SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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 MOLDING TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1481870
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
800 Manor Park Drive, P.O. Box 28183
Columbus, Ohio 43228-0183
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (614) 870-5000
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer
as defined by Rule 12b-2 of the Exchange Act.
Yes [ ] NO [ X ]
As of May 13, 2004, the latest practicable date, 9,778,680 shares of
the registrant's common shares were issued and outstanding.
PART 1 - FINANCIAL INFORMATION
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2004 2003
----------------- -----------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ - $ 346,191
Accounts receivable (less allowance for doubtful accounts:
March 31, 2004 - $254,000; December 31, 2003 - $379,000) 16,937,516 12,830,356
Inventories:
Finished and work in process goods 2,000,306 2,028,702
Stores 3,315,322 2,823,243
----------------- -----------------
Total inventories 5,315,628 4,851,945
Deferred tax asset 1,381,935 1,381,935
Foreign sales tax receivable 1,893,760 1,746,698
Prepaid expenses and other current assets 1,011,151 408,467
----------------- -----------------
Total current assets 26,539,990 21,565,592
Property, plant and equipment 44,372,033 43,856,499
Accumulated depreciation (21,153,091) (20,647,567)
----------------- -----------------
Property, plant and equipment - net 23,218,942 23,208,932
Deferred tax asset - net 9,746,572 9,888,287
Goodwill 1,097,433 1,097,433
Other assets 377,917 391,279
----------------- -----------------
TOTAL $ 60,980,854 $ 56,151,523
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Current portion of long-term debt $ 1,915,716 $ 1,905,714
Line of credit 1,291,000 -
Current portion of deferred gain 453,555 453,555
Accounts payable 9,111,344 6,581,912
Accrued liabilities:
Compensation and related benefits 2,921,191 2,669,027
Interest 165,650 77,104
Taxes 552,946 361,215
Current portion of graduated lease payments 229,269 229,269
Professional fees 252,880 236,055
Other accrued liabilities 532,613 507,525
----------------- -----------------
Total current liabilities 17,426,164 13,021,376
Long-term debt 12,674,998 12,999,286
Interest rate swap 946,430 610,142
Graduated lease payments 658,298 715,616
Deferred long-term gain 988,219 1,101,607
Postretirement benefits liability 7,109,984 6,849,418
STOCKHOLDERS' EQUITY:
Preferred stock - $0.01 par value, authorized shares - 10,000,000;
Outstanding shares: March 31, 2004 and December 31, 2003 - 0 - -
Common stock - $0.01 par value, authorized shares - 20,000,000;
Outstanding shares: March 31, 2004 and December 31, 2003 -
9,778,680 97,787 97,787
Additional paid-in capital 19,251,392 19,251,392
Accumulated other comprehensive loss, net of income tax effect (624,644) (402,694)
Retained earnings 2,452,226 1,907,593
----------------- -----------------
Total stockholders' equity 21,176,761 20,854,078
----------------- -----------------
TOTAL $ 60,980,854 $ 56,151,523
================= =================
See notes to condensed consolidated financial statements
2
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2003
(AS RESTATED,
2004 SEE NOTE 7)
----------- -------------
NET SALES:
Products $24,106,917 $19,062,891
Tooling 134,200 10,481,536
----------- -----------
Total Sales 24,241,117 29,544,427
----------- -----------
Cost of Sales 19,885,622 25,365,746
Postretirement benefits expense 374,659 374,659
----------- -----------
Total cost of sales 20,260,281 25,740,405
----------- -----------
GROSS MARGIN 3,980,836 3,804,022
----------- -----------
Selling, general and administrative expense 2,766,558 2,418,231
Postretirement benefits expense 86,247 64,014
----------- -----------
Total selling, general and administrative expense 2,852,805 2,482,245
INCOME BEFORE INTEREST AND TAXES 1,128,031 1,321,777
Interest income 1,703 23,096
Interest expense (237,543) (493,021)
----------- -----------
INCOME BEFORE INCOME TAXES 892,191 851,852
Income taxes:
Current 91,505 48,061
Deferred 256,053 288,352
----------- -----------
Total income taxes 347,558 336,413
----------- -----------
NET INCOME $ 544,633 $ 515,439
=========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.06 $ 0.05
Diluted $ 0.05 $ 0.05
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 9,778,680 9,778,680
Diluted 9,902,948 9,778,680
See notes to condensed consolidated financial statements
3
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
COMMON STOCK OTHER TOTAL
OUTSTANDING PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY
--------- ------- ----------- ---------- ------------- -------------
BALANCE AT JANUARY 1, 2004 9,778,680 $97,787 $19,251,392 $1,907,593 $ (402,694) $ 20,854,078
Net Income 544,633 544,633
Hedge accounting effect of the
interest rate swaps at March 31,
2004, net of deferred income tax
benefit of $114,338. (221,950) (221,950)
--------- ------- ----------- ---------- ------------- -------------
BALANCE AT MARCH 31, 2004 9,778,680 $97,787 $19,251,392 $2,452,226 $ (624,644) $ 21,176,761
========= ======= =========== ========== ============= =============
See notes to condensed consolidated financial statements.
