10-Q 1 l07459ae10vq.txt CORE MOLDING TECHNOLOGIES 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, 2004 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 13, 2004, the latest practicable date, 9,778,680 shares of the registrant's common shares were issued and outstanding. PART 1 - FINANCIAL INFORMATION CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2004 2003 ----------------- ----------------- (UNAUDITED) ASSETS Cash and cash equivalents $ - $ 346,191 Accounts receivable (less allowance for doubtful accounts: March 31, 2004 - $254,000; December 31, 2003 - $379,000) 16,937,516 12,830,356 Inventories: Finished and work in process goods 2,000,306 2,028,702 Stores 3,315,322 2,823,243 ----------------- ----------------- Total inventories 5,315,628 4,851,945 Deferred tax asset 1,381,935 1,381,935 Foreign sales tax receivable 1,893,760 1,746,698 Prepaid expenses and other current assets 1,011,151 408,467 ----------------- ----------------- Total current assets 26,539,990 21,565,592 Property, plant and equipment 44,372,033 43,856,499 Accumulated depreciation (21,153,091) (20,647,567) ----------------- ----------------- Property, plant and equipment - net 23,218,942 23,208,932 Deferred tax asset - net 9,746,572 9,888,287 Goodwill 1,097,433 1,097,433 Other assets 377,917 391,279 ----------------- ----------------- TOTAL $ 60,980,854 $ 56,151,523 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Current liabilities Current portion of long-term debt $ 1,915,716 $ 1,905,714 Line of credit 1,291,000 - Current portion of deferred gain 453,555 453,555 Accounts payable 9,111,344 6,581,912 Accrued liabilities: Compensation and related benefits 2,921,191 2,669,027 Interest 165,650 77,104 Taxes 552,946 361,215 Current portion of graduated lease payments 229,269 229,269 Professional fees 252,880 236,055 Other accrued liabilities 532,613 507,525 ----------------- ----------------- Total current liabilities 17,426,164 13,021,376 Long-term debt 12,674,998 12,999,286 Interest rate swap 946,430 610,142 Graduated lease payments 658,298 715,616 Deferred long-term gain 988,219 1,101,607 Postretirement benefits liability 7,109,984 6,849,418 STOCKHOLDERS' EQUITY: Preferred stock - $0.01 par value, authorized shares - 10,000,000; Outstanding shares: March 31, 2004 and December 31, 2003 - 0 - - Common stock - $0.01 par value, authorized shares - 20,000,000; Outstanding shares: March 31, 2004 and December 31, 2003 - 9,778,680 97,787 97,787 Additional paid-in capital 19,251,392 19,251,392 Accumulated other comprehensive loss, net of income tax effect (624,644) (402,694) Retained earnings 2,452,226 1,907,593 ----------------- ----------------- Total stockholders' equity 21,176,761 20,854,078 ----------------- ----------------- TOTAL $ 60,980,854 $ 56,151,523 ================= =================
See notes to condensed consolidated financial statements 2 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------------------- 2003 (AS RESTATED, 2004 SEE NOTE 7) ----------- ------------- NET SALES: Products $24,106,917 $19,062,891 Tooling 134,200 10,481,536 ----------- ----------- Total Sales 24,241,117 29,544,427 ----------- ----------- Cost of Sales 19,885,622 25,365,746 Postretirement benefits expense 374,659 374,659 ----------- ----------- Total cost of sales 20,260,281 25,740,405 ----------- ----------- GROSS MARGIN 3,980,836 3,804,022 ----------- ----------- Selling, general and administrative expense 2,766,558 2,418,231 Postretirement benefits expense 86,247 64,014 ----------- ----------- Total selling, general and administrative expense 2,852,805 2,482,245 INCOME BEFORE INTEREST AND TAXES 1,128,031 1,321,777 Interest income 1,703 23,096 Interest expense (237,543) (493,021) ----------- ----------- INCOME BEFORE INCOME TAXES 892,191 851,852 Income taxes: Current 91,505 48,061 Deferred 256,053 288,352 ----------- ----------- Total income taxes 347,558 336,413 ----------- ----------- NET INCOME $ 544,633 $ 515,439 =========== =========== NET INCOME PER COMMON SHARE: Basic $ 0.06 $ 0.05 Diluted $ 0.05 $ 0.05 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 9,778,680 9,778,680 Diluted 9,902,948 9,778,680
