10-Q 1 l02335ae10vq.txt CORE MOLDING TECHNOLOGIES, INC. 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 June 30, 2003 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from To ----------------- ------------------ 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 August 14, 2003, the latest practicable date, 9,778,680 shares of the registrant's common shares were issued and outstanding. PART 1 - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2003 2002 ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents $ 9,768,840 $ 8,976,059 Accounts receivable (less allowance for doubtful accounts: June 30, 2003 - $521,000; December 31, 2002 - $543,000) 12,181,059 11,281,060 Inventories: Finished and work in process goods 2,985,737 2,391,077 Stores 2,231,178 2,042,535 ------------ ------------ Total inventories 5,216,915 4,433,612 Deferred tax asset 1,151,158 1,151,158 Prepaid expenses and other current assets 2,609,979 2,218,900 ------------ ------------ Total current assets 30,927,951 28,060,789 Property, plant and equipment 43,624,766 43,001,396 Accumulated depreciation (19,950,345) (18,970,136) ------------ ------------ Property, plant and equipment - net 23,674,421 24,031,260 Deferred tax asset - net 9,946,234 10,746,223 Goodwill 1,097,433 1,097,433 Other assets 417,982 448,008 ------------ ------------ TOTAL $ 66,064,021 $ 64,383,713 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Current liabilities Accounts payable $ 5,968,947 $ 5,114,655 Current portion long-term debt 405,000 2,251,000 Current portion deferred long-term gain 453,555 453,555 Current portion graduated lease payments 223,408 188,219 Accrued liabilities: Compensation and related benefits 2,907,613 2,706,272 Interest 837,615 92,844 Taxes 553,627 819,621 Professional fees 102,502 300,796 Other accrued liabilities 565,894 224,092 ------------ ------------ Total current liabilities 12,018,161 12,151,054 Long-term debt 23,559,288 23,764,150 Interest rate swap 836,888 773,434 Graduated lease payments 824,382 903,835 Deferred long-term gain 1,328,385 1,555,162 Postretirement benefits liability 6,621,915 5,961,915 STOCKHOLDERS' EQUITY: Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 97,787 Outstanding shares: June 30, 2003 and December 31, 2002 - 9,778,680 Paid-in capital 19,251,392 19,251,392 Accumulated other comprehensive loss, net of income tax effect (552,346) (510,466) Retained earnings 2,078,169 435,450 ------------ ------------ Total stockholders' equity 20,875,002 19,274,163 ------------ ------------ TOTAL $ 66,064,021 $ 64,383,713 ============ ============
See notes to consolidated financial statements 2 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- --------------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ NET SALES: Products $ 20,975,060 $ 21,442,437 $ 40,037,951 $ 41,739,104 Tooling 164,735 5,209,177 10,646,271 5,938,785 ------------ ------------ ------------ ------------ Total Sales 21,139,795 26,651,614 50,684,222 47,677,889 ------------ ------------ ------------ ------------ Cost of Sales 16,263,726 22,282,646 41,502,472 39,620,710 Postretirement benefits expense 348,779 250,084 723,438 506,073 ------------ ------------ ------------ ------------ Total cost of sales 16,612,505 22,532,730 42,225,910 40,126,783 ------------ ------------ ------------ ------------ GROSS MARGIN 4,527,290 4,118,884 8,458,312 7,551,106 ------------ ------------ ------------ ------------ Selling, general and administrative expense 2,284,979 2,488,786 4,703,210 4,466,775 Postretirement benefits expense 98,374 62,521 162,388 122,568 ------------ ------------ ------------ ------------ Total selling, general and administrative expense 2,383,353 2,551,307 4,865,598 4,589,343 INCOME BEFORE INTEREST AND TAXES 2,143,937 1,567,577 3,592,714 2,961,763 Interest income 21,749 34,905 44,845 70,556 Interest expense (442,786) (507,028) (935,807) (1,008,189) ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 1,722,900 1,095,454 2,701,752 2,024,130 Income taxes: Current 141,403 252,831 237,470 490,526 Deferred 533,211 175,601 821,563 293,060 ------------ ------------ ------------ ------------ Total income taxes 674,614 428,432 1,059,033 783,586 ------------ ------------ ------------ ------------ NET INCOME $ 1,048,286 $ 667,022 $ 1,642,719 $ 1,240,544 ============ ============ ============ ============ NET INCOME PER COMMON SHARE: Basic and diluted $ 0.11 $ 0.07 $ 0.17 $ 0.13 ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING: Basic and diluted 9,778,680 9,778,680 9,778,680 9,778,680 ============ ============ ============ ============
