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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 June 30, 2003
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from To
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Commission File Number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 31-1481870
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(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
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (614) 870-5000
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N/A
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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 August 14, 2003, the latest practicable date, 9,778,680 shares of
the registrant's common shares were issued and outstanding.
PART 1 - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 9,768,840 $ 8,976,059
Accounts receivable (less allowance for doubtful accounts:
June 30, 2003 - $521,000; December 31, 2002 - $543,000) 12,181,059 11,281,060
Inventories:
Finished and work in process goods 2,985,737 2,391,077
Stores 2,231,178 2,042,535
------------ ------------
Total inventories 5,216,915 4,433,612
Deferred tax asset 1,151,158 1,151,158
Prepaid expenses and other current assets 2,609,979 2,218,900
------------ ------------
Total current assets 30,927,951 28,060,789
Property, plant and equipment 43,624,766 43,001,396
Accumulated depreciation (19,950,345) (18,970,136)
------------ ------------
Property, plant and equipment - net 23,674,421 24,031,260
Deferred tax asset - net 9,946,234 10,746,223
Goodwill 1,097,433 1,097,433
Other assets 417,982 448,008
------------ ------------
TOTAL $ 66,064,021 $ 64,383,713
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Accounts payable $ 5,968,947 $ 5,114,655
Current portion long-term debt 405,000 2,251,000
Current portion deferred long-term gain 453,555 453,555
Current portion graduated lease payments 223,408 188,219
Accrued liabilities:
Compensation and related benefits 2,907,613 2,706,272
Interest 837,615 92,844
Taxes 553,627 819,621
Professional fees 102,502 300,796
Other accrued liabilities 565,894 224,092
------------ ------------
Total current liabilities 12,018,161 12,151,054
Long-term debt 23,559,288 23,764,150
Interest rate swap 836,888 773,434
Graduated lease payments 824,382 903,835
Deferred long-term gain 1,328,385 1,555,162
Postretirement benefits liability 6,621,915 5,961,915
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 97,787
Outstanding shares: June 30, 2003 and December 31, 2002 -
9,778,680
Paid-in capital 19,251,392 19,251,392
Accumulated other comprehensive loss, net of income tax effect (552,346) (510,466)
Retained earnings 2,078,169 435,450
------------ ------------
Total stockholders' equity 20,875,002 19,274,163
------------ ------------
TOTAL $ 66,064,021 $ 64,383,713
============ ============
See notes to consolidated financial statements
2
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
NET SALES:
Products $ 20,975,060 $ 21,442,437 $ 40,037,951 $ 41,739,104
Tooling 164,735 5,209,177 10,646,271 5,938,785
------------ ------------ ------------ ------------
Total Sales 21,139,795 26,651,614 50,684,222 47,677,889
------------ ------------ ------------ ------------
Cost of Sales 16,263,726 22,282,646 41,502,472 39,620,710
Postretirement benefits expense 348,779 250,084 723,438 506,073
------------ ------------ ------------ ------------
Total cost of sales 16,612,505 22,532,730 42,225,910 40,126,783
------------ ------------ ------------ ------------
GROSS MARGIN 4,527,290 4,118,884 8,458,312 7,551,106
------------ ------------ ------------ ------------
Selling, general and administrative expense 2,284,979 2,488,786 4,703,210 4,466,775
Postretirement benefits expense 98,374 62,521 162,388 122,568
------------ ------------ ------------ ------------
Total selling, general and administrative expense 2,383,353 2,551,307 4,865,598 4,589,343
INCOME BEFORE INTEREST AND TAXES 2,143,937 1,567,577 3,592,714 2,961,763
Interest income 21,749 34,905 44,845 70,556
Interest expense (442,786) (507,028) (935,807) (1,008,189)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,722,900 1,095,454 2,701,752 2,024,130
Income taxes:
Current 141,403 252,831 237,470 490,526
Deferred 533,211 175,601 821,563 293,060
------------ ------------ ------------ ------------
Total income taxes 674,614 428,432 1,059,033 783,586
------------ ------------ ------------ ------------
NET INCOME $ 1,048,286 $ 667,022 $ 1,642,719 $ 1,240,544
============ ============ ============ ============
NET INCOME PER COMMON SHARE:
Basic and diluted $ 0.11 $ 0.07 $ 0.17 $ 0.13
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 9,778,680 9,778,680 9,778,680 9,778,680
============ ============ ============ ============
See notes to consolidated financial statements
3
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
COMMON STOCK OTHER TOTAL
OUTSTANDING PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY
--------- ---------- ----------- ---------- ------------- -----------
BALANCE AT JANUARY 1, 2003 9,778,680 $ 97,787 $19,251,392 $ 435,450 $(510,466) $19,274,163
Net Income 1,642,719 1,642,719
Hedge accounting effect of the
interest rate swap at June 30, 2003,
net of deferred income tax benefit of
$21,574 (41,880) (41,880)
--------- ---------- ----------- ---------- --------- -----------
BALANCE AT JUNE 30, 2003 9,778,680 $ 97,787 $19,251,392 $2,078,169 $(552,346) $20,875,002
========= ========== =========== ========== ========= ===========
See notes to consolidated financial statements.
