Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
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o |
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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)
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Delaware
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31-1481870 |
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(State or other jurisdiction
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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800 Manor Park Drive, P.O. Box 28183 |
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Columbus, Ohio
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43228-0183 |
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(Address of principal executive office)
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(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 Website, 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.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the
Act. Yes o NO þ
As of May 14, 2009, the latest practicable date, 6,850,896 shares of the registrants common
shares were issued and outstanding.
Part 1 Financial Information
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
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March 31, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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Assets |
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Current Assets: |
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Cash |
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$ |
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$ |
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Accounts receivable (less allowance for doubtful accounts: |
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March 31, 2009 $91,000; December 31, 2008 $109,000) |
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11,861,312 |
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15,435,103 |
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Inventories: |
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Finished and work in process goods |
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4,358,128 |
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4,991,848 |
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Stores |
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4,852,033 |
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4,740,375 |
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Total inventories |
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9,210,161 |
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9,732,223 |
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Deferred tax asset-current portion |
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1,869,198 |
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1,869,198 |
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Foreign sales tax receivable |
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640,184 |
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584,230 |
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Prepaid expenses and other current assets net |
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2,023,047 |
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876,094 |
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Income tax receivable |
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113,256 |
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Total current assets |
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25,717,158 |
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28,496,848 |
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Property, plant and equipment |
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76,429,080 |
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71,970,638 |
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Accumulated depreciation |
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(34,036,577 |
) |
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(33,155,187 |
) |
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Property, plant and equipment net |
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42,392,503 |
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38,815,451 |
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Deferred tax asset |
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5,324,213 |
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5,318,623 |
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Goodwill |
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1,097,433 |
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1,097,433 |
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Customer list |
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24,759 |
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37,139 |
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Other assets |
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54,954 |
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65,598 |
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Total |
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$ |
74,611,020 |
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$ |
73,831,092 |
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Liabilities and Stockholders Equity |
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Liabilities: |
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Current liabilities |
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Current portion of long-term debt |
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$ |
2,920,716 |
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$ |
2,905,716 |
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Notes payable line of credit |
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1,796,636 |
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1,193,965 |
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Current portion of postretirement benefits liability |
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520,000 |
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520,000 |
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Accounts payable |
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5,042,701 |
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6,866,388 |
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Tooling in progress |
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312,567 |
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212,065 |
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Accrued liabilities: |
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Compensation and related benefits |
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3,958,145 |
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4,715,884 |
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Interest payable |
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83,852 |
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96,103 |
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Taxes |
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427,972 |
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Other |
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999,644 |
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928,080 |
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Total current liabilities |
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15,634,261 |
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17,866,173 |
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Long-term debt |
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14,521,418 |
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11,129,184 |
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Interest rate swap |
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508,473 |
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502,381 |
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Postretirement benefits liability |
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15,569,790 |
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15,357,897 |
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Commitments and Contingencies |
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Stockholders Equity: |
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Preferred stock $0.01 par value, authorized shares 10,000,000;
Outstanding shares: March 31, 2009 and December 31, 2008 0 |
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Common stock $0.01 par value, authorized shares 20,000,000;
Outstanding shares: 6,771,662 at March 31, 2009 and
6,765,790 at December 31, 2008 |
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67,717 |
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67,658 |
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Paid-in capital |
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23,074,722 |
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23,002,472 |
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Accumulated other comprehensive loss, net of income tax benefit |
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(1,103,830 |
) |
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(1,092,977 |
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Treasury stock |
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(26,179,054 |
) |
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(26,179,054 |
) |
Retained earnings |
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32,517,523 |
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33,177,358 |
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Total stockholders equity |
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28,377,078 |
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28,975,457 |
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Total |
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$ |
74,611,020 |
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$ |
73,831,092 |
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See notes to consolidated financial statements.
3
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Net Sales: |
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Products |
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$ |
17,830,280 |
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$ |
25,983,212 |
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Tooling |
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553,837 |
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3,102,225 |
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Total Sales |
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18,384,117 |
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29,085,437 |
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Cost of sales |
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16,343,158 |
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24,198,838 |
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Postretirement benefits expense |
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467,619 |
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570,394 |
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Total cost of sales |
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16,810,777 |
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24,769,232 |
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Gross margin |
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1,573,340 |
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4,316,205 |
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Selling, general and administrative expense |
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2,368,110 |
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2,671,736 |
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Postretirement benefits expense |
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131,893 |
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142,599 |
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Total selling, general and administrative expense |
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2,500,003 |
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2,814,335 |
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(Loss) income before interest and income taxes |
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(926,663 |
) |
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1,501,870 |
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Interest expense |
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(110,154 |
) |
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(229,026 |
) |
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(Loss) income before income taxes |
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(1,036,817 |
) |
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1,272,844 |
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Income tax (benefit) expense |
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(376,982 |
) |
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408,691 |
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Net (loss) income |
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$ |
(659,835 |
) |
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$ |
864,153 |
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Net (loss) income per common share: |
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Basic |
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$ |
(0.10 |
) |
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$ |
0.13 |
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Diluted |
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$ |
(0.10 |
) |
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$ |
0.12 |
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Weighted average common shares outstanding: |
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Basic |
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6,768,726 |
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6,731,268 |
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Diluted |
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6,768,726 |
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7,037,224 |
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See notes to consolidated financial statements.
4
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders Equity
(Unaudited)
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Accumulated |
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Common Stock |
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Other |
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Total |
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Outstanding |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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Stock |
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Equity |
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Balance at January 1,
2009 |
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6,765,790 |
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$ |
67,658 |
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$ |
23,002,472 |
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$ |
33,177,358 |
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$ |
(1,092,977 |
) |
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$ |
(26,179,054 |
) |
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$ |
28,975,457 |
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Net loss |
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(659,835 |
) |
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(659,835 |
) |
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Hedge accounting
effect of the interest
rate swaps, net of
deferred income tax
benefit of $5,591 |
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(10,853 |
) |
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(10,853 |
) |
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Comprehensive
loss |
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(670,688 |
) |
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Restricted
stock vested |
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5,872 |
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59 |
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40,282 |
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40,341 |
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Share-based
compensation |
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31,968 |
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31,968 |
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Balance at March 31, 2009 |
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6,771,662 |
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|
$ |
67,717 |
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|
$ |
23,074,722 |
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$ |
32,517,523 |
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$ |
(1,103,830 |
) |
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$ |
(26,179,054 |
) |
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$ |
28,377,078 |
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See notes to consolidated financial statements.
