10-Q 1 l00851ae10vq.txt CORE MOLDING TECHNOLOGIES | FORM 10-Q 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, 2003 -------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from To -------------- ------------- Commission File Number 001-12505 CORE MOLDING TECHNOLOGIES, INC. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 31-1481870 ------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) incorporation or organization) 800 Manor Park Drive, P.O. Box 28183 Columbus, Ohio 43228-0183 ------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (614) 870-5000 -------------- N/A ------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] NO [ ] Indicate by check mark whether the registrant is an accelerated filer as defined by Rule 12b-2 of the Exchange Act. Yes [ ] NO [ X ] As of May 14, 2003, the latest practicable date, 9,778,680 shares of the registrant's common shares were issued and outstanding. PART 1 - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2003 2002 ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents ..................................... $ 8,709,294 $ 8,976,059 Accounts receivable (less allowance for doubtful accounts: March 31, 2003 - $588,000; December 31, 2002 - $543,000) .. 11,551,732 11,281,060 Inventories: Finished and work in process goods ........................ 2,397,739 2,391,077 Stores .................................................... 2,224,529 2,042,535 ------------ ------------ Total inventories ..................................... 4,622,268 4,433,612 Deferred tax asset ............................................ 1,151,158 1,151,158 Prepaid expenses and other current assets ..................... 2,064,528 2,218,900 ------------ ------------ Total current assets .................................. 28,098,980 28,060,789 Property, plant and equipment 43,222,147 43,001,396 Accumulated depreciation ...................................... (19,440,910) (18,970,136) ------------ ------------ Property, plant and equipment - net ........................... 23,781,237 24,031,260 Deferred tax asset - net ...................................... 10,451,304 10,746,223 Mortgage-backed security investment ........................... 90,890 94,589 Goodwill ...................................................... 1,097,433 1,097,433 Other assets .................................................. 340,434 353,419 ------------ ------------ TOTAL ......................................................... $ 63,860,278 $ 64,383,713 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Current liabilities Current portion long-term debt ............................. $ 395,000 $ 2,251,000 Accounts payable ........................................... 5,114,866 5,114,655 Accrued liabilities: Compensation and related benefits ........................ 2,944,629 2,706,272 Interest ................................................. 472,043 92,844 Taxes .................................................... 869,322 819,621 Current portion graduated lease payments ................. 205,812 188,219 Professional fees ........................................ 94,307 300,796 Other accrued liabilities ................................ 866,751 677,647 ------------ ------------ Total current liabilities ............................. 10,962,730 12,151,054 Long-term debt ................................................ 23,664,288 23,764,150 Interest rate swap ............................................ 754,117 773,434 Graduated lease payments ...................................... 864,110 903,835 Deferred long-term gain ....................................... 1,441,773 1,555,162 Postretirement benefits liability ............................. 6,291,915 5,961,915 STOCKHOLDERS' EQUITY: Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 97,787 Outstanding shares: March 31, 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 (497,717) (510,466) Retained earnings ............................................. 1,029,883 435,450 ------------ ------------ Total stockholders' equity ................................ 19,881,345 19,274,163 ------------ ------------ TOTAL ......................................................... $ 63,860,278 $ 64,383,713 ============ ============
See notes to consolidated financial statements 2 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------------------- 2003 2002 ------------ ------------ NET SALES: Products .................................. $ 19,062,891 $ 20,296,667 Tooling ................................... 10,481,536 729,608 ------------ ------------ Total Sales ............................. 29,544,427 21,026,275 ------------ ------------ Cost of Sales .................................. 25,238,746 17,338,064 Postretirement benefits expense ................ 374,659 255,989 ------------ ------------ Total cost of sales ..................... 25,613,405 17,594,053 ------------ ------------ GROSS MARGIN ................................... 3,931,022 3,432,222 ------------ ------------ Selling, general and administrative expense .... 2,418,231 1,977,989 Postretirement benefits expense ................ 64,014 60,047 ------------ ------------ Total selling, general and administrative 2,482,245 2,038,036 expense INCOME BEFORE INTEREST AND TAXES ............... 1,448,777 1,394,186 Interest income ................................ 23,096 35,651 Interest expense ............................... (493,021) (501,161) ------------ ------------ INCOME BEFORE INCOME TAXES ..................... 978,852 928,676 Income taxes: Current ................................... 96,067 237,695 Deferred .................................. 288,352 117,459 ------------ ------------ Total income taxes ...................... 384,419 355,154 ------------ ------------ NET INCOME ..................................... $ 594,433 $ 573,522 ============ ============ NET INCOME PER COMMON SHARE: Basic & diluted ........................... $ 0.06 $ 0.06 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic and diluted ......................... 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)
