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EX-23 - EXHIBIT 23 - CORE MOLDING TECHNOLOGIES INC | c98790exv23.htm |
EX-24 - EXHIBIT 24 - CORE MOLDING TECHNOLOGIES INC | c98790exv24.htm |
EX-31.A - EXHIBIT 31(A) - CORE MOLDING TECHNOLOGIES INC | c98790exv31wa.htm |
EX-32.B - EXHIBIT 32(B) - CORE MOLDING TECHNOLOGIES INC | c98790exv32wb.htm |
EX-31.B - EXHIBIT 31(B) - CORE MOLDING TECHNOLOGIES INC | c98790exv31wb.htm |
EX-23.A - EXHIBIT 23(A) - CORE MOLDING TECHNOLOGIES INC | c98790exv23wa.htm |
EX-10.A1 - EXHIBIT 10(A)(1) - CORE MOLDING TECHNOLOGIES INC | c98790exv10wa1.htm |
EX-32.A - EXHIBIT 32(A) - CORE MOLDING TECHNOLOGIES INC | c98790exv32wa.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
o | 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 (State or other jurisdiction of incorporation or organization) |
31-1481870 (I.R.S. Employer Identification No.) |
|
800 Manor Park Drive, Columbus, Ohio (Address of principal executive offices) |
43228 - 0183 (Zip Code) |
Registrants telephone number, including area code: (614) 870-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common Stock, par value $.01 |
Name of each exchange on which registered NYSE Amex |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
As of June 30, 2009, the aggregate market value of the registrants voting and non-voting common
equity held by non-affiliates of the registrant was approximately $13,731,341, based upon the
closing sale price of $2.24 on the NYSE Amex on June 30, 2009, the last business day of
registrants most recently completed second fiscal quarter. As of the close of business on March
31, 2010, the number of shares of registrants common stock outstanding was 6,987,086.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants 2010 definitive Proxy Statement to be filed with the Securities and
Exchange Commission no later than 120 days after the end of the registrants fiscal year are
incorporated herein by reference in Part III of this Form 10-K.
CORE MOLDING TECHNOLOGIES, INC AND SUBSIDIARIES
TABLE OF CONTENTS
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Exhibit 32(b) |
2
Table of Contents
PART I
ITEM 1. | BUSINESS |
HISTORICAL DEVELOPMENT OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
In 1996, RYMAC Mortgage Investment Corporation (RYMAC) incorporated Core Molding Technologies,
Inc. (Core Molding Technologies or the Company), formerly known as Core Materials Corporation
before changing its name on August 28, 2002, for the purpose of acquiring the Columbus Plastics
unit of Navistar, Inc. (Navistar), formerly known as International Truck & Engine Corporation.
On December 31, 1996, RYMAC merged with the Company with the result being that the Company was the
surviving entity. Immediately after the merger, the Company acquired substantially all the assets
and liabilities of the Columbus Plastics unit from Navistar in return for a secured note, which has
been repaid, and 4,264,000 shares of newly issued common stock of the Company. On July 18, 2007,
the Company entered into a stock repurchase agreement with Navistar, pursuant to which the Company
repurchased 3,600,000 shares of the Companys common stock, from Navistar. Navistar currently owns
664,000 shares (9.8%) of the outstanding stock of the Company.
In the first quarter of 1998, the Company opened a second compression molding plant located in
Gaffney, South Carolina as part of the Companys growth strategy to expand its customer base. This
facility provided the Company with additional capacity and a strategic geographic location to serve
both current and prospective customers.
In October 2001, the Company incorporated Core Composites Corporation as a wholly owned subsidiary
under the laws of the State of Delaware. This entity was established for the purpose of holding
and establishing operations for Airshield Corporations assets, which the Company acquired on
October 16, 2001 (the Airshield Asset Acquisition) as part of the Companys diversified growth
strategy. Airshield Corporation was a privately held manufacturer and marketer of fiberglass
reinforced plastic parts primarily for the truck and automotive aftermarket industries. The
Company purchased substantially all the assets of Airshield Corporation through the United States
Bankruptcy Court as Airshield Corporation had been operating under Chapter 11 bankruptcy protection
since March 2001.
In conjunction with establishment of operations for the assets acquired in the Airshield Asset
Acquisition, the Company established a Mexican subsidiary and leased a production facility in
Mexico. In October 2001, the Company (5% owner) and Core Composites Corporation (95% owner)
incorporated Corecomposites de Mexico, S. de R.L. de C.V. (Corecomposites) in Matamoros, Mexico.
Corecomposites was organized to operate under a maquiladora program whereby substantially all
products produced are exported back to Core Composites Corporation which sells such product to
United States based external customers. In June of 2009, the Company completed construction and
took occupancy of a new 437,000 square foot production facility in Matamoros, Mexico that replaced
its leased facility.
In September 2004, the Company formed Core Automotive Technologies, LLC (Core Automotive), a
Delaware limited liability company and wholly owned subsidiary of the Company. This entity was
formed for the purpose of establishing operations and holding assets acquired from Keystone
Restyling, Inc., which the Company acquired as part of its diversified growth strategy in
September, 2004. Keystone Restyling, Inc. was a privately held manufacturer and marketer of
fiberglass reinforced plastic parts primarily for the automotive and light truck aftermarket
industries. The Companys facility in Matamoros, Mexico provides manufacturing services for Core
Automotive Technologies.
In August 2005, the Company formed Core Composites Cincinnati, LLC (Core Composites Cincinnati),
a Delaware limited liability company and wholly owned subsidiary of the Company. This entity was
formed for the purpose of establishing operations and holding assets acquired from the Cincinnati
Fiberglass Division of Diversified Glass Inc., which the Company acquired in August, 2005. The
Cincinnati Fiberglass Division of Diversified Glass, Inc. was a privately held manufacturer and
distributor of fiberglass reinforced plastic components supplied primarily to the heavy-duty truck
market. As a result of this acquisition, the Company leases a manufacturing facility in Batavia,
Ohio.
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Table of Contents
DESCRIPTION OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
Certain statements under this caption of this Annual Report on Form 10-K constitute 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 report: business conditions in the plastics,
transportation, watercraft and commercial product industries; federal and state regulations
(including engine emission regulations); general economic, social and political environments in the
countries in which Core Molding Technologies operates; dependence upon two major customers as the
primary source of Core Molding Technologies sales revenues; recent efforts of Core Molding
Technologies to expand its customer base; the actions of competitors, customers, and suppliers;
failure of Core Molding Technologies suppliers to perform their obligations; the availability of
raw materials; inflationary pressures; new technologies; regulatory matters; labor relations; the
loss or inability of Core Molding Technologies to attract and retain key personnel; federal, state
and local environmental laws and regulations; 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; risks related to the transfer of production from Core Molding
Technologies Columbus facility to its Matamoros facility; managements decision to pursue new
products or businesses which involve additional costs, risks or capital expenditures; and other
risks identified from time-to-time in Core Molding Technologies other public documents on file with
the Securities and Exchange Commission, including those described in Item 1A of this Annual Report
on Form 10-K.
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. Core Molding Technologies
operates four production facilities in Columbus, Ohio; Batavia, Ohio; Gaffney, South Carolina; and
Matamoros, Mexico. The Columbus and Gaffney facilities produce reinforced plastics by compression
molding sheet molding compound (SMC) in a closed mold process. The Batavia facility produces
reinforced plastic products by a robotic spray-up open mold process and resin transfer molding
(RTM) closed mold process utilizing multiple insert tooling (MIT). The Matamoros facility also
utilizes spray-up and hand lay-up open mold processes as well as RTM and SMC closed mold processes
to produce reinforced plastic products.
Reinforced plastics compete largely against metals and have the strength to function well during
prolonged use. Management believes that reinforced plastic components offer many advantages over
metals, including:
| heat resistance |
| corrosion resistance |
| lighter weight |
| lower cost |
| greater flexibility in product design |
| part consolidation for multiple piece assemblies |
| lower initial tooling costs for lower volume applications |
| high strength-to-weight ratio |
| dent-resistance in comparison to steel or aluminum. |
4
Table of Contents
The largest markets for reinforced plastics are transportation (automotive and truck),
construction, marine, and industrial applications. The Company currently has four manufacturing
facilities producing reinforced plastic products. Our manufacturing facilities utilize various
production processes; however, end products are similar and are not unique to a facility or
customer base. Operating decision makers (officers of the Company) are headquartered in Columbus,
Ohio and oversee all manufacturing operations for all products as well as oversee customer
relationships with all customers. The Companys two major customers are Navistar and PACCAR, Inc.
(PACCAR), which are supplied reinforced plastic products for medium and heavy-duty trucks. The
Company also supplies reinforced plastic products to other truck
manufacturers, to automotive suppliers, to manufacturers of personal watercraft and other
commercial products, and to wholesale distributors and other end users of automotive aftermarket
products. In general, product growth and diversification are achieved in several different ways:
(1) resourcing of existing reinforced plastic product from another supplier by an original
equipment manufacturer (OEM); (2) obtaining new reinforced plastic products through a selection
process in which an OEM solicits bids; (3) successful marketing of reinforced plastic products for
previously non-reinforced plastic applications; (4) successful marketing of reinforced plastic
products for the automotive and light truck aftermarket, and (5) acquiring an existing business.
The Companys efforts continue to be directed towards all five areas.
MAJOR COMPETITORS
The Company believes that it is one of the four largest compounders and molders of reinforced
plastics using the SMC, spray-up, hand-lay-up, VRIM, and MIT molding processes in the United
States. The Company faces competition from a number of other molders including, most
significantly, Decoma Composites (an operating unit of Magna International), Molded Fiber Glass
Companies, Continental Structural Plastics, Sigma Industries and Premix. The Company believes that
it is well positioned to compete based primarily on manufacturing capability and location, product
quality, engineering capability, cost, and delivery. However, the industry remains highly
competitive and some of the Companys competitors have greater financial resources, research and
development facilities, design engineering, manufacturing, and marketing capabilities.
MAJOR CUSTOMERS
The Company currently has two major customers, Navistar and PACCAR. Major customers are defined as
customers whose current year sales individually consist of more than ten percent of total sales.
The loss of a significant portion of sales to Navistar or PACCAR would have a material adverse
effect on the business of the Company.
Relationship with Navistar
The Company entered into a new Comprehensive Supply Agreement, effective as of June 24,
2008. On January 28, 2010, the Company entered into a First Addendum to the Comprehensive Supply
Agreement, agreeing to shift production of certain products from the Companys Columbus, Ohio
facility to its Matamoros, Mexico facility, in order to meet the needs of Navistar as a result of
its relocation of certain production to its Escobedo, Mexico assembly plant. Under this
Comprehensive Supply Agreement, as amended, the Company continues to be the primary supplier of
Navistars original equipment and service requirements for fiberglass reinforced parts, as long as
the Company remains competitive in cost, quality and delivery, through October 31, 2013.
The Company makes products for Navistars Chatham (Canada) assembly plant, its Springfield, Ohio
assembly plant, its Garland, Texas assembly facility, its bus facility in Tulsa, Oklahoma and its
Escobedo, Mexico assembly facility. The Company works closely on new product development with
Navistars engineering and research personnel at Navistars Fort Wayne, Indiana Technical Center.
Some of the products sold to Navistar include hoods, roofs, air deflectors, air fairings, fenders,
splash panels, and other components.
The North American truck market in which Navistar competes is highly competitive and the demand for
heavy and medium duty trucks is subject to considerable volatility as it moves in response to
cycles in the overall business environment and is particularly sensitive to the industrial sector,
which generates a significant portion of the freight tonnage hauled. Truck demand also depends on
general economic conditions, among other factors. Sales to Navistar amounted to approximately 54%,
57%, and 44%, of total sales for 2009, 2008, and 2007, respectively.
Relationship with PACCAR
In April 2007, the Company entered into a Supply Agreement with PACCAR to supply certain fiberglass
reinforced products. The supply agreement will expire on June 30, 2010 unless extended by the
parties.
The Company makes products for PACCARs Chillicothe, Ohio, Denton, Texas, Renton, Washington, St.
Therese (Canada), and Mexicali, Mexico assembly facilities. The Company also works closely on new
product development with PACCARs engineering and research personnel. Some of the products sold to
PACCAR include hoods, roofs, back panels, air deflectors, air fairings, fenders, splash panels, and
other components.
5
Table of Contents
The North American truck market in which PACCAR competes is highly competitive and the demand for
trucks is subject to considerable volatility as it moves in response to cycles in the overall
business environment and is particularly sensitive to the industrial sector, which generates a
significant portion of the freight tonnage hauled. Truck demand also depends on general economic
conditions, among other factors. Sales to PACCAR amounted to approximately 29%, 26%, and 33% of
total sales for 2009, 2008, and 2007, respectively.
OTHER CUSTOMERS
The Company also produces products for other truck manufacturers, the marine industry, commercial
product industries, automotive aftermarket industries, and various other customers. Sales to these
customers individually were all less than 10% of total annual sales. Sales to each of these
customers amounted to approximately 17%, 17% and 23% of total sales for 2009, 2008 and 2007
respectively.
EXPORT SALES
The Company provides products to some of its customers that have manufacturing and service
locations in Canada and Mexico. Export sales, which are denominated in United States dollars, were
approximately $7,059,000, $15,603,000, and $18,509,000, for the years ended 2009, 2008, and 2007,
respectively. These export sales dollars represent approximately 8%, 13%, and 15%, of total sales
for 2009, 2008, and 2007, respectively.
FOREIGN OPERATIONS
As a result of the Airshield Asset Acquisition, the Company began importing products into the
United States, as many products produced in the Companys Mexican facility are sold to customers in
the United States. Import sales, which are denominated in United States dollars, were
approximately $16,442,000, $14,492,000 and $18,329,000, for the years ended 2009, 2008 and 2007
respectively. The sales of products imported were approximately 20%, 12%, and 15%, of total sales
in 2009, 2008, and 2007, respectively. The increase in import sales in 2009 is a result of product
transfers from the Companys Columbus facility to its Matamoros Mexico facility.
The Company owns long-lived assets totaling $20,779,000 at December 31, 2009 that are located in
Mexico, of which $14,405,000 is the Companys new manufacturing facility in Mexico.
PRODUCTS
SMC Compound
SMC compound is a combination of resins, fiberglass, catalysts, and fillers compounded and cured in
sheet form. The sheet is then used to manufacture compression-molded products, as discussed below,
and on a limited basis sold to other molders.
The Company incorporates a sophisticated computer program that assists in the compounding of
various complex SMC formulations tailored to customer needs. The system provides for the
following:
| Control information during various production processes; and |
| Data for statistical batch controls. |
The Company has the capacity to manufacture approximately 48 million pounds of SMC sheet material
annually. The following table shows production of SMC for 2009, 2008, and 2007.
SMC Pounds | ||||
Produced | ||||
Year | (Millions) | |||
2009 |
14 | |||
2008 |
22 | |||
2007 |
22 |
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Table of Contents
Glass Mat Thermoplastic (GMT)
GMT compound is a combination of glass and thermoplastic resins purchased in the form of a sheet.
The GMT compound is heated just prior to being used to manufacture compression-molded products.
Closed Molded Products
The Company manufactures reinforced plastic products using both compression molding and vacuum
resin infusion molding process methods of closed molding.
Compression Molding Compression molding is a process whereby SMC or GMT is molded to form by
matched die steel molds through which a combination of heat and pressure are applied via a molding
press. This process produces high quality, dimensionally consistent products. This process is
typically used for higher volume products, which is necessary to justify the customers investment
in molds.
As of December 31, 2009, the Company owns 18 compression-molding presses in its Columbus, Ohio
plant, which range in size from 500 to 4,500 tons. The Company also owns six presses and leases
one press in its Gaffney, South Carolina plant, which range in size from 1,000 to 3,000 tons and
owns five presses in its Matamoros, Mexico manufacturing facility ranging from 500 to 2,500 tons.
Large platen, high tonnage presses (greater than 2,000 tons) provide the ability to compression
mold very large SMC parts. The Company believes that it possesses a significant portion of the
large platen, high tonnage molding capacity in the industry.
To enhance the surface quality and paint finish of products, the Company uses both in-mold coating
and vacuum molding processes. In-mold coating is a manufacturing process performed by injecting a
liquid over the molded part surface and then applying pressure at elevated temperatures during an
extended molding cycle. The liquid coating serves to fill and/or bridge surface porosity as well as
provide a barrier against solvent penetration during subsequent top-coating operations. Likewise,
vacuum molding is the removal of air during the molding cycle for the purpose of reducing the
amount of surface porosity. The Company believes that it is among the industry leaders in in-mold
coating and vacuum molding applications, based on the size and complexity of parts molded.
Resin Transfer Molding (RTM) This process employs two molds, typically a core and a cavity,
similar to matched die molding. The composite is produced by placing glass mat, chopped strand, or
continuous strand fiberglass in the mold cavity in the desired pattern. Parts that would be used
for cosmetic purposes in their end use would typically have a gel coat applied to the mold surface.
The core mold is then fitted to the cavity, and upon a satisfactory seal, a vacuum is applied.
When the proper vacuum is achieved, the resin is injected into the mold to fill the part. Finally,
the part is allowed to cure, and then it is removed from the mold and trimmed to shape. Fiberglass
reinforced products produced from the RTM process exhibit a high quality surface on both sides of
the part and excellent part thickness. Multiple insert tooling (MIT) technique can be utilized
in the RTM process to improve throughput based upon volume requirements.
Open Molded Products
The Company produces reinforced plastic products using both the spray-up and hand-lay-up methods of
open molding.
Hand-Lay-Up This process utilizes a shell mold, typically the cavity, where glass cloth, either
chopped strand or continuous strand glass mat, is introduced into the cavity. Resin is then
applied to the cloth and rolled out to achieve a uniform wet-out from the glass and to remove any
trapped air. The part is then allowed to cure and removed from the mold. After removal, the part
typically undergoes trimming to achieve the net shape desired. Parts that would be cosmetic in
their end use would have a gel coat applied to the mold surface prior to the lay-up to improve the
surface quality of the finished part. Parts produced from this process have a smooth outer surface
and an unfinished or rough interior surface. These fiberglass-reinforced products are typically
non-cosmetic components or structural reinforcements that are sold externally or used internally as
components of larger assemblies.
7
Table of Contents
Spray-Up This process utilizes the same type of shell mold, but instead of using glass cloth to
produce the composite part, a chopper/spray system is employed. Glass yarns and resin feed the
chopper/spray gun. The resin coated, chopped glass, which is approximately one inch in length, is
sprayed into the mold to the desired thickness. The resin coated glass in the
mold is then rolled out to ensure complete wet-out and to remove any trapped air. The part is then
allowed to cure, is removed from the mold and is then trimmed to the desired shape. Parts that
would be used for cosmetic purposes in their end use would typically have a gel coat applied to the
mold surface prior to the resin-coated glass being sprayed into the mold to improve the surface
quality of the finished part. Parts produced from this process have a smooth outer surface and an
unfinished or rough interior surface.
The Company also has a chain driven robotic gelcoating and spray up line and a hand spray up cell
at the Batavia, Ohio location. Part sizes weigh from a few pounds to several thousand pounds with
surface quality tailored for the end use application.
Assembly, Machining, and Paint Products
Many of the products molded by the Company are assembled, machined, and/or prime painted to result
in a completed product used by the Companys end-customers.
The Company has demonstrated manufacturing flexibility that accepts a range of low volume, hand
assembly, and machining work to high volume, highly automated assembly and machining systems.
Robotics are used as deemed productive for material handling, machining, and adhesive applications.
In addition to conventional machining methods, water-jet cutting technology is also used where
appropriate. The Company utilizes paint booths and batch ovens in its facilities when warranted.
The Company generally contracts with outside parties when customers require that the Company
provide a finish of a top coat of paint.
RAW MATERIALS
The principal raw materials used in the compounding of SMC and the closed and open molding
processes are polyester, vinyl ester and epoxy resins, fiberglass rovings, and filler. Other
significant raw materials include adhesives for assembly of molded components and in-mold coating,
gelcoat, prime paint for preparation of cosmetic surfaces, and hardware (steel components). Many
of the raw materials used by the Company are petroleum and energy based, and therefore, the costs
of certain raw materials can fluctuate based on changes in costs of these underlying commodities.
During the last several years, the Company has experienced extreme price fluctuations for certain
materials, which has caused suppliers to be reluctant to enter into long-term contracts. Each raw
material generally has supplier alternatives, which are being evaluated regularly. The Company is
also regularly evaluating its supplier base for certain supplies, repair items, and componentry to
improve its overall purchasing position as supply of these items is generally available from
multiple sources.
BACKLOG
The Company relies on production schedules provided by its customers to plan and implement
production. These schedules are typically provided on a weekly basis and are considered firm
typically for four weeks. Some customers can update these schedules daily for changes in demand
that allow them to run their inventories on a just-in-time basis. The ordered backlog was
approximately $6.8 million, $6.3 million and $9.0 million at December 31, 2009, 2008, and 2007
respectively, all of which the Company expects to ship during the first quarter of the following
year.
CAPACITY CONSTRAINTS
In previous years, the Company has been required to work an extended shift and day schedule, up to
a seven-day/three shift operation, to meet its customers production requirements. The Company has
used various methods from overtime to a weekend manpower crew to support the different shift
schedules required.
Based on recent and expected 2010 production schedules, the Company has not had and does not
anticipate difficulty in providing various shift schedules necessary to meet customer requirements
for the foreseeable future.
See further discussion of machine and facility capacities at Item 2 Properties contained
elsewhere in this Annual Report on Form 10-K.