See notes to consolidated financial statements 3 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED COMMON STOCK OTHER TOTAL OUTSTANDING PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY --------- ---------- ----------- ---------- ------------- ----------- BALANCE AT JANUARY 1, 2003 9,778,680 $ 97,787 $19,251,392 $ 435,450 $(510,466) $19,274,163 Net Income 1,642,719 1,642,719 Hedge accounting effect of the interest rate swap at June 30, 2003, net of deferred income tax benefit of $21,574 (41,880) (41,880) --------- ---------- ----------- ---------- --------- ----------- BALANCE AT JUNE 30, 2003 9,778,680 $ 97,787 $19,251,392 $2,078,169 $(552,346) $20,875,002 ========= ========== =========== ========== ========= ===========
See notes to consolidated financial statements. 4 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,642,719 $ 1,240,544 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,049,987 1,006,194 Deferred income taxes 821,563 293,060 Loss on disposal of assets 25,933 -- Amortization of gain on sale/leaseback transactions (226,777) (226,777) Loss/(gain) on translation of foreign currency financial statements 29,107 (34,704) Change in operating assets and liabilities: Accounts receivable (899,999) (2,349,035) Inventories (783,303) (592,091) Prepaid and other assets (391,079) 63,116 Accounts payable 854,292 3,294,380 Accrued and other liabilities 779,362 (295,248) Postretirement benefits liability 660,000 372,000 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,561,805 2,771,439 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (722,219) (219,435) Proceeds from maturities on mortgage-backed security investment 4,057 625,886 ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (718,162) 406,451 CASH FLOWS FROM FINANCING ACTIVITIES: Payments of principal on secured note payable (1,860,862) -- Payment of principal on industrial revenue bond (190,000) (175,000) ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (2,050,862) (175,000) NET INCREASE IN CASH 792,781 3,002,890 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,976,059 3,194,156 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,768,840 $ 6,197,046 =========== =========== Cash paid for: Interest (net of amounts capitalized) $ 149,318 $ 958,319 =========== =========== Income taxes (refund) $ (221,904) $ (15,905) =========== ===========
See notes to consolidated financial statements. 5 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10Q and include all of the information and disclosures required by accounting principles generally accepted in the United States of America for interim reporting, which are less than those required for annual reporting. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (all of which are normal and recurring in nature) necessary to present fairly the financial position of Core Molding Technologies, Inc. and its subsidiaries ("Core Molding Technologies") at June 30, 2003, and the results of their operations and cash flows. The "Consolidated Notes to Financial Statements", which are contained in the 2002 Annual Report to Shareholders, should be read in conjunction with these Consolidated Financial Statements. Certain reclassifications have been made to prior year's amounts to conform to the classifications of such amounts for 2003. Core Molding Technologies and its subsidiaries operate in the plastics market in a family of products known as "reinforced plastics". Reinforced plastics are combinations of resins and reinforcing fibers (typically glass or carbon) that are molded to shape. The Columbus, Ohio and Gaffney, South Carolina facilities produce reinforced plastics by compression molding sheet molding compound (SMC) in a closed mold process. The Matamoros, Mexico facility produces reinforced plastic products by spray-up and hand-lay-up open mold processes and vacuum assisted resin infused (VRIM) closed mold process. 2. EARNINGS PER COMMON SHARE Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed similarly but include the effect of the exercise of stock options under the treasury stock method. In calculating net income per share for the three and six months ended June 30, 2003, and June 30, 2002, stock options had no effect on the weighted average shares for the computation of diluted income per share and consequently basic and diluted net income per share were the same. 3. MAIN CUSTOMERS Core Molding Technologies currently has five major customers, International Truck & Engine Corporation ("International"), Yamaha Motor Corporation ("Yamaha"), Lear Corporation ("Lear"), Freightliner, LLC ("Freightliner") and Paccar, Inc. ("Paccar"). The following table presents net sales for the above-mentioned customers for the three and six months ended June 30, 2003 and June 30, 2002:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2003 2002 2003 2002 ----------- ----------- ----------- ----------- International $10,806,738 $11,343,819 $29,868,621 $22,322,280 Yamaha 3,490,728 4,357,232 7,633,979 8,490,282 Lear 2,139,556 1,807,263 4,463,607 4,080,445 Freightliner 2,202,623 2,628,821 4,422,760 4,369,289 Paccar 759,117 4,236,438 1,267,462 4,526,055 ----------- ----------- ----------- ----------- Subtotal $19,398,762 $24,373,573 $47,656,429 $43,788,351 Other 1,741,033 2,278,041 3,027,793 3,889,538 ----------- ----------- ----------- ----------- Total $21,139,795 $26,651,614 $50,684,222 $47,677,889 =========== =========== =========== ===========
