10-Q 1 l08989ae10vq.txt CORE MOLDING TECHNOLOGIES, INC. 10-Q/QUARTER END 6-30-04 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, 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 August 16, 2004, the latest practicable date, 9,778,680 shares of the registrant's common stock were issued and outstanding. PART 1 - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2004 2003 ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents $ -- $ 346,191 Accounts receivable (less allowance for doubtful accounts: June 30, 2004 - $195,000; December 31, 2003 - $379,000) 17,489,805 12,830,356 Inventories: Finished and work in process goods 2,071,611 2,028,702 Stores 3,302,738 2,823,243 ------------ ------------ Total inventories 5,374,349 4,851,945 Deferred tax asset 1,381,935 1,381,935 Foreign sales tax receivable 1,813,948 1,746,698 Prepaid expenses and other current assets 1,494,759 408,467 ------------ ------------ Total current assets 27,554,796 21,565,592 Property, plant and equipment 44,472,726 43,856,499 Accumulated depreciation (21,643,500) (20,647,567) ------------ ------------ Property, plant and equipment - net 22,829,226 23,208,932 Deferred tax asset - net 8,899,870 9,888,287 Goodwill 1,097,433 1,097,433 Other assets 364,547 391,279 ------------ ------------ TOTAL $ 60,745,872 $ 56,151,523 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Current liabilities Current portion of long-term debt $ 1,920,716 $ 1,905,714 Current portion deferred gain 453,555 453,555 Accounts payable 9,337,547 6,581,912 Accrued liabilities: Compensation and related benefits 2,960,296 2,669,027 Taxes 423,310 361,215 Current portion of graduated lease payments 229,269 229,269 Other accrued liabilities 977,326 820,684 ------------ ------------ Total current liabilities 16,302,019 13,021,376 Long-term debt 12,243,569 12,999,286 Interest rate swap 427,986 610,142 Graduated lease payments 600,981 715,616 Deferred long-term gain 874,830 1,101,607 Postretirement benefits liability 7,467,584 6,849,418 STOCKHOLDERS' EQUITY: Preferred stock - $0.01 par value, authorized shares - 10,000,000; Outstanding shares: June 30, 2004 and December 31, 2003 - 0 -- -- Common stock - $0.01 par value, authorized shares - 20,000,000; Outstanding shares: June 30, 2004 and December 31, 2003 - 9,778,680 97,787 97,787 Paid-in capital 19,251,392 19,251,392 Accumulated other comprehensive loss, net of income tax effect (282,471) (402,694) Retained earnings 3,762,195 1,907,593 ------------ ------------ Total stockholders' equity 22,828,903 20,854,078 ------------ ------------ TOTAL $ 60,745,872 $ 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- ------------------------------- 2003 2003 2004 (AS RESTATED, 2004 (AS RESTATED, SEE NOTE 6) SEE NOTE 6) ------------ ------------ ------------ ------------ NET SALES: Products $ 26,288,365 $ 20,975,060 $ 50,395,282 $ 40,037,951 Tooling 318,599 164,735 452,799 10,646,271 ------------ ------------ ------------ ------------ Total Sales 26,606,964 21,139,795 50,848,081 50,684,222 ------------ ------------ ------------ ------------ Cost of sales 21,105,281 16,390,726 40,990,903 41,756,472 Postretirement benefits expense 426,128 348,779 800,787 723,438 ------------ ------------ ------------ ------------ Total cost of sales 21,531,409 16,739,505 41,791,690 42,479,910 ------------ ------------ ------------ ------------ GROSS MARGIN 5,075,555 4,400,290 9,056,391 8,204,312 ------------ ------------ ------------ ------------ Selling, general and administrative expense 2,664,213 2,284,979 5,430,771 4,703,210 Postretirement benefits expense 83,542 98,374 169,789 162,388 ------------ ------------ ------------ ------------ Total selling, general and administrative expense 2,747,755 2,383,353 5,600,560 4,865,598 INCOME BEFORE INTEREST AND TAXES 2,327,800 2,016,937 3,455,831 3,338,714 Interest income 1,701 21,749 3,404 44,845 Interest expense (235,750) (442,786) (473,293) (935,807) ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 2,093,751 1,595,900 2,985,942 2,447,752 Income taxes: Current 113,351 93,397 204,856 141,458 Deferred 670,431 533,211 926,484 821,563 ------------ ------------ ------------ ------------ Total income taxes 783,782 626,608 1,131,340 963,021 ------------ ------------ ------------ ------------ NET INCOME $ 1,309,969 $ 969,292 $ 1,854,602 $ 1,484,731 ============ ============ ============ ============ NET INCOME PER COMMON SHARE: Basic $ 0.13 $ 0.10 $ 0.19 $ 0.15 Diluted $ 0.13 $ 0.10 $ 0.19 $ 0.15 ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 9,778,680 9,778,680 9,778,680 9,778,680 Diluted 9,889,313 9,778,680 9,891,821 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 INCOME (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 1,854,602 1,854,602 Hedge accounting effect of the interest rate swaps at June 30, 2004, net of deferred income tax expense of $61,933 120,223 120,223 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AT JUNE 30, 2004 9,778,680 $ 97,787 $19,251,392 $ 3,762,195 $ (282,471) $22,828,903 =========== =========== =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 4 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003 (AS RESTATED, 2004 SEE NOTE 6) ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,854,602 $ 1,484,731 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,041,681 1,049,987 Deferred income taxes 926,484 725,551 Loss on disposal of assets 16,600 25,933 Amortization of gain on sale/leaseback transactions (226,777) (226,777) Change in operating assets and liabilities: Accounts receivable (4,659,449) (899,999) Inventories (522,404) (529,303) Prepaid and other assets (1,153,542) (391,079) Accounts payable 2,466,117 854,292 Accrued and other liabilities 395,372 779,362 Postretirement benefits liability 618,166 660,000 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 756,850 3,532,698 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (634,415) (722,219) Proceeds from maturities of mortgage-backed security investment 763 4,057 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (633,652) (718,162) CASH FLOWS FROM FINANCING ACTIVITIES: Cash overdrafts 289,518 -- Payments of principal on secured note payable (535,715) (1,860,862) Payments of principal on industrial revenue bond (205,000) (190,000) ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (451,197) (2,050,862) Effect of foreign currency on cash and cash equivalents (18,192) 29,107 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (346,191) 792,781 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 346,191 8,976,059 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 9,768,840 =========== =========== Cash paid for: Interest - net of amounts capitalized $ 516,751 $ 149,318 =========== =========== Income taxes (refund) $ 210,500 $ (221,904) =========== ===========
See notes to condensed consolidated financial statements. 5 CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. 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 June 30, 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. 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 and earnings per common share would have resulted in the amounts as reported below.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ------------------------------ 2004 2003 2004 2003 ----------- --------- ----------- ----------- Net income as reported $ 1,309,969 $ 969,292 $ 1,854,602 $ 1,484,731 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 18,641 76,420 1,083,935 153,567 ----------- --------- ----------- ----------- Pro forma net income $ 1,291,328 $ 892,872 $ 770,667 $ 1,331,164 =========== ========= =========== =========== Earnings per share: Basic - as reported $ 0.13 $ 0.10 $ 0.19 $ 0.15 Basic - pro forma $ 0.13 $ 0.09 $ 0.08 $ 0.14 Diluted - as reported $ 0.13 $ 0.10 $ 0.19 $ 0.15 Diluted - pro forma $ 0.13 $ 0.09 $ 0.08 $ 0.14
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, of the 1,171,500 stock options outstanding, 978,000 options 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- ------------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Net income $ 1,309,969 $ 969,292 $ 1,854,602 $ 1,484,731 Weighted average common shares outstanding 9,778,680 9,778,680 9,778,680 9,778,680 Plus: dilutive options assumed exercised 1,003,550 -- 1,003,550 -- Less: shares assumed repurchased with proceeds from exercise (892,917) -- (890,409) -- ----------- ----------- ----------- ----------- Weighted average common and potentially issuable common shares outstanding 9,889,313 9,778,680 9,891,821 9,778,680 Basic earnings per common share $ 0.13 $ 0.10 $ 0.19 $ 0.15 Diluted earnings per common share $ 0.13 $ 0.10 $ 0.19 $ 0.15
For the three and six months ended June 30, 2004, there were 18,000 antidilutive options. For the three and six months ended June 30, 2003 there were 1,170,000 antidilutive options. 3. MAJOR CUSTOMERS Core Molding Technologies currently has four major customers, International Truck & Engine Corporation ("International"), Yamaha Motor Corporation ("Yamaha"), Freightliner, LLC ("Freightliner") and Lear Corporation ("Lear"). The following table presents net sales for the above-mentioned customers for the three and six months ended June 30, 2004 and June 30, 2003:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------- ------------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- International $14,073,610 $10,806,738 $26,825,645 $29,868,621 Yamaha 4,121,746 3,490,728 7,915,747 7,633,979 Freightliner 3,066,979 2,202,623 6,014,892 4,422,760 Lear 2,020,715 2,139,556 4,156,989 4,463,607 ----------- ----------- ----------- ----------- Subtotal 23,283,050 18,639,645 44,913,273 46,388,967 Other 3,323,914 2,500,150 5,934,808 4,295,255 ----------- ----------- ----------- ----------- Total $26,606,964 $21,139,795 $50,848,081 $50,684,222 =========== =========== =========== ===========
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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Net income $ 1,309,969 $ 969,292 $ 1,854,602 $ 1,484,731 Hedge accounting effect of the interest rate swaps, net of tax expense of $176,271 and tax benefit of $28,142 for the three months ending June 30, respectively; and tax expense of $61,933 and tax benefit of $21,574 for the six months ending June 30, respectively 342,173 (54,629) 120,223 (41,880) ----------- ----------- ----------- ----------- Comprehensive income $ 1,652,142 $ 914,663 $ 1,974,825 $ 1,442,851 =========== =========== =========== ===========
