Core Molding Technologies, Inc. — FY2013 Form 10-K
Reporting period: Year ended December 31, 2013. The filing also reports unaudited fourth-quarter results. Core manufactures sheet molding compound and molded fiberglass-reinforced plastic components, primarily for truck, automotive, marine, and commercial markets.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $144.1 million | $162.5 million |
| Gross profit | $23.6 million; 16.4% margin | $25.8 million; 15.9% margin |
| Operating income | $10.1 million; 7.0% margin | $12.5 million; 7.7% margin |
| Net income | $6.9 million | $8.2 million |
| Diluted EPS | $0.92 | $1.11 |
| Cash from operations | $6.9 million | $14.8 million |
| Capital expenditures | $9.3 million | $8.3 million |
| Cash at year-end | $2.3 million | $7.8 million |
| Total debt | $5.7 million | $9.5 million |
| Working capital | $17.9 million | $18.6 million |
Revenue declined 11% year over year, including a 10% decrease in product sales and a 21% decrease in tooling sales. Net income fell 16%. Gross margin improved modestly as a percentage of sales, but operating margin declined. Operating cash flow dropped by more than half, mainly reflecting higher receivables and inventory; management cited $4.9 million of cash use from working-capital changes. Cash used in financing was $3.2 million, primarily scheduled debt repayments. At year-end, the company had an undrawn $18 million revolving credit line, and management said operating cash flow plus available borrowing should meet liquidity needs. It was in compliance with debt covenants.
Fourth quarter: Net sales were $37.6 million versus $35.7 million in Q4 2012; net income was $1.6 million versus $2.1 million. Q4 2013 gross profit was $5.3 million versus $6.2 million.
Material changes and operating developments
- Heavy- and medium-duty truck products represented 81% of 2013 sales, down from 85% in 2012. Lower demand and products reaching end of production reduced product sales by approximately $25 million; new awards contributed approximately $10 million.
- Sales to Navistar were $47.4 million, or approximately 33% of sales, versus $63.3 million in 2012. Sales to PACCAR were $50.2 million, or approximately 35%, versus $57.3 million. Together, the two customers represented 68% of sales. Three customers accounted for 71% of year-end receivables.
- New Volvo business began production during 2013 and generated approximately $6.6 million in product sales. Management estimated annual revenue of $26–$30 million at expected production levels and anticipated Volvo would exceed 10% of sales in 2014.
- The company invested in molding capacity: 2013 capital spending was $9.3 million, and management anticipated up to $13 million in 2014. A new SMC production line was ordered, expected to approximately double SMC capacity; additional presses were also planned or being installed.
- Navistar’s supply agreement expired October 31, 2013. The parties were continuing under its terms informally while negotiating a replacement agreement.
Outlook, risks, and unusual items
- Management expected 2014 sales to increase from 2013, citing industry analysts’ forecasts of moderate truck-production growth and a full-year contribution from Volvo. This was an outlook, not quantified company-wide guidance.
- Capacity was tight in some operations: SMC utilization averaged 84% for 2013 and reached approximately 100% in Q4; Gaffney utilization was also 100% in Q4. Management anticipated occasional three-shift, seven-day operations in 2014.
- Key risks include dependence on two large customers, cyclical truck demand, raw-material and energy costs, price pressure from OEMs, production and delivery constraints, labor relations, Mexico operating and security risks, and the ability to realize forecast returns from new awards and capital investments.
- A $240,000 deferred-tax benefit from Mexican tax reform reduced 2013 tax expense. The 2012 comparison included approximately $1.1 million of pretax expense from start-up inefficiencies and closure of the Warsaw, Kentucky facility.
- Post-retirement benefit liability declined to $6.8 million from $10.0 million, including a favorable actuarial gain recognized in other comprehensive income. The filing reported no legal proceedings expected by management to have a material adverse effect and no off-balance-sheet arrangements.
- The company paid no cash dividends in 2013 or 2012 and did not anticipate paying dividends in the foreseeable future. The independent auditor gave an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective, without an auditor attestation on internal controls.
Important facts for investors to verify
- Whether Volvo’s expected $26–$30 million annual revenue materializes, and whether new capacity is commissioned on time and at anticipated cost.
- Progress on a replacement Navistar supply agreement and developments in sales, production schedules, and receivable collections for Navistar and PACCAR.
- Whether working capital normalizes and operating cash flow recovers while the company funds its planned capital expenditures.
- Compliance with credit covenants and availability of the $18 million revolving facility, which was scheduled to mature May 31, 2015.
- Actual 2014 truck-market demand, raw-material cost changes, and the company’s ability to protect margins against OEM pricing pressure.