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Table of Contents
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures totaled approximately $10.1 million, $12.1 million, and $2.7 million for 2009,
2008, and 2007, respectively. Capital expenditures in 2009 and 2008 consisted primarily of
purchases related to the Companys construction of its new manufacturing facility in Mexico.
Capital expenditures in 2007 consisted primarily of the buyout of certain equipment leases and
purchase of production equipment to manufacture parts as well as storage racks, computers, and
office furniture and fixtures.
Product development is a continuous process at the Company. Research and development activities
focus on developing new SMC formulations, new structural plastic products, and improving existing
products and manufacturing processes.
The Company does not maintain a separate research and development organization or facility but uses
its production equipment, as necessary, to support these efforts and cooperates with its customers
and its suppliers in research and development efforts. Likewise, manpower to direct and advance
research and development is integrated with the existing manufacturing, engineering, production,
and quality organizations. Management of the Company has estimated that internal costs related to
research and development activities approximate $181,000, $202,000, and $223,000 in 2009, 2008 and
2007, respectively.
ENVIRONMENTAL COMPLIANCE
The Companys manufacturing operations are subject to federal, state, and local environmental laws
and regulations, which impose limitations on the discharge of hazardous and non-hazardous
pollutants into the air and waterways. The Company has established and implemented standards for
the treatment, storage, and disposal of hazardous waste. The Companys policy is to conduct its
business with due regard for the preservation and protection of the environment. The Companys
environmental waste management involves the regular auditing of satellite hazardous waste
accumulation points, hazardous waste activities and authorized treatment, storage and disposal
facility. As part of the Companys environmental policy all employees are trained on waste
management and other environmental issues.
In June 2003, the Ohio
Environmental Protection Agency (Ohio EPA) issued Core Molding
Technologies final Title V Operating Permit for the Columbus, Ohio facility, and in
May 2004 the
Ohio EPA issued final Title V Operating Permit for the Cincinnati, Ohio facility. In
August 2005,
the South Carolina Department of Health and Environmental Control issued a final Title V Operating
Permit for the Gaffney, South Carolina facility. Since that time, Core Molding Technologies has
substantially complied with the requirements of these permits in the Cincinnati and Gaffney
facilities. The Company continues to work with the Ohio EPA to finalize renewal of the Title V
Operating Permit for its Columbus facility. Additionally, the Company reviewed its reports on
files with the Ohio EPA and determined that certain required reports were not found in the file.
The Company voluntarily submitted reports to the Ohio EPA to confirm their filing subsequent to
December 31, 2009. While the Company was operating
within its permissible emissions, administrative deficiencies were identified in the Companys
system which could result in penalties. However, the Company currently has not been
notified of any assessed fines or penalties and none have accrued. Core Molding Technologies does
not believe that the cost to comply with these permits will have a material effect on its
operations, competitive position, or capital expenditures.
EMPLOYEES
As of December 31, 2009, the Company employed a total of 813 employees, which consists of 448
employees in its United States operations and 365 employees in its Mexican operations. Of these 813
employees, 238 are covered by a collective bargaining agreement with the International Association
of Machinists and Aerospace Workers (IAM), which extends to August 4, 2010, and 298 are covered
by a collective bargaining agreement with Sindicato de Jorneleros y Obreros, which extends to
January 16, 2011.
PATENTS, TRADE NAMES, AND TRADEMARKS
The Company will evaluate, apply for, and maintain patents, trade names, and trademarks where it
believes that such patents, trade names, and trademarks are reasonably required to protect its
rights in its products. The Company does not believe that any single patent, trade name, or
trademark or related group of such rights is materially important to its business or its ability to
compete.
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SEASONALITY & BUSINESS CYCLE
The Companys business is affected annually by the production schedules of its customers. Certain
of the Companys customers typically shut down their operations on an annual basis for a period of
one to several weeks during the Companys third quarter. Certain customers also typically shut
down their operations during the last week of December, as well. As a result, demand for the
Companys products typically decreases during the third and fourth quarters. Throughout 2009, many
of the Companys customers idled production facilities during weeks that were not normal shutdown
weeks, due to reduced demand and overall economic conditions. Demand for medium and heavy-duty
trucks, personal watercraft, and automotive products also fluctuate on an economic, a cyclical and
a seasonal basis, causing a corresponding fluctuation for demand of the Companys products.
ITEM 1A. | RISK FACTORS |
The following risk factors describe various risks that may affect our business, financial
condition, and operations. References to we, us, and our in this Risk Factors section
refer to Core Molding Technologies and its subsidiaries, unless otherwise specified or unless the
context otherwise requires.
We are dependent on sales to a small number of our major customers.
Sales to Navistar and PACCAR constituted approximately 54% and 29% respectively, of our 2009 net
sales. No other customer accounted for more than 10% of our net sales for this period. The loss of
any significant portion of sales to any of our major customers could have a material adverse effect
on our business, results of operations, or financial condition.
We are a regular supplier to both of these customers, which results in recurring revenues. If we
could not maintain our supplier relationship with either customer it could have a material adverse
effect on our business, results of operations, or financial condition.
We are continuing to engage in efforts intended to improve and expand our relations with Navistar
and PACCAR as well as provide support for our entire customer base. We have supported our position
with customers through direct and active contact through our sales, quality, engineering, and
operational personnel. We cannot make any assurances that we will maintain or improve our
customer relationships, whether these customers will continue to do business with us as they have
in the past or whether we will be able to supply these customers or any of our other customers at
current levels.
Our business is affected by the cyclical nature of the industries and markets that we serve.
The North American heavy and medium duty truck industries are highly cyclical. In 2009
approximately 93% of product sales were in these industries. These industries and markets fluctuate
in response to factors that are beyond our control, such as general economic conditions, interest
rates, federal and state regulations (including engine emissions regulations, tariffs, import
regulations, and other taxes), consumer spending, fuel costs, and our customers inventory levels
and production rates. Our manufacturing operations have a significant fixed cost component.
Accordingly, during periods of changing demands, the profitability of our operations may change
proportionately more than revenues from operations. In addition, our operations are typically
seasonal as a result of regular customer maintenance shutdowns, which typically vary from year to
year based on production demands and occur in the third and fourth quarter of each calendar year.
This seasonality may result in decreased net sales and profitability during the third and fourth
fiscal quarters of each calendar year. Weakness in overall economic conditions or in the markets
that we serve, or significant reductions by our customers in their inventory levels or future
production rates, could result in decreased demand for our products and could have a material
adverse effect on our business, results of operations, or financial condition.
Price increases in raw materials and availability of raw materials could adversely affect our
operating results and financial condition.
We purchase resins and fiberglass for
use in production as well as steel and other components for
product assembly. The prices of raw materials are affected by the prices of crude oil, natural
gas, and benzene as well as processing capacity versus demand and we have incurred increases in raw
material costs over the past few years. We attempt to reduce our exposure to increases by working
with suppliers, evaluating new suppliers, improving material efficiencies, and when
necessary through sales price adjustments to customers. If we are unsuccessful in developing ways
to mitigate these raw material increases we may not be able to improve productivity or realize our
ongoing cost reduction programs sufficiently to help offset the impact of these increased raw
material costs. As a result, higher raw material costs could result in declining margins and
operating results.
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Cost reduction and quality improvement initiatives by original equipment manufacturers could have a
material adverse effect on our business, results of operations, or financial condition.
We are primarily a components supplier to the heavy and medium duty truck industries, which are
characterized by a small number of OEMs that are able to exert considerable pressure on components
suppliers to reduce costs, improve quality, and provide additional design and engineering
capabilities. Given the fragmented nature of the industry, OEMs continue to demand and receive
price reductions and measurable increases in quality through their use of competitive selection
processes, rating programs, and various other arrangements. We may be unable to generate sufficient
production cost savings in the future to offset such price reductions. OEMs may also seek to save
costs by relocating production to countries with lower cost structures, which could in turn lead
them to purchase components from suppliers with lower production costs that are geographically
closer to their new production facilities. These decisions by OEMs could require us to shift
production between our plants so that we are more competitive. Moving production lines between our
plants could result in significant one-time costs required for transfer expenses and capital
investment. Additionally, OEMs have generally required component suppliers to provide more design
engineering input at earlier stages of the product development process, the costs of which have, in
some cases, been absorbed by the suppliers. Future price reductions, increased quality standards,
and additional engineering capabilities required by OEMs may reduce our profitability and have a
material adverse effect on our business, results of operations, or financial condition.
We operate in highly competitive markets.
The markets in which we operate are highly competitive. We compete with a number of other
manufacturers that produce and sell similar products. Our products primarily compete on the basis
of capability, product quality, cost, and delivery. Some of our competitors have greater financial
resources, research and development facilities, design engineering, manufacturing, and marketing
capabilities.
We may be subject to additional shipping expense or late fees if we are not able to meet our
customers on-time demand for our products.
We must continue to meet our customers demand for on-time delivery of our products. Factors that
could result in our inability to meet customer demands include a failure by one or more of our
suppliers to supply us with the raw materials and other resources that we need to operate our
business effectively or poor management of our company or one or more of its plants and an
unforeseen spike in demand for our products, among other factors. If this occurs, we may be
required to incur additional shipping expenses to ensure on-time delivery or otherwise be required
to pay late fees, which could have a material adverse effect on our business, results of
operations, or financial condition.
If we fail to attract and retain key personnel our business could be harmed.
Our success largely depends on the efforts and abilities of our key personnel. Their skills,
experience, and industry contacts significantly benefit us. The inability to retain key personnel
could have a material adverse effect on our business, results of operations, or financial
condition. Our future success will also depend in part upon our continuing ability to attract and
retain highly qualified personnel.
Work stoppages or other labor issues at our facilities or at our customers facilities could
adversely affect our operations.
As of December 31, 2009, unions at our Columbus, Ohio and Matamoros, Mexico facilities represented
approximately 66% of our entire workforce. As a result, we are subject to the risk of work
stoppages and other labor-relations matters. The current Columbus, Ohio and Matamoros, Mexico
union contracts extend through August 4, 2010 and January 16, 2011, respectively. Any prolonged
work stoppage or strike at either our Columbus, Ohio or Matamoros, Mexico unionized facilities
could have a material adverse effect on our business, results of operations, or financial
condition. These collective bargaining agreements expire at various times. Any failure by us to
reach a new agreement upon expiration of such union contracts may have a material adverse effect on
our business, results of operations, or financial condition.
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In addition, if any of our customers or suppliers experiences a material work stoppage, that
customer may halt or limit the purchase of our products or the supplier may interrupt supply of our
necessary production components. This could cause us to shut down production facilities relating to
these products, which could have a material adverse effect on our business, results of operations,
or financial condition.
Changes in the legal, regulatory and social responses to climate change, including any possible
effect on energy prices, could adversely effect our business and reduce our profitability.
It is possible that various proposed
legislative or regulatory initiatives related to climate changes, such as cap-and-trade systems, increased limits on emissions of greenhouse gases,
or other
measures, could in the future have a material impact on us, our
customers, or the markets we serve, thereby resulting in a
material adverse effect on our financial condition or results of operation. For example, customers
in the transportation (automotive and truck) industry could be required to incur greater costs in
order to comply with such initiatives, which could have an adverse impact on their profitability or
viability. This could in turn lead to further changes in the structure of the transportation
industry that could reduce demand for our products. We are also reliant on energy to manufacture
our products, with our operating costs being subject to increase if energy costs rise. During periods of
higher energy costs we may not be able to recover our operating cost increases through production
efficiencies and price increases. While we may hedge our exposure to higher prices via future
energy purchase contracts, increases in energy prices for any reason (including as a result of new
initiatives related to climate change) will increase our operating costs and likely reduce our
profitability.
Our business is subject to risks associated with manufacturing processes.
We convert raw materials into molded products through a manufacturing process at production
facilities in Columbus, Ohio; Gaffney, South Carolina; Batavia, Ohio; and Matamoros, Mexico. While
we maintain insurance covering our manufacturing and production facilities, including business
interruption insurance, a catastrophic loss of the use of all or a portion of our facilities due to
accident, fire, explosion, or natural disaster, whether short or long-term, could have a material
adverse effect on our business, results of operations, or financial condition.
Unexpected failures of our equipment and machinery may result in production delays, revenue loss,
and significant repair costs, as well as injuries to our employees. Any interruption in production
capability may require us to make large capital expenditures to remedy the situation, which could
have a negative impact on our profitability and cash flows. Our business interruption insurance
may not be sufficient to offset the lost revenues or increased costs that we may experience during
a disruption of our operations. Because we supply our products to OEMs, a temporary or long-term
business disruption could result in a permanent loss of customers. If this were to occur, our
future sales levels and therefore our profitability could be materially adversely affected.
Our insurance coverage may be inadequate to protect against the potential hazards incident to our
business.
We maintain property, business interruption, product liability, and casualty insurance coverage,
but such insurance may not provide adequate coverage against potential claims, including losses
resulting from war risks, terrorist acts, or product liability claims relating to products we
manufacture. Consistent with market conditions in the insurance industry, premiums and deductibles
for some of our insurance policies have been increasing and may continue to increase in the future.
In some instances, some types of insurance may become available only for reduced amounts of
coverage, if at all. In addition, there can be no assurance that our insurers would not challenge
coverage for certain claims. If we were to incur a significant liability for which we were not
fully insured or that our insurers disputed, it could have a material adverse effect on our
financial position.
We have made acquisitions and may make acquisitions in the future. We may not realize the improved
operating results that we anticipate from these acquisitions or from acquisitions we may make in
the future, and we may experience difficulties in integrating the acquired businesses or may
inherit significant liabilities related to such businesses.
We explore opportunities to acquire businesses that we believe are related to our core competencies
from time to time, some of which may be material to us. We expect such acquisitions will produce
operating results consistent with our other operations, however, we cannot provide assurance that
this assumption will prove correct with respect to any acquisition.
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Any acquisitions may present significant challenges for our management due to the increased time
and resources required to properly integrate management, employees, information systems, accounting
controls, personnel, and administrative functions of the acquired business with those of ours and
to manage the combined company on a going forward basis. The diversion of managements attention
and any delays or difficulties encountered in connection with the integration of these businesses
could adversely impact our business, results of operations, and liquidity, and the benefits we
anticipate may never materialize.
If we are unable to meet future capital requirements, our business may be adversely affected.
As we grow our business, we may have to incur significant capital expenditures. We may make
capital investments to, among other things, build new or upgrade our facilities, purchase leased
facilities and equipment, and enhance our production processes. We cannot assure you that we will
have, or be able to obtain, adequate funds to make all necessary capital expenditures when
required, or that the amount of future capital expenditures will not be materially in excess of our
anticipated or current expenditures. If we are unable to make necessary capital expenditures we
may not have the capability to support our customer demands, which, in turn could reduce our sales
and profitability and impair our ability to satisfy our customers expectations. In addition, even
if we are able to invest sufficient resources, these investments may not generate net sales that
exceed our expenses, generate any net sales at all, or result in any commercially acceptable
products.
Our failure to comply with our debt covenants could have a material adverse effect on our business,
financial condition or results of operations.
Our U.S. debt agreements contain several covenants. A breach of any of these covenants could
result in a default under the applicable agreement. If a default were to occur, we would likely
seek a waiver of that default, attempt to reset the covenant, or refinance the instrument and
accompanying obligations. If we were unable to obtain this relief, the default could result in the
acceleration of the total due related to that debt obligation. If a default were to occur, we may
not be able to pay our debts or borrow sufficient funds to refinance them. Any of these events, if
they occur, could materially adversely affect our results of operations, financial condition, and
cash flows.
We may not achieve expected efficiencies related to the proximity of our customers production
facilities to our manufacturing facilities, or with respect to existing or future production
relocation plans.
Our facilities are located in close proximity to our customers in order to minimize both our
customers and our own costs. If any of our customers were to move or if nearby facilities are
closed, that may impact our ability to remain competitive. This might also require us to move
closer to our customers, build new facilities or shift production between our current facilities to
meet our customers needs, resulting in additional cost and expense. In January 2010 we announced
our agreement with Navistar to shift production of certain products from our Columbus, Ohio
facility to our Matamoros, Mexico facility as a result of the relocation of certain production to
its Escobedo, Mexico assembly plant. We anticipate that we will incur
up to approximately $2.0 million
of expense for transfer and startup costs and up to $2.0 million of capital associated with this
production shift to Matamoros. If we are unable to successfully shift production to our Matamoros
facility as described above, or with respect to any future production relocation plans, we may not
achieve expected efficiencies or lose business which could have an adverse effect on our financial
operations and cash flows.
Our products may be rendered obsolete or less attractive if there are changes in technology,
regulatory requirements, or competitive processes.
Changes in technology, regulatory requirements, and competitive processes may render certain
products obsolete or less attractive. Our ability to anticipate changes in these areas will be a
significant factor in our ability to remain competitive. If we are unable to identify or
compensate for any one of these changes it may have a material adverse effect on our business,
results of operations, or financial condition.
Our stock price can be volatile.
Our stock price can fluctuate widely in response to a variety of factors. Factors include actual
or anticipated variations in our quarterly operating results, our relatively small public float,
changes in securities analysts estimates of our future earnings, and the loss of major customers
or significant business developments relating to us or our competitors, and other factors,
including those described in this Risk Factors section. Our common stock also has a low average
daily trading volume, which limits a persons ability to quickly accumulate or quickly divest
themselves of large blocks of our stock. In addition, a low average trading volume can lead to
significant price swings even when a relatively few number of shares are being traded.
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We are subject to environmental rules and regulations that may require us to make substantial
expenditures.
Our operations, facilities, and properties are subject to extensive and evolving laws and
regulations pertaining to air emissions, wastewater discharges, the handling and disposal of solid
and hazardous materials and wastes, the investigation and remediation of contamination, and
otherwise relating to health, safety, and the protection of the environment and natural resources.
As a result, we may be involved from time to time in administrative or legal proceedings relating
to environmental, health and safety matters, and may need to incur capital costs and other
expenditures relating to such matters.
Although we do not presently anticipate terminating any senior management employees, certain senior
management employees have entered into potentially costly severance arrangements with us if
terminated after a change in control.
We have entered into executive severance agreements with certain senior management employees that
provide for significant severance payments in the event such employees employment with us is
terminated within 2 years of a change in control (as defined in the severance agreement) either by
the employee for good reason (as defined in the severance agreement) or by us for any reason other
than cause (as defined in the severance agreement), or for death, or disability. A change in
control under these agreements includes any transaction or series of related transactions as a
result of which less than fifty percent (50%) of the combined voting power of the then-outstanding
securities immediately after such transaction are held in the aggregate by the holders of our
voting stock immediately prior to such transaction; any person has become the beneficial owner of
securities representing 50% or more of our voting stock; we file a report or proxy statement with
the SEC that a change in control of the Company has occurred; or within any two year period, the
directors at the beginning of the period cease to constitute at least a majority thereof. These
agreements would make it costly for us to terminate certain of our senior management employees and
such costs may also discourage potential acquisition proposals, which may negatively affect our
stock price.
Our stock price may be adversely affected as a result of shares eligible for future sale by
Navistar.
Navistar received 4,264,000 shares of our common stock in connection with the sale of the Columbus
Plastics unit to us in 1996. On July 18, 2007, we entered into a stock repurchase agreement with
Navistar, pursuant to which we purchased 3,600,000 of these shares from Navistar. The remaining
664,000 shares which Navistar received and still owns may not be sold in the absence of
registration under the Securities Act or an exemption therefrom, including the exemptions contained
in Rule 144 under the Securities Act. We previously entered into a Registration Rights Agreement
with Navistar pursuant to which Navistar and its transferees were granted the right to demand
registration of the resale of such shares at any time. Navistar was also granted unlimited
piggyback registration rights with respect to these shares under the Registration Rights Agreement.
No prediction can be made as to the effect, if any, of future sales of our shares of common stock
by Navistar, if any, on the market price of our shares of common stock prevailing from time to
time. Sales of substantial amounts of our common stock by Navistar, or the perception that such
sales could occur, could adversely affect prevailing market prices for those securities.
Our foreign operations subject us to risks that could negatively affect our business.
We operate a manufacturing facility in Matamoros, Mexico and, as a result, our business and
operations are subject to the risk of changes in economic conditions, tax systems, consumer
preferences, social conditions, safety and security conditions and political conditions inherent in
Mexico, including changes in the laws and policies that govern foreign investment, as well as
changes in United States laws and regulations relating to foreign trade and investment. In
addition, our results of operations and the value of our foreign assets are affected by
fluctuations in Mexican currency exchange rates, which may favorably or adversely affect reported
earnings. There can be no assurance as to the future effect of any such changes on our results of
operations, financial condition, or cash flows.
Economic conditions and disruptions in the financial markets could have an adverse effect on
our business, financial condition and results of operations.
The financial markets continue to experience turmoil and uncertainty and this has required
significant intervention of the U.S. federal government. While the ultimate outcome of these types
of events in the financial market cannot be predicted, they could have a material adverse effect on
our liquidity and financial condition if our ability to borrow money from our existing lenders were
to be impaired. A crisis in the financial markets may also have a material adverse impact on the
availability and cost of credit in the future. Our ability to pay our debt or refinance our
obligations will depend on our future performance,
which could be affected by, among other things, prevailing economic conditions. A financial crisis
may also have an adverse effect on the U.S. and world economies, which would have a negative impact
on demand for our products. In addition, tightening of credit markets may have an adverse impact on
our customers ability to finance the sale of new trucks or our suppliers ability to provide us
with raw materials, either of which could adversely affect our business and results of operations.