See notes to condensed consolidated financial statements 3 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED COMMON STOCK OTHER TOTAL OUTSTANDING PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY --------- ------- ----------- ---------- ------------- ------------- BALANCE AT JANUARY 1, 2004 9,778,680 $97,787 $19,251,392 $1,907,593 $ (402,694) $ 20,854,078 Net Income 544,633 544,633 Hedge accounting effect of the interest rate swaps at March 31, 2004, net of deferred income tax benefit of $114,338. (221,950) (221,950) --------- ------- ----------- ---------- ------------- ------------- BALANCE AT MARCH 31, 2004 9,778,680 $97,787 $19,251,392 $2,452,226 $ (624,644) $ 21,176,761 ========= ======= =========== ========== ============= =============
See notes to condensed consolidated financial statements. 4 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2003 (AS RESTATED, 2004 SEE NOTE 7) ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 544,633 $ 515,439 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 542,744 468,966 Deferred income taxes 256,053 288,352 Loss on disposal of assets - 25,933 Amortization of gain on sale/leaseback transactions (113,388) (113,389) Change in operating assets and liabilities: Accounts receivable (4,107,160) (270,672) Inventories (463,683) (61,656) Prepaid and other assets (749,746) 154,372 Accounts payable 2,529,432 211 Accrued and other liabilities 517,036 579,734 Postretirement benefits liability 260,566 330,000 ------------ ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (783,513) 1,917,290 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (522,851) (263,252) Proceeds from maturities on mortgage-backed security investment 253 3,699 ------------ ------------- NET CASH USED IN INVESTING ACTIVITIES (522,598) (259,553) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on line of credit 1,291,000 - Payments of principal on secured note payable (214,286) (1,860,862) Payment of principal on industrial revenue bond (100,000) (95,000) ------------ ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 976,714 (1,955,862) Loss (gain) on translation of foreign currency (16,794) 31,360 NET DECREASE IN CASH AND CASH EQUIVALENTS (346,191) (266,765) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 346,191 8,976,059 ------------ ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 8,709,294 ============ ============= Cash paid for: Interest (net of amounts capitalized) $ 127,453 $ 92,844 ============ ============= Income taxes (refund) $ 5,000 $ (228,603) ============ =============
See notes to condensed consolidated financial statements. 5 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by accounting principles generally accepted in the United States of America for interim reporting, which are less than those required for annual reporting. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (all of which are normal and recurring in nature) necessary to present fairly the financial position of Core Molding Technologies, Inc. and its subsidiaries ("Core Molding Technologies") at March 31, 2004, and the results of their operations and cash flows. The "Consolidated Notes to Financial Statements", which are contained in the 2003 Annual Report to Shareholders, should be read in conjunction with these condensed consolidated financial statements. Certain reclassifications have been made to prior year's amounts to conform to the classifications of such amounts for 2004. 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. STOCK BASED COMPENSATION - Core Molding Technologies accounts for its stock option plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for all stock option plans been determined consistent with the requirements of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation," Core Molding Technologies' net income (loss) and earnings/(loss) per common share would have resulted in the amounts as reported below.
