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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 March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ To _____________
Commission File Number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1481870
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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
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (614) 870-5000
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer as
defined by Rule 12b-2 of the Exchange Act.
Yes [ ] NO [X]
As of May 13, 2005, the latest practicable date, 9,810,767 shares of the
registrant's common shares were issued and outstanding.
PART 1 - FINANCIAL INFORMATION
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 4,913,244 $ 5,358,246
Accounts receivable (less allowance for doubtful accounts:
March 31, 2005 - $369,000; December 31, 2004 - $235,000) 21,386,845 19,130,835
Inventories:
Finished and work in process goods 2,235,536 2,650,610
Stores 4,036,931 3,893,886
------------ ------------
Total inventories 6,272,467 6,544,496
Deferred tax asset 1,892,238 1,892,238
Foreign sales tax receivable 629,428 1,450,299
Prepaid expenses and other current assets 1,014,636 822,676
------------ ------------
Total current assets 36,108,858 35,198,790
Property, plant and equipment 45,615,899 45,387,577
Accumulated depreciation (23,212,152) (22,657,889)
------------ ------------
Property, plant and equipment - net 22,403,747 22,729,688
Deferred tax asset - net 8,314,637 9,361,558
Goodwill 1,097,433 1,097,433
Customer List - net 222,831 235,211
Other assets 236,559 337,782
------------ ------------
TOTAL $ 68,384,065 $ 68,960,462
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Current portion of long-term debt $ 1,745,714 $ 1,735,714
Current portion of deferred gain 453,555 453,555
Accounts payable 10,185,129 14,055,397
Accrued liabilities:
Compensation and related benefits 5,263,010 3,664,949
Interest 95,886 101,132
Taxes 739,190 454,618
Other accrued liabilities 917,981 1,203,669
------------ ------------
Total current liabilities 19,400,465 21,669,034
Long-term debt 10,929,282 11,370,711
Interest rate swap 235,880 474,658
Graduated lease payments 429,029 486,346
Deferred long-term gain 534,663 648,053
Postretirement benefits liability 8,459,017 8,034,774
STOCKHOLDERS' EQUITY:
Preferred stock - $0.01 par value, authorized shares - 10,000,000;
Outstanding shares: March 31, 2005 and December 31, 2004 - 0 - -
Common stock - $0.01 par value, authorized shares - 20,000,000;
Outstanding shares: 9,780,680 at March 31, 2005 and
9,778,680 at December 31, 2004 97,807 97,787
Additional paid-in capital 19,456,872 19,451,392
Accumulated other comprehensive loss, net of income tax effect (156,943) (314,536)
Retained earnings 8,997,993 7,042,243
------------ ------------
Total stockholders' equity 28,395,729 26,276,886
------------ ------------
TOTAL $ 68,384,065 $ 68,960,462
============ ============
See notes to condensed consolidated financial statements
2
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2005 2004
-------------- -------------
NET SALES:
Products $ 30,217,999 $ 24,106,917
Tooling 2,298,958 134,200
-------------- -------------
Total Sales 32,516,957 24,241,117
-------------- -------------
Cost of Sales 25,602,707 19,885,622
Postretirement benefits expense 512,824 374,659
-------------- -------------
Total cost of sales 26,115,531 20,260,281
-------------- -------------
GROSS MARGIN 6,401,426 3,980,836
-------------- -------------
Selling, general and administrative expense 2,973,421 2,766,558
Postretirement benefits expense 112,571 86,247
-------------- -------------
Total selling, general and administrative
expense 3,085,992 2,852,805
INCOME BEFORE INTEREST AND TAXES 3,315,434 1,128,031
Interest income 17,169 1,703
Interest expense (190,980) (237,543)
-------------- -------------
INCOME BEFORE INCOME TAXES 3,141,623 892,191
Income taxes:
Current 220,136 91,505
Deferred 965,737 256,053
-------------- -------------
Total income taxes 1,185,873 347,558
-------------- -------------
NET INCOME $ 1,955,750 $ 544,633
============== =============
NET INCOME PER COMMON SHARE:
Basic $ 0.20 $ 0.06
Diluted $ 0.20 $ 0.05
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 9,780,680 9,778,680
Diluted 9,853,066 9,902,948
See notes to condensed consolidated financial statements
3
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
COMMON STOCK OTHER TOTAL
OUTSTANDING PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY
--------- ---------- ------------ ----------- ------------- -------------
BALANCE AT JANUARY 1, 2005 9,778,680 $ 97,787 $ 19,451,392 $ 7,042,243 $ (314,536) $ 26,276,886
Net Income 1,955,750 1,955,750
Common shares issued from
exercise of stock options 2,000 20 5,480 5,500
Change in fair value of the interest
rate swaps at March 31, 2005, net of
deferred income tax expense of $81,185. 157,593 157,593
--------- ---------- ------------ ----------- ------------- -------------
BALANCE AT MARCH 31, 2005 9,780,680 $ 97,807 $ 19,456,872 $ 8,997,993 $ (156,943) $ 28,395,729
========= ========== ============ =========== ============= =============
See notes to condensed consolidated financial statements.