4
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,642,719 $ 1,240,544
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,049,987 1,006,194
Deferred income taxes 821,563 293,060
Loss on disposal of assets 25,933 --
Amortization of gain on sale/leaseback transactions (226,777) (226,777)
Loss/(gain) on translation of foreign currency financial
statements 29,107 (34,704)
Change in operating assets and liabilities:
Accounts receivable (899,999) (2,349,035)
Inventories (783,303) (592,091)
Prepaid and other assets (391,079) 63,116
Accounts payable 854,292 3,294,380
Accrued and other liabilities 779,362 (295,248)
Postretirement benefits liability 660,000 372,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,561,805 2,771,439
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (722,219) (219,435)
Proceeds from maturities on mortgage-backed security investment 4,057 625,886
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (718,162) 406,451
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on secured note payable (1,860,862) --
Payment of principal on industrial revenue bond (190,000) (175,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,050,862) (175,000)
NET INCREASE IN CASH 792,781 3,002,890
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,976,059 3,194,156
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,768,840 $ 6,197,046
=========== ===========
Cash paid for:
Interest (net of amounts capitalized) $ 149,318 $ 958,319
=========== ===========
Income taxes (refund) $ (221,904) $ (15,905)
=========== ===========
See notes to consolidated financial statements.
5
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10Q 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 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 June 30, 2003, and the results of their
operations and cash flows. The "Consolidated Notes to Financial Statements",
which are contained in the 2002 Annual Report to Shareholders, should be read in
conjunction with these Consolidated Financial Statements. Certain
reclassifications have been made to prior year's amounts to conform to the
classifications of such amounts for 2003.
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.
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 is computed similarly but include the effect of the exercise of
stock options under the treasury stock method. In calculating net income per
share for the three and six months ended June 30, 2003, and June 30, 2002, stock
options had no effect on the weighted average shares for the computation of
diluted income per share and consequently basic and diluted net income per share
were the same.