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
The Company owns three production facilities that are situated in Columbus, Ohio, Gaffney, South
Carolina and Matamoros Mexico and leases a production facility in Batavia, Ohio. The Company
believes that, through productive use, these facilities have adequate production capacity to meet
current production volume.
At the Columbus, Ohio and Gaffney, South Carolina facilities the Company measures molding capacity
in terms of its twelve large molding presses (i.e. 2,000 tons and greater). The approximate large
press capacity utilization for the molding of production products in the Companys United States
production facilities was 41%, 62%, and 50%, in the fourth quarter of 2009, 2008, and 2007,
respectively. Capacity utilization is measured on the basis of a five day, three-shifts per day
operation.
The Columbus, Ohio plant is located at 800 Manor Park Drive on approximately 28.2 acres of land.
The Company acquired the property at 800 Manor Park Drive in 1996 as a result of the Asset Purchase
Agreement with Navistar. The approximate 331,558 square feet of available floor space at the
Columbus, Ohio plant is comprised of the following:
Approximate | ||||
Square Feet | ||||
Manufacturing/Warehouse |
315,409 | |||
Office |
16,149 | |||
Total |
331,558 |
The Gaffney, South Carolina plant, which was opened in early 1998, is located at 24 Commerce Drive,
Meadow Creek Industrial Park on approximately 20.7 acres of land. The approximate 110,900 square
feet of available floor space at the Gaffney, South Carolina plant is comprised of the following:
Approximate | ||||
Square Feet | ||||
Manufacturing/Warehouse |
105,700 | |||
Office |
5,200 | |||
Total |
110,900 |
The Matamoros, Mexico plant which was opened in mid 2009 is located at Guillermo Gonzalez Camarena
y Thomas Alva Edison Manzana, Matamoros, Tamaulipas. Mexico. The facility consists of
approximately 437,000 square feet on approximately 22 acres comprised of the following:
Approximate | ||||
Square Feet | ||||
Manufacturing/Warehouse |
422,000 | |||
Office |
15,000 | |||
Total |
437,000 |
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With the completion of the new manufacturing facility, the Matamoros production plant now has RTM,
spray up, hand layup and SMC molding operations. For each operation, production capacity is
calculated differently. The RTM, spray up and hand lay up activities in the facility are not
linked directly to equipment capacities, due to the nature of the products
produced. Capacity of the facility is tied to available floor space and the availability of
personnel. The approximate capacity utilization for these operations was 36%, 50%, and 42% in the
fourth quarter of 2009, 2008, and 2007, respectively. For the plant SMC operations the Company
measures molding capacity in terms of its large molding press (i.e. 2,000 tons and greater). The
approximate large press capacity utilization for the molding of production products in the
Companys Mexico production facility was 45%, in the fourth quarter of 2009. There were no large
presses in Mexico in 2008 or 2007. Capacity utilization is measured on the basis of a six day,
three-shifts per day operation.
The Columbus, Ohio, Gaffney, South Carolina and Matamoros, Mexico properties are subject to liens
and security interests as a result of the properties being pledged by the Company as collateral for
its debt as described in Note 6 of the Notes to Consolidated Financial Statements in Part II,
Item 8 of this Annual Report on Form 10-K.
The Company leases a production plant in Batavia, Ohio located at 4174 Half Acre Road on
approximately nine acres of land. The term of the lease is seven years through July 2012. The
Company has the option to terminate the lease at any time, by providing written notice to the
lessor no later than 90 days prior to the intended termination date. The Company has the option to
purchase the property at the end of every lease year. The approximate 107,740 square feet of
available floor space at the Batavia, Ohio plant is comprised of the following:
Approximate | ||||
Square Feet | ||||
Manufacturing/Warehouse |
103,976 | |||
Office |
3,764 | |||
Total |
107,740 |
The capacity of production in this facility is not linked directly to equipment capacities, due to
the nature of the products produced. Capacity of the facility is tied to available floor space and
the availability of personnel. The approximate capacity utilization for this operation was 31%,
38% and 49% in the fourth quarter of 2009, 2008 and 2007, respectively.
ITEM 3. | LEGAL PROCEEDINGS |
From time to time, the Company is involved in litigation incidental to the conduct of its business.
However, the Company is presently not involved in any legal proceedings, which in the opinion of
management are likely to have a material adverse effect on the Companys consolidated financial
position or results of operations.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
(Removed and Reserved)
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PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
The Companys common stock is traded on the NYSE AMEX under the symbol CMT.
The table below sets forth the high and low sale prices of the Company for each full quarterly
period within the two most recent fiscal years for which such stock was traded.
Core Molding Technologies, Inc. | High | Low | ||||||||||
Fourth Quarter |
2009 | $ | 3.39 | $ | 2.69 | |||||||
Third Quarter |
2009 | 4.19 | 2.16 | |||||||||
Second Quarter |
2009 | 3.00 | 1.30 | |||||||||
First Quarter |
2009 | 2.99 | 1.16 | |||||||||
Fourth Quarter |
2008 | $ | 6.24 | $ | 2.05 | |||||||
Third Quarter |
2008 | 7.49 | 5.50 | |||||||||
Second Quarter |
2008 | 7.40 | 6.55 | |||||||||
First Quarter |
2008 | 7.90 | 6.48 |
The Companys common stock was held by 351 holders of record on March 31, 2010.
The Company made no payments of cash dividends during 2009 and 2008. The Company currently expects
that its earnings will be retained to finance the growth and development of its business and does
not anticipate paying dividends on its common stock in the foreseeable future.
Equity Compensation Plan Information
The following table shows certain information concerning our common stock to be issued in
connection with our equity compensation plans as of December 31, 2009:
Number of Shares | ||||||||||||
to be Issued Upon | Weighted | |||||||||||
Exercise of | Average Exercise | |||||||||||
Outstanding | Price of | Number of Shares | ||||||||||
Options or | Outstanding | Remaining | ||||||||||
Vesting of | Options or | Available for | ||||||||||
Plan Category | Restricted Grants | Restricted Grants | Future Issuance | |||||||||
Equity compensation
plans approved by
stockholders |
590,620 | $ | 3.52 | 1,887,806 | ||||||||
Equity compensation
plans not approved
by stockholders (1) |
155,650 | $ | 3.21 | |
(1) | On August 4, 2003, the Company issued 261,250 options that were not covered under the Plan at $3.21 to its Directors. |
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ITEM 6. | SELECTED FINANCIAL DATA |
The following selected financial data are derived from the audited consolidated financial
statements of the Company. The information set forth below should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of Operations, the
financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
(In thousands, | Years Ended December 31, | |||||||||||||||||||
except per share data) | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Operating Data: |
||||||||||||||||||||
Product sales |
$ | 76,167 | $ | 110,539 | $ | 101,045 | $ | 150,174 | $ | 124,910 | ||||||||||
Tooling sales |
7,172 | 6,116 | 21,667 | 12,156 | 5,633 | |||||||||||||||
Net sales |
83,339 | 116,655 | 122,712 | 162,330 | 130,543 | |||||||||||||||
Gross margin |
11,425 | 21,210 | 16,968 | 29,869 | 23,275 | |||||||||||||||
Income before interest and taxes |
2,485 | 9,190 | 5,569 | 15,856 | 10,394 | |||||||||||||||
Net income |
1,018 | 5,643 | 3,726 | 10,411 | 6,286 | |||||||||||||||
Earnings Per Share Data: |
||||||||||||||||||||
Net income per common share: |
||||||||||||||||||||
Basic |
.15 | .84 | .43 | 1.03 | .63 | |||||||||||||||
Diluted |
.15 | .81 | .41 | 1.00 | .60 | |||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Total assets |
78,141 | 73,831 | 61,695 | 89,506 | 74,221 | |||||||||||||||
Working capital |
13,587 | 10,631 | 6,253 | 27,575 | 22,766 | |||||||||||||||
Long-term debt |
17,733 | 11,129 | 5,914 | 7,779 | 9,595 | |||||||||||||||
Stockholders equity |
29,197 | 28,975 | 21,827 | 42,694 | 34,141 | |||||||||||||||
Return on Equity |
3 | % | 19 | % | 17 | % | 24 | % | 18 | % |
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ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Managements 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 report: business conditions in the plastics,
transportation, watercraft and commercial product industries; federal and state regulations
(including engine emission regulations); general economic, social and political environments in the
countries in which Core Molding Technologies operates; dependence upon two major customers as the
primary source of Core Molding Technologies sales revenues; recent efforts of Core Molding
Technologies to expand its customer base; the actions of competitors, customers, and suppliers;
failure of Core Molding Technologies suppliers to perform their obligations; the availability of
raw materials; inflationary pressures; new technologies; regulatory matters; labor relations; the
loss or inability of Core Molding Technologies to attract and retain key personnel; federal, state
and local environmental laws and regulations; 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; risks related to the transfer of production from Core Molding
Technologies Columbus facility to its Matamoros facility; managements decision to pursue new
products or businesses which involve additional costs, risks or capital expenditures; and other
risks identified from time-to-time in Core Molding Technologies other public documents on file with
the Securities and Exchange Commission, including those described in Item 1A of this Annual Report
on Form 10-K.
OVERVIEW
Core Molding Technologies is a compounder of sheet molding composite (SMC) and molder of
fiberglass reinforced plastics, primarily for the medium and heavy-duty truck market, which
accounted for approximately 93% of 2009 product sales. Core Molding Technologies produces high
quality fiberglass reinforced molded products and SMC materials for varied markets, including
light, medium and heavy-duty trucks, automobiles and automotive aftermarkets, 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 Navistars 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 open mold processes and resin transfer (RTM) closed molding utilizing a
vacuum infusion process. In September 2004, Core Molding Technologies acquired substantially all
the operating assets of Keystone Restyling Products, Inc., a privately held manufacturer and
distributor of fiberglass reinforced products for the automotive-aftermarket industry. In August
2005, Core Molding Technologies acquired certain assets of the Cincinnati Fiberglass Division of
Diversified Glass, Inc., a Batavia, Ohio-based, privately held manufacturer and distributor of
fiberglass reinforced plastic components supplied primarily to the heavy-duty truck market. The
Batavia, Ohio facility produces reinforced plastic products by a spray-up open mold process and
resin transfer molding (RTM) utilizing multiple insert tooling (MIT) closed mold process. In
June of 2009, the Company completed construction of its new 437,000 square foot production facility
in Matamoros, Mexico that replaced its leased facility. In conjunction with the construction of
its new facility, the Company also added compression molding operations in Matamoros, Mexico.
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Core Molding Technologies recorded net income for 2009 of $1,018,000 or $0.15 per basic and diluted
share, compared with $5,643,000 or $0.84 per basic and $0.81 per diluted share, in the year 2008.
Net income was negatively impacted by decreased product sales volumes due to the downturn in the
global economy which impacted the North American medium and heavy-duty truck market throughout
2009. Additionally in connection with the construction of a new manufacturing facility in Mexico,
the Company expensed approximately $2,001,000 of transfer and start up costs during 2009.
Looking forward the Company
anticipates 2010 sales levels increasing over the prior year. Industry analysts are
forecasting improvements in truck production, which the Company
expects to create some improvement to its revenues over the year. The Company continues to focus on controlling costs and
adjusting operations to meet the needs of its customers at these historically low heavy duty truck
production levels.
Additionally the Company expects to incur up to approximately $2,000,000 of additional transition
and start-up expense and up to approximately $2,000,000 in capital
expenditures in 2010 associated with the relocation of certain products from its Columbus, Ohio
facility to its Matamoros, Mexico facility.
RESULTS OF OPERATIONS
2009 COMPARED WITH 2008
Net sales for 2009 totaled $83,339,000, an approximate 29% decrease from the $116,655,000 reported
for 2008. Included in total sales are tooling project revenues of $7,172,000 for 2009 and
$6,116,000 for 2008. Tooling project sales result from billings to customers for molds and
assembly equipment built specifically for their products. These sales are sporadic in nature and
do not represent a recurring trend. Tooling project revenues relate to both replacement models and
new business awarded to the Company. Total product sales revenue for 2009, excluding tooling
project revenue, totaled $76,167,000, an approximate 31% decrease from the $110,539,000 reported
for 2008. The primary reason for the decrease in product sales was the continued downturn in the
North American medium and heavy-duty truck market caused by overall economic conditions.
Sales to Navistar in 2009 totaled $44,678,000, an approximate 33% decrease from the 2008 amount of
$66,880,000. Included in total sales is $3,050,000 of tooling sales for 2009 compared to $3,120,000
in 2008. Total product sales to Navistar decreased by 35% for 2009 as compared to 2008. The
primary reasons for the decrease in product sales were the depressed economic conditions in the
North American medium and heavy-duty truck market due to the overall economic conditions noted
above as well as fewer orders for Navistars military product line.
Sales to PACCAR in 2009 totaled $24,184,000, an approximate 20% decrease from 2008 sales of
$30,201,000. Included in total sales is $1,069,000 of tooling sales for 2009 compared to
$2,505,000 in 2008. Total product sales to PACCAR decreased by 17% for 2009 as compared to 2008.
The decrease in total product sales was primarily due to market conditions as noted above. The
decrease in product sales was partially offset by a shift in PACCARs production to truck models
for which the Company provides higher content.
Sales to other customers decreased by approximately 26% to $14,477,000 in 2009 from $19,575,000 in
2008. This decrease was primarily due to market related decreases in product sales to other North
American medium and heavy-duty truck manufacturers amounting to approximately $3,046,000, as well
as a decrease in product sales to a customer in the marine industry of approximately $1,953,000.
Gross margin was approximately 14% of sales in 2009 compared to 18% of sales in 2008. The decrease
in gross margin was primarily due to lower overhead cost absorption which was due to lower
production volumes. Our manufacturing operations have significant overhead costs such as certain
labor, energy, depreciation, lease expense and certain benefit costs, including post retirement
healthcare costs that do not change proportionately with sales. Also impacting the decline in
gross margin was approximately $1,783,000 of transition and start up costs incurred during 2009
associated with the Companys new production facility in Matamoros Mexico. Partially offsetting
the decrease in gross margin was no profit sharing expense during 2009 due to lower earnings.
Selling, general, and administrative expenses (SG&A) totaled $8,940,000 in 2009, decreasing from
$12,020,000 in 2008. The primary reasons for the decrease was no profit sharing expense for 2009,
lower labor and benefit costs and lower professional fees as a result of the Companys ongoing cost
reduction actions. Partially offsetting these reductions were
approximately $218,000 of transition and start-up costs incurred in 2009 associated with the
Companys new production facility in Mexico.
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Net interest expense totaled $951,000 for the year ended December 31, 2009, compared to net
interest expense of $689,000 for the year ended December 31, 2008. Included in interest expense
for 2009 are net credits of $210,000 from adjustments related to mark to market and ineffectiveness
of the Companys interest rate swaps. This net credit compares to $52,000 of net ineffectiveness
interest expense recorded for 2008. Additionally, the Company capitalized interest of
approximately $167,000 in 2009 and $82,000 in 2008 related to construction of its new production
facility in Mexico which was placed into service in June 2009. Net interest expense was also
impacted by additional borrowings related to the Companys production facility in Mexico and
increased interest rates in 2009.
Income tax expense for 2009 was approximately 34% of total income before taxes, consistent with
approximately 34% in 2008.
Net income for 2009 was $1,018,000 or $.15 per basic and diluted share, representing a decrease of
$4,625,000 from the 2008 net income of $5,643,000 or $.84 per basic share and $.81 per diluted
share.
2008 COMPARED WITH 2007
Net sales for 2008 totaled $116,655,000, an approximate 5% decrease from the $122,712,000 reported
for 2007. Included in total sales are tooling project revenues of $6,116,000 for 2008 and
$21,667,000 for 2007. Tooling project sales result from billings to customers for molds and
assembly equipment built specifically for their products. These sales are sporadic in nature and
do not represent a recurring trend. Tooling project revenues relate to both replacement models and
new business awarded to the Company. Total product sales revenue for 2008, excluding tooling
project revenue, totaled $110,539,000, an approximate 9% increase from the $101,045,000 reported
for 2007. The primary reason for the increase in product sales is the increased volume for new
programs started in 2007 and 2008.
Sales to Navistar in 2008 totaled $66,880,000, an approximate 25% increase from the 2007 amount of
$53,629,000. Included in total sales is $3,120,000 of tooling sales for 2008 compared to $8,323,000
in 2007. Total product sales to Navistar increased by 41% for 2008 as compared to 2007. The
increase in product sales is primarily due to increased volume for programs started in 2007, as
well as increases in the demand for other products that the Company manufactures for Navistar.
Sales to PACCAR in 2008 totaled $30,201,000 an approximate 25% decrease from 2007 sales amount of
$40,331,000. Included in total sales is $2,505,000 of tooling sales for 2008 compared to
$12,518,000 in 2007. Total product sales to PACCAR were $27,695,000 for 2008 compared to
$27,813,000 for 2007. Product sales were favorably affected by increased volume for programs
started in 2007 offset by a decrease in sales for more mature products that the Company
manufactures for PACCAR.
Sales to other customers decreased by approximately 32% to $19,575,000 in 2008 from $28,751,000 in
2007. This decrease is primarily related to decreases in product sales to a customer in the marine
industry of approximately $5,854,000 as well as decreases in product sales to other heavy-duty
truck manufacturers and an automotive customer.
Gross margin was approximately 18% of sales in 2008 compared to 14% of sales in 2007. The increase
in gross margin was primarily due to improved production efficiencies. Also contributing to the
increase in gross margin was lower fixed manufacturing costs due to cost reductions implemented by
the Company and higher fixed cost absorption due to higher product sales volumes. Our
manufacturing operations have significant fixed costs such as labor, energy, depreciation, lease
expense and post retirement healthcare costs that do not change proportionately with sales.
Partially offsetting the increase in gross margin was higher profit sharing expense due to higher
earnings.
Selling, general, and administrative expenses (SG&A) totaled $12,020,000 in 2008, increasing from
$11,399,000 in 2007. The primary reasons for this increase are higher profit sharing expense due
to increased earnings in 2008 compared to 2007.
Net interest expense totaled $689,000 for the year ended December 31, 2008, compared to net
interest expense of $175,000 for the year ended December 31, 2007. The Company had no interest
income for the year ended December 31, 2008 compared to $542,000 for the year ended December 31,
2007 due to cash previously used for investing being used to repurchase Core Molding Technologies
stock from Navistar in July of 2007. Interest expense for 2008 decreased to $689,000 compared to
$717,000 for 2007. The decrease in interest expense is primarily a result of lower outstanding
balances on the Companys revolving line of credit and lower interest rates on the Companys
variable interest loans. Interest of approximately $82,000 related to the construction of the new
manufacturing facility in Matamoros has been capitalized and therefore has not impacted interest
expense in 2008.
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Income tax expense for 2008 was approximately 34% of total income before taxes compared to
approximately 31% in 2007. In 2007, the Company adjusted the state and local tax rates due to
changes in the tax laws of various states. This resulted in changes to the Companys state
deferred liabilities and lowered the 2007 effective tax rate. The Company also received certain
state and local tax refunds in 2007 contributing to the reduction of the effective rate.
Net income for 2008 was $5,643,000 or $.84 per basic share and $.81 per diluted share, representing
an increase of $1,917,000 from the 2007 net income of $3,726,000 or $.43 per basic share and $.41
per diluted share. 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 year
ended December 31, 2008 compared to the year ended December 31, 2007, due to lower outstanding
shares.
LIQUIDITY AND CAPITAL RESOURCES
The Companys primary sources of funds have been cash generated from operating activities and bank
borrowings. The Companys primary cash requirements are for operating expenses and capital
expenditures.
In December of 2008, the Company and its subsidiary, CoreComposites, entered into a Credit
Agreement (the Credit Agreement) with KeyBank National Association (KeyBank) as a lender, lead
arranger, sole book runner and administrative agent. Under the Credit Agreement, KeyBank has made
certain loans which include (i) a $12,000,000 Capex loan, (ii) an $8,000,000 Mexican loan, (iii) an
$8,000,000 revolving credit commitment, (iv) a $2,678,563 term loan to refinance a previous term
loan with KeyBank, and (v) a letter of credit in an undrawn face amount of $3,332,493 with respect
to the Companys existing industrial development revenue bond financing.
On March 31, 2009, the Company entered into the first amendment to the Credit Agreement with
KeyBank (the First Amendment). Pursuant to the terms of the First Amendment, the lender agreed to
modify certain terms of the Credit Agreement. These modifications included (1) modification of the
definition of EBITDA to add back transition costs up to $3,200,000 associated with the transition
and startup of the new production facility in Matamoros and add back of certain non-cash
compensation expense, (2) modification of the fixed charge definition to exclude from consolidated
interest expense any measure of ineffectiveness from interest rate swaps and amortization of loan
origination and issuance costs, (3) modification of the leverage ratio from 3.0x to 3.2x at June
30, 2009, 3.4x at September 30, 2009, and 3.2x at December 31, 2009, (4) increase the applicable
margin for interest rates effective March 31, 2009 to 400 basis points for both the Capex and
Mexican loans, term loan and the revolving line of credit; all rates,
other than the term loan, decrease 25 basis points upon
reaching a leverage ratio of less than 2.25 to 1.00, (5) increase the letter of credit fee on the
Industrial Revenue Bond to 300 basis points, (6) increase the 100 basis point LIBOR floor on the
$8,000,000 Mexican loan and revolving line of credit to 150 basis points and (7) implement a 150
basis point LIBOR floor on the $12,000,000 Capex loan.
