die-castings of aluminum, magnesium and zinc, which are lower weight alternative metals. Our light metal castings range from small products weighing only a few ounces each to products weighing up to 50 pounds each. Die-casting is a metal component casting process in which molten aluminum, magnesium or zinc is introduced into metal die and solidified. Pressure-counter-pressure casting (PCPC TM) is a casting method in which molten metal, usually aluminum, is introduced into a permanent die cavity with low-pressure gas applied to the metal in a sealed furnace. Solidification of the metal is controlled by extensive cooling lines placed throughout the die cavity and by the precise application of pressure. New Rheocasting is INTERMET’s semi-solid aluminum casting process which produces high strength and ductility structural parts, as well as pressure tight components.

6

Customers usually specify the properties that are required in their castings, such as strength, ductility and hardness, and INTERMET determines how best to meet those specifications. Constant testing and monitoring of the casting process is necessary to maintain both the quality and performance consistency of the castings. Electronic analysis and monitoring equipment, including x-ray, real-time radioscopy, ultrasonic and magnetic-particle testing and chemical spectroscopy, is used extensively in grading scrap metal, analyzing molten metal and testing castings. We also use testing equipment and procedures to provide particular tests for our castings as requested by customers.

Most castings require machining before they can be put to their ultimate use. This machining may include drilling, boring, milling, threading or cutting operations. Many customers provide their own machining for castings or have them machined by third parties. We operate two facilities, one in Midland, Georgia and one in Racine, Wisconsin, that machine castings produced by us and by others. In addition, most of our light metals casting plants have machining integral in the casting operation. We also contract with other companies to machine castings that we produce, before the castings are shipped to customers.

Raw Materials

Steel scrap is the primary raw material INTERMET uses to manufacture ferrous metals castings. We purchase steel scrap from numerous sources, generally regional scrap brokers, using a combination of spot market purchases and short-term contract commitments. We have no material long-term contractual commitments with any steel scrap supplier, nor is it traditionally possible to secure long-term commitments in this market. The cost of steel scrap is subject to fluctuations. Recent sharp increases in scrap steel cost have had a significant negative impact on our financial results and will continue to have a negative effect if prices remain high or if this upward trend continues. See Item 7A, Quantitative and Qualitative Disclosures about Market Risks for further discussion of raw materials purchases. We have contractual arrangements with some of our major customers that allow us to adjust our casting prices to reflect such fluctuations. Adjustments are typically made after a time period specified by the customers and always lag the market.

In producing die cast light metals castings, the raw materials we use are secondary aluminum alloy and primary magnesium alloy ingots. We purchase aluminum using spot market purchases and short-term contract commitments. We have no material long-term contractual commitments with any aluminum suppliers. The cost of aluminum ingot is subject to fluctuations. We have contractual arrangements with many of our major customers that allow us to adjust our casting prices to reflect such fluctuations. For PCPC TM, the primary raw material is primary aluminum T-sow bar. This is obtained from a primary smelting source. We have contractual arrangement with our major customers that track the price to a published index and allow us to adjust our casting prices to reflect such fluctuations. Adjustments are typically made after a time period specified by the customers and always lag the market. See Item 7A, Quantitative and Qualitative Disclosures about Market Risks for further discussion of raw materials purchases.

We have contractual arrangements with some of our suppliers, which expire at various times through 2004, for the purchase of various materials, other than steel scrap, primary and secondary aluminum ingot and primary magnesium ingot, used in the manufacturing process. These contracts provide some limited protection against price increases of raw materials. Other than as noted above, we do not have specific arrangements in place to adjust casting prices for fluctuations in the prices of alloys and other materials.

Cyclicality and Seasonality

Although most of our products are generally not affected by year-to-year automotive style changes, model changes may have an impact on sales. In addition, the inherent cyclicality of the automotive industry has affected our sales and earnings during periods of slow economic growth or recession. Our third and fourth quarter sales are usually lower than first and second quarter sales due to plant closings by automakers for holidays, vacations and model changeovers.

Backlog

Most of INTERMET’s business involves supplying all or a portion of the customer’s annual requirements stated in blanket purchase orders. Customers typically issue firm releases and shipping schedules on a monthly basis. Our backlog at any time generally consists only of the orders that have been released for shipment.

7

Competition

INTERMET competes with many other foundries domestically and internationally. Some of these foundries are owned by major users of castings. For example, many automobile manufacturers in North America and Europe, which are among our customer base, operate their own foundries. However, they also purchase a significant number of castings from INTERMET and other companies, and there is a trend toward increased outsourcing by these automobile manufacturers. Our castings also compete, to some degree, with malleable iron castings, other metal castings, plastics, and steel and aluminum forgings and stampings.

The machining industry is highly fragmented and competitive. As in the foundry industry, major purchasers of machined components often have significant in-house capabilities to perform their own machining work.

INTERMET competes primarily on the basis of product quality, engineering, service and price. We emphasize our ability to produce complex products in order to compete for value-added castings.

Research and Development

INTERMET conducts process, material, and product development programs for both its ferrous metals and light metals products, principally at a technical center and a research foundry in Lynchburg, Virginia. In addition, a European Engineering Center was established at our European Headquarters in Saarbrucken, Germany in 2003. This facility complements the capabilities of the Lynchburg Technical Center and the Engineering Center in Troy, Michigan to facilitate a global network of engineering and research and development operations.

Current research and testing projects encompass both new manufacturing processes and materials, and product development. The INTERMET research foundry has a self-contained melting and molding facility with extensive metallurgical, physical and chemical testing capabilities. The work on new manufacturing processes focuses on ways to lower costs and improve quality. Product development work includes projects to extend the performance range for existing materials such as with austempering for ductile iron and special alloying for creep-resistant magnesium alloys. In addition, we are currently working to develop new materials, improve product manufacturing processes and improve characterization of material properties. We directly expensed $1.2 million, $1.3 million, and $1.7 million in 2003, 2002, and 2001, respectively, for basic research and development.

Employees

At March 1, 2004, we employed 5,652 employees, including 4,396 and 1,256 persons in North America and Europe, respectively. Our workforce includes 3,564 and 1,008 hourly manufacturing workers in North America and Europe, respectively. The remainder are management, sales and clerical personnel.

Foreign and Domestic Operations and Export Sales

Net sales and identifiable assets for INTERMET’s domestic and foreign operations for 2003, 2002, and 2001 were as follows (in thousands of dollars):

8

Sales by geographic locations of customers for 2003, 2002, and 2001 were as follows (in thousands of dollars):

Executive Officers of the Registrant

Executive officers are elected annually by the Board of Directors at its meeting that immediately follows our annual meeting of shareholders. An executive officer holds office until his or her successor is elected and qualified, or until his or her death, resignation or removal.

The executive officers of INTERMET as of March 12, 2004 along with their ages and principal positions with INTERMET, are as follows:

Mr. Doddridge became our Chairman of the Board and Chief Executive Officer of INTERMET in 1994. He continued as Chairman of the Board after Dr. Ruff was elected as our Chief Executive Officer in July 2003. From November 1992 until November 1994, Mr. Doddridge was Vice Chairman and Chief Executive Officer of Magna International, Inc., a supplier of motor vehicle parts. From 1989 to 1992 he served as President of North American Operations of Dana Corporation, a motor vehicle parts manufacturer, and before then he served as President of Hayes-Dana Inc., a subsidiary of Dana Corporation.