3. MAIN CUSTOMERS
Core Molding Technologies currently has five major customers,
International Truck & Engine Corporation ("International"), Yamaha Motor
Corporation ("Yamaha"), Lear Corporation ("Lear"), Freightliner, LLC
("Freightliner") and Paccar, Inc. ("Paccar"). The following table presents net
sales for the above-mentioned customers for the three and six months ended June
30, 2003 and June 30, 2002:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
International $10,806,738 $11,343,819 $29,868,621 $22,322,280
Yamaha 3,490,728 4,357,232 7,633,979 8,490,282
Lear 2,139,556 1,807,263 4,463,607 4,080,445
Freightliner 2,202,623 2,628,821 4,422,760 4,369,289
Paccar 759,117 4,236,438 1,267,462 4,526,055
----------- ----------- ----------- -----------
Subtotal $19,398,762 $24,373,573 $47,656,429 $43,788,351
Other 1,741,033 2,278,041 3,027,793 3,889,538
----------- ----------- ----------- -----------
Total $21,139,795 $26,651,614 $50,684,222 $47,677,889
=========== =========== =========== ===========
6
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2003 2002 2003 2002
--------- --------- ---------- ----------
Net income $1,048,286 $ 667,022 $1,642,719 $1,240,544
Hedge accounting effect of the
interest rate swap, net of tax effect of
$28,142 and $64,104 benefit for the
three months ending June 30,
respectively; and $21,574 and
$36,526 tax benefit for the six months
ending June 30,
respectively. (54,629) (124,437) (41,880) (70,904)
--------- --------- ---------- ----------
Comprehensive income $ 993,657 $ 542,585 $1,600,839 $1,169,640
========= ========= ========== ==========
5. STOCK-BASED COMPENSATION
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
SFAS No. 123, "Accounting for Stock Based Compensation," the Company's net
income and earnings per common share would have resulted in the amounts as
reported below.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ----------------------------
2003 2002 2003 2002
---------- -------- ---------- ----------
Net income as reported $1,048,286 $667,022 $1,642,719 $1,240,544
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 76,420 84,490 153,567 156,208
---------- -------- ---------- ----------
Pro forma net income $ 971,866 $582,532 $1,489,152 $1,084,336
========== ======== ========== ==========
Earnings per share:
Basic and diluted-as reported $ 0.11 $ 0.07 $ 0.17 $ 0.13
Basic and diluted-pro forma $ 0.10 $ 0.06 $ 0.15 $ 0.11
The pro forma amounts are not representative of the effects on reported
net earnings or earnings per common share for future years.
On August 4, 2003, Core Molding Technologies reported the results of
its recent tender offer regarding the outstanding stock options granted to its
employees. Of the 1,171,500 stock options outstanding, 978,000 options were
tendered for cancellation. Core Molding Technologies has stated that it intends
to issue 929,100 new options, representing 95% of the tendered options, on or
after February 2, 2004, at the greater of $1.70 per share or the market price
per share on the day of issuance.
7
6. NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities," which amends
and clarifies accounting and reporting for certain derivative instruments. This
statement is effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003, and is to be
applied prospectively. Core Molding Technologies does not believe the adoption
of SFAS No. 149 will have a significant impact on its consolidated financial
statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,"
which establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 will not have
a significant impact on Core Molding Technologies' consolidated financial
statements.
8
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" which involve certain risks and uncertainties. Core Molding
Technologies' 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, watercraft and commercial product industries, the general
economy, competitive factors, the dependence on five major customers, the recent
efforts of Core Molding Technologies to expand its customer base, new
technologies, regulatory requirements, labor relations, the loss of or inability
to attract key personnel, the availability of capital, and management's
decisions 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's 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 in
Matamoros, Mexico. 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003, AS COMPARED TO THREE MONTHS ENDED
JUNE 30, 2002
Net sales for the three months ended June 30, 2003, totaled $21,140,000
representing an approximate 21% decrease from the $26,652,000 reported for the
three months ended June 30, 2002. The primary reason for the decrease in sales
was due to a reduction in completed tooling projects. Revenue from tooling
projects totaled $165,000 for the three months ended June 30, 2003. Tooling
project revenues for the three months ended June 30, 2002, totaled $5,209,000.
Tooling project revenues represented the primary reason for the decrease in
sales to Paccar for the three months ended June 30, 2003, as compared to the
three months ended June 30, 2002. Tooling project revenues are sporadic in
nature and do not represent a recurring trend. Total product sales revenue,
excluding tooling project revenue, was lower by approximately 2% for the three
months ended June 30, 2003, as compared to June 30, 2002. The primary reason for
this decrease was due to the negative impact general economic conditions have
had on the demand for medium and heavy-duty trucks and personal watercraft.
Sales to Lear increased by $332,000 for the three months ended June 30, 2003,
compared to the same time period last year. The primary reason for this increase
was due to a sales price adjustment related to packaging costs for the second
quarter of 2003. Core Molding Technologies anticipates that these price
adjustments will end with the use of returnable packaging, which has begun at
the beginning of the third quarter of 2003.