4
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2003
(AS RESTATED,
2004 SEE NOTE 7)
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 544,633 $ 515,439
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 542,744 468,966
Deferred income taxes 256,053 288,352
Loss on disposal of assets - 25,933
Amortization of gain on sale/leaseback transactions (113,388) (113,389)
Change in operating assets and liabilities:
Accounts receivable (4,107,160) (270,672)
Inventories (463,683) (61,656)
Prepaid and other assets (749,746) 154,372
Accounts payable 2,529,432 211
Accrued and other liabilities 517,036 579,734
Postretirement benefits liability 260,566 330,000
------------ -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (783,513) 1,917,290
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (522,851) (263,252)
Proceeds from maturities on mortgage-backed security investment 253 3,699
------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (522,598) (259,553)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 1,291,000 -
Payments of principal on secured note payable (214,286) (1,860,862)
Payment of principal on industrial revenue bond (100,000) (95,000)
------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 976,714 (1,955,862)
Loss (gain) on translation of foreign currency (16,794) 31,360
NET DECREASE IN CASH AND CASH EQUIVALENTS (346,191) (266,765)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 346,191 8,976,059
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 8,709,294
============ =============
Cash paid for:
Interest (net of amounts capitalized) $ 127,453 $ 92,844
============ =============
Income taxes (refund) $ 5,000 $ (228,603)
============ =============
See notes to condensed consolidated financial statements.
5
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and include
all of the information and disclosures required by accounting principles
generally accepted in the United States of America for interim reporting, which
are less than those required for annual reporting. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements contain
all adjustments (all of which are normal and recurring in nature) necessary to
present fairly the financial position of Core Molding Technologies, Inc. and its
subsidiaries ("Core Molding Technologies") at March 31, 2004, and the results of
their operations and cash flows. The "Consolidated Notes to Financial
Statements", which are contained in the 2003 Annual Report to Shareholders,
should be read in conjunction with these condensed consolidated financial
statements. Certain reclassifications have been made to prior year's amounts to
conform to the classifications of such amounts for 2004.
Core Molding Technologies and its subsidiaries operate in the plastics
market in a family of products known as "reinforced plastics". Reinforced
plastics are combinations of resins and reinforcing fibers (typically glass or
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. The Matamoros, Mexico facility
produces reinforced plastic products by spray-up and hand-lay-up open mold
processes and vacuum assisted resin infused ("VRIM") closed mold process.
STOCK BASED COMPENSATION - Core Molding Technologies accounts for its
stock option plans in accordance with Accounting Principles Board ("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
requirements of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation," Core Molding Technologies' net income
(loss) and earnings/(loss) per common share would have resulted in the amounts
as reported below.