Dr. Ruff was elected as Chief Executive Officer in July 2003. He was elected as President and Chief Operating Officer in December 2002. Dr. Ruff joined INTERMET in June 1999 and was named Executive Vice President — Technical Services in July 2000. Prior to joining INTERMET, he held numerous positions with General Motors, and in 1987 he joined CMI International, an automotive parts supplier, as Chief Technical Officer, Executive Vice President and Director. Prior to joining INTERMET, Dr. Ruff served as President of North American Wheels and Corporate Vice President of Hayes Lemmerz International, Inc., upon its acquisition of CMI.

Mr. Belts joined INTERMET as Vice President — Finance and Chief Financial Officer in August of 2002 following 14 years with Detroit Diesel Corporation, a manufacturer of heavy-diesel engines. He served as Senior Vice President of Finance and Chief Financial Officer of Detroit Diesel from March 1998 to July 2002 and as Vice President of Finance and Controller from January 1995 to February 1998 before joining INTERMET.

Mr. Heavin joined INTERMET as a Vice President in June of 2000 and was named Vice President of Ferrous Metals in September 2002. Prior to coming to INTERMET, Mr. Heavin was a Manufacturing Manager for Delphi’s Energy and Chassis Division. Prior to that he was employed by United Technologies Automotive for six years as plant manager of the Holland, Michigan plant and subsequently as a general manager in the Interiors group.

9

Mr. Bonilla joined INTERMET as Vice President of Light Metals in September 2002. Prior to joining INTERMET, he served as Vice President of Manufacturing and General Manager, Mexico Operations of Exemplar Manufacturing Company, a supplier of automotive wire harnesses. He also served as Vice President,

Operations, at the North American Aluminum Wheel — Hayes Lemmerz International, Inc.. His early career included operation management positions with Handy &

Harman Automotive Group in Laredo, Texas, and Masco Corporation in Mexicali, Mexico.

Mr. Miller joined INTERMET in July 1998 as Corporate General Counsel and was named Vice President and General Counsel in August 1999. He served as Vice President, General Counsel and Secretary at Libbey-Owens-Ford Co., an automotive parts supplier, from February 1987 to July 1998.

Ms. Mills joined INTERMET in February 1997 as Manager of Investor Relations and was promoted to Director, Corporate Affairs in March 1999 and Vice President, Administration in December 2002. Prior to joining INTERMET, Ms. Mills served as Human Resources Manager, Accounting Supervisor and in other positions at Dana Corporation.

Mr. Prucha joined INTERMET in October 1999 as Director, Process Research and Development and was promoted to Vice President, Technical Services in December 2002. Prior to joining INTERMET, Mr. Prucha served as Vice President of Technology of CMI International for 10 years. He has nearly 30 years of experience in the metal-casting industry, 20 of which were at CMI.

Mr. Vine-Chatterton joined INTERMET in January 1999 as a Vice President of INTERMET and President of INTERMET Europe. Before coming to INTERMET, he was a divisional Finance Director of T&N PLC, UK, an automotive parts supplier, from June 1996. Mr. Vine-Chatterton was a divisional Finance Director of Caradon PLC, UK, an international supplier to building and home improvement industries, from January 1994 until 1996.

Mr. Graessle joined INTERMET in March 2001 as Vice President — Sales and Marketing. Before coming to INTERMET, Mr. Graessle was Vice President of the Lighting and Wiper Products Group at Federal Mogul Corporation following its acquisition of Cooper Automotive. Prior to that, he was with the Automotive Group of Cooper Industries for 9 years serving as Vice President of Sales and Marketing. Previous to Cooper, Mr. Graessle was with Arvin Industries for 13 years, achieving the position of Sales Director.

Item 2. Properties

The following provides information about the 19 domestic and international manufacturing locations operated by INTERMET, and the types of products produced at each location as of December 31, 2003:

10

All of INTERMET’s manufacturing locations are owned, except the Jackson Plants and Columbus Foundry facilities which are leased pursuant to a financing arrangement utilizing industrial revenue bonds. All of INTERMET’s owned properties are subject to liens securing bank borrowings. For further information on debt, see discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operation and Note 8 to the Consolidated Financial Statements, Debt.

INTERMET owns a research and development foundry and leases a technical center, both located in Lynchburg, Virginia, and leases a management information systems data center in Columbus, Georgia. INTERMET also leases its headquarters office, which is located in Troy, Michigan.

Item 3. Legal Proceedings

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, 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 adversely affect human health. Because we historically disposed of waste material at this site, it is possible that remedial action could be required with respect to that on-site disposal.

We are also a party to a number of other legal proceedings associated with environmental, employment, commercial, product liability and other matters in the ordinary course of its 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.

For further discussion, see Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 11 to the Consolidated Financial Statements, Commitments and Contingencies.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders of INTERMET during the fourth quarter of the fiscal year covered by this report.

11

Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

For the high and low stock prices for each of the calendar quarters for the last two years, see Note 17 to the Consolidated Financial Statements, Quarterly Data and Share Information.

INTERMET’s common stock, $0.10 par value, is traded on the Nasdaq National Market under the symbol “INMT” and had a closing price of $4.86 on March 1, 2004. Also on March 1, 2004, there were 473 holders of INTERMET’s common stock.

During 2003, 2002, and 2001, INTERMET declared dividends of approximately $4.1 million each year, ($0.04 per share per quarter). During 2003, 2002 and 2001, INTERMET paid dividends of approximately $4.1 million, $4.1 million, and $3.2 million, respectively. Under some of our loan agreements, we are subject to restrictions on the payment of dividends. As of December 31, 2003, approximately $5.0 million, per fiscal year, of our retained earnings is available for the payment of dividends under those agreements. For further discussion of debt, see Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 8 to the Consolidated Financial Statements, Debt.

INTERMET did not sell unregistered securities within the past three years.

Item 6. Selected Financial Data

12

13

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections of this report, including “Item 1. Business”, “Item 6. Selected Financial Data”, and “Item 8. Financial Statements and Supplementary Data”. The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be materially affected by the uncertainties and risk factors described throughout this report.

Results of Operations

2003 Compared to 2002

For the year ended December 31, 2003, we had sales from continuing operations of $731.2 million compared to sales of $755.7 million in 2002, a decrease of $24.5 million, or 3.2%. Sales for the Ferrous Metals segment were $493.4 million in 2003 compared with $484.1 million in 2002, an increase of $9.3 million, or 1.9%. European sales during 2003 were $116.4 million, an increase of $28.4 million or 32.3% as compared to $88.0 million in 2002. European sales are included in our Ferrous Metals segment. The overall increase in the Ferrous Metals segment sales was mainly attributable to the consolidation of the financial results of our Porto Foundry beginning in July 2003 and favorable foreign currency exchange on European sales. Our Porto Foundry had sales of $14.6 million during the period from July 1, 2003 to December 31, 2003. These sales increases in the Ferrous Metals segment were partly offset by lower volumes resulting from a decrease in vehicle production in North America and Europe by 3.1% and 0.8%, respectively. The favorable effect of changes in exchange rates on 2003 European sales was $18.9 million, or 19.4%, when compared with European sales using exchange rates for 2002. Sales in the Light Metals segment were $237.8 million in 2003 compared with $271.6 million in 2002, a decrease of $33.8 million, or 12.4%. The decrease is due to lower production volumes on the vehicle programs that we supply.

Our gross profit for 2003 of $63.8 million was 8.7% of sales compared with gross profit for 2002 of $72.5 million representing 9.6% of sales. The decrease in gross profit margin was because of lower sales volume, increased pricing pressure from our customers, increased cost of raw materials, especially scrap steel, inefficiencies associated with product launches, and start-up expenses associated with cost savings programs and new technology implementation.

