Attached files
file | filename |
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EX-10.A - EX-10(A) - CORE MOLDING TECHNOLOGIES INC | c08390exv10wa.htm |
EX-31.A - EX-31(A) - CORE MOLDING TECHNOLOGIES INC | c08390exv31wa.htm |
EX-32.A - EX-32(A) - CORE MOLDING TECHNOLOGIES INC | c08390exv32wa.htm |
EX-31.B - EX-31(B) - CORE MOLDING TECHNOLOGIES INC | c08390exv31wb.htm |
EX-32.B - EX-32(B) - CORE MOLDING TECHNOLOGIES INC | c08390exv32wb.htm |
EX-10.B - EX-10(B) - CORE MOLDING TECHNOLOGIES INC | c08390exv10wb.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
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
|
31-1481870
(I.R.S. Employer Identification No.) |
|
incorporation or organization) |
800 Manor Park Drive, Columbus,
Ohio
|
43228-0183 |
|
(Address of principal executive office) | (Zip Code) |
Registrants telephone number, including area code (614) 870-5000
N/A
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes 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 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 whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of accelerated filer,
large 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
Exchange Act. Yes o NO þ
As of November 12, 2010, the latest practicable date, 7,083,176 shares of the registrants common
stock were issued and outstanding.
Table of Contents
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Ex-10(a) | ||||||||
Ex-10(b) | ||||||||
Ex-31(a) | ||||||||
Ex-31(b) | ||||||||
Ex-32(a) | ||||||||
Ex-32(b) |
2
Table of Contents
Part 1 Financial Information
Core Molding Technologies, Inc. and Subsidiaries
Core Molding Technologies, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,478,316 | $ | 4,141,838 | ||||
Accounts receivable (less allowance for doubtful accounts: |
||||||||
September 30, 2010 - $91,000; December 31, 2009 - $113,000) |
14,288,685 | 11,936,335 | ||||||
Inventories: |
||||||||
Finished goods |
1,599,877 | 863,166 | ||||||
Work in process |
1,240,997 | 1,253,975 | ||||||
Stores |
5,411,597 | 4,896,221 | ||||||
Total inventories |
8,252,471 | 7,013,362 | ||||||
Deferred tax asset-current portion |
1,195,831 | 1,195,831 | ||||||
Foreign sales tax receivable |
849,374 | 652,155 | ||||||
Prepaid expenses and other current assets |
1,162,445 | 1,021,093 | ||||||
Tooling in progress |
453,649 | | ||||||
Income tax receivable |
335,147 | 562,176 | ||||||
Total current assets |
29,015,918 | 26,522,790 | ||||||
Property, plant and equipment |
83,305,014 | 81,670,080 | ||||||
Accumulated depreciation |
(39,402,698 | ) | (36,726,836 | ) | ||||
Property, plant and equipment net |
43,902,316 | 44,943,244 | ||||||
Deferred tax asset |
2,095,651 | 6,570,802 | ||||||
Goodwill |
1,097,433 | 1,097,433 | ||||||
Other assets |
27,450 | 42,029 | ||||||
Total Assets |
$ | 76,138,768 | $ | 79,176,298 | ||||
Liabilities and Stockholders Equity |
||||||||
Liabilities: |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 4,457,849 | $ | 3,675,005 | ||||
Current portion of postretirement benefits liability |
673,000 | 667,000 | ||||||
Accounts payable |
6,945,222 | 4,805,468 | ||||||
Tooling in progress |
| 484,786 | ||||||
Compensation and related benefits |
2,148,836 | 2,400,587 | ||||||
Interest payable |
71,221 | 102,069 | ||||||
Other |
1,041,660 | 800,912 | ||||||
Total current liabilities |
15,337,788 | 12,935,827 | ||||||
Long-term debt |
14,199,997 | 17,732,842 | ||||||
Interest rate swaps |
514,442 | 198,809 | ||||||
Postretirement benefits liability |
9,199,598 | 18,076,696 | ||||||
Commitments and Contingencies |
||||||||
Stockholders Equity: |
||||||||
Preferred stock $0.01 par value, authorized shares 10,000,000;
Outstanding shares: 0 at September 30, 2010 and December 31, 2009 |
| | ||||||
Common stock $0.01 par value, authorized shares 20,000,000;
Outstanding shares: 6,861,383 at September 30, 2010 and
6,799,641 at December 31, 2009 |
68,614 | 67,996 | ||||||
Paid-in capital |
23,692,877 | 23,336,197 | ||||||
Accumulated other comprehensive income (loss), net of income taxes |
3,927,231 | (1,805,897 | ) | |||||
Treasury stock |
(26,226,440 | ) | (26,179,054 | ) | ||||
Retained earnings |
35,424,661 | 34,812,882 | ||||||
Total stockholders equity |
36,886,943 | 30,232,124 | ||||||
Total Liabilities and Stockholders Equity |
$ | 76,138,768 | $ | 79,176,298 | ||||
See notes to unaudited consolidated financial statements.
3
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales: |
||||||||||||||||
Products |
$ | 23,041,088 | $ | 19,801,193 | $ | 64,210,313 | $ | 54,275,278 | ||||||||
Tooling |
2,253,508 | 4,624,339 | 5,002,115 | 5,834,479 | ||||||||||||
Total sales |
25,294,596 | 24,425,532 | 69,212,428 | 60,109,757 | ||||||||||||
Total cost of sales |
22,160,682 | 20,441,551 | 58,575,785 | 53,568,170 | ||||||||||||
Gross margin |
3,133,914 | 3,983,981 | 10,636,643 | 6,541,587 | ||||||||||||
Total selling, general and
administrative expense |
2,289,262 | 2,131,030 | 6,908,532 | 6,886,771 | ||||||||||||
Income (loss) before interest and taxes |
844,652 | 1,852,951 | 3,728,111 | (345,184 | ) | |||||||||||
Interest expense |
362,614 | 516,904 | 1,240,087 | 657,298 | ||||||||||||
Income (loss) before income taxes |
482,038 | 1,336,047 | 2,488,024 | (1,002,482 | ) | |||||||||||
Income tax expense (benefit) |
174,620 | 486,685 | 1,876,245 | (369,540 | ) | |||||||||||
Net income (loss) |
$ | 307,418 | $ | 849,362 | $ | 611,779 | $ | (632,942 | ) | |||||||
Net income (loss) per common share: |
||||||||||||||||
Basic |
$ | 0.04 | $ | 0.13 | $ | 0.09 | $ | (0.09 | ) | |||||||
Diluted |
$ | 0.04 | $ | 0.12 | $ | 0.09 | $ | (0.09 | ) | |||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
6,850,424 | 6,794,005 | 6,822,685 | 6,768,467 | ||||||||||||
Diluted |
7,108,977 | 6,838,815 | 7,070,887 | 6,811,515 | ||||||||||||
See notes to unaudited consolidated financial statements.
