1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended . . . . . . . . . . ....................... December 31, 19992002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 001-12505
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1481870
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
800 Manor Park Drive, P.O. Box 28183, Columbus, Ohio 43228 - 0183
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 870-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(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 X No --- ---___
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. [ ]
AsIndicate by check mark whether the registrant is an accelerated filer
as defined in Rule 12b-2 of March 22, 2000, 9,778,680 sharesthe Securities Exchange Act of Core Materials Corporation
common stock were outstanding, and the1934. Yes ___ No X
The aggregate market value of the registrant's voting and non-voting
common equity held by non-affiliates was $15,279,188.$14,668,020 as of June 28, 2002. On
such date, the closing price of the registrant's Common Stock, as quoted on the
American Stock Exchange, was $1.50. The aggregate market value of the
registrant's voting and non-voting common equity held by non-affiliates was
$12,712,284 as of March 24, 2003. On such date, the closing price of the
registrant's Common Stock, as quoted on the American Stock Exchange, was $1.30.
The registrant had 9,778,680 shares of Common Stock outstanding as of March 24,
2003.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's 20002003 definitive Proxy Statement to be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
registrant's fiscal year are incorporated herein by reference in PART III of
this Form 10-K.
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PART I
ITEM 1. BUSINESS.
On October 8,DEVELOPMENT OF BUSINESS OF CORE MOLDING.
In 1996, RYMAC Mortgage Investment Corporation ("RYMAC") incorporated
Core Molding Technologies, Inc. ("Core Molding"), formerly known as Core
Materials Corporation before changing its name on August 28, 2002, for the
purpose of acquiring the Columbus Plastics unit of International Truck & Engine
Corporation ("International"). On December 31, 1996, RYMAC merged with Core
Materials" orMolding with the "Company")result being that Core Molding was the surviving entity.
Immediately after the merger, Core Molding acquired substantially all the assets
and liabilities of Columbus Plastics from International in return for a secured
note in an original principal amount of $25,504,000, subject to adjustment, and
4,264,000 shares of newly issued common stock of Core Molding.1 International
currently owns 43.6% of the outstanding stock of Core Molding.
In the first quarter of 1998, Core Molding opened a second compression
molding plant located in Gaffney, South Carolina as part of the Company's growth
strategy to expand its customer base. This facility provided the company with
additional capacity and a strategic geographic location to serve both current
and prospective customers.
In October 2001, Core Molding incorporated Core Composites Corporation
as a wholly-ownedwholly owned subsidiary under the laws of the State of Delaware. RYMAC
subsequently merged withThis
entity was established for the purpose of holding and intoestablishing operations
for Airshield Corporation's assets, which Core MaterialsMolding acquired on December 31, 1996. The
discussion in Part I, Item 1 of this Form 10-K provides an overviewOctober 16,
2001 as part of the historical businessCompany's diversified growth strategy. Airshield Corporation
was a privately held manufacturer and marketer of RYMAC, RYMAC's decision to incorporate Core Materials,
and the current business of Core Materials as the surviving corporation of the
merger with RYMAC.
HISTORICAL BUSINESS OF RYMAC AND INCORPORATION OF CORE MATERIALS
RYMAC was incorporated in the State of Maryland on July 1, 1988. From
1988 until 1994, RYMAC wasfiberglass reinforced plastic
parts primarily engaged in making investments in mortgage
derivative securities and, to a lesser extent, mortgage related investments, all
of which were secured by single-family residential mortgage loans. RYMAC also
generated revenues from other sources, such as interest earnings on certain
investments and sales of certain investments.
Earnings difficulties and an altered mortgage securities market that
emerged between 1992 and 1994 caused RYMAC's Board of Directors in mid-1994 to
determine that it would not pursue its historical line of business and would
investigate alternative opportunities to maximize stockholder value.(1) In this
regard, RYMAC's Board of Directors focused its efforts on finding and evaluating
acquisition candidates.
On September 12, 1996, RYMAC entered into an Asset Purchase Agreement
(the "Asset Purchase Agreement") with Navistar International Transportation
Corp. (now known as International Truck and Engine Corporation,
"International"), a manufacturer of school buses, medium and heavy-duty trucks
and mid-range diesel engines. The Asset Purchase Agreement provided for the acquisition of International's Columbus Plastics operating unit. Columbus
Plastics produced fiberglasstruck and plastic component parts for International's
medium and heavy-duty trucks, and for other third party customers, primarily
Yamaha Motor Manufacturing Corporation ("Yamaha").
The Asset Purchase Agreement conditioned International's obligation to
sell Columbus Plastics on the reincorporation of RYMAC in the State of Delaware.
In order to effect the reincorporation, RYMAC incorporatedautomotive aftermarket industries. Core
Materials as a
wholly-owned subsidiary, under the laws of the State of Delaware, on October 8,
1996. RYMAC subsequently merged with and into Core Materials on December 31,
1996. Core Materials was the surviving corporation in the merger with each
outstanding share of RYMAC common stock being converted into the right to
receive one share of Core Materials' common stock.
Immediately following the merger on December 31, 1996, Core Materials
acquiredMolding purchased substantially all of the assets of Airshield Corporation through
the United States Bankruptcy Court as Airshield Corporation had been operating
under Chapter 11 bankruptcy protection since March 2001.
In conjunction with establishment of operations for the assets acquired
from Airshield Corporation, Core Molding also incorporated two corporations in
Mexico. In October 2001, Core Molding (5% owner) and liabilities of Columbus Plastics,
pursuant to the terms of the Asset Purchase Agreement. As consideration,
International received a secured note (the "Secured Note"Core Composites Corporation
(95% owner) incorporated Composites Services de Mexico, S. de R.L. de C.V.
("Composites Services") and Corecomposites de Mexico, S. de R.L. de C.V.
("Corecomposites") in an original
principal amountMatamoros, Mexico. Composites Services was established to
be the employer of $25,504,000 subjectall Mexican national employees for Core Molding's operations
in Mexico. Corecomposites was organized to adjustment. International also
received 4,264,000 shares of newly issued common stock ofoperate under a maquiladora program
whereby substantially all product produced is exported back to Core Materials.2
Following the acquisition, Core Materials assumed operation of the business
previously conducted by Columbus Plastics.Composites
Corporation who sells such product to United States based external customers.
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1 RYMAC had maintained a portfolio of assets from its historical business,
selectively selling assets to generate liquidity as market conditions were
appropriate. At the acquisition, Core Materials maintained ownership of one
mortgage-backed security originally purchased by RYMAC.
2 The principal amount of the Secured Note and the number of shares of common
stock received by International were subject to adjustment pursuant to the terms
of the Asset Purchase Agreement. Effective December 31, 1996, the amount of the
Secured Note was increased to $29,514,000 in order to reflect an increase in the
"net tangible assets" of Columbus Plastics as of the December 31, 1996
acquisition date. In 1997, as a result of a review of the closing balance sheet
and all purchase price adjustments, the Secured Note amount was reduced by
$1,629,000 to reflect an amendment to the closing balance sheet as of the
acquisition date. In addition, International was to receive consideration in the
form of an increase in the principal amount of the Secured Note if Core MaterialsMolding
achieved earnings results above specified levels during the period 1997 through
1999. This consideration was to be accounted for by an increase in the amount of
the Secured Note, and a reduction in the amount of Core Materials'Molding's retained
earnings. Based on Core Materials'Molding's earnings for the years ended December 31, 1998
and 1997, the Secured Note was increased by $4,098,000 and $2,937,000,
respectively. Core Materials'Molding's earnings for the year ended 1999 did not result in
any further increase in the Secured Note.
See Notes 4 and 8 of the "Notes to Financial
Statements" in Part II, Item 8 of this Form 10-K.
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Based upon the terms of the acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
Core Materials, however, is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax reporting
purposes. Consistent with reverse acquisition accounting treatment, Core
Materials has carried forward the historical basis of the acquired assets and
assumed liabilities of Columbus Plastics and has revalued the basis of Core
Materials' net assets to fair value at December 31, 1996.DESCRIPTION OF BUSINESS OF CORE MATERIALSMOLDING
Certain statements under this caption of this Annual Report on Form
10-K constitute "forward-looking statements" which involve certain risks and
uncertainties. Core Materials'Molding's actual results may differ significantly from those
discussed in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to: business conditions in the plastics,
transportation, recreation agricultural and consumer productscommercial and industrial product industries, the
general economy, competitive factors, the dependence on twofour major customers,
the recent efforts of Core MaterialsMolding to expand its customer base, new
technologies, regulatory requirements, labor relations, the loss or inability to
attract key personnel, ramp up of the Company's South Carolina facility, the availability of capital, the start up of new
operations in Mexico and management's decisions to pursue new products or
businesses which involve additional costcosts, risks or capital expenditures.
Core Materials operates principallyMolding Technologies, Inc. and its subsidiaries operate in one business segment, the
production of high quality compression Sheet Molding Composite ("SMC")
fiberglass reinforced plastic products. SMC plastics are part ofmarket in a larger family of materials collectivelyproducts known as "reinforced plastics."plastics".
Reinforced plastics are combinations of resins and reinforcing fibers formed through high(typically
glass or low
pressure fabrication techniques.carbon) that are molded to shape. The Columbus, Ohio and Gaffney, South
Carolina facilities produce reinforced plastics by compression molding sheet
molding compound (SMC) in a closed mold process. As a result of the acquisition
discussed above, in 2001 Core Molding established operations in a Matamoros,
Mexico facility, which produces reinforced plastic products by spray-up and
hand-lay-up open mold processes and a vacuum assisted resin infused (VRIM)
closed mold process.
Reinforced plastics compete largely against metals and have the
strength to function well during prolonged use. Management believes that
reinforced plastic components offer many advantages over metals, including:
o- heat resistance
o- corrosion resistance
o- lighter weight
o- lower cost
o- greater flexibility in product design
o- part consolidation for multiple piece assemblies
o- lower initial tooling costs for lower volume applications
o- high strength-to-weight ratio
o- dent-resistance in comparison to steel or aluminum.
The largest markets for reinforced plastics are transportation
(automotive and truck), recreational vehicles, commercial products and
industrial applications. Core Materials' twoMolding's four major customers are International,
Yamaha, Lear Corporation ("Lear") and Yamaha,Freightliner, LLC ("Freightliner"), which
are supplied proprietary SMCreinforced plastic products for medium and heavy-duty
trucks, and personal watercraft respectively.and automobiles. Core MaterialsMolding also supplies
SMCreinforced plastic products to other truck manufacturers, to agricultural equipmentautomotive
manufacturers and to manufacturers of commercial products. In general, product
growth and diversification isare achieved in several different ways: (1)
resourcing of existing SMCreinforced plastic product from another supplier by an
original equipment manufacturer ("OEM"); (2) obtaining new SMCreinforced plastic
products through a selection process in which an OEM solicits bids; and (3)
successful marketing of SMCreinforced plastic products for previously
non-SMCnon-reinforced plastic applications. Core Materials'Molding's efforts are currently
directed towards all three areas.
MAJOR COMPETITORS
Core MaterialsMolding believes that it is one of the five largest compounders
and molders of reinforced plastics using the SMC, productspray up, hand lay up and VRIM
processes in the United States. Core MaterialsMolding faces competition from a number of
other molders including, most significantly, Cambridge Industries, Inc.,Meridian Automotive Systems, Budd
Plastics Division, Venture Industries, Applied Composites, and Molded Fiber Glass
Companies.Companies, Goldshield, Camoplast and Renee Composites. Core MaterialsMolding believes
that past
consolidation within the SMC industry has better positioned the Company is well positioned to compete based
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4 primarily on manufacturing
capability, product quality, cost and delivery. However, the industry
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remains highly competitive and some of Core Materials'Molding's competitors have greater
financial resources, research and development facilities, design engineering and
manufacturing and marketing capabilities.
MAJOR CUSTOMERS
Core MaterialsMolding currently has twofour major customers, International, Yamaha,
Lear and Yamaha.Freightliner. The loss of a significant portion of sales to
International, Yamaha, Lear or YamahaFreightliner would have a material adverse effect
on the business of Core Materials.Molding.
RELATIONSHIP WITH INTERNATIONAL
As a result of its acquisition of Columbus Plastics from International,
Core MaterialsMolding assumed the long-standing relationship between Columbus Plastics'Plastics
and International's truck manufacturing operations. AsIn 1996, as a condition to
the acquisition, International and Core MaterialsMolding entered into a five year
Comprehensive Supply Agreement, pursuant to which Core MaterialsMolding became the
primary supplier of International's original equipment and service requirements
for fiberglass reinforced parts using the SMC process, effective through
December 31, 2001. This Comprehensive Supply Agreement was not renewed during
2002; however, at the end of 2002, Core Molding and International began
negotiations on a new Comprehensive Supply Agreement, which would be retroactive
to November 1, 2002. There can be no assurance that such an agreement will
ultimately be consummated. After the expiration of the original Comprehensive
Supply Agreement, business with International continued on a purchase order
basis, like Core Molding operates with all of its other customers. The purchase
orders typically provide volume commitments for four weeks at prices previously
negotiated. Customers can update their orders on a daily basis for changes in
demand that allow them to run their inventories on a "just-in-time" basis.
International manufactures and markets medium and heavy-duty trucks,
including school buses, mid-range diesel engines and service parts in North
America and in certain export markets. International delivered 119,30081,700 class 5
through 8 trucks, including school buses, in the United States, Mexico and
Canada during its fiscal 1999,2002, representing a 5% increasean 11% decrease from the 113,90091,300
units delivered in 19982001 and a 21.2% increase31% decrease from the 98,400118,200 units delivered in
1997.2000. International's market share in the combined share of theUnited States and Canadian
class 5 through 8 truck market was 25.6%25.8% in 1999, 29.1%2002, 26.3% in 19982001, and 28.3%26.9% in
1997.2000.
Core MaterialsMolding makes products for International's Chatham (Canada)
assembly plant, its Springfield, Ohio assembly and body plants, its Garland,
Texas assembly facility, its bus facilities in Conway, Arkansas and Tulsa,
Oklahoma and its Escobedo, Mexico assembly facility. Core MaterialsMolding works closely
on new product development with International's engineering and research
personnel at International's Fort Wayne, Indiana Technical Center. Some of the
products sold to International include hoods, air deflectors, air fairings,
fenders, splash panels, engine covers and other components.
The North American truck market in which International competes is
highly competitive and the demand for trucks is subject to considerable
volatility as it moves in response to cycles in the overall business environment
and is particularly sensitive to the industrial sector, which generates a
significant portion of the freight tonnage hauled. Truck demand also depends on
general economic conditions, among other factors. Sales to International
amounted to approximately 68%49%, 79%56% and 77%62% of total sales for 1999, 19982002, 2001 and
1997,2000, respectively.
Through December 31, 1997, Core Materials also received support from
International in the form of accounting, payroll, and human resources management
functions under a Transitional Services Agreement with International dated
December 31, 1996. Such support also continued, to a lessor degree, for the
first three months of 1998 after which time such support ceased. See Note 9 of
"Notes to Financial Statements" in Part II, Item 8 of this Form 10-K.
RELATIONSHIP WITH YAMAHA
Core MaterialsMolding also assumed from International the long-standing supply
relationship between Columbus Plastics and Yamaha. Core Materials suppliesMolding has supplied a
significant amount of the SMC products for Yamaha's personal watercraft.
The addition of Yamaha's personal watercraft component business in 1990
represented Columbus Plastics' first major business undertaking outside of
production for International.since
1990.
Products produced for Yamaha include decks, hulls, hull liners, engine
hatches, bulk heads,bulkheads, reinforcements and reinforcements.SMC compound. Core MaterialsMolding has worked
closely with Yamaha over the years to improve the surface quality of Yamaha
products and to identify new process control techniques and improved materials.
Demand for products from Yamaha is related to the level of general economic
activity and specifically to the cyclical and seasonal nature of the personal
watercraft industry among other factors.
Sales to Yamaha amounted to approximately 18%14%, 17%18% and 21% of total
sales for 1999, 19982002, 2001 and 1997,2000, respectively.
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OTHER CUSTOMERS
SinceRELATIONSHIP WITH LEAR
Core Molding began a supply relationship with Lear in mid-2000, with
sales to Lear beginning in January 2001. Core Molding supplies seat backs and
seat bottoms to Lear, who produces full seat assemblies for an automotive
original equipment manufacturer.
Sales to Lear amounted to approximately 12% of total sales for 2002 and
14% of total sales for 2001.
RELATIONSHIP WITH FREIGHTLINER
As a result of the October 2001 acquisition discussed above, Core
Molding began a supply relationship with Freightliner. Core Molding produces
hoods, air deflectors, air fairings, splash panels and other components for
Freightliner who uses such products on its acquisitionheavy and medium duty trucks.
Sales to Freightliner amounted to approximately 11% of Columbus Plastics from International, Core
Materials has focused significant efforts on expanding its customer base. During
1998, Core Materials added new customers including: Caradon Doors and Windows,
Peachtree Division; Case Corporation; Deere & Company; and New Holland, North
America, Inc. In 1999, Core Materials added Volvo Trucks, North America. The
customers added in 1999 and 1998 accountedtotal sales for
13%2002 and 2% of total sales for 19992001.
OTHER CUSTOMERS
Core Molding also produces products for other truck manufacturers, the
automotive after-market industries and 1998, respectively.various other customers. In 2002, sales
to these customers individually were all less than 10% of total sales.
EXPORT SALES
Core MaterialsMolding provides products to International's manufacturing and
service locations in Canada and Mexico. Export sales, including sales to Canada,
were approximately $19,934,000, $18,358,000$13,907,000, $8,472,000 and $13,197,000$14,428,000 for the years ended
1999, 19982002, 2001 and 1997,2000, respectively. These export sales dollars represent
approximately 22%15%, 24%12% and 20%17% of total sales for 1999, 19982002, 2001 and 1997,2000,
respectively.
FOREIGN OPERATIONS
As a result of the acquisition of the establishment of operations in
Mexico, Core Molding began importing products into the United States as
substantially all product produced in Core Molding's Mexican facility are sold
to customers in the United States. The sales of products imported were
approximately 22% of total sales in 2002 and approximately 5% of total sales in
2001.
Core Molding owns long-lived assets totaling $298,000 that are located
at the Mexican operations.
PRODUCTS
SMC COMPOUND
SMC compound is a combination of resins, fiberglass, catalysts and
fillers compounded and cured in sheet form. The sheet is then used to
manufacture compression-molded products, as discussed below and on a limited
basis sold to other molders.
Core MaterialsMolding incorporates a sophisticated computer program that assists
in the compounding of various complex SMC formulations tailored to customer
needs. The system provides for the following:
o- Control information during various production processes; and
o- Data for statistical batch controls.
Core MaterialsMolding has the capacity to manufacture approximately 53 million
pounds of SMC sheet material annually. The capacity increased in 1999 as a
result of mix system upgrades and minor process improvements. The following table shows production of
SMC for 1999, 19982002, 2001 and 1997.
SMC Pounds
Produced
Year (Millions)
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1999........................................................... 42
1998 .......................................................... 34
1997 .......................................................... 28
MOLDING2000.
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SMC Pounds
Produced
Year (Millions)
---- ----------
2002..................................... 25
2001 .................................... 25
2000 .................................... 36
CLOSED MOLDED PRODUCTS
Core MaterialsMolding produces reinforced plastic products using both
compression molding and vacuum resin infusion molding process methods of closed
molding.
COMPRESSION MOLDING:
Compression molding is a process whereby SMC is molded to form by
matched die steel molds through which a combination of heat and pressure are
applied via a molding press. This process produces high quality, dimensionally
consistent products. This process is typically used for higher volume products,
which is necessary to justify the customers' investment in molds.
Core Molding currently owns or leases 17 compression-molding presses in
its Columbus, Ohio plant ranging in size from 500 to 4,500 tons. In the first quarter of 1998,
Core Materials opened a second plant locatedMolding
also owns or leases 11 presses in its Gaffney, South Carolina which
has 10 pressesplant ranging in
size from 1,000 to 3,000 tons. Core Materials also has
ordered a 2,500 ton press which will be installed in the Gaffney, South Carolina
plant later in 2000.