5
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
|
Cash flows from operating activities: |
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Net (loss) income |
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$ |
(659,835 |
) |
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$ |
864,153 |
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Adjustments to reconcile net income to net cash provided by
operating activities: |
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Depreciation and amortization |
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|
924,434 |
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|
900,798 |
|
Deferred income taxes |
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|
(12,130 |
) |
Ineffectiveness of swap |
|
|
(10,352 |
) |
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|
41,201 |
|
Share based
compensation and vested restricted stock |
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|
72,309 |
|
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|
67,464 |
|
Loss on translation of foreign currency financial statements |
|
|
64,609 |
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|
33,277 |
|
Change in operating assets and liabilities: |
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Accounts receivable |
|
|
3,573,791 |
|
|
|
(3,540,985 |
) |
Inventories |
|
|
522,062 |
|
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|
61,145 |
|
Prepaid and other assets |
|
|
(1,063,931 |
) |
|
|
(100,322 |
) |
Accounts payable |
|
|
(1,766,771 |
) |
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|
(2,184,333 |
) |
Accrued and other liabilities |
|
|
(1,139,151 |
) |
|
|
769,359 |
|
Postretirement benefits liability |
|
|
211,895 |
|
|
|
359,788 |
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Net cash provided by (used in) operating activities |
|
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729,060 |
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(2,740,585 |
) |
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Cash flows from investing activities: |
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Purchase of property, plant and equipment |
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(4,579,969 |
) |
|
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(213,354 |
) |
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Net cash used in investing activities |
|
|
(4,579,969 |
) |
|
|
(213,354 |
) |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
|
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|
|
15,865 |
|
Financing cost for new credit agreement |
|
|
(158,995 |
) |
|
|
|
|
Borrowings on construction loan |
|
|
3,878,663 |
|
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|
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|
Gross borrowing on line of credit |
|
|
14,360,842 |
|
|
|
|
|
Gross repayments on line of credit |
|
|
(13,758,172 |
) |
|
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|
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Net borrowing on line of credit |
|
|
|
|
|
|
3,965,481 |
|
Payments of principal on secured note payable |
|
|
(321,429 |
) |
|
|
(321,429 |
) |
Payment of principal on industrial revenue bond |
|
|
(150,000 |
) |
|
|
(140,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
3,850,909 |
|
|
|
3,519,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
565,978 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
565,978 |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
161,377 |
|
|
$ |
195,149 |
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
224,000 |
|
|
$ |
160,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Cash: |
|
|
|
|
|
|
|
|
Fixed asset purchases in accounts payable |
|
$ |
81,909 |
|
|
$ |
143,921 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
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 March 31,
2009, and the results of operations and cash flows for the three months ended March 31, 2009. The
Consolidated Notes to Financial Statements, which are contained in the 2008 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 manufacturing 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. Compression molding
production capability has also been added to our new production facility in Matamoros, Mexico. The
Matamoros facility also utilizes spray-up and hand lay-up open mold processes and resin transfer
(RTM) closed molding utilizing the vacuum infusion process to produce reinforced plastic
products. The Batavia facility produces reinforced plastic products by a spray-up open mold process
and resin transfer molding (RTM) closed mold process utilizing multiple insert tooling (MIT).
Core Molding Technologies also sells reinforced plastic products to the automotive-aftermarket
industry through its subsidiary Core Automotive Technologies, doing business as Keystone Restyling
Products.
2. Net (Loss) Income per Common Share
Net (loss) income 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
include the effect of the assumed exercise of dilutive stock options and restricted stock under the
treasury stock method.
The computation of basic and diluted net (loss) income per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(659,835 |
) |
|
$ |
864,153 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
6,768,726 |
|
|
|
6,731,268 |
|
Plus: dilutive options assumed exercised |
|
|
|
|
|
|
582,600 |
|
Less: shares assumed repurchased with proceeds from
exercise |
|
|
|
|
|
|
(297,484 |
) |
Plus: dilutive effect of nonvested restricted stock grants |
|
|
|
|
|
|
20,840 |
|
|
|
|
|
|
|
|
Weighted average common and potentially issuable
common shares outstanding |
|
|
6,768,726 |
|
|
|
7,037,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share |
|
$ |
(0.10 |
) |
|
$ |
0.13 |
|
Diluted net (loss) income per common share |
|
$ |
(0.10 |
) |
|
$ |
0.12 |
|
All 570,225 shares of unexercised stock options at March 31, 2009 and 33,000 stock options at March
31, 2008 were not included in diluted earnings per share as they were anti-dilutive.