Sales to other customers for the three months ended June 30, 2003,
decreased approximately 24% to $1,741,000 from $2,278,000 for the three months
ended June 30, 2002. The decrease in sales was primarily due to
9
revenue from completed tooling projects being less for the three months ended
June 30, 2003, as compared to the three months ended June 30, 2002.
Gross Margin was approximately 21.4% of sales for the three months
ended June 30, 2003, compared with 15.5% for the three months ended June 30,
2002. The primary reason for the increase was due to production efficiencies,
primarily material usage and labor efficiencies, which were achieved primarily
at Core Molding Technologies' Columbus, Ohio and Gaffney, South Carolina
facilities. Comparative sales mix favorably affected gross margin, particularly
the decrease in tooling sales in the second quarter 2003 as compared to the
tooling sales in the second quarter 2002. Also adding to the increase was the
sales price adjustments for packaging costs, as noted above. Partially
offsetting these gains were increases in employee benefit programs, most notably
healthcare costs and postretirement healthcare benefits.
Selling, general and administrative expenses ("SG&A") totaled
$2,383,000 for the three months ended June 30, 2003, decreasing from $2,551,000
for the three months ended June 30, 2002. The primary reasons for this decrease
were due to decreases in profit sharing accruals, professional and outside
services, and real estate and property taxes. These decreases were partially
offset by increases in Core Molding Technologies' insurance costs.
Interest expense totaled $443,000 for the three months ended June 30,
2003, decreasing from $507,000 for the three months ended June 30, 2002. The
primary reason for the decrease was due to the principal payment made on the
secured note payable due to International Truck and Engine Corporation (see Note
6 in the 2002 Annual Report to Shareholders). Interest rates for the industrial
revenue bond were favorable; however, due to the interest rate swap Core Molding
Technologies entered into, the interest rate is essentially fixed for this debt
instrument.
Income taxes for the three months ended June 30, 2003, 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 June 30, 2003, was $1,048,000, or
$.11 per basic and diluted share, representing an increase of $381,000 over the
net income for the three months ended June 30, 2002, of $667,000, or $.07 per
basic and diluted share.
SIX MONTHS ENDED JUNE 30, 2003, AS COMPARED TO SIX MONTHS ENDED JUNE 30,
2002
Net sales for the six months ended June 30, 2003, totaled $50,684,000
representing an approximate 6% increase from the $47,678,000 reported for the
six months ended June 30, 2002. The primary reason for the increase in sales was
due to an increase in completed tooling projects. Revenue from tooling projects
totaled $10,646,000 for the six months ended June 30, 2003. Tooling project
revenues for the six months ended June 30, 2002, totaled $5,939,000. Tooling
project revenues represented the primary reason for the increase in sales to
International and the decrease in sales to Paccar for the six months ended June
30, 2003, as compared to the six months ended June 30, 2002. Tooling project
revenues are sporadic in nature and do not represent a recurring trend. Total
product sales revenue, excluding tooling project revenue, was lower by
approximately 4% for the six months ended June 30, 2003, as compared to June 30,
2002. The primary reason for this decrease was due to the negative impact
general economic conditions has had on the demand for medium and heavy-duty
trucks and personal watercraft. Sales to Lear increased slightly for the six
months ended June 30, 2003, compared to the same time period last year. The
primary reason for this increase was due to a sales price adjustment related to
packaging costs incurred by Core Molding Technologies in 2002 and the first six
months of 2003. Core Molding Technologies anticipates that these price
adjustments will end with the use of returnable packaging, which has begun at
the beginning of the third quarter of 2003.
Sales to other customers for the six months ended June 30, 2003,
decreased approximately 22% to $3,028,000 from $3,890,000 for the six months
ended June 30, 2002. The decrease in sales was primarily due to revenue from
completed tooling projects being less for the six months ended June 30, 2003, as
compared to the six months ended June 30, 2002.
Gross Margin was approximately 16.7% of sales for the six months ended
June 30, 2003, compared with 15.8% for the six months ended June 30, 2002. 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 this increase was due
to the sales price adjustment for packaging costs incurred by Core Molding
Technologies in 2002 and the first six months of 2003, as noted above.