5. POSTRETIREMENT BENEFITS The components of expense for all of Core Molding Technologies' postretirement benefits plans for the three and six months ended June 30, 2004 and 2003 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Pension Expense: Interest cost $ 4,000 $ 4,000 $ 8,000 $ 8,000 Defined contribution plan Contributions 53,000 58,000 107,000 115,000 Multi-employer plan Contributions 78,000 55,000 140,000 102,000 -------- -------- -------- -------- Total pension expense 135,000 117,000 255,000 225,000 -------- -------- -------- -------- Health and Life Insurance: Service cost 166,000 146,000 317,000 292,000 Interest cost 181,000 160,000 346,000 320,000 Amortization of net loss 27,000 24,000 52,000 49,000 -------- -------- -------- -------- Net periodic benefit cost 374,000 330,000 715,000 661,000 -------- -------- -------- -------- Total postretirement benefits expense $509,000 $447,000 $970,000 $886,000 ======== ======== ======== ========
8 5. POSTRETIREMENT BENEFITS (CONTINUED) In May 2004, the Financial Accounting Standards Board (FASB) staff issued FASB Staff Position SFAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). This statement prescribes accounting for the Act and is effective for interim periods beginning after June 15, 2004. Core Molding Technologies is in the process of determining 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. Clarifying federal regulations related to the interpretation or determination of actuarially equivalent are still pending. Accordingly, the consolidated financial statements do not reflect the effect of the Act, if any. 6. RESTATEMENT Subsequent to the issuance of Core Molding Technologies' condensed consolidated financial statements for the period ended June 30, 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 condensed consolidated financial statements for the three and six months ended June 30, 2003 have been restated from amounts previously reported. A summary of significant effects of the restatement are as follows:
For the three months ended For the six months ended June 30, 2003 June 30, 2003 -------------------------------- --------------------------------- As previously As previously reported As restated reported As restated ------------- ----------- ------------- ----------- INCOME STATEMENT DATA: Cost of sales $16,263,726 $16,390,726 $41,502,472 $41,756,472 Total cost of sales 16,612,505 16,739,505 42,225,910 42,479,910 Gross margin 4,527,290 4,400,290 8,458,312 8,204,312 Income before interest and taxes 2,143,937 2,016,937 3,592,714 3,338,714 Income before taxes 1,722,900 1,595,900 2,701,752 2,447,752 Current income taxes 141,403 93,397 237,470 141,458 Total income taxes 674,614 626,608 1,059,033 963,021 Net income 1,048,286 969,292 1,642,719 1,484,731 Basic and diluted earnings per common share $ 0.11 $ 0.10 $ 0.17 $ 0.15
7. SUBSEQUENT EVENT On August 9, 2004, Core Molding Technologies, Inc. announced that a strike had been called by Scioto Lodge No. 1471 of the International Association of Machinists and Aerospace Workers (" IAM") at its Columbus, Ohio manufacturing facility. At the time of this filing, a settlement has been reached between Core Molding Technologies and the IAM. Core Molding Technologies' Columbus manufacturing facility will resume normal operations at 10:00 p.m. on August 16, 2004. 9 PART I - FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As discussed in Note 6 to Core Molding Technologies' condensed consolidated financial statements, Core Molding Technologies' financial statements for the quarter and year to date ended June 30, 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. 10 RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2004, AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2003 Net sales for the three months ended June 30, 2004, totaled $26,607,000 representing an approximate 26% increase from the $21,140,000 reported for the three months ended June 30, 2003. The primary reason for the increase in sales is due to the positive impact general economic conditions have had on the demand for medium and heavy-duty trucks. Revenue from tooling projects totaled $319,000 for the three months ended June 30, 2004. Tooling project revenues for the three months ended June 30, 2003, totaled $165,000. Tooling project revenues are sporadic in nature and do not represent a recurring trend. Total product sales revenue, excluding tooling project revenue, was higher by approximately 25% for the three months ended June 30, 2004, as compared to June 30, 2003. Sales to International for the three months ended June 30, 2004 were $14,074,000, as compared to the three months ended June 30, 2003 of $10,807,000. The primary reason for the increase is the same as stated above. Sales to Freightliner increased by $864,000 for the three months ended June 30, 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 products that went into production in the first and second quarters of 2003. Sales to Yamaha