COMMON STOCK ACCUMULATED OUTSTANDING OTHER TOTAL 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 594,433 594,433 Hedge accounting effect of the interest rate swap at March 31, 2003, net of deferred income tax expense of $6,568. 12,749 12,749 ------------- ------------ -------------- --------------- ------------------- ---------------- BALANCE AT MARCH 31, 2003 9,778,680 $ 97,787 $ 19,251,392 $ 1,029,883 $ (497,717) $ 19,881,345 ============= ============ ============== =============== =================== ================
See notes to consolidated financial statements. 4 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................................... $ 594,433 $ 573,522 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................................... 500,326 506,416 Deferred income taxes ............................................ 288,352 117,459 Loss on disposal of assets ....................................... 25,933 -- Amortization of gain on sale/leaseback transactions .............. (113,389) (113,388) Change in operating assets and liabilities: Accounts receivable ........................................... (270,672) (1,967,549) Inventories ................................................... (188,656) (557,375) Prepaid and other assets ...................................... 154,372 (59,014) Accounts payable .............................................. 211 2,429,422 Accrued and other liabilities ................................. 627,740 256,052 Postretirement benefits liability ............................. 330,000 186,000 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES ........................... 1,948,650 1,371,545 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment ........................... (263,252) (124,079) Proceeds from sale of property and equipment ........................ -- -- Proceeds from maturities on mortgage-backed security investment ..... 3,699 321,491 ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................. (259,553) 197,412 CASH FLOWS FROM FINANCING ACTIVITIES: Payments of principal on secured note payable ....................... (1,860,862) -- Payment of principal on industrial revenue bond ..................... (95,000) (85,000) ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES ............................... (1,955,862) (85,000) NET INCREASE/(DECREASE) IN CASH ..................................... (266,765) 1,483,957 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................... 8,976,059 3,194,156 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 8,709,294 $ 4,678,113 =========== =========== Cash paid for: Interest (net of amounts capitalized) ............................ $ 92,844 $ 85,592 =========== =========== Income taxes (refund) ............................................ $ (228,603) $ (15,905) =========== ===========
See notes to consolidated financial statements. 5 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10Q and include all of the information and disclosures required by accounting principles generally accepted in the United States of America for interim reporting, which are less than those required for annual reporting. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (all of which are normal and recurring in nature) necessary to present fairly the financial position of Core Molding Technologies, Inc. and its subsidiaries ("Core Molding Technologies") at March 31, 2003, and the results of its 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 months ended March 31, 2003, and March 31, 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. SALES REVENUE Core Molding Technologies currently has four major customers, International Truck & Engine Corporation ("International"), Yamaha, Lear Corporation ("Lear") and Freightliner, LLC ("Freightliner"). The following table presents sales revenue for the above-mentioned customers for the three months ended March 31, 2003 and March 31, 2002:
THREE MONTHS ENDED MARCH 31, -------------------------------- 2003 2002 ----------- ----------- International ......... $19,061,883 $10,978,461 Yamaha ................ 4,143,251 4,133,050 Lear .................. 2,324,051 2,273,182 Freightliner .......... 2,220,137 1,740,468 ----------- ----------- Subtotal ......... $27,749,322 $19,125,161 Other ................. 1,795,105 1,901,114 ----------- ----------- Total ............ $29,544,427 $21,026,275 =========== ===========
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 MARCH 31, -------------------------- 2003 2002 -------- -------- Net income .................................... $594,433 $573,522 Hedge accounting effect of interest rate swap, net of tax effect of $6,568 and $27,578, respectively ......................... 12,749 53,533 -------- -------- Comprehensive income ......................... $607,182 $627,055 ======== ========
5. STOCK-BASED COMPENSATION The Company accounts for its stock option plans in accordance with APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for all stock option plans been determined consistent with the SFAS No. 123, "Accounting for Stock Based Compensation," the Company's net income (loss) and earnings/(loss) per common share would have resulted in the amounts as reported below.