4
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders Equity
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Other | Total | ||||||||||||||||||||||||||
Outstanding | Paid-In | Retained | Comprehensive | Treasury | Stockholders | |||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Stock | Equity | ||||||||||||||||||||||
Balance at January
1, 2010 |
6,799,641 | $ | 67,996 | $ | 23,336,197 | $ | 34,812,882 | $ | (1,805,897 | ) | $ | (26,179,054 | ) | $ | 30,232,124 | |||||||||||||
Net income |
| | | 611,779 | | | 611,779 | |||||||||||||||||||||
Change in
postretirement
benefits, net of
tax of $3,177,701 |
| | | | 5,676,298 | | 5,676,298 | |||||||||||||||||||||
Change in interest
rate swaps, net of tax
of $29,275 |
| | | | 56,830 | | 56,830 | |||||||||||||||||||||
Comprehensive income |
6,344,907 | |||||||||||||||||||||||||||
Common stock issued |
28,300 | 283 | 83,201 | | | | 83,484 | |||||||||||||||||||||
Purchase of
treasury stock |
(9,250 | ) | (92 | ) | | | | (47,386 | ) | (47,478 | ) | |||||||||||||||||
Restricted stock
issued |
42,692 | 427 | | | | | 427 | |||||||||||||||||||||
Share-based
compensation |
| | 273,479 | | | | 273,479 | |||||||||||||||||||||
Balance at
September 30, 2010 |
6,861,383 | $ | 68,614 | $ | 23,692,877 | $ | 35,424,661 | $ | 3,927,231 | $ | (26,226,440 | ) | $ | 36,886,943 | ||||||||||||||
See notes to unaudited consolidated financial statements.
5
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 611,779 | $ | (632,942 | ) | |||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||
Depreciation and amortization |
2,994,043 | 2,858,169 | ||||||
Deferred income taxes |
1,474,142 | (64,667 | ) | |||||
Mark-to-market of interest rate swaps |
380,739 | (134,365 | ) | |||||
Net
postretirement benefits settlement loss |
374,402 | | ||||||
Share-based compensation |
273,906 | 266,797 | ||||||
Loss on disposal of assets |
14,277 | 31,405 | ||||||
Gain on translation of foreign currency financial statements |
(82,974 | ) | (70,908 | ) | ||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
(2,352,349 | ) | 1,043,611 | |||||
Inventories |
(1,239,109 | ) | 2,962,286 | |||||
Prepaid and other assets |
(860,513 | ) | (335,728 | ) | ||||
Accounts payable |
2,157,693 | (2,295,039 | ) | |||||
Accrued and other liabilities |
(299,701 | ) | (637,250 | ) | ||||
Partial
settlement of postretirement benefits liability |
(1,256,650 | ) | | |||||
Postretirement benefits liability |
680,182 | 743,967 | ||||||
Net cash provided by operating activities |
2,869,867 | 3,735,336 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property, plant and equipment |
(1,866,872 | ) | (9,776,993 | ) | ||||
Proceeds from sale of property, plant and equipment |
| 18,000 | ||||||
Net cash used in investing activities |
(1,866,872 | ) | (9,758,993 | ) | ||||
Cash flows from financing activities: |
||||||||
Financing costs for new credit agreement |
| (224,321 | ) | |||||
Gross repayments on line of credit |
| (34,389,061 | ) | |||||
Gross borrowings on line of credit |
| 33,195,096 | ||||||
Payments of principal on capex loan |
(1,285,714 | ) | (571,429 | ) | ||||
Payments of principal on term loan |
(964,287 | ) | (964,287 | ) | ||||
Payment of principal on industrial revenue bond |
(500,000 | ) | (460,000 | ) | ||||
Borrowings on construction loans |
| 10,278,663 | ||||||
Proceeds from issuance of common stock |
83,484 | | ||||||
Net cash (used in) provided by financing activities |
(2,666,517 | ) | 6,864,661 | |||||
Net change in cash and cash equivalents |
(1,663,522 | ) | 841,004 | |||||
Cash and cash equivalents at beginning of period |
4,141,838 | | ||||||
Cash and cash equivalents at end of period |
$ | 2,478,316 | $ | 841,004 | ||||
Cash paid for: |
||||||||
Interest |
$ | 760,460 | $ | 738,121 | ||||
Income taxes (net of tax refunds) |
$ | 360,624 | $ | 275,884 | ||||
Non Cash: |
||||||||
Fixed asset purchases in accounts payable |
$ | 41,595 | $ | 58,218 | ||||
See notes to unaudited consolidated financial statements.
6
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and include all of the information and disclosures required by
accounting principles generally accepted in the United States of America for interim reporting,
which are less than those required for annual reporting. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments (all of which are
normal and recurring in nature) necessary to present fairly the financial position of Core Molding
Technologies, Inc. and its subsidiaries (Core Molding Technologies or the Company) at September
30, 2010, the results of operations for the three and nine months ended September 30, 2010 and cash
flows for the nine months ended September 30, 2010. The Notes to Consolidated Financial
Statements, which are contained in the 2009 Annual Report to Shareholders, should be read in
conjunction with these consolidated financial statements.
Core Molding Technologies and its subsidiaries operate in the plastics market in a family of
products known as reinforced plastics. Reinforced plastics are combinations of resins and
reinforcing fibers (typically glass or carbon) that are molded to shape. 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.
As disclosed in the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2010,
the Company determined that certain of its previously filed financial statements contained an error
related to the understatement of a deferred tax asset for certain retiree drug subsidies (RDS)
available to sponsors of retiree health benefit plans that provide a benefit that is at least
actuarially equivalent to the benefits under Medicare Part D. In order to assess materiality with
respect to these errors, the Company considered Staff Accounting Bulletin (SAB) 99, Materiality
and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements, and determined that the impact of these errors on prior period
consolidated financial statements was immaterial. Accordingly, the Companys consolidated balance
sheet as of December 31, 2009 and the related consolidated statements of operations and cash flows
for the three and nine months ended September 30, 2009 were revised and reflect the correction of
this immaterial error. Correction of this error in the Companys consolidated balance sheet as of
December 31, 2009 resulted in an increase in deferred tax assets of approximately $1,035,000, an
increase to retained earnings of approximately $618,000 and an increase to accumulated other
comprehensive income of approximately $417,000. The consolidated results of operations and other
comprehensive loss for the three and nine months ended September 30, 2009 reflect an increase in
income tax benefit of approximately $22,000 and $67,000, respectively.
2. Net Income (Loss) per Common Share
Net income (loss) per common share is computed based on the weighted average number of common
shares outstanding during the period. Diluted net income per common share is computed similarly
but includes the effect of the assumed exercise of dilutive stock options and restricted stock
under the treasury stock method.
7
Table of Contents
The computation of basic and diluted net income (loss) per common share is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 307,418 | $ | 849,362 | $ | 611,779 | $ | (632,942 | ) | |||||||
Weighted average common shares
outstanding |
6,850,424 | 6,794,005 | 6,822,685 | 6,768,467 | ||||||||||||
Plus: dilutive options assumed exercised |
503,525 | 85,600 | 503,525 | | ||||||||||||
Less: shares assumed repurchased with
proceeds from exercise |
336,490 | 82,114 | 366,622 | | ||||||||||||
Plus: dilutive effect of nonvested
restricted stock grants |
91,518 | 41,324 | 111,299 | 43,048 | ||||||||||||
Weighted average common and potentially
issuable common shares outstanding |
7,108,977 | 6,838,815 | 7,070,887 | 6,811,515 | ||||||||||||
Basic net income (loss) per common share |
$ | 0.04 | $ | 0.13 | $ | 0.09 | $ | (0.09 | ) | |||||||
Diluted net income (loss) per common
share |
$ | 0.04 | $ | 0.12 | $ | 0.09 | $ | (0.09 | ) |
23,000 unexercised stock options at September 30, 2010 and 558,825 unexercised stock options at
September 30, 2009 were not included in diluted earnings per share, as they were anti-dilutive.