Large platen, high tonnage presses (greater than 2,000 tons) provide
the ability to compression mold very large configured SMC parts. Core MaterialsMolding believes that
it possesses a significant portion of the large platen, high tonnage molding
capacity in the industry.
To enhance the surface quality and paint finish of products, Core
MaterialsMolding uses both in-mold coating and vacuum molding processes. In-mold coating
is a manufacturing process performed by injecting a liquid over the molded part
surface and then applying pressure at elevated temperatures during an extended
molding cycle. The liquid coating serves to fill and/or bridge surface porosity
as well as provide a barrier against solvent penetration during subsequent
top-coating operations. Likewise, vacuum molding is the removal of air during
the molding cycle for the purpose of reducing the amount of surface porosity.
Core MaterialsMolding believes that it is among the industry leaders in in-mold coating
and vacuum molding applications, based on the size and complexity of parts
molded.
5VACUUM RESIN INFUSION MOLDING (VRIM):
This process employs two molds, typically a core and a cavity, similar
to matched die molding. The composite is produced by placing glass mat, chopped
strand or continuous strand fiberglass in the mold cavity in the desired
pattern. The core mold is then fitted to the cavity, and upon a satisfactory
seal, a vacuum is applied. When the proper vacuum is achieved, the resin is
injected into the mold to fill the part. Finally, the part is allowed to cure,
and then it is removed from the mold and trimmed to shape. Fiberglass reinforced
products produced from the VRIM process exhibit a high quality surface on both
sides of the part and excellent part thickness.
OPEN MOLDED PRODUCTS
Core Molding produces reinforced plastic products using both the spray
up and hand lay up methods of open molding.
HAND LAYUP:
This process utilizes a shell mold, typically the cavity, where glass
cloth, either chopped strand or continuous strand glass mat, is introduced into
the cavity. Resin is then applied to the cloth and rolled out to achieve a
uniform wet-out from the glass and to remove any trapped air. The part is then
allowed to cure and removed from the mold. After removal, the part typically
undergoes trimming to achieve the net shape desired. Parts that would be
cosmetic in their end use would have a gel coat applied to the mold surface
prior to the layup to improve the surface quality of the finished part. Parts
produced from this process have a smooth outer surface and an unfinished, or
non-smooth, interior surface. These fiberglass-reinforced products are typically
non-cosmetic components or structural reinforcements that are sold externally or
used internally as components of larger assemblies.
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6SPRAY LAYUP:
This process utilizes the same type of shell mold, but instead of using
glass cloth to produce the composite part, a chopper/spray system is employed.
Glass yarns and resin feed the chopper/spray gun. The resin coated, chopped
glass, which is approximately one inch in length, is sprayed into the mold to
the desired thickness. The resin coated glass in the mold is then rolled out to
ensure complete wet-out and to remove any trapped air. The part is then allowed
to cure, is removed from the mold and is then trimmed to the desired shape.
Parts that would be used for cosmetic purposes in their end use would typically
have a gel coat applied to the mold surface prior to the resin coated glass
being sprayed into the mold to improve the surface quality of the finished part.
Parts produced from this process have a smooth outer surface and an unfinished,
or non-smooth, interior surface.
Core Molding currently operates ten separate spray-up cells in the
Matamoros, Mexico facility that are capable of producing fiberglass-reinforced
products with and without gelcoat surfaces. Part sizes weigh from a few pounds
to well over a hundred pounds with surface quality tailored for the end use
application.
ASSEMBLY, MACHINING AND PAINT PRODUCTS
Many of the products molded by Core MaterialsMolding are assembled, machined
and/or prime painted to result in a completed product used by Core Molding's
end-customers.
Core Molding has demonstrated manufacturing flexibility that accepts a
range of low volume, hand assembly and machining work to high volume, highly
automated assembly and machining systems. Robotics are used extensivelyas deemed productive
for material handling, machining and adhesive applications. In addition to
conventional machining methods, water-jet cutting technology is also used where
appropriate. Two automated guided vehicles are used to transfer high volume
product from the assembly area to theCore Molding has a prime paint operation. The prime paint
operation in its Columbus, Ohio
facility, which uses an overhead conveyor to transfer product through two paint
booths and bake ovens.ovens that is used for higher volume applications. The Company
also utilizes spot paint booths and batch ovens in its facilities when
warranted. Core Molding contracts with outside parties when customers require
that a finish of a top coat of paint be provided by Core Molding.
RAW MATERIALS
The principal raw materials used in the compounding of SMC and the
closed and open molding processes are polyester resins, fiberglass rovings and
filler. Other significant raw materials include adhesives for assembly of molded
components and in-mold coating and prime paint for preparation of cosmetic
surfaces. EachMany of the raw material generallymaterials used by Core Molding are petroleum and
energy based, and therefore, the costs of certain raw materials can fluctuate
based on changes in costs of these underlying commodities. Core Molding has
supplier alternatives. However, Core Materials typically uses single-source,historically used single source, long-term (2 to 5(2-5 years) supply contracts. Core Materials believes the use of
supply contracts assists the Company in attainingas a
means to attain competitive pricing and an adequate supply of these raw
materials. However, Core MaterialsMolding has recently experienced price increases for fiberglass rovings as a resultcertain of market
conditions indicating a strong demand for these
products in relationmaterials, which has caused the Company to supply.
If Core Materials demand were to significantly increase, along with an increase
in industry demand, supply issues on fiberglass rovings could potentially limit
Core Materials' ability to increase production and/or result in higherreevaluate this strategy and consider
alternative suppliers. Each raw material costs.generally has supplier alternatives,
which are being evaluated as the current contracts expire. Core Molding is
regularly evaluating its supplier base for certain supplies, repair items and
componentry to improve its overall purchasing position as supply of these items
is generally available from multiple sources.
BACKLOG
Core MaterialsMolding relies on production schedules provided by its customers
to plan and implement production. These schedules are typically provided on a
monthlyweekly basis and are considered firm typically for the current period. Customersfour weeks. Some customers
can update these schedules daily for changes in demand that allow them to run
their inventories on a "just-in-time" basis. The ordered backlog was
approximately $7.2$4.8 million and $6.7$5.6 million at December 31, 19992002 and 1998,2001,
respectively, all of which Core MaterialsMolding expects to ship within a year.
CAPACITY CONSTRAINTS
In previous years, Core MaterialsMolding has been required to work from timean extended
shift and day schedule, up to time, a seven
day/seven-day/three shift scheduleoperation, to meet its
customers' production requirements. Core MaterialsMolding has also employedused various methods from
overtime to a weekend manpower crew to help minimizesupport the different shift schedules
required.
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Based on recent production schedules, the Company has not had
difficulty in providing various shift schedules necessary overtime.to meet customer
requirements.
See further discussion regarding production capacityof machine and facility capacities at "Item 2
Properties" contained elsewhere in this document. The need to work these
extended schedules has been driven by machine capacity limitations and, most
recently, by a shortage of labor at the Company's Columbus, Ohio facility.
Unemployment rates in the areas from which this facility recruits its labor
force has been generally low making it difficult to recruit employees and adding
to employee turnover. The continuation of this labor shortage could result in
higher labor costs and limit Core Materials' ability to meet customer production
schedules.report.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures totaled approximately $7.4$0.7 million, $7.0$1.3 million
and $10.3$2.0 million for 1999, 19982002, 2001 and 1997,2000, respectively. Capital expenditures
consist primarily of presses and otherthe purchase of production equipment to manufacture parts
as well as
laboratory equipment, storage equipment, computers and office furniture and fixtures.
The 1998 and 1997 amounts also include the acquisition and
construction of the Gaffney, South Carolina plant.
Product development is a continuous process at Core Materials.Molding. Research
and development activities focus on developing new SMC formulations, new
reinforced plastic products and improving existing products and manufacturing
processes.
Core MaterialsMolding does not maintain a separate research and development
organization or facility but uses its production equipment, (compounding machines, molding
presses, and primer system), as necessary, to
support these efforts and cooperates with its customers and its suppliers in its
research and development efforts. Likewise, manpower to direct and advance
research and development is integrated with the existing manufacturing,
engineering, production, and quality organizations. Management of Core MaterialsMolding
has estimated that internal costs related to research and development activities
approximate $200,000 per year.
6
7$270,000 in 2002, $225,000 in 2001 and $250,000 in 2000.
ENVIRONMENTAL COMPLIANCE
Core Materials'Molding's manufacturing operations are subject to federal, state
and local environmental laws and regulations, which impose limitations on the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of hazardous waste. Core Materials'Molding's policy is to
conduct its business with due regard for the preservation and protection of the
environment. Core Materials'Molding's environmental waste management involves the dailyregular
auditing of all satellite hazardous waste accumulation points, weekly audits of
all hazardous
waste activities and biennial audits of every authorized treatment, storage and disposal facility.
Core Materials'Molding's environmental staff also trains each new employeeemployees on waste management and
other environmental issues
as part of an initial orientation process, and annually thereafter.issues.
Core Materials has submitted the information necessary for the granting
of a Title V permit, as required under the Clean Air Act, which is still
pending. In 1989, Columbus Plastics installed a Regenerative Thermal Oxidizer
("REECO"). The purpose of the REECO system is to destroy volatile organic
compounds from the SMC manufacturing operation and the coating operation. Both
operations have strict federal and state emission limits. The REECO system
allows Core Materials to meet these limits by consistently achieving about 95%
destruction efficiency. Core MaterialsMolding believes that it isits facilities are in compliance with the
Resource Conservationapplicable federal, state and Recovery Act of 1976 ("RCRA") and the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"). Compliance with theselocal environmental laws and regulations hasregulations. In
January 2003, the Ohio Environmental Protection Agency ("Ohio EPA") denied Core
Molding's request to remove a permanent total enclosure, involving Core
Molding's Columbus, Ohio, SMC compound production area. Core Molding does not
had, nor is it currently expectedbelieve that the cost to continue to comply with this request will have a
material effect on the Company'sits operations, competitive position or capital expenditures
through fiscal year 2000. The amount of capital expenditures currently expected to be spent on
environmental compliance is not significant.2003.
EMPLOYEES
As of December 31, 1999,2002, Core MaterialsMolding employed a total of 661929
employees, 417which consists of whom401 employees in its United States operations and
528 employees in its Mexican operations. Of these 929 employees, 196 are covered
by a collective bargaining agreement with the International Association of
Machinists and Aerospace Workers ("IAM"), which extends to August 1, 2001.7, 2004, and
464 are covered by a collective bargaining agreement with Sindicato de
Jorneleros y Obreros, which extends to January 16, 2005.
PATENTS, TRADE NAMES AND TRADEMARKS
Core MaterialsMolding will evaluate, apply for and maintain patents, trade names
and trademarks where it believes that such patents, trade names and trademarks
are reasonably required to protect its rights in its products. Core MaterialsMolding does
not believe that any single patent, trade name or trademark or related group of
such rights is materially important to its business or its ability to compete.
SEASONALITY
Core Materials'Molding's business is affected annually by the production
schedules of International and Yamaha. International and Yamahaits customers. Core Molding's customers typically shut down their
operations on an annual basis for a period of several weeks during Core
Materials' third quarter.Molding's third. As a result, demand by International and Yamaha
for Core Materials' SMCMolding's products drops
significantly during the third quarter. Similarly, demand for medium and
heavy-duty trucks, Yamaha's personal watercraft, and agriculturalautomotive products fluctuate on a
cyclical and seasonal basis, causing a corresponding fluctuation for demand of
Core Materials' SMCMolding's products. YEAR 2000 MATTERS
Issues related toThese customers also typically shut down their
operations during the year 2000 systems issues are addressed in Part
II, Item 7, "Management Discussion and Analysislast week of Financial Condition and
Results of Operations" contained elsewhere in this document.
7December, as well.
8
8
ITEM 2. PROPERTIES.
Core MaterialsMolding owns two production plants in the United States that are
situated, respectively, in Columbus, Ohio and in Gaffney, South Carolina. Core
MaterialsMolding believes that, through productive use, these facilities have adequate
production capacity to meet current production volume. The approximate capacity
utilization for the molding of production products in the Core Materials'Molding's United
States production facilities was 70%28%, 83%26%, and 108%41% in December 1999, 1998,the fourth quarter of
2002, 2001 and 1997,2000, respectively. Capacity increased in
1998 as a result of the opening of the new facility in South Carolina. Capacity
increased in 1999 with the addition of 3 presses at the Gaffney, South Carolina
plant. Capacity utilization is measured on the basis
of a six day, three-shifts per day operation.
The Columbus, Ohio plant is located at 800 Manor Park Drive on
approximately 28.2 acres of land. The approximate 323,596 square feet of
available floor space at the Columbus, Ohio plant is comprised of the following:
Approximate
Square Feet
-----------
Manufacturing/Warehouse............................................. 307,447
Office..............................................................Approximate
Square Feet
Manufacturing/Warehouse.................... 307,447
Office .................................. 16,149
-----------
323,596
Core MaterialsMolding acquired the property at 800 Manor Park Drive as a result
of the Asset Purchase Agreement with International.
The Gaffney, South Carolina plant, which was opened in early 1998, is
located at 24 Commerce Drive, Meadow Creek Industrial Park on approximately 20.7
acres of land. The approximate 110,900 square feet of available floor space at
the Gaffney, South Carolina plant is comprised of the following:
Approximate
Square Feet
-----------
Manufacturing/Warehouse............................................. 105,700
Office ...........................................................Approximate
Square Feet
Manufacturing/Warehouse.................... 105,700
Office .................................. 5,200
-----------
110,900
The plant, which can be expanded in the future, began molding and
assembly operations in early 1998.
Both the Columbus, Ohio and Gaffney, South Carolina properties are subject
to liens and security interests as a result of the properties being pledged by
Core MaterialsMolding as collateral for its debt as described in Note 46 of the "Notes to
Consolidated Financial Statements" in Part II, Item 8 of this Form 10-K.
In conjunction with the establishment of operations in Mexico, as
discussed above, the Company leases a production plant in Matamoros, Mexico,
located at Ave. Uniones Y Michigan, Matamoros, Tamps. Mexico. The term of the
lease is ten years, with an option to renew for an additional ten years and with
an option to buy the facility at any time within the first seven years of the
lease. The lease is cancelable by Core Molding with six months notice. The
facility consists of approximately 313,000 square feet on approximately 12
acres. Core Molding's Mexican operation leases approximately 267,700 of the
facility, with an option to lease additional space, as follows:
Approximate
Square Feet
Manufacturing/Warehouse.................... 264,100
Office .................................. 3,600
-------------
267,700
The capacity of production in this facility is not linked directly to
equipment capacities, as in Core Molding's other facilities, due to the nature
of the products produced. Capacity of the facility is tied to available floor
space and the availability of personnel. The approximate capacity utilization
for this operation was 63% and 50% in the fourth quarter of 2002 and 2001,
respectively. Capacity utilization for the Matamoros' operation is measured on
the basis of a five day, two 9.6-hour shifts per day.
9
ITEM 3. LEGAL PROCEEDINGS.
In late 2001 and 2002, several lawsuits were filed in Mexico against
Airshield de Mexico, which is a Mexican subsidiary of Airshield Corporation. As
noted above, Core Materials isMolding acquired substantially all the assets of Airshield
Corporation in October 2001; however, Core Molding did not currentlypurchase the assets
or the stock of Airshield de Mexico. The lawsuits were filed by certain of
Airshield de Mexico's vendors as a party, nor is anyresult of its property
subject,unpaid debts of Airshield de
Mexico. Through these lawsuits, the vendors have attempted to any material pending legal proceedings, other than ordinary, routine
litigation incidental to the business, nor are any such proceedings knownforeclose on
inventory and equipment owned by Core MaterialsMolding and located at its Mexico
facility. The total value of these assets at December 31, 2002, was $1,097,000.
To date, Core Molding has been successful in preventing these foreclosure
attempts. Core Molding is taking various actions through the Mexican legal
system to be contemplated by governmental authorities.defend its assets and to prevent future claims. Core Molding's Mexican
legal counsel has advised the Company that it has valid legal position to
support the ownership of these assets; however, as with any case involving
litigation, the outcome of these claims is uncertain.
In July of 2001, a former employee of Core Molding filed a suit in
United States District Court, Southern District of Ohio, Eastern Division,
claiming her employment was terminated in 1999 as a result of race
discrimination. In December of 2002, the two parties settled this suit outside
of court. The result of the settlement did not have a material impact on the
financial results of Core Molding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Core MaterialsMolding submitted no matters to a vote of its security holders
during the fourth quarter of its fiscal year ended December 31, 1999.
82002.
10
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the American Stock Exchange
under the symbol "CME""CMT".
The table below sets forth the high and low sale prices of Core MaterialsMolding
for each full quarterly period within the two most recent fiscal years for which
such stock was traded, as reported on the American Stock Exchange Composite
Tape.
High Low
---- ---
CORE MATERIALS CORPORATION
First Quarter 1999 3 7/8 2 7/8
Second Quarter 1999 3 13/16 2 5/8
Third Quarter 1999 3 5/16 1 11/16
Fourth Quarter 1999 2 7/8 1 7/16
First Quarter 1998 6 3/8 3 1/4
Second Quarter 1998 7 4 1/8
Third Quarter 1998 4 7/8 2 9/16
Fourth Quarter 1998 3 5/8 1 3/4
High Low
---- ---
CORE MOLDING TECHNOLOGIES, INC.
First Quarter 2002 1.79 1.03
Second Quarter 2002 2.35 1.20
Third Quarter 2002 1.55 1.00
Fourth Quarter 2002 1.50 0.90
First Quarter 2001 1.56 0.68
Second Quarter 2001 1.95 0.65
Third Quarter 2001 1.89 0.80
Fourth Quarter 2001 1.90 0.76
The Company's common stock was held by 622564 holders of record on March
22, 2000.24, 2003.
Core MaterialsMolding made no payments of cash dividends during 19992002 and 1998.2001.
Core MaterialsMolding currently expects that its earnings will be retained to finance the
growth and development of its business and does not anticipate paying dividends
on its common stock in the foreseeable future.
Moreover, Core MaterialsMolding has agreed to prohibitions on its ability to pay
dividends as a result of restrictive covenants contained in the Secured Note due
International. Such prohibitions apply so long as Core MaterialsMolding owes any amounts
under the Secured Note to International. The prohibitions are discussed further
in Note 46 of the "Notes to Consolidated Financial Statements" in Part II, Item 8
of this Form 10-K.
9
10
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the audited
consolidated financial statements of Core Materials and Columbus Plastics. The capital
structure of Core Materials differs significantly from the capital structure of
Columbus Plastics prior to its acquisition by Core Materials.Molding Technologies, Inc. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
financial statements and related notes included elsewhere in this Annual Report
on Form 10-K.
TWO MONTHS
YEARS ENDED DECEMBER 31,
ENDED YEAR ENDED
(IN THOUSANDS, DECEMBER 31, OCTOBER 31,
EXCEPT PER SHARE DATA) 2002 2001 2000 1999 1998
1997 1996 (1) 1995 (1) 1995 (1)
- ------------------------------------------------------------ ----------- --------- ---------- ---------- ------------ ------------- ------------
Net sales $90,604 $77,719 $ 64,940 $ 52,467 $ 8,855 $ 59,505$94,089 $73,180 $84,892 $93,232 $78,407
Gross margin 13,819 7,859 11,915 10,863 15,488
14,089 5,439 1,329 10,366
IncomeIncome/(loss) before interest 5,083 (108) 2,862 1,720 7,659
and taxes
1,720 7,659 6,654 547 544 4,790
Net incomeincome/(loss) 2,006 (1,860) 715 71 3,652
2,723 N/A N/A N/A
Net incomeincome/(loss) per common
share: Basic.21 (.19) .07 .01 .38
.29 N/A N/A N/A
DilutedBasic .21 (.19) .07 .01 .37
.28 N/A N/A N/ADiluted
Total assets 64,384 61,307 62,785 67,982 65,328 57,540 47,729 (2) 33,305 32,591
Long term debt 23,764 26,015 26,370 26,700 27,005
18,822 27,885 (2) N/A N/A
International's equity N/A N/A N/A N/A 24,206 20,140
Stockholders' equity 19,274 17,536 19,638 18,923 18,852 16,095 16,176 N/A N/A
- ----------
(1) Prior to January 1, 1997, Columbus Plastics provided International's
truck assembly operations with SMC products at standard cost and
production for International accounted for greater than 60% of Columbus
Plastics' output in all periods represented. The remainder was sold to
unrelated third party customers at negotiated prices. Net Income and
Net Income Per Share information has been omitted because Columbus
Plastics was not a separate stand alone division or subsidiary of
International and generally was not accounted for separately prior to
the Acquisition. In addition, International's systems and procedures
did not provide sufficient information to develop a reasonable cost
allocation of income taxes, corporate debt and interest expense.