Selling, general and administrative expenses increased by $6.6 million from $32.8 million in 2002 to $39.4 million in 2003, and increased as a percent of sales from 4.3% in 2002 to 5.4% in 2003. The increase was attributable to the consolidation of our Porto Foundry’s operating results beginning in July 2003, customer support costs, and the start up of the new European Engineering Center. A goodwill impairment charge of $51.1 million was recorded in 2003. This impairment charge was determined during our annual impairment testing, which indicated that the carrying value of the Light Metals reporting unit was in excess of its fair value. Additional restructuring and impairment charges of $10.0 million were recorded in 2003, including an $8.5 million charge for the announced closure of our Havana Foundry, and $1.5 million in write-downs of other long-lived assets.

Net interest expense for the years ended December 31, 2003 and 2002 was $29.9 million and $28.3 million, respectively. The increase was the result of higher interest rates on our senior notes, along with the consolidation of our Porto Foundry beginning in July 2003.

Net other income of $2.0 million for 2003 was mainly comprised of a $1.5 million gain on disposal of fixed assets.

The effective income tax expense rate for 2003 was 28.7%, primarily due to the recording of a valuation reserve against our domestic net deferred tax assets on continuing operations of $23.9 million and the fact that there was no tax benefit on the non-deductible goodwill impairment charge of $39.3 million. For information concerning the provision for income taxes, as well as information regarding differences between effective tax rates and statutory rates, see Note 13, Income Taxes, to our Consolidated Financial Statements.

Loss from continuing operations for 2003 was $82.3 million compared to income from continuing operations of $10.5 million in 2002. The decrease in income from continuing operations was mainly because of the pre-tax goodwill impairment charge of $51.1 million, the pre-tax restructuring and impairment charges of $10.0 million, and the recording of a valuation reserve against our domestic net deferred tax assets for continuing operations of $23.9 million. There was no tax benefit on the goodwill impairment charge or the restructuring and impairment charges. The deterioration in our profitability was also the result of lower sales volumes and selling prices, as well as higher raw material costs, particularly scrap steel. Foreign exchange rates had a $0.9 million favorable impact on our 2003 after-tax operating results when compared with exchange rates for 2002.

14

The net loss for 2003 was $98.9 million compared to a net income of $9.0 million in 2002. Diluted earnings per share decreased from diluted earnings per share of $0.35 in 2002 to diluted loss per share of $3.87 in 2003. The decrease was mainly because of the previously discussed factors, plus the after-tax loss from discontinued operations of $16.6 million.

2002 Compared to 2001

For the year ended December 31, 2002, we had sales from continuing operations of $755.7 million compared to sales of $782.9 million in 2001, a decrease of $27.2 million, or 3.5%. Sales for the Ferrous Metals segment were $484.1 million in 2002 compared with $482.1 million in 2001, an increase of $2.0 million, or 0.4%. European sales during 2002 were $88.0 million, a decrease of $2.0 million or 2.2% as compared to $90.0 million in 2001. European sales are included in our Ferrous Metals segment. The overall increase in Ferrous Metals segment sales was mainly attributable to the launch of new products and favorable foreign currency exchange on European sales, partly offset by a weaker European automotive market. The favorable effect of changes in exchange rates on 2002 European sales was $4.0 million, or 4.8%, when compared with European sales using exchange rates for 2001. Sales in the Light Metals segment were $271.6 million in 2002 compared with $300.7 million in 2001, a decrease of $29.1 million, or 9.7%. The decrease was more than accounted for by the closure of our Alexander City plant in late 2001. Excluding 2001 sales of $39.1 million from this closed plant, 2002 sales increased by $10.0 million over 2001, reflecting the favorable impact of our introduction of new products and technology in 2002, such as PCPC™.

Our gross profit for 2002 of $72.5 million was 9.6% of sales compared with gross profit for 2001 of $62.5 million representing 8.0% of sales. Our efforts in cost reduction were the principal factor in our higher gross profit for 2002 over 2001.

Selling, general and administrative expenses increased by $4.4 million from $28.4 million in 2001 to $32.8 million in 2002, and increased slightly as a percent of sales from 3.6% in 2001 to 4.3% in 2002. The increase was attributable to higher spending in the development and launch of our new technologies, along with a charge for an adverse arbitration award in a dispute with a consulting company over fees, costs for outside legal expenses, and profit-sharing accruals. Restructuring and impairment charges of $13.5 million were recorded in 2001. The charges included an $11.7 million asset impairment charge and $1.2 million in shutdown costs for the closure of the Alexander City plant, as well as $0.6 million in shutdown costs for the closure of our Reynosa, Mexico, machining operation. We adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002, thereby eliminating the impact of goodwill amortization on 2002 results of operations. Pretax goodwill amortization was $6.3 million in 2001 ($5.3 million after tax).

Net interest expense for the years ended December 31, 2002 and 2001 was $28.3 million and $29.8 million, respectively. The decrease was the result of lower debt levels in 2002, partially offset by higher interest rates on our senior notes issued in 2002 and the write-off of capitalized debt issuance cost of $0.9 million due to extinguishment of a term loan.

Net other income of $3.4 million for 2001 was mainly comprised of a $3.2 million gain from the replacement of property, plant and equipment covered by insurance settlements.

The effective income tax expense rate for 2002 was 23.0%, largely attributable to the use of foreign tax credits and state tax incentives. For information concerning the provision for income taxes, as well as information regarding differences between effective tax rates and statutory rates, see Note 13, Income Taxes, to our Consolidated Financial Statements.

Income from continuing operations for 2002 was $10.5 million compared to loss from continuing operations of $7.0 million in 2001. The increase in income from continuing operations was mainly because of improved profitability resulting from our cost reduction initiatives. The improvement was also because of the elimination of goodwill amortization due to the adoption on January 1, 2002, of SFAS No. 142. Goodwill amortization after tax in 2001 was $5.3 million. In addition, there was an after-tax impairment and shutdown charge of $8.4 million in 2001 related to the closure of our Alexander City plant. Foreign exchange rates had a negligible impact on our 2002 earnings when compared with exchange rates for 2001.

Net income for 2002 was $9.0 million compared to a net loss of $8.7 million in 2001. Diluted earnings per share increased from diluted loss per share of $0.34 in 2001 to diluted earnings per share of $0.35 in 2002. The improvement in our profitability reflected higher plant efficiencies resulting from our efforts to reduce cost. The improvement was also because of the elimination of after-tax goodwill amortization of $5.3 million, and an after-tax impairment and shutdown charge of $8.4 million in 2001 for the Alexander City plant closure.

15

Goodwill Impairment

On January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, under which goodwill is reviewed for impairment annually, or more frequently if certain events or changes in circumstances indicate that the carrying value may not be recoverable. In the second quarter of 2002, with the assistance of an independent valuation firm, we performed our initial impairment test on our goodwill as of January 1, 2002. In addition, we performed our annual impairment test of goodwill as of November 30, 2002. Both tests indicated that goodwill was not impaired as of those dates.