8
Table of Contents
3. Sales
Core Molding Technologies currently has three major customers, Navistar, Inc. (Navistar), PACCAR,
Inc. (PACCAR) and Daimler Trucks North America LLC (Daimler). Major customers are defined as
customers whose sales individually consist of more than ten percent of total sales during any
reporting period. The following table presents sales revenue for the above-mentioned customers for
the three and nine months ended September 30, 2010 and 2009:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Navistar product sales |
$ | 11,759,537 | $ | 10,435,844 | $ | 35,544,577 | $ | 29,472,716 | ||||||||
Navistar tooling sales |
1,873,554 | 1,985,183 | 3,644,914 | 2,459,931 | ||||||||||||
Total Navistar sales |
13,633,091 | 12,421,027 | 39,189,491 | 31,932,647 | ||||||||||||
PACCAR product sales |
6,210,680 | 6,638,196 | 17,345,291 | 16,312,744 | ||||||||||||
PACCAR tooling sales |
265,552 | 281,200 | 1,155,012 | 488,020 | ||||||||||||
Total PACCAR sales |
6,476,232 | 6,919,396 | 18,500,303 | 16,800,764 | ||||||||||||
Daimler product sales |
2,113,531 | 1,055,855 | 4,935,515 | 2,808,550 | ||||||||||||
Daimler tooling sales |
| 1,790,805 | 65,887 | 1,790,805 | ||||||||||||
Total Daimler sales |
2,113,531 | 2,846,660 | 5,001,402 | 4,599,355 | ||||||||||||
Other product sales |
2,957,340 | 1,671,298 | 6,384,930 | 5,681,268 | ||||||||||||
Other tooling sales |
114,402 | 567,151 | 136,302 | 1,095,723 | ||||||||||||
Total other sales |
3,071,742 | 2,238,449 | 6,521,232 | 6,776,991 | ||||||||||||
Total product sales |
23,041,088 | 19,801,193 | 64,210,313 | 54,275,278 | ||||||||||||
Total tooling sales |
2,253,508 | 4,624,339 | 5,002,115 | 5,834,479 | ||||||||||||
Total sales |
$ | 25,294,596 | $ | 24,425,532 | $ | 69,212,428 | $ | 60,109,757 | ||||||||
4. Comprehensive Income (Loss)
Comprehensive income (loss) represents net income (loss) plus the results of certain equity changes
not reflected in the Consolidated Statements of Operations. The components of comprehensive income
(loss), net of tax, are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 307,418 | $ | 849,362 | $ | 611,779 | $ | (632,942 | ) | |||||||
Change in postretirement
benefits due to
curtailment and plan
amendment, net of tax of
$3,173,035 |
5,369,964 | | 5,667,964 | | ||||||||||||
Change in previously
unrecognized
postretirement benefits plan losses,
net of tax of $14,777 and
$34,383 for the three and
nine months ended
September 30, 2010,
respectively |
23,358 | | 61,417 | | ||||||||||||
Change in previously
unrecognized postretirement benefits plan prior service
costs, net of tax
of $29,717 |
(53,083 | ) | | (53,083 | ) | | ||||||||||
Change in interest rate
swaps, net of tax of $8,828 and
$29,275 for the three and
nine months ended
September 30, 2010 and $8,394 and
$18,424 for the three and
nine months ended
September 30, 2009,
respectively |
17,137 | 19,729 | 56,830 | 40,343 | ||||||||||||
Comprehensive income (loss) |
$ | 5,664,794 | $ | 869,091 | $ | 6,344,907 | $ | (592,599 | ) | |||||||
9
Table of Contents
5. Postretirement Benefits
The components of expense for all of Core Molding Technologies postretirement benefits plans for
the three and nine months ended September 30, 2010 and 2009 are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Pension expense: |
||||||||||||||||
Defined contribution plan
contributions |
$ | 60,000 | $ | 77,000 | $ | 231,000 | $ | 253,000 | ||||||||
Multi-employer plan
contributions |
92,000 | 109,000 | 300,000 | 304,000 | ||||||||||||
Total pension expense |
152,000 | 186,000 | 531,000 | 557,000 | ||||||||||||
Health and life insurance: |
||||||||||||||||
Service cost |
28,000 | 152,000 | 208,000 | 456,000 | ||||||||||||
Interest cost |
170,000 | 237,000 | 708,000 | 711,000 | ||||||||||||
Recognition
of previously unrecognized actuarial losses
due to partial settlement |
584,000 | | 584,000 | | ||||||||||||
Amortization of prior service costs |
(83,000 | ) | | (83,000 | ) | | ||||||||||
Amortization of net loss |
38,000 | | 96,000 | | ||||||||||||
Net periodic benefit cost |
737,000 | 389,000 | 1,513,000 | 1,167,000 | ||||||||||||
Total postretirement benefits expense |
$ | 889,000 | $ | 575,000 | $ | 2,044,000 | $ | 1,724,000 | ||||||||
Core Molding Technologies made contributions of $646,000 to pension plans and $271,000 of
postretirement healthcare payments through September 30, 2010. The Company also paid $1,257,000 to
settle certain postretirement health and life insurance obligations, as discussed further below. For the
remainder of 2010 the Company expects to make approximately $90,000 of multi-employer pension
payments and approximately $402,000 of postretirement health and life payments, all of which are
accrued.
The Companys liability for postretirement health and life insurance benefits relates primarily to
its Columbus, Ohio employee base. During the second quarter of 2010, the Company recognized a
curtailment in its postretirement benefits liability of $298,000 as a result of a reduction in
personnel in Columbus. This reduction in personnel was caused by a production shift of certain
product lines from the Companys Columbus, Ohio facility to its Matamoros facility. The Plan was
remeasured using a discount rate of 5.9% which is consistent with the discount rate used at December
31, 2009.
On August 7, 2010, the Company ratified a new collective bargaining agreement with represented
employees at the Companys Columbus, Ohio production facility. As part of the new agreement, the
postretirement health and life insurance benefits for all current and future represented employees
who were not retired as of August 7, 2010 were eliminated in exchange for a one-time cash payment
of $1,257,000. Individuals who retired prior to August 7, 2010 remain eligible for postretirement
health and life insurance benefits.
The elimination of postretirement health and life insurance benefits resulted in a reduction of the
Companys postretirement benefits liability of approximately $10,282,000. This reduction in
postretirement benefits liability was treated as a negative plan amendment and will be amortized as
a reduction to net periodic benefit cost over approximately twenty years, the remaining life
expectancy of the remaining participants in the plan. This negative plan amendment will result in
net periodic benefit cost reductions of approximately $500,000 per year, in addition to lower
interest costs associated with the reduced postretirement benefits liability. The Plan was
remeasured using a discount rate of 5.1%.