(2) The December 31, 1996 Secured Note to International was reduced by
$1,629,000 to reflect an amendment to the closing balance sheet as of
the acquisition date. See notes 4 and 8 of the "Notes to Financial
Statements".11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain statements under this caption of this Annual Report on Form
10-K constitute "forward-looking statements" which involve certain risks and
uncertainties. Core Materials'Molding's actual results may differ significantly from those
discussed in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to: business conditions in the plastics,
transportation, recreation and consumer productscommercial and industrial product industries, the
general economy, competitive factors, the dependence on twofour major customers,
the recent efforts of Core MaterialsMolding to expand its customer base, new
technologies, regulatory requirements, labor relations, the loss or inability to
attract key personnel, ramp up of the Company's South Carolina facility, the availability of capital, the start up of new
operations in Mexico and management's decisions to pursue new products or
businesses which involve additional costcosts, risks or capital expenditures.
OVERVIEW
Core Molding has historically been a compounder and compression molder
of sheet molding composites (SMC) fiberglass reinforced plastic products. In
October 2001, Core Molding acquired certain assets of Airshield Corporation; see
Note 3 of notes to the financial statements. As a result of this acquisition,
Core Molding expanded its fiberglass molding capabilities to include the spray
up, hand lay up and vacuum assisted resin infusion molding processes. The
acquisition was accounted for under the purchase accounting method and
accordingly the effects of the acquisition are included in the results of
operations and financial condition of Core Molding from the date of the
acquisition and forward. All references to Core Molding herein refer to the
consolidated operations of Core Molding and its subsidiaries unless noted
otherwise. Core Molding produces and sells, both SMC compound and molded
products for varied markets, including the automotive and trucking industries,
recreational vehicles and commercial and industrial products. Core Molding
presently has four major customers, International Truck and Engine Corporation
("International"), Yamaha Motor Manufacturing Corporation ("Yamaha"), Lear
Corporation ("Lear") and Freightliner LLC ("Freightliner"), which account for
approximately 87% of the Company's sales in 2002 and 90% in 2001. The demand for
Core Molding's products is affected by the volume of purchases from its
customers, whose orders are primarily affected by economic conditions in the
United States and Canada. Core Molding's manufacturing operations have a
significant fixed cost component. Accordingly, during periods of changing
demands, the profitability of Core Molding's operations may change
proportionately more than revenues from operations.
On December 31, 1996, Core MaterialsMolding acquired substantially all of the
assets and assumed certain liabilities of Columbus Plastics, a wholly owned
operating unit of International's truck manufacturing division since its
formation in late 1980. BasedAt the time of the acquisition of Columbus Plastics,
International and Core Molding entered into a Comprehensive Supply Agreement,
which expired on December 31, 2001. Under the terms of the acquisition,Comprehensive Supply
Agreement, Core Molding became the transactionprimary supplier of International's original
equipment and service requirements for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
However, Core Materials is the continuing legal entity.
Core Materials is a compounder and compression molder of sheet molding
composites (SMC) fiberglass reinforced plastic products.parts using the SMC
process. This Comprehensive Supply Agreement was not renewed during 2002;
however, at the end of 2002, Core Materials producesMolding and sells, both SMC compound and molded products for varied markets, including
10
11International began negotiations
on a new Comprehensive Supply Agreement, which would be retroactive to November
1, 2002. There can be no assurance that such an agreement will ultimately be
consummated. After the automotive and trucking industries, recreational vehicles and commercial and
industrial products. Core Materials has two major customers, International and
Yamaha which account for approximately 85%expiration of the Company's sales.original Comprehensive Supply
Agreement, business with International continued on a purchase order basis, like
Core Molding operates with all of its other customers. The purchase orders
typically provide volume commitments for four weeks at prices previously
negotiated. Customers can update their orders on a daily basis for changes in
demand for Core Materials' products is affected by the volume of purchases from its
customers, whose orders are primarily affected by economic conditions in the
United States and Canada. Core Materials' manufacturing operations havethat allow them to run their inventories on a significant fixed cost component. Accordingly, during periods of changing
demands, the profitability of Core Materials' operations may change
proportionately more than revenues from operations."just-in-time" basis.
RESULTS OF OPERATIONS
19992002 COMPARED WITH 19982001
Net sales for 19992002 totaled $90,604,000, up 17%$94,089,000, an approximate 29% increase
from the $77,719,000$73,180,000 reported for 1998.2001. Included in total sales are tooling
project revenues of $12,783,000 for 2002 and $4,816,000 for 2001. Tooling
project revenues are sporadic in nature and do not represent a recurring trend.
Sales to International remained steady at $61,867,000
comparedtotaled $45,823,000, an approximate 12% increase from the
2001 amount of $40,765,000. The primary reason for the increase was due to
$61,471,000 in 1998.additional business with International that was obtained as a result of the
October 2001 acquisition, noted above. Sales to Yamaha increased in 19992002 amounted to
$13,291,000, which was slightly higher than the $13,160,000 in 2001. Sales to
Lear for 2002 totaled $11,716,000, an approximate 14% increase from the 2001
amount of $10,246,000. The primary reason for the increase was due to the
completion of tooling projects for new business that Core Molding has acquired
from Lear. This increase was partially offset by 23%reductions in selling prices on
current products being manufactured for Lear. Sales to $15,929,000 compared with $12,927,000 in 1998. The increase inFreightliner, which began
as a result of the
12
acquisition noted above, totaled $10,691,000 for 2002. In 2001, sales to
Yamaha
is primarilyFreightliner amounted to $1,598,000 due to additional product addedthe acquisition, as noted above,
occurring in 1999October 2001. Products sold to Freightliner include hoods, air
deflectors, air fairings, splash panels and an overall increase in
demand from Yamahaother components for Core Materials' product.the production
of its heavy and medium duty trucks.
Sales to other customers increased 286%approximately 70% to $12,808,000$12,566,000
from $3,321,000$7,410,000 in 1998. These additional sales were2001. This increase was primarily the result of new business
with Paccar. Sales to Paccar amounted to $5,689,000. Sales to Paccar were
generated primarily from the completion of tooling projects for new business
that the Company has acquired. Also adding to the increase were sales of
$2,559,000 to newvarious customers addedacquired in 1998 and 1999 including: the October 2001 acquisition, noted
above. Partially offsetting the gain was the Company discontinuing its business
relationship with Case/New Holland. Sales to Case/New Holland North America -
$4,506,000; Volvo Trucks North America, Inc. - $3,607,000; and Caradon Doors and
Window, Peachtree Division - $1,571,000.were $3,188,000
for the year ending December 31, 2001.
Gross marginMargin was 12%14.7% of sales in 19992002 compared with 20% for 1998.to 10.7% of sales in
2001. The declineincrease in gross margin as a percent of sales was primarily due to higher
productiona combination of many
factors including improvements in material costs, labor efficiency, reduced
energy costs and repairs and maintenance costs at both Core Materials'the Company's Columbus, Ohio
andfacility. This increase in gross margin was partially offset by reduced margins
at the Company's Gaffney, South Carolina facilities. In Columbus, Core Materials experienced a shortage of plant
labor,facility primarily due to low unemployment in the Columbus area, necessitating excessive
overtime. Additionally, Core Materials incurred higher levels of scrap and labor
inefficienciesselling price
reductions to Lear Corporation, as a result of the learning curve experienced by a higher than
normal level of new hires. The hiring of such new employees was necessitated by
increased turnover, caused by the labor shortage and increased production for
support of certain customer's inventory bank builds to allow for tooling
refurbishment. The Columbus facility also experienced higher repair and
maintenance downtime costs caused by two major machine breakdowns. The
maintenance downtime also resulted in lost production which exacerbated the
overtime costs in order to catch up with customer delivery expectations. In
Gaffney, Core Materials experienced higher usage of raw materials, increased
scrap, labor inefficiencies and higher usage of supplies. The increased costs in
Gaffney were primarily associated with the start up of new customer products and
the general ramp up of production at this facility. A significant portion of the
new business noted above, was producedand operating inefficiencies
that were experienced throughout the year. Gross margins from the newly
established operations resulting from the acquisition noted above were generally
in Gaffney.line with Core Molding's historical business.
Selling, general and administrative expenses totaled $9,143,000$9,237,000 in
1999, up $1,314,000, or 17%2002, which was greater than the $7,967,000 incurred in 2001. The increase from
$7,829,000 in 1998. Approximately $800,000 of
the increase related to non-recurring items, including costs associated with the
evaluation of additional facility locations, products and processes, the
write-off of costs associated with a potential acquisition that Core Materials
decided not to pursue, and severance obligations and recruiting costs related to
a reorganization of Core Materials' management and salaried workforce. The
remaining increase of $514,000, which represents an increase of approximately 7%
over prior year,2001 was primarily due to increasedthe additional costs associated with obtaining
additional personnel, increased travel associated with new customers, increased
insurance costs, increased real estate and property taxes and other costs
relatedadded as a result of the
acquisition of the Mexican operation.
Other income totaled $500,000 for the year ending December 31, 2002.
This income was earned from the sale of Core Molding's stock ticker symbol
("CME") to higher sales and an increased customer base.another corporation.
Interest expense totaled $2,025,000 for 1999 totaled $1,850,0002002 increasing slightly from
$1,999,000 in 2001. Interest rates experienced by the $1,681,000 incurred in 1998. The increase in interest expense from 1998 was
primarilyCompany with respect to
the result of a full year effect ofindustrial revenue bond were favorable; however, due to the interest costsrate
swap the Company entered into, the interest rate is essentially fixed for this
debt instrument. Interest income totaled $133,000 for 2002, decreasing from
$305,000 for 2001 primarily due to a decrease in the interest rate earned on
the
$7,500,000 of Industrial Revenue Bond borrowings incurred in May 1998 which were
used to finance Core Materials' facility in Gaffney, South Carolina. In
addition, an increase in interest costs on the Secured Note payable to
International added to interest expense. See Note 4 of "Notes to Financial
Statements". The increase in interest on the Secured Note was largely offset by
a reduction in interest expense incurred on Core Materials' line of credit.investments.
Income tax expense for 19992002 was approximately 45%37% of total earningsincome
before taxes. Actual tax payments will be lower than the recorded expenses as
Core Materialsthe Company has substantial federal tax loss carryforwards. These loss
carryforwards were recorded as a deferred tax asset, partially offset by a
valuation allowance at December 31, 1996 as a part of the purchase accounting
adjustments.asset. As the tax loss
carryforwards are utilized to offset federal income tax payments, Core 11
12
MaterialsMolding
reduces the deferred tax asset as opposed to recording a reduction in income tax
expense.
Actual cash taxes for 1999 are estimated to be a benefit of
approximately $(11,000).
Net income for 19992002 was $71,000$2,006,000 or $.01$.21 per basic and $.01diluted share,
representing an increase of $3,867,000 over the 2001 net loss of ($1,860,000) or
($.19) per basic and diluted share.
2001 COMPARED WITH 2000
Net sales for 2001 totaled $73,180,000, down approximately 14% from the
$84,892,000 reported for 2000. Included in total sales are tooling project
revenues of $4,816,000 for 2001 and $1,347,000 for 2000. Tooling project
revenues are sporadic in nature and do not represent a recurring trend. Sales to
International totaled $40,765,000, an approximate 22% decrease from the 2000
amount of $52,276,000. The primary reason for the decrease was lower demand from
International resulting from an industry wide general decline in truck orders
due to the soft general economy during 2001. Sales to Yamaha of components for
personal watercraft decreased in 2001 by 27% to $13,160,000 compared with
$18,061,000 in 2000. The decrease in sales to Yamaha is primarily due to the
negative impact general economic conditions have had on the demand for personal
watercraft. Sales to Lear for 2001 totaled $10,246,000. The Lear product
consists of components that Lear assembles into seat bottoms and backs for a
sports utility/pick-up truck recently introduced by an automotive original
equipment manufacturer. Core Molding began selling these products in the first
quarter of 2001. Sales to Freightliner, as a result of the acquisition noted
above, for 2001 totaled $1,598,000. Products sold to Freightliner include hoods,
air deflectors, air fairings, splash panels and other components for the
production of its heavy and medium duty trucks.
Sales to other customers decreased approximately 49% to $7,410,000 from
$14,555,000 in 2000. This decrease was primarily the result of decreased sales
to Case/New Holland of $5,613,000 as a result of Case/New Holland moving
production of
13
their products to another supplier in May 2001. Also adding to the decrease was
the discontinuance of the Company's business relationship with Caradon Doors and
Windows, Peachtree Division, in July 2000. Sales to Peachtree totaled $1,271,000
in 2000. Offsetting a portion of the decrease were sales brought on from the
acquisition noted above to other various customers of $600,000 from the
acquisition date through the end of the year.
Gross Margin was 10.7% of sales in 2001 compared to 14.0% of sales in
2000. The decrease in gross margin was primarily due to fixed costs associated
with excess capacity, production inefficiencies associated with reduced order
flow, and new product start-ups, mostly affecting the Columbus plant. However,
improved productivity and a better product mix resulted in gross margin
improvement in the Gaffney plant compared to last year. The Company also
experienced increasing employee benefit costs, mainly due to an increase in
employee health insurance costs. Gross margins from the newly established
operations resulting from the acquisition noted above were in line with the
Company's other operations.
Selling, general and administrative expenses totaled $7,967,000 in
2001, which was less than the $9,053,000 incurred in 2000. The year 2001 saw a
reduction of the salary workforce in the Columbus and Gaffney facilities
resulting in a $222,000 cost savings; however, increasing benefit costs, mainly
due to employee health care costs, partially offset this. The Company also
implemented a cost containment plan that resulted in total cost reductions of
$990,000 in the areas of supplies, outside and professional services, travel and
other miscellaneous expenses.
Interest expense totaled $1,999,000 for 2001 increasing slightly from
$1,970,000 in 2000. The increase in interest expense from 2000 was primarily the
result of a decrease in interest capitalized on capital projects due to lower
capital expenditures.
Tax expense for 2001 was approximately 3% of total loss before taxes.
Income tax expense primarily consists of $646,000 of expense related to Core
Molding increasing the valuation allowance for its net operating loss
carryforwards primarily offset by the tax benefit of the current year's
operating loss.
Net loss for 2001 was $(1,860,000) or $(.19) per basic and diluted
share, representing a decrease of $3,581,000 or 98%$2,575,000 over the 19982000 net income of
$3,652,000$715,000 or $.38$.07 per basic and $.37 per diluted share. The decrease over
1998's amounts was primarily the result of the production inefficiencies and the
increases in SG&A expense referred to above. Core Materials has approximately
$20,754,000 of operating tax loss carryforwards that do not begin to expire
until the year 2007. The utilization of operating tax loss carryforwards and
other timing differences for 1999 resulted in an increase in cash flow of
approximately $69,000 since the Company's estimated income tax payments were
reduced. The comparable 1998 reduction in income tax payments was $1,596,000.
1998 COMPARED WITH 1997
Net sales for 1998 totaled $77,719,000, up 20% from the $64,940,000
reported for 1997. Sales to International increased 23% to $61,471,000 from
$50,011,000 in 1997. The increase in sales to International was primarily the
result of International's increased production of medium and heavy-duty trucks.
Sales to Yamaha decreased in 1998 by 4% to $12,927,000 compared with $13,416,000
in 1997. The slight decrease in sales to Yamaha was primarily due to the
maturing of the personal watercraft industry.
Sales to other customers increased 119% to $3,321,000 from $1,514,000
in 1997. These additional sales were primarily the result of sales to new
customers added in 1998 including: Case Corporation - $906,000; Outboard Marine
Corporation - $804,000; and Caradon Doors and Window, Peachtree Division -
$141,000.
Gross margin was 20% of sales in 1998 compared with 22% for 1997. The
decline in gross margin as a percent of sales was primarily the result of
unfavorable material usage variances, increased overtime costs, increased usage
of production process supplies, changes in product mix, and startup costs at the
Gaffney, South Carolina facility. Also impacting gross margin was the effect of
increased lease expenses associated with a sale-leaseback transaction. As noted
in Note 4 of the "Notes to Financial Statements", Core Materials sold various
items of production equipment and leased the items back under operating lease
agreements. The proceeds of the sale were primarily used to pay down long term
debt. As a result of these transactions, Core Materials has recorded higher
costs of sales, due to the lease payments exceeding the related depreciation for
the sales-leaseback equipment, offset by lower interest costs reflected below.
Selling, general and administrative expenses totaled $7,829,000 in
1998, increasing 5% from $7,435,000 in 1997. The increase over the 1997 amounts
was primarily due to the addition of a second plant in Gaffney, South Carolina.
This second plant provides additional capacity to support the production
requirements of current customers and opportunity for growth. The Gaffney plant
began molding and assembly operations in early 1998.
Interest expense for 1998 totaled $1,681,000, decreasing from the
$2,232,000 incurred in 1997. The decrease in interest expense from 1997 was
primarily the result of a reduction in interest costs on the Secured Note
payable to International due to paydowns of principal on the note. See Note 4 of
"Notes to Financial Statements." The decrease in interest expense was partially
offset by increased interest costs due to the $7,500,000 of Industrial Revenue
Bond borrowings used to finance Core Materials' new facility in Gaffney, South
Carolina.
Income tax expense for 1998 was approximately 41.4% of total earnings
before taxes. Actual tax payments were substantially lower than the recorded
expenses as Core Materials has substantial federal tax loss carryforwards. These
loss carryforwards were recorded as a deferred tax asset, partially offset by a
valuation allowance at December 31, 1996 as a part of the purchase accounting
adjustments. As the tax loss carryforwards are utilized to offset federal income
tax payments, Core Materials reduces the deferred tax asset as opposed to
recording a reduction in income tax expense. Actual cash payments for 1998 were
estimated to be approximately $985,000, which reflected federal alternative
minimum, state and local taxes.
Net income for 1998 was $3,652,000 or $.38 per basic and $.37 per
diluted share, an increase of $929,000 or 34% over the 1997 net income of
$2,723,000 or $.29 per basic and $.28 per diluted share. The 1998 increase over
1997's amounts was primarily the result of increased sales as discussed above.
Core Materials had approximately $21,206,000 of operating tax loss carryforwards
that did not begin to expire until the year 2007. The utilization of operating
tax loss
12
13
carryforwards and other timing differences for 1998 resulted in an increase in
cash flow of approximately $1,596,000 since the Company's estimated income tax
payments were reduced. The comparable 1997 net income would have increased by
$1,455,000.
LIQUIDITY AND CAPITAL RESOURCES
Core Materials'Molding's primary cash requirements are for operating expenses and
capital expenditures. These cash requirements have historically been met through
a combination of cash flow from operations, equipment leasing, issuance of
Industrial Revenue Bonds and bank lines of credit.