In December 2003, with the assistance of an independent valuation firm, we performed our annual impairment test of goodwill as of November 30, 2003. Under the first step of the annual impairment test, the fair values of our Ferrous Metals reporting unit and Light Metals reporting unit were determined based on a combination of an income method, which estimates the fair value based on the future discounted cash flows, and a market method, which estimates the fair values based on comparable market prices. Under the income method, we assumed a cash flow period of 10 years, a discount rate of 11.5%, a compound annual growth rate of 4.5% and 7.7% for the Ferrous Metals reporting unit and Light Metals reporting unit, respectively, for the ten-year period, and a terminal growth rate of 1.0%. Due to the erosion of the profitability of the Light Metals reporting unit, and the revision of our forecast as a result of changing market conditions, our estimated discounted cash flows from the Light Metals reporting unit decreased significantly as compared to our impairment tests performed in 2002. Based on the first step analysis, we determined that the carrying amount of the Light Metals reporting unit was in excess of its fair value as of November 30, 2003. Accordingly, we were required to perform the second step analysis on the Light Metals reporting unit to determine the amount of the impairment. The second step analysis indicated that the pre-tax goodwill impairment charge was $51.1 million, which was reported as “Goodwill Impairment Charge” in the accompanying statements of operations for 2003.

Plant Closure and Disposition

Havana Foundry Closure

In December 2003, we decided to permanently close our ductile iron foundry in Havana, Illinois, in order to improve our capacity utilization. The Havana Foundry manufactures ductile-iron components for the automotive industry, and has approximately 33 salaried and 141 hourly employees. We anticipate that the final plant closure will occur, and substantially all the salaried and hourly employees will be terminated, by June 30, 2004. The facility is included in the Ferrous Metals segment in Note 14, Reporting for Business Segments, to our Consolidated Financial Statements. The Havana Foundry had revenues of $25.7 million, $27.3 million and $31.4 million, and net losses of $5.0 million, $2.2 million and $8.6 million for the years ended December 31, 2003, 2002, and 2001, respectively.

Because of our decision to close the Havana Foundry, we recorded an $8.5 million pre-tax charge during the fourth quarter of 2003. This charge is included in “Restructuring and impairment charges” in the accompanying statements of operations. The amount 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. The accruals for the employee severance and benefit costs are included in “Accrued payroll and benefits” in the accompanying balance sheet in 2003. We expect to incur approximately $2 million for additional employee severance and related benefit costs, environmental remediation costs, and costs of testing required in order to transfer the manufacturing processes of Havana Foundry to other INTERMET’s facilities when the Havana Foundry is finally closed.

Sale of Frisby P.M.C., Incorporated Assets

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 by July 31, 2008. This disposition is consistent with our strategy to divest non-strategic assets. This transaction resulted in an after-tax loss of $0.1 million. Frisby operated a machining plant that manufactures precision-machined components, primarily for the automotive, truck and power tool markets. Frisby was a non-core operation, and is included in our Corporate and Other segment in Note 14, Reporting for Business Segments, to our Consolidated Financial Statements. Frisby had revenues of $8.0 million for the period from January 1, 2003 to July 24, 2003. For the years ended December 31, 2002 and 2001, Frisby had revenues of $13.6 million and $16.1 million, respectively. The after-tax loss on sale and results of operations for Frisby for all periods presented have been reported as “Loss from discontinued operations, net of tax” in the accompanying statements of operations.

16

Radford Foundry Closure

In May 2003, we decided to permanently close our shell-molding plant in Radford, Virginia 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 manufactured gray-iron and ductile-iron components for the automotive industry, and had approximately 41 salaried and 333 hourly employees. The facility is included in the Ferrous Metals segment in Note 14, Reporting for Business Segments, to our Consolidated Financial Statements. The Radford Foundry had revenues of $34.8 million, $45.6 million and $44.1 million for the years ended December 31, 2003, 2002 and 2001, respectively.

As a result of the decision to close the Radford Foundry, we recorded $11.6 million in pre-tax charges during the second quarter of 2003. The charges 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 an additional $0.1 million for employee severance costs. The accruals for the charges are included in “Other accrued liabilities” and “Other noncurrent liabilities” in the accompanying balance sheet in 2003. 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. The Radford Foundry was closed, and all the hourly employees and substantially all the salaried employees were terminated by December 2003. We expect to incur approximately $0.4 million for environmental remediation at the Radford Foundry in the future, which is in addition to the estimated $2.5 million environmental remediation costs that are discussed in Note 11, Commitments and Contingencies, to our Consolidated Financial Statements. The after-tax results of operations of the Radford Foundry for all periods presented have been reported as “Loss from discontinued operations, net of tax” in the accompanying statements of operations.

Alexander City Plant Closure

In December 2001, we permanently closed our aluminum plant in Alexander City, Alabama. The Alexander City Plant is included in the Light Metals segment in Note 14, Reporting for Business Segments, to our Consolidated Financial Statements. The Alexander City Plant had revenues of $39.1 million and net losses of $9.8 million for the year ended December 31, 2001. The net loss of $9.8 million for 2001 includes after-tax charges for asset impairment and shutdown costs of $8.4 million.

The decision to close this plant was the principal reason we recorded $12.9 million in pre-tax charges in the fourth quarter of 2001. These charges are included in “Restructuring and impairment charges” in the accompanying statements of operations. The amount included a write-down of $9.8 million to reduce the capital assets and inventories to their fair values, an intangible asset write-down of $1.9 million, $0.7 million for site environmental remediation and disposal costs, $0.4 million of provisions for severance (for 18 salaried employees) and employee pay-related costs, and $0.1 million for legal costs. During 2002, we paid all of the $0.4 million of severance that was accrued at December 31, 2001.

Reynosa Plant Closure

In the second quarter of 2001, we announced the shutdown of our Reynosa, Mexico machining operation. The Reynosa Plant is included in the Light Metals segment in Note 14, Reporting for Business Segments, to our Consolidated Financial Statements. We recorded a $0.6 million pre-tax shutdown charge, which was included in “Restructuring and impairment charges” in the accompanying statements of operations.

Deferred Tax Charges

In the fourth quarter of 2003, we recorded a valuation reserve against our domestic net deferred tax assets of $23.9 million and $5.8 million for our continuing operations and discontinued operations, respectively. This is due to the accumulation of losses experienced at our domestic operations in the immediate past three years (2001 to 2003). See Note 13, Income Taxes, to our Consolidated Financial Statements for further details.

17

Other Long-Lived Assets Impairment

On January 1, 2002, we adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” under which long-lived assets other than goodwill are tested for recoverability if certain events or changes in circumstances indicate that the carrying value may not be recoverable. During our impairment review in the fourth quarter of 2003, we identified certain tangible fixed assets with carrying values not recoverable and exceeding their fair values. The carrying values of long-lived assets are considered to be not recoverable if they exceed our estimates of their undiscounted future cash flows, which are affected by our operations forecasts and strategic planning. As a result, in addition to the impairment charge for Havana as discussed above, we recorded a pre-tax impairment charge of $1.5 million in the fourth quarter of 2003, which was reported as “Restructuring and Impairment Charges” in the accompanying statements of operations in 2003.

Impact of Insurance Proceeds

In the first half of 2000, we suffered two extensive losses: an explosion at our New River Foundry in March 2000 that caused the shutdown of operations until November of 2000, and a fire at our Neunkirchen Foundry in May 2000 that caused extensive damage and the shutdown of the foundry for two weeks.

The resulting business interruption and loss of fixed assets was covered under our insurance policies. We received final settlements for the above two claims totaling $133.8 million from our insurance carriers, $30.6 million in 2001 and $103.2 million in 2000. In 2001, we recorded accident-related expenses of $7.8 million as Cost of Sales, and insurance recovery related to business interruption of $13.4 million as an offset to Cost of Sales. We also recorded $3.2 million for the replacement of property, plant and equipment as gains in “Other income, net” in the accompanying statements of operations in 2001.