The
one-time cash payment of $1,257,000, as noted above,
was made on August 19, 2010, reducing the Companys
postretirement benefits liability to
approximately $9,872,000. The Company accounted for the one-time cash payment as a partial plan
settlement and recorded a one-time settlement charge of $584,000,
$374,000 net of tax, during the three months ended
September 30, 2010 to recognize a portion of the previously unrecognized actuarial losses recorded
in accumulated other comprehensive income.
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6. Debt
Credit Agreement; Amendments
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 (the 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 variable rate 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 8, 2010, the Company entered into a 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 of 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) retroactive modification of 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.
On May 11, 2010, the Company entered into a fifth amendment (the Fifth Amendment) to the Credit
Agreement. Pursuant to the terms of the Fifth Amendment, the parties agreed to modify certain
terms of the Credit Agreement. These modifications included (1) decrease in the applicable margin
for interest rates to 275 basis points from 375 basis points for the Capex and Mexican loans and
the revolving line of credit, effective May 1, 2010 and (2) extension of the commitment for the
revolving line of credit to April 30, 2012. Previous amendments are disclosed in the Companys
2009 Annual Report on Form 10-K.
Line of Credit
At September 30, 2010, the Company had available under the Credit Agreement an $8,000,000 variable
rate revolving line of credit, scheduled to mature on April 30, 2012. The revolving line of
credit bears interest at daily LIBOR plus 275 basis points and is collateralized by 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). At September 30, 2010 and
December 31, 2009 there was no outstanding balance under the revolving line of credit.
Bank Covenants
The Company is required to meet certain financial covenants included in the Credit Agreement with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of September 30, 2010, the Company was in compliance with
its financial covenants associated with the loans made under the Credit Agreement as described
above.
Management regularly evaluates the Companys ability to effectively meet its debt covenants based
on the Companys forecasts. Based upon the Companys forecasts, which are primarily based on
industry analysts estimates of 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 financial covenants set forth in 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 Company liquidity
needs. However, if a material adverse change in the financial position of the Company gies 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.
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Interest Rate Swaps
In conjunction with its variable rate Industrial Revenue Bond (IRB), the Company entered into an
interest rate swap agreement through April 2013, which was initially 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. During 2010 the Company determined this interest
rate swap was no longer highly effective. As a result, the Company discontinued the use of hedge
accounting effective January 1, 2010 related to this swap, and began recording mark-to-market
adjustments within interest expense in the Companys Consolidated Statement of Operations. The
pre-tax amount previously recognized in Accumulated Other Comprehensive Loss, totaling $199,990 as
of December 31, 2009, is being amortized as an increase to interest expense of $3,384 per month,
net of tax, over the remaining term of the interest rate swap agreement beginning January 2010.
The fair value of the swap was a liability of $152,164 and $199,990 as of September 30, 2010 and
December 31, 2009, respectively. The Company recorded interest income of $47,826 for a
mark-to-market adjustment of swap fair value for the first nine months of 2010 related to this
swap. The notional amount of the swap at September 30, 2010 and December 31, 2009 was $2,115,000
and $2,615,000, respectively.
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 $3,148 and
$27,492 as of September 30, 2010 and December 31, 2009 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. The notional amount of the swap at September 30, 2010 and December
31, 2009 was $428,560 and $1,392,847, respectively.
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 then 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 Operations. 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 September 30, 2010 and December 31, 2009 was a liability of $359,130 and an asset of
$28,673, respectively. The Company recorded interest expense of $387,803 for a mark-to-market
adjustment of swap fair value for the first nine months of 2010 related to this swap. The notional
amount of the swap at September 30, 2010 and December 31, 2009, was $9,714,286 and $11,000,000,
respectively.
7. Income Taxes
In the first quarter of 2010 the Patient Protection and Affordable Care Act (PPACA) was signed
into law. The PPACA changes the tax treatment related to existing RDS available to sponsors of
retiree health benefit plans that provide a benefit that is at least actuarially equivalent to the
benefits under Medicare Part D. As a result of the PPACA, RDS payments will effectively become
taxable in tax years beginning in 2013, by requiring the amount of the subsidy received to be
offset against the Companys deduction for health care expenses. Accordingly, during the first
quarter of 2010, the Company recorded a one time charge to income tax expense of $1,021,000 related
to the write down of its deferred tax asset for RDS.
The
Consolidated Balance Sheets (unaudited) at September 30,
2010 and December 31, 2009, includes a net deferred tax asset of $3,291,000 and $7,767,000, respectively. During the nine months ended
September 30, 2010, the Company reduced its deferred tax asset by approximately $3,413,000 as a
result of the remeasurement and partial settlement of the postretirement benefits liability and by
approximately $1,021,000 in association with the PPACA as noted above. The Company performs
analyses to evaluate the balance of deferred tax assets that will be realized. Such analyses are
based on the premise that the Company is, and will continue to be, 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.
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Income tax expense for the nine months ended September 30, 2010 is estimated to be approximately
$1,876,000. Without the write down of the aforementioned deferred tax asset, the Companys
effective tax rate was estimated to be 34% for the nine months ended September 30, 2010. Income tax
benefit for the nine months ended September 30, 2009 was estimated to be approximately $370,000, or
37% of total loss before taxes.
The Company follows the accounting guidance related to uncertainty in income taxes. As of
September 30, 2010, the Company had no liability for unrecognized tax benefit liability under this
guidance. The Company does not anticipate that the unrecognized tax benefits will significantly
change within the next twelve months.
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 the years before 2007 and is subject to income tax examinations by Mexican
authorities since the Company began business in Mexico in 2001. There are currently no income tax
audits in process.
8. Stock Based Compensation
The Company has a Long Term Equity Incentive Plan (the 2006 Plan), as approved by the Companys
stockholders in May 2006. This 2006 Plan replaced the Long Term Equity Incentive Plan (the
Original Plan) as originally approved by the stockholders 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.
Stock Options
The following summarizes the activity relating to stock options under the plans mentioned above for
the nine months ended September 30, 2010:
Number | Weighted | |||||||
of | Average | |||||||
Options | Exercise Price | |||||||
Outstanding at December 31, 2009 |
558,825 | $ | 3.30 | |||||
Exercised |
(28,300 | ) | 2.95 | |||||
Granted |
| | ||||||
Forfeited |
(4,000 | ) | 4.58 | |||||
Outstanding at September 30, 2010 |
526,525 | $ | 3.31 | |||||
Exercisable at September 30, 2010 |
490,425 | $ | 3.31 | |||||
The following summarizes the status of, and changes to, unvested options during the nine months
ended September 30, 2010:
Number | Weighted | |||||||
Of | Average | |||||||
Options | Exercise Price | |||||||
Unvested at December 31, 2009 |
44,500 | $ | 3.29 | |||||
Granted |
| | ||||||
Vested |
(8,000 | ) | 3.28 | |||||
Forfeited |
(400 | ) | 6.40 | |||||
Unvested at September 30, 2010 |
36,100 | $ | 3.26 | |||||
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At September 30, 2010 and 2009, there was $26,931 and $78,884, respectively, of total unrecognized
compensation expense, related to unvested stock options granted under the plan. That cost is
expected to be recognized over the weighted-average period of 3.0 years. Total compensation cost
related to incentive stock options for the nine months ended September 30, 2010 and 2009 was
$35,572 and, $66,895, respectively. This compensation expense is allocated such that $34,061 and
$59,028 are included in selling, general and administrative expenses and $1,511 and $7,867 are
recorded in cost of sales for the nine months ended September 30, 2010 and 2009, respectively.
