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| CMT > SEC Filings for CMT > Form 10-Q on 12-Nov-2008 | All Recent SEC Filings |
12-Nov-2008
Quarterly Report
Core Molding Technologies recorded net income for the nine months ended
September 30, 2008 of $4,268,000 or $.63 per basic and $.61 per diluted share,
compared with $3,196,000, or $.34 per basic and $.33 per diluted share, for the
nine months ended September 30, 2007. In July 2007, the Company purchased
3,600,000 shares of its stock from Navistar. This share repurchase resulted in a
favorable impact on earnings per share for the nine months ended September 30,
2008 compared to the nine months ended September 30, 2007, due to lower
outstanding shares.
The Company anticipates some softening in sales levels during the fourth quarter
of 2008 as a result of the uncertainties in the current economy. However, Core
Molding Technologies is planning for a modest improvement in truck demand in
2009. Industry sources are forecasting anywhere from a modest decrease to a
significant increase in truck orders for this time period.
Additionally, in connection with the construction of a new manufacturing
facility in Mexico, the Company expensed approximately $375,000 of transition
costs through September 30, 2008. The Company expects to incur approximately
$750,000 of additional transition expenses in the fourth quarter of 2008.
Net interest expense totaled $179,000 for the three months ended September 30,
2008, compared to $180,000 for the three months ended September 30, 2007. The
Company had no interest income for the three months ended September 30, 2008
compared to $49,000 for the three months ended September 30, 2007 due to cash
previously used for investing being used to repurchase Core Molding Technologies
stock from Navistar in July of 2007. Interest expense decreased for the three
months ending September 30, 2008 compared to the three months ending
September 30, 2007 due to lower outstanding balances on the line of credit as
well as a reduction in term debt from regularly scheduled principal payments.
Partially offsetting the decrease in interest expense was an increase in expense
recorded related to ineffectiveness of the IRB interest rate swap. Variable
interest rates experienced by Core Molding Technologies with respect to its two
long-term borrowing facilities have decreased; however, due to the interest rate
swaps Core Molding Technologies has previously entered into, the interest rate
is essentially fixed for these two debt instruments.
Income taxes for the three months ended September 30, 2008, are estimated to be
approximately 37% of total earnings before taxes. In the three months ended
September 30, 2007 income taxes were estimated to be 36% of total earnings
before taxes. The effective tax rate increased as a result of a larger
proportion of income generated in higher taxing jurisdictions for the three
months ended September 30, 2008 as compared to the three months ended September
30, 2007.
Core Molding Technologies recorded net income for the three months ended
September 30, 2008 of $1,688,000 or $.25 per basic and $.24 per diluted share,
compared with $717,000, or $.10 per basic and $.09 per diluted share, for the
three months ended September 30, 2007. Weighted average shares outstanding
decreased from 7,441,871 in the third quarter 2007, to 6,748,590 in the same
period in 2008 primarily due to the affect of the Company's purchase of Treasury
Stock in July 2007.
Nine Months Ended September 30, 2008, As Compared To Nine Months Ended
September 30, 2007
Net sales for the nine months ended September 30, 2008, totaled $89,055,000,
representing an approximate 10% decrease from the $99,444,000 reported for the
nine months ended September 30, 2007. Included in total sales are tooling
project sales of $4,179,000 and $20,364,000 for the nine months ended
September 30, 2008 and September 30, 2007, respectively. Tooling project sales
result from billings to customers for molds and assembly equipment built
specifically for their products. These sales are sporadic in nature. Total
product sales of $84,876,000, which excludes tooling project sales, were
approximately 7% higher for the nine months ended September 30, 2008, compared
to product sales of $79,081,000 for the nine months ended September 30, 2007.
The increase in product sales is primarily due to increased volume of programs
started in 2007.
Sales to Navistar totaled $50,402,000 for the nine months ended September 30,
2008, compared to $43,075,000 for the nine months ended September 30, 2007.
Included in total sales were $2,868,000 of tooling sales for the nine months
ended September 30, 2008 compared to $8,180,000 for the nine months ended
September 30, 2007. Total product sales to Navistar were $47,534,000 an increase
of 36% for the nine months ended September 30, 2008 compared to product sales of
$34,895,000 for the nine months ended September 30, 2007. The increase in
product sales is primarily due to increased volume for programs started in 2007.
Sales to PACCAR totaled $23,266,000 for the nine months ended September 30,
2008, as compared to $33,052,000 reported for the nine months ended
September 30, 2007. Included in total sales were $841,000 of tooling sales for
the nine months ended September 30, 2008 compared to $11,522,000 for the nine
months ended September 30, 2007. Total product sales to PACCAR were $22,425,000
an increase of 4% for the nine months ended September 30, 2008 compared to
product sales of $21,530,000 for the nine months ended September 30, 2007. The
increase in product sales is due to increased volume for programs started in
2007, partially offset by a decrease in sales for other products the Company
manufactures for PACCAR.