4
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,955,750 $ 544,633
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 579,627 542,744
Deferred income taxes 965,737 256,053
Amortization of gain on sale/leaseback transactions (113,389) (113,388)
Loss (gain) on translation of foreign currency
financial statements 1,697 (16,794)
Change in operating assets and liabilities:
Accounts receivable (2,256,010) (4,107,160)
Inventories 272,029 (463,683)
Prepaid and other assets 628,911 (749,746)
Accounts payable (3,871,965) 2,529,432
Accrued and other liabilities 1,534,379 517,036
Postretirement benefits liability 424,243 260,566
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 121,009 (800,307)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (228,323) (522,851)
Proceeds from maturities on mortgage-backed security investment 88,239 253
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (140,084) (522,598)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 5,500 -
Net borrowings on line of credit - 1,291,000
Payments of principal on secured note payable (321,427) (214,286)
Payment of principal on industrial revenue bond (110,000) (100,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (425,927) 976,714
NET DECREASE IN CASH AND CASH EQUIVALENTS (445,002) (346,191)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,358,246 346,191
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,913,244 $ -
=========== ===========
Cash paid for:
Interest $ 179,058 $ 127,453
=========== ===========
Income taxes $ 79,827 $ 5,000
=========== ===========
See notes to condensed consolidated financial statements.
5
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and include
all of the information and disclosures required by accounting principles
generally accepted in the United States of America for interim reporting, which
are less than those required for annual reporting. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements contain
all adjustments (all of which are normal and recurring in nature) necessary to
present fairly the financial position of Core Molding Technologies, Inc. and its
subsidiaries ("Core Molding Technologies") at March 31, 2005, and the results of
their operations and cash flows. The "Consolidated Notes to Financial
Statements", which are contained in the 2004 Annual Report to Shareholders,
should be read in conjunction with these condensed consolidated financial
statements. Certain reclassifications have been made to prior year's amounts to
conform to the classifications of such amounts for 2005.
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 resin transfer ("RTM") closed mold process. In September 2004,
Core Molding Technologies acquired substantially all of the assets of Keystone
Restyling Products, Inc., a privately held manufacturer and distributor of
fiberglass reinforced products for the automotive-aftermarket industry.
STOCK BASED COMPENSATION - Statement of Financial Accounting Standards
("SFAS") No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation" and
Statement of Financial Accounting Standards No. 148 (SFAS No. 148), "Accounting
for Stock-Based Compensation - Transition and Disclosure," encourage, but do not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. Core Molding Technologies has chosen to
continue to account for its stock option plans in accordance with Accounting
Principles Board ("APB") Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for all stock option plans been
determined consistent with the requirements of SFAS No. 123 in accordance with
the disclosure provision of SFAS No. 148, Core Molding Technologies' net income
and earnings per common share would have resulted in the pro forma amounts as
reported below.
THREE MONTHS ENDED MARCH 31,
2005 2004
------------- -------------
Net income, as reported $ 1,955,750 $ 544,633
Deduct: Total stock-based employee compensation
expense determined under fair value based method for all
awards, net of related tax effects 121,369 13,659
------------- -------------
Pro forma net income $ 1,834,381 $ 530,974
============= =============
Earnings per share:
Basic - as reported $ 0.20 $ 0.06
Basic - pro forma $ 0.19 $ 0.05
Diluted - as reported $ 0.20 $ 0.05
Diluted - pro forma $ 0.19 $ 0.05
The pro forma amounts are not representative of the effects on reported
net earnings or earnings per common share for future periods.