Restricted Stock
In 2006, Core Molding Technologies began granting shares of its common stock to certain directors,
officers, and key managers 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.
The following summarizes the status of Restricted Stock grants as of September 30, 2010 and changes
during the nine months ended September 30, 2010:
Weighted | ||||||||
Number | Average | |||||||
Of | Grant Date | |||||||
Shares | Fair Value | |||||||
Unvested balance at December 31, 2009 |
187,445 | $ | 3.91 | |||||
Granted |
77,040 | 5.20 | ||||||
Vested |
(42,692 | ) | 5.48 | |||||
Forfeited |
| | ||||||
Unvested balance at September 30, 2010 |
221,793 | $ | 4.06 | |||||
As of September 30, 2010 and 2009, there was $530,440 and $480,269, respectively, of total
unrecognized compensation expense related to Restricted Stock granted under the 2006 Plan. That
cost is expected to be recognized over the weighted-average period of 2.4 years. The total
compensation costs related to restricted stock
grants for the nine months ended September 30, 2010 and 2009 was $238,334 and $199,902,
respectively, all of which was recorded to selling, general and administrative expense.
During the nine months ended September 30, 2010, employees surrendered 9,250 shares of the
Companys common stock to satisfy income tax withholding obligations in connection with the vesting
of restricted stock.
9. 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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The Company has three Level 2 fair value measurements all of which relate to the Companys interest
rate swaps. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed
and floating rate debt, and these swaps are valued using observable benchmark rates at commonly
quoted intervals for the full term of the swaps. These interest rate swaps are discussed in detail
in Note 6.
The following table presents financial liabilities measured and recorded at fair value on the
Companys Consolidated Balance Sheets (unaudited) on a recurring basis and their level within the
fair value hierarchy as of September 30, 2010 and December 31, 2009:
September 30, | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2010 | |||||||||||||
Liabilities |
||||||||||||||||
Interest rate swaps |
$ | | $ | 514,442 | $ | | $ | 514,442 | ||||||||
Total |
$ | | $ | 514,442 | $ | | $ | 514,442 | ||||||||
December 31, | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2009 | |||||||||||||
Liabilities |
||||||||||||||||
Interest rate swaps |
$ | | $ | 198,809 | $ | | $ | 198,809 | ||||||||
Total |
$ | | $ | 198,809 | $ | | $ | 198,809 | ||||||||
There were no non-recurring fair value measurements for the quarter ended September 30, 2010.
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
(unaudited) were as follows:
September 30, | December 31, | |||||||||||
2010 | 2009 | |||||||||||
Balance Sheet Location | Fair Value | Fair Value | ||||||||||
Derivatives designated as hedging instruments
Interest rate risk activities |
Interest rate swaps | $ | 3,148 | $ | 227,482 | |||||||
Derivatives not designated as hedging instruments
Interest rate risk activities |
Interest rate swaps | $ | 511,294 | $ | (28,673 | ) | ||||||
Total Derivatives |
$ | 514,442 | $ | 198,809 | ||||||||
The effect of derivative instruments on the Consolidated Statements of Operations (unaudited) was
as follows:
Derivatives in Cash Flow Hedging Relationships
Amount of (Gain) Loss | Location of (Gain) Loss | Amount of (Gain) Loss | ||||||||||||||||||
Recognized in OCI on | Reclassified from AOCI | Reclassified from AOCI | ||||||||||||||||||
Derivative (Effective | into Expense (Effective | into Expense (Effective | ||||||||||||||||||
Portion) | Portion) | Portion) | ||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
Three months ended | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Interest rate swaps |
$ | (5,377 | ) | $ | 27,363 | Interest expense, net | $ | 4,717 | $ | (50,705 | ) | |||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
Nine months ended | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Interest rate swaps |
$ | (24,344 | ) | $ | 88,453 | Interest expense, net | $ | 22,589 | $ | (159,745 | ) | |||||||||
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Location of (Gain) Loss | ||||||||||||
Recognized in Income on | Amount of (Gain) Loss Recognized in | |||||||||||
Derivative (Ineffective Portion | Income of Derivative (Ineffective | |||||||||||
and Amount Excluded from | Portion and Amount Excluded from | |||||||||||
Effectiveness Testing) | Effectiveness Testing) | |||||||||||
September 30, | September 30, | |||||||||||
Three months ended | 2010 | 2009 | ||||||||||
Interest rate swaps |
Interest (income) expense | $ | | $ | (2,673 | ) | ||||||
September 30, | September 30, | |||||||||||
Nine months ended | 2010 | 2009 | ||||||||||
Interest rate swaps |
Interest (income) expense | $ | | $ | (34,263 | ) | ||||||
Derivatives not designated as hedging instruments | ||||||||||||
Amount of | ||||||||||||
Realized/Unrealized (Gain) | ||||||||||||
Location of (Gain) Loss Recognized in | Loss Recognized in Income on | |||||||||||
Income on Derivatives | Derivatives | |||||||||||
September 30, | September 30, | |||||||||||
Three months ended | 2010 | 2009 | ||||||||||
Interest rate swaps |
Interest (income) expense | $ | 113,254 | $ | 120,769 | |||||||
September 30, | September 30, | |||||||||||
Nine months ended | 2010 | 2009 | ||||||||||
Interest rate swaps |
Interest (income) expense | $ | 380,739 | $ | (100,102 | ) | ||||||
As discussed in Note 6, the Company discontinued the use of hedge accounting for two of its
interest rate swaps, effective March 31, 2009 for the Capex swap and January 1, 2010 for the IRB
swap. The Company now records all mark to market adjustments related to these interest rate swaps
within interest expense in the Companys Consolidated Statements of Operations, since the date the
Company discontinued hedge accounting for each swap. 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 $54,350, net of taxes.
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Table of Contents
Part I Financial Information
Item 2. | 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; safety and
security conditions in Mexico; dependence upon three 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 the 2009 Annual
Report to Shareholders on Form 10-K.
Description of the Company
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 94% of the Companys sales for the nine months ended September 30, 2010. 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 demand, 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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Table of Contents
Overview
For the nine months ended September 30, 2010 the Company recorded net income of $612,000 or $0.09
per basic and diluted share, compared with a net loss of $633,000, or $0.09 per basic and diluted
share, for the nine months ended September 30, 2009. For the first nine months of 2010 product
sales increased 18% as compared to the same period in 2009, which is primarily the result of
increased demand from the North American medium and heavy-duty
truck customers.
Offsetting
the Companys net income for the nine months ended
September 30, 2010 were increases in
deferred tax expense and certain other charges. In March 2010, Congress passed the Patient
Protection and Affordable Care Act (PPACA) which repealed the tax benefits the Company previously
received related to certain retiree prescription drug costs. As a result of this change, the
Company reduced its deferred tax asset related to that subsidy and recorded a charge to income tax
expense of $1,021,000 during the period ended March 31, 2010. The Company also incurred
approximately $1,467,000, ($968,000, net of tax) of expense for transfer costs associated with
transferring certain operations from its Columbus, Ohio to its Matamoros, Mexico facilities.