Cash provided by operations in 19992002 totaled $1,646,000.$5,988,000. Net income
contributed $71,000 withprovided $2,006,000 of operating cash flows. Non-cash deductions of depreciation
and amortization adding another
$1,899,000.added $2,089,000 of positive cash flow. An increase in accounts
payable contributed $3,707,000; this
increase was primarily the$1,358,000 to operating cash flows due to timing
differences. A decrease in deferred income taxes also had a positive effect on
cash flow of $1,014,000, which is a result of increased purchasesCore Molding's net operating loss
carryforwards reducing current year tax obligations. In addition, the increase
in the postretirement benefits liability of material$951,000 also provided positive cash
flow. Core Molding expects this item to support
increased sales, capital spending and timing effects. Decreasingprovide positive cash flow until such
time that retirees begin to utilize their retirement medical benefits. Partially
offsetting the above mentioned increases in operating cash flow was a decrease
in other accrued liabilities of $568,000 due to the settlement of various
liabilities that were assumed as part of the Airshield acquisition. Also
decreasing operating cash flow was an increase of inventory of $532,000. This
was primarily due to inventory levels at Core Molding's Gaffney, South Carolina
facility adjusting for new business that began late in accounts receivable of $2,096,000 primarily caused
by higher sales and slower collections and an2001. An increase in
inventories of
$1,219,000, which was primarily the result of higher production levels. Also
decreasingprepaid expenses and other current assets decreased operating cash flow was a decrease in accrued and other liabilities of
$1,191,000by
$514,000 primarily caused bydue to recoverable taxes related to the lack of a profit-sharing liability in 1999.Mexican operation.
Investing activities reducedincreased cash flows by $3,349,000$149,000 in 1999.2002. Proceeds
from maturities on the Company's mortgage-backed security investment were
$829,000 in 2002. Core Molding has an outstanding balance of $95,000 in this
investment. Capital expenditures totaled $7,385,000$681,000, which werewas primarily related
to the acquisition of machinery and equipment. Offsetting theseAt December 31, 2002, commitments
for capital expenditures in progress were proceeds from the
sale and leaseback of certain machinery and equipment of $3,376,000 and proceeds
of maturities on the Company's mortgage-backed security investment of $660,000.$107,435. Capital expenditures for
2003 are expected to be $2,166,000.
Financing activities reduced cash flows by $285,000. Core Materials
borrowed $7,250,000 on$355,000 for the line of credit in order to temporarily fund
operations and capital expenditures; all of the borrowed funds were repaid by
year-end 1999. Principalprincipal
repayment on the Industrial Revenue Bond, which was issued in 1998 also required a cash outflow of $285,000.1998. Principal
payments on the Industrial Revenue Bond increase each year through the maturity
date, which is April 2013.
14
At December 31, 1999,2002, Core MaterialsMolding had cash on hand of $1,129,000, of
which $323,000 is restricted,$8,976,000 and
an available line of credit of $7,500,000.$7,500,000, which is scheduled to mature on April
30, 2004. As of December 31, 1999,2002, Core MaterialsMolding was in violationcompliance of all three
of its financial debt covenants for the Line of Credit and letter of credit
securing the industrial revenue bond and certain equipment leases. The covenants
relate to maintaining certain financial ratios. Core Materials has received waiversManagement expects the Company
to meet these covenants for the covenants as of December 31, 1999 and a written commitment from the bank to
waive these covenants each quarter through the quarter ended September 30, 2000
if Core Materials operates in compliance with financial projections for fiscal
year 2000 and does not experience any material adverse change to its financial
condition. Core Materials has operated in compliance with the projections for
the months of January and February 2000 and management expects Core Materials to
meet the projections for the remainder of 2000.2003. However, if performance should
fall below these projections or if a material adverse change
in the financial position of the Company should occur, Core Materials'the Company's liquidity
and ability to obtain further financing to fund future operating and capital
requirements could be negatively impacted. Because the Company was in compliance
of all three of its debt covenants; had a cash balance in excess of $3,000,000;
and had no outstanding balance on the revolving line of credit, a principal
payment in the amount of $1,861,000, which is classified as a current portion of
long term debt on the Company's balance sheet, has been be made to International
on March 21, 2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
on-going basis, management evaluates its estimates and judgments, including
those related to accounts receivable, inventories, post retirement benefits, and
income taxes. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Accounts receivable allowances:
Management maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. The Company had recorded an allowance for doubtful
accounts of $543,000 at December 31, 2002 and $715,000 at December 31, 2001.
Management also records estimates for customer returns, discounts offered to
customers, and for price adjustments. Should customer returns, discounts, and
price adjustments fluctuate from the estimated amounts, additional allowances
may be required. The Company had recorded an allowance for chargebacks of
$473,000 at December 31, 2002 and $383,000 at December 31, 2001.
Inventories:
Management identifies slow moving or obsolete inventories and estimates
appropriate loss provisions related to these inventories. Historically, these
loss provisions have not been significant. Should actual results differ from
these estimates, additional provisions may be required. The Company had recorded
an allowance for slow moving and obsolete inventory of $278,000 at December 31,
2002 and $171,000 at December 31, 2001.
Goodwill and Long-Lived Assets
Management evaluates whether impairment exists for goodwill and
long-lived assets. Should actual results differ from the assumptions used to
determine impairment, additional provisions may be required. In particular,
decreases in future cash flows from operations below the assumptions could have
an adverse affect on the company's operations. The Company has not recorded any
impairment to goodwill or long-lived assets for the years ended December 31,
2002 and 2001.
15
Post retirement benefits:
Management records an accrual for post retirement costs associated with
the Company sponsored health care plan. Should actual results differ from the
assumptions used to determine the reserves, additional provisions may be
required. In particular, increases in future healthcare costs above the
assumptions could have an adverse affect on the Company's operations. The
Company had recorded a liability for post retirement medical benefits based on
actuarially computed estimates of $5,718,000 at December 31, 2002 and $4,767,000
at December 31, 2001.
Income taxes:
Management records a valuation allowance to reduce its deferred tax
assets to the amount that it believes is more likely than not to be realized.
The Company has considered future taxable income in assessing the need for the
valuation allowance and recorded a valuation allowance. The valuation reserve
will be adjusted as the Company determines the actual amount of deferred tax
assets that will be realized. The Company had recorded a valuation allowance of
$1,425,000 at December 31, 2002 and December 31, 2001.
INCOME TAXES
The balance sheet at December 31, 19992002 and 19982001 includes a deferred tax
asset of $12,960,000$11,897,000 and $13,029,000, respectively,$12,773,000, net of a valuation allowancesallowance of $2,160,000$1,425,000
in 19992002 and of $3,787,000 in 1998. The decrease in the
valuation allowance and a corresponding decrease in the deferred tax asset of
$1,627,000 was due to the expiration of certain capital loss carryforwards in
1999. The valuation allowance was reduced from $6,787,000 in 1997 to $3,787,000
in 1998 based upon an extensive review of future taxable income. This reduction
was recorded as an increase in Paid in Capital in the equity section (see Note
7).2001. The deferred tax asset is net of a valuation allowance since
it is more likely than not that a portion of the deferred tax asset may not be
realized in the future.
The deferred tax asset at December 31, 19992002, primarily includes the tax
benefits associated with cumulative net operating and capital tax losses of approximately
$20,754,000 and $4,100,000, respectively,$17,015,000, temporary differences between the book and tax basis of Core
Materials'Molding's property and equipment of approximately $9,200,000$9,194,000 and temporary
differences relating to post-retirement and pension benefits of $3,600,000.$7,670,000. The
valuation allowance at December 31, 19992002, assumes that it is more likely than
not that approximately $2,200,000$4,200,000 of the cumulative net operating losses and
13
14
all of the cumulative capital tax losses will
not be realized before their expiration date. Realization of the net deferred tax asset is dependent on the
generation of approximately $32,000,000 of future taxable income from 2000
through 2009. Taxable incomeincome/(loss) for 19992002 and
19982001 was approximately $200,000$3,190,000 and $7,600,000,($1,846,000), respectively.
Extensive analysis is performed to determine the amount of the deferred
tax asset. Such analysis is based upon the premise that Core MaterialsMolding is and will
continue as a going concern and that it is more likely than not that deferred
tax benefits will be realized through the generation of future taxable income.
Management reviews all available evidence, both positive and negative, to assess
the long-term earnings potential of Core MaterialsMolding using a number of alternatives
to evaluate financial results in economic cycles at various industry volume
conditions. Other factors considered are the Company's long-standing
relationship with its two largest customers (International and Yamaha) and Core
Materials'Molding's recent customer diversification efforts. The projected availability of
taxable income to realize the tax benefits from net operating loss carryforwards
and the reversal of temporary differences before expiration of these benefits
are also considered. Management believes that, with the combination of available
tax planning strategies and the maintenance of its relationships with Yamaha and International and International's maintenance of
significant market share,its key
customers, earnings are achievable in order to realize the net deferred tax
asset of $12,960,000.$11,897,000.
INFLATION
Inflation generally affects Core MaterialsMolding by increasing the cost of
labor, equipment and raw materials. Management believes that, because rates of
inflation have been moderate during the periods presented, inflation has not had
a significant impact on our results of operations.
YEAR 2000 READINESS STATEMENT
Core Materials utilized internalRECENT ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the FASB issued SFAS No.142, "Goodwill and external sourcesOther
Intangible Assets". This statement applies to makeintangibles and goodwill acquired
after June 30, 2001, as well as goodwill and intangibles previously acquired.
Under this statement goodwill as well as other intangibles determined to have an
infinite life will no longer be amortized; however these assets will be reviewed
for impairment on a periodic basis. Due to the required modifications to both computer systemsadoption of SFAS No. 142 on
January 1, 2002, the Company does not amortize goodwill. The total net book
value of goodwill at December 31, 2002 and internal operations related
apparatus. In addition, Core Materials worked with its suppliers and customers
to aid in their becoming Y2K compliant. As2001 was $1,097,433. The adoption of
SFAS No. 142 did not have an impact on the financial statements of the date of this filing, Core
Materials has not experienced any material Y2K problems with its software,
hardware and manufacturing of its products or withCompany.
In August 2001, the operation of its business
in general. In addition, Core Materials has not experienced any material
problems with any of its customers or suppliers. Core Materials will continue to
monitor its systems as unique dates within the year are encountered (such as the
first quarterly financial close).
The total cost of the Year 2000 project was approximately $672,000 and
was funded through operating cash flows in 1997, 1998 and 1999. Of the total
project cost, approximately $402,000 wasFASB issued SFAS No. 144, "Accounting for the
purchaseImpairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and installationreporting for the impairment or disposal of new software/hardware which was capitalized.long-lived assets and
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." Because
16
SFAS No. 121 did not address the accounting for a segment of a business
accounted for as a discontinued operation under Opinion 30, two accounting
models existed for long-lived assets to be disposed of. The remaining $270,000, which was
expensed as incurred,Board decided to
establish a single accounting model, based on the framework established in
Statement 121, for long-lived assets to be disposed of by sale. The Company
adopted SFAS No. 144 on January 1, 2002, and it did not have a material effectimpact
on the Company's financial position, results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In September 1999, the Emerging Issues Task Force reached consensus on
Issue 99-5 (EITF 99-5) which pertains to pre-production costs incurred by
original equipment manufacturer (OEM) suppliers related to the designoperations, or cash flows.
As previously reported, FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and development64, Amendment of the parts they will supply to OEMsFASB Statement No. 13, and costs to design and build
molds, dies and other tools which will be usedTechnical
Corrections" in manufacturing the parts.
Companies must determine whether pre-production costs meet the criteria in EITF
99-5 to be capitalized or should be expensed as incurred. The EITFApril 2002. It is effective for designthe first quarter in the year
ended December 31, 2003. The Company does not believe the adoption of SFAS No.
145 will have a significant impact on its consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and developmentreporting for costs associated with exit or disposal activities
included in restructurings. This Statement eliminates the definition and
requirements for recognition of exit costs as defined in EITF Issue 94-3, and
requires that liabilities for exit activities be recognized when incurred
instead of at the exit activity commitment date. This Statement is effective for
exit or disposal activities initiated after December 31, 1999. Core
Materials has determined that2002. The Company is
currently analyzing the impact of this statement and does not believe it will
have a material impact on its current
pre-production costs is not material.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," to establish accounting and reporting
requirements for derivative instruments. This standard requires recognition of
all derivative instruments in the statement ofconsolidated financial position as either
assets or liabilities, measured at fair value. This statement additionally
requires changes in the fair value of derivatives to be recorded each period in
current earnings or comprehensive income depending on the intended use of the
derivatives. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the effective date of SFAS 133", which amends SFAS by
14
15
deferring for one year the effective date of SFAS 133, to those fiscal years
beginning after June 15, 2000. Core Materials is currently assessing the impact
of this statement on its results of operations and financial position and plans
to implement statement No. 133, January 1, 2001.statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Core Materials'Molding's primary market risk results from fluctuations in
interest rates. Core MaterialsMolding is also exposed to changes in the price of
commodities used in its manufacturing operations. The Company does not hold any
material market risk sensitive instruments for trading purposes.
Core MaterialsMolding has the following threefour items that are sensitive to a
change in interest rates: (1) Long termLong-term debt consisting of an Industrial Revenue
Bond ("IRB") with a balance at December 31, 19992002, of $7,085,000.$6,095,000. Interest is
variable and is computed weekly. The average interest rate charged for 19992002 was
3.5%1.7% and the maximum interest rate that may be charged at any time over the life
of the IRB is 10%. In order to minimize the effect of the interest rate
fluctuation, Core MaterialsMolding has entered an interest swap arrangement under which
Core MaterialsMolding pays a fixed rate of 4.89% to a bank and receives 76% of the 30-day
commercial paper rate; (2) Long-term Secured Note Payable with a balance as of
December 31, 19992002 of $19,920,000 at a fixed interest rate of 8%; (3) Revolving
line of credit, which bears interest at LIBOR plus three and (3)
7% mortgage-backed securityone-quarter percent
or the prime rate; and (4) Foreign currency purchases in which maturesCore Molding
purchases Mexican pesos with United States dollars to meet certain obligations
that arise due to the facility located in November 2025. Such security is
recorded at cost and is considered held to maturity as Core Materials has the
intent and ability to hold such security to maturity.Mexico.
Assuming a hypothetical 20% change in short-term interest rates in both
19992002 and 1998,2001, interest expense would not change significantly, as the interest
rate swap agreement would generally offset the impact.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
Core Materials CorporationMolding Technologies, Inc. and Subsidiaries
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Core
Molding Technologies, Inc. (formerly Core Materials CorporationCorporation) and
Subsidiaries (the "Company") as of December 31, 19992002 and 1998,2001, and the related
consolidated statements of income,operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999.2002. Our audits also
included the consolidated financial statement scheduleschedules listed in the Index at
Item 14.15. These consolidated financial statements and the consolidated financial
statement scheduleschedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
and the consolidated financial statement scheduleschedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted auditing
standards.in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Core Materials CorporationMolding Technologies,
Inc. and its subsidiaries as of December 31, 19992002 and 1998,2001, and the results of
itstheir operations and itstheir cash flows for each of the three years in the period
ended December 31, 1999,2002, in conformity with accounting principles generally
accepted accounting principles.in the United States of America. Also, in our opinion, such
consolidated financial statement schedule,schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- ---------------------------------------------------
DELOITTE & TOUCHE LLP
Chicago, IllinoisColumbus, Ohio
March 14, 2000
157, 2003
18
16SECTION 302 CERTIFICATION
I, James L. Simonton, certify that:
1. I have reviewed this annual report on Form 10-K of Core Molding
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ James L. Simonton
------------------------------
James L. Simonton
President, Chief Executive Officer and Director
19
SECTION 302 CERTIFICATION
I, Herman F. Dick, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Core Molding
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Herman F. Dick, Jr.
------------------------------
Herman F. Dick, Jr.
Treasurer and Chief Financial Officer
20
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 19982002,
2001 AND 19972000
YEAR ENDED DECEMBER 31,
1999 1998 19972002 2001 2000
------------ ------------ ------------
NET SALES:
International $ 61,867,13545,823,311 $ 61,471,17240,765,466 $ 50,010,56652,275,698
Yamaha 15,929,190 12,927,328 13,415,54813,291,332 13,160,114 18,061,407
Lear 11,716,455 10,246,079 --
Freightliner 10,691,302 1,598,311 --
Other 12,807,943 3,320,644 1,513,84412,566,450 7,409,561 14,554,658
------------ ------------ ------------
TOTAL SALES 90,604,268 77,719,144 64,939,95894,088,850 73,179,531 84,891,763
Cost of sales 78,542,103 61,258,735 50,090,74279,022,177 64,243,230 71,827,602
Postretirement benefits expense 1,198,709 972,452 760,4101,247,182 1,077,547 1,148,822
------------ ------------ ------------
TOTAL COST OF SALES 79,740,812 62,231,187 50,851,15280,269,359 65,320,777 72,976,424
------------ ------------ ------------
GROSS MARGIN 10,863,456 15,487,957 14,088,80613,819,491 7,858,754 11,915,339
------------ ------------ ------------
Selling, general and administrative expense 8,992,917 7,696,315 7,320,3518,877,853 7,703,310 8,854,633
Postretirement benefits expense 150,113 132,218 114,429358,955 263,454 198,857
------------ ------------ ------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 9,143,030 7,828,533 7,434,7809,236,808 7,966,764 9,053,490
------------ ------------ ------------
OTHER INCOME 500,000 -- --
------------ ------------ ------------
INCOME/(LOSS) BEFORE INTEREST AND TAXES 1,720,426 7,659,424 6,654,0265,082,683 (108,010) 2,861,849
Interest income 258,620 254,920 233,873132,922 305,453 339,512
Interest expense (1,850,068) (1,681,472) (2,231,575)(2,025,187) (1,999,159) (1,970,378)
------------ ------------ ------------
INCOMEINCOME/(LOSS) BEFORE INCOME TAXES 128,978 6,232,872 4,656,3243,190,418 (1,801,716) 1,230,983
Income taxes:
Current (benefit) (11,074) 985,280 478,035170,457 30,367 231,051
Deferred 68,714 1,595,887 1,454,8081,013,538 28,058 284,581
------------ ------------ ------------
TOTAL INCOME TAXES 57,640 2,581,167 1,932,8431,183,995 58,425 515,632
------------ ------------ ------------
NET INCOMEINCOME/(LOSS) $ 71,3382,006,423 $ 3,651,705(1,860,141) $ 2,723,481715,351
============ ============ ============
NET INCOMEINCOME/(LOSS) PER COMMON SHARE:
BASIC $ 0.01 $ 0.38 $ 0.29
============ ============ ============AND DILUTED $ 0.010.21 $ 0.37(0.19) $ 0.280.07
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED 9,778,680 9,706,412 9,555,774
============ ============ ============
DILUTED 9,820,352 9,975,360 9,713,0209,778,680 9,778,680
============ ============ ============
See notes to consolidated financial statements.
1621
17
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1999 19982002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,128,8688,976,059 $ 3,117,0853,194,156
Accounts receivable (less allowance for doubtful accounts:
19992002 - $431,000$543,000 and 19982001 - $215,000) 19,714,554 17,618,575$715,000) 11,281,060 11,946,137
Inventories:
Finished and work in process goods 2,929,515 1,592,2882,391,077 1,679,745
Stores 2,513,062 2,630,9932,042,535 2,222,250
------------ ------------
Total inventories 5,442,577 4,223,2814,433,612 3,901,995
Deferred tax asset 1,069,914 928,0481,151,158 1,079,995
Prepaid expenses and other current assets 184,127 339,0282,218,900 1,704,262
------------ ------------
Total current assets 27,540,040 26,226,01728,060,789 21,826,545
Property, plant and equipment 39,667,232 35,834,61343,001,396 42,759,871
Accumulated depreciation (13,461,300) (11,754,866)(18,970,136) (17,398,659)
------------ ------------
Property, plant and equipment - net 26,205,932 24,079,74724,031,260 25,361,212
Deferred tax asset - net 11,890,677 12,101,25710,746,223 11,692,678
Mortgage-backed security investment 1,909,295 2,568,97794,589 924,041
Goodwill 1,097,433 1,097,433
Other assets 436,539 351,606353,419 405,356
------------ ------------
TOTAL $ 67,982,48364,383,713 $ 65,327,60461,307,265
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion long-term debt $ 305,0002,251,000 $ 285,000355,000
Accounts payable 11,067,668 7,360,9495,114,655 3,756,735
Accrued liabilities:
Compensation and related benefits 1,355,288 2,492,0062,706,272 3,379,217
Interest 892,477 725,82792,844 85,939
Taxes 819,621 636,934
Current portion graduated lease payments 188,219 13,241
Professional fees 300,796 417,487
Other accrued liabilities 1,923,143 2,144,477677,647 848,826
------------ ------------
Total current liabilities 15,543,576 13,008,25912,151,054 9,493,379
Long-term debt 26,700,150 27,005,15023,764,150 26,015,150
Interest rate swap 773,434 366,826
Graduated lease payments 903,835 876,026
Deferred long-term gain 2,915,825 3,369,3801,555,162 2,008,716
Postretirement benefits liability 3,899,936 3,093,1575,961,915 5,011,067
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value, authorized shares - 20,000,000;
Outstandingoutstanding shares: 1999 - 9,778,680; 19982002 and 2001 - 9,778,680 97,787 97,787
Paid-in capital 19,251,392 19,251,392
Accumulated other comprehensive loss, net of income tax benefit (510,466) (242,105)
Retained earnings (deficit) (426,183) (497,521)(accumulated deficit) 435,450 (1,570,973)
------------ ------------
Total stockholders' equity 18,922,996 18,851,65819,274,163 17,536,101
------------ ------------
TOTAL $ 67,982,48364,383,713 $ 65,327,60461,307,265
============ ============
See notes to consolidated financial statements.