7
3. Sales
Core Molding Technologies currently has two major customers, Navistar, Inc. (Navistar) and
PACCAR, Inc. (PACCAR). Major customers are defined as customers whose sales individually consist
of more than ten percent of total sales. The following table presents sales revenue for the
above-mentioned customers for the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Navistar product sales |
|
$ |
10,057,223 |
|
|
$ |
13,474,970 |
|
Navistar tooling sales |
|
|
302,795 |
|
|
|
2,756,950 |
|
|
|
|
|
|
|
|
Total Navistar sales |
|
|
10,360,018 |
|
|
|
16,231,920 |
|
|
|
|
|
|
|
|
|
|
PACCAR product sales |
|
|
4,191,729 |
|
|
|
7,405,632 |
|
PACCAR tooling sales |
|
|
11,600 |
|
|
|
94,450 |
|
|
|
|
|
|
|
|
Total PACCAR sales |
|
|
4,203,329 |
|
|
|
7,500,082 |
|
|
|
|
|
|
|
|
|
|
Other product sales |
|
|
3,581,328 |
|
|
|
5,102,610 |
|
Other tooling sales |
|
|
239,442 |
|
|
|
250,825 |
|
|
|
|
|
|
|
|
Total other sales |
|
|
3,820,770 |
|
|
|
5,353,435 |
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
17,830,280 |
|
|
|
25,983,212 |
|
Total tooling sales |
|
|
553,837 |
|
|
|
3,102,225 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
18,384,117 |
|
|
$ |
29,085,437 |
|
|
|
|
|
|
|
|
4. Comprehensive (Loss) Income
Comprehensive (loss) income represents net income plus the results of certain equity changes not
reflected in the Statements of Operations. The components of comprehensive (loss) income, net of
tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(659,835 |
) |
|
$ |
864,153 |
|
|
|
|
|
|
|
|
|
|
Hedge accounting effect of interest rate swaps,
net of deferred income tax benefit of $5,591
and $36,044 for the three months ended March
31, 2009 and 2008 respectively. |
|
|
(10,853 |
) |
|
|
(69,968 |
) |
|
|
|
|
|
|
|
|
|
Amortization of unrecognized loss on post
retirement benefit, net of tax expense of
$11,361 for the three months ended March 31,
2008. |
|
|
|
|
|
|
20,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(670,688 |
) |
|
$ |
814,824 |
|
|
|
|
|
|
|
|
8
5. Postretirement Benefits
The components of expense for all of Core Molding Technologies postretirement benefits plans for
the three months ended March 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Pension expense: |
|
|
|
|
|
|
|
|
Defined contribution plan
contributions |
|
$ |
103,000 |
|
|
$ |
127,000 |
|
Multi-employer plan
contributions |
|
|
108,000 |
|
|
|
133,000 |
|
|
|
|
|
|
|
|
Total pension expense |
|
|
211,000 |
|
|
|
260,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and life insurance: |
|
|
|
|
|
|
|
|
Service cost |
|
|
152,000 |
|
|
|
159,000 |
|
Interest cost |
|
|
237,000 |
|
|
|
262,000 |
|
Amortization of net loss |
|
|
|
|
|
|
32,000 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
389,000 |
|
|
|
453,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement benefits expense |
|
$ |
600,000 |
|
|
$ |
713,000 |
|
|
|
|
|
|
|
|
Core Molding Technologies has made contributions of approximately $83,000 to pension plans and
$177,000 of postretirement healthcare payments through March 31, 2009 and expects to make
approximately $697,000 of defined contribution and multi-employer pension payments through the
remainder of 2009 of which $403,000 was accrued at December 31, 2008. The Company also expects to
make approximately $343,000 of postretirement healthcare payments through the remainder of 2009,
all of which are accrued.
6. Debt
Credit Agreement; Amendment
In December of 2008, the Company and its subsidiary, Corecomposites de Mexico, S. de R.L. de C.V.,
entered into a Credit Agreement (the Credit Agreement) with KeyBank National Association
(KeyBank) as a lender, lead arranger, sole book runner and administrative agent. Under the Credit
Agreement, KeyBank has made certain loans, which include (i) a $12,000,000 construction loan, (ii)
an $8,000,000 construction loan, (iii) an $8,000,000 revolving credit commitment, (iv) a $2,678,563
term loan to refinance a previous term loan with KeyBank, and (v) a letter of credit in an undrawn
face amount of $3,332,493 with respect to the Companys existing industrial development revenue
bond financing.
On March 31, 2009, the Company entered into a first amendment to the Credit Agreement with KeyBank
(the First Amendment). Pursuant to the terms of the First Amendment, the lender agreed to modify
certain terms of the Credit Agreement. These modifications included (1) modification of the
definition of EBITDA to add back transition costs up to $3,200,000 associated with the transition
and startup of the new production facility in Matamoros and add back non-cash compensation expense
recorded under SFAS 123R (2) modification of the fixed charge definition to exclude from
consolidated interest expense any measure of ineffectiveness from interest rate swaps and
amortization of loan origination and issuance costs (3) modification of the leverage ratio from
3.0x to 3.2x at June 30, 2009, 3.4x at September 30, 2009, and 3.2x at December 31, 2009 (4)
increase the applicable margin for interest rates applicable to LIBOR loans effective March 31,
2009 to 400 basis points for both construction loans and the revolving line of credit; all rates
decrease 25 basis points upon reaching a leverage ratio of less than 2.25 to 1.00 (5) increase the
letter of credit fee on the Industrial Revenue Bond to 300 basis points (6) increase the 1% Libor
floor on the $8,000,000 construction loan and revolving line of credit to 1.5% and (7) implement a
1.5% Libor floor on the $12,000,000 construction loan.
Bank Covenants
The Company is required to meet certain financial covenants included in its debt agreements with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of March 31, 2009, the Company was in compliance with its
financial debt covenants for the Line of
Credit, the secured note payable, the two construction loans related to the new facility in Mexico,
the letter of credit securing the Industrial Revenue Bond and certain equipment leases.
9
Based on the Companys forecasts which are primarily based on industry analysts estimates of 2009
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 First Amendment to the Credit Agreement for the next 12 months.
Management believes that cash flow from operating activities together with available borrowings
under the Credit Agreement will be sufficient to meet Core Molding Technologies liquidity needs.
However, if a material adverse change in the financial position of Core Molding Technologies should
occur, or if actual sales or expenses are substantially different than what has been forecasted,
Core Molding Technologies liquidity and ability to obtain further financing to fund future
operating and capital requirements could be negatively impacted.
Interest Rate Swaps
In conjunction with its variable rate Industrial Revenue Bond (IRB) the Company has entered into
an interest rate swap agreement, which is designated as a cash flow hedging instrument. Under this
agreement, the Company pays a fixed rate of 4.89% to the counterparty and receives 76% of the
30-day commercial paper rate. The swap term and notional amount matches the payment schedule on
the IRB with final maturity in April 2013. The difference paid or received varies as short-term
interest rates change and is accrued and recognized as an adjustment to interest expense. While
the Company is exposed to credit loss on its interest rate swap in the event of non-performance by
the counterparty to the swap, management believes such non-performance is unlikely to occur given
the financial resources of the counterparty. The effectiveness of the swap is assessed at each
financial reporting date by comparing the commercial paper rate of the swap to the benchmark rate
underlying the variable rate of the IRB. Any ineffectiveness of the swap is recorded as an
adjustment to interest expense and historically has not been material. Interest income of $10,352
and interest expense of $41,201 were recorded at March 31, 2009 and 2008, respectively, related to
ineffectiveness of the swap. The fair value of the swap was a liability of $294,672 and $322,108
as of March 31, 2009 and December 31, 2008, respectively. None of the changes in fair value of the
interest rate swap have been excluded from the assessment of hedge effectiveness.
Effective January 1, 2004, the Company entered into an interest rate swap agreement, which is
designated as a cash flow hedge of the Companys bank note payable. Under this agreement, the
Company pays a fixed rate of 3.75% to the counterparty and receives LIBOR. The swap term and
notional amount match the payment schedule on the bank note payable 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 exactly the same. The fair value of the swap was a liability of $68,117
and $79,973 as of March 31, 2009 and December 31, 2008 respectively. While the Company is exposed
to credit loss on its interest rate swap in the event of non-performance by the counterparty to the
swap, management believes that such non-performance is unlikely to occur given the financial
resources of the counterparty.