THREE MONTHS ENDED MARCH 31,
2004 2003
--------------- --------------
Net income, as reported $ 544,633 $ 515,439
Deduct: Total stock-based employee compensation
expense determined under fair value based method for all
awards, net of related tax effects 1,065,294 77,147
--------------- --------------
Pro forma net income (loss) $ (520,661) $ 438,292
=============== ==============
Earnings (loss) per share:
Basic - as reported $ 0.06 $ 0.05
Basic - pro forma $ (0.05) $ 0.04
Diluted - as reported $ 0.05 $ 0.05
Diluted - pro forma $ (0.05) $ 0.04
The pro forma amounts are not representative of the effects on reported
net earnings (loss) or earnings (loss) per common share for future periods.
On August 4, 2003, of the 1,171,500 stock options outstanding, 978,000
were tendered for cancellation. Core Molding Technologies issued 855,950 options
on February 9, 2004, at $3.21 per share.
6
2. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed based on the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share are computed similarly but include the effect of the assumed
exercise of dilutive stock options under the treasury stock method.
The computation of basic and diluted earnings per common share is as
follows:
THREE MONTHS ENDED
MARCH 31,
2004 2003
--------------- --------------
Net income $ 544,633 $ 515,439
Weighted average common shares outstanding 9,778,680 9,778,680
Plus: dilutive options assumed exercised 1,067,050 0
Less: shares assumed repurchased with proceeds from
exercise (942,782) 0
--------------- --------------
Weighted average common and potentially issuable
common shares outstanding 9,902,948 9,778,680
Basic earnings per common share $ 0.06 $ 0.05
Diluted earnings per common share $ 0.05 $ 0.05
For the three months ended March 31, 2003 there were 1,170,000
antidilutive options. For the three months ended March 31, 2004, there were no
antidilutive options.
3. SALES REVENUE
Core Molding Technologies currently has four major customers,
International Truck & Engine Corporation ("International"), Yamaha, Lear
Corporation ("Lear") and Freightliner, LLC ("Freightliner"). The following table
presents sales revenue for the above-mentioned customers for the three months
ended March 31, 2004 and 2003:
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2004 2003
---------------- ----------------
International $ 12,752,035 $ 19,061,883
Yamaha 3,794,001 4,143,251
Lear 2,136,274 2,324,051
Freightliner 2,947,913 2,220,137
---------------- ----------------
Subtotal 21,630,223 27,749,322
Other 2,610,894 1,795,105
---------------- ----------------
Total $ 24,241,117 $ 29,544,427
================ ================
7
4. COMPREHENSIVE INCOME
Comprehensive income represents net income plus the results of certain
non-shareowners' equity changes not reflected in the Statement of Income. The
components of comprehensive income, net of tax, are as follows:
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2004 2003
---------------- --------------
Net income $ 544,633 $ 515,439
Hedge accounting effect of the interest rate
swaps, net of deferred income tax benefit of
$114,338 and income tax expense of
$6,568, respectively. (221,950) 12,749
---------------- --------------
Comprehensive income $ 322,683 $ 528,188
================ ==============
5. POSTRETIREMENT BENEFITS
The components of expense for all of Core Molding Technologies'
postretirement benefits plans for the three months ended March 31, 2004 and 2003
are as follows:
MARCH 31, 2004 MARCH 31, 2003
------------------ ------------------
Pension Expense:
Interest cost $ 4,000 $ 4,000
Defined contribution plan
contributions 54,000 57,000
Multi-employer plan
contributions 62,000 47,000
------------------ ------------------
Total Pension Expense 120,000 108,000
------------------ ------------------
Health and Life Insurance:
Service cost 151,000 146,000
Interest cost 165,000 160,000
Amortization of net loss 25,000 25,000
------------------ ------------------
Net periodic benefit cost 341,000 331,000
------------------ ------------------
Total postretirement benefits
expense $ 461,000 $ 439,000
================== ==================
In January 2004, the Financial Accounting Standards Board ("FASB")
staff issued FASB Staff Position SFAS 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003." This statement permits a sponsor of a postretirement
health care plan that provides a prescription drug benefit to make a one-time
election to defer recognizing the effects of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the "Act") until authoritative
guidance on accounting for the federal subsidy is issued or until certain other
events occur. Core Molding Technologies has not determined whether it would need
to amend its postretirement benefit plan in order to benefit from the new
legislation. Core Molding Technologies has elected to defer recognizing the
effects of the Act until authoritative accounting guidance is issued.