On June 30, 2009, the Company entered into the second amendment (the Second Amendment) to the
Credit Agreement with Key Bank. Pursuant to the terms of the Second Amendment, the parties agreed
to modify certain terms of the Credit Agreement. These modifications included (1) an increase
in the applicable margin for interest rates to 450 basis points, effective June 30, 2009,
for both the Capex and Mexican loans and the revolving line of credit; with all rates other than
rates applicable to the term loan decreasing by 25 basis points upon reaching a leverage ratio of
less than 2.25 to 1.00, (2) a decrease in the applicable margin for the interest rate applicable to
the term loan to 200 basis points in excess of LIBOR or the Base Rate, (3) a change in the
definition of consolidated EBITDA to add back non-cash post-retirement expenses minus retirement
benefits paid in cash, (4) the deletion of the 150 basis point
interest rate floor applicable to the
$8,000,000 Mexican loan, the $12,000,000 Capex loan and the revolving line of credit, and (5) the
extension of the commitment for the revolving line of credit to April 30, 2011.
On December 1, 2009, the Company entered into a third amendment (the Third Amendment) to the
Credit Agreement with Key Bank. Pursuant to the terms of the Third Amendment, the parties agreed
to modify certain terms of the Credit Agreement. These modifications included a decrease in the
applicable margin for interest rates to 375 basis points from 450 basis points, for both the Capex
and Mexican loans and the revolving line of credit, effective December 1, 2009.
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On March 8, 2010, the Company entered into the fourth amendment (the Fourth Amendment) to the
Credit Agreement. Pursuant to the terms of the Fourth Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These modifications included (1) modification of the
definition EBITDA to add back transition costs of up to $2,000,000 associated with the relocation
of certain products from the Companys Columbus, Ohio facility to its Matamoros, Mexico facility
(2) modification to the fixed charge definition to exclude capital expenditures of up to $2,000,000
associated with the relocation of certain products from the Companys Columbus, Ohio facility to
its Matamoros, Mexico facility; (3) retroactively modified the amortization schedule of the Mexican
loan to forgo the principal payment due January 31, 2010 of $1,600,000 as a result of the Company
limiting its borrowing to $6,400,000 instead of the full amount of the loan contemplated
($8,000,000); and (4) consent to transfer certain assets of the Company from Columbus, Ohio to
Matamoros, Mexico.
Cash provided by operating activities totaled $8,234,000. Net income contributed $1,018,000 to
operating cash flow. Non-cash deductions of depreciation and amortization contributed $3,856,000
and utilization of deferred income tax assets favorably impacted operating cash flow by $1,126,000.
In addition, the net increase in the postretirement healthcare benefits liability of $973,000 is
not a current cash obligation. Changes in working capital favorably impacted cash provided by
operating activities by $1,243,000, due to decreases in accounts receivable and inventory, which
were partially offset by decreases in accounts payable and accrued liabilities.
Cash used for investing activities was $10,047,000 for the year ended December 31, 2009, which
primarily represents the investment made in the Companys new manufacturing facility in Mexico. At
December 31, 2009, commitments for capital expenditures were $30,000. Capital expenditures related
to new programs and maintenance capital for 2010 are anticipated to be approximately $2,000,000.
Core will also incur additional capital expenditures of up to approximately $2,000,000 associated
with asset purchases and building improvements related to the relocation of certain products
produced at the Companys Columbus facility to the Companys Matamoros, Mexico facility.
Financing activities increased cash flow by $5,955,000. The primary financing activities are from
borrowings on the Capex and Mexican loans for the Companys new facility in Mexico of $10,279,000.
Partially offsetting these borrowings were principal repayments on the Companys loans and line of
credit totaling $4,100,000.
At December 31, 2009, the Company had cash on hand of $4,142,000 and an available line of credit of
$8,000,000 (Line of Credit), which is scheduled to mature on April 30, 2011. At December 31,
2009, Core Molding Technologies had no outstanding borrowings on the Line of Credit. Management
expects the current cash balance along with this line of credit to be adequate to meet Core Molding
Technologies liquidity needs.
The Company is required to meet certain financial covenants included in its debt agreements with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of December 31, 2009, the Company was in compliance with
its financial debt covenants.
Based on the Companys forecasts which are primarily based on industry analysts estimates of 2010
heavy and medium-duty truck production volumes as well as other assumptions management believes to
be reasonable, management believes that the Company will be able to maintain compliance with the
covenants to the Credit Agreement, as amended, for the next 12 months. Management believes that
cash flow from operating activities together with available borrowings under the Credit Agreement
will be sufficient to meet the Companys liquidity needs. However, if a material adverse change in
the financial position of the Companys should occur, or if actual sales or expenses are
substantially different than what has been forecasted, the Companys liquidity and ability to
obtain further financing to fund future operating and capital requirements could be negatively
impacted.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET TRANSACTIONS
The Company has the following minimum commitments under contractual obligations, including purchase
obligations, as defined by the United States Securities and Exchange Commission (SEC). A
purchase obligation is defined as an agreement to purchase goods or services that is enforceable
and legally binding on the Company and that specifies all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the
approximate timing of the transaction. Other long-term liabilities are defined as long-term
liabilities that are reflected on the Companys balance sheet under accounting principles generally
accepted in the United States. Based on this definition, the table below includes only those
contracts which include fixed or minimum obligations. It does not include normal purchases, which
are made in the ordinary course of business.
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The following table provides aggregated information about contractual obligations and other
long-term liabilities as of December 31, 2009.
2010 | 2011 - 2012 | 2013 - 2014 | 2015 and after | Total | ||||||||||||||||
Debt |
$ | 3,675,000 | $ | 8,256,000 | $ | 7,048,000 | $ | 2,429,000 | $ | 21,408,000 | ||||||||||
Line of credit |
| | | | | |||||||||||||||
Interest |
1,019,000 | 1,087,000 | 422,000 | 74,000 | 2,602,000 | |||||||||||||||
Operating lease obligations |
446,000 | 496,000 | | | 942,000 | |||||||||||||||
Contractual commitments
for capital expenditures |
30,000 | | | | 30,000 | |||||||||||||||
Postretirement benefits |
668,000 | 1,131,000 | 1,620,000 | 15,325,000 | 18,744,000 | |||||||||||||||
Total |
$ | 5,838,000 | $ | 10,970,000 | $ | 9,090,000 | $ | 17,828,000 | $ | 43,726,000 |
Interest is calculated based the effective interest rates on the Companys borrowing arrangements
reflective of the interest rate swap agreements in place for the long-term borrowings. As of
December 31, 2009, the Company had no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Managements Discussion and Analysis of Financial Condition and Results of Operations discuss the
Companys consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these consolidated
financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its estimates and
judgments, including those related to accounts receivable, inventories, workers compensation and
self insurance healthcare accruals, post retirement benefits, and income taxes. Management bases
its estimates and judgments on historical experience and on various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its consolidated financial
statements.
Accounts Receivable Allowances
Management maintains allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The Company had an allowance for doubtful accounts of
$113,000 at December 31, 2009 and $109,000 at December 31, 2008. Management also records estimates
for chargebacks such as customer returns, customer rework chargebacks, discounts offered to
customers, and price adjustments. Should these customer returns, chargebacks, discounts, and price
adjustments fluctuate from the estimated amounts, additional allowances may be required. The
Company recorded allowances for chargebacks of $519,000 at December 31, 2009 and $740,000 at
December 31, 2008.
Inventories
Inventories, which include material, labor, and manufacturing overhead, are valued at the lower of
cost or market. The inventories are accounted for using the first-in, first-out (FIFO) method of
determining inventory costs. Inventory quantities on-hand are regularly reviewed, and where
necessary, provisions for excess and obsolete inventory are recorded based on historical and
anticipated usage. The Company had an allowance for slow moving and obsolete inventory of $762,000
at December 31, 2009 and $490,000 at December 31, 2008.
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Goodwill and Long-Lived Assets
Management evaluates whether impairment exists for goodwill and long-lived assets annually on
December 31 or at interim periods if an indicator of impairment exists. 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 that are below our
assumptions could have an adverse effect on the Companys ability to recover its long-lived assets.
The Company has not recorded any impairment to goodwill for long-lived assets for the years ended
December 31, 2009 and 2008. A 10% decrease in future cash flows would not adversely impact the net
book value of goodwill and a 1% increase in the rate used to discount future cash flows would not
adversely impact the net book value of goodwill.
Self-Insurance
The Company is self-insured with respect to most of its Columbus and Batavia, Ohio and Gaffney,
South Carolina medical and dental claims and Columbus and Batavia, Ohio workers compensation
claims. The Company has recorded an estimated liability for self-insured medical and dental claims
incurred but not reported and workers compensation claims incurred but not reported at December
31, 2009 and 2008 of $944,000 and $1,109,000, respectively.
Post Retirement Benefits
Management records an accrual for postretirement 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 10 of the Consolidated
Financial Statements. Core Molding Technologies recorded a liability for postretirement healthcare
benefits based on actuarially computed estimates of $18,744,000 at December 31, 2009, and
$15,878,000 at December 31, 2008. The increase in the liability is attributable to an
unrecognized loss of $1,895,000 and an increase to the liability of $1,556,000 related to service
and interest costs. This was offset by benefit payments of $585,000 recorded in 2009.
Revenue Recognition
Revenue from product sales is recognized at the time products are shipped and title transfers.
Allowances for returned products, chargebacks and other credits are estimated and recorded as
revenue is recognized. Tooling revenue is recognized when the customer approves the tool and
accepts ownership. Progress billings and expenses are shown net as an asset or liability on the
Companys balance sheet. Tooling in progress can fluctuate significantly from period to period and
is dependent upon the stage of tooling projects and the related billing and expense payment
timetable for individual projects and therefore does not necessarily reflect projected income or
loss from tooling projects. At December 31, 2009 the Company recorded a net liability related to
tooling in progress of $485,000, which represents approximately $2,424,000 of progress tooling
billings and $1,939,000 of progress tooling expenses. At December 31, 2008 the Company recorded a
net liability related to tooling in progress of $212,000, which represents approximately $3,555,000
of progress tooling billings and $3,343,000 of progress tooling expenses.
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. The Company has considered future taxable income
in assessing the need for a valuation allowance and has not recorded a valuation allowance due to
anticipating it being more likely than not that the Company will realize these benefits.
An analysis is performed to determine the amount of the deferred tax asset that will be realized.
Such analysis is based upon the premise that the Company is and will continue as a going concern
and that it is more likely than not that deferred tax benefits will be realized through the
generation of future taxable income. Management reviews all available evidence, both positive and
negative, to assess the long-term earnings potential of the Company using a number of alternatives
to evaluate financial results in economic cycles at various industry volume conditions. Other
factors considered are the Companys relationships with its two largest customers (Navistar and
PACCAR), and any recent customer diversification efforts. The projected availability of taxable
income to realize the tax benefits from net operating loss carryforwards and the reversal of
temporary differences before expiration of these benefits are also considered. Management believes
that, with the combination of available tax planning strategies and the maintenance of its
relationships with its key customers, earnings are achievable in order to realize the net deferred
tax asset of $6,732,000.
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Management recognizes the financial statement effects of a tax position when it is more likely than
not the position will be sustained upon examination. Management has recognized all tax positions as
of December 31, 2009.
The deferred tax asset of $6,732,000 at December 31, 2009 primarily includes temporary differences
relating to post-retirement and pension benefits of $6,728,000 as well as temporary differences
between the book and tax value for inventory reserves and accrued liabilities of approximately
$1,065,000. These are partially offset by a deferred tax liability related to property, plant and
equipment of $1,227,000.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely
affect our operating results. With the current economic conditions, inflation may not be a great
concern; however, a high rate of inflation in the future may have an adverse effect on our ability
to maintain current levels of gross profit and selling, general and administrative expenses as a
percentage of net sales if the selling prices of our products do not increase with these increased
costs.
Recent Accounting Pronouncements
In June 2009, FASB issued a standard regarding the FASB Accounting Standards CodificationTM
(the Codification), and the hierarchy of generally accepted accounting principles, which
replaces the standard previously issued by the FASB regarding the hierarchy of generally accepted
accounting principles (GAAP) in the United States. This standard identifies the source of
accounting principles and the framework for selecting the principles used in the preparation of
financial statements of non-governmental entities that are presented in conformity with GAAP (the
GAAP hierarchy). In addition, this standard establishes the Codification as the single source of
authoritative GAAP recognized by the FASB to be applied by non-governmental entities in the
preparation of financial statements in conformity with GAAP. All guidance contained in the
Codification carries an equal level of authority. This standard was effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The Company
adopted this standard during the third quarter of 2009 and its adoption did not have a significant
impact on its financial statements.
In December 2008, the FASB issued a standard to amend guidance on an employers disclosures about
plan assets of a defined benefit pension or other postretirement plan. This standard is effective
for fiscal years ending after December 15, 2009 with earlier adoption permitted. The adoption of
this standard did not have a material impact on the Consolidated Financial Statements.
In February 2008, the FASB issued a standard, which delayed the effective date of accounting for
all nonrecurring fair value measurements of non-financial assets and liabilities until fiscal years
beginning after November 15, 2008. The Company has not recorded any nonrecurring fair value
measurements of non-financial assets and liabilities since adopting this standard on January 1,
2009.
In April 2009, the FASB issued a standard to provide additional guidance for estimating fair value
when the volume and level of activity for the asset or liability have significantly decreased. This
standard is effective for interim reporting periods ending after June 15, 2009, with early adoption
permitted. The adoption of this standard did not have a material impact on the Consolidated
Financial Statements.
In June 2009, the FASB issued a standard to amend certain requirements of accounting for
consolidation of variable interest entities, to improve financial reporting by enterprises involved
with variable interest entities and to provide more relevant and reliable information to users of
financial statements. This Statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on the first fiscal year that begins after November 15, 2009 with
early adoption prohibited. The Company is currently reviewing the additional requirements to
determine the impact on the Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
26
Table of Contents
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Core Molding Technologies primary market risk results from changes in the price of commodities
used in its manufacturing operations. Core Molding Technologies is also exposed to fluctuations in
interest rates 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 five items that are sensitive to market risks: (1)
Industrial Revenue Bond (IRB) with a variable interest rate (although the Company has an interest
rate swap to fix the interest rate at 4.89%); (2) the Revolving Line of Credit and $8,000,000
Mexican loan payable under the Credit Agreement, each of which bears a variable interest rate; (3)
$12,000,000 Capex loan payable with a variable interest rate (although the Company has an interest
rate swap to fix the interest rate at 2.3%) (4) bank Term loan under the Credit Agreement, with a
variable interest rate. The Company has an interest rate swap to fix the interest rate for the
foregoing at 5.75%; (5) foreign currency purchases in which the Company purchases Mexican pesos
with United States dollars to meet certain obligations that arise due to operations at the facility
located in Mexico; and (6) raw material purchases in which Core Molding Technologies purchases
various resins for use in production. The prices of these resins are affected by the prices of
crude oil and natural gas as well as processing capacity versus demand.
Assuming a hypothetical 10% increase in commodity prices, Core Molding Technologies would be
impacted by an increase in raw material costs, which would have an adverse effect on operating
margins.
Assuming a hypothetical 10% change in short-term interest rates would impact the Company in both
2009 and 2008. It would have impacted the interest paid on the Companys Line of Credit and the
$8,000,000 Mexican loan payable. The interest rate on these loans is impacted by LIBOR. Although
a 10% change in short-term interest rates would impact the interest paid by the Company, it would
not have a material effect on earnings before tax.
A 10% change in future interest rate curves would significantly impact the fair value of the
Companys interest rate swaps with an offset to other comprehensive income.
27
Table of Contents
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Core Molding Technologies, Inc.
Core Molding Technologies, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheet of Core Molding Technologies, Inc. and
Subsidiaries (the Company) as of December 31, 2009, and the related consolidated statements of
income, stockholders equity, and cash flows for the year then ended. In connection with our audit
of the consolidated financial statements, we have also audited the financial statement schedule
listed in the accompanying index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Core Molding Technologies, Inc. and Subsidiaries as of
December 31, 2009, and the results of their operations and their cash flows for the year then ended
in conformity with accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects, the information
set forth therein.
/s/ Crowe Horwath LLP
Columbus, Ohio
April 7, 2010
April 7, 2010
28
Table of Contents
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Core Molding Technologies, Inc.
Columbus, Ohio
Core Molding Technologies, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheet of Core Molding Technologies, Inc.
and subsidiaries (the Company) as of December 31, 2008, and the related consolidated statements
of income, stockholders equity, cash flows and financial statement schedule for each of the two
years in the period ended December 31, 2008. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Core Molding Technologies, Inc. and subsidiaries at December
31, 2008, and the results of their operations and their cash flows for each of the two years in the
period ended December 31, 2008, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/
Deloitte and Touche LLP
Columbus,
OH
April 1, 2009
April 1, 2009
29
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
Consolidated Statements of Income
Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Net sales: |
||||||||||||
Products |
$ | 76,166,975 | $ | 110,538,646 | $ | 101,045,056 | ||||||
Tooling |
7,171,701 | 6,116,189 | 21,666,831 | |||||||||
Total sales |
83,338,676 | 116,654,835 | 122,711,887 | |||||||||
Total cost of sales |
71,913,360 | 95,445,252 | 105,743,905 | |||||||||
Gross margin |
11,425,316 | 21,209,583 | 16,967,982 | |||||||||
Total selling, general, and administrative expense |
8,939,820 | 12,019,998 | 11,398,760 | |||||||||
Income before interest and income taxes |
2,485,496 | 9,189,585 | 5,569,222 | |||||||||
Interest income |
| | 542,167 | |||||||||
Interest expense |
(951,051 | ) | (689,135 | ) | (717,162 | ) | ||||||
Income before income taxes |
1,534,445 | 8,500,450 | 5,394,227 | |||||||||
Income taxes: |
||||||||||||
Current |
(608,815 | ) | 2,866,659 | 1,540,421 | ||||||||
Deferred |
1,125,555 | (9,695 | ) | 127,333 | ||||||||
Total income taxes |
516,740 | 2,856,964 | 1,667,754 | |||||||||
Net income |
$ | 1,017,705 | $ | 5,643,486 | $ | 3,726,473 | ||||||
Net income per common share: |
||||||||||||
Basic |
$ | .15 | $ | .84 | $ | .43 | ||||||
Diluted |
$ | .15 | $ | .81 | $ | .41 | ||||||
Weighted average common shares outstanding: |
||||||||||||
Basic |
6,772,065 | 6,742,316 | 8,686,905 | |||||||||
Diluted |
6,824,552 | 6,992,249 | 9,004,429 | |||||||||
See notes to consolidated financial statements.
30
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Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
Consolidated Balance Sheets
December 31, | ||||||||
2009 | 2008 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 4,141,838 | $ | | ||||
Accounts receivable (less allowance for doubtful accounts: 2009 - $113,000 and 2008 - $109,000) |
11,936,335 | 15,435,103 | ||||||
Inventories: |
||||||||
Finished goods |
863,166 | 3,533,246 | ||||||
Work in process |
1,253,975 | 1,458,602 | ||||||
Stores |
4,896,221 | 4,740,375 | ||||||
Total inventories, net |
7,013,362 | 9,732,223 | ||||||
Deferred tax asset |
1,195,831 | 1,869,198 | ||||||
Foreign sales tax receivable |
652,155 | 584,230 | ||||||
Taxes receivable |
562,176 | | ||||||
Prepaid expenses and other current assets |
1,021,093 | 876,094 | ||||||
Total current assets |
26,522,790 | 28,496,848 | ||||||
Property, plant, and equipment |
81,670,080 | 71,970,638 | ||||||
Accumulated depreciation |
(36,726,836 | ) | (33,155,187 | ) | ||||
Property, plant, and equipment net |
44,943,244 | 38,815,451 | ||||||
Deferred tax asset |
5,535,735 | 5,318,623 | ||||||
Goodwill |
1,097,433 | 1,097,433 | ||||||
Customer list/ Non-compete |
| 37,139 | ||||||
Other assets |
42,028 | 65,598 | ||||||
Total |
$ | 78,141,230 | $ | 73,831,092 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Current portion long-term debt |
$ | 3,675,005 | $ | 2,905,716 | ||||
Notes payable line of credit |
| 1,193,965 | ||||||
Accounts payable |
4,805,468 | 6,866,388 | ||||||
Tooling in progress |
484,786 | 212,065 | ||||||
Current portion of postretirement benefits liability |
667,000 | 520,000 | ||||||
Accrued liabilities: |
||||||||
Compensation and related benefits |
2,400,587 | 4,715,884 | ||||||
Interest payable |
102,069 | 96,103 | ||||||
Taxes |
| 427,972 | ||||||
Other |
800,912 | 928,080 | ||||||
Total current liabilities |
12,935,827 | 17,866,173 | ||||||
Long-term debt |
17,732,842 | 11,129,184 | ||||||
Interest rate swaps |
198,809 | 502,381 | ||||||
Postretirement benefits liability |
18,076,696 | 15,357,897 | ||||||
Total Liabilities |
48,944,174 | 44,855,635 | ||||||
Commitments and Contingencies |
||||||||
Stockholders Equity: |
||||||||
Preferred stock $0.01 par value, authorized shares 10,000,000;
outstanding shares: 2009 and 2008 0 |
| | ||||||
Common stock $0.01 par value, authorized shares 20,000,000;
outstanding shares: 2009 6,799,641 and 2008 6,765,790 |
67,996 | 67,658 | ||||||
Paid-in capital |
23,336,197 | 23,002,472 | ||||||
Accumulated other comprehensive loss, net of income tax effect |
(2,223,146 | ) | (1,092,977 | ) | ||||
Treasury stock |
(26,179,054 | ) | (26,179,054 | ) | ||||
Retained earnings |
34,195,063 | 33,177,358 | ||||||
Total stockholders equity |
29,197,056 | 28,975,457 | ||||||
Total |
$ | 78,141,230 | $ | 73,831,092 | ||||
See notes to consolidated financial statements.