Sales to other customers for the nine months ended September 30, 2008, decreased
approximately 34% to $15,387,000 from $23,318,000 for the nine months ended
September 30, 2007. This decrease is primarily related to decreases in product
sales to customers in the marine industry of approximately $5,360,000 and a
decrease in product sales to an automotive customer of $1,115,000.
Gross margin was approximately 18% of sales for the nine months ended
September 30, 2008, compared with 14% for the nine months ended September 30,
2007. The increase was due to a combination of factors including higher fixed
cost absorption due to product sales volumes and production efficiencies. Our
manufacturing operations have significant fixed costs such as depreciation, post
retirement healthcare costs, salary labor, lease expense and energy that do not
change proportionately with sales. Also contributing to the increase in gross
margin was the dilutive effect tooling project revenue has on gross margin for
the nine months ended September 30, 2007. Historically, Core Molding
Technologies has not achieved margins on tooling projects similar to margins on
its sales of its products.
Selling, general and administrative expenses ("SG&A") totaled $8,994,000 for the
nine months ended September 30, 2008, increasing from $8,665,000 for the nine
months ended September 30, 2007. The increase was primarily due to increases in
the Company's profit sharing amounts resulting from improved earnings for the
nine months ended September 30, 2008 compared to the three months ended
September 30, 2007.
Net interest expense totaled $541,000 for the nine months ended September 30,
2008, compared to net interest income of $51,000 for the nine months ended
September 30, 2007. The Company had no interest income for the nine months ended
September 30, 2008 compared to $542,000 for the nine months ended September 30,
2007 due to cash previously used for investing being used to repurchase Core
Molding Technologies stock from Navistar in July of 2007. Interest expense
increased to $541,000 compared to $491,000 for the nine months ended
September 30, 2007. The increase in interest expense is primarily a result of
borrowings on the line of credit which were used to finance a portion of the
stock repurchase from Navistar. Also contributing to the increase is additional
expense recorded related to ineffectiveness of the IRB interest rate swap.
Variable interest rates experienced by Core Molding Technologies with respect to
its two long-term borrowing facilities have decreased; however, due to the
interest rate swaps Core Molding Technologies has entered into, the interest
rate is essentially fixed for these two debt instruments.
Income taxes for the nine months ended September 30, 2008, are estimated to be
approximately 34% of total earnings before taxes or $2,172,000. In the nine
months ended September 30, 2007 income taxes were estimated to be 35% of total
earnings before taxes or $1,699,000.
Core Molding Technologies recorded net income for the nine months ended
September 30, 2008 of $4,268,000 or $.63 per basic and $.61 per diluted share,
compared with $3,196,000, or $.34 per basic and $.33 per diluted share, for the
nine months ended September 30, 2007. Weighted average shares outstanding
decreased from 9,339,984 in the three months ended September 30, 2007, to
6,740,225 in the same period in 2008 primarily due to the Company's purchase of
Treasury Stock in July 2007.
Liquidity and Capital Resources
The Company's primary sources of funds have been cash generated from operating
activities and borrowings from third parties. Primary cash requirements are for
operating expenses and capital expenditures.
As widely reported, financial markets in the United States, Europe and Asia have
been experiencing extreme disruption in recent months, including, among other
things, extreme volatility in security prices, severely diminished liquidity and
credit availability, rating downgrades of certain investments and declining
valuations of others. Governments have taken unprecedented actions intended to
address extreme market conditions that include severely restricted credit and
declines in real estate values. While currently these conditions have not
impaired the Company's ability to access credit markets and finance our
operations, there can be no assurance that there will not be a further
deterioration in financial markets and confidence in major economies, which may
impact the Company's ability to borrow in the future.
Cash provided by operating activities for the nine months ended September 30,
2008 totaled $3,160,000. Net income contributed $4,268,000 to operating cash
flow. Non-cash deductions of depreciation and amortization also contributed
$2,683,000 to operating cash flow. In addition, the increase in the
postretirement healthcare benefits liability of $1,078,000 is not a current cash
obligation, and this item will not be a cash obligation until additional
employees retire and begin to utilize these benefits. Changes in working capital
decreased cash provided by operating activities by $5,110,000. Changes in
working capital primarily relate to an increase in accounts receivable due to
increased product sales for the three months ended September 30, 2008 compared
to the three months ended December 31, 2007 which is partially offset by lower
accrued and other liabilities.