Accordingly, the consolidated financial statements do not reflect the effect of
the Act, if any. Authoritative guidance, when issued, could require the company
to change previously reported information.
8
6. RESTATEMENT
Subsequent to the issuance of Core Molding Technologies' condensed
consolidated financial statements for the period ended March 31, 2003, Core
Molding Technologies determined that inventory was overstated as a result of
incorrect accounting entries in connection with the results of prior physical
inventory observations at Core Molding Technologies' Gaffney, South Carolina
facility. Accordingly, the consolidated financial statements for the quarter
ended March 31, 2003 have been restated from amounts previously reported.
A summary of significant effects of the restatement are as follows:
For the Quarter ended March 31, 2003
--------------------------------------
As previously
-------------
reported As restated
-------- -----------
INCOME STATEMENT DATA:
Cost of sales $25,238,746 $25,365,746
Total cost of sales 25,613,405 25,740,405
Gross margin 3,931,022 3,804,022
Income before interest and taxes 1,448,777 1,321,777
Income before taxes 978,852 851,852
Current income taxes 96,067 48,061
Total income taxes 384,419 336,413
Net income 594,433 515,439
Basic and diluted earnings per common share $ 0.06 $ 0.05
9
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As discussed in Note 7 to Core Molding Technologies' condensed
consolidated financial statements, Core Molding Technologies' financial
statements for the quarter ended March 31, 2003 have been restated. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations gives effect to the restatement.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
the federal securities laws. As a general matter, forward-looking statements are
those focused upon future plans, objectives or performance as opposed to
historical items and include statements of anticipated events or trends and
expectations and beliefs relating to matters not historical in nature. Such
forward-looking statements involve known and unknown risks and are subject to
uncertainties and factors relating to Core Molding Technologies' operations and
business environment, all of which are difficult to predict and many of which
are beyond Core Molding Technologies' control. These uncertainties and factors
could cause Core Molding Technologies' actual results to differ materially from
those matters expressed in or implied by such forward-looking statements.
Core Molding Technologies believes that the following factors, among
others, could affect its future performance and cause actual results to differ
materially from those expressed or implied by forward-looking statements made in
this quarterly report: business conditions in the plastics, transportation,
watercraft and commercial product industries; general economic conditions in the
markets in which Core Molding Technologies operates; dependence upon four major
customers as the primary source of Core Molding Technologies' sales revenues;
recent efforts of Core Molding Technologies to expand its customer base; failure
of Core Molding Technologies' suppliers to perform their contractual
obligations; the availability of raw materials; inflationary pressures; new
technologies; competitive and regulatory matters; labor relations; the loss or
inability of Core Molding Technologies to attract key personnel; the
availability of capital; the ability of Core Molding Technologies to provide
on-time delivery to customers, which may require additional shipping expenses to
ensure on-time delivery or otherwise result in late fees; risk of cancellation
or rescheduling of orders; and management's decision to pursue new products or
businesses which involve additional costs, risks or capital expenditures.
OVERVIEW
Core Molding Technologies is a compounder of sheet molding composite
("SMC") and molder of fiberglass reinforced plastics. Core Molding Technologies
produces high quality fiberglass reinforced molded products and SMC materials
for varied markets, including medium and heavy-duty trucks, automobiles,
personal watercraft and other commercial products. The demand for Core Molding
Technologies' products is affected by economic conditions in the United States,
Canada and Mexico. Core Molding Technologies' manufacturing operations have a
significant fixed cost component. Accordingly, during periods of changing
demands, the profitability of Core Molding Technologies' operations may change
proportionately more than revenues from operations.
On December 31, 1996, Core Molding Technologies acquired substantially
all of the assets and assumed certain liabilities of Columbus Plastics, a wholly
owned operating unit of International Truck & Engine Corporation's
("International") truck manufacturing division since its formation in late 1980.