Production efficiencies largely offset increases in employee benefit programs,
most notably healthcare
10
costs and postretirement healthcare benefits and higher energy cost,
specifically natural gas pricing.
Selling, general and administrative expenses ("SG&A") totaled
$4,866,000 for the six months ended June 30, 2003, increasing from $4,589,000
for the six months ended June 30, 2002. The primary reasons for this increase
were due to increases in salaries and employee benefits, primarily profit
sharing accruals, as well as increases in insurance costs, travel expenses and
public reporting expenses.
Interest expense totaled $936,000 for the six months ended June 30,
2003, decreasing from $1,008,000 for the six months ended June 30, 2002. The
primary reason for the decrease was due to the principal payment made on the
secured note payable due to International Truck and Engine Corporation (see Note
6 in the 2002 Annual Report to Shareholders). Interest rates for the industrial
revenue bond were favorable; however, due to the interest rate swap Core Molding
Technologies entered into, the interest rate is essentially fixed for this debt
instrument.
Income taxes for the six months ended June 30, 2003, 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 six months ended June 30, 2003, was $1,643,000, or
$.17 per basic and diluted share, representing an increase of $402,000 over the
net income for the six months ended June 30, 2002, of $1,241,000, or $.13 per
basic and diluted share.
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 provided by operations for the six months ended June 30, 2003,
totaled $3,562,000. Net income increased operating cash flows by $1,643,000.
Non-cash deductions of depreciation and amortization added $1,050,000 to
positive cash flow. Also adding to positive cash flow for the quarter was
accrued interest payable of $745,000, which will be paid in the third quarter of
2003. In addition, an increase in the postretirement healthcare benefits
liability provided $660,000 of positive cash flow. Core Molding Technologies
expects this item to provide positive cash flow until such time that retirees
begin to utilize their retirement medical benefits. A decrease in deferred
income taxes also had a positive impact on operating cash flows of $822,000,
which is a result of Core Molding Technologies' net operating loss carryforwards
reducing current year tax obligations. Partially offsetting the above mentioned
increases in operating cash flows were increases in accounts receivable of
$900,000 and inventories of $783,000.
Investing activities decreased cash flow by $718,000 for the six months
ended June 30, 2003. Capital expenditures totaled $722,000, which was primarily
related to the acquisition of machinery and equipment. Core Molding Technologies
anticipates spending an additional $1,444,000 for the remainder of the year for
capital projects.
Financing activities reduced cash flow by $2,051,000 due to principal
repayments on the secured note payable due to International Truck and Engine of
$1,861,000 and for the regularly scheduled payment on the Industrial Revenue
Bond of $190,000.
At June 30, 2003, Core Molding Technologies had cash on hand of
$9,769,000 and an available line of credit of $7,500,000, which is scheduled to
mature on April 30, 2004. As of June 30, 2003, Core Molding Technologies was in
compliance 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. Management
expects Core Molding Technologies to meet these covenants for the year 2003.
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.
11
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses Core Molding Technologies' 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, goodwill
and long-lived assets, 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. Core Molding Technologies had recorded an allowance
for doubtful accounts of $521,000 at June 30, 2003, and $543,000 at December 31,
2002. Management also records estimates for customer returns, deductions and
price adjustments. Should customer returns, deductions and price adjustments
fluctuate from the estimated amounts, additional allowances may be required.
Core Molding Technologies had recorded an allowance for chargebacks of $693,000
at June 30, 2003, and $473,000 at December 31, 2002.
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. Core Molding
Technologies had recorded an allowance for slow moving and obsolete inventory of
$395,000 at June 30, 2003, and $278,000 at December 31, 2002.
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 Core Molding Technologies' operations. Core Molding
Technologies has not recorded any impairment to goodwill or long-lived assets
for the six months ended June 30, 2003 or the year ended December 31, 2002.
Post retirement benefits:
Management records an accrual for post retirement costs associated with
the Company sponsored health care plan for certain employees. 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. Core Molding Technologies had recorded a liability for post
retirement healthcare benefits based on actuarially computed estimates of
$6,622,000 at June 30, 2003, and $5,962,000 at December 31, 2002.
