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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 September 30, 2003
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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 November 13, 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
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 10,079,215 $ 8,976,059
Accounts receivable (less allowance for doubtful accounts:
September 30, 2003 - $533,000; December 31, 2002 - $543,000) 13,784,784 11,281,060
Inventories:
Finished and work in process goods 2,721,369 2,391,077
Stores 2,910,926 2,042,535
------------ ------------
Total inventories 5,632,295 4,433,612
Deferred tax asset 1,151,158 1,151,158
Prepaid expenses and other current assets 2,310,279 2,218,900
------------ ------------
Total current assets 32,957,731 28,060,789
Property, plant and equipment 44,129,020 43,001,396
Accumulated depreciation (20,473,218) (18,970,136)
------------ ------------
Property, plant and equipment - net 23,655,802 24,031,260
Deferred tax asset - net 9,933,142 10,746,223
Goodwill 1,097,433 1,097,433
Other assets 404,634 448,008
------------ ------------
TOTAL $ 68,048,742 $ 64,383,713
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Accounts payable $ 8,263,273 $ 5,114,655
Current portion long-term debt 2,210,000 2,251,000
Current portion deferred long-term gain 453,555 453,555
Current portion graduated lease payments 229,269 188,219
Accrued liabilities:
Compensation and related benefits 2,914,018 2,706,272
Interest 450,743
Taxes 621,270 819,621
Professional fees 94,540 300,796
Other accrued liabilities 224,092
------------ ------------
Total current liabilities 15,731,840 12,151,054
Long-term debt 21,654,288 23,764,150
Interest rate swap 703,927 773,434
Graduated lease payments 772,933 903,835
Deferred long-term gain 1,214,996 1,555,162
Postretirement benefits liability 6,951,915 5,961,915
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 97,787
Outstanding shares: September 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 (464,592) (510,466)
Retained earnings 2,134,256 435,450
------------ ------------
Total stockholders' equity 21,018,843 19,274,163
------------ ------------
TOTAL $ 68,048,742 $ 64,383,713
============ ============
See notes to consolidated financial statements
2
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
2003 2002 2003 2002
------------- ------------- ------------ ------------
NET SALES:
Products $ 19,290,263 $ 20,925,901 $ 59,328,214 $ 62,665,005
Tooling 44,542 2,472,975 10,690,813 8,411,760
------------ ------------ ------------ ------------
Total Sales 19,334,805 23,398,876 70,019,027 71,076,765
------------ ------------ ------------ ------------
Cost of Sales 16,167,272 19,769,586 57,669,744 59,390,296
Postretirement benefits expense 363,841 1,087,279 828,098
------------ ------------ ------------ ------------
Total cost of sales 16,531,113 20,091,611 58,757,023 60,218,394
------------ ------------ ------------ ------------
GROSS MARGIN 2,803,692 3,307,265 11,262,004 10,858,371
------------ ------------ ------------ ------------
Selling, general and administrative expense 2,213,283 2,374,113 6,916,493 6,840,888
Postretirement benefits expense 96,717 80,506 259,105 203,074
------------ ------------ ------------ ------------
Total selling, general and administrative expense 2,310,000 2,454,619 7,175,598 7,043,962
Other Income -- 500,000 -- 500,000
INCOME BEFORE INTEREST AND TAXES 493,692 1,352,646 4,086,406 4,314,409
Interest income 17,940 34,829 62,785 105,385
Interest expense (429,681) (509,434) (1,365,488) (1,517,623)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 81,951 878,041 2,783,703 2,902,171
Income taxes:
Current 57,979 269,483 295,449 760,009
Deferred (32,115) 123,092 789,448 416,152
------------ ------------ ------------ ------------
Total income taxes 25,864 392,575 1,084,897 1,176,161
------------ ------------ ------------ ------------
NET INCOME $ 56,087 $ 485,466 $ 1,698,806 $ 1,726,010
============ ============ ============ ============
NET INCOME PER COMMON SHARE:
Basic and diluted $ 0.01 $ 0.05 $ 0.17 $ 0.18
============ ============ ============ ============
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 1,698,806 1,698,806
Hedge accounting effect of the
interest rate swap at September 30,
2003, net of deferred income tax
expense of $23,632 45,874 45,874
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 2003 9,778,680 $ 97,787 $19,251,392 $ 2,134,256 $ (464,592) $21,018,843
=========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements.