Columbus Plastics, located in Columbus, Ohio, was a compounder and compression
molder of SMC. In 1998 Core Molding Technologies began compression molding
operations at its second facility in Gaffney, South Carolina, and in October
2001, Core Molding Technologies acquired certain assets of Airshield
Corporation. As a result of this acquisition, Core Molding Technologies 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 Technologies from the date of the acquisition and forward.
10
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004, AS COMPARED TO THREE MONTHS ENDED MARCH
31, 2003
Net sales for the three months ended March 31, 2004, totaled
$24,241,000 representing an approximate 18% decrease from the $29,544,000
reported for the three months ended March 31, 2003. The primary reason for the
decrease in sales was due to the completion of tooling projects. Revenue from
tooling projects totaled $134,000 for the three months ended March 31, 2004.
Tooling project revenues for the three months ended March 31, 2003, totaled
$10,482,000. Tooling project revenues are sporadic in nature and do not
represent a recurring trend. Partially offsetting the decrease in tooling sales
revenue was an increase in product sales of approximately 26% to $24,107,000 for
the three months ended March 31, 2004, as compared to the $19,063,000 for the
quarter ended March 31, 2003. The primary reason for this increase was the
positive impact general economic conditions have had on the demand for medium
and heavy-duty trucks. Sales to International for the three months ended March
31, 2004 were $12,752,000, as compared to the three months ended March 31, 2003
of $19,062,000. The primary reason for the decrease was a decrease in tooling
revenues as product sales to International increased approximately 38%. Sales to
Freightliner increased by $728,000 for the three months ended March 31, 2004
compared to the same time period a year ago. The primary reasons for this
increase were increased order volumes and having the full impact for the quarter
for new product that went into production in the first quarter of 2003. Sales to
Lear decreased slightly for the three months ended March 31, 2004, compared to
the same time period last year. The primary reason for this decrease was a
one-time reimbursement in 2003 of $449,000 for packaging costs incurred by Core
Molding Technologies in 2002. Sales to Yamaha decreased by approximately
$349,000 for the three months ended March 31, 2004, compared to the same time a
year ago. The primary reason for this decrease was due to reduced orders for
molded products.
Sales to other customers for the three months ended March 31, 2004,
increased approximately 45% to $2,611,000 from $1,795,000 for the three months
ended March 31, 2003. The increase in sales was primarily due to the positive
impact general economic conditions have had on the demand for medium and
heavy-duty trucks and the automobile aftermarket products, as well as the
addition of new customers at Core Molding Technologies' Matamoros facility.
Gross margin was approximately 16.4% of sales for the three months
ended March 31, 2004, compared with 12.9% for the three months ended March 31,
2003. The increase in gross margin, as a percentage of sales from the prior
year, was due to a combination of many factors. The primary reason for the
increase was due to the dilutive effect of tooling project revenue on the prior
quarter's gross margin. Historically, Core Molding Technologies has not achieved
margins on tooling projects similar to margins on its sales of SMC and molded
products. Increases in production volumes also added to the increased gross
margin, as Core Molding Technologies was better able to absorb its fixed costs
associated with capacity. Partially offsetting these gains were operational
inefficiencies at the Gaffney, South Carolina facility.
Selling, general and administrative expenses ("SG&A") totaled
$2,853,000 for the three months ended March 31, 2004, increasing from $2,482,000
for the three months ended March 31, 2003. The primary reason for this increase
was due to increases in professional fees and outside services of $351,000.
Interest expense totaled $238,000 for the three months ended March 31,
2004, decreasing from $493,000 for the three months ended March 31, 2003. The
primary reason for the decrease was due to the refinancing of Core Molding
Technologies' long-term debt with International Truck and Engine Corporation in
December 2003. Interest rates experienced by Core Molding Technologies with
respect to its two long-term borrowings were favorable; however, due to the
interest rate swaps Core Molding Technologies entered into, the interest rate is
essentially fixed for these two debt instruments.