6 4. COMPREHENSIVE INCOME Comprehensive income represents net income plus the results of certain non-shareowners' equity changes not reflected in the Statement of Income. The components of comprehensive income, net of tax, are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 --------- --------- ---------- ---------- Net income $1,048,286 $ 667,022 $1,642,719 $1,240,544 Hedge accounting effect of the interest rate swap, net of tax effect of $28,142 and $64,104 benefit for the three months ending June 30, respectively; and $21,574 and $36,526 tax benefit for the six months ending June 30, respectively. (54,629) (124,437) (41,880) (70,904) --------- --------- ---------- ---------- Comprehensive income $ 993,657 $ 542,585 $1,600,839 $1,169,640 ========= ========= ========== ==========
5. STOCK-BASED COMPENSATION The Company accounts for its stock option plans in accordance with APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for all stock option plans been determined consistent with SFAS No. 123, "Accounting for Stock Based Compensation," the Company's net income and earnings per common share would have resulted in the amounts as reported below.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ---------------------------- 2003 2002 2003 2002 ---------- -------- ---------- ---------- Net income as reported $1,048,286 $667,022 $1,642,719 $1,240,544 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 76,420 84,490 153,567 156,208 ---------- -------- ---------- ---------- Pro forma net income $ 971,866 $582,532 $1,489,152 $1,084,336 ========== ======== ========== ========== Earnings per share: Basic and diluted-as reported $ 0.11 $ 0.07 $ 0.17 $ 0.13 Basic and diluted-pro forma $ 0.10 $ 0.06 $ 0.15 $ 0.11
The pro forma amounts are not representative of the effects on reported net earnings or earnings per common share for future years. On August 4, 2003, Core Molding Technologies reported the results of its recent tender offer regarding the outstanding stock options granted to its employees. Of the 1,171,500 stock options outstanding, 978,000 options were tendered for cancellation. Core Molding Technologies has stated that it intends to issue 929,100 new options, representing 95% of the tendered options, on or after February 2, 2004, at the greater of $1.70 per share or the market price per share on the day of issuance. 7 6. NEW ACCOUNTING PRONOUNCEMENTS In April 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies accounting and reporting for certain derivative instruments. This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003, and is to be applied prospectively. Core Molding Technologies does not believe the adoption of SFAS No. 149 will have a significant impact on its consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 will not have a significant impact on Core Molding Technologies' consolidated financial statements. 8 PART I - FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements under this caption constitute "forward-looking statements" which involve certain risks and uncertainties. Core Molding Technologies' actual results may differ significantly from those discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to: business conditions in the plastics, transportation, watercraft and commercial product industries, the general economy, competitive factors, the dependence on five major customers, the recent efforts of Core Molding Technologies to expand its customer base, new technologies, regulatory requirements, labor relations, the loss of or inability to attract key personnel, the availability of capital, and management's decisions to pursue new products or businesses which involve additional costs, risks or capital expenditures. OVERVIEW Core Molding Technologies is a compounder of sheet molding composite ("SMC") and molder of fiberglass reinforced plastics. Core Molding Technologies produces high quality fiberglass reinforced molded products and SMC materials for varied markets, including medium and heavy-duty trucks, automobiles, personal watercraft and other commercial products. The demand for Core Molding Technologies' products is affected by economic conditions in the United States, Canada and Mexico. Core Molding Technologies' manufacturing operations have a significant fixed cost component. Accordingly, during periods of changing demands, the profitability of Core Molding Technologies' operations may change proportionately more than revenues from operations. On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of International's truck manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus, Ohio, was a compounder and compression molder of SMC. In 1998 Core Molding Technologies began compression molding operations at its second facility in Gaffney, South Carolina, and in October 2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include the spray up, hand-lay-up and vacuum assisted resin infusion molding processes in Matamoros, Mexico. The acquisition was accounted for under the purchase accounting method and accordingly the effects of the acquisition are included in the results of operations and financial condition of Core Molding Technologies from the date of the acquisition and forward. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2003, AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2002 Net sales for the three months ended June 30, 2003, totaled $21,140,000 representing an approximate 21% decrease from the $26,652,000 reported for the three months ended June 30, 2002. The primary reason for the decrease in sales was due to a reduction in completed tooling projects. Revenue from tooling projects totaled $165,000 for the three months ended June 30, 2003. Tooling project revenues for the three months ended June 30, 2002, totaled $5,209,000. Tooling project revenues represented the primary reason for the decrease in sales to Paccar for the three months ended June 30, 2003, as compared to the three months ended June 30, 2002. Tooling project revenues are sporadic in nature and do not represent a recurring trend. Total product sales revenue, excluding tooling project revenue, was lower by approximately 2% for the three months ended June 30, 2003, as compared to June 30, 2002. The primary reason for this decrease was due to the negative impact general economic conditions have had on the demand for medium and heavy-duty trucks and personal watercraft. Sales to Lear increased by $332,000 for the three months ended June 30, 2003, compared to the same time period last year. The primary reason for this increase was due to a sales price adjustment related to packaging costs for the second quarter of 2003. Core Molding Technologies anticipates that these price adjustments will end with the use of returnable packaging, which has begun at the beginning of the third quarter of 2003. Sales to other customers for the three months ended June 30, 2003, decreased approximately 24% to $1,741,000 from $2,278,000 for the three months ended June 30, 2002. The decrease in sales was primarily due to 9 revenue from completed tooling projects being less for the three months ended June 30, 2003, as compared to the three months ended June 30, 2002. Gross Margin was approximately 21.4% of sales for the three months ended June 30, 2003, compared with 15.5% for the three months ended June 30, 2002. The primary reason for the increase was due to production efficiencies, primarily material usage and labor efficiencies, which were achieved primarily at Core Molding Technologies' Columbus, Ohio and Gaffney, South Carolina facilities. Comparative sales mix favorably affected gross margin, particularly the decrease in tooling sales in the second quarter 2003 as compared to the tooling sales in the second quarter 2002. Also adding to the increase was the sales price adjustments for packaging costs, as noted above. Partially offsetting these gains were increases in employee benefit programs, most notably healthcare costs and postretirement healthcare benefits. Selling, general and administrative expenses ("SG&A") totaled $2,383,000 for the three months ended June 30, 2003, decreasing from $2,551,000 for the three months ended June 30, 2002. The primary reasons for this decrease were due to decreases in profit sharing accruals, professional and outside services, and real estate and property taxes. These decreases were partially offset by increases in Core Molding Technologies' insurance costs. Interest expense totaled $443,000 for the three months ended June 30, 2003, decreasing from $507,000 for the three months ended June 30, 2002. The primary reason for the decrease was due to the principal payment made on the secured note payable due to International Truck and Engine Corporation (see Note 6 in the 2002 Annual Report to Shareholders). Interest rates for the industrial revenue bond were favorable; however, due to the interest rate swap Core Molding Technologies entered into, the interest rate is essentially fixed for this debt instrument. Income taxes for the three months ended June 30, 2003, are estimated to be approximately 39% of total earnings before taxes. Actual tax payments will be lower than the recorded expenses as Core Molding Technologies has substantial federal tax loss carryforwards. These loss carryforwards were recorded as a deferred tax asset. As the tax loss carryforwards are utilized to offset federal income tax payments, Core Molding Technologies reduces the deferred tax asset as opposed to recording a reduction in income tax expense. Net income for the three months ended June 30, 2003, was $1,048,000, or $.11 per basic and diluted share, representing an increase of $381,000 over