Effective December 18, 2008, the Company entered into an interest rate swap agreement that will
be in effect beginning May 1, 2009, which was designated as a cash flow hedge of the $12,000,000
construction loan payable. Effective March 31, 2009, the interest terms in the Companys Credit
Agreement related to the $12 million dollar construction loan were amended. The Company calculated
its effectiveness test and determined that its interest rate swap was no longer highly effective.
As a result, the Company discontinued the use of hedge accounting effective March 31, 2009, and
will begin recording all mark-to market adjustments within interest expense in the Companys
Consolidated Statement of Operations. The pre-tax amount previously recognized in Accumulated
Other Comprehensive Income, totaling $145,684 on at March 31, 2009, will be amortized as an
increase to interest expense over the remaining term of the interest rate swap agreement.
Line of Credit
At March 31, 2009, the Company had available a $8,000,000 variable rate bank revolving line of
credit under the Credit Agreement that is scheduled to mature on April 30, 2010. The line of
credit bears interest at daily LIBOR with a floor of 150 basis points plus 400 additional basis
points. The line of credit is collateralized by all the Companys assets. At March 31, 2009 and
December 31, 2008 there was an outstanding balance of $1,796,636 and $1,194,000, respectively. The
outstanding balance on the line of credit is not due until April 2010; however the Company
anticipates paying off the balance within the next 12 months and therefore has classified the
outstanding balance as a current liability on the Companys consolidated balance sheet.
10
7. Income Taxes
Income taxes for the three months ended March 31, 2009 are estimated to be approximately 36% of
total earnings before taxes. In the three months ended March 31, 2008 income taxes were estimated
to be 32% of total earnings before taxes. The increase in effective rate is primarily due to a
higher percentage of earnings being related to activities in the United States. The Company incurs
a higher effective tax rate in the United States compared to that incurred on operations in Mexico.
The Company follows the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement No. 109 (FIN 48). As of March 31, 2009, the
Company has no liability for unrecognized tax benefit liability under FIN 48. 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 years before 2004 and is subject to income tax examinations by Mexican
authorities since the Company began business in Mexico in 2001. The Company does not anticipate
that the unrecognized tax benefits will significantly change within the next twelve months. The
2006 U.S. federal tax return was previously under an audit by the Internal Revenue Service (IRS).
The audit was completed during the quarter ended March 31, 2009 with no findings and the Company
has received a statement of no change from the IRS. 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
shareholders in May 2006. This 2006 Plan replaced the Long Term Equity Incentive Plan (the
Original Plan) as originally approved by the shareholders in May 1997 and as amended in May 2000.
The 2006 Plan allows for grants to directors, officers 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 three months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Weighted |
|
|
|
Of |
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Outstanding at December 31, 2008 |
|
|
570,225 |
|
|
$ |
3.30 |
|
Exercised |
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009 |
|
|
570,225 |
|
|
$ |
3.30 |
|
|
|
|
|
|
|
|
Exercisable at March 31, 2009 |
|
|
489,395 |
|
|
$ |
3.29 |
|
|
|
|
|
|
|
|
The following summarizes the status of, and changes to, unvested options during the three months
ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
|
Of |
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Unvested at December 31, 2008 |
|
|
88,830 |
|
|
|
3.37 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(8,000 |
) |
|
|
3.28 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2009 |
|
|
80,830 |
|
|
$ |
3.38 |
|
|
|
|
|
|
|
|
11
At March 31, 2009 and 2008, there was $122,204 and $249,575, respectively, of total unrecognized
compensation cost, related to unvested stock options granted under the plans. Total compensation
cost related to incentive stock options for the three months ended March 31, 2009 and 2008 was
$23,576 and $32,810, respectively. This compensation expense is allocated such that $19,783 and
$25,773 are included in selling, general and administrative expenses and $3,793 and $7,037 are
recorded in cost of sales for the three months ended March 31, 2009 an 2008 respectively.
Restricted Stock
In May of 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 March 31, 2009 and changes
during the three months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
|
Of |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested balance at December 31, 2008 |
|
|
85,106 |
|
|
$ |
7.01 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(5,872 |
) |
|
|
6.87 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at March 31, 2009 |
|
|
79,234 |
|
|
$ |
7.03 |
|
|
|
|
|
|
|
|
As of March 31, 2009 and 2008, there was $264,670 and $269,504, respectively, of total unrecognized
compensation cost related to Restricted Stock granted under the 2006 Plan. The total compensation
costs related to restricted stock grants for the three months ended March 31, 2009 and 2008 was
$48,733 and $34,654, respectively.
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 FASB issued Statement No. 157 to define fair value, establish a framework
for measuring fair value and to expand disclosures about Fair Value Measurements (SFAS No.157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not change the requirements to apply
fair value in existing accounting standards. Under SFAS No. 157, fair value refers to the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants in the market in which the reporting entity transacts. The standard
clarifies that fair value should be based on the assumptions market participants would use when
pricing the asset or liability.
To increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of
input that is significant to the fair value measurement. The three levels of the fair value
hierarchy defined by SFAS No. 157 are as follows:
|
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for
identical asset or liabilities that the company has the ability to
access as of the reporting date. |
|
|
|
|
Level 2 inputs are inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly through corroboration with observable market
data. |
|
|
|
|
Level 3 inputs are unobservable inputs, such as internally developed
pricing models for the asset or liability due to little or no market
activity for the asset or liability. |
12
The following table presents financial liabilities measured and recorded at fair value at the
Companys Consolidated Balance Sheet on a recurring basis and their level within the fair value
hierarchy as of March 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
508,473 |
|
|
$ |
|
|
|
$ |
508,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
508,473 |
|
|
$ |
|
|
|
$ |
508,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
502,381 |
|
|
$ |
|
|
|
$ |
502,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
502,381 |
|
|
$ |
|
|
|
$ |
502,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no non-recurring fair value measurements for the quarter ended March 31, 2009.
In March 2008, the FASB issued SFAS No. 161 to amend and expand the disclosure requirements of SFAS
No. 133 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. SFAS No. 161 is effective
for fiscal years and interim periods beginning after November 15, 2008, and earlier application is
encouraged. The Company adopted this standard on January 1, 2009.