THREE MONTHS ENDED MARCH 31, 2003 2002 -------- ----------- Net income as reported ................................. $594,433 $ 573,522 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 77,147 71,718 -------- ----------- Pro forma net income ................................... $517,286 $ 501,804 ======== =========== Earnings per share: Basic and diluted - as reported ................... $ 0.06 $ 0.06 Basic and diluted - pro forma ..................... $ 0.05 $ 0.05
The pro forma amounts are not representative of the effects on reported net earnings or earnings per common share for future years. 6. NEW ACCOUNTING PRONOUNCEMENTS As previously reported, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" in April 2002. It is effective for the first quarter in the year ended December 31, 2003. The Company does not believe the adoption of SFAS No. 145 will have a significant impact on its consolidated financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities included in restructurings. This Statement eliminates the definition and requirements for recognition of exit costs as defined in EITF Issue 94-3, and requires that liabilities for exit activities be recognized when incurred instead of at the exit activity commitment date. This Statement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of this statement, as of January 1, 2003, did not have an impact on Core Molding Technologies' consolidated financial statements. 7 PART I - FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements under this caption constitute "forward-looking statements" which involve certain risks and uncertainties. Core Molding Technologies' actual results may differ significantly from those discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to: business conditions in the plastics, transportation, recreation and commercial and industrial product industries, the general economy, competitive factors, the dependence on four major customers, the recent efforts of Core Molding Technologies to expand its customer base, new technologies, regulatory requirements, labor relations, the loss of or inability to attract key personnel, the availability of capital, the start up of new operations in Mexico and management's decisions to pursue new products or businesses which involve additional costs, risks or capital expenditures. OVERVIEW Core Molding Technologies is a compounder of sheet molding composite ("SMC") and molder of fiberglass reinforced plastics. Core Molding Technologies produces high quality fiberglass reinforced molded products and SMC materials for varied markets, including medium and heavy-duty trucks, automobiles, personal watercraft and other commercial products. The demand for Core Molding Technologies' products is affected by economic conditions in the United States, Canada and Mexico. Core Molding Technologies' manufacturing operations have a significant fixed cost component. Accordingly, during periods of changing demands, the profitability of Core Molding Technologies' operations may change proportionately more than revenues from operations. On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of International's truck manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus, Ohio, was a compounder and compression molder of SMC. In 1998 Core Molding Technologies began compression molding operations at its second facility in Gaffney, South Carolina, and in October 2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include the spray up, hand-lay-up and vacuum assisted resin infusion molding processes. The acquisition was accounted for under the purchase accounting method and accordingly the effects of the acquisition are included in the results of operations and financial condition of Core Molding Technologies from the date of the acquisition and forward. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003, AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2002 Net sales for the three months ended March 31, 2003, totaled $29,544,000 representing an approximate 41% increase from the $21,026,000 reported for the three months ended March 31, 2002. The primary reason for the increase in sales was due to the completion of tooling projects. Revenue from tooling projects totaled $10,482,000 for the three months ended March 31, 2003. Tooling project revenues for the three months ended March 31, 2002, totaled $729,000. Tooling project revenues represented the primary reason for the increase in sales to International and Freightliner for the three months ended March 31, 2003, as compared to the three months ended March 31, 2002. Tooling project revenues are sporadic in nature and do not represent a recurring trend. Total product sales revenue, excluding tooling project revenue, was lower by approximately 6% for the three months ended March 31, 2003, as compared to March 31, 2002. The primary reason for this decrease was due to the negative impact general economic conditions have had on the demand for medium and heavy-duty trucks and automobiles. Sales to Lear increased slightly for the three months ended March 31, 2003, compared to the same time period last year. The primary reason for this increase was due to a one-time reimbursement of $449,000 for packaging costs incurred by Core Molding Technologies in 2002. 