6
2. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share are computed similarly but include the effect of the assumed
exercise of dilutive stock options under the treasury stock method.
The computation of basic and diluted earnings per common share is as
follows:
THREE MONTHS ENDED
MARCH 31,
2005 2004
----------- -----------
Net income $ 1,955,750 $ 544,633
Weighted average common shares outstanding 9,780,680 9,778,680
Plus: dilutive options assumed exercised 1,153,011 1,067,050
Less: shares assumed repurchased with proceeds from
exercise (1,080,625) (942,782)
----------- -----------
Weighted average common and potentially issuable
common shares outstanding 9,853,066 9,902,948
Basic earnings per common share $ 0.20 $ 0.06
Diluted earnings per common share $ 0.20 $ 0.05
For the three months ended March 31, 2005 and 2004 there were 187,490 and
zero antidilutive options, respectively.
3. SALES REVENUE
Core Molding Technologies currently has three major customers,
International Truck & Engine Corporation ("International"), Freightliner, LLC
("Freightliner") and Yamaha. Major customers are defined as customers whose
sales individually consist of more than ten percent of total sales. The
following table presents sales revenue for the above-mentioned customers for the
three months ended March 31, 2005 and 2004:
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2005 2004
----------- -----------
International $17,370,912 $12,752,035
Freightliner 4,518,942 2,947,913
Yamaha 4,051,463 3,794,001
----------- -----------
Subtotal 25,941,317 19,493,949
Other 6,575,640 4,747,168
----------- -----------
Total $32,516,957 $24,241,117
=========== ===========
7
4. COMPREHENSIVE INCOME
Comprehensive income represents net income plus the results of certain
equity changes not reflected in the Statement of Income. The components of
comprehensive income, net of tax, are as follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2005 2004
---------- ---------
Net income $1,955,750 $ 544,633
Change in fair value of the interest rate
swaps, net of deferred income tax expense
of $81,185 and benefit of $114,338,
respectively 157,593 (221,950)
---------- ---------
Comprehensive income $2,113,343 $ 322,683
========== =========
5. POSTRETIREMENT BENEFITS
The components of expense for all of Core Molding Technologies'
postretirement benefits plans for the three months ended March 31, 2005 and 2004
are as follows:
MARCH 31, 2005 MARCH 31, 2004
-------------- --------------
Pension Expense:
Interest cost $ 4,000 $ 4,000
Defined contribution plan
contributions 84,000 54,000
Multi-employer plan
contributions 115,000 62,000
-------- --------
Total Pension Expense 203,000 120,000
-------- --------
Health and Life Insurance:
Service cost 192,000 151,000
Interest cost 180,000 165,000
Amortization of net loss 50,000 25,000
-------- --------
Net periodic benefit cost 422,000 341,000
-------- --------
Total postretirement benefits
expense $625,000 $461,000
======== ========
Core Molding Technologies expects to make approximately $176,000 of
postretirement benefit payments through the remainder of 2005.
In May 2004, the Financial Accounting Standards Board ("FASB") staff
issued FASB Staff Position 106-2, "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003" (the "Act"). Core Molding Technologies adopted the provisions of the Act
in the third quarter of 2004.
8
6. ACQUISITION OF KEYSTONE RESTYLING
In September 2004, Core Molding Technologies purchased substantially all
of the assets consisting primarily of inventory and equipment, of Keystone
Restyling Products Inc., for $544,150. Core Molding Technologies may be required
to pay contingent cash payments based on certain earnings threshold of the
acquired business during the three-year period beginning January 1, 2005, and
continuing through December 31, 2007. No payments have been required as of March
31, 2005. Additional costs will be recorded as an intangible asset.
The acquisition was recorded using the purchase method of accounting.
Accordingly, the purchase price has been allocated to tangible and identified
intangible assets acquired based on a preliminary estimate of the fair values at
the date of acquisition. If the acquisition had occurred at January 1, 2004, the
operating results of Keystone Restyling Products, Inc. would not have been
significant to Core Molding Technologies.