17statements
22
18
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED TOTALACCUMULATED
COMMON STOCK RETAINED OTHER TOTAL
OUTSTANDING PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) LOSS EQUITY
------ ------ ------- --------- ----------------- ---------- -------------- ------------ ---------------- --------------
BALANCE AT JANUARY 1, 1997 9,474,6002000 9,778,680 $97,787 $ 94,746 $15,918,19319,251,392 $ 162,933 $16,175,872(426,183) $ - $ 18,922,996
Net Income 2,723,481 2,723,481
Issuance of restricted stock to employees 41,000 410 117,415 117,825
Unearned deferred stock compensation (117,825) (117,825)
Amortization of deferred stock compensation 50,555 50,555
Issuance of stock under stock option plan 100,000 1,000 81,500 82,500
Increase in Secured Note to International
(note 4) (2,937,331) (2,937,331)
Other (2,319) (23) 23715,351 715,351
----------- ----------- ----------- ----------- --------------------- -------------- ------------ ---------------- --------------
BALANCE AT DECEMBER 31, 1997 9,613,281 96,133 16,049,861 (50,917) 16,095,077
=========== =========== =========== =========== ===========2000 9,778,680 97,787 19,251,392 289,168 - 19,638,347
Net Income 3,651,705 3,651,705
Change in Valuation allowance (note 7) 3,000,000 3,000,000
Amortizationloss (1,860,141) (1,860,141)
To record the initial fair market (104,762) (104,762)
value of the interest rate swap, net
of deferred stock compensation 54,365 54,365
Issuanceincome tax benefit of
stock under stock option plan 167,600 1,676 147,144 148,820
Increase in Secured Note to International
(note 4) (4,098,309) (4,098,309)
Other (2,201) (22) 22$53,968
Hedge accounting effect of the (137,343) (137,343)
interest rate swap at December 31,
2001, net of deferred tax benefit of
$70,753
----------- ----------- ----------- ----------- --------------------- -------------- ------------ ---------------- --------------
BALANCE AT DECEMBER 31, 19982001 9,778,680 97,787 19,251,392 (497,521) 18,851,658
=========== =========== =========== =========== ===========(1,570,973) (242,105) 17,536,101
Net Income 71,338 71,3382,006,423 2,006,423
Hedge accounting effect of the (268,361) (268,361)
interest rate swap at December 31,
2002, net of deferred tax benefit of
$138,247
----------- ----------- ----------- ----------- --------------------- -------------- ------------ ---------------- --------------
BALANCE AT DECEMBER 31, 19992002 9,778,680 $ 97,787 $19,251,392 $ (426,183) $18,922,99619,251,392 $ 435,450 $ (510,466) $ 19,274,163
=========== =========== =========== =========== ===================== ============== ============ ================ ==============
See notes to consolidated financial statements.
1823
19
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ -----------------------------------------------------
2002 2001 2000
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net incomeincome/(loss) $ 71,3382,006,423 $(1,860,141) $ 3,651,705 $ 2,723,481715,351
Adjustments to reconcile net incomeincome/(loss) to net cash
provided by operating activities:
Depreciation and amortization 1,899,395 1,525,308 2,074,0932,088,591 2,039,732 2,121,221
Deferred income taxes 68,714 1,595,887 1,454,808
Loss1,013,538 28,058 284,581
Loss/(gain) on disposal of assets 14,995 17,900 26,71522,794 42,458 (11,376)
Amortization of gain on sale/leaseback transactions (453,554) (453,555) (338,114) (28,176)
Compensation expense(453,555)
Loss/(gain) on stock awards 54,365 50,555translation of foreign currency financial
statements (48,622) 9,598 --
Change in operating assets and liabilities:
Accounts receivable (2,095,979) (3,441,870) (12,278,920)665,077 3,312,104 6,493,234
Inventories (1,219,296) (916,562) 35,980(531,617) 135,019 1,798,459
Prepaid expenses and other assets 38,545 (220,720) 18,163(514,638) 805,850 (2,225,985)
Accounts payable 3,706,719 (433,454) 7,421,5341,357,920 (1,509,283) (5,801,650)
Accrued and other liabilities (1,191,402) 14,764 3,582,065(568,436) 91,589 (74,549)
Postretirement benefits liability 806,779 618,790 600,877
------------ ------------ ------------950,848 718,247 721,981
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,646,253 2,127,999 5,681,1755,988,324 3,359,676 3,567,712
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (7,384,864) (6,958,388) (10,340,851)
Proceeds from sale/leaseback transactions 3,375,712 6,829,431 12,000,000(680,873) (1,301,432) (1,977,722)
Acquisition of Airshield assets (1,953,000)
Proceeds from maturities on mortgage-backed security investment 659,682 648,372 77,700829,452 686,700 298,554
Proceeds from sale of property, plant and equipment 7,000 12,500
------------ ------------ ------------19,800
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)PROVIDED/(USED) IN INVESTING ACTIVITIES (3,349,470) 526,415 1,749,349148,579 (2,547,932) (1,679,168)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit 7,250,000 6,919,470 7,647,120
Payments on line-of-credit (7,250,000) (10,916,590) (3,650,000)
Payments of principal on secured note payable (3,000,000) (12,000,000)
Proceeds from issuance of industrial revenue bond 7,500,000
Payment of principal on industrial revenue bond (285,000) (130,000)
Issuance costs for industrial revenue bond (159,385)
Proceeds from exercise of stock options 148,820 82,500
------------ ------------ ------------(355,000) (330,000) (305,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)USED IN FINANCING ACTIVITIES (285,000) 362,315 (7,920,380)
------------ ------------ ------------(355,000) (330,000) (305,000)
----------- ----------- -----------
NET INCREASE/(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (1,988,217) 3,016,729 (489,856)5,781,903 481,744 1,583,544
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,117,085 100,356 590,212
------------ ------------ ------------3,194,156 2,712,412 1,128,868
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,128,8688,976,059 $ 3,117,0853,194,156 $ 100,356
============ ============ ============2,712,412
=========== =========== ===========
Cash paid for:
Interest (net of amounts capitalized) $ 1,579,5491,935,994 $ 2,039,7131,902,044 $ 1,082,514
============ ============ ============2,690,141
=========== =========== ===========
Income taxes (refund) $ 610,000(3,302) $ 823,200186,000 $ 122,500
============ ============ ============(84,666)
=========== =========== ===========
Supplemental disclosure of non-cash financing activities:
Sale leaseback receivable $ 4,098,309 $ 2,937,331
Increase in Secured Note payable to International ============ =============
Increase in paid-in capital for reversal of NOL
valuation allowance $ 3,000,000
============
Increase in post-retirement benefits liability $ 1,629,000
============1,584,000
===========
See notes to consolidated financial statements.
1924
20
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS FORMATION AND NATURE OF OPERATIONS
Core Molding Technologies, Inc. ("Core Molding", "the Company"),
formerly known as Core Materials Corporation, ("Core Materials") was formed on October 8,in 1996 by RYMAC Mortgage Investment Corporation ("RYMAC"), as a wholly owned
subsidiary, for the purpose
of acquiring substantially all of the assets and assuming certain of the
liabilities of Columbus Plastics Operation ("Columbus Plastics"), an operating
unit of Navistar International Transportation Corp. (now known as International
Truck and Engine Corporation, "International"). Throughout these NotesIn October 2001, Core Molding
acquired certain assets of Airshield Corporation, see note 3. As a result of
this acquisition, Core Molding expanded its fiberglass molding capabilities to
Financial Statements, references to Columbus Plastics
refers toinclude the operations ofspray up, hand lay up and vacuum assisted resin infused molding
processes.
Core Materials prior to the acquisition.
On December 31, 1996, RYMAC merged into its wholly owned subsidiary,
Core Materials, by converting each outstanding common share of RYMAC into the
right to receive one common share of Core Materials, with Core Materials as the
surviving corporation and continuing registrant. Simultaneously, on December 31,
1996, Core Materials purchased substantially all of the assets and assumed
certain liabilities of Columbus Plastics (the "Acquisition").
Based on the terms of the Acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
However, Core Materials is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax reporting
purposes. Consistent with reverse acquisition accounting treatment Core
Materials has carried forward the historical basis of the acquired assets and
assumed liabilities of Columbus Plastics and has revalued the basis of Core
Materials' net assets to fair value at December 31, 1996.
Core MaterialsMolding operates principally in one business segment as a compounder and compression molder of sheet
molding composites (SMC). and molder of fiberglass reinforced plastics. Core
MaterialsMolding produces and sells both SMC compound and molded products for varied
markets, including themedium and heavy-duty trucks, automotive, and trucking industries, recreational
vehicles and commercial and industrial products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of all subsidiaries after elimination of all
material intercompany accounts, transactions and profits.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted accounting principlesin the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosuredisclosures of contingent assets and
liabilities and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION - Revenue from product sales is recognized at the
time products are shipped.shipped and title transfers. Allowances for returned products
and other credits are estimated and recorded as revenue is recognized.
CASH AND CASH EQUIVALENTS - The CompanyCore Molding considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Cash is held primarily in one bank.
MORTGAGE-BACKED SECURITY - The security whichthat matures in November 2025,
is considered held to maturity and is carried at cost. Core MaterialsMolding has the
intent and ability to hold this security to maturity.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out), or market. The Company had recorded an allowance for slow moving and
obsolete inventory of $278,000 at December 31, 2002 and $171,000 at December 31,
2001.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
recorded at cost. Depreciation is provided on a straight linestraight-line method over the
estimated useful lives of the assets. The carrying amount of long-lived assets
is evaluated annually to determine if adjustment to the depreciation period or
to the unamortized balance is warranted.
Such evaluation is based principally on
the expected utilization of the long-lived assets.
Ranges of estimated useful lives for computing depreciation are as
follows:
Land improvements 20 years
Building and improvements 20-40 years
Machinery and equipment 3-15 years
Tools, dies and patterns 3-5 years
20Depreciation expense was $1,983,000, $2,010,000 and $2,094,000 for
2002, 2001, and 2000.
In 2002, 2001 and 2000, approximately $0, $37,000 and $50,000 of
interest costs were capitalized in property, plant and equipment.
25
21
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Depreciation expenseLONG-LIVED ASSETS - Long-lived assets consist primarily of property and
equipment and goodwill. The recoverability of long-lived assets is evaluated at
the operating unit level by an analysis of operating results and consideration
of other significant events or changes in the business environment. If an
operating unit has indications of impairment, such as current operating losses,
the Company will evaluate whether impairment exists for property and equipment
on the basis of undiscounted expected future cash flows from operations before
interest for the remaining amortization period. For goodwill, the Company will
evaluate whether impairment exists on the basis of discounted expected future
cash flows from operations before interest. If impairment exists, the carrying
amount of the long-lived assets is reduced to its estimated fair value, less any
costs associated with the final settlement. For the years ended December 31,
2002, 2001 and 2000, there was $1,868,000, $1,510,000 and $2,074,000 for
1999, 1998, and 1997, respectively.
In 1999, 1998 and 1997, approximately $72,000, $189,000 and $180,000no impairment of interest costs were capitalized.the Company's long-lived assets.
SELF-INSURANCE --Core Materials- Core Molding is self-insured with respect to most of
its medical and dental claims and workers' compensation claims. Core MaterialsMolding has
recorded an estimated liability for self-insured medical and dental claims
incurred and worker's compensation claims incurred but not reported at December
31, 19992002 and 19982001 of $375,000$650,000 and $350,000,$625,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Core Materials'Molding's financial
instruments consist of a mortgage backed security investment, long term debt, an
interest rate swap, accounts receivable, accrued liabilities and accounts
payable. The carrying amount of thethese financial instruments approximated their
fair value. The fair value of the Company's interest rate swap at December 31,
2002 and 2001 was a liability of $773,000 and $367,000, respectively.
CONCENTRATION OF CREDIT RISK - Core MaterialsMolding has significant
transactions with twofour customers, International, and Yamaha Motor Manufacturing
Corporation, thatLear Corporation and Freightliner, which comprised 86%87%, 96%90% and 98%83%
of total sales in 1999, 19982002, 2001 and 19972000 and 77%93% and 87%81% of the accounts receivable
balances at December 31, 19992002 and 1998.2001. Core MaterialsMolding performs ongoing credit
evaluations of its customers' financial condition. Core MaterialsMolding maintains
reserves for potential bad debt losses, and such bad debt losses have been
historically within the Core Materials'Molding's expectations. EARNINGSExport sales, including sales
to Canada, for products provided to International's manufacturing and service
locations totaled 15%, 12% and 17% of total sales for 2002, 2001 and 2000,
respectively.
EARNINGS/(LOSS) PER COMMON SHARE - Basic earningsearnings/(loss) per common
share is computed based on the weighted average number of common shares
outstanding during the period. Diluted earningsearnings/(loss) per common share isare
computed similarly but includesinclude the effect of the assumed exercise of dilutive
stock options under the treasury stock method.
RESTRICTED CASHSTOCK BASED COMPENSATION - IncludedThe Company accounts for its stock option
plans in cash at December 31, 1999accordance with APB Opinion No. 25, under which no compensation cost
has been recognized. Had compensation cost for all stock option plans been
determined consistent with the SFAS No. 123, "Accounting for Stock Based
Compensation," the Company's net income (loss) and December
31, 1998 is $322,811 and $309,602, respectively, which is restricted pursuant toearnings/(loss) per common
share would have resulted in the termsamounts as reported below.
YEARS ENDED DECEMBER 31,
2002 2001 2000
----------- ----------- -----------
Net income (loss) as reported $ 2,006,423 $(1,860,141) $ 715,351
Deduct: Total stock-based employee compensation
expense determined under fair value based method for all
awards, net of related tax effects 198,788 223,214 74,474
----------- ----------- -----------
Pro forma net income (loss) $ 1,807,635 $(2,083,355) $ 640,877
=========== =========== ===========
Earnings per share:
Basic and diluted - as reported $ 0.21 $ (0.19) $ 0.07
Basic and diluted - pro forma $ 0.19 $ (0.21) $ 0.07
The pro forma amounts are not representative of the Industrial Revenue Bondeffects on reported
net earnings or earnings per common share for future years and exclude the pro
forma effect of the Mexican acquisition (see Note 4)3).
This restriction will be
removed as Core Materials incurs and submits for reimbursement qualified
expenditures related to the project for which the bond was issued.26
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RECLASSIFICATIONS -Reclassifications- Reclassifications have been made to prior years'
amounts to conform withto the classifications of such amounts for 1999.
NEW2002. In the
current year, the Company has classified completed tooling projects as revenue
and cost of goods sold in the consolidated statements of operations. Previously,
the Company classified the net effect of tooling projects as a miscellaneous
gain (loss) in selling, general and administrative expenses. Tooling projects
are and have been accounted for under the completed contracts method. For
comparative purposes, amounts in prior years have been reclassified to conform
to current year presentations. 2001 tooling revenue was $4,815,000 and the
associated cost of goods sold was $4,787,000. 2000 tooling revenue was
$1,346,000 and the associated cost of goods sold was $1,346,000. This change in
classification had no effect on previously reported net income (loss), cash flow
or stockholders' equity.
OTHER INCOME - Effective September 3, 2002, the Company changed its
ticker symbol on the American Stock Exchange from "CME" to "CMT". This change
took place because another corporation purchased the rights to use "CME" from
the Company for $500,000, which is included in other income in the consolidated
statements of operations.
RESEARCH AND DEVELOPMENT - Research and Development costs, which are
expensed as incurred, totaled approximately $270,000 in 2002 and $225,000 in
2001 and $250,000 in 2000.
RECENT ACCOUNTING PRONOUNCEMENTS - In September 1999,Effective January 1, 2002, the
Emerging Issues
Task Force reached consensus on Issue 99-5 (EITF 99-5) which pertainsCompany adopted SFAS No.142, "Goodwill and Other Intangible Assets". This
statement applies to pre-production costs incurred by original equipment manufacturer (OEM) suppliers
relatedintangibles and goodwill acquired after June 30, 2001, as
well as goodwill and intangibles previously acquired. Under this statement
goodwill as well as other intangibles determined to have an infinite life are no
longer amortized; however, these assets will be reviewed for impairment
periodically. Due to the designadoption of SFAS No. 142, the Company does not amortize
goodwill. The total net book value of goodwill at December 31, 2002 and development2001 was
$1,097,433. The adoption of SFAS No. 142 did not have an impact on the financial
statements of the parts they will supplyCompany.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to OEMsBe Disposed Of." The adoption of this
statement, as of January 1, 2002, did not have an impact on the Company's
consolidated financial statements.
As previously reported, FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and costs to design64, Amendment of FASB Statement No. 13, and build molds, dies and other tools which will be usedTechnical
Corrections" in manufacturing the parts. Companies must determine whether pre-production costs
meet the criteria in EITF 99-5 to be capitalized or should be expensed as
incurred. The EITFApril 2002. It is effective for designthe first quarter in the year
ended December 31, 2003. The Company does not believe the adoption of SFAS No.
145 will have a significant impact on its consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and developmentreporting for costs associated with exit or disposal activities
included in restructurings. This Statement eliminates the definition and
requirements for recognition of exit costs as defined in EITF Issue 94-3, and
requires that liabilities for exit activities be recognized when incurred
instead of at the exit activity commitment date. This Statement is effective for
exit or disposal activities initiated after December 31, 1999. Core Materials has determined that2002. The Company is
currently analyzing the impact of this statement and does not believe it will
have a material impact on its current pre-production costsconsolidated financial statements.
FOREIGN CURRENCY ADJUSTMENTS - In conjunction with Core Molding's
acquisition of certain assets of Airshield Corporation (see Note 3), the Company
has established operations in Mexico. The functional currency for the Mexican
operations is not material.
In June 1998, the Financial Accounting Standards Board issued StatementUnited States dollar. All foreign currency asset and liability
amounts are remeasured into United States dollars at end-of-period exchange
rates except for inventories, prepaid expenses and property plant and equipment,
which are remeasured at historical rates. Income statement accounts are
translated at average rates for the year. Gains and losses resulting from
translation of Financial Accounting Standards No. 133, "Accounting for Derivative
Instrumentsforeign currency financial statements into United States dollars
and Hedging Activities," to establish accountinggains and reporting
requirements for derivative instruments. This standard requires recognition of
all derivative instruments in the statement of financial position as either
assets or liabilities, measured at fair value. This statement additionally
requires changes in the fair value of derivatives to be recorded each periodlosses resulting from foreign currency transactions are included
in current earnings or comprehensive income depending on the intended use of the
derivatives. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the effective date of SFAS 133", which amends SFAS by deferring
for one year the effective date of SFAS 133, to those fiscal years beginning
after June 15, 2000. Core Materials is currently assessing the impact of this
statement on its results of operations. Aggregate foreign currency translation and
transaction gains included in operations and financial position and plans to
implement statement No. 133, January 1, 2001.