increased by approximately $631,000 for the three months ended June 30, 2004, compared to the same time a year ago. The primary reason for this increase was due to the increased demand for Yamaha's personal watercraft. Sales to other customers for the three months ended June 30, 2004, increased approximately 33% to $3,324,000 from $2,500,000 for the three months ended June 30, 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, as well as the addition of new customers at Core Molding Technologies' Matamoros facility. Gross margin was approximately 19.1% of sales for the three months ended June 30, 2004, compared with 20.8% for the three months ended June 30, 2003. The primary reason for the decrease was due to inefficiencies related to material usage. Partially offsetting this increase was the favorable effect of increased production volumes, allowing Core Molding Technologies to better absorb its fixed costs of production. Selling, general and administrative expenses ("SG&A") totaled $2,748,000 for the three months ended June 30, 2004, increasing from $2,383,000 for the three months ended June 30, 2003. The primary reasons for this increase were due to increases in profit sharing accruals, as well as professional fees and outside services of $228,000. These increases were partially offset by decreases in accruals for certain employee benefits. On August 9, 2004, Core Molding Technologies, Inc. announced that a strike had been called by Scioto Lodge No. 1471 of the International Association of Machinists and Aerospace Workers (" IAM") at its Columbus, Ohio manufacturing facility. At the time of this filing, a settlement has been reached between Core Molding Technologies and the IAM. Core Molding Technologies' Columbus manufacturing facility will resume normal operations at 10:00 p.m. on August 16, 2004. Interest expense totaled $236,000 for the three months ended June 30, 2004, decreasing from $443,000 for the three months ended June 30, 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 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 debt instruments. Income taxes for the three months ended June 30, 2004, are estimated to be approximately 37% 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, 2004, was $1,310,000, or $.13 per basic and diluted share, representing an increase of $341,000 over the net income for the three months ended June 30, 2003, of $969,000, or $.10 per basic and diluted share. 11 SIX MONTHS ENDED JUNE 30, 2004, AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2003 Net sales for the six months ended June 30, 2004, totaled $50,848,000, which were approximately equal to the $50,684,000 reported for the six months ended June 30, 2003. Revenue from tooling projects totaled $453,000 for the six months ended June 30, 2004. Tooling project revenues for the six months ended June 30, 2003, totaled $10,646,000. Tooling project revenues are sporadic in nature and do not represent a recurring trend. Total product sales revenue, excluding tooling project revenue, was higher by approximately 26% for the six months ended June 30, 2004, as compared to June 30, 2003. The primary reason for this increase was due to the positive impact general economic conditions have had on the demand for medium and heavy-duty trucks. Sales to International for the six months ended June 30, 2004 were $26,825,000, as compared to the six months ended June 30, 2003 of $29,869,000. The primary reason for the decrease was a decrease in tooling revenues as product sales to International increased approximately 34%. Sales to Freightliner increased by $1,592,000 for the six months ended June 30, 2004 compared to the same time period a year ago. The primary reason for this increase was due to the positive impact general economic conditions have had on the demand for medium and heavy-duty trucks. Sales to other customers for the six months ended June 30, 2004, increased approximately 38% to $5,935,000 from $4,295,000 for the six months ended June 30, 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, as well as the addition of new customers at Core Molding Technologies' Matamoros facility. Gross margin was approximately 17.8% of sales for the six months ended June 30, 2004, compared with 16.2% for the six months ended June 30, 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 the dilutive effect of tooling project revenue on the prior period'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 for the current period, as Core Molding Technologies was better able to absorb its fixed cost of production. Selling, general and administrative expenses ("SG&A") totaled $5,601,000 for the six months ended June 30, 2004, increasing from $4,866,000 for the six months ended June 30, 2003. The primary reasons for this increase were increases in professional fees and outside services of $579,000, as well as increases in profit sharing accruals resulting from improved operating results. On August 9, 2004, Core Molding Technologies, Inc. announced that a strike had been called by Scioto Lodge No. 1471 of the International Association of Machinists and Aerospace Workers (" IAM") at