Additionally, the Company recorded a net increase in postretirement
benefits expense of approximately $350,000
($231,000, net of tax) as compared the same period a year ago as a result of the elimination of
certain postretirement health and life insurance benefits as discussed in Note 5 of the Notes to
Consolidated Financial Statements. Excluding these charges, the Companys net income for the nine
months ended September 30, 2010 would have been $2,832,000, or $0.42 per basic share and $0.41 per
diluted share.
During the nine months ended September 30, 2009, the Company recorded approximately $2,022,000
($1,415,000, net of tax) of expense for transfer and start-up costs associated with the
construction of the Companys new production facility in Matamoros, Mexico. Excluding this charge,
the Companys net income for the nine months ended
September 30, 2009 would have been $803,000, or
$0.12 per basic and diluted share.
Industry forecasts have previously predicted a modest improvement in medium and heavy-duty truck
production levels in 2010 as compared to 2009 with analysts continuing to forecast improvement in
truck production for the fourth quarter of 2010.
Results of Operations
Three Months Ended September 30, 2010, As Compared To Three Months Ended September 30, 2009
Net sales for the three months ended September 30, 2010 totaled $25,295,000, representing an
approximate 4% increase from the $24,426,000 reported for the three months ended September 30,
2009. Included in total sales were tooling project sales of $2,254,000 and $4,624,000 for the
three months ended September 30, 2010 and September 30, 2009, respectively. Tooling project sales
result from billings to customers primarily for molds and assembly equipment specific to their
products as well as other non production billings. These sales are sporadic in nature and
fluctuate in regard to scope and related revenue on a period-to-period basis. Total product sales,
excluding tooling project sales, were approximately 16% higher for the three months ended September
30, 2010, as compared to the same period a year ago. The primary reason for the increase is higher
demand from North American medium and heavy-duty truck customers. Increased demand for
products the Company produces had a favorable impact on product sales
of $4,136,000 while the impact of pricing decreased product sales by
approximately $896,000. The decrease in pricing was primarily the
result of the transfer of certain products to the Companys Matamoros, Mexico production facility.
Sales to Navistar totaled $13,633,000 for the three months ended September 30, 2010, increasing 10%
from $12,421,000 in sales for the three months ended September 30, 2009. Included in total sales
was $1,874,000 of tooling sales for the three months ended September 30, 2010 compared to
$1,985,000 for the same three months in 2009. Included in tooling sales for the three months ended
September 30, 2010 was approximately $1,820,000 of billings to Navistar for services provided and
expenses incurred in connection with the relocation of certain production lines from the Companys
Columbus, Ohio production facility to its Matamoros production facility. Product sales to Navistar
increased by 13% for the three months ended September 30, 2010 versus the same period of the prior
year. The primary reason for the increase is overall higher demand for North American medium and
heavy-duty trucks which was partially offset by decreased pricing for
certain products transferred to the Companys Matamoros, Mexico
production facility.
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Sales to PACCAR totaled $6,476,000 for the three months ended September 30, 2010, decreasing 6%
from $6,919,000 in sales for the three months ended September 30, 2009. Included in total sales
was $266,000 of tooling sales for the three months ended September 30, 2010 compared to $281,000
for the same three months in 2009. Product sales to PACCAR decreased by 6% for the three months
ended September 30, 2010 compared to the same period of the prior year. The decrease in total
product sales was primarily due to lower sales for a product that is reaching the end of its
production life, which had the effect of reducing overall PACCAR sales by approximately 11%. This
decrease was partially off-set by higher demand of other products the Company manufactures for
PACCAR due to the overall demand for medium and heavy-duty trucks as noted above.
Sales to Daimler totaled $2,114,000 for the three months ended September 30, 2010, decreasing 26%
from $2,847,000 in sales for the three months ended September 30, 2009. This decrease was due to
the Company having no tooling sales to Daimler for the three months ended September 30, 2010
compared to $1,791,000 in tooling sales for the same three months in 2009. Product sales to
Daimler increased by 100% for the three months ended September 30, 2010 as compared to the same
period of the prior year. The increase in product sales is primarily due to sales of new products
the Company recently began producing for Daimler, which caused overall Daimler sales to increase by
approximately 63%. The remaining increase is due to the overall higher demand for North American
medium and heavy-duty trucks as well as a shift in Daimlers production to truck models for which
the Company provides higher content.
Sales to other customers for the three months ended September 30, 2010 increased 37% to $3,072,000
compared to $2,238,000 for the three months ended September 30, 2009. Included in total sales was
$114,000 of tooling sales for the three months ended September 30, 2010 compared to $567,000 for
the same three months in 2009. Product sales to other customers increased by 77% for the three
months ended September 30, 2010 as compared to the same period in the prior year. This increase in
product sales is primarily related to new product sales, as recurring sales for existing products remained flat for the three months.
Gross margin was approximately 12% of sales for the three months ended September 30, 2010, compared
with 16% for the three months ended September 30, 2009. Negatively impacting gross margin for the
three months ending September 30, 2010, was an increase in
postretirement insurance benefits expense of 1.4%
of sales related to the elimination of postretirement health and life benefits as discussed above. Also
contributing to the reduction in gross margin was a change in sales mix of 1.2% of sales to
products with lower margins and increases in material costs of 1.4% of sales.
Selling,
general and administrative expenses (SG&A) was $2,289,000 for
the three months ended September 30, 2010, as compared to $2,131,000 for the three months ended
September 30, 2009. Approximately $109,000 of the increased SG&A expense was related to increased
labor and benefit costs.
Interest expense totaled $363,000 for the three months ended September 30, 2010, compared to
interest expense of $517,000 for the three months ended September 30, 2009. The decrease in
interest expense is primarily due to the reduction to interest rates on outstanding borrowings
under the Credit Agreement, as amended, as well as reductions in outstanding loan balances due to
regularly scheduled principal payments.
Income tax expense for the three months ended September 30, 2010 and September 30, 2009 is
estimated to be approximately 36% of total earnings before taxes.
Core Molding Technologies recorded net income for the three months ended September 30, 2010 of
$307,000 or $0.04 per basic and diluted share, compared with net income of $849,000, or $0.13 per
basic share and $0.12 per diluted share, for the three months ended September 30, 2009.
Nine Months Ended September 30, 2010, As Compared To Nine Months Ended September 30, 2009
Net sales for the nine months ended September 30, 2010, totaled $69,212,000, representing an
approximate 15% increase from the $60,110,000 reported for the nine months ended September 30,
2009. Included in total sales were tooling project sales of $5,002,000 and $5,834,000 for the nine
months ended September 30, 2010 and September 30, 2009, respectively. Tooling project sales result
from billings to customers primarily for molds and assembly equipment specific to their products as
well as other non production billings. These sales are sporadic in nature and fluctuate in regard
to scope and related revenue on a period-to-period basis. Total product sales, excluding tooling
project sales, increased by 18% to $64,210,000 for the nine months ended September 30, 2010 as
compared to
$54,275,000 for the nine months ended September 30, 2009. The primary reason for the increase is
higher demand from North American medium and heavy-duty truck customers. Increased demand for
products the Company produces had a favorable impact on product sales
of $11,840,000 while the impact of pricing decreased product sales by
approximately $1,905,000. The decrease in pricing was primarily the result of
the transfer of certain products to the Companys Matamoros, Mexico production facility.