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 recorded a valuation allowance (see Note 10
in the 2002 Annual Report to Shareholders). The valuation reserve will be
adjusted as the Company determines the actual amount of deferred tax assets that
will be realized. Core Molding Technologies had recorded a valuation allowance
of $1,425,000 at June 30, 2003 and December 31, 2002.
12
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. The
Company does not hold any material market risk sensitive instruments for trading
purposes.
Core Molding Technologies has the following four items that are
sensitive to a change in interest rates: (1) Long-term debt consisting of an
Industrial Revenue Bond ("IRB") with a balance at June 30, 2003, of $5,905,000.
Interest is variable and is computed weekly; the average interest rate charged
for the six months ended June 30, 2003, was 1.35%, 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 Molding Technologies
has entered into an interest rate swap arrangement under which Core Molding
Technologies 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
June 30, 2003, of $18,059,288 that bears interest at a fixed annual rate of 8%;
(3) Revolving line of credit, which bears interest at LIBOR plus three and
one-quarter percent or the prime rate; and (4) Foreign currency purchases in
which Core Molding Technologies 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 six month periods ended June 30, 2003, and 2002, interest expense would not
change significantly, as the interest rate swap agreement would generally offset
the impact.
13
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 Rule 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 or in other factors,
which could significantly affect internal controls subsequent to the date Core
Molding Technologies carried out its evaluation.
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 that
has materially affected, or is reasonably likely to materially affect, Core
Molding Technologies' internal control over financial reporting.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material changes in the legal proceeding reported in Form
10-K for the year ending December 31, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders of Core Materials Corporation
held May 15, 2003, the following issues were voted upon with the
indicated results:
A. ELECTION OF DIRECTORS: SHARES VOTED FOR SHARES VOTED AGAINST
Thomas R. Cellitti 9,297,813 32,185
James F. Crowley 9,210,502 119,496
Ralph O. Hellmold 9,209,013 120,985
Thomas M. Hough 9,209,013 120,985
Malcolm M. Prine 9,210,502 119,496
James L. Simonton 9,299,302 30,696
The above elected directors constitute the full acting Board of
Directors for Core Materials Corporation; all terms expire at the
2004 annual meeting of stockholders of the Company.
B. RATIFICATION OF DELOITTE AND TOUCHE, LLP AS AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 2003:
SHARES VOTED FOR SHARES AGAINST SHARES ABSTAINING
9,309,102 9,565 11,331
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
See Index to Exhibits
REPORTS ON FORM 8-K:
None
15
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: August 14, 2003 By: /s/ James L. Simonton
-------------------------------------
James L. Simonton
President, Chief Executive Officer and
Director
Date: August 14, 2003 By: /s/ Herman F. Dick, Jr.
--------------------------------------
Herman F. Dick, Jr.
Treasurer and Chief Financial Officer
16
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, 19961 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 Investment Statement on Form S-4
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 10, Incorporated by reference to
2001, between Core Molding Technologies, Inc. Exhibit 1 to Form 8K filed
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
Molding Technologies, Inc. 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 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
17
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 Exhibit 4(a) to Registration
of State Statement on Form S-8
of Delaware on October 8, 1996 (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)
10 Amended and Restated Long-Term Equity Incorporated by reference to
Incentive Plan Exhibit 4.6 to Registration
Statement on Form S-8 filed
June 4, 2003 (Registration
No. 333-105819)
11 Computation of Net Income per Share Exhibit 11 omitted because
the required information is
Included in Notes to
Financial Statement
31(a) Certification by James L. Simonton pursuant to
Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 Filed Herein
31(b) Certification by Herman F. Dick, Jr. pursuant to Filed Herein
Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32(a) Certification of James L. Simonton, Chief Filed Herein
Executive Officer of Core Molding Technologies,
Inc., dated August 14, 2003, pursuant to 18
U.S.C. Section 1350
18
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
32(b) Certification of Herman F. Dick, Jr., Chief Filed Herein
Financial Officer of Core Molding Technologies,
Inc., dated August 14, 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 Molding Technologies, Inc. will provide any omitted exhibit or
schedule to the Securities and Exchange Commission upon request.
19