18

Liquidity and Capital Resources

One of the sources of our liquidity is from the cash provided by operating activities. During 2003, cash provided by operating activities was $33.1 million, compared to $89.4 million in 2002. Although we were able to maintain positive operating cash flow in 2003, a number of risk factors, particularly the high cost of scrap steel, one of our primary raw materials, could affect our ability to generate cash in the future. See Item 7A, Quantitative and Qualitative Disclosures about Market Risks.

We participate in accelerated payment programs that are made available by a number of our major customers. These programs allow us to accelerate collection of our receivables with respect to these customers. If any of these accelerated payment programs are cancelled, and we would be unable to replace such programs, our accounts receivable would increase, which would have a negative effect on our liquidity.

Another source of our liquidity is from our borrowings. The following is a description of our borrowings during 2003, a description of subsequent refinancing activities, and description of the financial covenants that limit our ability to borrow and, consequently, our liquidity.

As of December 31, 2003, our long term debt consisted principally of $175 million in senior notes, and $60 million under our then-existing Five-Year Credit Agreement (the “Old Credit Agreement”). On January 8, 2004, we refinanced our Old Credit Agreement by entering into a new First Amended and Restated Credit Agreement (the “New Credit Agreement”), which provides for a $90 million revolving credit line and a $120 million term loan. See Note 8, Debt, and Note 21, Subsequent Event, to our Consolidated Financial Statements for further details.

Our liquidity during 2003 was affected by our ability to borrow under our Old Credit Agreement, and continues to be affected by limits on our ability to borrow under our New Credit Agreement, both of which contain covenants that require us to maintain certain financial ratios. On December 19, 2003, we entered into an amendment of our Old Credit Agreement (the “Eighth Amendment”), which amended certain of these covenants at December 31, 2003 and enabled us to be in compliance with the covenants as of that date. The required financial covenant ratios in effect as of December 31, 2003, as set forth in the Eighth Amendment, together with our actual covenants ratios at December 31, 2003, are provided below.

EBITDA is not a financial measure prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), but is used in both our Old Credit Agreement and New Credit Agreement for our lenders to evaluate our liquidity and operating performance in relation to our 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 December 31, 2003, under our Old Credit Agreement, see the Fourth Amendment to $300 million Five-Year Credit Agreement dated July 17, 2001, as amended through the Eighth Amendment dated December 19, 2003, included as Exhibits 10.12 through 10.17 to this report. EBITDA should not be considered a substitute for income from operations, net income, cash flows or other measure 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 December 31, 2003, and applying the covenants in effect on that date under the Eighth Amendment, we would have had the ability to borrow an additional $51.3 million under our Old Credit Agreement.

As stated above, we entered into our New Credit Agreement on January 8, 2004. Our New Credit Agreement is similar to our Old Credit Agreement in that it also includes covenants that measure EBITDA to evaluate our liquidity and operating performance on a quarterly basis. See our New Credit Agreement dated January 8, 2004, included as Exhibit 10.18 to this report. The following covenant ratios are now in effect under the New Credit Agreement. These covenants will become more restrictive over time, beginning the fourth quarter of 2004.

19

Beginning in 2003, we have been negatively affected by the increasing cost of scrap steel, which is the major raw material in our Ferrous Metals segment. This, combined with our operating performance, has had a negative effect on our net income, which also negatively affects our EBITDA. If scrap steel costs continue to escalate or remain at high levels, and we are unable to offset increases in our operations, our EBITDA will be negatively affected, potentially causing us to be unable to meet our financial covenants. See Item 7A, Quantitative and Qualitative Disclosures about Market Risks for further discussion of raw materials costs. If we were to fail to meet one or more of our covenants, we could be in default of our New Credit Agreement, unless we were able to renegotiate our covenants or restructure our debt. In the event of a default under our New Credit Agreement, lenders representing more than 50% of our outstanding debt under the New Credit Agreement could accelerate our loans.

We use the cash generated from our operations and from borrowings in part to invest in our business by acquiring new property, plant and equipment. Our cash outflow for investing activities for 2003 totaled $19.6 million, compared to $9.4 million in 2002.

Our cash outflow for financing activities for 2003 totaled $13.6 million, compared to $93.1 million in 2002. The significant cash outflow in 2002 was due to the net repayment of $85.0 million on a prior credit facility. Bank and other borrowings decreased $7.4 million, in the aggregate, during 2003. As a result of the various amendments to our $300 million bank revolving credit agreement and the processing of the new credit agreement in 2003, we incurred $2.1 million of debt issuance costs in 2003. In addition, we paid $4.1 million in dividends during 2003.

Cash and cash equivalents decreased to $1.0 million at December 31, 2003, from $3.3 million at December 31, 2002, due in part to the timing of payments from significant customers and applying these funds to reduce debt.

Outstanding debt increased from $280.1 million at December 31, 2002, to $293.5 million at December 31, 2003. The increase in debt is due to the consolidation of financial results of our Porto Foundry beginning in July 2003.

Shareholders’ equity decreased $95.5 million from $257.6 million at December 31, 2002, to $162.1 million at December 31, 2003. This decrease was due to the net loss of $98.9 million, dividends of $4.1 million, and an increase in our after-tax minimum pension liability of $4.3 million for 2003. The decrease was partly offset by a favorable currency translation adjustment of $10.5 million related to our foreign operations, and after-tax financial derivative adjustments of $1.3 million. Our debt-to-capital ratio increased from 52.1% at December 31, 2002, to 64.4% at December 31, 2003, primarily due to the decrease in the shareholders’ equity.

No interest expense was capitalized in 2003 or 2002.

20

Off Balance Sheet Arrangements

Our off balance sheet arrangements consist of operating leases for machinery and equipment, and real estate facility leases under which we occupy our executive offices, Technical Center and management information systems facilities. Our commitments under these arrangements are set forth under “Operating Lease Obligations” in the Tabular Disclosure of Contractual Obligations set forth below.

Tabular Disclosure of Contractual Obligations

As of December 31, 2003, our contractual obligations and commercial commitments are summarized as follows (in thousands of dollars):

21

22

Contingent Liabilities

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.

We have recurring costs related to environmental clean-up, pollution prevention measures and disposal of waste (mostly non-hazardous waste) generated as part of ongoing operations. These environmental expenses totaled $13.9 million in 2003 and $12.9 million in 2002. A portion of our capital expenditures is regularly incurred to prevent or monitor pollution, principally for ventilation and dust control equipment.

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 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 $6.9 million as of December 31, 2003 to cover estimated future environmental expenditures. This amount includes a $3.1 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, and we expect that the cleanup will occur and the account will be settled in 2004. This amount also includes $2.5 million in environmental reserves for our closed Radford facility, 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 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, Virginia, facilities. We have 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 $2.5 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 we have accrued.

We are also 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 in our results of operation. We self-insure a significant portion of our health care and property and casualty insurance risks. However, we purchase additional insurance for catastrophic losses. The events of September 11, 2001, caused extreme turmoil in the property and casualty insurance market. This, coupled with property losses at our New River and Neunkirchen plants that were incurred in the first half of 2000, resulted in increases in our property insurance deductible. We now carry a $2.5 million property deductible per occurrence.