4
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,698,806 $ 1,726,010
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,601,695 1,563,156
Deferred income taxes 789,448 416,152
Loss on disposal of assets 27,298 20,280
Amortization of gain on sale/leaseback transactions (340,166) (340,165)
Loss/(gain) on translation of foreign currency financial
statements 89,378 (42,008)
Change in operating assets and liabilities:
Accounts receivable (2,503,724) (3,743,134)
Inventories (1,198,683) (405,846)
Prepaid and other assets (91,379) 592,704
Accounts payable 3,148,619 2,936,395
Accrued and other liabilities 342,266 791,931
Postretirement benefits liability 990,000 658,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,553,558 4,173,475
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,303,960) (431,075)
Proceeds from maturities on mortgage-backed security investment 4,420 823,199
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,299,540) 392,124
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on secured note payable (1,860,862) --
Payment of principal on industrial revenue bond (290,000) (265,000)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (2,150,862) (265,000)
NET INCREASE IN CASH 1,103,156 4,300,599
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,976,059 3,194,156
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,079,215 $ 7,494,755
============ ============
Cash paid for:
Interest (net of amounts capitalized) $ 988,123 $ 1,040,782
============ ============
Income taxes (refund) $ (173,907) $ (3,302)
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 September 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 nine months ended September 30, 2003, and September 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 four major customers,
International Truck & Engine Corporation ("International"), Yamaha Motor
Corporation ("Yamaha"), Lear Corporation ("Lear"), and Freightliner, LLC
("Freightliner"). The following table presents net sales for the above-mentioned
customers for the three and nine months ended September 30, 2003 and September
30, 2002:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
International $10,018,394 $13,261,374 $39,887,015 $35,583,654
Yamaha 2,601,340 1,895,227 10,235,319 10,385,509
Lear 1,912,379 2,434,563 6,375,986 6,515,008
Freightliner 2,463,959 3,430,324 6,886,719 7,799,613
----------- ----------- ----------- -----------
Subtotal $16,996,072 $21,021,488 $63,385,039 $60,283,784
Other 2,338,733 2,377,388 6,633,988 10,792,981
----------- ----------- ----------- -----------
Total $19,334,805 $23,398,876 $70,019,027 $71,076,765
=========== =========== =========== ===========
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income $ 56,087 $ 485,466 $ 1,698,806 $ 1,726,010
Hedge accounting effect of the
interest rate swap, net of tax effect of
$45,207 expense and $100,743
benefit for the three months ending
September 30, respectively; and
$23,632 tax expense and $136,999
tax benefit for the nine months
ending September 30, respectively 87,754 (195,035) 45,874 (265,936)
----------- ----------- ----------- -----------
Comprehensive income $ 143,841 $ 290,431 $ 1,744,680 $ 1,460,074
=========== =========== =========== ===========
5. STOCK-BASED COMPENSATION
Core Molding Technologies 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," Core
Molding Technologies' net income and earnings per common share would have
resulted in the amounts as reported below.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income as reported $ 56,087 $ 485,466 $ 1,698,806 $ 1,726,010
Deduct: Total stock-based employee
compensation income/(expense)
determined under fair value based
method for all awards, net of related 1,224,460 (19,958) 1,070,893 (176,166)
tax effects
----------- ----------- ----------- -----------
Pro forma net income $ 1,280,547 $ 465,508 $ 2,769,699 $ 1,549,844
=========== =========== =========== ===========
Earnings per share:
Basic and diluted-as reported $ 0.01 $ 0.05 $ 0.17 $ 0.18
Basic and diluted-pro forma $ 0.13 $ 0.05 $ 0.28 $ 0.16
The pro forma amounts are not representative of the effects on reported
net earnings or earnings per common share for future years. Pro forma income
from stock based compensation results from the cancellation of stock options
described below.
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 November 2002, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN No. 45 clarifies the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies,"
relating to the guarantor's accounting for and disclosures of certain guarantees
issued. The initial recognition and measurement provisions of the interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of the interpretation were effective for financial
statements of interim or annual periods ending after December 15, 2002. The
provisions of FIN 45 did not have a material impact on Core Molding
Technologies' financial condition or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities." This interpretation addresses consolidation
requirements of certain off balance sheet entities. The provisions of this
interpretation are effective for years beginning after December 15, 2003. The
provisions of FIN 46 are not expected to have a material impact on Core Molding
Technologies' financial condition or results of operations.