8 Sales to other customers for the three months ended March 31, 2003, decreased approximately 6% to $1,795,000 from $1,901,000 for the three months ended March 31, 2002. The decrease in sales was primarily due to the negative impact general economic conditions have had on the demand for medium and heavy-duty trucks and the automobile aftermarket products. Gross Margin was approximately 13.3% of sales for the three months ended March 31, 2003, compared with 16.3% for the three months ended March 31, 2002. The decrease in gross margin, as a percentage of sales from the prior year, was due to a combination of many factors. The primary reason for the decrease was due to the dilutive effect of tooling project revenue on the current quarter's gross margin. Historically, Core Molding Technologies has not achieved margins on tooling projects similar to margins on its sales of SMC and molded products. Partially offsetting this decrease was the one time reimbursement from Lear, as noted above. Production efficiencies largely offset increases in employee benefit programs, most notably healthcare costs and postretirement benefits for the union workforce at Core Molding Technologies' Columbus, Ohio facility and higher energy cost, specifically natural gas pricing. Overall, product margins (excluding the dilutive effect of tooling revenues and the one-time reimbursement from Lear) were consistent between the three months ended March 31, 2003 and March 31, 2002. Selling, general and administrative expenses ("SG&A") totaled $2,482,000 for the three months ended March 31, 2003, increasing from $2,038,000 for the three months ended March 31, 2002. The primary reasons for this increase were due to increases in salaries and employee benefits, primarily profit sharing accruals, as well as increases in Core Molding Technologies' insurance costs. Interest expense totaled $493,000 for the three months ended March 31, 2003, decreasing from $501,000 for the three months ended March 31, 2002. The primary reason for the decrease was due to the principal payment made by Core Molding Technologies on the secured note payable due to International Truck and Engine Corporation (see Note 6 in the 2002 Annual Report to Shareholders). Interest rates experienced by Core Molding Technologies with respect to the industrial revenue bond were favorable; however, due to the interest rate swap the Company entered into, the interest rate is essentially fixed for this debt instrument. Income taxes for the three months ended March 31, 2003, are estimated to be approximately 39% of total earnings before taxes. Actual tax payments will be lower than the recorded expenses as Core Molding Technologies has substantial federal tax loss carryforwards. These loss carryforwards were recorded as a deferred tax asset. As the tax loss carryforwards are utilized to offset federal income tax payments, Core Molding Technologies reduces the deferred tax asset as opposed to recording a reduction in income tax expense. Net income for the three months ended March 31, 2003, was $594,000, or $.06 per basic and diluted share, representing an increase of $20,000 over the net income for the three months ended March 31, 2002, of $574,000, or $.06 per basic and diluted share. LIQUIDITY AND CAPITAL RESOURCES Core Molding Technologies' primary cash requirements are for operating expenses and capital expenditures. These cash requirements have historically been met through a combination of cash flow from operations, equipment leasing, issuance of Industrial Revenue Bonds and bank lines of credit. Cash provided by operations for the three months ended March 31, 2003, totaled $1,949,000. Net income increased operating cash flows by $594,000. Non-cash deductions of depreciation and amortization added $500,000 to positive cash flow. Also adding to positive cash flow for the quarter was accrued interest payable of $379,000, which will be paid in the third quarter of 2003. In addition, an increase in the postretirement benefits liability provided $330,000 of positive cash flow. Core Molding Technologies expects this item to provide positive cash flow until such time that retirees begin to utilize their retirement medical benefits. Also adding positively to operating cash flows was accrued payroll expense of $270,000. A decrease in deferred income taxes also had a positive impact on operating cash flows of $288,000, 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 $271,000 and inventories of $189,000. Investing activities decreased cash flow by $260,000 for the three months ended March 31, 2003. Capital expenditures totaled $263,000, which was primarily related to the acquisition of machinery and equipment. Core Molding Technologies anticipates spending an additional $1,903,000 for the remainder of the year for capital projects. Offsetting these expenditures were proceeds from maturities on the Company's mortgage-backed security investment of $4,000. 