While the contingencies mentioned above are estimates of our future obligations and their ultimate impact on us is unknown, we do not believe that these contingencies will have a material adverse effect on our consolidated financial position, results of operations or cash flows, taken as a whole. However, we cannot be assured that our activities will not give rise to actions by private parties or governmental agencies that could cause us to incur liability for damages, fines, penalties, operational shutdowns, cleanup costs or other similar expenses, any of which could be material.

23

Item 7A. 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 which, based on current pricing trends, has been immaterial to us with the exception of energy costs, and costs of aluminum, magnesium, zinc and scrap steel. The cost of scrap steel has increased steadily since early 2002 and represents a risk to our operating results. Lastly, we have consumer risk. We operate principally in the cyclical automotive industry. A weakening of the economy represents a risk to our operating results.

Interest rate risk

We periodically use derivative instruments such as interest rate swap agreements to manage our interest rate risk. In October 2000 we entered into an interest rate swap on $50 million of bank debt to insulate against the risk of rising interest rates on a portion of our debt that has a variable interest rate. This swap agreement expired in October 2003. A 1% increase in interest rates on the debt not covered by swap agreements would have increased interest expense by approximately $1.2 million, $2.3 million, and $4.0 million for 2003, 2002, and 2001, respectively. This interest rate sensitivity analysis does not consider the effects of the reduced or increased level of overall economic activity that could result from a change in interest rates. At December 31, 2003, approximately 37% of our debt was at variable interest rates.

Foreign currency risk

We periodically use derivative instruments such as foreign exchange contracts to manage our foreign currency exchange rate risk.

Due to the size of our European operations, our earnings may also be affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominately the Euro. A 5% appreciation or depreciation in the value of the U.S. dollar relative to the currencies in which our sales are denominated (the Euro starting in 2001) would have no material impact on our net income for the years ended December 31, 2003, 2002 and 2001. This sensitivity analysis of the effects of the changes in foreign currency exchange rates does not factor in a potential change in the sales levels or local currency sales prices.

Commodity price risk

Scrap steel and aluminum ingot, along with energy, are our primary raw materials. Fluctuations in the costs of these raw materials has a direct effect on our profitability and our cash flow. During 2003, we experienced significant increases in the cost of scrap steel in the Unites States and Europe. Scrap steel is the primary raw material in our Ferrous Metals segment. Our cost of scrap steel has increased from an average of approximately $160 per net ton at the beginning of 2003 to an average of approximately $210 per net ton at the end of 2003. Our cost of scrap steel continues to escalate in 2004. Our average cost as of the end of February, 2004 increased to approximately $280 per net ton. During 2003, we used approximately 30,000 net tons of scrap steel per month in our Ferrous Metals segment. For each $10 increase in our scrap steel unit cost, over a one-year period, we would ultimately experience increased cost of materials of approximately $3.6 million if we are unable to recover any cost increases from our customers.

We have contractual arrangements with many of our customers to pass through 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 100% of cost increases in all cases. Therefore, 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, as well as the amount of scrap steel we use on each particular customer program. Notwithstanding our ability to pass through a portion of our scrap steel cost increases, continued high costs of scrap steel, or further escalation, could have a significant and material negative effect on our profitability and cash flows.

We monitor our procurement activities to address the price risk associated with the purchase of commodities generally. In addition, we purchase raw materials from diversified supplier sources and may utilize stockpiles to minimize our risk exposure to the extent possible. We may also use derivative instruments to manage our exposure for the commitments relating to raw materials used in our production processes and related energy costs. Specifically, we review our operation and liability structure on a recurring basis and make the determination as to whether our risk exposure should be adjusted using derivative instruments. We are unable to use derivatives to manage our exposure to the cost fluctuations in scrap steel.

24

Consumer risk

We operate in a cyclical business. Our sales relate directly to the production volumes of cars and light trucks, which are affected by general economic conditions. In addition, our sales are primarily to U.S. based manufacturers, which in recent years have generally had declining market shares.

Critical Accounting Policies and Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There were no material changes in the methods or policies used to establish estimates and assumptions. Generally, matters subject to estimation and judgment include accounts receivable realization, inventory obsolescence, long-lived asset impairment, pension and other postretirement benefit obligations, accruals related to litigation and environmental costs, and valuation reserves for deferred tax assets. Actual results may differ from the estimates provided.

The critical accounting policies and estimates are included below.

Revenue Recognition

We recognize revenue when persuasive evidence of a final agreement exists, delivery has occurred, title has transferred, the selling price is fixed or determinable, and collectibility is reasonably assured. We record provisions against our gross revenue for estimated product returns and allowances in the period when the related revenue is recorded. These estimates are primarily based on factors such as historical sales returns, credit memo activities, and changes in our customers’ demand. Should our actual product returns and allowances exceed our estimates, additional provisions against our revenue would result.

Accounts Receivable — Significant Customers

We generated approximately 32 % and 41% of our sales from three customers in the automotive manufacturing industry in 2003 and 2002, respectively. Trade accounts receivable attributable to these three customers were $22.1 million and $26.6 million as of December 31, 2003 and 2002, respectively. If our primary customers experience significant adverse conditions in their industry or operations, they may not be able to meet their ongoing financial obligations to us for prior sales or complete the purchase of additional products from us.

Allowance for Doubtful Accounts

We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of customer charge-backs or a specific customer’s inability to meet its financial obligations to us, we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. Unless active discussions with the specific customer are occurring, we record bad debt charges based on our past loss history and the length of time the receivables are past due. In those situations with active discussions, the amount of bad debt recognized is based on the status of the discussions. If circumstances change, our estimates of the recoverability of amounts due to us could be reduced by a material amount.

Inventory Valuation

We regularly assess the valuation of our inventories and write down those inventories which are obsolete to their estimated realizable value. Our estimates of realizable value are based on our analyses and assumptions including, but not limited to, expected inventory useful lives, our production plans, and future demand requirements. If actual demand from our customers is lower than our estimates, we may be required to record additional inventory write-downs. If demand is higher than expected, we may sell our inventories that had previously been written down.

Valuation of Financial Instruments

Cash and cash equivalents have a readily identified market value. For debt, we evaluate the year-end market rates for similar debt instruments to assess fair value. These values represent the estimated amount we would receive or pay to terminate agreements taking into consideration current interest rates and the terms of the agreements.

25

Income Taxes and Deferred Tax Assets and Liabilities

We account for taxes on income using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using statutory tax rates.

We regularly assess the likelihood that the deferred tax assets, including net operating loss carryforwards, are recoverable. This process requires substantial management judgment. To the extent that we believe the recoverability is less than likely, we will establish a valuation reserve against the deferred tax assets. Actual results could differ from our estimates and such differences could be material to the financial statements. For the year ended December 31, 2003, we recorded a valuation reserve of $23.9 million and $5.8 million against our domestic net deferred tax assets for continuing operations and discontinued operations, respectively, due to the accumulation of losses experienced at our domestic operations in the immediate past three years (2001 to 2003).

There are limitations on the use of foreign tax credits and operating loss carryforwards included in the deferred tax assets. Accumulated foreign tax credits of $179,000, $3,773,000 and $7,190,000 will expire in 2008, 2007 and 2006, respectively. Domestic operating loss carryforwards have a life of 15 to 20 years, and begin to expire in 2005.

Derivatives

We do not hold or issue derivative instruments for trading purposes. Hedge accounting is applied when we designate and document the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if a hedge did not qualify as highly effective, the ineffective portion of the derivative would be reflected in earnings.

We may hold derivative financial instruments to hedge a variety of risk exposures including interest rate risks associated with our long-term debt, foreign currency fluctuations for transactions with our overseas subsidiaries and customers, and purchase commitments for certain raw materials used in our production processes.