Cash used in investing activities for the nine months ended September 30, 2008
was $7,795,000, primarily representing purchases related to the Company's
construction of a new manufacturing facility in Mexico. The Company previously
announced plans to invest approximately $20.2 million in the new facility that
will replace its existing leased facility in Mexico and add compression molding
capabilities. To finance this project, the Company has received bank financing
commitments for new borrowings. Currently, the Company is using its line of
credit until the new financing has been closed. The Company plans to spend an
additional $6,095,000 for the remainder of the year for capital projects,
$5,301,000 of which relates to the Company's new facility in Mexico. The planned
capital additions are expected to be funded from the new financing, borrowings
on the Company's line of credit and cash provided by operations. The Company may
also undertake other capital improvement projects in the future as deemed
necessary and appropriate.
Financing activities increased cash by $4,635,000. This increase is related to
net borrowings of $5,939,000 on the line of credit. This was partially offset by
principal repayments on its secured note payable of $964,000 and its industrial
revenue bond of $430,000.
At September 30, 2008, the Company had no cash on hand and a line of credit of
$15,000,000, with a scheduled maturity of April 30, 2009. At September 30, 2008,
Core Molding Technologies had outstanding borrowings of $8,191,000 on this line
of credit.
As of September 30, 2008, the Company was in compliance with its financial debt
covenants for the secured note payable, 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 2008. 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.
Recently Issued Accounting Standards
In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes," which clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes." FIN 48 provides guidance on
the financial statement recognition and measurement of a tax position taken, or
expected to be taken, in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosures, and transition. This interpretation is effective for
fiscal years beginning after December 15, 2006, and became effective for the
Company on January 1, 2007. For benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by taxing authorities.
The amount recognized is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate settlement. The
impact of the adoption of FIN 48 is discussed in Note 7.
In September 2006, the FASB issued Statement No. 157 to define fair value,
establish a framework for measuring fair value and to expand disclosures about
"Fair Value Measurements" ("SFAS No.157"). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 does not change the requirements to apply
fair value in existing accounting standards. Under SFAS No. 157, fair value
refers to the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants in the market
in which the reporting entity transacts. The standard clarifies that fair value
should be based on the assumptions market participants would use when pricing
the asset or liability.
To increase consistency and comparability in fair value measurements, SFAS
No. 157 establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three levels. The level in
the fair value hierarchy disclosed is based on the lowest level of input that is
significant to the fair value measurement. The three levels of the fair value
hierarchy defined by SFAS No. 157 are as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for
identical asset or liabilities that the company has the ability to access as
of the reporting date.
• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data.
• Level 3 inputs are unobservable inputs, such as internally developed pricing models for the asset or liability due to little or no market activity for the asset or liability.
SFAS No. 157 became effective for the Company as of January 1, 2008. The provisions of SFAS No. 157 are to be applied prospectively, except for the initial impact on the following three items, which are required to be recorded as an adjustment to the opening balance of retained earnings in the year of adoption: (1) changes in fair value measurements of existing derivative financial instruments measured initially using the transaction price under EITF Issue No. 02-3, (2) existing hybrid financial instruments measured initially at fair value using the transaction price and (3) blockage factor discounts. Under the current disclosure requirements of SFAS 157, the Company's lone fair value measure is its interest rate swaps. The swaps fall under Level 2 of the fair value hierarchy. For further discussion of the interest rate swaps see Note 6. The adoption of SFAS No. 157 did not have an impact on the Company's January 1, 2008 balance of retained earnings and is not anticipated to have a material impact prospectively.
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 ("FSP
157-2"), "Effective Date of FASB Statement No. 157", which provides a one year
deferral of the effective date of SFAS No. 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually. In accordance with this
interpretation, we have only adopted the provisions of SFAS No. 157 with respect
to our financial assets and financial liabilities that are measured at fair
value as of the beginning of fiscal year 2008. The provisions of SFAS No. 157
have not been applied to non-financial assets and non-financial liabilities. The
major categories of non-financial assets and non-financial liabilities that are
measured at fair value, for which we have not applied the provisions of SFAS
No. 157, are as follows: reporting units measured at fair value in the first
step of a goodwill impairment test and long-lived assets measured at fair value
for an impairment assessment.
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("FAS 159"), provides companies with
an option to report selected financial assets and liabilities at fair value. The
objective of FAS-159 is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets
and liabilities differently. FAS-159 was effective for fiscal years beginning
after November 15, 2007. The application of FAS-159 did not have any impact on
the Company's earnings or financial position, because the Company did not elect
to use the fair value option for any financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141R to improve the relevance,
representational faithfulness, and comparability of information that a reporting
entity provides in its financial reports regarding business combinations and its
effects, including recognition of assets and liabilities, the measurement of
goodwill and required disclosures. This Statement is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after
December 15, 2008 and earlier adoption is prohibited. Management is currently
. . .
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