In April 2003, the FASB issued "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 has adopted SFAS No. 149 and
its adoption did not have a material impact on the consolidated financial
statements of Core Molding Technologies.
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 did not have
a material 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
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; 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 and 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 in Matamoros, Mexico.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003, AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales for the three months ended September 30, 2003, totaled
$19,335,000 representing an approximate 17% decrease from the $23,399,000
reported for the three months ended September 30, 2002. The primary reason for
the decrease in sales was due to a reduction in completed tooling projects and
lower product sales to truck original equipment manufacturers. Revenue from
tooling projects totaled $45,000 for the three months ended September 30, 2003.
Tooling project revenues for the three months ended September 30, 2002, totaled
$2,473,000. Tooling project revenues are sporadic in nature and do not represent
a recurring trend. Tooling project revenues represented the primary reason for
the decrease in sales to International for the three months ended September 30,
2003, as compared to the three months ended September 30, 2002. Total product
sales revenue, excluding tooling project revenue, was lower by approximately 8%
for the three months ended September 30, 2003, as compared to September 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. Sales to Yamaha increased by $706,000 for the three months ended
September 30, 2003, compared to the same time period last year. The primary
reason for this increase was due to an increase in purchases of SMC by Yamaha.
Gross Margin was approximately 14.5% of sales for the three months
ended September 30, 2003, compared with 14.1% for the three months ended
September 30, 2002. Improvements in material usage, labor efficiency and repairs
and maintenance spending were offset by increased healthcare benefits, natural
gas pricing, sales price adjustments and the impact of lower product sales
volumes. In October 2003, Core Molding Technologies incurred unplanned
premium freight expenses in order to provide on-time delivery to one of it's
customers. The
9
circumstances, which related to a secondary supply system, were temporary in
nature and have been resolved. The premium freight expenses incurred will have
an adverse effect on gross margin and earnings of approximately $0.03 per share
in the fourth quarter of 2003. Despite these circumstances, the Company
anticipates that the fourth quarter 2003 will still be profitable.
Selling, general and administrative expenses ("SG&A") totaled
$2,310,000 for the three months ended September 30, 2003, decreasing from
$2,455,000 for the three months ended September 30, 2002. The primary reasons
for this decrease were due to decreases in profit sharing accruals and real
estate and property taxes. These decreases were partially offset by increases in
Core Molding Technologies' insurance costs.
Interest expense totaled $430,000 for the three months ended September
30, 2003, decreasing from $509,000 for the three months ended September 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,
the interest rate is essentially fixed for this debt instrument.
Income taxes for the three months ended September 30, 2003, are
estimated to be approximately 32% of total earnings before taxes. The lower rate
is a result of a foreign tax adjustment recorded in the quarter and does not
represent a change in Core Molding Technologies' effective tax rate, which is
estimated to be 39%. 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 September 30, 2003, was $56,000,
or $.01 per basic and diluted share, representing a decrease of $429,000 as
compared to the net income for the three months ended September 30, 2002, of
$485,000, or $.05 per basic and diluted share.
NINE MONTHS ENDED SEPTEMBER 30, 2003, AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales for the nine months ended September 30, 2003, totaled
$70,019,000 representing an approximate 1% decrease from the $71,077,000
reported for the nine months ended September 30, 2002. Total product sales
revenue, excluding tooling project revenue, was lower by approximately 5% for
the nine months ended September 30, 2003, as compared to September 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. Also
contributing to the decrease were price adjustments given to certain customers.
Revenue from tooling projects totaled $10,691,000 for the nine months ended
September 30, 2003. Tooling project revenues for the nine months ended September
30, 2002, totaled $8,412,000. Tooling project revenues represented the primary
reason for the increase in sales to International. Tooling project revenues are
sporadic in nature and do not represent a recurring trend.
Sales to customers other than the four major customers for the nine
months ended September 30, 2003, decreased approximately 39% to $6,634,000 from
$10,793,000 for the nine months ended September 30, 2002. The decrease in sales
was primarily due to revenue from completed tooling projects from other
customers being less for the nine months ended September 30, 2003, as compared
to the nine months ended September 30, 2002.
Gross Margin was approximately 16.0% of sales for the nine months ended
September 30, 2003, compared with 15.3% for the nine months ended September 30,
2002. The increase in gross margin, as a percentage of sales from the prior
year, was primarily due to improvements in material usage and labor efficiency,
which were largely offset by increases in employee benefit programs, most
notably healthcare costs and postretirement healthcare and higher energy cost,
specifically natural gas pricing. In October 2003, Core Molding Technologies
incurred unplanned premium freight expenses in order to provide on-time
delivery to one of it's customers. The circumstances, which related to a
secondary supply system, were temporary in nature and have been resolved. The
premium freight expenses incurred will have an adverse effect on gross margin
and earnings of approximately $0.03 per share in the fourth quarter of 2003.