the net income for the three months ended June 30, 2002, of $667,000, or $.07 per basic and diluted share. SIX MONTHS ENDED JUNE 30, 2003, AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2002 Net sales for the six months ended June 30, 2003, totaled $50,684,000 representing an approximate 6% increase from the $47,678,000 reported for the six months ended June 30, 2002. The primary reason for the increase in sales was due to an increase in completed tooling projects. Revenue from tooling projects totaled $10,646,000 for the six months ended June 30, 2003. Tooling project revenues for the six months ended June 30, 2002, totaled $5,939,000. Tooling project revenues represented the primary reason for the increase in sales to International and the decrease in sales to Paccar for the six months ended June 30, 2003, as compared to the six months ended June 30, 2002. Tooling project revenues are sporadic in nature and do not represent a recurring trend. Total product sales revenue, excluding tooling project revenue, was lower by approximately 4% for the six months ended June 30, 2003, as compared to June 30, 2002. The primary reason for this decrease was due to the negative impact general economic conditions has had on the demand for medium and heavy-duty trucks and personal watercraft. Sales to Lear increased slightly for the six months ended June 30, 2003, compared to the same time period last year. The primary reason for this increase was due to a sales price adjustment related to packaging costs incurred by Core Molding Technologies in 2002 and the first six months of 2003. Core Molding Technologies anticipates that these price adjustments will end with the use of returnable packaging, which has begun at the beginning of the third quarter of 2003. Sales to other customers for the six months ended June 30, 2003, decreased approximately 22% to $3,028,000 from $3,890,000 for the six months ended June 30, 2002. The decrease in sales was primarily due to revenue from completed tooling projects being less for the six months ended June 30, 2003, as compared to the six months ended June 30, 2002. Gross Margin was approximately 16.7% of sales for the six months ended June 30, 2003, compared with 15.8% for the six months ended June 30, 2002. The increase in gross margin, as a percentage of sales from the prior year, was due to a combination of many factors. The primary reason for this increase was due to the sales price adjustment for packaging costs incurred by Core Molding Technologies in 2002 and the first six months of 2003, as noted above. Production efficiencies largely offset increases in employee benefit programs, most notably healthcare 10 costs and postretirement healthcare benefits and higher energy cost, specifically natural gas pricing. Selling, general and administrative expenses ("SG&A") totaled $4,866,000 for the six months ended June 30, 2003, increasing from $4,589,000 for the six months ended June 30, 2002. The primary reasons for this increase were due to increases in salaries and employee benefits, primarily profit sharing accruals, as well as increases in insurance costs, travel expenses and public reporting expenses. Interest expense totaled $936,000 for the six months ended June 30, 2003, decreasing from $1,008,000 for the six months ended June 30, 2002. The primary reason for the decrease was due to the principal payment made on the secured note payable due to International Truck and Engine Corporation (see Note 6 in the 2002 Annual Report to Shareholders). Interest rates for the industrial revenue bond were favorable; however, due to the interest rate swap Core Molding Technologies entered into, the interest rate is essentially fixed for this debt instrument. Income taxes for the six months ended June 30, 2003, are estimated to be approximately 39% of total earnings before taxes. Actual tax payments will be lower than the recorded expenses as Core Molding Technologies has substantial federal tax loss carryforwards. These loss carryforwards were recorded as a deferred tax asset. As the tax loss carryforwards are utilized to offset federal income tax payments, Core Molding Technologies reduces the deferred tax asset as opposed to recording a reduction in income tax expense. Net income for the six months ended June 30, 2003, was $1,643,000, or $.17 per basic and diluted share, representing an increase of $402,000 over the net income for the six months ended June 30, 2002, of $1,241,000, or $.13 per basic and diluted share. LIQUIDITY AND CAPITAL RESOURCES Core Molding Technologies' primary cash requirements are for operating expenses and capital expenditures. These cash requirements have historically been met through a combination of cash flow from operations, equipment leasing, issuance of Industrial Revenue Bonds and bank lines of credit. Cash provided by operations for the six months ended June 30, 2003, totaled $3,562,000. Net income