Core Molding Technologies location on the Consolidated Balance Sheets (unaudited) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Balance Sheet Location |
|
Fair Value |
|
|
Fair Value |
|
Derivatives designated as hedging instruments under SFAS No. 133 |
|
|
|
|
|
|
|
|
|
|
Interest rate risk activities |
|
Interest rate swap |
|
$ |
362,789 |
|
|
$ |
502,381 |
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments under SFAS No. 133 |
|
|
|
$ |
362,789 |
|
|
$ |
502,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under SFAS No. 133 |
|
|
|
|
|
|
|
|
|
|
Interest rate risk activities |
|
Interest rate swap |
|
$ |
145,684 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments under SFAS
No. 133 |
|
|
|
$ |
145,684 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
|
|
$ |
508,473 |
|
|
$ |
502,381 |
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the Consolidated Statement of Operations (unaudited) was:
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) Loss |
|
|
|
|
Amount of (Gain) Loss |
|
|
|
Recognized in OCI on |
|
|
|
|
Reclassified from AOCI |
|
|
|
Derivative (Effective |
|
|
Location of (Gain) Loss |
|
into Expense (Effective |
|
Derivatives in SFAS No. 133 |
|
Portion) |
|
|
Reclassified from AOCI |
|
Portion) |
|
Cash Flow Hedging |
|
March 31, |
|
|
March 31, |
|
|
into Income (Effective |
|
March 31, |
|
|
March 31, |
|
Relationships |
|
2009 |
|
|
2008 |
|
|
Portion) |
|
2009 |
|
|
2008 |
|
Interest rate risk activities |
|
|
6,092 |
|
|
|
147,202 |
|
|
Interest expense, net |
|
$ |
55,050 |
|
|
|
14,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,092 |
|
|
$ |
147,202 |
|
|
|
|
$ |
55,050 |
|
|
|
14,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) Loss Recognized |
|
|
|
Location of (Gain) Loss |
|
|
in Income of Derivative |
|
|
|
Recognized in Income on |
|
|
(Ineffective Portion and Amount |
|
|
|
Derivative (Ineffective Portion |
|
|
Excluded from Effectiveness |
|
Derivatives in SFAS No. 133 Cash Flow |
|
and Amount Excluded from |
|
|
Testing) |
|
Hedging Relationships |
|
Effectiveness Testing) |
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
Interest rate risk activities |
|
Interest expense |
|
|
(10,352 |
) |
|
|
41,201 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(10,352 |
) |
|
$ |
41,201 |
|
|
|
|
|
|
|
|
|
|
|
During first quarter of 2009 and 2008, the Company did not reclassify any amounts related to its
cash flow hedges from accumulated other comprehensive loss to earnings due to the probability that
certain forecasted transactions would not occur. As discussed at Note 6, the Company discontinued
the use of hedge accounting for one of the interest rate swap effective March 31, 2009, and will
begin recording all mark-to market adjustments related to this interest rate swap within interest
expense in the Companys Consolidated Statement of Operations. It is anticipated that during the
next twelve months the expiration and settlement of cash flow hedge contracts along with the
amortization of losses on discontinued hedges will result in income statement recognition of
amounts currently classified in accumulated other comprehensive loss of approximately $13,262, net
of taxes.
10. Recent Accounting Pronouncements
In December 2008, the FASB issued FSP FAS 132(R)-1 to amend SFAS No. 132(R), to provide guidance on
an employers disclosures about plan assets of a defined benefit pension or other postretirement
plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009 with earlier
adoption permitted. The Company is currently reviewing the additional disclosure requirements to
determine the impact on the Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded companies as well as
annual financial statements. This FSP is effective for interim reporting periods ending after June
15, 2009, with early adoption permitted. The
Company is currently reviewing the additional disclosure requirements to determine the impact on
the Consolidated Financial Statements and Notes to Consolidated Financial Statements.
In April 2009, the FASB issued FSP FAS 157-4 to provide additional guidance for estimating fair
value when the volume and level of activity for the asset or liability have significantly
decreased. This FSP is effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted. The Company is currently reviewing the additional guidance to determine
the impact on the Consolidated Financial Statements and Notes to Consolidated Financial Statements.
14
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 conditions in the countries in which Core
Molding Technologies operates; dependence upon two major customers as the primary source of Core
Molding Technologies sales revenues; recent efforts of Core Molding Technologies to expand its
customer base; failure of Core Molding Technologies suppliers to perform their contractual
obligations; the availability of raw materials; inflationary pressures; new technologies;
competitive and regulatory matters; labor relations; the loss or inability of Core Molding
Technologies to attract and retain key personnel; changes to 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;
inefficiencies related to the transfer and start up of Core Molding Technologies new Matamoros
production 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 2008 Annual Report to Shareholders on Form
10-K.
OVERVIEW
Core Molding Technologies is a compounder of sheet molding composite (SMC) and molder of
fiberglass reinforced plastics. Core Molding Technologies produces high quality fiberglass
reinforced molded products and SMC materials for varied markets, including 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, the cyclicality of the markets we serve,
regulatory requirements, interest rates and other factors. Core Molding Technologies manufacturing
operations have a significant fixed cost component. Accordingly, during periods of changing
demands, the profitability of Core Molding Technologies operations may change proportionately more
than revenues from operations.
On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and
assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of Navistars truck
manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus,
Ohio, was a compounder and compression molder of SMC. In 1998, Core Molding Technologies began
compression molding operations at its second facility in Gaffney, South Carolina, and in October
2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of
this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include
the spray up, hand-lay-up open mold processes and resin transfer (RTM) closed molding utilizing a
vacuum infusion process. In September 2004, Core Molding Technologies acquired substantially all
the operating assets of Keystone Restyling Products, Inc., a privately held manufacturer and
distributor of fiberglass reinforced products for the automotive-aftermarket industry. In August
2005, Core Molding Technologies acquired certain assets of the Cincinnati Fiberglass Division of
Diversified Glass, Inc., a Batavia, Ohio-based, privately held manufacturer and distributor of
fiberglass reinforced plastic components supplied primarily to the heavy-duty truck market. The
Batavia, Ohio facility produces reinforced plastic products by a spray-up open mold process and RTM
utilizing multiple insert tooling (MIT) closed mold process. In August of 2008, the Company
entered into a construction agreement to begin building a new 437,000 square foot production
facility in Matamoros, Mexico that will replace its currently leased facility. Occupancy is
expected during the second quarter of 2009.