Income taxes for the three months ended March 31, 2004, are estimated
to be approximately 39% of total earnings before taxes. Actual tax payments will
be lower than the recorded expenses as Core Molding Technologies has substantial
federal tax loss carryforwards. These loss carryforwards were recorded as a
deferred tax asset. As the tax loss carryforwards are utilized to offset federal
income tax payments, Core Molding Technologies reduces the deferred tax asset as
opposed to recording a reduction in income tax expense.
Net income for the three months ended March 31, 2004, was $545,000, or
$.06 per basic share and $.05 per diluted share, representing an increase of
$30,000 over the net income for the three months ended March 31, 2003, of
$515,000, or $.05 per basic and diluted share.
11
LIQUIDITY AND CAPITAL RESOURCES
Core Molding Technologies' 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 used in operations for the three months ended March 31, 2004,
totaled approximately $784,000. An increase in accounts receivable was the main
use of cash of $4,107,000. This increase was primarily due to the increase in
sales volume in the first quarter of 2004. Also adding to the use of cash was an
increase in prepaids and other assets of $750,000, primarily related to the
payment of Core Molding Technologies' annual insurance policies. Partially
offsetting these uses of cash was an increase in accounts payable of $2,529,000
due to timing differences.
Cash used for investing activities was a use of $523,000 for the three
months ended March 31, 2004, as a result of capital expenditures, which was
primarily related to the acquisition of machinery and equipment. Core Molding
Technologies anticipates spending an additional $1,577,000 for the remainder of
the year for capital projects.
Cash provided from financing was $977,000. Net borrowings under the
line of credit totaled $1,291,000. Core Molding Technologies made principal
repayments on the bank note payable of $214,000 and for the regularly scheduled
payment on the Industrial Revenue Bond of $100,000.
At March 31, 2004, Core Molding Technologies had no cash on hand and an
available line of credit of $7,500,000, which is scheduled to mature on April
30, 2005. At March 31, 2004, Core Molding Technologies had outstanding
borrowings on the line of credit in the amount of $1,291,000. As of March 31,
2004, Core Molding Technologies was in compliance of its two 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. Management expects Core Molding Technologies to meet
these covenants for the year 2004. However, if a material adverse change in the
financial position of Core Molding Technologies should occur, Core Molding
Technologies' liquidity and ability to obtain further financing to fund future
operating and capital requirements could be negatively impacted.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses Core Molding Technologies' condensed
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these condensed 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 Core Molding Technologies' customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Core Molding Technologies recorded an
allowance for doubtful accounts of $254,000 at March 31, 2004 and $379,000 at
December 31, 2003. 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. Core Molding Technologies recorded an
allowance for these chargebacks of $941,000 at March 31, 2004 and $851,000 at
December 31, 2003.
12
Inventories:
Management identifies slow moving or obsolete inventories and estimates
appropriate loss provisions related to these inventories based on expectations
of future usage. Historically, these loss provisions have not been significant.
Should actual results differ from these estimates, additional provisions may be
required. Core Molding Technologies recorded an allowance for slow moving and
obsolete inventory of $303,000 at March 31, 2004 and $325,000 at December 31,
2003.
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 operating activities below the assumptions
could have an adverse effect on Core Molding Technologies' ability to recover
its long-lived assets. Core Molding Technologies has not recorded any impairment
to goodwill for long-lived assets for the three months ended March 31, 2004 or
the year ended December 31, 2003.
Post retirement benefits:
Management records an accrual for post retirement costs associated with
the health care plan sponsored by Core Molding Technologies. 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 Core Molding Technologies'
operations. The effect of a change in healthcare costs is described in Note 11
of the Consolidated Notes to Financial Statements, which are contained in the
2003 Annual Report to Shareholders. Core Molding Technologies recorded a
liability for post retirement medical benefits based on actuarially computed
estimates of $7,110,000 at March 31, 2004 and $6,849,000 at December 31, 2003.
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.
Core Molding Technologies has considered future taxable income in assessing the
need for the valuation allowance and the amount of the valuation allowance
recorded. The valuation allowance will be adjusted as Core Molding Technologies
determines the actual amount of deferred tax assets that will be realized. Core
Molding Technologies recorded a valuation allowance of $1,425,000 at March 31,
2004 and December 31, 2003.