The following table presents the allocation of the purchase price:
Inventory $145,110
Property and equipment 151,450
Customer list 247,590
--------
Total purchase price $544,150
========
Core Molding Technologies will amortize the customer list on a
straight-line basis over sixty months. Amortization expense is expected to be
$49,518 in 2005 through 2008 and $37,138 in 2009.
7. INTEREST RATE SWAPS
Core Molding Technologies has entered into interest rate swap agreements
on both the Industrial Revenue Bond and the bank note payable, which are
designated as cash flow hedging instruments. In all periods presented Core
Molding Technologies cash flow hedges were highly effective; ineffectiveness was
not material. None of the changes in the fair value of our interest rate swaps
have been excluded from our assessment of hedge effectiveness.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4," which clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) and also requires that the allocation of fixed production overhead be
based on the normal capacity of the production facilities. SFAS No. 151 is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. Core Molding Technologies is currently evaluating the impact of
adopting this statement but believes it will not have a material effect on the
consolidated financial statements.
In December 2004, the FASB issued revised SFAS No. 123, "Share-Based
Payment" which replaces SFAS No. 123, Accounting for Stock-Based Compensation"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
This statement, which requires the cost of all share-based payment transactions
be recognized in the financial statements, establishes fair value as the
measurement objective and requires entities to apply a fair-value-based
measurement method in accounting for share-based payment transactions. The
statement applies to all awards granted, modified, repurchased or cancelled
after January 1, 2006, and unvested portions of previously issued and
outstanding awards. Core Molding Technologies is currently evaluating the impact
of adopting this statement.
9
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 three major
customers as the primary source of Core Molding Technologies' sales revenues;
recent efforts of Core Molding Technologies to expand its customer base; failure
of Core Molding Technologies' suppliers to perform their contractual
obligations; the availability of raw materials; inflationary pressures; new
technologies; competitive and regulatory matters; labor relations; the loss or
inability of Core Molding Technologies to attract key personnel; the
availability of capital; the ability of Core Molding Technologies to provide
on-time delivery to customers, which may require additional shipping expenses to
ensure on-time delivery or otherwise result in late fees; risk of cancellation
or rescheduling of orders; and management's decision to pursue new products or
businesses which involve additional costs, risks or capital expenditures.
OVERVIEW
Core Molding Technologies is a compounder of sheet molding composite
("SMC") and molder of fiberglass reinforced plastics. Core Molding Technologies
produces high quality fiberglass reinforced molded products and SMC materials
for varied markets, including medium and heavy-duty trucks, automobiles,
personal watercraft and other commercial products. The demand for Core Molding
Technologies' products is affected by economic conditions in the United States,
Canada and Mexico. Core Molding Technologies' manufacturing operations have a
significant fixed cost component. Accordingly, during periods of changing
demands, the profitability of Core Molding Technologies' operations may change
proportionately more than revenues from operations.
On December 31, 1996, Core Molding Technologies acquired
substantially all of the assets and assumed certain liabilities of Columbus
Plastics, a wholly owned operating unit of International Truck & Engine
Corporation's ("International") truck manufacturing division since its formation
in late 1980. Columbus Plastics, located in Columbus, Ohio, was a compounder and
compression molder of SMC. In 1998 Core Molding Technologies began compression
molding operations at its second facility in Gaffney, South Carolina, and in
October 2001, Core Molding Technologies acquired certain assets of Airshield
Corporation. As a result of this acquisition, Core Molding Technologies expanded
its fiberglass molding capabilities to include the spray up, hand-lay-up and
vacuum assisted resin infusion molding processes. In September 2004, Core
Molding Technologies acquired substantially all the operating assets of Keystone
Restyling Products, Inc., a privately held manufacturer and distributor of
fiberglass reinforced products for the automotive-aftermarket industry.