At December 31, 2002, we held an interest rate swap agreement, with a notional amount of $50 million, to hedge interest rate risk. This derivative qualified for hedge accounting. Under the terms of the interest rate swap agreement, we paid a fixed rate and received a variable rate. This instrument was valued using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments were based on an expectation of future interest rates derived from observed market interest rate curves. We did not change our methods of calculating these fair values or developing the underlying assumptions. The value of this derivative changed over time as cash receipts and payments are made and as market conditions change. The interest rate swap agreement expired in October 2003.

To hedge foreign currency risks, we periodically use over-the-counter forward contracts. To hedge our European operations, we had outstanding foreign exchange contracts with a notional amount of Euros 15.5 million (approximately $19.1 million) and Euros 15.9 million (approximately $16.7 million) at December 31, 2003 and 2002, respectively. The market value of such foreign exchange contracts was minimal at December 31, 2003 and 2002.

We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate and/or foreign currency hedges, as the counter parties are established, well capitalized financial institutions. Information about the fair values, notional amounts, and contractual terms of these instruments can be found in Note 18, Derivative Financial Instruments, to our Consolidated Financial Statements.

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 used to cover our raw materials and energy purchases.

26

Goodwill

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we review our goodwill for impairment annually, or more frequently if certain events or changes in circumstances indicate that the carrying value may not be recoverable. Annual testing is performed on goodwill as of November 30 every year. The carrying values of assets, including goodwill, and liabilities are assigned to each reporting unit. Then we determine the fair value of each of our two reporting units, Ferrous Metals and Light Metals, based on a combination of an income method, which estimates the fair value of our reporting units based on the future discounted cash flows, and a market method, which estimates the fair values based on comparable market prices. If the carrying value exceeds fair value, then a possible impairment of goodwill exists and requires further evaluation.

Assumptions including, but not limited to, future growth rates and discount rates are used in our goodwill testing. These assumptions may be affected by factors such as market conditions which are beyond our control.

Long-Lived Assets Other Than Goodwill

We evaluate our property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. The carrying amount of a long-lived asset is considered to be not recoverable if it exceeds our estimates of its undiscounted future cash flows based on our operation forecasts. Impairment charge will be measured and recorded as the amount by which the carrying values of the long-lived assets exceed their fair values.

Litigation and Contingencies

We are a defendant in a number of claims, legal proceedings, and other contingencies associated with environmental, employment, commercial, product liability and other matters in the ordinary course of our business. We accrue our best estimate of the cost for the resolution of these claims where we are able to estimate the cost and where we have determined that it is probable that we will incur them in accordance with SFAS No. 5, “Accounting for Contingencies”. Our estimates have been developed in consultation with counsel that is handling our defense in these matters. At present, we do not believe that any of such legal proceedings will have a material adverse effect on our results of operations. To the extent additional information arises, it is possible that our best estimate of our probable liability in these matters could change. We recognize the costs of defense in the periods incurred. Accordingly, the future costs of defending claims are not included in our estimated liability.

Occasionally we are subject to examination from domestic and foreign tax authorities regarding the amount of taxes due. These examinations include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with our various tax filing positions, we record reserves for potential exposures. To the extent we were to prevail in matters for which accruals have been established or be required to pay amounts in excess of our reserves, our effective tax rate in a given financial statement period may be materially impacted. However, based on our evaluation of tax positions, we believe we have appropriately accrued for probable exposures. The United States Internal Revenue Service had completed their examination of our tax years 2000 and 1999 during the fourth quarter of 2002, which concluded that no additional tax provision for those tax years is required.

Retirement Benefits

Assumptions used in determining projected benefit obligations and the fair values of plan assets for our benefit plans are evaluated periodically by the management with the assistance of independent actuaries. Critical assumptions such as the discount rate, expected long-term rate of return on plan assets, and health care cost trend rates are evaluated and updated at least annually. The discount rate used in determining the actuarial present value of the projected benefit obligations was 6.00% and 6.75% in 2003 and 2002, respectively. The expected long-term rate of return on plan assets used in calculating net pension expense is based on the historical and projected rates of return on the types of plan assets in which the plans have invested. The expected long-term rate of return was 8.50% and 8.75% in 2003 and 2002, respectively. We develop our estimate of health care cost trend rates through the review of our recent health care cost trend and discussions with our actuaries. As of December 31, 2003, we assumed that the health care cost trend rates will gradually decrease from 11.0% in 2003 to 5.0% in 2015. The assumed health care cost trend rate for 2004 is 10.5%. A one-percentage-point increase and decrease in the assumed health care cost trend rates would have increased and decreased postretirement benefit obligations by $2.3 million and $2.2 million, respectively.

27

Item 8. Financial Statements and Supplementary Data

INTERMET Corporation

Consolidated Statements of Operations

See accompanying notes.

28

INTERMET Corporation

Consolidated Statements of Comprehensive Income

See accompanying notes.

29

INTERMET Corporation

Consolidated Balance Sheets

See accompanying notes.

30

INTERMET Corporation
Consolidated Statements of Cash Flows

See accompanying notes.

31

INTERMET Corporation

Consolidated Statements of Shareholders’ Equity

See accompanying notes.

32

INTERMET Corporation

Notes to Consolidated Financial Statements

Years ended December 31, 2003, 2002 and 2001

1. Description of Business and Summary of Significant Accounting Policies

Business

INTERMET Corporation produces castings worldwide for light and heavy vehicles, including powertrain, chassis, brake, and body / interior components, as well as industrial products. In addition, we perform value-added services including advanced design and engineering, prototype casting, machining and sub-assembly, principally for our worldwide automotive customers

Our business segments include two groups: Ferrous Metals Group and Light Metals Group. Ferrous Metals consists of ductile iron casting and related manufacturing. Light Metals consists of aluminum, magnesium and zinc casting, along with associated value-added activities.

Basis of Presentation

The accompanying consolidated financial statements, presented in conformity with accounting principles generally accepted in the United States (“GAAP”), include the accounts of INTERMET and its domestic and foreign subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. All subsidiaries have a fiscal year ending December 31. Investments in 20% to 50% owned companies are accounted for under the equity method.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There were no material changes in the methods or policies used to establish estimates and assumptions. Generally, matters subject to estimation and judgment include accounts receivable realization, inventory obsolescence, long-lived asset impairment, pension and other postretirement benefit obligations, accruals related to litigation and environmental costs, and valuation reserves for deferred tax assets. Actual results may differ from the estimates provided.

Reclassifications

On January 1, 2003, we adopted Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. This Statement requires certain gains and losses associated with the extinguishment of debt previously treated as extraordinary items to be classified as income or loss from continuing operations. As required under SFAS No. 145, we reclassified pretax losses of $927,000 related to the extinguishment of bank term loan in the 2002 Statement of Operations from “Extraordinary Item” to “Interest Expense, Net.”

Certain other amounts previously reported in the 2002 and 2001 financial statements and notes thereto have been reclassified to conform to the 2003 presentation.

Revenue Recognition

We recognize revenue upon shipment of products and transfer of title.

Shipping and Handling Costs

We record shipping and handling costs as components of “Cost of Sales” within our statements of operations.

33

INTERMET Corporation

Notes to Consolidated Financial Statements

Years ended December 31, 2003, 2002 and 2001

1. Description of Business and Summary of Significant Accounting Policies (continued)

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 value 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) income, basic (loss) earnings per share and diluted (loss) earnings per share would be the following:.