its Columbus, Ohio manufacturing facility. At the time of this filing, a settlement has been reached between Core Molding Technologies and the IAM. Core Molding Technologies' Columbus manufacturing facility will resume normal operations at 10:00 p.m. on August 16, 2004. Interest expense totaled $473,000 for the six months ended June 30, 2004, decreasing from $936,000 for the six months ended June 30, 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 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 debt instruments. Income taxes for the six months ended June 30, 2004, are estimated to be approximately 38% of total earnings before taxes. Actual tax payments will be lower than the recorded expenses as Core Molding Technologies has substantial federal tax 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, 2004, was $1,855,000, or $.19 per basic and diluted share, representing an increase of $370,000 over the net income for the six months ended June 30, 2003, of $1,485,000, or $.15 per basic and diluted share. 12 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 operating activities for the six months ended June 30, 2004, totaled $757,000. Net income increased operating cash flows by $1,855,000. Non-cash deductions of depreciation and amortization added $1,042,000 to positive cash flow. Also adding to positive cash flow was an increase in accounts payable of $2,466,000 due to timing differences. In addition, the increase in the postretirement healthcare benefits liability of $618,000 is not a current cash obligation, and this item will not be a cash obligation until retirees begin to utilize their retirement medical benefits. A decrease in deferred income taxes also had a positive impact on operating cash flows of $926,000, 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 $4,659,000, which is primarily related to increased sales volume, and inventories of $522,000, which is a result of increased production to meet current sales volume. Cash used for investing activities was $634,000 for the six months ended June 30, 2004, which was a result of capital expenditures that primarily related to the acquisition of machinery and equipment. Core Molding Technologies anticipates spending an additional $1,466,000 for the remainder of the year for capital projects. Financing activities reduced cash flow by $451,000 due to regularly scheduled payments on the secured note payable of $536,000 and on the Industrial Revenue Bond of $205,000. These payments were partially offset by cash overdrafts of $290,000. At June 30, 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 June 30, 2004 there was no outstanding borrowing on the line of credit. As of June 30, 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 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. 13 Accounts receivable allowances: Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Core Molding Technologies' customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Core Molding Technologies had recorded an allowance for doubtful accounts of $195,000 at June 30, 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 had recorded an allowance for chargebacks of $480,000 at June 30, 2004, and $851,000 at December 31, 2003. 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 $382,000 at June 30, 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 affect on Core Molding Technologies' ability to recover its long-lived assets. Core Molding Technologies has not recorded any impairment to goodwill or long-lived assets for the six months ended June 30, 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 effect 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 healthcare benefits based on actuarially computed estimates of $7,468,000 at June 30, 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 June 30, 2004 and December 31, 2003. 14 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. Core Molding Technologies has an interest rate swap to fix the interest rate at 4.89%; (2) revolving line of credit, which bears a variable interest rate; (3) bank note payable with a variable interest rate. Core Molding Technologies entered into a swap agreement effective January 1, 2004, to fix the interest rate at 5.75%; 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, 2004, and 2003, interest expense would not change significantly, as the interest rate swap agreement would generally offset the impact and the use of Core Molding Technologies' revolving line of credit was not material during the six month period ended June 30, 2004. 15 PART I - FINANCIAL INFORMATION ITEM 4 CONTROLS AND PROCEDURES As of the end of the period covered by this report, 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-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 material changes in Core Molding Technologies' internal controls or in other factors, which could materially affect internal controls during the most recent fiscal quarter. 