10
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005, AS COMPARED TO THREE MONTHS ENDED MARCH
31, 2004
Net sales for the three months ended March 31, 2005, totaled
$32,517,000, representing an approximate 34% increase from the $24,241,000
reported for the three months ended March 31, 2004. Included in total sales are
tooling project revenues of $2,299,000 and $134,000 for the three months ended
March 31, 2005 and March 31, 2004, respectively. Tooling project revenues are
sporadic in nature and do not represent a recurring trend. Total product sales,
excluding tooling project revenue, was higher by approximately 25% for the three
months ended March 31, 2005, as compared to the same period a year ago. The
primary reason for this increase was due to the positive impact general economic
conditions have had on the demand for medium and heavy-duty trucks. Sales to
International totaled $17,371,000 for the three months ended March 31, 2005, an
approximate 36% increase from the three months ended March 31, 2004 amount of
$12,752,000. The primary reason for the increase is due to the reason noted
above as well as recognition of tooling revenue. Sales to Freightliner totaled
$4,519,000 for the three months ended March 31, 2005, which was an increase of
approximately 53% from the $2,948,000 for March 31, 2004. The primary reason for
this increase was due to increased order volumes. Sales to Yamaha increased by
approximately $257,000 for the three months ended March 31, 2005, compared to
the same time a year ago. The primary reason for this increase was due to
increased demand for Yamaha's personal watercraft.
Sales to other customers for the three months ended March 31, 2005,
increased approximately 39% to $6,576,000 from $4,747,000 for the three months
ended March 31, 2004. The increase in sales was primarily due to the positive
impact general economic conditions have had on the demand for medium and
heavy-duty trucks as well as the addition of new customers at Core Molding
Technologies' Matamoros facility. Also contributing to this increase are sales
from Core Molding Technologies automotive aftermarket division, which was
acquired in September 2004.
Gross margin was approximately 19.7% of sales for the three months
ended March 31, 2005, compared with 16.4% for the three months ended March 31,
2004. The increase in gross margin, as a percentage of sales from the prior
year, was due to a combination of many factors. The primary factors contributing
to the increase were improved production efficiencies related to labor usage;
the favorable effect of sales volume on fixed costs; and improvements made
related to scrap costs. Partially offsetting these improvements were increases
in costs of several raw materials and operating costs, particularly those
related to petroleum and energy sources.
Selling, general and administrative expenses ("SG&A") totaled
$3,086,000 for the three months ended March 31, 2005, increasing from $2,853,000
for the three months ended March 31, 2004. The primary reasons for this increase
was due to increases in certain employee benefits including profit sharing
accruals. Partially offsetting this increase were decreases in professional fees
and outside services.
Interest expense totaled $191,000 for the three months ended March
31, 2005, decreasing from $238,000 for the three months ended March 31, 2004.
The primary reason for the decrease was due to the reduction of long term debt
due to regularly scheduled payments. Interest rates experienced by Core Molding
Technologies with respect to its two long-term borrowings were favorable;
however, due to the interest rate swaps Core Molding Technologies entered into,
the interest rate is essentially fixed for these two debt instruments.
Income taxes for the three months ended March 31, 2005, are
estimated to be approximately 38% of total earnings before taxes. Actual tax
payments will be lower than the recorded expenses as Core Molding Technologies
has substantial federal tax net operating loss carryforwards. These net
operating loss carryforwards were recorded as a deferred tax asset. As the tax
net operating loss carryforwards are utilized to offset federal income tax
payments, Core Molding Technologies reduces the deferred tax asset as opposed to
recording a reduction in income tax expense.
Net income for the three months ended March 31, 2005, was
$1,956,000, or $.20 per basic and diluted share, representing an increase of
$1,411,000 over the net income for the three months ended March 31, 2004, of
$545,000, or $.06 per basic share and $.05 per diluted share.
11
LIQUIDITY AND CAPITAL RESOURCES
Core Molding Technologies' primary cash requirements are for
operating expenses and capital expenditures. These cash requirements have
historically been met through a combination of cash flow from operations,
equipment leasing, issuance of Industrial Revenue Bonds and bank lines of
credit.
Cash provided by operations for the three months ended March 31,
2005, totaled approximately $121,000. Net income increased operating cash flows
by $1,956,000. Non-cash deductions of depreciation and amortization of $580,000
added to positive operating cash flows. In addition, the decrease in deferred
income taxes also had a positive impact on operating cash flows of $966,000,
which is a result of Core Molding Technologies' net operating loss carryforwards
reducing current year tax obligations. A decrease in accounts payable was the
main use of cash of $3,872,000. Also adding to the use of cash was an increase
in accounts receivable of $2,256,000.
Cash used for investing activities was $140,000 for the three months
ended March 31, 2005, as a result of capital expenditures, which was primarily
related to the acquisition of machinery and equipment. Core Molding Technologies
anticipates spending an additional $3,120,000 for the remainder of the year for
capital project, which will be funded by cash from operations. Adding to cash
flows from investing activities was $88,000 from the maturity of a
mortgage-backed security investment.