31
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Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity
for the Years Ended December 31, 2009, 2008, and 2007
Consolidated Statements of Stockholders Equity
for the Years Ended December 31, 2009, 2008, and 2007
Accumulated | ||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
Common Stock | Comprehensive | Total | ||||||||||||||||||||||||||
Outstanding | Paid-In | Retained | Income | Treasury | Stockholders | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | (Loss) | Stock | Equity | ||||||||||||||||||||||
Balance at December 31, 2006 |
10,204,607 | $ | 102,046 | $ | 21,872,723 | $ | 23,738,946 | $ | (3,019,315 | ) | $ | | $ | 42,694,400 | ||||||||||||||
Net Income |
3,726,473 | 3,726,473 | ||||||||||||||||||||||||||
Hedge accounting effect of the interest rate swap, net of deferred income tax
benefit of $63,824 |
(89,230 | ) | (89,230 | ) | ||||||||||||||||||||||||
Deferral of unrecognized net gain, net of tax expense of $485,096 |
730,005 | 730,005 | ||||||||||||||||||||||||||
Amortization of unrecognized net loss, net of tax expense of $98,041 |
169,000 | 169,000 | ||||||||||||||||||||||||||
Comprehensive Income |
4,536,248 | |||||||||||||||||||||||||||
Common shares issued from exercise of stock options |
115,256 | 1,153 | 357,071 | 358,224 | ||||||||||||||||||||||||
Tax effect from exercise of stock options |
116,139 | 116,139 | ||||||||||||||||||||||||||
Restricted stock issued |
8,008 | 80 | 56,705 | 56,785 | ||||||||||||||||||||||||
Share-based compensation |
211,489 | 211,489 | ||||||||||||||||||||||||||
Cumulative impact of change in accounting for uncertainties in income taxes (Note 9) |
68,453 | 68,453 | ||||||||||||||||||||||||||
Purchase of treasury stock |
(3,600,000 | ) | (36,000 | ) | (26,179,054 | ) | (26,215,054 | ) | ||||||||||||||||||||
Balance at December 31, 2007 |
6,727,871 | $ | 67,279 | $ | 22,614,127 | $ | 27,533,872 | $ | (2,209,540 | ) | $ | (26,179,054 | ) | $ | 21,826,684 | |||||||||||||
Net Income |
5,643,486 | 5,643,486 | ||||||||||||||||||||||||||
Hedge accounting effect of the interest rate swap, net of deferred income tax
benefit of $77,269 |
(149,991 | ) | (149,991 | ) | ||||||||||||||||||||||||
Deferral of unrecognized net gain, net of tax expense of $653,000 |
1,184,000 | 1,184,000 | ||||||||||||||||||||||||||
Amortization of unrecognized net loss, net of tax expense of $45,437 |
82,554 | 82,554 | ||||||||||||||||||||||||||
Comprehensive Income |
6,760,049 | |||||||||||||||||||||||||||
Common shares issued from exercise of stock options |
32,000 | 320 | 99,810 | 100,130 | ||||||||||||||||||||||||
Tax effect from exercise of stock options |
1,092 | 1,092 | ||||||||||||||||||||||||||
Restricted stock issued |
5,919 | 59 | 41,292 | 41,351 | ||||||||||||||||||||||||
Share-based compensation |
246,151 | 246,151 | ||||||||||||||||||||||||||
Balance at December 31, 2008 |
6,765,790 | $ | 67,658 | $ | 23,002,472 | $ | 33,177,358 | $ | (1,092,977 | ) | $ | (26,179,054 | ) | $ | 28,975,457 | |||||||||||||
Net Income |
1,017,705 | 1,017,705 | ||||||||||||||||||||||||||
Hedge accounting effect of the interest rate swap, net of deferred income tax
expense of $29,076 |
64,455 | 64,455 | ||||||||||||||||||||||||||
Deferral of unrecognized net loss, net of tax benefit of $700,376 |
(1,194,624 | ) | (1,194,624 | ) | ||||||||||||||||||||||||
Comprehensive Loss |
(112,464 | ) | ||||||||||||||||||||||||||
Restricted stock issued |
33,851 | 338 | 183,070 | 183,408 | ||||||||||||||||||||||||
Share-based compensation |
150,655 | 150,655 | ||||||||||||||||||||||||||
Balance at December 31, 2009 |
6,799,641 | $ | 67,996 | $ | 23,336,197 | $ | 34,195,063 | $ | (2,223,146 | ) | $ | (26,179,054 | ) | $ | 29,197,056 | |||||||||||||
See notes to consolidated financial statements.
32
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Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 1,017,705 | $ | 5,643,486 | $ | 3,726,473 | ||||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
||||||||||||
Depreciation and amortization |
3,855,603 | 3,544,676 | 3,409,867 | |||||||||
Deferred income taxes |
1,125,555 | (9,695 | ) | 127,332 | ||||||||
Interest (income) expense related to ineffectiveness of swap |
(210,041 | ) | 51,555 | 34,664 | ||||||||
Loss (gain) on disposal of assets |
31,405 | | (3,116 | ) | ||||||||
Share-based compensation |
334,063 | 287,502 | 268,274 | |||||||||
(Gain) loss on translation of foreign currency financial statements |
(135,769 | ) | 190,509 | 7,826 | ||||||||
Change in operating assets and liabilities: |
||||||||||||
Accounts receivable |
3,498,768 | (2,965,601 | ) | 9,986,675 | ||||||||
Inventories |
2,718,861 | (1,387,813 | ) | (951,434 | ) | |||||||
Prepaid expenses and other assets |
(75,086 | ) | 331,261 | 170,072 | ||||||||
Accounts payable |
(1,745,662 | ) | (1,675,948 | ) | (2,442,408 | ) | ||||||
Accrued and other liabilities |
(3,153,925 | ) | 1,746,083 | (4,202,820 | ) | |||||||
Postretirement benefits liability |
972,799 | 1,400,998 | 1,816,475 | |||||||||
Net cash provided by operating activities |
8,234,276 | 7,157,013 | 11,947,880 | |||||||||
Cash flows from investing activities: |
||||||||||||
Purchase of property, plant, and equipment |
(10,065,099 | ) | (12,097,474 | ) | (2,742,675 | ) | ||||||
Proceeds from sale of property and equipment |
18,000 | | 3,116 | |||||||||
Net cash used in investing activities |
(10,047,099 | ) | (12,097,474 | ) | (2,739,559 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of common stock |
| 100,130 | 358,224 | |||||||||
Tax effect from exercise of stock options |
| 1,092 | 116,139 | |||||||||
Gross repayments on revolving line of credit |
(34,389,061 | ) | (55,399,546 | ) | | |||||||
Gross borrowings on revolving line of credit |
33,195,096 | 54,341,649 | | |||||||||
Net borrowings on revolving line of credit |
| | 2,251,863 | |||||||||
Financing costs for new credit agreement |
(224,321 | ) | (358,485 | ) | | |||||||
Gross borrowings on Capex and Mexican loans |
10,278,663 | 8,121,337 | | |||||||||
Payment of principal on Capex loan |
(1,000,000 | ) | | | ||||||||
Payment of principal on Term loan |
(1,285,716 | ) | (1,285,716 | ) | (1,285,716 | ) | ||||||
Payment of principal on industrial revenue bond |
(620,000 | ) | (580,000 | ) | (530,000 | ) | ||||||
Payments related to purchase of treasury stock |
| | (26,215,054 | ) | ||||||||
Net cash provided by (used in) financing activities |
5,954,661 | 4,940,461 | (25,304,544 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
4,141,838 | | (16,096,223 | ) | ||||||||
Cash and cash equivalents at beginning of year |
| | 16,096,223 | |||||||||
Cash and cash equivalents at end of year |
$ | 4,141,838 | $ | | $ | | ||||||
Cash paid during the year for: |
||||||||||||
Interest |
$ | 1,146,159 | $ | 659,520 | $ | 627,873 | ||||||
Income taxes (net of tax refunds) |
$ | 300,958 | $ | 2,327,387 | $ | 19,912 | ||||||
Non Cash: |
||||||||||||
Fixed asset purchases in accounts payable |
$ | 23,946 | $ | 203,436 | $ | 237,182 | ||||||
See notes to consolidated financial statements.
33
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Business Formation and Nature of Operations
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. Core Molding Technologies
operates four production facilities in Columbus, Ohio; Batavia, Ohio; Gaffney, South Carolina; and
Matamoros, Mexico. The Columbus and Gaffney facilities produce reinforced plastics by compression
molding sheet molding compound (SMC) in a closed mold process. The Batavia facility produces
reinforced plastic products by a robotic spray-up open mold process and resin transfer molding
(RTM) closed mold process utilizing multiple insert tooling (MIT). The Matamoros facility
utilizes spray-up and hand lay-up open mold processes, RTM and SMC closed mold process to produce
reinforced plastic products. Core Molding Technologies also sells reinforced plastic products in
the automotive-aftermarket industry through one of its subsidiaries, Core Automotive Technologies,
doing business as Keystone Restyling Products.
The Company operates in one business segment as a compounder of SMC and molder of fiberglass
reinforced plastics. The Company produces and sells both SMC compound and molded products for
varied markets, including light, medium, and heavy-duty trucks, automobiles and automotive
aftermarket, personal watercraft, and other commercial products.
2. Summary of Significant Accounting Policies
Principles of Consolidation The accompanying consolidated financial statements include the
accounts of all subsidiaries after elimination of all intercompany accounts, transactions, and
profits.
Use of Estimates The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities, and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition Revenue from product sales is recognized at the time products are shipped and
title transfers. Allowances for returned products, chargebacks and other credits are estimated and
recorded as revenue is recognized. Tooling revenue is recognized when the customer approves the
tool and accepts ownership. Progress billings and expenses are shown net as an asset or liability
on the Companys Consolidated Balance Sheet. Tooling in progress can fluctuate significantly from
period to period and is dependent upon the stage of tooling projects and the related billing and
expense payment timetable for individual projects and therefore does not necessarily reflect
projected income or loss from tooling projects. At December 31, 2009, the Company recorded a net
liability related to tooling in progress of $485,000, which represents approximately $2,424,000 of
progress tooling billings and $1,939,000 of progress tooling expenses. At December 31, 2008, the
Company recorded a net liability related to tooling in progress of $212,000, which represents
approximately $3,555,000 of progress tooling billings and $3,343,000 of progress tooling expenses.
Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash is held primarily in one
bank. At December 31, 2009 the Company had cash on hand of $4,142,000. At December 31, 2008, the
Company had no cash on hand and book overdrafts in the amount of $1,864,000 which are recorded in
accounts payable on the Consolidated Balance Sheet.
Accounts Receivable Allowances Management maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required payments. If the
financial condition of the Companys customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The Company had recorded an
allowance for doubtful accounts of $113,000 at December 31, 2009 and $109,000 at December 31, 2008.
Management also records estimates for chargebacks such as customer returns, customer rework
chargebacks, discounts offered to customers, and price adjustments. Should these customer returns,
chargebacks, discounts, and price adjustments fluctuate from the estimated amounts, additional
allowances may be required. The Company has recorded an allowance for chargebacks of $519,000 at
December 31, 2009 and $740,000 at December 31, 2008. There have been no material changes in the
methodology of these calculations.
Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. The
Company has recorded an allowance for slow moving and obsolete inventory of $762,000 at December
31, 2009 and $490,000 at December 31, 2008.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Property, Plant, and Equipment Property, plant, and equipment are recorded at cost. Depreciation
is provided on a straight-line method over the estimated useful lives of the assets. The carrying
amount of long-lived assets is evaluated annually to determine if adjustment to the depreciation
period or to the unamortized balance is warranted.
Ranges of estimated useful lives for computing depreciation are as follows: |
||
Land improvements |
20 years | |
Building and improvements |
20-40 years | |
Machinery and equipment |
3-15 years | |
Tools, dies and patterns |
3-5 years |
Depreciation expense was $3,705,000, $3,463,000, and $3,302,000 for 2009, 2008, and 2007,
respectively. The Company capitalized interest cost of approximately $167,000, $82,000 and $18,000
for the years ended December 31, 2009, 2008, and 2007 respectively.
Long-Lived Assets Long-lived assets consist primarily of property and equipment and goodwill.
The recoverability of long-lived assets is evaluated by an analysis of operating results and
consideration of other significant events or changes in the business environment. The Company
evaluates whether impairment exists for property and equipment on the basis of undiscounted
expected future cash flows from operations before interest. For goodwill, the Company evaluates
annually on December 31st whether impairment exists or at interim periods if an
indicator of possible impairment exists. If impairment exists, the carrying amount of the
long-lived assets is reduced to its estimated fair value, less any costs associated with the final
settlement. For the years ended December 31, 2009, 2008, and 2007, there was no impairment of the
Companys long-lived assets.
Income Taxes The Company records deferred income taxes for differences between the financial
reporting basis and income tax basis of assets and liabilities. A detailed breakout is located in
Note 9.
Self-insurance The Company is self-insured with respect to its Columbus and Batavia, Ohio and
Gaffney, South Carolina medical and dental claims and Columbus and Batavia, Ohio workers
compensation claims. The Company has recorded an estimated liability for self-insured medical and
dental claims and workers compensation claims at December 31, 2009, and 2008 of $944,000 and
$1,109,000, respectively.
Fair Value of Financial Instruments The Companys financial instruments consist of long-term
debt, interest rate swaps, accounts receivable, and accounts payable. The carrying amount of these
financial instruments approximated their fair value.
In September 2006, the Financial Accounting Standards Board (FASB) issued a standard to define
fair value, establish a framework for measuring fair value and to expand disclosures about fair
value measurements. This standard does not change the requirements to apply fair value in existing
accounting standards. Under this standard, 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, this standard 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 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. |
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
The following table presents financial liabilities measured and recorded at fair value on the
Companys Consolidated Balance Sheet on a recurring basis and their level within the fair value
hierarchy as of December 31, 2009 and December 31, 2008:
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | Balance as of | |||||||||||||
Recurring Fair Value Measurements | (Level 1) | (Level 2) | (Level 3) | December 31, 2009 | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swaps |
$ | | $ | 198,809 | $ | | $ | 198,809 | ||||||||
Total |
$ | | $ | 198,809 | $ | | $ | 198,809 | ||||||||
(Level 1) | (Level 2) | (Level 3) | December 31, 2008 | |||||||||||||
Liabilities |
||||||||||||||||
Interest rate swaps |
$ | | $ | 502,000 | $ | | $ | 502,000 | ||||||||
Total |
$ | | $ | 502,000 | $ | | $ | 502,000 | ||||||||
There were no non-recurring fair value measurements for the year ended December 31, 2009.
In March 2008, the FASB issued a standard to amend and expand the disclosure requirements of
derivative instruments with the intent to provide users of the financial statements with an
enhanced understanding of how and why an entity uses derivative instruments, how these derivatives
are accounted for and how the respective reporting entitys financial statements are affected. The
Company adopted this standard on January 1, 2009.
Core Molding Technologies derivative instruments located on the Consolidated Balance Sheets were as
follows:
December 31, | December 31, | |||||||||
2009 | 2008 | |||||||||
Balance Sheet Location | Fair Value | Fair Value | ||||||||
Derivatives designated as hedging instruments |
||||||||||
Interest rate risk activities |
Interest rate swaps | $ | 227,482 | $ | 502,000 | |||||
Derivatives not designated as hedging instruments |
||||||||||
Interest rate risk activities |
Interest rate swap | $ | (28,673 | ) | $ | | ||||
Total Derivatives |
$ | 198,809 | $ | 502,000 | ||||||
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
The effect of derivative instruments on the Consolidated Statements of Income was as follows:
Derivatives in Cash Flow Hedging Relationships
Location of Gain | ||||||||||||||||||
(Loss) | Amount of Gain (Loss) | |||||||||||||||||
Amount of Gain (Loss) | Reclassified from | Reclassified from | ||||||||||||||||
Derivatives in Cash Flow | Recognized in OCI on | AOCI into Income | AOCI into Expense | |||||||||||||||
Hedging Relationships | Derivative (Effective Portion) | (Effective Portion) | (Effective Portion) | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||
Year ended | 2009 | 2008 | 2009 | 2008 | ||||||||||||||
Interest rate swaps |
$ | 129,215 | $ | (278,815 | ) | Interest expense, net | $ | (206,522 | ) | $ | (122,068 | ) |
Location of Gain (Loss) | ||||||||||
Recognized in Income on | Amount of Gain (Loss) Recognized | |||||||||
Derivative (Ineffective Portion | in Income of Derivative (Ineffective | |||||||||
Derivatives in Cash Flow Hedging | and Amount Excluded from | Portion and Amount Excluded from | ||||||||
Relationships | Effectiveness Testing) | Effectiveness Testing) | ||||||||
December 31, | December 31, | |||||||||
Year ended | 2009 | 2008 | ||||||||
Interest rate swaps |
Interest income (expense) | $ | 43,697 | $ | (51,555 | ) |
Derivatives not designated as hedging instruments
Amount of | ||||||||||
Realized/Unrealized Gain | ||||||||||
Derivatives Not Designated as Hedging | Location of Gain (Loss) Recognized in | (Loss) Recognized in Income | ||||||||
Instruments | Income on Derivatives | on Derivatives | ||||||||
December 31, | December 31, | |||||||||
Year ended | 2009 | 2008 | ||||||||
Interest rate swap |
Interest income (expense) | $ | 166,344 | $ | |
During 2009 and 2008, the Company did not reclassify any amounts related to its cash flow hedges
from accumulated other comprehensive loss to earnings due to the probability that certain
forecasted transactions would not occur. As discussed in Note 6, the Company discontinued the use
of hedge accounting for one of its interest rate swaps effective March 31, 2009, and began
recording all mark-to-market adjustments related to this interest rate swap within interest expense
in the Companys Consolidated Statement of Income. It is anticipated that during the next twelve
months the expiration and settlement of cash flow hedge contracts along with the amortization of
losses on discontinued hedges will result in income statement recognition of amounts currently
classified in accumulated other comprehensive loss of approximately $13,736, net of taxes.
Concentration of Credit Risk The Company has significant transactions with two major customers
(see Note 3), which together comprised 83%, 83%, and 77% of total sales in 2009, 2008, and 2007,
respectively and 74% and 67% of the accounts receivable balances at December 31, 2009 and 2008,
respectively. The Company performs ongoing credit evaluations of its customers financial
condition. The Company maintains reserves for potential bad debt losses, and such bad debt losses
have been historically within the Companys expectations. Export sales, including sales to Canada
and Mexico, for products provided to certain customers manufacturing and service locations totaled
8%, 13%, and 15% of total sales for 2009, 2008, and 2007, respectively.
37
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
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 and
vesting of restricted stock under the treasury stock method.
The computation of basic and diluted earnings per common share is as follows:
Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Net income |
$ | 1,017,705 | $ | 5,643,486 | $ | 3,726,473 | ||||||
Weighted average common shares outstanding |
6,772,065 | 6,742,316 | 8,686,905 | |||||||||
Plus: dilutive options assumed exercised |
| 545,225 | 587,700 | |||||||||
Plus: weighted average non-vested restricted stock |
52,487 | 18,089 | 33,532 | |||||||||
Less: shares assumed repurchased with proceeds from exercise |
| 313,381 | 303,708 | |||||||||
Weighted average common and potentially issuable common
shares outstanding |
6,824,552 | 6,992,249 | 9,004,429 | |||||||||
Basic earnings per common share |
$ | .15 | $ | .84 | $ | .43 | ||||||
Diluted earnings per common share |
$ | .15 | $ | .81 | $ | .41 |
559,000 shares at December 31, 2009, 25,000 shares at December 31, 2008, and 33,000 shares at
December 31, 2007 were not included in diluted earnings per share as they were anti-dilutive.
Research and Development Research and development costs, which are expensed as incurred, totaled
approximately $181,000 in 2009, $202,000 in 2008, and $223,000 in 2007.
Recent
Accounting Pronouncements In June 2009, FASB issued a standard regarding the FASB Accounting Standards CodificationTM
(the Codification), and the hierarchy of generally accepted accounting principles, which
replaces the standard previously issued by the FASB regarding the hierarchy of generally accepted
accounting principles (GAAP) in the United States. This standard identifies the source of
accounting principles and the framework for selecting the principles used in the preparation of
financial statements of non-governmental entities that are presented in conformity with GAAP (the
GAAP hierarchy). In addition, this standard establishes the Codification as the single source of
authoritative GAAP recognized by the FASB to be applied by non-governmental entities in the
preparation of financial statements in conformity with GAAP. All guidance contained in the
Codification carries an equal level of authority. This standard was effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The Company
adopted this standard during the third quarter of 2009 and its adoption did not have a significant
impact on its financial statements.
In December 2008, the FASB issued a standard to amend guidance on an employers disclosures about
plan assets of a defined benefit pension or other postretirement plan. This standard is effective
for fiscal years ending after December 15, 2009 with earlier adoption permitted. The adoption of
this standard did not have a material impact on the Consolidated Financial Statements.
In February 2008, the FASB issued a standard, which delayed the effective date of accounting for
all nonrecurring fair value measurements of non-financial assets and liabilities until fiscal years
beginning after November 15, 2008. The Company has not recorded any nonrecurring fair value
measurements of non-financial assets and liabilities since adopting this standard on January 1,
2009.