THREE MONTHS ENDED MARCH 31, 2004 2003 --------------- -------------- Net income, as reported $ 544,633 $ 515,439 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 1,065,294 77,147 --------------- -------------- Pro forma net income (loss) $ (520,661) $ 438,292 =============== ============== Earnings (loss) per share: Basic - as reported $ 0.06 $ 0.05 Basic - pro forma $ (0.05) $ 0.04 Diluted - as reported $ 0.05 $ 0.05 Diluted - pro forma $ (0.05) $ 0.04
The pro forma amounts are not representative of the effects on reported net earnings (loss) or earnings (loss) per common share for future periods. On August 4, 2003, of the 1,171,500 stock options outstanding, 978,000 were tendered for cancellation. Core Molding Technologies issued 855,950 options on February 9, 2004, at $3.21 per share. 6 2. EARNINGS PER COMMON SHARE Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed similarly but include the effect of the assumed exercise of dilutive stock options under the treasury stock method. The computation of basic and diluted earnings per common share is as follows:
THREE MONTHS ENDED MARCH 31, 2004 2003 --------------- -------------- Net income $ 544,633 $ 515,439 Weighted average common shares outstanding 9,778,680 9,778,680 Plus: dilutive options assumed exercised 1,067,050 0 Less: shares assumed repurchased with proceeds from exercise (942,782) 0 --------------- -------------- Weighted average common and potentially issuable common shares outstanding 9,902,948 9,778,680 Basic earnings per common share $ 0.06 $ 0.05 Diluted earnings per common share $ 0.05 $ 0.05
For the three months ended March 31, 2003 there were 1,170,000 antidilutive options. For the three months ended March 31, 2004, there were no antidilutive options. 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, 2004 and 2003:
THREE MONTHS ENDED MARCH 31, ------------------------------------ 2004 2003 ---------------- ---------------- International $ 12,752,035 $ 19,061,883 Yamaha 3,794,001 4,143,251 Lear 2,136,274 2,324,051 Freightliner 2,947,913 2,220,137 ---------------- ---------------- Subtotal 21,630,223 27,749,322 Other 2,610,894 1,795,105 ---------------- ---------------- Total $ 24,241,117 $ 29,544,427 ================ ================
7 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, ---------------------------------- 2004 2003 ---------------- -------------- Net income $ 544,633 $ 515,439 Hedge accounting effect of the interest rate swaps, net of deferred income tax benefit of $114,338 and income tax expense of $6,568, respectively. (221,950) 12,749 ---------------- -------------- Comprehensive income $ 322,683 $ 528,188 ================ ==============
5. POSTRETIREMENT BENEFITS The components of expense for all of Core Molding Technologies' postretirement benefits plans for the three months ended March 31, 2004 and 2003 are as follows:
MARCH 31, 2004 MARCH 31, 2003 ------------------ ------------------ Pension Expense: Interest cost $ 4,000 $ 4,000 Defined contribution plan contributions 54,000 57,000 Multi-employer plan contributions 62,000 47,000 ------------------ ------------------ Total Pension Expense 120,000 108,000 ------------------ ------------------ Health and Life Insurance: Service cost 151,000 146,000 Interest cost 165,000 160,000 Amortization of net loss 25,000 25,000 ------------------ ------------------ Net periodic benefit cost 341,000 331,000 ------------------ ------------------ Total postretirement benefits expense $ 461,000 $ 439,000 ================== ==================
In January 2004, the Financial Accounting Standards Board ("FASB") staff issued FASB Staff Position SFAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." This statement permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer recognizing the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") until authoritative guidance on accounting for the federal subsidy is issued or until certain other events occur. Core Molding Technologies has not determined whether it would need to amend its postretirement benefit plan in order to benefit from the new legislation. Core Molding Technologies has elected to defer recognizing the effects of the Act until authoritative accounting guidance is issued. Accordingly, the consolidated financial statements do not reflect the effect of the Act, if any. Authoritative guidance, when issued, could require the company to change previously reported information. 8 6. RESTATEMENT Subsequent to the issuance of Core Molding Technologies' condensed consolidated financial statements for the period ended March 31, 2003, Core Molding Technologies determined that inventory was overstated as a result of incorrect accounting entries in connection with the results of prior physical inventory observations at Core Molding Technologies' Gaffney, South Carolina facility. Accordingly, the consolidated financial statements for the quarter ended March 31, 2003 have been restated from amounts previously reported. A summary of significant effects of the restatement are as follows:
For the Quarter ended March 31, 2003 -------------------------------------- As previously ------------- reported As restated -------- ----------- INCOME STATEMENT DATA: Cost of sales $25,238,746 $25,365,746 Total cost of sales 25,613,405 25,740,405 Gross margin 3,931,022 3,804,022 Income before interest and taxes 1,448,777 1,321,777 Income before taxes 978,852 851,852 Current income taxes 96,067 48,061 Total income taxes 384,419 336,413 Net income 594,433 515,439 Basic and diluted earnings per common share $ 0.06 $ 0.05
9 PART I - FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As discussed in Note 7 to Core Molding Technologies' condensed consolidated financial statements, Core Molding Technologies' financial statements for the quarter ended March 31, 2003 have been restated. This Management's Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements involve known and unknown risks and are subject to uncertainties and factors relating to Core Molding Technologies' operations and business environment, all of which are difficult to predict and many of which are beyond Core Molding Technologies' control. These uncertainties and factors could cause Core Molding Technologies' actual results to differ materially from those matters expressed in or implied by such forward-looking statements. Core Molding Technologies believes that the following factors, among others, could affect its future performance and cause actual results to differ materially from those expressed or implied by forward-looking statements made in this quarterly report: business conditions in the plastics, transportation, watercraft and commercial product industries; general economic conditions in the markets in which Core Molding Technologies operates; dependence upon four major customers as the primary source of Core Molding Technologies' sales revenues; recent efforts of Core Molding Technologies to expand its customer base; failure of Core Molding Technologies' suppliers to perform their contractual obligations; the availability of raw materials; inflationary pressures; new technologies; competitive and regulatory matters; labor relations; the loss or inability of Core Molding Technologies to attract key personnel; the availability of capital; the ability of Core Molding Technologies to provide on-time delivery to customers, which may require additional shipping expenses to ensure on-time delivery or otherwise result in late fees; risk of cancellation or rescheduling of orders; and management's decision to pursue new products or businesses which involve additional costs, risks or capital expenditures. OVERVIEW Core Molding Technologies is a compounder of sheet molding composite ("SMC") and molder of fiberglass reinforced plastics. Core Molding Technologies produces high quality fiberglass reinforced molded products and SMC materials for varied markets, including medium and heavy-duty trucks, automobiles, personal watercraft and other commercial products. The demand for Core Molding Technologies' products is affected by economic conditions in the United States, Canada and Mexico. Core Molding Technologies' manufacturing operations have a significant fixed cost component. Accordingly, during periods of changing demands, the profitability of Core Molding Technologies' operations may change proportionately more than revenues from operations. On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of International Truck & Engine Corporation's ("International") truck manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus, Ohio, was a compounder and compression molder of SMC. In 1998 Core Molding Technologies began compression molding operations at its second facility in Gaffney, South Carolina, and in October 2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include the spray up, hand-lay-up and vacuum assisted resin infusion molding processes. 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. 10 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2004, AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2003 Net sales for the three months ended March 31, 2004, totaled $24,241,000 representing an approximate 18% decrease from the $29,544,000 reported for the three months ended March 31, 2003. The primary reason for the decrease in sales was due to the completion of tooling projects. Revenue from tooling projects totaled $134,000 for the three months ended March 31, 2004. Tooling project revenues for the three months ended March 31, 2003, totaled $10,482,000. Tooling project revenues are sporadic in nature and do not represent a recurring trend. Partially offsetting the decrease in tooling sales revenue was an increase in product sales of approximately 26% to $24,107,000 for the three months ended March 31, 2004, as compared to the $19,063,000 for the quarter ended March 31, 2003. The primary reason for this increase was the positive impact general economic conditions have had on the demand for medium and heavy-duty trucks. Sales to International for the three months ended March 31, 2004 were $12,752,000, as