increased operating cash flows by $1,643,000. Non-cash deductions of depreciation and amortization added $1,050,000 to positive cash flow. Also adding to positive cash flow for the quarter was accrued interest payable of $745,000, which will be paid in the third quarter of 2003. In addition, an increase in the postretirement healthcare benefits liability provided $660,000 of positive cash flow. Core Molding Technologies expects this item to provide positive cash flow until such time that retirees begin to utilize their retirement medical benefits. A decrease in deferred income taxes also had a positive impact on operating cash flows of $822,000, which is a result of Core Molding Technologies' net operating loss carryforwards reducing current year tax obligations. Partially offsetting the above mentioned increases in operating cash flows were increases in accounts receivable of $900,000 and inventories of $783,000. Investing activities decreased cash flow by $718,000 for the six months ended June 30, 2003. Capital expenditures totaled $722,000, which was primarily related to the acquisition of machinery and equipment. Core Molding Technologies anticipates spending an additional $1,444,000 for the remainder of the year for capital projects. Financing activities reduced cash flow by $2,051,000 due to principal repayments on the secured note payable due to International Truck and Engine of $1,861,000 and for the regularly scheduled payment on the Industrial Revenue Bond of $190,000. At June 30, 2003, Core Molding Technologies had cash on hand of $9,769,000 and an available line of credit of $7,500,000, which is scheduled to mature on April 30, 2004. As of June 30, 2003, Core Molding Technologies was in compliance of all three of its financial debt covenants for the Line of Credit and letter of credit securing the Industrial Revenue Bond and certain equipment leases. The covenants relate to maintaining certain financial ratios. Management expects Core Molding Technologies to meet these covenants for the year 2003. However, if a material adverse change in the financial position of Core Molding Technologies should occur, Core Molding Technologies' liquidity and ability to obtain further financing to fund future operating and capital requirements could be negatively impacted. 11 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses Core Molding Technologies' consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventories, goodwill and long-lived assets, post retirement benefits, and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Accounts receivable allowances: Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Core Molding Technologies had recorded an allowance for doubtful accounts of $521,000 at June 30, 2003, and $543,000 at December 31, 2002. Management also records estimates for customer returns, deductions and price adjustments. Should customer returns, deductions and price adjustments fluctuate from the estimated amounts, additional allowances may be required. Core Molding Technologies had recorded an allowance for chargebacks of $693,000 at June 30, 2003, and $473,000 at December 31, 2002. Inventories: Management identifies slow moving or obsolete inventories and estimates appropriate loss provisions related to these inventories. Historically, these loss provisions have not been significant. Should actual results differ from these estimates, additional provisions may be required. Core Molding Technologies had recorded an allowance for slow moving and obsolete inventory of $395,000 at June 30, 2003, and $278,000 at December 31, 2002. Goodwill and Long-Lived Assets Management evaluates whether impairment exists for goodwill and long-lived assets. Should actual results differ from the assumptions used to determine impairment, additional provisions may be required. In particular, decreases in future cash flows from operations below the assumptions could have an adverse affect on Core Molding Technologies' operations. Core Molding Technologies has not recorded any impairment to goodwill or long-lived assets for the six months ended June 30, 2003 or the year ended December 31, 2002. Post retirement benefits: Management records an accrual for post retirement costs associated with the Company sponsored health care plan for certain employees. Should actual results differ from the assumptions used to determine the reserves, additional provisions may be required. In particular, increases in future healthcare costs above the assumptions could have an adverse affect on Core Molding Technologies' operations. Core Molding Technologies had recorded a liability for post retirement healthcare benefits based on actuarially computed estimates of $6,622,000 at June 30, 2003, and $5,962,000 at December 31, 2002. Income taxes: Management records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. Core Molding Technologies has considered future taxable income in assessing the need for the valuation allowance and recorded a valuation allowance (see Note 10 in the 2002 Annual Report to Shareholders). The valuation reserve will be adjusted as the Company determines the actual amount of deferred tax assets that will be realized. Core Molding Technologies had recorded a valuation allowance of $1,425,000 at June 30, 2003 and December 31, 2002. 