The balance sheet at March 31, 2004 and December 31, 2003 includes a
deferred tax asset of $11,270,000 and $11,897,000, in each case, net of a
valuation allowance of $1,425,000 in 2003 and 2002. 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.
13
PART I - FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Core Molding Technologies' primary market risk results from
fluctuations in interest rates. Core Molding Technologies is also exposed to
changes in the price of commodities used in its manufacturing operations and
foreign currency fluctuations associated with the Mexican peso. Core Molding
Technologies does not hold any material market risk sensitive instruments for
trading purposes.
Core Molding Technologies has the following four items that are
sensitive to market risks: (1) Industrial Revenue Bond ("IRB") with a variable
interest rate. The Company has an interest rate swap to fix the interest rate at
4.89%; (2) revolving line of credit, which bears a variable interest rate; (3)
bank note payable with a variable interest rate. The Company entered into a swap
agreement effective January 1, 2004, to fix the interest rate at 5.75%; and (4)
foreign currency purchases in which the Company purchases Mexican pesos with
United States dollars to meet certain obligations that arise due to the facility
located in Mexico.
Assuming a hypothetical 20% change in short-term interest rates in both
the three month periods ended March 31, 2004 and 2003, interest expense would
not change significantly, as the interest rate swap agreements would generally
offset the impact, and the use of Core Molding Technologies' revolving line of
credit was not material during the first quarter of 2004.
14
PART I - FINANCIAL INFORMATION
ITEM 4
CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form
10-Q Core Molding Technologies carried out an evaluation, under the supervision
and with the participation of Core Molding Technologies' management, including
Core Molding Technologies' Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of Core Molding Technologies'
disclosure controls and procedures (as defined in rules 13a-15(e) and
15(d)-15(e) of the Securities Exchange Act of 1934, (as amended the "Exchange
Act")). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that Core Molding Technologies' disclosure controls
and procedures are effective in timely alerting them to material information
required to be included in this Quarterly Report on Form 10-Q. There have been
no significant changes in Core Molding Technologies' internal controls over
financial reporting or in other factors, which could significantly affect
internal controls during the period covered by this report.
No changes were made to Core Molding Technologies' system of internal
controls over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter, except
for additional procedures with respect to inventory and scrap reporting, that
has materially affected, or is reasonable likely to materially affect, Core
Molding Technologies' internal control over financial reporting.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No submission of matters to a vote of security holders occurred
for the three months ended March 31, 2004.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
See Index to Exhibits
REPORTS ON FORM 8-K:
On January 6, 2004, Core Molding Technologies filed a Form 8-K
with the Securities and Exchange Commission regarding the
refinancing of its note payable with International Truck & Engine
Corporation.
On January 26, 2004, Core Molding Technologies filed a Form 8-K
with the Securities and Exchange Commission regarding a charge
resulting from operational inefficiencies that were concealed by
intentional inventory misstatements by a former employee.
On March 30, 2004, Core Molding Technologies, Inc. filed a Form
8-K with the Securities and Exchange Commission regarding its
results for the year ended December 31, 2003.
16
SIGNATURES
Pursuant to the requirements 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 MOLDING TECHNOLOGIES, INC.
Date: May 13, 2004 By: /s/ James L. Simonton
-----------------------------------------
James L. Simonton
President, Chief Executive Officer and
Director
Date: May 13, 2004 By: /s/ Herman F. Dick, Jr.
-----------------------------------------
Herman F. Dick, Jr.