15
Core Molding Technologies recorded a net loss for the three months ended March 31, 2009 of
$660,000, or $(0.10) per basic and diluted share, compared with a net income of $864,000, or $.13
per basic and $.12 per diluted share, for the three months ended March 31, 2008. During the three
months ended March 31, 2009, the Company has incurred and recorded approximately $1,200,000 of
expenses for transfer and start-up costs associated with the construction of the Companys new
production facility in Mexico. The Company has also experienced a 31% decrease in product sales in
the first quarter of 2009 as compared to the same period in 2008. While industry analysts are
forecasting an increase in truck orders in the second half of 2009, the Company recognizes that
this expectation should be considered in light of an uncertain economy.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2009, As Compared To Three Months Ended March 31, 2008
Net sales for the three months ended March 31, 2009, totaled $18,384,000, representing an
approximate 37% decrease from the $29,085,000 reported for the three months ended March 31, 2008.
Included in total sales are tooling project sales of $554,000 and $3,102,000 for the three months
ended March 31, 2009 and March 31, 2008, respectively. Tooling project sales result from billings
to customers for molds and assembly equipment built specifically for their products. These sales
are sporadic in nature. Total product sales, excluding tooling project sales, were approximately
31% lower for the three months ended March 31, 2009, as compared to the same period a year ago.
The primary reason for the decrease in product sales is the continued downturn in the North
American medium and heavy-duty truck market caused by the overall economic conditions.
Sales to Navistar totaled $10,360,000 for the three months ended March 31, 2009, as compared to
$16,232,000 reported for the three months ended March 31, 2008. Included in total sales is
$303,000 of tooling sales for the three months ended March 31, 2009 compared to $2,757,000 for the
same three months in 2008. Product sales to Navistar decreased by 25% for the three months ended
March 31, 2009 versus the same period of the prior year. The primary reason for the decrease in
product sales are the continued downturn in the North American medium and heavy-duty truck market
as noted above.
Sales to PACCAR totaled $4,203,000 for the three months ended March 31, 2009, as compared to
$7,500,000 reported for the three months ended March 31, 2008. Total product sales to PACCAR
decreased by 43% for the three months ended March 31, 2009 compared to the same period of the prior
year. The decrease in total product sales is primarily due to the continued downturn in the North
American medium and heavy-duty truck market and the United States economic conditions as noted
above as well as decrease in sales for more mature products the Company manufactures for PACCAR.
Sales to other customers for the three months ended March 31, 2009 decreased 29% to $3,821,000
compared to $5,353,000 for the three months ended March 31, 2008. This decrease is primarily
related to decreases in product sales to other North American medium and heavy-duty truck
manufacturers amounting to approximately $1,343,000.
Gross margin was approximately 8.6% of sales for the three months ended March 31, 2009, compared
with 14.8% for the three months ended March 31, 2008. The decrease in gross margin was due to
approximately $1,071,000 of transition and start up costs incurred during the three months ended
March 31, 2009 associated with the Companys new production facility in Mexico as well as lower
fixed cost absorption due to lower product sales volumes. Our manufacturing operations have
significant fixed costs such as salary labor, energy, depreciation, lease expense and post
retirement healthcare costs that do not change proportionately with sales.
Selling, general and administrative expenses (SG&A) totaled $2,500,000 for the three months ended
March 31, 2009, decreasing from $2,814,000 for the three months ended March 31, 2008. The primary
reasons for the decrease were lower professional fees and lower labor and benefit costs as compared
to the period ended March 31, 2008. Partially offsetting these reductions was approximately
$145,000 of transition and start-up costs incurred during the quarter associated with the Companys
new production facility in Mexico.
Interest expense totaled $110,000 for the three months ended March 31, 2009, compared to interest
expense of $229,000 for the three months ended March 31, 2008. The decrease in interest expense is
primarily a result of lower interest rates and lower outstanding daily average balances on the line
of credit. IRB ineffectiveness also contributed to the decrease in interest expenses due to
approximately $10,000 of interest income for the three months ended March 31, 2009 as compared to
the $41,000 of interest expense for the same period a year ago. Additionally the
Company capitalized interest of approximately $58,000 during the quarter related to its new
production facility in Mexico which will not be placed into service until the second quarter of
2009.
16
Income taxes for the three months ended March 31, 2009 are estimated to be approximately 36% of
total earnings before taxes. In the three months ended March 31, 2008 income taxes were estimated
to be 32% of total earnings before taxes. The increase in effective rate is primarily due to a
higher percentage of earnings being related to activities in the United States. The Company incurs
a higher effective tax rate in the United States compared to that incurred on operations in Mexico.
Core Molding Technologies recorded a net loss for the three months ended March 31, 2009 of $660,000
or $(0.10) per basic and diluted share, compared with net income of $864,000, or $.13 per basic and
$.12 per diluted share, for the three months ended March 31, 2008.
Liquidity and Capital Resources
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.
As widely reported, financial markets in the United States, Europe and Asia have been experiencing
extreme disruption in recent months, including, among other things, extreme volatility in security
prices, severely diminished liquidity and credit availability, rating downgrades of certain
investments and declining valuations of others. Governments have taken unprecedented actions
intended to address extreme market conditions that include severely restricted credit and declines
in real estate values. While currently these conditions have not impaired the Companys ability to
access credit markets and finance operations, there can be no assurance that there will not be a
further deterioration in financial markets and confidence in major economies, which may impact the
Companys ability to borrow in the future.
Cash provided by operating activities for the three months ended March 31, 2009 totaled $729,000.
Net losses of $660,000 negatively impacted operating cash flow. Non-cash deductions of
depreciation and amortization contributed $924,000 to operating cash flow. In addition, the net
increase in the postretirement healthcare benefits liability of $211,000 is not a current cash
obligation, and this item will not be a cash obligation until additional employees retire and begin
to utilize these benefits. Changes in working capital increased cash provided by operating
activities by $126,000. Changes in working capital primarily relate to a decrease in accounts
receivable due to decreases in product sales. These cash inflows were offset by an increase in
prepaid expense primarily related to timing of payments for annual business insurance premiums as
well as decreases in accounts payable and accrued liabilities.
Cash used in investing activities for the three months ended March 31, 2009 was $4,580,000,
primarily representing purchases related to the construction of the Companys new production
facility in Mexico. The Company currently plans an additional $5,681,000 of capital expenditures
for the remainder of the year, of which $4,629,000 relates to the completion of the Companys new
production facility in Mexico. These capital additions will be funded by cash from operations, the
Companys unused $8,000,000 construction loan and 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 increased cash by $3,851,000. This increase is related to borrowings on the
Companys construction loan of $3,879,000 as well as net borrowings on the line of credit of
$603,000. This was partially offset by principal repayments on its secured note payable of
$321,000 and the Companys industrial revenue bond of $150,000.