9 Financing activities reduced cash flow by $1,956,000 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 $95,000. At March 31, 2003, Core Molding Technologies had cash on hand of $8,709,000 and an available line of credit of $7,500,000, which is scheduled to mature on April 30, 2004. As of March 31, 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. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses Core Molding Technologies' consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventories, goodwill and long-lived assets, post retirement benefits, and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Accounts receivable allowances: Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Core Molding Technologies had recorded an allowance for doubtful accounts of $588,000 at March 31, 2003, and $543,000 at December 31, 2002. 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 had recorded an allowance for chargebacks of $703,000 at March 31, 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 $303,000 at March 31, 2003, and $278,000 at December 31, 2002. Goodwill and Long-Lived Assets Management evaluates whether impairment exists for goodwill and long-lived assets. Should actual results differ from the assumptions used to determine impairment, additional provisions may be required. In particular, decreases in future cash flows from operations below the assumptions could have an adverse affect on Core Molding Technologies' operations. Core Molding Technologies has not recorded any impairment to goodwill or long-lived assets for the quarter ended March 31, 2003 or the year ended December 31, 2002. 10 Post retirement benefits: Management records an accrual for post retirement costs associated with the Company sponsored health care plan. Should actual results differ from the assumptions used to determine the reserves, additional provisions may be required. In particular, increases in future healthcare costs above the assumptions could have an adverse affect on Core Molding Technologies' operations. Core Molding Technologies had recorded a liability for post retirement medical benefits based on actuarially computed estimates of $6,292,000 at March 31, 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 to the consolidated financial statements for the year ended December 31, 2002, included 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 March 31, 2003 and December 31, 2002. 11 PART I - FINANCIAL INFORMATION ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Core Molding Technologies' primary market risk results from fluctuations in interest rates. Core Molding Technologies is also exposed to changes in the price of commodities used in its manufacturing operations. The Company does not hold any material market risk sensitive instruments for trading purposes. Core Molding Technologies has the following four items that are sensitive to a change in interest rates: (1) Long-term debt consisting of an Industrial Revenue Bond ("IRB") with a balance at March 31, 2003, of $6,000,000. Interest is variable and is computed weekly; the average interest rate charged for the three months ended March 31, 2003, was 1.3%, and the maximum interest rate that may be charged at any time over the life of the IRB is 10%. In order to minimize the effect of the interest rate fluctuation, Core Molding Technologies has entered into an interest rate swap arrangement under which Core Molding Technologies pays a fixed rate of 4.89% to a bank and receives 76% of the 30 day commercial paper rate; (2) Long-term Secured Note Payable with a balance as of March 31, 2003, of $18,059,288 that bears interest at a fixed annual rate of 8%; (3) Revolving line of credit, which bears interest at LIBOR plus three and one-quarter percent or the prime rate; and (4) Foreign currency purchases in which Core Molding Technologies purchases Mexican pesos with United States dollars to meet certain obligations that arise due to the facility located in Mexico. Assuming a hypothetical 20% change in short-term interest rates in both the three month periods ended March 31, 2003, and 2002, interest expense would not change significantly, as the interest rate swap agreement would generally offset the impact. 