12 PART I - FINANCIAL INFORMATION ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Core Molding Technologies' primary market risk results from fluctuations in interest rates. Core Molding Technologies is also exposed to changes in the price of commodities used in its manufacturing operations. The Company does not hold any material market risk sensitive instruments for trading purposes. Core Molding Technologies has the following four items that are sensitive to a change in interest rates: (1) Long-term debt consisting of an Industrial Revenue Bond ("IRB") with a balance at June 30, 2003, of $5,905,000. Interest is variable and is computed weekly; the average interest rate charged for the six months ended June 30, 2003, was 1.35%, and the maximum interest rate that may be charged at any time over the life of the IRB is 10%. In order to minimize the effect of the interest rate fluctuation, Core Molding Technologies has entered into an interest rate swap arrangement under which Core Molding Technologies pays a fixed rate of 4.89% to a bank and receives 76% of the 30 day commercial paper rate; (2) Long-term Secured Note Payable with a balance as of June 30, 2003, of $18,059,288 that bears interest at a fixed annual rate of 8%; (3) Revolving line of credit, which bears interest at LIBOR plus three and one-quarter percent or the prime rate; and (4) Foreign currency purchases in which Core Molding Technologies purchases Mexican pesos with United States dollars to meet certain obligations that arise due to the facility located in Mexico. Assuming a hypothetical 20% change in short-term interest rates in both the six month periods ended June 30, 2003, and 2002, interest expense would not change significantly, as the interest rate swap agreement would generally offset the impact. 13 PART I - FINANCIAL INFORMATION ITEM 4 CONTROLS AND PROCEDURES As of the end of the period covered by this Quarterly Report on Form 10-Q Core Molding Technologies carried out an evaluation, under the supervision and with the participation of Core Molding Technologies' management, including Core Molding Technologies' Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Core Molding Technologies' disclosure controls and procedures (as defined in Rule 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, (as amended the "Exchange Act")). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Core Molding Technologies' disclosure controls and procedures are effective in timely alerting them to material information required to be included in this Quarterly Report on Form 10-Q. There have been no significant changes in Core Molding Technologies' internal controls or in other factors, which could significantly affect internal controls subsequent to the date Core Molding Technologies carried out its evaluation. No changes were made to Core Molding Technologies' system of internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Core Molding Technologies' internal control over financial reporting. 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material changes in the legal proceeding reported in Form 10-K for the year ending December 31, 2002. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of the shareholders of Core Materials Corporation held May 15, 2003, the following issues were voted upon with the indicated results: A. ELECTION OF DIRECTORS: SHARES VOTED FOR SHARES VOTED AGAINST Thomas R. Cellitti 9,297,813 32,185 James F. Crowley 9,210,502 119,496 Ralph O. Hellmold 9,209,013 120,985 Thomas M. Hough 9,209,013 120,985 Malcolm M. Prine 9,210,502 119,496 James L. Simonton 9,299,302 30,696 The above elected directors constitute the full acting Board of Directors for Core Materials Corporation; all terms expire at the 2004 annual meeting of stockholders of the Company. B. RATIFICATION OF DELOITTE AND TOUCHE, LLP AS AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2003: SHARES VOTED FOR SHARES AGAINST SHARES ABSTAINING 9,309,102 9,565 11,331 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: See Index to Exhibits REPORTS ON FORM 8-K: None 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORE MOLDING TECHNOLOGIES, INC. Date: August 14, 2003 By: /s/ James L. Simonton ------------------------------------- James L. Simonton President, Chief Executive Officer and Director Date: August 14, 2003 By: /s/ Herman F. Dick, Jr. -------------------------------------- Herman F. Dick, Jr. Treasurer and Chief Financial Officer 16 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 2(a)(1) Asset Purchase Agreement