compared to the three months ended March 31, 2003 of $19,062,000. The primary reason for the decrease was a decrease in tooling revenues as product sales to International increased approximately 38%. Sales to Freightliner increased by $728,000 for the three months ended March 31, 2004 compared to the same time period a year ago. The primary reasons for this increase were increased order volumes and having the full impact for the quarter for new product that went into production in the first quarter of 2003. Sales to Lear decreased slightly for the three months ended March 31, 2004, compared to the same time period last year. The primary reason for this decrease was a one-time reimbursement in 2003 of $449,000 for packaging costs incurred by Core Molding Technologies in 2002. Sales to Yamaha decreased by approximately $349,000 for the three months ended March 31, 2004, compared to the same time a year ago. The primary reason for this decrease was due to reduced orders for molded products. Sales to other customers for the three months ended March 31, 2004, increased approximately 45% to $2,611,000 from $1,795,000 for the three months ended March 31, 2003. The increase in sales was primarily due to the positive impact general economic conditions have had on the demand for medium and heavy-duty trucks and the automobile aftermarket products, as well as the addition of new customers at Core Molding Technologies' Matamoros facility. Gross margin was approximately 16.4% of sales for the three months ended March 31, 2004, compared with 12.9% for the three months ended March 31, 2003. 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 the increase was due to the dilutive effect of tooling project revenue on the prior 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. Increases in production volumes also added to the increased gross margin, as Core Molding Technologies was better able to absorb its fixed costs associated with capacity. Partially offsetting these gains were operational inefficiencies at the Gaffney, South Carolina facility. Selling, general and administrative expenses ("SG&A") totaled $2,853,000 for the three months ended March 31, 2004, increasing from $2,482,000 for the three months ended March 31, 2003. The primary reason for this increase was due to increases in professional fees and outside services of $351,000. Interest expense totaled $238,000 for the three months ended March 31, 2004, decreasing from $493,000 for the three months ended March 31, 2003. The primary reason for the decrease was due to the refinancing of Core Molding Technologies' long-term debt with International Truck and Engine Corporation in December 2003. Interest rates experienced by Core Molding Technologies with respect to its two long-term borrowings were favorable; however, due to the interest rate swaps Core Molding Technologies entered into, the interest rate is essentially fixed for these two debt instruments. Income taxes for the three months ended March 31, 2004, 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, 2004, was $545,000, or $.06 per basic share and $.05 per diluted share, representing an increase of $30,000 over the net income for the three months ended March 31, 2003, of $515,000, or $.05 per basic and diluted share. 11 LIQUIDITY AND CAPITAL RESOURCES Core Molding Technologies' primary cash requirements are for operating expenses and capital expenditures. These cash requirements have historically been met through a combination of cash flow from operations, equipment leasing, issuance of Industrial Revenue Bonds and bank lines of credit. Cash used in operations for the three months ended March 31, 2004, totaled approximately $784,000. An increase in accounts receivable was the main use of cash of $4,107,000. This increase was primarily due to the increase in sales volume in the first quarter of 2004. Also adding to the use of cash was an increase in prepaids and other assets of $750,000, primarily related to the payment of Core Molding Technologies' annual insurance policies. Partially offsetting these uses of cash was an increase in accounts payable of $2,529,000 due to timing differences. Cash used for investing activities was a use of $523,000 for the three months ended March 31, 2004, as a result of capital expenditures, which was primarily related to the acquisition of machinery and equipment. Core Molding Technologies anticipates spending an additional $1,577,000 for the remainder of the year for capital projects. Cash provided from financing was $977,000. Net borrowings under the line of credit totaled $1,291,000. Core Molding Technologies made principal repayments on the bank note payable of $214,000 and for the regularly scheduled payment on the Industrial Revenue Bond of $100,000. At March 31, 2004, Core Molding Technologies had no cash on hand and an available line of credit of $7,500,000, which is scheduled to mature on April 30, 2005. At March 31, 2004, Core Molding Technologies had outstanding borrowings on the line of credit in the amount of $1,291,000. As of