In April 2009, the FASB issued a standard to provide additional guidance for estimating fair value
when the volume and level of activity for the asset or liability have significantly decreased. This
standard is effective for interim reporting periods ending after June 15, 2009, with early adoption
permitted. The adoption of this standard did not have a material impact on the Consolidated
Financial Statements.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
In June 2009, the FASB issued a standard to amend certain requirements of accounting for
consolidation of variable interest entities, to improve financial reporting by enterprises involved
with variable interest entities and to provide more relevant and reliable information to users of
financial statements. This statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on the first fiscal year that begins after November 15, 2009 with
early adoption prohibited. The Company is currently reviewing the additional requirements to
determine the impact on the Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
Foreign Currency Adjustments In conjunction with the Companys acquisition of certain assets of
Airshield Corporation, the Company established operations in Mexico. The functional currency for
the Mexican operations is the United States dollar. All foreign currency asset and liability
amounts are remeasured into United States dollars at end-of-period exchange rates. Income
statement accounts are translated at the weighted monthly average rates. Gains and losses
resulting from translation of foreign currency financial statements into United States dollars and
gains and losses resulting from foreign currency transactions are included in current results of
operations. Aggregate foreign currency translation and transaction gains and losses included in
selling, general and administrative expense totaled a gain of $104,993 in 2009 and losses of
$121,530 and $5,975 in 2008 and 2007, respectively.
3. Major Customers
The Company currently has two major customers, Navistar, Inc. (Navistar) formerly known as
International Truck & Engine Corporation, and PACCAR, Inc. (PACCAR). Major customers are defined
as customers whose sales individually consist of more than ten percent of total sales. The loss of
a significant portion of sales to Navistar, or PACCAR would have a material adverse effect on the
business of the Company.
The following table presents net sales for the above-mentioned customers for the years ended
December 31, 2009, 2008, and 2007:
2009 | 2008 | 2007 | ||||||||||
Navistar product sales |
$ | 41,628,094 | $ | 63,759,160 | $ | 45,306,691 | ||||||
Navistar tooling sales |
3,049,675 | 3,120,481 | 8,322,599 | |||||||||
Total Navistar sales |
44,677,769 | 66,879,641 | 53,629,290 | |||||||||
PACCAR product sales |
23,114,813 | 27,695,164 | 27,813,324 | |||||||||
PACCAR tooling sales |
1,069,320 | 2,505,368 | 12,518,169 | |||||||||
Total PACCAR sales |
24,184,133 | 30,200,532 | 40,331,493 | |||||||||
Other product sales |
11,424,068 | 19,084,322 | 27,925,041 | |||||||||
Other tooling sales |
3,052,706 | 490,340 | 826,063 | |||||||||
Total other sales |
14,476,774 | 19,574,662 | 28,751,104 | |||||||||
Total product sales |
76,166,975 | 110,538,646 | 101,045,056 | |||||||||
Total tooling sales |
7,171,701 | 6,116,189 | 21,666,831 | |||||||||
Total sales |
$ | 83,338,676 | $ | 116,654,835 | $ | 122,711,887 | ||||||
39
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
4. Foreign Operations
In conjunction with the Companys acquisition of certain assets of Airshield Corporation on October
16, 2001, the Company established manufacturing operations in Mexico (under the Maquiladora
program). The Mexican operation is a captive manufacturing facility of the Company and the
functional currency is United States dollars. Essentially all sales of the
Mexican operations are made to United States customers in United States dollars, which totaled
$21,385,000 in 2009, $18,500,000 in 2008 and $18,800,000 in 2007. Expenses are incurred in the
United States dollar and the Mexican peso. Expenses incurred in pesos include labor, utilities,
supplies and materials, and amounted to approximately 33% of sales in 2009, 42% of sales in 2008,
and 41% of sales in 2007. In June of 2009, the Company took occupancy of a new 437,000 square foot
production facility in Matamoros, Mexico that replaced its leased facility. The Company owns
long-lived assets that are geographically located in Mexico, which have a net book value of
$20,779,000 at December 31, 2009. The Companys manufacturing operation in Mexico is subject to
various political, economic, and other risks and uncertainties inherent to Mexico. Among other
risks, the Companys Mexican operations are subject to domestic and international customs and
tariffs, changing taxation policies, and governmental regulations.
5. Property, Plant, and Equipment
Property, plant, and equipment consist of the following at December 31:
2009 | 2008 | |||||||
Land and land improvements |
$ | 4,880,535 | $ | 2,311,507 | ||||
Buildings |
35,805,457 | 20,260,380 | ||||||
Machinery and equipment |
40,171,102 | 37,740,971 | ||||||
Tools, dies, and patterns |
780,962 | 773,254 | ||||||
Additions in progress |
32,024 | 10,884,526 | ||||||
Total |
81,670,080 | 71,970,638 | ||||||
Less accumulated depreciation |
(36,726,836 | ) | (33,155,187 | ) | ||||
Property, plant, and equipment net |
$ | 44,943,244 | $ | 38,815,451 | ||||
Additions in progress at December 31, 2009 relate to equipment purchases that were not yet
completed at year end. Additions in progress at December 31, 2008 primarily relate to the
construction of the new production facility in Mexico. At December 31, 2009 and 2008, commitments
for capital expenditures in progress were $30,000 and $8,455,000, respectively. Capitalized
interest for the years ended December 31, 2009 and 2008 is $167,000 and $82,000 respectively.
6. Debt and Leases
Debt consists of the following at:
December, 31 | ||||||||
2009 | 2008 | |||||||
Capex loan payable to a bank, interest at a
variable rate with monthly payments of
interest and principal over a seven-year
period through May 2016 |
$ | 11,000,000 | $ | 8,121,337 | ||||
Mexican loan payable to a bank, interest at
a variable rate with annual principal and
monthly interest payments over a five-year
period through May 2014 |
6,400,000 | | ||||||
Term loan to bank, interest at a variable
rate with monthly payments of interest and
principal over a seven-year period through
December 2010 |
1,392,847 | 2,678,563 | ||||||
Industrial Revenue Bond, interest
adjustable weekly (2009 average 2.68%; 2008
average 3.78%), payable quarterly,
principal due in variable quarterly
installments through April 2013, secured by
a bank letter of credit with a balance of
$2,694,000 and $3,332,000 as of December
31, 2009 and 2008, respectively |
2,615,000 | 3,235,000 | ||||||
Revolving line of credit |
$ | | $ | 1,193,965 | ||||
Total |
21,407,847 | 15,228,865 | ||||||
Less current portion |
(3,675,005 | ) | (4,099,681 | ) | ||||
Long-term debt |
$ | 17,732,842 | $ | 11,129,184 | ||||
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
On December 9, 2008, the Company and its wholly owned subsidiary, CoreComposites de Mexico, S. de
R.L. de C.V., entered into a Credit Agreement to refinance some existing debt and borrow funds to
finance the construction of the Companys new manufacturing facility in Mexico.
Under this Credit Agreement, the Company received certain loans, subject to the terms and
conditions stated in the agreement, which include (i) a $12,000,000 Capex loan, (ii) an $8,000,000
Mexican loan, (iii) an $8,000,000 revolving line of credit, and (iv) a $2,678,563 term loan to
refinance an existing term loan. The Credit Agreement is secured by a guarantee of each U.S.
subsidiary of the Company, and by a lien on substantially all of the present and future assets of
the Company and its U.S. subsidiaries, except that only 65% of the stock issued by CoreComposites
de Mexico, S. de C.V. has been pledged. The $8,000,000 Mexican loan is also secured by
substantially all of the present and future assets of the Companys Mexican subsidiary.
On March 31, 2009, the Company entered into the first amendment to the Credit Agreement (the First
Amendment). Pursuant to the terms of the First Amendment, the lender agreed to modify certain
terms of the Credit Agreement. These modifications included (1) modification of the definition of
EBITDA to add back transition costs up to $3,200,000 associated with the transition and startup of
the new production facility in Matamoros and add back certain non-cash compensation expense (2)
modification of the fixed charge definition to exclude from consolidated interest expense any
measure of ineffectiveness from interest rate swaps and amortization of loan origination and
issuance costs (3) modification of the leverage ratio from 3.0x to 3.2x at June 30, 2009, 3.4x at
September 30, 2009, and 3.2x at December 31, 2009 (4) increase the applicable margin for interest
rates effective March 31, 2009 to 400 basis points for both the Capex and Mexican loans, term loan
and the revolving line of credit; all rates, other than the term loan, decrease 25 basis points upon reaching a leverage ratio
of less than 2.25 to 1.00 (5) increase the letter of credit fee on the Industrial Revenue Bond to
300 basis points (6) increase the 100 basis point LIBOR floor on the $8,000,000 Mexican loan and
revolving line of credit to 150 basis points and (7) implement a 150 basis point LIBOR floor on the
$12,000,000 Capex loan.
On June 30, 2009, the Company entered into the second amendment (the Second Amendment) to the
Credit Agreement Pursuant to the terms of the Second Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These modifications included (1) an increase in the
applicable margin for interest rates to 450 basis points, effective June 30, 2009, for both the
Capex and Mexican loans and the revolving line of credit; with all rates other than rates
applicable to the term loan decreasing by 25 basis points upon reaching a leverage ratio of less
than 2.25 to 1.00, (2) a decrease in the applicable margin for the interest rate applicable to the
Term loan to 200 basis points in excess of LIBOR or the Base Rate, (3) a change in the definition
of consolidated EBITDA to add back non-cash post-retirement expenses minus retirement benefits paid
in cash, (4) the deletion of the 150 basis point interest rate
floor applicable to the Mexican loan, the
Capex loan and the revolving line of credit, and (5) the extension of the commitment for the
revolving line of credit to April 30, 2011.
On December 1, 2009, the Company entered into a third amendment (the Third Amendment) to the
Credit Agreement. Pursuant to the terms of the Third Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These modifications included a decrease in the applicable
margin for interest rates to 375 basis points from 450 basis points, for both the Capex and Mexican
loans and the revolving line of credit, effective December 1, 2009.
On March 8, 2010, the Company entered into the fourth amendment (the Fourth Amendment) to the
Credit Agreement. Pursuant to the terms of the Fourth Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These modifications included (1) modification of the
definition EBITDA to add back transition costs of up to $2,000,000 associated with the relocation
of certain products from the Companys Columbus, Ohio facility to its Matamoros, Mexico facility
(2) modification to the fixed charge definition to exclude capital expenditures of up to $2,000,000
associated with the relocation of certain products from the Companys Columbus, Ohio facility to
its Matamoros, Mexico facility; (3) retroactively modified the amortization schedule of the Mexican
loan to forgo the principal payment due January 31, 2010 of $1,600,000 as a result of the Company
limiting its borrowing to $6,400,000 instead of the full amount of the loan contemplated
($8,000,000); and (4) consent to transfer certain assets of the Company from Columbus, Ohio to
Matamoros, Mexico.
41
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
The
$12,000,000 Capex loan was a
construction draw loan that converted to a seven-year term loan with fixed
monthly principal payments. The Company expects to make principal payments of approximately
$1,714,289 towards this loan in 2010, which are classified as current obligations on the
Consolidated Balance Sheet. Borrowings made pursuant to this loan will bear interest, payable
monthly at 30 day LIBOR plus 375 basis points. The 30 day Libor rate was 0.23% at
December 31,
2009. This loan had a balance of $11,000,000 and $8,121,337 at December 31, 2009 and 2008
respectively.
The $8,000,000 Mexican loan, was also a construction draw loan to finance the new production
facility in Matamoros, Mexico that was converted to a term loan in July 2009. This commitment has
a five-year term with annual payment installments commencing January 31, 2010. During 2009, the
Company elected to only borrow $6,400,000 and forego the
January 31, 2010 payment. This modification of the original amortization schedule of the Mexican loan was completed
with the Bank in the Fourth Amendment to the credit agreement. As a result the Companys first
payment is not due until January 31, 2011. Amounts borrowed under this loan may not be reborrowed
once repaid. Borrowings made pursuant to this loan will bear interest, payable annually at daily
LIBOR rate plus 375 basis points. The daily Libor rate was 0.17% at December 31, 2009. The
Mexican loan had a balance of $6,400,000 at December 31, 2009.
On December 30, 2003, the Company borrowed $9,000,000 in the form of a Term Loan collateralized by
the Companys assets. The Credit Agreement entered into by the Company on December 9, 2008
provided for refinancing the Companys existing balance on this note. The terms of the refinance
with respect to the amortization and repayment of the principal amount of such indebtedness were
unchanged. Borrowings made pursuant to the refinanced term loan will bear interest, payable
monthly at 30 day LIBOR plus 200 basis points. The 30 day Libor rate was 0.23% at December 31,
2009. The Term loan had a balance of $1,392,847 and $2,678,563 at December 31, 2009 and 2008,
respectively.
Industrial Revenue Bond
In May 1998, the Company borrowed $7,500,000 through the issuance of an Industrial Revenue Bond
(IRB). The IRB bears interest at a weekly adjustable rate and matures in April 2013. The maximum
interest rate that may be charged at any time over the life of the IRB is 10%.
As security for the IRB, the Company obtained a letter of credit from a commercial bank, which
has a balance of $2,694,000 as of December 31, 2009. The Credit Agreement entered into by the
Company on December 9, 2008 and subsequent amendments also included a commitment for this existing
letter of credit. The letter of credit can only be used to pay principal and interest on the IRB.
Any borrowings made under the letter of credit bear interest at the banks prime rate and are
secured by a lien and security interest in all of the Companys assets. The letter of credit
expires in April 2011, and the Company intends to extend the letter of credit each year as required
by the IRB.
Revolving Line of Credit
At December 31, 2009, the Company had available an $8,000,000 variable rate bank revolving line of
credit scheduled to mature on April 30, 2011. The line of credit bears interest at daily LIBOR
plus 375 basis points. At December 31, 2009 there was no balance on the bank revolving line of
credit. There was an outstanding balance of $1,193,965 on the bank revolving line of credit at
December 31, 2008.
Annual maturities of long-term debt are as follows:
2010 |
$ | 3,675,000 | ||
2011 |
4,152,000 | |||
2012 |
4,104,000 | |||
2013 |
3,734,000 | |||
2014 |
3,314,000 | |||
Thereafter |
2,429,000 | |||
Total |
$ | 21,408,000 | ||
42
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Interest Rate Swaps
In conjunction with its variable rate Industrial Revenue Bond, the Company entered into an interest
rate swap agreement, which is designated as a cash flow hedging instrument. Under this agreement,
the Company pays a fixed rate of 4.89% to the bank and receives 76% of the 30-day commercial paper
rate. The swap term and notional amount matches the payment schedule on the IRB with final
maturity in April 2013. The difference paid or received varies as short-term interest rates change
and is accrued and recognized as an adjustment to interest expense. While the Company is exposed
to credit loss on its interest rate swap in the event of non-performance by the counterparty to the
swap, management believes such
non-performance is unlikely to occur given the financial resources of the counterparty. The
effectiveness of the swap is assessed at each financial reporting date by comparing the commercial
paper rate of the swap to the benchmark rate underlying the variable rate of the Industrial Revenue
Bond. In all periods presented this cash flow hedge was highly effective; any ineffectiveness was
recorded to interest expense. Interest income of $43,697 and interest expense of $51,556 was
recorded for the year ended December 31, 2009 and 2008, respectively, related to ineffectiveness of
this swap. The fair value of the swap was a liability of $199,990 and $322,108 as of December 31,
2009 and December 31, 2008, respectively. None of the changes in fair value of the interest rate
swap have been excluded from the assessment of hedge effectiveness. At December 31, 2009 the
notional amount of the swap is $2,615,000.
Effective January 1, 2004, the Company entered into an interest rate swap agreement, which is
designated as a cash flow hedge of the Term loan. Under this agreement, the Company pays a fixed
rate of 5.75% to the bank and receives LIBOR plus 200 basis points. The swap term and notional
amount matches the payment schedule on the secured Term loan with final maturity in January 2011.
The interest rate swap is a highly effective hedge because the amount, benchmark interest rate
index, term, and repricing dates of both the interest rate swap and the hedged variable interest
cash flows are substantially the same. The fair value of the swap was a liability of $27,492 and
$79,973 as of December 31, 2009 and December 31, 2008, respectively. While the Company is exposed
to credit loss on its interest rate swap in the event of non-performance by the counterparty to the
swap, management believes that such non-performance is unlikely to occur given the financial
resources of the counterparty. At December 31, 2009 the notional amount of the swap is $1,392,847.
Effective December 18, 2008, the Company entered into an interest rate swap agreement that became
effective May 1, 2009, which was designated as a cash flow hedge of the $12,000,000 Capex loan.
Under this agreement, the Company pays a fixed rate of 2.295% to the counterparty and receives
LIBOR. Effective March 31, 2009, the interest terms in the Companys Credit Agreement related to
the $12,000,000 Capex loan were amended. The Company determined that the interest rate swap was no
longer highly effective. As a result, the Company discontinued the use of hedge accounting
effective March 31, 2009 related to this swap, and began recording mark-to-market adjustments
within interest expense in the Companys Consolidated Statement of Income. The pre-tax amount
previously recognized in Accumulated Other Comprehensive Loss, totaling $145,684 as of March 31,
2009, is being amortized as an increase to interest expense of $1,145 per month, net of tax, over
the remaining term of the interest rate swap agreement beginning June 2009. The fair value of the
swap as of December 31, 2009 and December 31, 2008 was an asset of $28,673 and a liability of
$100,300, respectively. The Company recorded interest income of $174,357 for a mark-to-market
adjustment of swap fair value in 2009 related to this swap. At December 31, 2009 the notional
amount of the swap is $11,000,000.
Interest expense includes $360,000 of expense in 2009, $143,000 of expense in 2008, and $28,000 of
income in 2007 for settlements related to the swaps.
Bank Covenants
The Company is required to meet certain financial covenants included in its debt agreements with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of December 31, 2009, the Company was in compliance with
its financial debt covenants for the Line of Credit, Term Loan, Capex loan Mexican loan and, the
letter of credit securing the Industrial Revenue Bond.
Based on the Companys forecasts which are primarily based on industry analysts estimates of 2010
heavy and medium-duty truck production volumes as well as other assumptions management believes to
be reasonable, management believes that the Company will be able to maintain compliance with the covenants as amended under all amendments to
the Credit Agreement for the next 12 months. Management believes that cash flow from operating
activities together with available borrowings under the Credit Agreement will be sufficient to meet
Core Molding Technologies liquidity needs. However, if a material adverse change in the financial
position of Core Molding Technologies should occur, or if actual sales or expenses are
substantially different than what has been forecasted, Core Molding Technologies liquidity and
ability to obtain further financing to fund future operating and capital requirements could be
negatively impacted.
43
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Leases
In August 2005, in conjunction with the acquisition of the Cincinnati Fiberglass Division of
Diversified Glass, Inc., Core Composites Cincinnati, LLC entered into a 7-year operating lease
agreement through July 2012 for the manufacturing facility located in Batavia, Ohio. The Company
has the option to terminate the lease effective any time after July 31, 2006, by providing written
notice to the lessor no later than 90 days prior to intended termination date. The Company has the
option to purchase the property at the end of every lease year.
In October 2001, in conjunction with the Airshield Asset Acquisition, the Companys Mexican
subsidiary entered into a 10-year operating lease agreement through October 2011 for a
manufacturing facility in Matamoros, Mexico. In conjunction with the Companys construction of a
new manufacturing facility in Matamoros and in accordance with the terms of this lease, the Company
gave notice to the lessor and terminated the lease in June 2009.
Total rental expense was $1,196,000, $2,323,000, and $2,611,000 for 2009, 2008, and 2007,
respectively. The future minimum lease payments under non-cancelable operating leases that have
lease terms in excess of one year are as follows:
2010 |
$ | 144,000 | ||
2011 |
11,000 | |||
Total minimum lease payments |
$ | 155,000 | ||
7. Equity
Treasury Stock
On July 18, 2007, the Company entered into a stock repurchase agreement with Navistar, pursuant to
which the Company repurchased 3,600,000 shares of the Companys common stock, from Navistar in a
privately negotiated transaction at $7.25 per share, for a total purchase price of $26,100,000.
Navistar continues to be a significant stockholder of the Companys common stock with 664,000
shares, or approximately 9.8% of the shares outstanding after the repurchase. Navistar is also the
Companys largest customer, accounting for approximately 54% of the Companys 2009 sales. The
Company used approximately $19 million of existing cash and $7.1 million from its revolving line of
credit to fund the repurchase. The Company also incurred approximately $115,000 in costs related
to the stock repurchase agreement, which were recorded as part of the cost of its treasury stock.
Anti-takeover Measures
The Companys Certificate of Incorporation and By-laws contain certain provisions designed to
discourage specific types of transactions involving an actual or threatened change of control of
the Company. These provisions, which are designed to make it more difficult to change majority
control of the Board of Directors without its consent, include provisions related to removal of
Directors, the approval of a merger and certain other transactions as outlined in the Certificate
of Incorporation and any amendments to those provisions.