At March 31, 2009, the Company had no cash on hand and a line of credit of $8,000,000, with a
scheduled maturity of April 30, 2010. At March 31, 2009, Core Molding Technologies had outstanding
borrowings of $1,797,000 on the line of credit.
The Company is required to meet certain financial covenants included in its debt agreements with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of March 31, 2009, the Company was in compliance with its
financial debt covenants for the Line of Credit, the secured note payable, the two construction
loans related to the new facility in Mexico, the letter of credit securing the industrial revenue
bond and certain equipment leases.
17
On March 31, 2009, the Company entered into the First Amendment to the Credit Agreement with
KeyBank. Pursuant to the terms of the First Amendment, the lender agreed to modify certain terms of
the Credit Agreement. These modifications included (1) modification of the definition of EBITDA to
add back transition costs up to $3,200,000 associated with the transition and startup of the new
production facility in Matamoros and add back non-cash compensation expense recorded under SFAS
123R (2) modification of the fixed charge definition to exclude from consolidated interest expense
any measure of ineffectiveness from interest rate swaps and amortization of loan origination and
issuance costs (3) modification of the leverage ratio from 3.0x to 3.2x at June 30, 2009, 3.4x at
September 30, 2009, and 3.2x at December 31, 2009 (4) increase the applicable margin for interest
rates applicable to LIBOR loans effective March 31, 2009 to 400 basis points for both construction
loans and the revolving line of credit; all rates decrease 25 basis points upon reaching a leverage
ratio of less than 2.25 to 1.00 (5) increase the letter of credit fee on the Industrial Revenue
Bond to 300 basis points (6) increase the 1% Libor floor on the $8,000,000 construction loan and
revolving line of credit to 1.5% and (7) implement a 1.5% Libor floor on the $12,000,000
construction loan.
Based on the Companys forecasts which are primarily based on industry analysts estimates of 2009
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 First Amendment to the Credit Agreement for the next 12 months.
Management believes that cash flow from operating activities together with available borrowings
under the Credit Agreement will be sufficient to meet Core Molding Technologies liquidity needs.
However, if a material adverse change in the financial position of Core Molding Technologies should
occur, or if actual sales or expenses are substantially different than what has been forecasted,
Core Molding Technologies liquidity and ability to obtain further financing to fund future
operating and capital requirements could be negatively impacted.
Recent Accounting Pronouncements
In December 2008, the FASB issued FSP FAS 132(R)-1 to amend SFAS No. 132(R), to provide guidance on
an employers disclosures about plan assets of a defined benefit pension or other postretirement
plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009 with earlier
adoption permitted. The Company is currently reviewing the additional disclosure requirements to
determine the impact on the Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded companies as well as
annual financial statements. This FSP is effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted. The Company is currently reviewing the additional
disclosure requirements to determine the impact on the Consolidated Financial Statements and Notes
to Consolidated Financial Statements.
In April 2009, the FASB issued FSP FAS 157-4 to provide additional guidance for estimating fair
value when the volume and level of activity for the asset or liability have significantly
decreased. This FSP is effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted. The Company is currently reviewing the additional guidance to determine
the impact on the Consolidated Financial Statements and Notes to Consolidated Financial Statements.
18
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, post retirement benefits,
workers compensation reserves, self-insured healthcare reserves 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 March 31, 2009 and $109,000 at December 31, 2008.
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 of $690,000 at March 31, 2009 and $740,000
at December 31, 2008.
Inventories: Inventories, which include material, labor and manufacturing overhead, are valued at
the lower of cost or market. The inventories are accounted for using the first-in, first-out
(FIFO) method of determining inventory costs. Inventory quantities on-hand are regularly reviewed,
and where necessary, provisions for excess and obsolete inventory are recorded based on historical
and anticipated usage.
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 three months ended March 31, 2009 or the year ended December 31, 2008. A 10% decrease in
future cash flows would not adversely impact the net book value of goodwill and a 1% increase in
the rate used to discount future cash flows would not adversely impact the net book value of
goodwill.
Self-Insurance: The Company is self-insured with respect to most of its Columbus and Batavia, Ohio
and Gaffney, South Carolina medical and dental claims and Columbus and Batavia, Ohio workers
compensation claims. The Company has recorded an estimated liability for self-insured medical and
dental claims incurred but not reported and workers compensation claims incurred but not reported
at March 31, 2009 and December 31, 2008 of $1,012,000 and $1,109,000, respectively.
Post retirement benefits: Management records an accrual for postretirement costs associated with
the health care plan sponsored by Core Molding Technologies. Should actual results differ from the
assumptions used to determine the reserves, additional provisions may be required. In particular,
increases in future healthcare costs above the assumptions could have an adverse effect on Core
Molding Technologies operations. The effect of a change in healthcare costs is described in Note
10 of the Consolidated Notes to Financial Statements, which are contained in the 2008 Annual Report
to Shareholders. Core Molding Technologies recorded a liability for postretirement healthcare
benefits based on actuarially computed estimates of $16,089,000 at March 31, 2009 and $15,878,000
at December 31, 2008.
19
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 March 31, 2009 the Company has recorded a net liability related to
tooling in progress of $313,000, which represents approximately $4,444,000 of progress tooling
billings and $4,131,000 of progress tooling expenses. At December 31, 2008 the Company had
recorded a net liability related to tooling in progress of $212,000, which represents approximately
$3,555,000 of progress tooling billings and $3,343,000 of progress tooling expenses.
Income taxes: The Consolidated Balance Sheet at March 31, 2009 and December 31, 2008, includes a
deferred tax asset of $7,193,000 and $7,188,000, respectively. 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 2008 Annual Report to
Shareholders.
20
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 five items that are sensitive to market risks: (1)
Industrial Revenue Bond (IRB) with a variable interest rate (although Core Molding Technologies
has an interest rate swap to fix the interest rate at 4.89%; (2) the Revolving Line of Credit,
$12,000,000 construction loan payable and $8,000,000 construction loan payable under the Credit
Agreement, each of which bears a variable interest rate; (3) bank note payable under the Credit
Agreement, with a variable interest rate. Core Molding Technologies has an interest rate swap to
fix the interest rate; (4) foreign currency purchases in which Core Molding Technologies purchases
Mexican pesos with United States dollars to meet certain obligations that arise due to operations
at the facility located in Mexico; and (5) raw material purchases in which Core Molding
Technologies purchases various resins for use in production. The prices of these resins are
affected by the prices of crude oil and natural gas as well as processing capacity versus demand.