March 31, 2004, Core Molding Technologies was in compliance of its two 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 2004. However, if a material adverse change in the financial position of Core Molding Technologies should occur, Core Molding Technologies' liquidity and ability to obtain further financing to fund future operating and capital requirements could be negatively impacted. CRITICAL ACCOUNTING POLICIES AND ESTIMATES This Management's Discussion and Analysis of Financial Condition and Results of Operations discusses Core Molding Technologies' condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventories, post retirement benefits, and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Accounts receivable allowances: Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Core Molding Technologies' customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Core Molding Technologies recorded an allowance for doubtful accounts of $254,000 at March 31, 2004 and $379,000 at December 31, 2003. 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 recorded an allowance for these chargebacks of $941,000 at March 31, 2004 and $851,000 at December 31, 2003. 12 Inventories: Management identifies slow moving or obsolete inventories and estimates appropriate loss provisions related to these inventories based on expectations of future usage. Historically, these loss provisions have not been significant. Should actual results differ from these estimates, additional provisions may be required. Core Molding Technologies recorded an allowance for slow moving and obsolete inventory of $303,000 at March 31, 2004 and $325,000 at December 31, 2003. Goodwill and Long-Lived Assets: Management evaluates whether impairment exists for goodwill and long-lived assets. Should actual results differ from the assumptions used to determine impairment, additional provisions may be required. In particular, decreases in future cash flows from operating activities below the assumptions could have an adverse effect on Core Molding Technologies' ability to recover its long-lived assets. Core Molding Technologies has not recorded any impairment to goodwill for long-lived assets for the three months ended March 31, 2004 or the year ended December 31, 2003. Post retirement benefits: Management records an accrual for post retirement costs associated with the health care plan sponsored by Core Molding Technologies. Should actual results differ from the assumptions used to determine the reserves, additional provisions may be required. In particular, increases in future healthcare costs above the assumptions could have an adverse affect on Core Molding Technologies' operations. The effect of a change in healthcare costs is described in Note 11 of the Consolidated Notes to Financial Statements, which are contained in the 2003 Annual Report to Shareholders. Core Molding Technologies recorded a liability for post retirement medical benefits based on actuarially computed estimates of $7,110,000 at March 31, 2004 and $6,849,000 at December 31, 2003. 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 the amount of the valuation allowance recorded. The valuation allowance will be adjusted as Core Molding Technologies determines the actual amount of deferred tax assets that will be realized. Core Molding Technologies recorded a valuation allowance of $1,425,000 at March 31, 2004 and December 31, 2003. The balance sheet at March 31, 2004 and December 31, 2003 includes a deferred tax asset of $11,270,000 and $11,897,000, in each case, net of a valuation allowance of $1,425,000 in 2003 and 2002. The deferred tax asset is net of a valuation allowance since it is more likely than not that a portion of the deferred tax asset may not be realized in the future. 13 PART I - FINANCIAL INFORMATION ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Core Molding Technologies' primary market risk results from fluctuations in interest rates. Core Molding Technologies is also exposed to changes in the price of commodities used in its manufacturing operations and foreign currency fluctuations associated with the Mexican peso. Core Molding Technologies does not hold any material market risk sensitive instruments for trading purposes. Core Molding Technologies has the following four items that are sensitive to market risks: (1) Industrial Revenue Bond ("IRB") with a variable interest rate. The Company has an interest rate swap to fix the interest rate at 4.89%; (2) revolving line of credit, which bears a variable interest rate; (3) bank note payable with a variable interest rate. The Company entered into a swap agreement effective January 1, 2004, to fix the interest rate at 5.75%; and (4) foreign currency purchases in which the Company purchases Mexican pesos with United States dollars to meet certain obligations that arise due to the facility located in Mexico. Assuming a hypothetical 20% change in short-term interest rates in both the three month periods ended March 31, 2004 and 2003, interest expense would not change significantly, as the interest rate swap agreements would generally offset the impact, and the use of Core Molding Technologies' revolving line of credit was not material during the first quarter of 2004. 