We use the Black-Scholes option pricing model to estimate the fair value of our stock options as described in Note 10, Stock Compensation, to our Consolidated Financial Statements.

Cash and Cash Equivalents

All short-term investments with original maturities of less than 90 days are deemed to be cash equivalents for purposes of the statements of cash flows.

Allowance for Doubtful Accounts

Allowance for doubtful accounts reduces trade accounts receivable to its net recognizable amount. It is determined by a combination of factors, such as customer charge-backs, a customer’s inability to meet its financial obligations to us, our past loss history, and the length of time the trade account receivables are past due. If circumstances change, our estimates of the recoverability of trade accounts receivable could be reduced by a material amount. We typically do not require collateral.

34

INTERMET Corporation

Notes to Consolidated Financial Statements (continued)

1. Description of Business and Summary of Significant Accounting Policies (continued)

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (“LIFO”) method for 3% and 5% of inventories as of December 31, 2003 and 2002, respectively. If LIFO inventories were valued using the same cost methods used for other inventories, their carrying values would have increased by $869,000 and $897,000 at December 31, 2003 and 2002, respectively. Certain raw materials and supplies inventories are valued on a weighted average cost basis. Average production cost is used for certain work in process. Finished goods inventories and other inventories are valued by the first-in, first-out (“FIFO”) method. The specific identification method is used for pattern inventories. Supplies inventories are evaluated for obsolescence based on length of time in the store-room and expected near-term use.

Prepaid Expenses

We recognize payments made in advance for future services as prepaid expenses and include them in “Other Current Assets” in the accompanying balance sheets.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. The provision for depreciation and amortization of property, plant and equipment is determined using the straight-line method on the basis of the following estimated useful lives: 2 to 40 years for buildings and improvements, and 2 to 21 years for machinery and equipment. The amortization of property, plant and equipment under capital leases is included in depreciation expense. Industrial development grants provided by the federal and state governments of Germany are included as reductions of property, plant and equipment and are being amortized over the estimated useful lives of the related assets.

We evaluate our property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. The carrying amount of a long-lived asset is considered to be not recoverable if it exceeds our estimates of its undiscounted future cash flows based on our operation forecasts. Impairment charge will be measured and recorded as the amount by which the carrying values of the long-lived assets exceed their fair values.

Goodwill

Goodwill represents the excess acquisition cost over the fair value of net assets acquired. On January 1, 2002, we adopted SFAS No. 142 “Goodwill and Other Intangible Assets”. Under this statement, goodwill is no longer amortized but is reviewed for impairment annually, or more frequently if certain events or changes in circumstances indicate that the carrying value may not be recoverable. We perform impairment tests of our goodwill as required. We evaluate our goodwill recoverability based on a combination of an income method, which estimates the fair value of our reporting units based on the future discounted cash flows, and a market method, which estimates the fair values based on comparable market prices.

Derivatives

SFAS No. 133 requires us to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

35

INTERMET Corporation

Notes to Consolidated Financial Statements (continued)

1. Description of Business and Summary of Significant Accounting Policies (continued)

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These accruals are adjusted periodically as assessment and remediation efforts progress or other information becomes available. Related insurance or other third-party recoveries for environmental liabilities are recorded as a reduction of environmental reserve when it is probable that a recovery will be realized.

Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and / or mitigate or prevent contamination from future operations. Costs related to environmental contamination treatment and cleanup are charged to expense.

Income Taxes

We account for taxes on income using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using statutory tax rates.

We regularly assess the likelihood that the deferred tax assets, including net operating loss carryforwards, are recoverable. This process requires substantial management judgment. To the extent that we believe the recoverability is less than likely, we will establish a valuation reserve against the deferred tax assets. Actual results could differ from our estimates and such differences could be material to the financial statements. For the year ended December 31, 2003, we recorded a valuation reserve of $23.9 million and $5.8 million against our domestic net deferred tax assets for continuing operations and discontinued operations, respectively, due to the accumulation of losses experienced at our domestic operations in the immediate past three years (2001 to 2003).

Foreign Currency Translation

All assets and liabilities of foreign subsidiaries for which the local currency is the functional currency are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the year. The resulting translation adjustments are recorded in Accumulated Other Comprehensive Income as a component of Shareholder’s Equity.

Recent Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board issued SFAS 132 Revised, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This Statement revises the required disclosures about pension plans and other postretirement benefit plans. We adopted this Statement on December 31, 2003.

36

INTERMET Corporation

Notes to Consolidated Financial Statements (continued)

2. Balance Sheet Details

Inventories:

The components of inventories are as follows (in thousands of dollars):

Property, Plant and Equipment, Net:

The components of property, plant and equipment are as follows (in thousands of dollars):

37

INTERMET Corporation

Notes to Consolidated Financial Statements (continued)

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. (“Porto Foundry”), which is located in Porto, Portugal. Previously we owned 50% interest in the Porto Foundry. The Porto Foundry is a caster of various ductile-iron automotive components. 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 have a call option to acquire, and Estudos, Servicos e Participacoes, S.A. has a put option to sell, the remaining 25% ownership for an additional cash investment of Euros 4.9 million (approximately $6.2 million at exchange rate on December 31, 2003) on July 1, 2004. Because of the put option, we recorded $6.0 million, the net present value of the $6.2 million future cash investment, as “Accounts Payable” in the accompanying balance sheet as of December 31, 2003, and we consolidate 100% of the financial results of the Porto Foundry beginning in July 2003.

We accounted for the acquisition of additional shares using the purchase accounting method. The purchase price has been allocated to the assets purchased and liabilities assumed based upon the estimated fair values at the date of acquisition. Fundicao Nodular, S.A. became a consolidated subsidiary 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 period before July 1, 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 by July 31, 2008. This disposition is consistent with our strategy to divest non-strategic assets. This transaction resulted in a pre-tax loss on sale of $1.2 million (after-tax loss $0.1 million). Frisby operated a machining plant that manufactures precision-machined components primarily for the automotive, truck and power tool markets. Frisby was a non-core operation, and is included in our Corporate and Other segment in Note 14, Reporting for Business Segments, to our Consolidated Financial Statements.

Major classes of assets and liabilities of Frisby are as follows (in thousands of dollars):

38

INTERMET Corporation

Notes to Consolidated Financial Statements (continued)

4. Discontinued Operations (continued)

The results of operations of Frisby are summarized as follows (in thousands of dollars):

Radford

In May 2003, we decided to permanently close our shell-molding plant in Radford, Virginia 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 manufactured gray-iron and ductile-iron components for the automotive industry, and had approximately 41 salaried and 333 hourly employees. The facility is included in the Ferrous Metals segment in Note 14, Reporting for Business Segments, to our Consolidated Financial Statements.

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 charges 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 “Other accrued liabilities” in the accompanying balance sheet in 2003.

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. The Radford Foundry was closed, and all the hourly employees and substantially all the salaried employees were terminated, by December 2003. We expect to incur approximately $0.4 million for environmental remediation at the Radford foundry in the future, which is in addition to the $2.5 million environmental remediation costs that are discussed in Note 11, Commitments and Contingencies, to our Consolidated Financial Statements. The after-tax results of operations of Radford for all periods presented have been reported as “Loss from discontinued operations, net of tax” in the accompanying statements of operations.

39

INTERMET Corporation

Notes to Consolidated Financial Statements (continued)

4. Discontinued Operations (continued)

Activities relating to the restructuring charges and liabilities related to the Radford Foundry closure are as follows (in thousands of dollars):