Assuming a hypothetical 10% increase in commodity prices, Core Molding Technologies would be
impacted by an increase in raw material costs, which would have an adverse effect on operating
margins.
Assuming a hypothetical 10% change in short-term interest rates would impact the Company for the
three months ended March 31, 2009. It would have impacted the interest paid on the Companys Line
of Credit and the outstanding balance on the construction 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 would significantly impact the fair value of the Companys
interest rate swaps with an offset to other comprehensive income.
21
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.
22
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 2008 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. Submission of Matters to a Vote of Security Holders
No submission of matters to a vote of security holders occurred during the
three months ended March 31, 2009.
Item 5. Other Information
None.
Item 6. Exhibits
See
Index to Exhibits.
23
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.
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CORE MOLDING TECHNOLOGIES, INC.
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Date: May 14, 2009 |
By: |
/s/ Kevin L. Barnett
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Kevin L. Barnett |
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President, Chief Executive Officer, and
Director |
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Date: May 14, 2009 |
By: |
/s/ Herman F. Dick, Jr.
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Herman F. Dick, Jr. |
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Vice President, Secretary, Treasurer and Chief Financial Officer |
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24
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
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Location |
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2 |
(a)(1) |
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Asset Purchase Agreement
Dated as of September 12, 1996,
As amended October 31, 1996,
between Navistar and RYMAC Mortgage
Investment Corporation1
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Incorporated by
reference to
Exhibit 2-A to
Registration
Statement on Form
S-4 (Registration
No. 333-15809) |
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2 |
(a)(2) |
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Second Amendment to Asset Purchase
Agreement dated December 16, 19961
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Incorporated by
reference to
Exhibit 2(a)(2) to
Annual Report on
Form 10-K for the
year-ended December
31, 2001 |
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2 |
(b)(1) |
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Agreement and Plan of Merger dated as of
November 1, 1996, between Core Molding
Technologies, Inc. and RYMAC Mortgage
Investment Corporation
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Incorporated by
reference to
Exhibit 2-B to
Registration
Statement on Form
S-4 (Registration
No. 333-15809) |
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2 |
(b)(2) |
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First Amendment to Agreement and Plan
of Merger dated as of December 27, 1996
Between Core Molding Technologies, Inc. and
RYMAC Mortgage Investment Corporation
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Incorporated by
reference to
Exhibit 2(b)(2) to
Annual Report on
Form 10-K for the
year ended December
31, 2002 |
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2 |
(c) |
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Asset Purchase Agreement dated as of October
10, 2001, between Core Molding Technologies,
Inc. and Airshield Corporation
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Incorporated by
reference to
Exhibit 1 to Form
8-K filed October
31, 2001 |
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3 |
(a)(1) |
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Certificate of Incorporation of
Core Molding Technologies, Inc.
As filed with the Secretary of State
of Delaware on October 8, 1996
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Incorporated by
reference to
Exhibit 4(a) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3 |
(a)(2) |
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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
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Incorporated by
reference to
Exhibit 4(b) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3 |
(a)(3) |
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Certificate of Incorporation of Core
Materials Corporation, reflecting
Amendments through November 6,
1996 [for purposes of compliance
with Securities and Exchange
Commission filing requirements only]
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Incorporated by
reference to
Exhibit 4(c) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3 |
(a)(4) |
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Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of
State of Delaware on August 28, 2002
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Incorporated by
reference to
Exhibit 3(a)(4) to
Quarterly Report on
Form 10-Q for the
quarter ended
September 30, 2002 |
25
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Exhibit No. |
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Description |
|
Location |
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3 |
(a)(5) |
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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
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Incorporated by
reference to
Exhibit 3.1 to Form
8-k filed July 19,
2007 |
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3 |
(b) |
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Amended and Restated By-Laws of Core Molding
Technologies, Inc.
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Incorporated by
reference to
Exhibit 3.1 to
Current Report on
Form 8-K filed
January 4, 2008 |
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4 |
(a)(1) |
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Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the
Secretary of State of Delaware on October 8,
1996
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Incorporated by
reference to
Exhibit 4(a) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4 |
(a)(2) |
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Certificate of Amendment of Certificate
of Incorporation of Core Materials
Corporation as filed with the Secretary of
State of Delaware on November 6, 1996
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Incorporated by
reference to
Exhibit 4(b) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4 |
(a)(3) |
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Certificate of Incorporation of Core Materials
Corporation, reflecting amendments through
November 6, 1996 [for purposes of compliance
with Securities and Exchange Commission
filing requirements only]
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Incorporated by
reference to
Exhibit 4(c) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4 |
(a)(4) |
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Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of
State of Delaware on August 28, 2002
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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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4 |
(a)(5) |
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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
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Incorporated by
reference to
Exhibit 3.1 to Form
8-K filed July 19,
2007 |
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4 |
(b) |
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Stockholder Rights Agreement dated as of July
18, 2007, between Core Molding Technologies,
Inc. and American Stock Transfer & Trust
Company
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Incorporated by
reference to
Exhibit 4.1 to
Current Report From
8-k filed July 19,
2007 |
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11 |
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Computation of Net Income per Share
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Exhibit 11 omitted
because the
required
information is
Included in Notes
to Financial
Statement |
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26
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Exhibit No. |
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Description |
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Location |
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31 |
(a) |
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Section 302 Certification by Kevin L.
Barnett, President, Chief Executive Officer,
and Director
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Filed Herein |
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31 |
(b) |
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Section 302 Certification by Herman F. Dick,
Jr., Vice President, Secretary, Treasurer,
and Chief Financial Officer
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Filed Herein |
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32 |
(a) |
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Certification of Kevin L. Barnett, Chief
Executive Officer of Core Molding
Technologies, Inc., dated May 14, 2009,
pursuant to 18 U.S.C. Section 1350
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Filed Herein |
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32 |
(b) |
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Certification of Herman F. Dick, Jr., Chief
Financial Officer of Core Molding
Technologies, Inc., dated May 14, 2009,
pursuant to 18 U.S.C. Section 1350
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Filed Herein |
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1 |
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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. |
27