14 PART I - FINANCIAL INFORMATION ITEM 4 CONTROLS AND PROCEDURES As of the end of the period covered by this Quarterly Report on Form 10-Q Core Molding Technologies carried out an evaluation, under the supervision and with the participation of Core Molding Technologies' management, including Core Molding Technologies' Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Core Molding Technologies' disclosure controls and procedures (as defined in rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, (as amended the "Exchange Act")). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Core Molding Technologies' disclosure controls and procedures are effective in timely alerting them to material information required to be included in this Quarterly Report on Form 10-Q. There have been no significant changes in Core Molding Technologies' internal controls over financial reporting or in other factors, which could significantly affect internal controls during the period covered by this report. 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, except for additional procedures with respect to inventory and scrap reporting, that has materially affected, or is reasonable likely to materially affect, Core Molding Technologies' internal control over financial reporting. 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES 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, 2004. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: See Index to Exhibits REPORTS ON FORM 8-K: On January 6, 2004, Core Molding Technologies filed a Form 8-K with the Securities and Exchange Commission regarding the refinancing of its note payable with International Truck & Engine Corporation. On January 26, 2004, Core Molding Technologies filed a Form 8-K with the Securities and Exchange Commission regarding a charge resulting from operational inefficiencies that were concealed by intentional inventory misstatements by a former employee. On March 30, 2004, Core Molding Technologies, Inc. filed a Form 8-K with the Securities and Exchange Commission regarding its results for the year ended December 31, 2003. 16 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 13, 2004 By: /s/ James L. Simonton ----------------------------------------- James L. Simonton President, Chief Executive Officer and Director Date: May 13, 2004 By: /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 Corporation(1) 2(a)(2) Second Amendment to Asset Purchase Incorporated by reference to Agreement dated December 16, 1996(1) Exhibit 2(a)(2) to Annual Report on Form 10-K for the year-ended December 31, 2001 2(b)(1) Agreement and Plan of Merger dated as of Incorporated by reference to November 1, 1996, between Core Molding Exhibit 2-B to Registration Technologies, Inc. and RYMAC Mortgage Statement on Form S-4 Investment 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 Incorporated by reference to 10, 2001, between Core Molding Technologies, Exhibit 1 to Form 8K filed Inc. 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 State Exhibit 3(a)(4) to Quarterly 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 of Exhibit 4(a) to Registration State of Delaware on October 8, 1996 Statement on Form S-8 (Registration No. 333-29203) 4(a)(2) Certificate of Amendment of Certificate Incorporated by reference to of Incorporation of Core Materials Exhibit 4(b) to Registration Corporation as filed with the Secretary of Statement on Form S-8 State of Delaware on November 6, 1996 (Registration No. 333-29203) 4(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to Corporation, reflecting amendments through Exhibit 4(c) to Registration November 6, 1996 [for purposes of compliance Statement on Form S-8 with Securities and Exchange Commission (Registration No. 333-29203) filing requirements only] 4(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to Incorporation as filed with the Secretary of Exhibit 3(a)(4) to Quarterly State of Delaware on August 28, 2002 Report on Form 10-Q for the quarter ended September 30, 2002 4(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to Exhibit 3-C to Registration Statement on Form S-4 (Registration No. 333-15809) 11 Computation of Net Income per Share Exhibit 11 omitted because the required information is Included in Notes to Financial Statement 31(a) Section 302 Certification by James L. Simonton, Filed Herein President and Chief Executive Officer 31(b) Section 302 Certification by Herman F. Dick, Jr., Filed Herein Treasurer and Chief Financial Officer 32(a) Certification of James L. Simonton, Chief Filed Herein Executive Officer of Core Molding Technologies, Inc., dated May 13, 2004, pursuant to 18 U.S.C. Section 1350 32(b) Certification of Herman F. Dick, Jr., Chief Filed Herein Financial Officer of Core Molding Technologies, Inc., dated May 13, 2004, 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