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Table of Contents
Sales to Navistar totaled $39,189,000 for the nine months ended September 30, 2010, increasing 23%
from $31,933,000 in sales for the nine months ended September 30, 2009. Included in total sales
was $3,645,000 of tooling sales for the nine months ended September 30, 2010 compared to $2,460,000
for the same nine months in 2009. Included in tooling sales for the nine months ended September 30, 2010 was approximately $2,809,000
of billings to Navistar for services provided and expenses incurred in connection with the relocation of certain production
lines from the Companys Columbus, Ohio production facility to its Matamoros production facility. Product sales to Navistar increased by 21% for the nine months
ended September 30, 2010 versus the same period of the prior year. The primary reasons for the
increase were higher demand for North American medium and heavy-duty trucks as well as more
orders for Navistars military product line. These increases were partially
offset by decreased pricing for certain products transferred to the
Companys Matamoros, Mexico production facility.
Sales to PACCAR totaled $18,500,000 for the nine months ended September 30, 2010, as compared to
$16,801,000 reported for the nine months ended September 30, 2009. Included in total sales was
$1,155,000 of tooling sales for the nine months ended September 30, 2010 compared to $488,000 for
the nine months ended September 30, 2009. Total product sales to PACCAR increased by 6% for the
nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. Total
product sales were negatively impacted by lower sales for a product that is reaching the end of its
production life, which had the effect of reducing overall PACCAR sales by approximately 8%. This
decrease was off-set by the impact of higher overall demand in the medium and heavy duty truck
markets as noted above.
Sales to Daimler totaled $5,001,000 for the nine months ended September 30, 2010, as compared to
$4,599,000 reported for the nine months ended September 30, 2009. Included in total sales was
$66,000 of tooling sales for the nine months ended September 30, 2010 compared $1,791,000 for the
nine months ended September 30, 2009. Total product sales to Daimler increased by 76% for the nine
months ended September 30, 2010 compared to the nine months ended September 30, 2009. The increase
in product sales is primarily due to sales of new products to Daimler which caused overall Daimler
sales to increase by approximately 48%. The remaining increase is due to the overall higher demand
for North American medium and heavy-duty trucks as well as a shift in Daimlers production to truck
models for which the Company provides higher content.
Sales to other customers for the nine months ended September 30, 2010 were $6,521,000 compared to
$6,777,000 for the nine months ended September 30, 2009. Included in total sales is $136,000 of
tooling sales for the nine months ended September 30, 2010 compared to $1,096,000 for the same nine
months in 2009. Product sales to other customers increased by 12% for the nine months ended
September 30, 2010 as compared to the same period in the prior year. This increase is primarily
due to the overall higher demand for other North American medium and
heavy-duty truck manufacturers and shifts in production to truck models for which the Company provides higher content.
Gross margin was approximately 15% of sales for the nine months ended September 30, 2010, compared
with 11% for the nine months ended September 30, 2009. The Company incurred approximately
$1,467,000 in transition costs related to the movement of product lines from its Columbus, Ohio
facility to its Matamoros, Mexico facility for the nine months ended September 30, 2010. For the
same period in 2009, the Company incurred approximately $1,804,000 of transfer and start up costs
associated with the construction of the Companys new production facility in Mexico. These costs
had an unfavorable impact of approximately 2% and 3% of sales for the nine months ended September
30, 2010 and 2009, respectively. Contributing approximately 3% of sales to gross margin in 2010
was better fixed cost absorption due to higher production volumes. The Companys manufacturing
operations have significant overhead costs which do not change proportionately with production.
Labor and benefit costs decreased by 2% of sales which contributed to
gross margin, but were partially offset by increases in material
costs of approximately 1.5% of sales as well as a change in sales mix of 0.5% of sales
to products with lower margins.
Selling, general and administrative expenses (SG&A) totaled $6,909,000 for the nine months ended
September 30, 2010, and were essentially flat with the $6,887,000 of expense for the nine months
ended September 30, 2009.
Net interest expense totaled $1,240,000 for the nine months ended September 30, 2010, as compared
to net interest expense of $657,000 for the nine months ended September 30, 2009. The primary
cause of the increase in interest expense between periods relates to mark-to-market adjustments
related to interest rate swaps. Mark-to-market adjustments on interest rate swaps, that are not
designated as hedging instruments, are recorded directly to interest expense and resulted in
additional interest expense of $381,000 for the nine months ended September 30, 2010 compared to
interest income of $134,000 for the same nine months during 2009. Additionally, the Company
capitalized interest of approximately $167,000 in 2009 related to its new production facility in
Mexico which was placed into service in September 2009.
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Income tax expense for the nine months ended September 30, 2010, is estimated to be $1,876,000 or
approximately 75% of total income before taxes. During the nine months ended September 30, 2009,
an income tax benefit was estimated to be 37% of total losses before taxes. The increase in the
Companys effective tax rate in 2010, as compared to 2009, is due to the impact of the write off of
certain deferred tax assets of $1,021,000. The deferred tax write off was due to the passage of the
Patient Protection and Affordable Care Act (PPACA) which repealed the tax benefit associated with
certain retiree prescription drug subsidies previously recorded by the Company. Without this charge
the Companys estimated tax rate was 34% for the nine months ended September 30, 2010.
Core Molding Technologies recorded net income for the nine months ended September 30, 2010 of
$612,000 or $0.09 per basic and diluted share, compared with a net loss of $633,000, or $0.09 per
basic and diluted share, for the nine months ended September 30, 2009.
Liquidity and Capital Resources
On March 8, 2010, the Company entered into a 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) retroactive modification of 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.
On May 11, 2010, the Company entered into a fifth amendment (the Fifth Amendment) to the Credit
Agreement. Pursuant to the terms of the Fifth Amendment, the parties agreed to modify certain
terms of the Credit Agreement. These modifications included (1) decrease in the applicable margin
for interest rates to 275 basis points from 375 basis points for the Capex and Mexican loans and
the revolving line of credit, effective May 1, 2010 and (2) extension of the commitment for the
revolving line of credit to April 30, 2012. Previous amendments are disclosed in Core Molding
Technologies 2009 Annual Report on Form 10-K.
The Companys primary sources of funds have been cash generated from operating activities and
borrowings from third parties. Primary cash requirements are for operating expenses and capital
expenditures.
Cash provided by operating activities for the nine months ended September 30, 2010 totaled
$2,870,000. Net income of $612,000 positively impacted operating cash flows. Non-cash deductions
of depreciation and amortization contributed $2,994,000 to operating cash flow. Changes in working
capital decreased cash provided by operating activities by $2,594,000. Changes in working capital
primarily relate to an increase in accounts receivable due to increased product sales as well as
higher inventory levels. These were offset by higher accounts payable as of September 30, 2010 as
compared to December 31, 2009.