Incorporated by reference to Dated as of September 12, 1996, Exhibit 2-A to Registration As amended October 31, 1996, Statement on Form S-4 between Navistar International Transportation (Registration No. 333-15809) Corporation and RYMAC Mortgage Investment Corporation(1) 2(a)(2) Second Amendment to Asset Purchase Incorporated by reference to Agreement dated December 16, 19961 Exhibit 2(a)(2) to Annual Report on Form 10-K for the year-ended December 31, 2001 2(b)(1) Agreement and Plan of Merger dated as of Incorporated by reference to November 1, 1996, between Core Molding Exhibit 2-B to Registration Technologies, Inc. and RYMAC Mortgage Investment Statement on Form S-4 Corporation (Registration No. 333-15809) 2(b)(2) First Amendment to Agreement and Plan Incorporated by reference to of Merger dated as of December 27, 1996 Exhibit 2(b)(2) to Annual Between Core Molding Technologies, Inc. and Report on Form 10-K for the RYMAC Mortgage Investment Corporation year ended December 31, 2002 2(c)(1) Asset Purchase Agreement dated as of October 10, Incorporated by reference to 2001, between Core Molding Technologies, Inc. Exhibit 1 to Form 8K filed and Airshield Corporation October 31, 2001 3(a)(1) Certificate of Incorporation of Incorporated by reference to Core Molding Technologies, Inc. Exhibit 4(a) to Registration As filed with the Secretary of State Statement on Form S-8 of Delaware on October 8, 1996 (Registration No. 333-29203) 3(a)(2) Certificate of Amendment of Incorporated by reference to Certificate of Incorporation Exhibit 4(b) to Registration of Core Molding Technologies, Inc. Statement on Form S-8 as filed with the Secretary of State (Registration No. 333-29203) of Delaware on November 6, 1996 3(a)(3) Certificate of Incorporation of Core Incorporated by reference to Molding Technologies, Inc. reflecting Exhibit 4(c) to Registration Amendments through November 6, Statement on Form S-8 1996 [for purposes of compliance (Registration No. 333-29203) with Securities and Exchange Commission filing requirements only] 3(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to Incorporation as filed with the Secretary of Exhibit 3(a)(4) to Quarterly State of Delaware on August 28, 2002 Report on Form 10-Q for the quarter ended September 30, 2002
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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 Statement on Form S-8 of Delaware on October 8, 1996 (Registration No. 333-29203) 4(a)(2) Certificate of Amendment of Certificate Incorporated by reference to of Incorporation of Core Materials Exhibit 4(b) to Registration Corporation as filed with the Secretary of Statement on Form S-8 State of Delaware on November 6, 1996 (Registration No. 333-29203) 4(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to Corporation, reflecting amendments through Exhibit 4(c) to Registration November 6, 1996 [for purposes of compliance Statement on Form S-8 with Securities and Exchange Commission (Registration No. 333-29203) filing requirements only] 4(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to Incorporation as filed with the Secretary of Exhibit 3(a)(4) to Quarterly State of Delaware on August 28, 2002 Report on Form 10-Q for the quarter ended September 30, 2002 4(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to Exhibit 3-C to Registration Statement on Form S-4 (Registration No. 333-15809) 10 Amended and Restated Long-Term Equity Incorporated by reference to Incentive Plan Exhibit 4.6 to Registration Statement on Form S-8 filed June 4, 2003 (Registration No. 333-105819) 11 Computation of Net Income per Share Exhibit 11 omitted because the required information is Included in Notes to Financial Statement 31(a) Certification by James L. Simonton pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed Herein 31(b) Certification by Herman F. Dick, Jr. pursuant to Filed Herein Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32(a) Certification of James L. Simonton, Chief Filed Herein Executive Officer of Core Molding Technologies, Inc., dated August 14, 2003, pursuant to 18 U.S.C. Section 1350
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EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 32(b) Certification of Herman F. Dick, Jr., Chief Filed Herein Financial Officer of Core Molding Technologies, Inc., dated August 14, 2003, pursuant to 18 U.S.C. Section 1350
(1)The Asset Purchase Agreement, as filed with the Securities and Exchange Commission at Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809), omits the exhibits (including, the Buyer Note, Special Warranty Deed, Supply Agreement, Registration Rights Agreement and Transition Services Agreement, identified in the Asset Purchase Agreement) and schedules (including, those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase Agreement. Core Molding Technologies, Inc. will provide any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 19