44
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Restrictions on Transfer
On July 16, 2007, the Board of Directors approved a Shareholders Rights Plan (the Plan) in
conjunction with the approval of the repurchase of shares of stock from Navistar. The Plan was
implemented to protect the interests of the Companys stockholders by encouraging potential buyers
to negotiate directly with the Board prior to attempting a takeover. Under the Plan, each
stockholder will receive a dividend of one right per share of common stock of the Company owned on
the record date, July 18, 2007. The rights will not initially be exercisable until, subject to
action by the Board of Directors, a person acquires 15% or more of the voting stock without
approval of the Board. If the rights become exercisable, all holders except the party triggering
the rights shall be entitled to purchase shares of the Company at a discount. Each right entitles
the registered holder to purchase from the Company a unit consisting of one one-thousandth of a
share of Series A Junior
Participating Preferred Stock, par value $0.01 per share. In connection with the adoption of the
Rights Agreement, on July 18, 2007, the Company filed a Certificate of Designations of Series A
Junior Participating Preferred Stock with the Secretary of State of the State of Delaware.
The Companys Certificate of Incorporation contains a provision (the Prohibited Transfer
Provision) designed to help assure the continued availability of the Companys previous
substantial net operating loss and capital loss carryforwards by
seeking to prevent an ownership change as defined under current Treasury Department income tax
regulations. Under the Prohibited Transfer Provision, if a stockholder transfers or agrees to
transfer stock, the transfer will be prohibited and void to the extent that it would cause the
transferee to hold a Prohibited Ownership Percentage (as defined in the Companys Certificate of
Incorporation, but generally, means direct and indirect ownership of 4.5% or more of the Companys
common stock) or if the transfer would result in the transferees ownership increasing if the
transferee had held a Prohibited Ownership Percentage within the three prior years or if the
transferees ownership percentage already exceeds the Prohibited Ownership Percentage under
applicable Federal income tax rules. The Prohibited Transfer Provision does not prevent transfers
of stock between persons who do not hold a Prohibited Ownership Percentage.
8. Stock Based Compensation
Core Molding Technologies has a Long Term Equity Incentive Plan (the 2006 Plan), as approved by
the shareholders in May 2006. This 2006 Plan replaced the Long Term Equity Incentive Plan (the
Original Plan) as originally approved by the shareholders in May 1997 and as amended in May 2000.
The 2006 Plan allows for grants to directors and key employees of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock, performance shares,
performance units, and other incentive awards (Stock Awards) up to an aggregate of 3,000,000
awards, each representing a right to buy a share of Core Molding Technologies common stock. Stock
Awards can be granted under the 2006 Plan through the earlier of December 31, 2015, or the date the maximum number of available awards under
the 2006 Plan have been granted.
The options that have been granted under the 2006 Plan have vesting schedules of five or nine and
one-half years from the date of grant, or immediately upon change in ownership, are not exercisable
after ten years from the date of grant, and were granted at prices which equal or exceed the fair
market value of Core Molding Technologies common stock at the date of grant. Restricted stock
granted under the 2006 Plan require the individuals receiving the grants to maintain certain common
stock ownership thresholds and vest over three years or upon the date of the participants
sixty-fifth birthday, death, disability or change in control.
Effective January 1, 2006, Core Molding Technologies adopted the provisions of FASB ASC 718
requiring that compensation cost relating to share-based payment transactions be recognized in the
financial statements. The cost is measured at the grant date, based on the calculated fair value of
the award, and is recognized as an expense over the employees requisite service period (generally
the vesting period of the equity award). Core Molding Technologies adopted FASB ASC 718 using the
modified prospective method. Under this method, FASB ASC 718 applies to all awards granted or
modified after the date of adoption. In addition, compensation expense must be recognized for any
unvested stock option awards outstanding as of the date of adoption on a straight-line basis over
the remaining vesting period.
45
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Stock Options
There were no grants of options in the years ended December 31, 2009, 2008 and 2007. Total
compensation cost related to incentive stock options for the years ended December 31, 2009, 2008
and 2007 was $83,277, $98,536 and $129,671, respectively. Compensation expense is allocated such
that $74,651, $81,573, and $96,687 is included in selling, general, and administrative expenses and
$8,626, $16,963 and $32,984 is recorded in cost of sales for the year ended December 31, 2009, 2008
and 2007, respectively. There was no tax benefit recorded for this compensation cost as the expense
primarily relates to incentive stock options that do not qualify for a tax deduction until, and
only if, a disqualifying disposition occurs.
There were no stock options exercised during 2009. During the year ended December 31, 2008, Core
Molding Technologies received approximately $100,000 in cash from the exercise of stock options.
The aggregate intrinsic value of these options
was approximately $116,000. In 2008, the Company received a tax benefit of $1,000 as a result of
disqualified dispositions. During the year ended December 31, 2007, Core Molding Technologies
received approximately $358,000 in cash from the exercise of stock options. The aggregate
intrinsic value of these options was approximately $641,000. Tax benefit received as a result of
disqualified dispositions was $116,000.
The following summarizes all stock option activity for the years ended December 31:
2009 | 2008 | 2007 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Number | Average | Number | Average | Number | Average | |||||||||||||||||||
of | Exercise | of | Exercise | of | Exercise | |||||||||||||||||||
Options | Price | Options | Price | Options | Price | |||||||||||||||||||
Outstanding- beginning
of year |
570,225 | $ | 3.30 | 620,700 | $ | 3.33 | 799,956 | $ | 3.35 | |||||||||||||||
Granted |
| | | | | | ||||||||||||||||||
Exercised |
| | (32,000 | ) | 3.13 | (115,256 | ) | 3.11 | ||||||||||||||||
Forfeited |
(11,400 | ) | 3.21 | (18,475 | ) | 4.60 | (64,000 | ) | 3.96 | |||||||||||||||
Outstanding-end of year |
558,825 | $ | 3.30 | 570,225 | $ | 3.30 | 620,700 | $ | 3.33 | |||||||||||||||
Exercisable at
December 31 |
514,325 | $ | 3.30 | 481,395 | $ | 3.29 | 458,350 | $ | 3.28 | |||||||||||||||
The following summarizes the activity relating to stock options under the Original Plan mentioned
above for the year ended December 31, 2009:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Number | Weighted | Remaining | Aggregate | |||||||||||||
of | Average | Contractual | Intrinsic | |||||||||||||
Options | Exercise Price | Term | Value | |||||||||||||
Outstanding at December 31, 2008 |
570,225 | $ | 3.30 | |||||||||||||
Exercised |
| | ||||||||||||||
Granted |
| | ||||||||||||||
Forfeited |
(11,400 | ) | 3.21 | |||||||||||||
Outstanding at December 31, 2009 |
558,825 | $ | 3.30 | 4.30 | $ | | ||||||||||
Exercisable at December 31, 2009 |
514,325 | $ | 3.30 | 4.24 | $ | | ||||||||||
Vested or expected to vest at
December 31, 2009 |
556,600 | $ | 3.30 | 4.37 | $ | | ||||||||||
46
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
The following summarizes the status of, and changes to, unvested options during the years ended
December 31, 2009, 2008 and 2007:
Number | Weighted Average | |||||||
Of | Grant Date | |||||||
Shares | Fair Value | |||||||
Unvested at December 31, 2006 |
306,780 | $ | 3.54 | |||||
Granted |
| | ||||||
Vested |
(83,930 | ) | 3.36 | |||||
Forfeited |
(60,500 | ) | 4.24 | |||||
Unvested at December 31, 2007 |
162,350 | $ | 3.46 | |||||
Granted |
| | ||||||
Vested |
(62,720 | ) | $ | 3.38 | ||||
Forfeited |
(10,800 | ) | 4.67 | |||||
Unvested at December 31, 2008 |
88,830 | $ | 3.37 | |||||
Granted |
| | ||||||
Vested |
(44,330 | ) | 3.44 | |||||
Forfeited |
| | ||||||
Unvested at December 31, 2009 |
44,500 | $ | 3.29 | |||||
At December 31, 2009, there was $63,000 of total unrecognized compensation cost, related to
unvested stock options granted under the Original Plan expected to be recognized over a weighted
average of 1.9 years.
The following table summarizes information about stock options outstanding and exercisable as of
December 31, 2009:
Options Outstanding | Options Exercisable |
|||||||||||
Weighted | ||||||||||||
Number | Average | |||||||||||
Range of | of | Contractual Life | Number of | |||||||||
Exercise Prices | Options | In Years | Options | |||||||||
$2.75 |
85,600 | 3.2 | 54,100 | |||||||||
$3.21 |
408,225 | 4.1 | 408,225 | |||||||||
$3.28 |
40,000 | 5.2 | 32,000 | |||||||||
$6.40 |
20,000 | 5.8 | 16,000 | |||||||||
$7.98 |
5,000 | 6.0 | 4,000 | |||||||||
558,825 | 514,325 | |||||||||||
Restricted Stock
In May of 2006, Core Molding Technologies began awarding shares of its common stock to certain
directors, officers, and key executive employees in the form of unvested stock (Restricted
Stock). These awards are recorded at the market value of Core Molding Technologies common stock
on the date of issuance and amortized ratably as compensation expense over the applicable vesting
period.
47
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
The following summarizes the status of the Restricted Stock and changes during the years ended
December 31:
2009 | 2008 | 2007 | ||||||||||||||||||||||
Number | Weighted | Number | Weighted | Number | Weighted | |||||||||||||||||||
of | Average | of | Average | of | Average | |||||||||||||||||||
Shares | Fair Value | Shares | Fair Value | Shares | Fair Value | |||||||||||||||||||
Unvested- beginning of
year |
85,106 | $ | 7.01 | 61,416 | $ | 7.02 | 22,972 | $ | 6.70 | |||||||||||||||
Granted |
150,210 | 2.56 | 41,635 | 7.01 | 51,105 | 7.15 | ||||||||||||||||||
Vested |
(33,851 | ) | 5.42 | (5,919 | ) | 6.99 | (8,008 | ) | 7.09 | |||||||||||||||
Forfeited |
(14,020 | ) | 4.65 | (12,026 | ) | 7.09 | (4,653 | ) | 6.70 | |||||||||||||||
Unvested at end of year |
187,445 | $ | 3.91 | 85,106 | $ | 7.01 | 61,416 | $ | 7.02 | |||||||||||||||
Vested and expected to
vest at December 31,
2009 |
236,720 | $ | 4.44 | 105,648 | $ | 6.99 | 77,223 | $ | 6.98 | |||||||||||||||
As of December 31, 2009 there was $386,000 of total unrecognized compensation cost related to
Restricted Stock granted. That remaining cost is expected to be recognized over the
weighted-average period of 1.60 years. The total compensation expense during the years ended
December 31, 2009, 2008 and 2007 was $251,000, $189,000 and $139,000, respectively, and was
recorded as selling, general, and administrative expense.
9. Income Taxes
Components of the provision (credit) for income taxes are as follows:
2009 | 2008 | 2007 | ||||||||||
Current: |
||||||||||||
Federal US |
$ | (806,000 | ) | $ | 2,639,000 | $ | 1,606,000 | |||||
Federal Foreign |
94,000 | 71,000 | 137,000 | |||||||||
State and local |
103,000 | 157,000 | (202,000 | ) | ||||||||
(609,000 | ) | 2,867,000 | 1,541,000 | |||||||||
Deferred: |
||||||||||||
Federal |
1,235,000 | (37,000 | ) | (142,000 | ) | |||||||
State and local |
(109,000 | ) | 27,000 | 269,000 | ||||||||
1,126,000 | (10,000 | ) | 127,000 | |||||||||
Provision for income taxes |
$ | 517,000 | $ | 2,857,000 | $ | 1,668,000 | ||||||
A reconciliation of the income tax provision based on the federal statutory income tax rate of 34%
to the Companys income tax provision for the years ended December 31 is as follows:
2009 | 2008 | 2007 | ||||||||||
Provision at federal statutory rate US |
$ | 522,000 | $ | 2,890,000 | $ | 1,834,000 | ||||||
Effect of foreign taxes |
(16,000 | ) | (47,000 | ) | (81,000 | ) | ||||||
State and local tax expense, net of federal benefit |
21,000 | 128,000 | 83,000 | |||||||||
Federal manufacturing deduction |
| (141,000 | ) | (98,000 | ) | |||||||
Other |
(10,000 | ) | 27,000 | (70,000 | ) | |||||||
Provision for income taxes |
$ | 517,000 | $ | 2,857,000 | $ | 1,668,000 | ||||||
The American Jobs Creation Act provides a tax deduction calculated as a percentage of qualified
income from manufacturing in the United States. The deduction percentage increases from 3% to 9%
over a six-year period beginning in 2005. The amount of the deduction available to the Company in
2007 and 2008 was $297,000 and $484,000, respectively and the Company expects that there will be no
deduction in 2009 due to a current federal tax loss for 2009. In December 2004, the FASB issued a
new staff position providing for this deduction to be treated as a special deduction, as opposed to
a tax rate reduction. Certain tax benefits related to incentive stock options recorded directly to
additional paid in capital totaled $0, $1,000 and $116,000 in 2009, 2008 and 2007, respectively.
48
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Deferred tax assets (liabilities) consist of the following at December 31:
2009 | 2008 | |||||||
Current asset(liability): |
||||||||
Accrued liabilities |
$ | 569,000 | $ | 1,083,000 | ||||
Accounts receivable |
221,000 | 301,000 | ||||||
Inventory |
495,000 | 543,000 | ||||||
Other, net |
(89,000 | ) | (58,000 | ) | ||||
Total current asset |
1,196,000 | 1,869,000 | ||||||
Non-current asset (liability): |
||||||||
Property, plant, and equipment |
(1,227,000 | ) | (314,000 | ) | ||||
Postretirement benefits |
6,728,000 | 5,637,000 | ||||||
Interest rate swap |
122,000 | 153,000 | ||||||
Other, net |
(87,000 | ) | (157,000 | ) | ||||
Total non-current asset |
5,536,000 | 5,319,000 | ||||||
Total deferred tax asset net |
$ | 6,732,000 | $ | 7,188,000 | ||||
At December 31, 2009, a provision has not been made for U.S. taxes on accumulated undistributed
earnings of approximately $2,635,000 of the Companys Mexican subsidiary that would become payable
upon repatriation to the United States. It is the intention of the Company to reinvest all such
earnings in operations and facilities outside of the United States.
On January 1, 2007, the Company
adopted guidance related to the uncertainty in income taxes. As a result of the
implementation of this guidance, the Company recognized a $68,000 increase to the opening balance of
retained earnings. This increase is represented by the recognition of state tax benefits of
$212,000 and related accrued interest receivable of $16,000. These benefits generate a federal tax
liability of $60,000. The Company also recorded a liability for unrecognized tax benefits of
$52,000 and $48,000 related to uncertain state and foreign tax positions, respectively, and the
amounts were recorded in accrued taxes in the Consolidated Balance Sheet.
During 2007 the liability was reduced by $48,000 due to settlement of a foreign tax case. Also
during 2007, the Company reduced the remaining $52,000 liability for unrecognized tax benefits
related to uncertain state tax positions by $28,000 due to favorable settlement. In 2008, the
remaining $24,000 related to uncertain state tax positions was reduced due to favorable resolution.
These amounts were recorded to income tax expense in each of the respective years. At December
31, 2008 the Company has no liability for unrecognized tax benefits under ASC 740. The Company does
not anticipate that the unrecognized tax benefits will significantly change within the next twelve
months.
At December 31, 2009 the Company has no liability for unrecognized tax benefits under guidance
relating to tax uncertainties. The Company does not anticipate that the unrecognized tax benefits
will significantly change within the next twelve months. Prior to 2009 the Company had liabilities
for unrecognized tax benefits recorded. In 2007 the liability was reduced by $48,000 due to
settlement of a foreign tax case. Also during 2007, the Company reduced the remaining $52,000
liability for unrecognized tax benefits related to uncertain state tax positions by $28,000 due to
favorable settlement. In 2008, a remaining $24,000 related to uncertain state tax positions was
reduced due to favorable resolution. These amounts were recorded to income tax expense in each of
the respective years.
The Company files income tax returns in the U.S. federal jurisdiction, Mexico and various state
jurisdictions. The Company
is no longer subject to U.S. federal and state income tax examinations by tax authorities for years
before 2006 due to the expiration of the statute of limitations and is subject to income tax
examinations by Mexican authorities since the Company began business in Mexico in 2001. The
Company recognizes interest and/or penalties related to income tax matters in income tax expense.
10. Postretirement Benefits
The Company provides postretirement benefits to some of its United States employees. Costs
associated with postretirement benefits include postretirement health care and life insurance
expense and expense related to contributions to two 401(k)
defined contribution plans. In addition, all of the Companys United States union employees are
covered under a multi- employer defined benefit pension plan administered under a collective
bargaining agreement. The Company does not administer this plan and contributions are determined
in accordance with provisions in the negotiated labor contract.
49
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Prior to the acquisition of Columbus Plastics, certain of the Companys employees were participants
in Navistars postretirement plan. In connection with the acquisition the postretirement health
and life insurance plan provides healthcare and life insurance for certain employees upon their
retirement, along with their spouses and certain dependents and requires cost sharing between the
Company, Navistar and the participants in the form of premiums, co-payments, and deductibles. The
Company and Navistar share the cost of benefits for certain employees, using a formula that
allocates the cost based upon the respective portion of time that the employee was an active
service participant after the acquisition of Columbus Plastics to the period of active service
prior to the acquisition of Columbus Plastics.
The funded status of the Companys postretirement health and life insurance benefits plan as of
December 31, 2009 and 2008 and reconciliation with the amounts recognized in the consolidated
balance sheets are provided below:
Postretirement Benefits | ||||||||
2009 | 2008 | |||||||
Change in benefit obligation: |
||||||||
Benefit obligation at beginning of year |
$ | 15,878,000 | $ | 16,442,000 | ||||
Service cost |
609,000 | 637,000 | ||||||
Interest cost |
947,000 | 1,049,000 | ||||||
Unrecognized loss (gain) |
1,895,000 | (1,837,000 | ) | |||||
Benefits paid |
(585,000 | ) | (413,000 | ) | ||||
Benefit obligation at end of year |
$ | 18,744,000 | $ | 15,878,000 | ||||
Plan Assets |
| | ||||||
Amounts recorded in accumulated other comprehensive income: |
$ | 3,189,000 | $ | 1,294,000 | ||||
Weighted-average assumptions as of December 31: |
||||||||
Discount rate used to determine benefit obligation and net periodic benefit cost |
5.90 | % | 6.10 | % | ||||
The components of expense for all of the Companys postretirement benefits plans are as follows:
2009 | 2008 | 2007 | ||||||||||
Pension Expense: |
||||||||||||
Multi-employer plan contributions |
$ | 428,000 | $ | 535,000 | $ | 424,000 | ||||||
Defined contribution plan contributions |
346,000 | 414,000 | 452,000 | |||||||||
Total pension expense |
774,000 | 949,000 | 876,000 | |||||||||
Health and life insurance: |
||||||||||||
Service cost |
609,000 | 637,000 | 798,000 | |||||||||
Interest cost |
947,000 | 1,049,000 | 995,000 | |||||||||
Amortization of net loss |
| 128,000 | 267,000 | |||||||||
Net periodic benefit cost |
1,556,000 | 1,814,000 | 2,060,000 | |||||||||
Total postretirement benefits expense |
$ | 2,330,000 | $ | 2,763,000 | $ | 2,936,000 | ||||||
The Company accounts for post retirement benefits under FASB ASC 715, which requires the
recognition of the funded status of a defined benefit pension or postretirement plan in the
consolidated balance sheets. For the year ended December 31, 2009, the Company recognized net
actuarial losses of $1,895,000 on the Consolidated Balance Sheet. This amount was recorded as
other comprehensive loss in the amount of $1,195,000, net of tax, for the year ended December 31,
2009. For the
year ended December 31, 2008, the Company recognized net actuarial gains of $1,837,000 on the
Consolidated Balance Sheet. This amount was recorded as other comprehensive income in the amount
of $1,184,000, net of tax. For the year ended December 31, 2007, the Company recognized net
actuarial gains of $1,215,000 on the Consolidated Balance Sheet. This amount was recorded as other
comprehensive income in the amount of $730,000, net of tax, for the year ended December 31, 2007.
50
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
Amounts not yet recognized as a component of net periodic benefit costs at December 31, 2009 and
2008 were approximately $3,189,000 and $1,294,000, respectively. The amount in accumulated other
comprehensive loss expected to be recognized as a component of net periodic post retirement costs
during 2010 consists of a net loss amortization of $114,000, or $75,000, net of tax.
The weighted average rate of increase in the per capita cost of covered health care benefits is
projected to be 7%. The rate is projected to decrease gradually to 5% by the year 2016 and remain
at that level thereafter. The comparable assumptions for the prior year were 7% and 5%,
respectively.
The effect of changing the health care cost trend rate by one-percentage point for each future year
is as follows:
1- Percentage | 1-Percentage | |||||||
Point Increase | Point Decrease | |||||||
Effect on total of service and interest cost components |
$ | 279,000 | $ | (225,000 | ) | |||
Effect on postretirement benefit obligation |
$ | 2,858,000 | $ | (2,352,000 | ) |
The estimated future benefit payments of the health care plan are:
Fiscal 2010 |
$ | 668,000 | ||
Fiscal 2011 |
$ | 503,000 | ||
Fiscal 2012 |
$ | 628,000 | ||
Fiscal 2013 |
$ | 766,000 | ||
Fiscal 2014 |
$ | 854,000 | ||
Fiscal 2015 2019 |
$ | 5,668,000 |
11. Related Party Transactions
In connection with the acquisition of Columbus Plastics, the Company and Navistar entered into a
Supply Agreement. Under the terms of the Supply Agreement, Navistar agreed to purchase from the
Company, and the Company agreed to sell to Navistar all of Navistars original equipment and
service requirements for fiberglass reinforced parts using the Sheet Molding Compound process as
they then existed or as they may be improved or modified. In 2008, the Company entered into a new
Comprehensive Supply Agreement, effective as of June 24, 2008. On January 28, 2010, the Company
entered into a First Addendum to the Comprehensive Supply Agreement, agreeing to shift production
of certain products from the Companys Columbus, Ohio facility to its Matamoros, Mexico facility,
in order to meet the needs of Navistar as a result of its relocation of certain production to its
Escobedo, Mexico assembly plant. Under this Comprehensive Supply Agreement, as amended, the
Company continues to be the primary supplier of Navistars original equipment and service
requirements for fiberglass reinforced parts, as long as the Company remains competitive in cost,
quality and delivery, through October 31, 2013.