16 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 At the annual meeting of the shareholders of Core Materials Corporation held May 13, 2004, the following issues were voted upon with the indicated results: A. ELECTION OF DIRECTORS: SHARES VOTED FOR SHARES VOTED AGAINST Thomas R. Cellitti 8,162,526 38,557 James F. Crowley 8,180,326 20,757 Ralph O. Hellmold 8,180,326 20,757 Thomas M. Hough 8,160,326 40,757 Malcolm M. Prine 8,180,326 20,757 James L. Simonton 8,162,326 38,757 John P. Wright 8,182,526 18,557 The above elected directors constitute the full acting Board of Directors for Core Materials Corporation; all terms expire at the 2005 annual meeting of stockholders of the Company. B. RATIFICATION OF DELOITTE AND TOUCHE, LLP AS AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2004: SHARES VOTED FOR SHARES AGAINST SHARES ABSTAINING 8,187,826 12,631 626 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 May 6, 2004, Core Molding Technologies, Inc. filed a Form 8-K with the Securities and Exchange Commission regarding its results for the quarter ended March 31, 2004. 17 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 16, 2004 By: /s/ James L. Simonton ------------------------------ James L. Simonton President, Chief Executive Officer and Director Date: August 16, 2004 By: /s/ Herman F. Dick, Jr. ------------------------------ Herman F. Dick, Jr. Treasurer and Chief Financial Officer 18 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, 1996(1) Exhibit 2(a)(2) to Annual Report on Form 10-K for the year-ended December 31, 2001 2(b)(1) Agreement and Plan of Merger dated as of Incorporated by reference to November 1, 1996, between Core Molding Exhibit 2-B to Registration Technologies, Inc. and RYMAC Mortgage Investment Statement on Form S-4 Corporation (Registration No. 333-15809) 2(b)(2) First Amendment to Agreement and Plan Incorporated by reference to of Merger dated as of December 27, 1996 Exhibit 2(b)(2) to Annual Between Core Molding Technologies, Inc. and Report on Form 10-K for the RYMAC Mortgage Investment Corporation year ended December 31, 2002 2(c)(1) Asset Purchase Agreement dated as of October 10, Incorporated by reference to 2001, between Core Molding Technologies, Inc. Exhibit 1 to Form 8K filed and Airshield Corporation October 31, 2001 3(a)(1) Certificate of Incorporation of Incorporated by reference to Core Molding Technologies, Inc. Exhibit 4(a) to Registration As filed with the Secretary of State Statement on Form S-8 of Delaware on October 8, 1996 (Registration No. 333-29203) 3(a)(2) Certificate of Amendment of Incorporated by reference to Certificate of Incorporation Exhibit 4(b) to Registration of Core Molding Technologies, Inc. Statement on Form S-8 as filed with the Secretary of State (Registration No. 333-29203) of Delaware on November 6, 1996 3(a)(3) Certificate of Incorporation of Core Incorporated by reference to Molding Technologies, Inc., reflecting Exhibit 4(c) to Registration Amendments through November 6, Statement on Form S-8 1996 [for purposes of compliance (Registration No. 333-29203) with Securities and Exchange Commission filing requirements only] 3(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to Incorporation as filed with the Secretary of Exhibit 3(a)(4) to Quarterly State of Delaware on August 28, 2002 Report on Form 10-Q for the quarter ended September 30, 2002
19
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 3(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to Exhibit 3-C to Registration Statement on Form S-4 (Registration No. 333-15809) 4(a)(1) Certificate of Incorporation of Core Molding Incorporated by reference to Technologies, Inc. as filed with the Secretary Exhibit 4(a) to Registration of State of Delaware on October 8, 1996 Statement on Form S-8 (Registration No. 333-29203) 4(a)(2) Certificate of Amendment of Certificate Incorporated by reference to of Incorporation of Core Materials Exhibit 4(b) to Registration Corporation as filed with the Secretary of Statement on Form S-8 State of Delaware on November 6, 1996 (Registration No. 333-29203) 4(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to Corporation, reflecting amendments through Exhibit 4(c) to Registration November 6, 1996 [for purposes of compliance Statement on Form S-8 with Securities and Exchange Commission (Registration No. 333-29203) filing requirements only] 4(a)(4) Certificate of Amendment of Certificate of Incorporated by reference to Incorporation as filed with the Secretary of Exhibit 3(a)(4) to Quarterly State of Delaware on August 28, 2002 Report on Form 10-Q for the quarter ended September 30, 2002 4(b) By-Laws of Core Molding Technologies, Inc. Incorporated by reference to Exhibit 3-C to Registration Statement on Form S-4 (Registration No. 333-15809) 11 Computation of Net Income per Share Exhibit 11 omitted because the required information is Included in Notes to Financial Statement 31(a) Certification by James L. Simonton pursuant to Filed Herein Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31(b) Certification by Herman F. Dick, Jr. pursuant to Filed Herein Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
20
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 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 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. 21