21totaled $48,622 in 2002.
27
22
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. ACQUISITION OF AIRSHIELD CORPORATION ASSETS
On October 16, 2001, Core Molding Technologies, Inc. purchased
substantially all of the assets, consisting primarily of inventory, accounts
receivable and manufacturing equipment, of Airshield Corporation, a privately
held manufacturer of fiberglass reinforced plastic parts for the truck and
automotive-aftermarket industries. Airshield was based in Brownsville, Texas,
with manufacturing operations in Matamoros, Mexico. Airshield had been operating
under Chapter 11 bankruptcy protection since March 2001. Core Molding has
continued operations from Airshield's former manufacturing facility in
Matamoros, Mexico.
The purchase price for the acquisition of substantially all of the
assets of Airshield Corporation was $1,953,000. In addition, Core Molding or its
subsidiaries assumed certain liabilities related to the transfer of employees
from Airshield's Mexican subsidiary to Core Molding's new Mexican subsidiary.
The acquisition was financed from the cash reserves of Core Molding.
The following table presents the allocation of the acquisition cost,
including professional fees and other related acquisition costs, to the assets
acquired and liabilities assumed:
Inventory $ 392,896
Accounts receivable 2,036,921
Property, plant and equipment 166,375
Goodwill 1,097,433
-------------
Total Assets 3,693,625
=============
Payroll liabilities assumed 1,700,194
Other current liabilities 40,431
-------------
Total Liabilities 1,740,625
=============
Total acquisition cost $ 1,953,000
=============
The following (unaudited) pro forma consolidated results of operations
have been prepared as if the acquisition of substantially all the assets of
Airshield Corporation had occurred at the beginning of the year presented.
Year Ended Year Ended
December 31, 2001 December 31, 2000
----------------- -----------------
Net sales $ 84,537,505 $ 101,329,083
============== ==============
Net loss $ (3,280,948) $ (1,330,195)
============== ==============
Net loss per share - basic
and diluted $ (0.34) $ (0.14)
============== ==============
The pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of that time,
nor is it intended to be a projection of future results. The effects of the
acquisition have been included in the consolidated statement of operations since
the acquisition date.
28
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. FOREIGN OPERATIONS
In conjunction with the Company's acquisition of substantially all the
assets of Airshield Corporation on October 16, 2001(see Note 3), Core Molding
established manufacturing operations in Mexico (under the Maquiladora program).
The Mexican operation is a captive manufacturing facility of Core Molding.
Essentially all sales of the Mexican operation are made to United States
customers in United States dollars, which totaled $20,468,000 in 2002 and
$3,532,000 in 2001. Expenses are incurred in the United States dollar and the
Mexican peso. Expenses incurred in pesos include labor, utilities, supplies and
materials, and amounted to approximately 39% of sales in 2002 and 31% of sales
from the acquisition date to December 31, 2001. Core Molding owns long-lived
assets that are geographically located at the Mexican operation, which total
$298,000 at December 31, 2002. Core Molding's manufacturing operation in Mexico
is subject to various political, economic, and other risks and uncertainties
inherent to Mexico. Among other risks, Core Molding's Mexican operation is
subject to domestic and international customs and tariffs, changing taxation
policies and governmental regulations.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
1999 1998
------------ ------------
Land and land improvements $ 2,146,753 $ 2,136,959
Buildings 16,797,587 16,349,245
Machinery and equipment 16,879,471 15,871,858
Tools, dies and patterns 635,063 460,802
Additions in progress 3,208,358 1,015,749
------------ ------------
Total 39,667,232 35,834,613
Less accumulated depreciation (13,461,300) (11,754,866)
------------ ------------
Property, plant and equipment - net $ 26,205,932 $ 24,079,7472002 2001
------------ ------------
Land and land improvements $ 2,150,606 $ 2,150,606
Buildings 17,391,966 17,319,654
Machinery and equipment 20,202,400 19,954,637
Tools, dies and patterns 566,814 566,814
Additions in progress 2,689,610 2,768,160
------------ ------------
Total 43,001,396 42,759,871
Less accumulated depreciation (18,970,136) (17,398,659)
------------ ------------
Property, plant and equipment - net $24,031,260 $25,361,212
============ ============
Additions in progress at December 31, 19992002 and 19982001 primarily relatesrelate
to the purchase and installation of equipment at Core Materials' Columbus, Ohio
and Gaffney, South CarolinaMolding's operating
facilities. At December 31, 1999,2002 and 2001, commitments for capital expenditures
in progress were $1,591,000.$107,000 and $32,000, respectively.
Core MaterialsMolding has entered into various sale-leaseback arrangements with
a financial institution, whereby it sold certain equipment and leased such back
under operating lease arrangements (see Note 4)6).
4.29
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. DEBT AND LEASES
Long termLong-term debt consists of the following at December 31:
1999 19982002 2001
------------ ------------
Secured Note Payable due to International, interest at 8%, payable
semi-annually, principal due NovemberDecember 2006, secured by a subordinated
lien and security interest in all Core Materials' assetsMolding's assets. $ 19,920,150 $ 19,920,150
Industrial Revenue Bond, interest adjustable weekly (1999(2002 average 3.5%1.7%;
2001 average 3.0%), payable quarterly, principal due in variable
quarterly installments through April, 2013, secured by a bank letter of
credit with a balance of $7,299,000$6,279,000 as of December 31, 1999 7,085,000 7,370,0002002. 6,095,000 6,450,000
------------ ------------
Total 27,005,150 27,290,15026,015,150 26,370,150
Less current portion (305,000) (285,000)(2,251,000) (355,000)
------------ ------------
Long-term debt $ 26,700,15023,764,150 $ 27,005,15026,015,150
============ ============
22
23
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
SECURED NOTE PAYABLE
In connection withUnder the acquisition, Core Materials was also required to
pay International future consideration in the formterms of an increase in the
principal amount of the Secured Note if Core Materials achieved earnings before
interest and taxes, as defined in the Asset Purchase Agreement, in excess of
established thresholds during the period of 1997 through 1999. For 1997 and
1998, Core Materials' earnings exceeded these thresholds and the Secured Note
was increased by approximately $2,937,000 and $4,098,000, respectively. No
increase was necessary for 1999 as Core Materials' earnings were below the
established threshold.
Contingent principal payments under the secured note are due as follows:payable to International, Core Molding may
be required to make payments on the principal of the note if either of the
following two conditions exists:
a) Within ninety (90) days after the end of each fiscal year of Core
MaterialsMolding during the term of the Secured Note, Core MaterialsMolding is to pay
principal in an amount equal to the amount, if any, by which the
total cash and cash equivalents of Core Materials,Molding, as of the end of
such fiscal year, exceeds $3,000,000, as long as there is no
outstanding balance on the revolving line of credit and to the
degree Core MaterialsMolding is in compliance with all loan covenants; and
b) In the event Core MaterialsMolding obtained, from time to time, any
refinancing loan (as defined by the terms of the Secured
Note), Core MaterialsMolding is to promptly, upon obtaining such loan,
pay principal in an amount equal to the proceeds of such loan.
Total cash and cash equivalents of Core MaterialsMolding as of December 31, 19982002
were $3,117,085. However, International waived any$8,976,059. Because the Company was in compliance of all three of its debt
covenants, a principal payment in the amount of $1,861,000, which is classified
as a current portion of long term debt on the excess over $3,000,000 at December 31, 1998.Company's balance sheet, was made
to International in March 2003. Based upon the financial position of Core
MaterialsMolding at December 31, 1999,2002, the remaining balance of the Secured Note is
classified as long-term on the balance sheet.
During 1997, the final purchase price adjustments were reviewed by Core
Materials and International management. As a result of this review, it was
agreed that Core Materials would assume an additional $1,629,000 of accumulated
benefits obligations relating to postretirement benefits at December 31, 1996
and reduce the Secured Note payable to International by the same amount and
amend the December 31, 1996 closing balance sheet of Columbus Plastics to
reflect the reclassification of these two long-term liabilities (see Note 8).
The provisions of the Secured Note prohibit the declaration or payment
of cash dividends, the repurchase or retirement of capital stock, as well as the
pledge of any of Core Materials'Molding's assets or revenue as a security lien to a third
party, except as approved by International, as long as the Secured Note is
outstanding.
LINE OF CREDIT
At December 31, 1999,2002, Core MaterialsMolding had available a $7,500,000 variable
rate bank revolving line of credit. This facility, which maturescredit scheduled to mature on NovemberApril 30, 2000,2004. The
line of credit bears interest at LIBOR plus three and one-quarter percent or at
the prime rate. The line of credit is secured by a first priority lien and
security interest in all Core Materials'Molding's business assets. The line of credit bears interest at LIBOR
plus two percent or prime as elected by Core Materials. There was no
outstanding balance under this facility at any time during the years ended
December 31, 19992002 and 1998.
As of December 31, 1999, Core Materials was in violation of all three
of its financial debt covenants for the Line of Credit and letter of credit
securing the industrial revenue bond and certain equipment leases. The covenants
relate to maintaining certain financial ratios. Core Materials has received
waivers for the covenants as of December 31, 1999 and a written commitment from
the bank to waive these covenants each quarter through the quarter ended
September2001.
30
2000 if Core Materials operates in compliance with financial
projections for fiscal year 2000 and does not experience any material adverse
change to its financial condition. Core Materials has operated in compliance
with the projections for the months of January and February 2000.
23
24
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INDUSTRIAL REVENUE BOND
In May 1998, Core MaterialsMolding borrowed $7,500,000 through the issuance of
an Industrial Revenue Bond ("IRB"). Core Materials used $4,500,000 of the
proceeds to fund the development of the Gaffney plant and $3,000,000 to repay
principal on the Secured Note to International. The IRB bears interest at a weekly
adjustable rate and matures in April 2013. The maximum interest rate that may be
charged at any time over the life of the IRB is 10%. Principal is
payable beginning in July, 1998. Total remaining principal
maturities by year are: 2000 - $305,000; 2001 - $330,000; 2002 - $355,000; 2003 - $390,000; 2004 - $420,000$420,000; 2005 - $450,000; 2006
- - $490,000; 2007 - $530,000 and thereafter - $5,285,000.
In conjunction with the IRB, in June, 1998, Core Materials entered into
an interest rate swap agreement with a commercial bank. This agreement
effectively converts the variable rate IRB to fixed interest debt. Under this
agreement, Core Materials pays a fixed rate of 4.89% to the bank and receives
76% of the 30-day commercial paper rate. The difference paid or received varies
as short-term interest rates change and is accrued and recognized as an
adjustment to interest expense. The swap term matches the payment schedule on
the IRB with final maturity in April 2013. While Core Materials is exposed to
credit loss on its interest rate swap in the event of non-performance by the
counterparty to the swap, management believes such non-performance is unlikely
to occur given the financial resources of the counterparty.$3,815,000.
As security for the IRB, Core MaterialsMolding obtained a letter of credit from
a commercial bank, which has a balance of $7,299,000$6,279,000 as of December 31, 1999.2002.
The letter of credit can only be used to pay principal and interest on the IRB.
Any borrowings made under the letter of credit bear interest at the bank's prime
rate and are secured by a lien and security interest in all of Core Materials'Molding's
business assets. The letter of credit expires in April 2004 but may be extended
for an additional one yearone-year period in April of each year.
LEASESINTEREST RATE SWAP
When Core Molding Technologies, Inc. enters into variable rate
obligations or purchases variable rate interest bearing assets, it considers the
potential effect of interest rate fluctuations on such instruments. In 1997,order to
minimize the effects of interest rate fluctuations on its operations, the
Company may enter into interest rate management arrangements.
In conjunction with its variable rate Industrial Revenue Bond, Core
MaterialsMolding entered into an interest rate swap agreement, which was designated as a
sale-leaseback arrangementcash flow hedging instrument, with a commercial bank in June 1998. Under this
agreement, Core Molding pays a fixed rate of 4.89% to the bank and receives 76%
of the 30-day commercial paper rate. The difference paid or received varies as
short-term interest rates change and is accrued and recognized as an adjustment
to interest expense. The swap term and notional amount matches the payment
schedule on the IRB with final maturity in April 2013. While Core Molding is
exposed to credit loss on its interest rate swap in the event of non-performance
by the counterparty to the swap, management believes such non-performance is
unlikely to occur given the financial institution. Equipment, consisting primarilyresources of SMC presses with a
net bookthe counterparty. The
effectiveness of the swap is assessed at each financial reporting date by
comparing the commercial paper rate of the swap to the benchmark rate underlying
the variable rate of the Industrial Revenue Bond.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities, on
January 1, 2001. At January 1, 2001, Core Molding recorded the fair value of approximately $8,619,000,its
interest rate swap agreement of $159,000 as a long-term liability and $105,000
(net of deferred income tax benefit of $54,000) to accumulated other
comprehensive income (loss). Core Molding recorded an additional liability of
$407,000 and $208,000 to adjust the interest rate swap to fair value at December
31, 2002 and 2001 respectively.
BANK COVENANTS
Core Molding is subject to formal debt covenants with regards to its
Line of Credit and letter of credit securing the industrial revenue bond and
certain equipment leases.
As of December 31, 2002, Core Molding was soldin compliance of all three of
its financial debt covenants for $12,000,000the Line of Credit and leased
back underletter of credit
securing the industrial revenue bond and certain equipment leases. The covenants
relate to maintaining certain financial ratios.
31
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LEASES
Core Molding leases a 10-year lease operating agreement. Core Materials recordedsignificant portion of its manufacturing
equipment as a deferred gainresult of approximately $3,381,000 on the transaction, which is being
accreted to income over the life of the lease.
In 1998, Core Materials entered into two sale-leaseback arrangements Core Molding has entered
with a financial institution. In the first arrangement, equipment consisting
primarilyinstitutions in previous years. These leases have been recorded
as operating leases, which had original lease terms of SMC presses and a water jet, was sold for its net book value of
$5,279,000 and leased back under a 10-year operating lease agreement. No gain or
loss resulted from the transaction. In the second arrangement, equipment
consisting of two SMC presses, with a net book value of $742,000 were sold for
$1,550,000 and then leased back under a 7-year operating lease agreement. Core
Materials recorded a deferred gain of approximately $808,000 on the second
transaction which is being accreted2 to income over the life of the lease.
In December 1999, Core Materials entered into sale-leaseback
arrangements with a financial institution. An SMC press was sold for its net
book value of $1,922,000 and leased back under a 10-year operating lease
agreement. In addition, equipment consisting of two SMC presses and a dust
collection system was sold for their net book values of $1,454,000 and leased
back under a 7-year operating lease agreement. No gain or loss resulted from
these transactions.12 years.
As a result of the aboveearlier sale-leaseback transactions, Core MaterialsMolding
recognized into income in 2002, 2001 and 2000 approximately $454,000 $338,000 and $28,000 of the
deferred gains for 1999, 1998 and 1997, respectively.in each of the three years. At December 31, 19992002 and 1998,2001, Core
Materials'Molding's deferred gains on thesefrom leasing transactions totaled $3,369,000$2,009,000 and
$3,823,000,$2,462,000, respectively. The current portion of the deferred gains was $454,000
at December 31, 19992002 and 19982001 and was included in accrued liabilities.
24
25
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)In October 2001, in conjunction with the acquisition discussed at Note
3, Core MaterialsMolding's Mexican subsidiary entered into a 10-year lease agreement for
a manufacturing facility in Matamoros, Mexico. The Company leases 266,717 square
feet of a 313,221 square feet facility, with an option to lease the entire
facility. The Company has an option to purchase the facility at any time during
the first seven years. The Company may cancel the lease upon giving six months
notice to the lessor. Annual rent on the facility is determined based on the
number of square feet rented multiplied by the following factors: year one and
two equals $0.24 per square foot; year three equals $0.28 per square foot; year
four equals $0.30 per square foot; and years five through ten will be based on
the previous year's monthly rental rate plus a percentage increase or decrease
based on the Consumer Price Index.
Core Molding also leases certain other equipment under operating
leasesa warehouse facility in Brownsville, Texas.
The lease term of this facility is three years and provides for monthly rental
payments of $7,560. This lease is cancelable with original lease terms of 2 to 10 years.sixty days written notice.
Total rental expense was $2,776,000, $2,462,000$4,341,000, $3,757,000 and $701,000$3,301,000 for
1999, 19982002, 2001 and 1997, respectively.2000.
The future minimum lease payments under non-cancelable operating leases
that have lease terms in excess of one year are as follows:
2003 $3,464,000
2004 3,546,000
2005 3,546,000
2006 3,254,000
2007 2,852,000
Thereafter 1,614,000
-----------
Total minimum lease payments $18,276,000
============
32
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents net income (loss) plus the
results of certain non-shareowners' equity changes not reflected in the
Consolidated Statement of Operations. The components of comprehensive income
(loss), net of tax, are as follows:
2002 2001 2000
----------- ----------- -----------
2000
Net income/(loss) $ 3,073,000
2001 2,895,000
2002 2,908,000
2003 3,251,000
2004 3,334,000
Thereafter 9,993,0002,006,423 $(1,860,141) $ 715,351
Cumulative effect of change in accounting principle -- (104,762) --
(SFAS No. 133) on other comprehensive income
Hedge accounting effect of interest rate swap (268,361) (137,343) --
----------- Total minimum lease payments $25,454,000----------- -----------
Comprehensive income (loss) $ 1,738,062 $(2,102,246) $ 715,351
=========== =========== ===========
5.8. EQUITY
ANTI-TAKEOVER MEASURES
Core Materials'Molding's Certificate of Incorporation and By-laws contain certain
provisions designed to discourage specific types of transactions involving an
actual or threatened change of control of Core Materials.Molding. These provisions, which
are designed to make it more difficult to change majority control of the Board
of Directors without its consent, include the following:
Removalfollowing provisions related to
removal of Directors, - This provision provides that a directorthe approval of Core Materials may be removed with or without cause only
upon the vote of the holders of at least 80% of the voting
power of the outstanding shares of capital stock entitled to
vote generally in the election of directors.
Supermajority Approval - This provision requires that a merger and certain other transactions (asas
outlined in the Certificate of Incorporation) be approved by the affirmative vote of the
holders of at least 66 2/3% of the then outstanding shares of
Core Materials' common stock. Such affirmative vote is
required not withstanding the fact that no vote may be
required, or that a lesser percentage may be specified by law.
Amendments - This provision requires that any amendment to the
provisions relating to the removal of directors be approved by
the holders of at least 80% of the then outstanding shares of
voting stock,Incorporation and any amendmentamendments to provisions requiring the
approval of the holders of at least 66 2/3% of the then
outstanding shares of voting stock be approved by the holders
of at least 66 2/3% of the then outstanding shares of voting
stock.these
provisions:
RESTRICTIONS ON TRANSFER
Core Materials'Molding's Certificate of Incorporation also contains a provision
(the "Prohibited Transfer Provision") designed to help assure the continued
availability of Core Materials'Molding's substantial net operating loss and capital loss
carryforwards (see Note 7)10) by seeking to prevent an "ownership change" as
defined under current Treasury Department income tax regulations. Under the
Prohibited Transfer Provision, if a stockholder transfers or agrees to transfer
stock, the transfer will be prohibited and void to the extent that it would
cause the transferee to hold a "Prohibited Ownership Percentage" (as defined in
Core Materials'Molding's Certificate of Incorporation, but generally, means direct and
indirect ownership of 4.5% or more of the Company's common stock) or if the
transfer would result in the transferee's ownership increasing if the transferee
had held a Prohibited Ownership Percentage within the three prior years or if
the transferee's ownership percentage already exceeds the Prohibited Ownership
Percentage under applicable Federal income tax rules. The Prohibited Transfer
Provision does not prevent transfers of stock between persons who do not hold a
Prohibited Ownership Percentage.