Cash used for financing activities was $426,000. Core Molding
Technologies made principal repayments on the bank note payable of $321,000 and
for the regularly scheduled payment on the Industrial Revenue Bond of $110,000.
At March 31, 2005, Core Molding Technologies had cash on hand of
$4,913,000 and an available line of credit of $7,500,000, which is scheduled to
mature on April 30, 2007 ("Line of Credit"). At March 31, 2005, Core Molding
Technologies had no outstanding borrowings on the Line of Credit. Management
expects these resources to be adequate to meet Core Molding Technologies'
liquidity needs. As of March 31, 2005, Core Molding Technologies was in
compliance with its financial debt covenants for the Line of Credit and letter
of credit securing the industrial revenue bond and certain equipment leases.
These covenants relate to maintaining certain financial ratios. Management
expects Core Molding Technologies to meet these covenants for the year 2005.
However, if a material adverse change in the financial position of Core Molding
Technologies should occur, Core Molding Technologies' liquidity and ability to
obtain further financing to fund future operating and capital requirements could
be negatively impacted.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses Core Molding Technologies' condensed
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these condensed consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments, including those related to accounts
receivable, inventories, post retirement benefits, and income taxes. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies,
among others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Accounts receivable allowances:
Management maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of Core Molding Technologies' customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Core Molding Technologies recorded an
allowance for doubtful accounts of $369,000 at March 31, 2005 and $235,000 at
December 31, 2004. Management also records estimates for customer returns,
discounts offered to customers, and for price adjustments. Should customer
returns, discounts, and price adjustments fluctuate from the estimated amounts,
additional allowances may be required. Core Molding Technologies has reduced
accounts receivable for chargebacks of $788,000 at March 31, 2005 and $542,000
at December 31, 2004.
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Inventories:
Inventories, which include material, labor and manufacturing
overhead, are valued at the lower of cost or market. The inventories are
accounted for using the first-in, first-out (FIFO) method of determining
inventory costs. Inventory quantities on-hand are regularly reviewed, and where
necessary, provisions for excess and obsolete inventory are recorded based on
historical and anticipated usage.
Goodwill and Long-Lived Assets:
Management evaluates whether impairment exists for goodwill and
long-lived assets. Should actual results differ from the assumptions used to
determine impairment, additional provisions may be required. In particular,
decreases in future cash flows from operating activities below the assumptions
could have an adverse effect on Core Molding Technologies' ability to recover
its long-lived assets. Core Molding Technologies has not recorded any impairment
to goodwill for long-lived assets for the three months ended March 31, 2005 or
the year ended December 31, 2004.
Post retirement benefits:
Management records an accrual for post retirement costs associated
with the health care plan sponsored by Core Molding Technologies. Should actual
results differ from the assumptions used to determine the reserves, additional
provisions may be required. In particular, increases in future healthcare costs
above the assumptions could have an adverse affect on Core Molding Technologies'
operations. The effect of a change in healthcare costs is described in Note 11
of the Consolidated Notes to Financial Statements, which are contained in the
2004 Annual Report to Shareholders. Core Molding Technologies recorded a
liability for post retirement medical benefits based on actuarially computed
estimates of $8,459,000 at March 31, 2005 and $8,035,000 at December 31, 2004.
Income taxes:
The Condensed Consolidated Balance Sheet at March 31, 2005 and December
31, 2004, includes a deferred tax asset of $10,207,000 and $11,254,000. Core
Molding Technologies performs an analyses to evaluate the balance of deferred
tax assets that will be realized. Such analyses are based on the premise that
the company is, and will continue to be, a going concern and that it is more
likely than not that deferred tax benefits will be realized through the
generation of future taxable income. For more information, refer to Note 10 in
Core Molding Technologies 2004 Annual Report to Shareholders.
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PART I - FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Core Molding Technologies' primary market risk results from
fluctuations in interest rates. Core Molding Technologies is also exposed to
changes in the price of commodities used in its manufacturing operations and
foreign currency fluctuations associated with the Mexican peso. Core Molding
Technologies does not hold any material market risk sensitive instruments for
trading purposes.