Despite these circumstances, the Company anticipates that the fourth quarter
2003 will still be profitable.
Selling, general and administrative expenses ("SG&A") totaled
$7,176,000 for the nine months ended September 30, 2003, increasing from
$7,044,000 for the nine months ended September 30, 2002. The primary reasons for
this increase were largely due to increases in insurance costs.
Interest expense totaled $1,365,000 for the nine months ended
September 30, 2003, decreasing from $1,518,000 for the nine months ended
September 30, 2002. The primary reason for the decrease was due to the principal
payment made on the secured note payable due to International (see Note 6
10
in the 2002 Annual Report to Shareholders). Interest rates for the industrial
revenue bond were favorable; however, due to the interest rate swap, the
interest rate is essentially fixed for this debt instrument.
Income taxes for the nine months ended September 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 nine months ended September 30, 2003, was
$1,699,000, or $.17 per basic and diluted share, representing a decrease of
$27,000 as compared to the net income for the nine months ended September 30,
2002, of $1,726,000, or $.18 per basic and diluted share.
LIQUIDITY AND CAPITAL RESOURCES
Core Molding Technologies' primary cash requirements are for operating
expenses, debt service 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 nine months ended September 30,
2003, totaled $4,554,000. Net income increased operating cash flows by
$1,699,000. Non-cash deductions included depreciation and amortization of
$1,602,000, an increase of accrued interest payable of $358,000 and an increase
in the postretirement healthcare benefits liability of $990,000. The
postretirement healthcare accrual will continue to increase until retirees begin
to utilize their retirement medical benefits. A decrease in deferred income
taxes also had a positive impact on operating cash flows of $789,000, 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 $2,504,000 and
inventories of $1,199,000.
Investing activities decreased cash flow by $1,300,000 for the nine
months ended September 30, 2003. Capital expenditures totaled $1,304,000, which
was primarily related to the acquisition of machinery and equipment. Core
Molding Technologies anticipates spending an additional $500,000 for the
remainder of the year for capital projects.
Financing activities reduced cash flow by $2,151,000 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 $290,000.
At September 30, 2003, Core Molding Technologies had cash on hand of
$10,079,000 and an available line of credit of $7,500,000, which is scheduled to
mature on April 30, 2004. As of September 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.
Core Molding Technologies does not have off-balance sheet arrangements,
financings, or other relationships with unconsolidated entities or other persons
that have or are reasonably likely to have a current or future material effect
on our financial condition, changes in financial condition, revenues or
expenses, results of operation, liquidity or capital expenditures.
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.
11
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 had recorded an
allowance for doubtful accounts of $533,000 at September 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 these
chargebacks of $693,000 at September 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
$393,000 at September 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 the implied value of goodwill, an impairment 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 nine months ended September 30, 2003 or the year ended December
31, 2002.
Postretirement 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
$6,952,000 at September 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 September 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 and
foreign currency fluctuations associated with the Mexican peso. The Company does
not hold any material market risk sensitive instruments for trading purposes.
Core Molding Technologies has the following three items that are
sensitive to market risks: (1) Industrial Revenue Bond ("IRB") with a variable
interest rate. Core Molding Technologies has an interest rate swap to fix the
interest rate at 4.89%; (2) Revolving line of credit, which bears a variable
interest rate; and (3) 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 nine month periods ended September 30, 2003, and 2002, interest expense
would not change significantly, as the interest rate swap agreement would
generally offset the impact, and Core Molding Technologies has no borrowings
under the revolving line of credit.
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 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 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
None
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 October 24, 2003, Core Molding Technologies filed a Form
8-K with the Securities and Exchange Commission regarding the
appointment of a new member to the Board of Directors.
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: November 13, 2003 By: /s/ James L. Simonton
--------------------------------------
James L. Simonton
President, Chief Executive Officer and
Director
Date: November 13, 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, 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 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)
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 Filed Herein
Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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
18
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
32(a) Certification of James L. Simonton, Chief Filed Herein
Executive Officer of Core Molding Technologies,
Inc., dated November 13, 2003, 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 November 13, 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