25
26
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
RESTRICTED COMMON STOCK
In 1997, Core Materials issued, in total, 41,000 shares of common
stock, par value $0.01 per share, to 410 employees (which constituted all of its
employees at the time of grant with the exception of certain executive
employees). The Company received no consideration for the issued shares. The
shares were issued as an incentive for its employees to remain with the Company
and were subject to forfeiture to the Company if an employee left prior to
December 31, 1998. During this period, the shares could not be transferred. As
of December 31, 1998, 45 of these employees terminated service with Core
Materials and, therefore, the 4,500 shares were forfeited and retired. The
market value of the remaining shares at the dates of grant totaled $105,000
which was recognized as compensation expense of $54,000 in 1998 and $51,000 in
1997.
PREFERRED STOCK
Core MaterialsMolding has authorized 10,000,000 shares of preferred stock (par
value: $0.01) of which none is issued.
6.33
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCENTIVE STOCK PLANS
STOCK OPTIONS
The Company has a Long Term Equity Incentive Plan (the "Plan"), as
originally approved by the shareholders in May 1997, and as amended in May 2000
to increase the number of shares authorized for issuance, that allows for grants
to directors and key employees of non-qualified stock options, incentive stock
options, director options, stock appreciation rights, restricted stock,
performance shares, performance units and other incentive awards up to an
aggregate of 1.53.0 million awards, each representing a right to buy a share of
Core Materials'Molding's common stock. The Plan expires on the earlier of December 31,
2006, or the date the maximum number of available awards under the plan have
been granted.
During 1999, 19982002, 2001 and 1997,2000, the Company granted non-qualified stock options and incentive stock options to directors and certain employees.under the
plan. The options have vesting schedules of five or tennine and one-half years from
the date of grant, are not exercisable after ten years from the date of grant,
and were granted at prices which equaled or exceeded the fair market value of
Core Materials'Molding's common stock at the date of grant.
In October, 1998, the Board of Directors of Core Materials voted to
grant a total of 125,000 incentive stock options to certain employees of Core
Materials at $3.50 per share which exceeded the fair market value of the stock
on the date of grant. These options replaced incentive stock options at prices
ranging from $3.69 to $5.13 per share that were previously granted to these
employees and were forfeited as a condition of this grant.
The Company accounts for its stock option plans in accordance with APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for all stock option plans been determined consistent with the
SFAS No. 123, "Accounting for Stock Based Compensation," the Company's pro forma
1999 net income/(loss) and earnings/(loss) per common share would have been
$(131,363) and $(.01) per basic and $(.01) diluted share, respectively. For
1998, pro forma net income and earnings per common share would have been
$3,463,018 and $.36 per basic share and $.35 per diluted share. For 1997, pro
forma net income and earnings per common share would have been $2,657,418 and
$.28 per basic share and $.27 per diluted share. The pro forma amounts are not
representative of the effects on reported net earnings or earnings per common
share for future years.
The weighted average fair value of options granted during 1999, 19982002, 2001
and 19972000 were $2.21, $3.31$1.40, $1.17 and $1.93.$1.84, respectively. The fair value of the
options granted were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: risk free interest rate of
6%5%, no expected dividend yield, expected lives of 8 and 9 years and expected
volatility of 80%89% for 19992002, 87% for 2001 and 1998 and 52%104% for 1997.
26
27
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)2000.
The following summarizes all stock option activity for the years ended
December 31:
1999 1998 19972002 2001 2000
--------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------- ---------- ------------ ---------- ----------- ----------
Outstanding - beginning of year 956,8001,149,000 $ 3.10 1,168,000 $ 3.11 1,038,100 $ 3.19
940,000 $ 2.48 260,000 $ 0.81
Granted 122,500 3.20 432,500 4.24 796,000 2.82
Exercised (167,600) 0.89 (100,000) 0.8384,500 2.75 32,000 2.75 467,500 2.75
Forfeited (41,200) 3.28 (248,100) 3.87 (16,000) 2.77
------------- ---------- ------------ ---------- ----------- ----------(24,500) 3.26 (51,000) 2.89 (337,600) 2.88
--------- ------ --------- ------ --------- ------
Outstanding - end of year 1,038,1001,209,000 $ 3.19 956,8003.07 1,149,000 $ 3.19 940,0003.10 1,168,000 $ 2.48
============= ========== ============ ========== =========== ==========3.10
========= ====== ========= ====== ========= ======
Exercisable at December 31 286,700622,050 $ 3.03 154,3503.17 506,250 $ 2.80 221,8503.15 313,350 $ 1.34
============= ========== ============ ========== =========== ==========3.19
========= ====== ========= ====== ========= ======
Options available for grant 454,300 535,600 720,000
============= ============ ===========1,783,400 1,843,400 1,824,400
========= ========= =========
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ------------------------------------------------------------------------------------------- -------------------------------------
WEIGHTED WEIGHTED AVERAGE
RANGE OF NUMBER OF AVERAGE CONTRACTUAL LIFE NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICES OPTIONS EXERCISE PRICE (YEARS)IN YEARS OPTIONS EXERCISE PRICE
------------ ----------------------------- ---------------- ------------ --------------------------------- --------------- -----------------
$2.75 620,100869,500 $ 2.75 7.5 219,7006.3 417,400 $ 2.75
$3.40 to $3.81 348,000269,500 3.58 8.6 53,000 3.625.6 148,650 3.63
$5.13 70,000 5.13 8.4 14,0005.4 56,000 5.13
------------ --------- ---------- ---------
1,038,100------ ------- ------
1,209,000 $ 3.19 286,7003.07 622,050 $ 3.03
============3.17
========= ========== =============== ======= ======
7.34
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. INCOME TAXES
Components of the provision (credit) for income taxes are as follows:
1999 1998 19972002 2001 2000
----------- ----------- -----------
Current:
Federal - US $ (48,000)(111,000) $ 76,00024,000 $ 66,00027,000
Federal - Mexico 301,000 -- --
State and local 37,000 909,000 412,000(20,000) 6,000 204,000
----------- ----------- -----------
(11,000) 985,000 478,000
Deferred :170,000 30,000 231,000
Deferred:
Federal 90,000 1,817,000 1,346,000491,000 (655,000) 351,000
State and local (21,000) (221,000) 109,000523,000 37,000 (66,000)
Increase in valuation allowance for
net operating loss carryforward -- 646,000 --
----------- ----------- -----------
69,000 1,596,000 1,455,0001,014,000 28,000 285,000
----------- ----------- -----------
Provision for income taxes $ 1,184,000 $ 58,000 $ 2,581,000 $ 1,933,000516,000
=========== =========== ===========
27
28
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Federal deferred tax expense does not represent cash payment of
income taxes and was primarily generated by the utilization of net operating
loss (NOL) carry forwards and the increase of temporary differences, and will
not require future cash payments.
A reconciliation of the income tax provision based on the federal
statutory income tax rate of 34% to the Company's income tax provision for the
year ended December 31 is as follows:
1999 1998 1997
---------- ---------- ----------2002 2001 2000
----------- ----------- -----------
Provision at federal statutory rate - US $ 44,000 $2,119,000 $1,583,0001,085,000 $ (613,000) $ 419,000
Effect of foreign taxes 32,000 -- --
State and local tax expense, net of federal benefit 10,000 454,000 339,00081,000 17,000 91,000
Increase in valuation allowance for net operating
loss carryforward 646,000 --
Non-deductible expenses 4,00015,000 8,000 11,000
---------- ---------- ----------6,000
Revision of prior years' taxes (29,000) -- --
----------- ----------- -----------
Provision for income taxes $ 1,184,000 $ 58,000 $2,581,000 $1,933,000
========== ========== ==========$ 516,000
=========== =========== ===========
Deferred tax assets (liabilities) consist of the following at December 31:
1999 1998
------------ ------------
Current Asset:
Accrued liabilities $ 1,053,000 $ 895,000
Other, net 17,000 33,000
------------ ------------
Total current asset 1,070,000 928,000
Non-current asset (liability):
Property, plant and equipment 3,607,000 4,045,000
Net operating loss carryforwards 7,056,000 7,210,000
Capital loss carryforwards 1,390,000 3,017,000
Postretirement benefits 1,623,000 1,297,000
Other, net 374,000 319,000
------------ ------------
Total non-current asset 14,050,000 15,888,000
------------ ------------
Total deferred tax asset 15,120,000 16,816,000
Less valuation allowance (2,160,000) (3,787,000)
------------ ------------
Total deferred tax asset - net $ 12,960,000 $ 13,029,0002002 2001
------------ ------------
Current Asset:
Accrued liabilities $ 1,019,000 $ 974,000
Other, net 132,000 106,000
------------ ------------
Total current asset 1,151,000 1,080,000
Non-current asset:
Property, plant and equipment 3,126,000 3,709,000
Net operating loss carryforwards 5,785,000 6,974,000
Postretirement benefits 2,608,000 2,257,000
Interest rate swap 263,000 125,000
Other, net 389,000 53,000
------------ ------------
Total non-current asset 12,171,000 13,118,000
------------ ------------
Total deferred tax asset 13,322,000 14,198,000
Less valuation allowance (1,425,000) (1,425,000)
------------ ------------
Total deferred tax asset - net $ 11,897,000 $ 12,773,000
============ ============
35
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, 1999,2002, Core MaterialsMolding had approximately $20.8$17.0 million of
NOL carryforwards available to offset future taxable income. A valuation
allowance has been provided for those NOL carryforwards and temporary
differences, which are estimated to expire before they are utilized. A full
allowance has been provided against the approximately $4.1 million (to expire in
2001) of capital loss carryforwards, because the capital loss carryforwards are
estimated to expire before they are utilized. Based upon an extensive review of
future taxable income which was completed during the fourth quarter of 1998, the
deferred taxThe
valuation allowance was reduced by $3.0 million at December 31, 1998. This reduction was recorded as an increase in Paid in Capital, in2002, assumes that it is more likely than
not that approximately $4,200,000 of the equity section. Recording the reduction in the valuation allowance as an
increase in Paid in Capital was due to the fact that the original valuation
allowance was recorded as a reduction to Paid in Capital at December 31, 1996,
date of inception, due to reverse acquisition accounting treatment.
28
29
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)cumulative net operating losses will
not be realized before their expiration date.
Core Materials'Molding's NOL carryforwards expire as follows:
2007 $ 5,322,000
2008 10,823,000$10,560,000
2009 3,614,000
2010 638,000
2011 357,000
---------------2021 1,846,000
------------
Total $20,754,000
===============
8.$17,015,000
============
11. POSTRETIREMENT BENEFITS
Core MaterialsMolding provides postretirement benefits to substantially all of
its United States employees. Costs associated with postretirement benefits
include pension expense, postretirement health care and life insurance expense
and expense related to contributions to two 401(k) defined contribution plans.
In addition, Core MaterialsMolding also participates in a multi-employer defined benefit
plan for its United States union represented employees. All of Core Materials'Molding's
United States union employees are covered under a multi-employer defined benefit
pension plan administered under a collective bargaining agreement. ThisCore Molding
does not administer this plan is not administered by Core Materials and contributions are determined in accordance
with provisions in the negotiated labor contract.
Prior to the Acquisition,acquisition of Columbus Plastics from International,
certain of Core Materials'Molding's employees were participants in various International
sponsored pension and postretirement plans. The International pension plan for
non-represented employees was non-contributory and both benefits and years of
service were frozen as of the date of the Acquisition. In connection with the
Acquisition, International retained responsibility for the vested benefits as of
December 31, 1996, and Core MaterialsMolding agreed to reimburse International for early
retirement subsidies for certain employees. The accumulated benefit obligation,
which equals the projected benefit obligation and net liability, is $173,000$218,000 at
December 31, 19992002 and $159,000$203,000 at December 31, 1998, respectively.2001.
The postretirement health and life insurance plan provides healthcare
and life insurance for certain employees upon their retirement, along with their
spouses and certain dependents and calls forrequires cost sharing between Core Materials,Molding,
International and the participants in the form of premiums, co-payments and
deductibles. Core MaterialsMolding and International share the cost of benefits for
certain employees, pursuant to the Asset Purchase Agreement, using a formula that allocates the cost based upon the
respective portion of time that the employee was an active service participant
after the Acquisition to the period of active service prior to the Acquisition.
During 1997, Core Materials and International management reviewed all
purchase price adjustments, including the initial allocation of the Columbus
Plastics' December 31, 1996 accumulated postretirement benefit obligation for
the health and life insurance plan.
As a result of this review, Core Materials and International agreed
that Core Materials would assume an additional $1,629,000 of accumulated benefit
obligations as of December 31, 1996 and International would amend the December
31, 1996 closing balance sheet of Columbus Plastics to reflect this increase in
benefit obligation resulting in an equal reduction in the Core Materials'
Secured Note to International.
2936
30
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The funded status of the Company's postretirement health and life insurance
benefits plan as of December 31, 19992002 and 19982001 and a reconciliation with the
amounts recognized in the consolidated balance sheets are provided below:
POST RETIREMENT BENEFITS
-------------------------------------------------
1999 1998 1997-------------------------------------------
2002 2001 2000
----------- ----------- -----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 3,274,0006,787,000 $ 2,438,0004,678,000 $ 1,629,0004,020,000
Service cost 448,000 388,000 307,000434,000 385,000 367,000
Interest cost 233,000 171,000 130,000491,000 351,000 301,000
Unrecognized loss 65,000 277,000 372,000loss/(gain) 1,196,000 1,427,000 (10,000)
Benefits paid (56,000) (54,000) --
----------- ----------- -----------
BENEFIT OBLIGATION AT END OF YEAR $ 4,020,0008,852,000 $ 3,274,0006,787,000 $ 2,438 0004,678,000
----------- ----------- -----------
Unfunded status $(4,020,000) $(3,274,000) $(2,438,000)$(8,852,000) $(6,787,000) $(4,678,000)
Unrecognized net loss 662,000 639,000 372,0003,134,000 2,020,000 614,000
----------- ----------- -----------
Net liability $(3,358,000) $(2,635,000) $(2,066,000)$(5,718,000) $(4,767,000) $(4,064,000)
=========== =========== ===========
PLAN ASSETS -- -- --
=========== =========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate 7.50% 6.50% 8.00%7.25% 7.50%
30
31
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The components of expense for all of Core Materials'Molding's postretirement benefits
plans are as follows:
1999 1998 19972002 2001 2000
---------- ---------- ----------
Pension Expense:
Interest cost $ 14,00015,000 $ 12,00015,000 $ 10,00015,000
Defined contribution plan
contributions 288,000 196,000 161,000231,000 329,000 296,000
Multi-employer plan
contributions 322,000 328,000 267,000352,000 240,000 331,000
---------- ---------- ----------
Total Pension Expense 624,000 536,000 438,000598,000 584,000 642,000
---------- ---------- ----------
Health and Life Insurance:
Service cost 448,000 388,000 307,000434,000 385,000 367,000
Interest cost 233,000 171,000 130,000491,000 351,000 301,000
Amortization of net loss 44,000 10,000 --83,000 21,000 38,000
---------- ---------- ----------
Net periodic benefit cost 725,000 569,000 437,0001,008,000 757,000 706,000
---------- ---------- ----------
Total postretirement benefits
expense $1,349,000 $1,105,000 $ 875,000$1,606,000 $1,341,000 $1,348,000
========== ========== ==========
The weighted average rate of increase in the per capita cost of covered
health care benefits is projected to be 9.6%8.7%. The rate is projected to decrease
gradually to 5% by the year 20052007 and remain at that level thereafter. The
comparable assumptions for the prior year were 7%9.65% and 5%.
37
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The effect of changing the health care cost trend rate by one-
percentageone-percentage point
for each future year is as follows:
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- ----------------------------------- ---------------------
Effect on total of service and interest cost components $ 154,000208,869 $ (120,000)(162,355)
Effect on postretirement benefit obligation $ 503,000 $ (426,000)1,965,801 (1,608,582)
31
32
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
9.12. RELATED PARTIES
On December 31, 1996, Core Materials acquired substantially all of the
assets and assumed certain liabilities of Columbus Plastics from Navistar for
4,264,000 shares of Core Materials common stock, representing approximately 45%
of the total number of shares of Core Materials' common stock then issued and
outstanding.
In connection with the acquisition of Columbus Plastics, Core MaterialsMolding
and International entered into a Supply Agreement and a Transitional Services Agreement (the
"Services Agreement").Agreement. Under the terms of the Supply
Agreement, for a rolling
five year period commencing December 31, 1996, International agreed to purchase from Core Materials,Molding, and Core MaterialsMolding
agreed to sell to International at negotiated prices, which approximate fair
value, all of International's original equipment and service requirements for
Fiberglass Reinforced Parts using the Sheet Molding Composite process as they
then existed or as they may be improved or modified. As of December 31, 1999,2001,
the contract expired and has not been extended beyond
its original five year period. No minimum quantitiesrenewed, and business with International
continues on a purchase order basis, like business with all of annual production of
products or minimumCore Molding's
other customers. The purchase quantities are set forth or impliedorders typically provide volume commitments for
four weeks at prices previously negotiated. Customers can update their orders on
a daily basis for changes in the Supply
Agreement, and no penalties will be imposeddemand that allow them to run their inventories on
a "just-in-time" basis.
International for volumes of
products actually ordered by International below those quantities forecasted.
Under the termsowns 43.6% of the Services Agreement, International provided
certain accounting, computer services, and office support services to Core
Materials and procured insurance on Core Materials' behalf through March 1998.
Core Materials expensed $13,000 and $183,000 for these services in 1998 and
1997, respectively.Company's outstanding common stock.
Sales to International were $61,867,000$45,823,000 in 1999, $61,471,0002002, $40,765,000 in 19982001 and
$50,011,000,$52,276,000 in 1997,2000, of which $10,709,000$6,418,000 and $10,960,000$6,147,000 had not been received as
of December 31, 19992002 and 19982001 and waswere included in accounts receivable.
Receivables as of December 31, 19992002 and 19982001 also include an additional $1,518,000$964,000
and $2,024,000,$875,000, respectively, for tooling costs owed by International. Accounts
payable included $535,000$382,000 and $498,000,$211,000, respectively as of December 31, 19992002 and
19982001 for product returns, returnable container deposits, material purchases from
International and rework charges. Core MaterialsMolding expensed $1,516,000$1,616,000 in 1999, $1,340,0002002,
$1,625,000 in 19982001 and $2,322,000$1,611,000 in 1997,2000, for interest expense on the Secured
Note of which $815,000 and $647,000$9,000 had not been paid asat December 31, 2002. There was no
outstanding liability for accrued interest at December 31, 2001.
13. LABOR CONCENTRATION
As of December 31, 1999 and 1998 and was included in accrued
liabilities.
10. LABOR CONCENTRATION
At December 31, 1998,2002, Core MaterialsMolding employed a total of 661929
employees, 417which consists of whom, at401 employees in its Columbus, Ohio facility,U.S. operations and 528
employees in its Mexican operations. Of these 929 employees, 196 are covered by
a collective bargaining agreement with the International Association of
Machinists and Aerospace Workers ("IAM"), which extends to August 1, 2001.
327, 2004, and
464 are covered by a collective bargaining agreement with Sindicato de
Jorneleros y Obreros, which extends to January 16, 2005.
14. COMMITMENTS AND CONTINGENCIES
In late 2001 and early 2002, several lawsuits were filed in Mexico
against Airshield de Mexico, which is a Mexican subsidiary of Airshield
Corporation. As noted above, Core Molding acquired substantially all the assets
of Airshield Corporation in October 2001; however, Core Molding did not purchase
the assets or the stock of Airshield de Mexico. The lawsuits were filed by
certain of Airshield de Mexico's vendors as a result of unpaid debts of
Airshield de Mexico. Through these lawsuits, the vendors have attempted to
foreclose on inventory and equipment owned by Core Molding and located at its
Mexico facility. The total value of these assets at December 31, 2002, was
$1,027,000. To date, Core Molding has been successful in preventing these
foreclosure attempts. Core Molding is taking various actions through the Mexican
legal system to defend its assets and to prevent future claims. Core Molding'
Mexican legal counsel has advised the Company that it has valid legal position
to support the ownership of these assets; however, as with any case involving
litigation, the outcome of these claims is uncertain.