In 1996, the Company acquired substantially all of the assets and liabilities of the Columbus
Plastics unit from Navistar, in return for a secured note, which has been repaid, and 4,264,000
shares of Common Stock of the Company. On July 18, 2007, the Company entered into a stock
repurchase agreement with Navistar, pursuant to which the Company repurchased 3,600,000 shares of
common stock, from Navistar as detailed in Note 7. At December 31, 2009, Navistar owns 9.8% of
the Companys outstanding common stock. Sales to Navistar were $44,678,000 in 2009, $66,880,000 in
2008 and $53,629,000 in 2007, of which $6,211,000 and $7,310,000 had not been received as of
December 31, 2009 and 2008 and were included in accounts receivable. Accounts receivable as of
December 31, 2009 and 2008 also include $318,000 and $102,000 respectively, for tooling costs owed
by Navistar.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Notes to Consolidated Financial Statements (Continued)
12. Subsequent Events
On February 3, 2010, the Company announced that it has signed an addendum to its Comprehensive
Supply Agreement with Navistar. In accordance with this addendum, Core has agreed to shift
production of certain products from its Columbus, Ohio facility to its Matamoros, Mexico facility.
The shift from Columbus to Matamoros is being driven by Navistars relocation of
certain production to its Escobedo, Mexico assembly plant. Under the terms of the Supply Agreement
and this addendum, Navistar will continue to purchase 100% of its original equipment and service
requirements that presently exist for specified fiberglass reinforced products from the Company.
During 2010, the Company plans to incur up to approximately $2.0 million of expense for transfer
and startup costs and up to approximately $2.0 million of capital associated with this move.
Additionally, the Company expects to transfer approximately 90 positions from Columbus to Matamoros
by the end of June as a result of this production relocation.
The Companys liability for post retirement healthcare and life insurance relates primarily to its
Columbus, Ohio facility employee base. The Company is currently evaluating how the anticipated
reduction in employment resulting from the shift of production will impact future service costs of
the post retirement liability and its need to revalue its postretirement liability during 2010 upon
a reduction in employment.
13. Labor Concentration
As of December 31, 2009, the Company employed a total of 813 employees, which consists of 448
employees in its United States operations and 365 employees in its Mexican operations. Of these 813
employees, 238 are covered by a collective
bargaining agreement with the International Association of Machinists and Aerospace Workers
(IAM), which extends to August 4, 2010, and 298 are covered by a collective bargaining agreement
with Sindicato de Jorneleros y Obreros, which extends to January 16, 2011.
14. Commitments and Contingencies
From time to time, the Company is involved in litigation incidental to the conduct of its business.
However, the Company is presently not involved in any legal proceedings which in the opinion of
management are likely to have a material adverse effect on the Companys consolidated financial
position or results of operations.
15. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations for the years ended
December 31, 2009 and 2008.
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Total Year | ||||||||||||||||
2009: |
||||||||||||||||||||
Product sales |
$ | 17,830,280 | $ | 16,643,805 | $ | 19,801,193 | $ | 21,891,697 | $ | 76,166,975 | ||||||||||
Tooling sales |
553,837 | 656,303 | 4,624,339 | 1,337,222 | 7,171,701 | |||||||||||||||
Net sales |
18,384,117 | 17,300,108 | 24,425,532 | 23,228,919 | 83,338,676 | |||||||||||||||
Gross margin |
1,573,340 | 984,267 | 3,983,981 | 4,883,728 | 11,425,316 | |||||||||||||||
Income (loss) before interest and taxes |
(926,663 | ) | (1,271,471 | ) | 1,852,951 | 2,830,679 | 2,485,496 | |||||||||||||
Net income (loss) |
(659,835 | ) | (867,154 | ) | 827,021 | 1,717,673 | 1,017,705 | |||||||||||||
Net income (loss) per common share: |
||||||||||||||||||||
Basic (1) |
$ | (0.10 | ) | $ | (0.13 | ) | $ | 0.12 | $ | 0.25 | $ | 0.15 | ||||||||
Diluted (1) |
$ | (0.10 | ) | $ | (0.13 | ) | $ | 0.12 | $ | 0.25 | $ | 0.15 | ||||||||
2008: |
||||||||||||||||||||
Product sales |
$ | 25,983,212 | $ | 29,395,247 | $ | 29,497,102 | $ | 25,663,085 | $ | 110,538,646 | ||||||||||
Tooling sales |
3,102,225 | 543,447 | 533,461 | 1,937,056 | 6,116,189 | |||||||||||||||
Net sales |
29,085,437 | 29,938,694 | 30,030,563 | 27,600,141 | 116,654,835 | |||||||||||||||
Gross margin |
4,316,206 | 5,620,963 | 6,037,862 | 5,234,552 | 21,209,583 | |||||||||||||||
Income before interest and taxes (1) |
1,501,871 | 2,627,145 | 2,851,822 | 2,208,748 | 9,189,585 | |||||||||||||||
Net income (1) |
864,153 | 1,716,261 | 1,687,927 | 1,375,144 | 5,643,486 | |||||||||||||||
Net income per common share: |
||||||||||||||||||||
Basic (1) |
$ | 0.13 | $ | 0.25 | $ | 0.25 | $ | 0.20 | $ | 0.84 | ||||||||||
Diluted (1) |
$ | 0.12 | $ | 0.24 | $ | 0.24 | $ | 0.20 | $ | 0.81 |
(1) | Sum of the quarters do not sum to total year due to rounding. |
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A(T). | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an evaluation,
under the supervision and with the participation of its management, including its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon
this evaluation, the Companys management, including its Chief Executive Officer and its Chief
Financial Officer, concluded that the Companys disclosure controls and procedures were (i)
effective to ensure that information required to be disclosed in the Companys reports filed or
submitted under the Exchange Act were accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosures, and (ii) effective to ensure that information required to
be disclosed in the Companys reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.
Managements Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is a process designed by, or
under the supervision of, the Companys Chief Executive Officer and Chief Financial Officer and
effected by the Companys board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Companys
financial statements in accordance with accounting principles generally accepted in the United
States of America. Because of its inherent limitations, internal control over financial reporting
is not intended to provide absolute assurance that a misstatement of the Companys financial
statements would be prevented or detected.
The Companys management, with the participation of its Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of the Companys internal control over
financial reporting based on the framework and criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. This evaluation included review of the documentation of controls, evaluation of the
design effectiveness of controls, testing of the operating effectiveness of controls and a
conclusion on this evaluation. Based on this evaluation, management concluded that the Companys
internal control over financial reporting was effective as of December 31, 2009.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.
Changes In Internal Controls
There were no changes in internal control over financial reporting (as such term is defined in
Exchange Act Rule 13a-15(f)) that occurred in the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. | OTHER INFORMATION |
None.
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PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The information required by this Part III, Item 10 is incorporated by reference from the Companys
definitive proxy statement for its annual meeting of stockholders to be held on or about May 19,
2010, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Part III, Item 11 is incorporated by reference from the Companys
definitive proxy statement for its annual meeting of stockholders to be held on or about May 19,
2010, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Part III, Item 12 is incorporated by reference from the Companys
definitive proxy statement for its annual meeting of stockholders to be held on or about May 19,
2010, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Part III, Item 13 is incorporated by reference from the Companys
definitive proxy statement for its annual meeting of stockholders to be held on or about May 19,
2010, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Part III, Item 14 is incorporated by reference from the Companys
definitive proxy statement for its annual meeting of stockholders to be held on or about May 19,
2010, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
54
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PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Documents filed as Part of this Report:
(1) Financial Statements
The following consolidated financial statements are included in Part II, Item 8 of this Annual
Report on Form 10-K:
Reports of Independent Registered Public Accounting Firms
Consolidated Statements of Income for the Years Ended December 31, 2009, 2008, and 2007
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2009, 2008,
and 2007
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008, and 2007
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following consolidated financial statement schedules are filed with this Annual Report on
Form 10-K:
Schedule II Valuation and Qualifying Accounts and Reserves for the years ended December
31, 2009, 2008, and 2007
All other schedules are omitted because of the absence of the conditions under which they
are required.
(3) Exhibits
See Index to Exhibits filed with this Annual Report on Form 10-K.
55
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. | ||||
By
|
/s/ Kevin L. Barnett | |||
President and Chief Executive Officer | ||||
Date: April 7, 2010 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated:
/s/ Kevin L. Barnett |
||||
President, Chief Executive Officer, and Director (principal executive officer) | April 7, 2010 | |||
/s/ Herman F. Dick, Jr. |
||||
Vice President, Secretary, Treasurer, and Chief Financial Officer (principal financial officer and principal accounting officer) | April 7, 2010 | |||
* |
||||
Director | April 7, 2010 | |||
* |
||||
Director | April 7, 2010 | |||
* |
||||
Director | April 7, 2010 | |||
* |
||||
Director | April 7, 2010 | |||
*By /s/ Herman F. Dick, Jr. |
||||
Attorney-In-Fact | April 7, 2010 |
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Core Molding Technologies, Inc. and Subsidiaries
Schedule II
Consolidated valuation and qualifying accounts and reserves for the years ended December 31, 2009,
2008, and 2007.
Reserves deducted from asset to which it applies allowance for doubtful accounts.
Additions | ||||||||||||||||||||
(Recovered)/ | ||||||||||||||||||||
Balance at | Charged to | Charged to | ||||||||||||||||||
Beginning | Costs & | Other | Deductions | Balance At | ||||||||||||||||
of Year | Expenses | Accounts | (A) | End of Year | ||||||||||||||||
Year Ended December 31, 2009 |
$ | 109,000 | $ | 10,000 | | $ | 6,000 | $ | 113,000 | |||||||||||
Year Ended December 31, 2008 |
$ | 334,000 | $ | (110,000 | ) | | $ | 115,000 | $ | 109,000 | ||||||||||
Year Ended December 31, 2007 |
$ | 262,000 | $ | 107,000 | | $ | 35,000 | $ | 334,000 |
(A) | Amount represents uncollectible accounts written off. |
57
Table of Contents
INDEX TO EXHIBITS
Exhibit No. | Description | Location | ||||
2(a | )(1) | Asset Purchase Agreement
dated as of September 12, 1996,
as amended October 31, 1996,
between Navistar and RYMAC1
|
Incorporated by reference to Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809) | |||
2(a | )(2) | Second Amendment to Asset Purchase
Agreement dated December
16, 19961
|
Incorporated by reference to 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 November 1, 1996,
between Core Molding and
RYMAC
|
Incorporated by reference to Exhibit 2-B to Registration Statement on Form S-4 (Registration No. 333-15809) | |||
2(b | )(2) | First Amendment to Agreement and
Plan of Merger dated as of
December 27, 1996 between
Core Molding and RYMAC
|
Incorporated by reference to Exhibit 2(b)(2) to Annual Report on Form 10-K for the year ended December 31, 2002 | |||
2(c | ) | Asset Purchase Agreement dated as
of October 10, 2001, between
Core Molding Technologies, Inc. and
Airshield Corporation
|
Incorporated by reference to Exhibit 1 to Form 8-K filed October 31, 2001 | |||
3(a | )(1) | Certificate of Incorporation of
Core Molding Technologies, Inc.
as filed with the Secretary of State
of Delaware on October 8, 1996
|
Incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-8, (Registration No. 333-29203) | |||
3(a | )(2) | Certificate of Amendment of
Certificate of Incorporation
of Core Molding Technologies, Inc.
as filed with the Secretary of State
of Delaware on November 6, 1996
|
Incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-8 (Registration No. 333-29203) |
58
Table of Contents
Exhibit No. | Description | Location | ||||
3(a | )(3) | Certificate of Amendment of Certificate
of Incorporation as filed with the Secretary
of State of Delaware on August 28, 2002
|
Incorporated by reference to Exhibit 3(a)(4) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 | |||
3(a | )(4) | Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred
Stock as filed with the Secretary of State of
Delaware on July 18, 2007
|
Incorporated by reference to Exhibit 3.1 to Form 8-K filed July 19, 2007 | |||
3(b | ) | Amended and Restated
By-Laws of Core Molding
Technologies, Inc.
|
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 4, 2008 | |||
4(a | )(1) | Certificate of Incorporation of
Core Molding Technologies, Inc.
as filed with the Secretary of State
of Delaware on October 8, 1996
|
Incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-8 (Registration No. 333-29203) | |||
4(a | )(2) | Certificate of Amendment of
Certificate of Incorporation
of Core Molding Technologies, Inc.
as filed with the Secretary of State
of Delaware on November 6, 1996
|
Incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-8 (Registration No. 333-29203) | |||
4(a | )(3) | Certificate of Amendment of Certificate
of Incorporation as filed with the Secretary
of State of Delaware on August 28, 2002
|
Incorporated by reference to Exhibit 3(a)(4) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 | |||
4(a | )(4) | Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred
Stock as filed with the Secretary of State of
Delaware on July 18, 2007
|
Incorporated by reference to Exhibit 3.1 to Form 8-K filed July 19, 2007 | |||
4(b | ) | Stockholder Rights Agreement dated as of
July 18, 2007, between Core Molding
Technologies, Inc. and American Stock
Transfer & Trust Company
|
Incorporated by reference to Exhibit 4.1 to Current Report Form 8-K filed July 19, 2007 | |||
10 | (a) | Supply Agreement, dated June 23, 2008
between Core Molding Technologies, Inc.
and Core Composites Corporation and
Navistar, Inc.4
|
Incorporated by reference to Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 |
59
Table of Contents
Exhibit No. | Description | Location | ||||
10(a | )(1) | Addendum to Supply Agreement, dated
January 28, 2010 between Core Molding
Technologies, Inc. and Core Composites
and Navistar,
Inc.4
|
Filed Herein | |||
10(b | ) | Supply and Management Agreement dated
as of June 1, 2006 between PACCAR Inc.
and Core Molding Technologies,
Inc.4
|
Incorporated by reference to Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 | |||
10(c | ) | Registration Rights Agreement, dated
December 31, 1996, by and between
Navistar International Transportation
Corp. and various other persons who
become parties pursuant to the agreement
|
Incorporated by reference to Exhibit 10(d) to Annual Report on Form 10-K for the year ended December 31, 2001 | |||
10(d | ) | Credit agreement, dated December 9, 2008, by and
between Core Molding Technologies, Inc and
CoreComposites de Mexico, S De. R.L. de C.V.
and Key Bank National Association
|
Incorporated by reference to Exhibit 10(d) to Annual Report on Form 10-K for the year ended December 31, 2008 | |||
10(d | )(1) | First Amendment Agreement, dated
March 31, 2009, to the Credit Agreement
dated December 9, 2008, among
Core Molding Technologies, Inc.,
Core Composites de Mexico, S. De R.L. de C.V.
and Keybank National Association.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed April 2, 2009 | |||
10(d | )(2) | Second Amendment Agreement, dated
June 30, 2009, to the Credit Agreement dated
December 9, 2008, among
Core Molding Technologies, Inc.,
Core Composites de Mexico, S. De R.L. de C.V.
and Keybank National Association.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed July 2, 2009 | |||
10(d | )(3) | Third Amendment Agreement, dated
December 1, 2009, to the Credit Agreement dated
December 9, 2008, among
Core Molding Technologies, Inc.,
Core Composites de Mexico, S. De R.L. de C.V.
and Keybank National Association.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed December 7, 2009 | |||
10(d | )(4) | Fourth Amendment Agreement, dated
March 8, 2010, to the Credit Agreement dated
December 9, 2008, among
Core Molding Technologies, Inc.,
Core Composites de Mexico, S. De R.L. de C.V.
and Keybank National Association.
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated March 10, 2010 | |||
10(e | ) | Master Equipment Lease Agreement2
by and between KeyCorp Leasing,
a division of Key Corporate
Capital, Inc. and Core Molding
Technologies, Inc.
|
Incorporated by reference to Exhibit 10(f) to Annual Report on Form 10-K for the year ended December 31, 2002 |
60
Table of Contents
Exhibit No. | Description | Location | ||||
10(e | )(1) | Amendment, dated March 26, 2001, to
Master Equipment Lease
Agreement2 by
and between KeyCorp Leasing,
a division of Key Corporate
Capital, Inc. and Core Molding
Technologies, Inc.
|
Incorporated by reference to Exhibit 10(f)(1) to Annual Report on Form 10-K for the year ended December 31, 2000 | |||
10(f | ) | Loan Agreement, dated April 1,
1998, by and between South Carolina
Jobs Economic Development Authority
and Core Molding Technologies, Inc.
|
Incorporated by reference to Exhibit 10(g) to Annual Report on Form 10-K for the year ended December 31, 2003 | |||
10(g | ) | Reimbursement Agreement, dated
April 1, 1998, by and between Core
Molding Technologies, Inc. and Key Bank
National Association
|
Incorporated by reference to Exhibit 10(h) to Annual Report on Form 10-K for the year ended December 31, 2003 | |||
10(h | ) | Core Molding Technologies, Inc.
Employee Stock Purchase
Plan3
|
Incorporated by reference to Exhibit 4(e) to Registration Statement on Form S-8 (Registration No. 333-60909) | |||
10(h | )(1) | 2002 Core Molding Technologies, Inc.
Employee Stock Purchase Plan (as amended
May 17,
2006) 3
|
Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K dated May 23, 2006 | |||
10(i | ) | Letter Agreement Regarding Terms and
Conditions of Interest Rate Swap
Agreement between Key Bank National
Association and Core Molding Technologies, Inc.
|
Incorporated by reference to Exhibit 10(j) to Annual Report on Form 10-K for the year ended December 31, 2003 | |||
10(i | )(1) | Letter Agreement Regarding Terms and
Conditions of Interest Rate Swap
Agreement between Key Bank National
Association and Core Molding Technologies, Inc.
|
Incorporated by reference to Exhibit 10(i)(1) to Annual Report on Form 10-K for the year ended December 31, 2009 | |||
10 | (j) | 2006 Core Molding Technologies, Inc.
Long Term Equity Incentive
Plan3
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated May 23, 2006 | |||
10(k | ) | Core Molding Technologies, Inc.
Cash Profit Sharing
Plan3
|
Incorporated by reference to Exhibit 10(1) to Current Report on Form 8-K dated December 29, 2008 | |||
10(l | ) | Form of Amended and Restated
Executive Severance Agreement
between Core Molding Technologies, Inc.
and certain executive officers
3
|
Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated December 29, 2008 | |||
10(m | ) | Form of Amended and Restated
Restricted Stock Agreement
between Core Molding Technologies, Inc.
and certain executive officers
3
|
Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated January 4, 2008 |
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Table of Contents
Exhibit No. | Description | Location | ||||
10 | (n) | Form of Executive Severance Agreement
between Core Molding Technologies, Inc.
and certain executive
officers3
|
Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K dated May 23, 2006 | |||
10 | (o) | Form of Restricted Stock Agreement
between Core Molding Technologies, Inc.
and certain executive
officers3
|
Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated May 23, 2006 | |||
11 | Computation of Net Income per Share
|
Exhibit 11 is omitted because the required information is included in the Notes to Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K | ||||
14 | Code of Conduct and Business Ethics
|
Incorporated by reference to Exhibit 14 to Annual Report on Form 10-K for the year ended December 31, 2003 | ||||
23 | Consent of Crowe Horwath LLP
|
Filed Herein | ||||
23 | (a) | Consent of Deloitte & Touche LLP
|
Filed Herein | |||
24 | Powers of Attorney
|
Filed Herein | ||||
31 | (a) | Section 302 Certification by Kevin L.
Barnett, President and Chief Executive
Officer
|
Filed Herein | |||
31 | (b) | Section 302 Certification by Herman F.
Dick, Jr., Vice President, Secretary,
Treasurer, and Chief Financial Officer
|
Filed Herein | |||
32 | (a) | Certification of Kevin L. Barnett,
Chief Executive Officer of Core Molding
Technologies, Inc., dated April 7, 2010,
pursuant to 18 U.S.C. Section 1350
|
Filed Herein | |||
32 | (b) | Certification of Herman F. Dick, Jr.,
Vice President, Treasurer, Secretary, and
Chief Financial Officer of Core Molding
Technologies, Inc., dated April 7, 2010,
pursuant to 18 U.S.C. Section 1350
|
Filed Herein |
1 | The Asset Purchase Agreement, as filed with the SEC 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 SEC upon request. | |
2 | The Master Equipment Lease, incorporated by reference in the Exhibits to this Annual Report on Form 10-K, omits certain schedules (including addendum to the schedules) which separately identify equipment subject to the Master Equipment Lease and certain additional terms applicable to the lease of such equipment. New schedules may be added under the terms of the Master Equipment Lease from time to time and existing schedules may change. Core Molding Technologies, Inc. will provide any omitted schedule to the SEC upon request. | |
3 | Indicates management contracts or compensatory plans that are required to be filed as an exhibit to this Annual Report on Form 10-K. | |
4 | Certain portions of this Exhibit have been omitted intentionally subject to a confidentiality treatment request. A complete version of the Exhibit has been filed separately with the Securities and Exchange Commission. |
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