Cash used in investing activities for the nine months ended September 30, 2010 was $1,867,000,
primarily representing capital improvements to our Matamoros facility to support product lines
being moved from Columbus, Ohio to that facility. The Company currently plans an additional
$935,000 of capital expenditures for the remainder of the year, of which $700,000 relates to the
completion of the capital improvements to the Companys production facility in Mexico. These
capital additions will be funded by cash from operations and if necessary, borrowings on the
Companys line of credit. The Company may also undertake other capital improvement projects in the
future as deemed necessary and appropriate.
Financing activities decreased cash by $2,667,000. This decrease was a result of repayments of
principal on the Companys capex loan of $1,286,000, term loan of $964,000 and industrial revenue
bond of $500,000.
At September 30, 2010, the Company had cash on hand of $2,478,000 and line of credit availability
of $8,000,000, with a scheduled maturity of April 30, 2012. At September 30, 2010, Core Molding
Technologies had no outstanding borrowings on the line of credit.
The Company is required to meet certain financial covenants included in the Credit Agreement with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of September 30, 2010, the Company was in compliance with
its financial debt covenants.
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Management regularly evaluates the Companys ability to effectively meet its debt covenants based
on the Companys forecasts. Based on the Companys forecasts which are primarily based on industry
analysts estimates of 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 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 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.
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, postretirement 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 recorded an
allowance for doubtful accounts of $91,000 at September 30, 2010 and $113,000 at December 31, 2009.
Management also records estimates for customer returns and deductions, discounts offered to
customers, and for price adjustments. Should customer returns and deductions, discounts, and price
adjustments fluctuate from the estimated amounts, additional allowances may be required. The
Company has reduced accounts receivable for chargebacks by $650,000 at September 30, 2010 and
$519,000 at December 31, 2009.
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.
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. If there is a sustained downturn in the economy or the disruption of
the financial and credit markets continues, demand for our products could fall below our current
expectations and our forecasts of revenues and operating results could decline. Impairment charges
of our goodwill or long-lived assets may be required in the future if our expected future cash
flows decline. The Company has not recorded any impairment to goodwill or long-lived assets for
the nine months ended September 30, 2010 or the year ended December 31, 2009.
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 September 30, 2010 and December 31, 2009
of $1,063,000 and $944,000, respectively.
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Postretirement 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 Notes to Consolidated Financial Statements, which are contained in the 2009 Annual Report
to Shareholders. As described in Note 5, in August 2010, the Company eliminated its postretirement
benefits for all current and future represented employees who had not retired as of August 7, 2010.
The elimination of benefits resulted in a reduction of the Companys postretirement benefits
liability of $10,282,000. Core Molding Technologies recorded a liability for postretirement
healthcare benefits based on actuarially computed estimates of $9,873,000 at September 30, 2010 and
$18,744,000 at December 31, 2009.
Revenue Recognition: Revenue from product sales is recognized at the time products are shipped
and title transfers. Allowances for returned products 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 September 30, 2010 the Company had a net asset related to tooling
in progress of $454,000, which represents approximately $5,339,000 of progress tooling billings and
$5,793,000 of progress tooling expenses. At December 31, 2009 the Company had 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.
Income taxes: The Consolidated Balance Sheet at September 30, 2010 and December 31, 2009, includes
a deferred tax asset of $3,291,000 and $7,767,000, respectively. The
decrease in net deferred tax
assets between the periods is primarily due to the reduction of $3,413,000 associated with the remeasurement and settlement of the postretirement
benefits liability and the reduction of approximately $1,021,000
associated with the PPACA tax law change. The Company performs analyses to evaluate the balance of
deferred tax assets that will be realized. Such analyses are based on the premise that the Company
is, and will continue to be, 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. For more information,
refer to Note 9 in Core Molding Technologies 2009 Annual Report to Shareholders.
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Part I Financial Information
Item 3. | 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 six 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) Revolving Line of Credit and Mexican loan payable
under the Credit Agreement, each of which bears a variable interest rate; (3) Capex loan payable
with a variable interest rate (although the Company has an interest rate swap to fix the variable
portion of the applicable interest rate at 2.3%) (4) bank Term loan under the Credit Agreement,
with a variable interest rate (although the Company has an interest rate swap to fix the interest
rate 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 and fiberglass for use in production. The prices and availability of these
materials 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
2010 and 2009. It would have impacted the interest paid on the Companys Line of Credit and the
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.
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Table of Contents
Part I Financial Information
Item 4T. | 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 was accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure, 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.
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.
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Table of Contents
Part II Other Information
Item 1. | Legal Proceedings |
None |
Item 1A. | Risk Factors |
There have been no material changes in Core Molding Technologies risk factors from
those previously disclosed in Core Molding Technologies 2009 Annual Report on Form
10-K. |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
Item 3. | Defaults Upon Senior Securities |
None
Item 4. | (Removed and Reserved) |
Item 5. | Other Information |
None
Item 6. | Exhibits |
See Index to Exhibits
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CORE MOLDING TECHNOLOGIES, INC. |
||||
Date: November 15, 2010 | By: | /s/ Kevin L. Barnett | ||
Kevin L. Barnett | ||||
President, Chief Executive Officer, and Director | ||||
Date: November 15, 2010 | By: | /s/ Herman F. Dick, Jr. | ||
Herman F. Dick, Jr. | ||||
Vice President, Secretary, Treasurer and Chief Financial Officer | ||||
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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 RYMAC Mortgage Investment Corporation1 | 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 Technologies, Inc. and RYMAC Mortgage Investment Corporation | 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 Technologies, Inc. and RYMAC Mortgage Investment Corporation | 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) | ||
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 |
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Table of Contents
Exhibit No. | Description | Location | |||
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 Materials Corporation 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) | ||
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(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 | ||
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(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 | ||
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(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 From 8-k filed July 19, 2007 | ||
10
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(a) | Supply Agreement, dated June 23, 2008 between Core Molding Technologies, Inc. and Core Composites Corporation and Navistar, Inc2 | Filed Herein | ||
10
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(b) | 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. | Filed Herein | ||
11
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Computation of Net Income per Share | Exhibit 11 omitted because the required information is Included in Notes to Financial Statement | |||
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(a) | Section 302 Certification by Kevin L. Barnett, President, Chief Executive Officer, and Director | Filed Herein | ||
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(b) | Section 302 Certification by Herman F. Dick, Jr., Vice President, Secretary, Treasurer, and Chief Financial Officer | Filed Herein | ||
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(a) | Certification of Kevin L. Barnett, Chief Executive Officer of Core Molding Technologies, Inc., dated November 15, 2010, pursuant to 18 U.S.C. Section 1350 | Filed Herein | ||
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(b) | Certification of Herman F. Dick, Jr., Chief Financial Officer of Core Molding Technologies, Inc., dated November 15, 2010, pursuant to 18 U.S.C. Section 1350 | Filed Herein |
1 | The Asset Purchase Agreement, as filed with the Securities and Exchange Commission at
Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809), omits the exhibits
(including, the Buyer Note, Special Warranty Deed, Supply Agreement, Registration Rights Agreement
and Transition Services Agreement, identified in the Asset Purchase Agreement) and schedules
(including, those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase Agreement.
Core Molding Technologies, Inc. will provide any omitted exhibit or schedule to the Securities and
Exchange Commission upon request. |
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2 | Certain portions of the 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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