In July 2001, a former employee of Core Molding filed a suit in United
States District Court, Southern District of Ohio, Eastern Division, claiming her
employment was terminated in 1999 as a result of race discrimination. In
December 2002, the two parties settled this suit outside of court. The result of
the settlement did not have a material impact on the financial results of Core
Molding.
38
33
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11.15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 19992002 and 1998.2001.
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL YEAR
----------- ----------- ----------- ----------- ----------
1999:2002:
Net sales $22,431,715 $24,236,154$21,026,271 $26,651,614 $ 21,560,922 $22,375,477 $90,604,26823,398,880 $ 23,012,085 $94,088,850
Gross margin 4,336,949 2,844,650 1,306,802 2,375,055 10,863,4563,432,222 4,118,884 3,307,265 2,961,120 13,819,491
Income before interest and taxes 1,394,186 1,567,577 1,352,646 768,274 5,082,683
Net income 573,522 667,022 485,466 280,413 2,006,423
Net income per common share:
Basic and diluted $0.06 $0.07 $0.05 $0.03
$0.21
2001:
Net sales $20,533,600 $18,443,413 $ 14,535,477 $ 19,667,041 $73,179,531
Gross margin 2,391,036 2,434,952 936,180 2,096,586 7,858,754
Income (loss) before interest and taxes 2,314,812 651,361 (1,079,279) (166,468) 1,720,426390,067 698,230 (899,778) (296,529) (108,010)
Net income (loss) 1,169,883 149,857 (870,214) (378,188) 71,3383,656 175,757 (785,786) (1,253,768) (1,860,141)
Net income (loss) per common share:
Basic $.12and diluted $.00 $.02 $(.09) $(.04) $.01
Diluted $.12 $.02 $(.09) $(.04) $.01
1998:
Net sales $20,588,806 $19,149,756 $17,134,725 $20,845,857 $77,719,144
Gross margin 4,208,494 4,131,486 2,904,097 4,243,880 15,487,957
Income before interest and taxes 2,210,536 2,109,209 1,138,384 2,201,295 7,659,424
Net income 1,122,778 1,020,931 445,600 1,062,396 3,651,705
Net income per common share:
Basic $.12 $.11 $.05 $.11 $.38 (1)
Diluted $.11 $.10 $.05 $.11 $.37$(.08) $(.13)
$(0.19)
(1) Sum of the quarters do not add up to total year due to rounding.
No cash dividends were paid during 19992002 and 1998.
******2001.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
3339
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Part III, Item 10 is incorporated by
reference from Core Materials'Molding's definitive proxy statement for its annual meeting
of stockholders to be held on or about May 18, 2000,15, 2003, which is expected to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal
year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Part III, Item 11 is incorporated by
reference from Core Materials'Molding's definitive proxy statement for its annual meeting
of stockholders to be held on or about May 18, 2000,15, 2003, which is expected to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal
year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Part III, Item 12 is incorporated by
reference from Core Materials'Molding's definitive proxy statement for its annual meeting
of stockholders to be held on or about May 18, 2000,15, 2003, which is expected to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal
year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Part III, Item 13 is incorporated by
reference from Core Materials'Molding's definitive proxy statement for its annual meeting
of stockholders to be held on or about May 18, 2000,15, 2003, which is expected to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal
year covered by this report.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company and its consolidated subsidiaries required to be
included in the Company's periodic SEC filings. There were no significant
changes in the Company's internal controls or, to the Company's knowledge, in
other factors that could significantly affect such internal controls subsequent
to the date of the Company's evaluation of its internal controls.
40
PART IV
ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements are included
in Part II, Item 8 of this Form 10-K:
Independent Auditors' Report
Consolidated Statements of IncomeOperations for the Years
Ended December 31, 1999, 19982002, 2001 and 19972000
Consolidated Balance Sheets as of December 31, 19992002
and 19982001
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 19982002, 2001 and 19972000
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 19982002, 2001 and 19972000
Notes to Consolidated Financial Statements
34
35
(2) FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule is
filed with this Annual Report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts and
Reserves for the years ended December 31, 2002, 2001
and 2000
All other schedules are omitted because of the
absence of the conditions under which they are
required.
(3) EXHIBITS
See Index to Exhibits filed with this Annual Report on Form
10K.
(B)(b) REPORTS ON FORM 8-K
The Company filed no reportsa report on Form 8-K on November 14, 2002, regarding
the certification of the financial statements for the fourth quarterperiod ending
September 30, 2002. The report also included the actual certification
letters as signed by the Chief Executive Officer and Chief Financial
Officer of the Company's fiscal year ended December 31, 1999.
35Company.
41
36
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC.
By /s/ James L. Simonton
---------------------------------------------------------------------------------
James L. Simonton
President and Chief Executive Officer
Date: March 28, 200031, 2003
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
/s/ James L. Simonton President, Chief Executive Officer March 28, 200031, 2003
- --------------------------------------------- and Director
James L. Simonton
/s/ Kenneth M. Schmell Executive Vice President and March 28, 2000
- --------------------------------------------- Chief Operating Officer
Kenneth M. Schmell
/s/ Kevin L. Barnett Vice President, Secretary,Herman F. Dick, Jr. Treasurer and March 28, 200031, 2003
- --------------------------------------------- Chief Financial Officer
Kevin L. BarnettHerman F. Dick, Jr.
* Director March 28, 200031, 2003
- ---------------------------------------------
James F. Crowley
* Director March 28, 200031, 2003
- ---------------------------------------------
Ralph O. Hellmold
* Director March 28, 200031, 2003
- ---------------------------------------------
Thomas M. Hough
* Director March 28, 200031, 2003
- ---------------------------------------------
Malcolm M. Prine
* Director March 28, 200031, 2003
- ---------------------------------------------
Thomas R. Cellitti
*By Kevin/s/ James L. BarnettSimonton Attorney-In-Fact March 28, 2000
-----------------------------------------
Kevin31, 2003
------------------------------------
James L. BarnettSimonton
3642
37
CORE MATERIALS CORPORATIONMOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II
ValuationConsolidated valuation and qualifying accounts and reserves for the years ended
December 31, 1999, 19982002, 2001 and 1997.2000.
Reserves deducted from asset to which it applies - allowance for doubtful
accounts.
Additions
---------------------------------------------------------------
Balance at Charged to Charged to
Beginning Costs & Other Deductions Balance At
of Year Expenses Accounts (A) End of Year
--------------------------- ------------- ------------ ------------ ---------------------------- --------------- ---------------
Year Ended December 31, 19992002 $ 215,000715,000 $ 216,000174,000 $ 431,000346,000 $ 543,000
Year Ended December 31, 19982001 $ 240,000424,000 $ 25,000454,000 $ 215,000163,000 $ 715,000
Year Ended December 31, 1997 --2000 $ 247,000 --431,000 $ 7,00091,000 $ 240,00098,000 $ 424,000
(A) Amount represents uncollectableuncollectible accounts written off.
37Reserves deducted from asset to which it applies - deferred income tax valuation
allowance.
Additions
-------------------------------
Balance at Charged to Charged to
Beginning Costs & Other Deductions Balance At
of Year Expenses Accounts (A) End of Year
--------------- ------------- --------------- --------------- ---------------
Year Ended December 31, 2002 $ 1,425,000 $ 1,425,000
Year Ended December 31, 2001 $ 2,160,000 $ 646,000 $ 1,381,000 $ 1,425,000
Year Ended December 31, 2000 $ 2,160,000 $ 2,160,000
(A) Amounts represent reserves for capital loss carryforwards that
expired in 2001.
Reserves deducted from asset to which it applies - inventory obsolescence.
Additions
-------------------------------
Balance at Charged to Charged to
Beginning Costs & Other Deductions Balance At
of Year Expenses Accounts (A) End of Year
--------------- ------------- --------------- --------------- ---------------
Year Ended December 31, 2002 $ 171,000 $ 107,000 $ 278,000
Year Ended December 31, 2001 $ 118,000 $ 53,000 $ 171,000
Year Ended December 31, 2000 $ 0 $ 118,000 $ 118,000
(A) Amount represents inventory that has been disposed.
43
38
INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
2(a)(1) Asset Purchase Agreement Incorporated by
dated as of September 12, 1996, reference to Exhibit
as amended October 31, 1996, 2-A to Registration
between Navistar and RYMAC(1)RYMAC1 Statement on Form S-4
(Registration
No. 333-15809)
2(a)(2) Second Amendment to Asset Purchase Incorporated by
Agreement dated December 16, 1996(1) reference to Exhibit
2.1.12(a)(2) to Annual Report on
Form 10-K for the year-endedyear
Ended December 31, 19962001
2(b)(1) Agreement and Plan of Merger Incorporated by
dated as of November 1, 1996, reference to Exhibit
between Core MaterialsMolding and 2-B to Registration
RYMAC Statement on Form
S-4 (Registration
No. 333-15809)
2(b)(2) First Amendment to Agreement and Incorporated byFiled Herein
Plan of Merger dated as of
reference to Exhibit
December 27, 1996 between
2(b)(2) to Annual Report on
Core MaterialsMolding and RYMAC
2(c)(1) Asset Purchase Agreement dated as Incorporated by
of October 10, 2001, between reference to Exhibit 1 to
Core Molding Technologies, Inc. and Form 10-K for the year
ended December8K filed
Airshield Corporation October 31, 19972001
3(a)(1) Certificate of Incorporation of Incorporated by
Core Materials CorporationMolding Technologies, Inc. reference to Exhibit
as filed with the Secretary of State 4(a) to Registration
of Delaware on October 8, 1996 Statement on Form
S-8, (Registration
No. 333-29203)
3(a)(2) Certificate of Amendment of Incorporated by
Certificate of Incorporation reference to Exhibit
of Core Materials CorporationMolding Technologies, Inc. 4(b) to Registration
as filed with the Secretary of State Statement on Form
of Delaware on November 6, 1996 S-8 (Registration
No. 333-29203)
3(a)(3) Certificate of Incorporation of Core Incorporated by
Materials Corporation, reflecting reference to Exhibit 4(c)
amendments through November 6, to Registration
1996 [for purposes of compliance Statement on Form
of Delaware on November 6, 1996 S-8
with Securities and Exchange (Registration
No. Commission filing requirements only] 333-29203)
3844
39
Exhibit No. Description Location
- ----------- ----------- --------
3(a)(3) Certificate of Incorporation of Core Incorporated by
Molding Technologies Inc., reflecting reference to Exhibit 4(c)
amendments through November 6, to Registration
1996 [for purposes of compliance Statement on Form S-8
with Securities and Exchange (Registration No.
Commission filing requirements only] 333-29203)
3(a)(4) Certificate of Amendment of Certificate Incorporated by
of Incorporation as filed with the Secretary reference to Exhibit 3(a)(4)
of State of Delaware on August 28, 2002 to Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2002
3(b) By-Laws of Core MaterialsMolding Incorporated by
CorporationTechnologies, Inc. reference to Exhibit
3-C to Registration
Statement on Form
S-4 (Registration
No. 333-15809)
4(a)(1) Certificate of Incorporation of Incorporated by
Core Materials CorporationMolding Technologies, Inc. reference to Exhibit
as filed with the Secretary of State 4(a) to Registration
of Delaware on October 8, 1996 Statement on Form
S-8 (Registration
No. 333-29203)
4(a)(2) Certificate of Amendment of Incorporated by
Certificate of Incorporation reference to Exhibit
of Core Materials CorporationMolding Technologies, Inc. 4(b) to Registration
as filed with the Secretary of State Statement on Form
of Delaware on November 6, 1996 S-8 (Registration
No. 333-29203)
4(a)(3) Certificate of Incorporation of Core Incorporated by
Materials Corporation,Molding Technologies, Inc., reflecting reference to
amendments through November 6, Exhibit 4(c) to
1996 [for purposes of compliance Registration Statement
with Securities and Exchange on Form S-8
Commission filing requirements only] (Registration
No. 333-29203)
4(a)(4) Certificate of Amendment of Certificate Incorporated by
of Incorporation as filed with the Secretary reference to Exhibit 3(a)(4)
of State of Delaware on August 28, 2002 to Quarterly Report on
Form 10-Q for the quarter
ended September 30, 2002
45
Exhibit No. Description Location
- ----------- ----------- --------
4(b) By-Laws of Core MaterialsMolding Incorporated by
CorporationTechnologies, Inc. reference to Exhibit
3-C to Registration
Statement on Form
S-4 (Registration
No. 333-15809)
10(a)(1) Core Materials CorporationMolding Technologies, Inc. Incorporated by
Secured Promissory Note, dated reference to Exhibit
December 31, 1996, to Navistar 10.110(a)(1) to Annual
Report
International Transportation Corp. Report on Form 10-K
for the year-endedyear ended
December 31, 19962001
10(a)(2) Amendment No. 1 to Secured Incorporated by
Promissory Note, dated reference to Exhibit
December 31, 1996, to Navistar 10.1.110(a)(2) to Annual
International Transportation Corp. Report on Form 10-K
for the year-endedyear ended
December 31, 1996
39
40
Exhibit No. Description Location
- ----------- ----------- --------
2001
10(a)(3) Amendment No. 2 to Secured Incorporated by
Promissory Note, dated April 6, 1998 reference to Exhibit
to Navistar International Transportation 10(a)(3) to Annual
Corp. Report on Form 10-K
for the year-ended
December 31, 1998
10(a)(4) Amendment No. 3 to Secured Incorporated by
Promissory Filed Herein Note, dated April 20, 1999 reference to Exhibit
to Navistar International Transportation Corp.
10(b) Comprehensive Supply Agreement, Incorporated by
dated December 31, 1996, by and between reference to Exhibit
Navistar International Transportation 10.210(a)(4) to Annual
Corp. and Core Materials Corporation Report on Form 10-K
for the year-ended
December 31, 1996
10(c) Transitional Services Agreement, dated Incorporated by
December 31, 1996, by and between reference to Exhibit
Navistar International Transportation 10.3 to Annual
Corp. and Core Materials Corporation Report on Form 10-K
for the year-ended
December 31, 19961999
10(d) Registration Rights Agreement, dated Incorporated by
December 31, 1996, by and between reference to Exhibit
Navistar International Transportation 10.410(d) to Annual
Corp. and various other persons who Report on Form 10-K
become parties pursuant to the agreement for the year-endedyear ended
December 31, 19962001
10(e) Loan Agreement, dated December 3, Incorporated by referenceFiled Herein
1997, by and between Core Materials to Exhibit 10(e) to Annual
CorporationMolding
Technologies, Inc. and Key Bank National
Association
10(e)(1) Amendment, dated March 29, 2001, to Incorporated by reference
the Loan Agreement dated December 3, 1997 to Exhibit 10(e)(1) to
by and between Core Molding Technologies, Annual Report on Form 10-K
Inc. and Key Bank National Association for
Association the year ended December 31,
2000
10(e)(2) Amendment, dated December 12, 2002, to Filed Herein
the Loan Agreement dated December 3, 1997
by and between Core Molding Technologies,
Inc. and Key Bank National Association
46
Exhibit No. Description Location
- ----------- ----------- --------
10(f) Master Equipment Lease Agreement(2) Incorporated byFiled Herein
by and between KeyCorp Leasing,
reference to Exhibit 10(f)
a division of Key Corporate
Capital, Inc. and Core Molding
Technologies, Inc.
10(f)(1) Amendment, dated March 29, 2001, to Incorporated by reference
Master Equipment Lease Agreement(2) by to Exhibit 10(f)(1) to
and between KeyCorp Leasing, Annual Report on Form
Capital, Inc. and Core Materialsa division of Key Corporate 10-K for the year ended
CorporationCapital, Inc. and Core Molding December 31, 19972000
Technologies, Inc.
10(g) Loan Agreement, dated April 1, Incorporated by
1998, by and between South Carolina reference to Exhibit
Jobs - Economic Development Authority 10(a)(1) to Quarterly
and Core Materials CorporationMolding Technologies, Inc. Report on Form 10-Q
for the quarter ended
June 30, 1998
40
41
Exhibit No. Description Location
- ----------- ----------- --------
10(h) Reimbursement Agreement, dated Incorporated by
April 1, 1998, by and between Core reference to Exhibit
Materials CorporationMolding Technologies, Inc. and Key Bank 10(a)(2) to Quarterly
National Association Report on Form 10-Q
for the quarter ended
June 30, 1998
10(h)(1) Amendment, dated March 29, 2001, to Incorporated by reference
Reimbursement Agreement, dated to Exhibit 10(h)(1) to
April 1, 1998, by and between Core Annual Report on Form
Molding Technologies, Inc. and Key Bank 10-K for the year ended
National Association December 31, 2000
10(i) Core Materials CorporationMolding Technologies, Inc. Incorporated by
Employee Stock Purchase Plan reference to Exhibit
4(c) to Registration
Statement on Form S-8
(Registration No. 333-60909)
10(i)(1) 2002 Core Molding Technologies, Inc. Incorporated by
Employee Stock Purchase Plan reference to Exhibit B to
Definitive Proxy Statement
dated April 15, 2002
10(j) Letter Agreement Regarding Terms and Incorporated by
Conditions of Interest Rate Swap reference to Exhibit 10(j)
Agreement between KeyBank National to Annual Report on Form
Association and Core Materials CorporationMolding 10-K for the year-ended
Technologies, Inc. December 31,199831, 1998
47
Exhibit No. Description Location
- ----------- ----------- ---------
10(k) Long Term Equity Incentive Plan(3) Incorporated by
reference to Exhibit
4(e) to Registration
Statement on Form
S-8 (Registration
No. 333-29203)
10(l) 1995 Stock Option Plan(3) Incorporated by
reference to Exhibit
10.610(l) to Annual Report
on Form 10-K for the
year-endedyear ended December 31,
19962001
10(m) 1999 Informal Cash Filed herein
Profit Sharing Plan(3)
Filed Herein
10(n) Letter Agreement with Hellmold Incorporated by
Associates, Inc. dated November 1, 1995, reference to Exhibit
as amended April 10, 1996 10.8 to Annual Report
and July 18, 1996(3) on Form 10-K for the
year-ended December
31, 1996
10(o) Oral Compensation Agreement with Incorporated by reference
Malcolm M. Prine(3) reference to Exhibit 10.910(o) to Annual
Report on Form 10-K for
the year-endedyear ended December 31,
1996
41
42
Exhibit No. Description Location
- ----------- ----------- --------
2000
11 Computation of Net Income per Share Exhibit 11 is omitted
because the required
information is included
in the Notes to Financial
Statements in Part II,
Item 8 of this Annual
Report on Form 10-K
23 Consent of Independent AuditorsDeloitte & Touche LLP Filed Herein
24 Powers of Attorney Filed Herein
2799(a) Certification of James L. Simonton, Filed Herein
Chief Executive Officer of Core Molding
Technologies, Inc., dated March 31, 2003,
pursuant to 18 U.S.C. Section 1350
99(b) Certification of Herman F. Dick, Jr., Filed Herein
Chief Financial Data Schedule Filed HereinOfficer of Core Molding
Technologies, Inc., dated March 31, 2003,
pursuant to 18 U.S.C. Section 1350
(1)The Asset Purchase Agreement, as filed with the Securities and Exchange
Commission at Exhibit 2-A to Registration Statement on Form S-4 (Registration
No. 333-15809), omits the exhibits (including, the Buyer Note, Special Warranty
Deed, Supply Agreement, Registration Rights Agreement and Transition Services
Agreement, identified in the Asset Purchase Agreement) and schedules (including,
those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase
Agreement. Core Materials CorporationMolding Technologies, Inc. will provide any omitted exhibit or
schedule to the Securities and Exchange Commission upon request.
(2)The Master Equipment Lease, incorporated by reference in the Exhibits to
this Annual Report on Form 10-K, omits certain schedules (including, addendum to
the schedules) which separately identify equipment subject to the Master
Equipment Lease and certain additional terms applicable to the lease of such
equipment. New schedules may be added under the terms of the Master Equipment
Lease from time to time and existing schedules may change. Core Materials CorporationMolding
Technologies, Inc. will provide any omitted schedule to the Securities and
Exchange Commission upon request.
(3)Indicates management contracts or compensatory plans that are required to be
filed as an exhibit to this Annual Report on Form 10-K.
4248