Core Molding Technologies has the following five items that are
sensitive to market risks: (1) Industrial Revenue Bond ("IRB") with a variable
interest rate. The Company has an interest rate swap to fix the interest rate at
4.89%; (2) revolving line of credit, which bears a variable interest rate; (3)
bank note payable with a variable interest rate. The Company entered into a swap
agreement effective January 1, 2004, to fix the interest rate at 5.75%; (4)
foreign currency purchases in which the Company purchases Mexican pesos with
United States dollars to meet certain obligations that arise due to the facility
located in Mexico; and (5) raw material purchases in which Core Molding
Technologies purchases various resins for use in production. The prices of these
resins are affected by the prices of crude oil and natural gas as well as
processing capacity versus demand.
Assuming a hypothetical 10% increase in commodity prices, Core
Molding Technologies would be impacted by an increase in raw material costs,
which would have an adverse affect on operating margins.
Assuming a hypothetical 10% change in short-term interest rates in
both the three month periods ended March 31, 2005 and 2004, interest expense
would not change significantly, as the interest rate swap agreements would
generally offset the impact.
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PART I - FINANCIAL INFORMATION
ITEM 4
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company has carried out
an evaluation, under the supervision and with the participation of its
management, including its Chief Executive Officer and its Chief Financial
Officer, of the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act).
Based upon this evaluation, the Company's management, including its Chief
Executive Officer and its Chief Financial Officer, concluded that the Company's
disclosure controls and procedures were (i) effective to ensure that information
required to be disclosed in the Company's reports filed or submitted under the
Exchange Act was accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure, and (ii)
effective to ensure that information required to be disclosed in the Company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms.
There were no changes in internal control over financial reporting
(as such term is defined in Exchange Act Rule 13a-15(f)) that occurred in the
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No submission of matters to a vote of security holders occurred
during the three months ended March 31, 2005.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
See Index to Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORE MOLDING TECHNOLOGIES, INC.
Date: May 16, 2005 By: /s/ James L. Simonton
---------------------------------------
James L. Simonton
President, Chief Executive Officer and
Director
Date: May 16, 2005 By: /s/ Herman F. Dick, Jr.
--------------------------------------
Herman F. Dick, Jr.
Treasurer and Chief Financial Officer
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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
Materials Corporation, reflecting Exhibit 4(c) to Registration
Amendments through November 6, Statement on Form S-8
1996 [for purposes of compliance (Registration No. 333-29203)
with Securities and Exchange
Commission filing requirements only]
3(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to
Incorporation as filed with the Secretary of 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
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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 of Delaware on October 8, 1996 Statement on Form S-8
(Registration No. 333-29203)
4(a)(2) Certificate of Amendment of Certificate Incorporated by reference to
of Incorporation of Core Materials Exhibit 4(b) to Registration
Corporation as filed with the Secretary of Statement on Form S-8
State of Delaware on November 6, 1996 (Registration No. 333-29203)
4(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to
Corporation, reflecting amendments through Exhibit 4(c) to Registration
November 6, 1996 [for purposes of compliance Statement on Form S-8
with Securities and Exchange Commission (Registration No. 333-29203)
filing requirements only]
4(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to
Incorporation as filed with the Secretary of Exhibit 3(a)(4) to Quarterly
State of Delaware on August 28, 2002 Report on Form 10-Q for the
quarter ended September 30,
2002
4(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to
Exhibit 3-C to Registration
Statement on Form S-4
(Registration No. 333-15809)
10(p) Phantom stock agreement with James L. Simonton, Filed Herein
President and Chief Executive Officer
11 Computation of Net Income per Share Exhibit 11 omitted because
the required information is
Included in Notes to
Financial Statement
31(a) Section 302 Certification by James L. Simonton, Filed Herein
President and Chief Executive Officer
31(b) Section 302 Certification by Herman F. Dick, Filed Herein
Jr., Treasurer and Chief Financial Officer
32(a) Certification of James L. Simonton, Chief Filed Herein
Executive Officer of Core Molding Technologies,
Inc., dated May 16, 2005, pursuant to 18 U.S.C.
Section 1350
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32(b) Certification of Herman F. Dick, Jr., Chief Filed Herein
Financial Officer of Core Molding Technologies,
Inc., dated May 16, 2005, 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.
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