12 PART I - FINANCIAL INFORMATION ITEM 4 CONTROLS AND PROCEDURES Within the 90 days prior to the filing date of this Form 10-Q, Core Molding Technologies carried out an evaluation, under the supervision and with the participation of Core Molding Technologies' management, including Core Molding Technologies' Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Core Molding Technologies' disclosure controls and procedures as defined in Rule 13a-14 of the Securities Exchange Act of 1934. 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. 13 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 No submission of matters to a vote of security holders occurred for the three months ended March 31, 2003. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: See Index to Exhibits REPORTS ON FORM 8-K: None 14 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 14, 2003 By: /s/ James L. Simonton ------------ _____________________ James L. Simonton President, Chief Executive Officer and Director Date: May 14, 2003 By: /s/ Herman F. Dick, Jr. ------------ _______________________ Herman F. Dick, Jr. Treasurer and Chief Financial Officer 15 SECTION 302 CERTIFICATION I, James L. Simonton, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Core Molding Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ James L. Simonton ------------------------------- James L. Simonton President, Chief Executive Officer and Director 16 SECTION 302 CERTIFICATION I, Herman F. Dick, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Core Molding Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Herman F. Dick, Jr. --------------------------------------- Herman F. Dick, Jr. Treasurer and Chief Financial Officer 17 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 2(a)(1) Asset Purchase Agreement Incorporated by reference to Dated as of September 12, 1996, Exhibit 2-A to Registration As amended October 31, 1996, Statement on Form S-4 between Navistar International Transportation (Registration No. 333-15809) Corporation and RYMAC Mortgage Investment Corporation1 2(a)(2) Second Amendment to Asset Purchase Incorporated by reference to Agreement dated December 16, 19961 Exhibit 2(a)(2) to Annual Report on Form 10-K for the year-ended December 31, 2001 2(b)(1) Agreement and Plan of Merger dated as of Incorporated by reference to November 1, 1996, between Core Molding Exhibit 2-B to Registration Technologies, Inc. and RYMAC Mortgage Investment Statement on Form S-4 Corporation (Registration No. 333-15809) 2(b)(2) First Amendment to Agreement and Plan Incorporated by reference to of Merger dated as of December 27, 1996 Exhibit 2(b)(2) to Annual Between Core Molding Technologies, Inc. and Report on Form 10-K for the RYMAC Mortgage Investment Corporation year ended December 31, 2002 2(c)(1) Asset Purchase Agreement dated as of October 10, Incorporated by reference to 2001, between Core Molding Technologies, Inc. Exhibit 1 to Form 8K filed and Airshield Corporation October 31, 2001 3(a)(1) Certificate of Incorporation of Incorporated by reference to Core Molding Technologies, Inc. Exhibit 4(a) to Registration As filed with the Secretary of State Statement on Form S-8 of Delaware on October 8, 1996 (Registration No. 333-29203) 3(a)(2) Certificate of Amendment of Incorporated by reference to Certificate of Incorporation Exhibit 4(b) to Registration of Core Molding Technologies, Inc. Statement on Form S-8 as filed with the Secretary of State (Registration No. 333-29203) of Delaware on November 6, 1996 3(a)(3) Certificate of Incorporation of Core Incorporated by reference to 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
18
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 3(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to Exhibit 3-C to Registration Statement on Form S-4 (Registration No. 333-15809) 4(a)(1) Certificate of Incorporation of Core Molding Incorporated by reference to Technologies, Inc. as filed with the Secretary 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 99(a) Certification of James L. Simonton, Chief Filed Herein Executive Officer of Core Molding Technologies, Inc., dated May 14, 2003, pursuant to 18 U.S.C. Section 1350 99(b) Certification of Herman F. Dick, Jr., Chief Filed Herein Financial Officer of Core Molding Technologies, Inc., dated May 14, 2003, pursuant to 18 U.S.C. Section 1350
19 (1) The Asset Purchase Agreement, as filed with the Securities and Exchange Commission at Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809), omits the exhibits (including, the Buyer Note, Special Warranty Deed, Supply Agreement, Registration Rights Agreement and Transition Services Agreement, identified in the Asset Purchase Agreement) and schedules (including, those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase Agreement. Core Molding Technologies, Inc. will provide any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 20