Treasurer and Chief Financial Officer
17
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
2(a)(1) Asset Purchase Agreement Incorporated by reference to
Dated as of September 12, 1996, Exhibit 2-A to Registration
As amended October 31, 1996, Statement on Form S-4
between Navistar International Transportation (Registration No. 333-15809)
Corporation and RYMAC Mortgage Investment
Corporation(1)
2(a)(2) Second Amendment to Asset Purchase Incorporated by reference to
Agreement dated December 16, 1996(1) Exhibit 2(a)(2) to Annual
Report on Form 10-K for the
year-ended December 31,
2001
2(b)(1) Agreement and Plan of Merger dated as of Incorporated by reference to
November 1, 1996, between Core Molding Exhibit 2-B to Registration
Technologies, Inc. and RYMAC Mortgage Statement on Form S-4
Investment Corporation (Registration No. 333-15809)
2(b)(2) First Amendment to Agreement and Plan Incorporated by reference to
of Merger dated as of December 27, 1996 Exhibit 2(b)(2) to Annual
Between Core Molding Technologies, Inc. and Report on Form 10-K for the
RYMAC Mortgage Investment Corporation year ended December 31,
2002
2(c)(1) Asset Purchase Agreement dated as of October Incorporated by reference to
10, 2001, between Core Molding Technologies, Exhibit 1 to Form 8K filed
Inc. and Airshield Corporation October 31, 2001
3(a)(1) Certificate of Incorporation of Incorporated by reference to
Core Molding Technologies, Inc. Exhibit 4(a) to Registration
As filed with the Secretary of State Statement on Form S-8
of Delaware on October 8, 1996 (Registration No. 333-29203)
3(a)(2) Certificate of Amendment of Incorporated by reference to
Certificate of Incorporation Exhibit 4(b) to Registration
of Core Molding Technologies, Inc. Statement on Form S-8
as filed with the Secretary of State (Registration No. 333-29203)
of Delaware on November 6, 1996
3(a)(3) Certificate of Incorporation of Core Incorporated by reference to
Materials Corporation, reflecting Exhibit 4(c) to Registration
Amendments through November 6, Statement on Form S-8
1996 [for purposes of compliance (Registration No. 333-29203)
with Securities and Exchange
Commission filing requirements only]
3(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to
Incorporation as filed with the Secretary of State Exhibit 3(a)(4) to Quarterly
of Delaware on August 28, 2002 Report on Form 10-Q for the
quarter ended September 30,
2002
18
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
3(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to
Exhibit 3-C to Registration
Statement on Form S-4
(Registration No. 333-15809)
4(a)(1) Certificate of Incorporation of Core Molding Incorporated by reference to
Technologies, Inc. as filed with the Secretary of Exhibit 4(a) to Registration
State of Delaware on October 8, 1996 Statement on Form S-8
(Registration No. 333-29203)
4(a)(2) Certificate of Amendment of Certificate Incorporated by reference to
of Incorporation of Core Materials Exhibit 4(b) to Registration
Corporation as filed with the Secretary of Statement on Form S-8
State of Delaware on November 6, 1996 (Registration No. 333-29203)
4(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to
Corporation, reflecting amendments through Exhibit 4(c) to Registration
November 6, 1996 [for purposes of compliance Statement on Form S-8
with Securities and Exchange Commission (Registration No. 333-29203)
filing requirements only]
4(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to
Incorporation as filed with the Secretary of Exhibit 3(a)(4) to Quarterly
State of Delaware on August 28, 2002 Report on Form 10-Q for the
quarter ended September 30,
2002
4(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to
Exhibit 3-C to Registration
Statement on Form S-4
(Registration No. 333-15809)
11 Computation of Net Income per Share Exhibit 11 omitted because
the required information is
Included in Notes to
Financial Statement
31(a) Section 302 Certification by James L. Simonton, Filed Herein
President and Chief Executive Officer
31(b) Section 302 Certification by Herman F. Dick, Jr., Filed Herein
Treasurer and Chief Financial Officer
32(a) Certification of James L. Simonton, Chief Filed Herein
Executive Officer of Core Molding Technologies,
Inc., dated May 13, 2004, pursuant to 18 U.S.C.
Section 1350
32(b) Certification of Herman F. Dick, Jr., Chief Filed Herein
Financial Officer of Core Molding Technologies,
Inc., dated May 13, 2004, pursuant to 18 U.S.C.
Section 1350
19
(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 Molding Technologies, Inc. will provide any omitted exhibit or
schedule to the Securities and Exchange Commission upon request.
20