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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
31-1481870 (I.R.S. Employer Identification No.) |
|
| 800 Manor Park Drive, Columbus, Ohio | 43228 - 0183 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (614) 870-5000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class Common Stock, par value $0.01 Preferred Stock purchase rights, par value $0.01 |
Name of each exchange on which registered NYSE Amex NYSE Amex |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
As of June 30, 2010, the aggregate market value of the registrant’s voting and non-voting common
equity held by non-affiliates of the registrant was approximately $34,949,084, based upon the
closing sale price of $5.45 on the NYSE Amex on June 30, 2010, the last business day of
registrant’s most recently completed second fiscal quarter. As of the close of business on March
25, 2011, the number of shares of registrant’s common stock outstanding was 7,102,343.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s 2011 definitive Proxy Statement to be filed with the Securities and
Exchange Commission no later than 120 days after the end of the registrant’s fiscal year are
incorporated herein by reference in Part III of this Form 10-K.
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
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PART I
| ITEM 1. | BUSINESS |
HISTORICAL DEVELOPMENT OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
In 1996, RYMAC Mortgage Investment Corporation (“RYMAC”) incorporated Core Molding Technologies,
Inc. (“Core Molding Technologies” or the “Company”), formerly known as Core Materials Corporation
before changing its name on August 28, 2002, for the purpose of acquiring the Columbus Plastics
unit of Navistar, Inc. (“Navistar”), formerly known as International Truck & Engine Corporation.
On December 31, 1996, RYMAC merged with the Company with the Company as the surviving entity.
Immediately after the merger, the Company acquired substantially all the assets and liabilities of
the Columbus Plastics unit from Navistar in return for a secured note, which has been repaid, and
4,264,000 shares of newly issued common stock of the Company. On July 18, 2007, the Company
entered into a stock repurchase agreement with Navistar, pursuant to which the Company repurchased
3,600,000 shares of the Company’s common stock, from Navistar. Navistar currently owns 664,000
shares (9.3%) of the outstanding stock of the Company.
In the first quarter of 1998, the Company opened a second compression molding plant located in
Gaffney, South Carolina as part of the Company’s growth strategy to expand its customer base. This
facility provided the Company with additional capacity and a strategic geographic location to serve
both current and prospective customers.
In October 2001, the Company incorporated Core Composites Corporation as a wholly owned subsidiary
under the laws of the State of Delaware. This entity was established for the purpose of holding
and establishing operations for Airshield Corporation’s assets, which the Company acquired on
October 16, 2001 (the “Airshield Asset Acquisition”) as part of the Company’s diversified growth
strategy. Airshield Corporation was a privately held manufacturer and marketer of fiberglass
reinforced plastic parts primarily for the truck and automotive aftermarket industries. The
Company purchased substantially all of the assets of Airshield Corporation through the United
States Bankruptcy Court as Airshield Corporation had been operating under Chapter 11 bankruptcy
protection since March 2001.
In conjunction with establishment of operations for the assets acquired in the Airshield Asset
Acquisition, the Company established a Mexican subsidiary and leased a production facility in
Mexico. In October 2001, the Company (5% owner) and Core Composites Corporation (95% owner)
incorporated Corecomposites de Mexico, S. de R.L. de C.V. (“Corecomposites”) in Matamoros, Mexico.
Corecomposites was organized to operate under a maquiladora program whereby substantially all
products produced are exported back to Core Composites Corporation which sells such product to
United States based external customers. In June of 2009, the Company completed construction and
took occupancy of a new 437,000 square foot production facility in Matamoros, Mexico that replaced
its leased facility.
In September 2004, the Company formed Core Automotive Technologies, LLC (“Core Automotive”), a
Delaware limited liability company and wholly owned subsidiary of the Company. This entity was
formed for the purpose of establishing operations and holding assets acquired from Keystone
Restyling, Inc., which the Company acquired as part of its diversified growth strategy in
September, 2004. Keystone Restyling, Inc. was a privately held manufacturer and marketer of
fiberglass reinforced plastic parts primarily for the automotive and light truck aftermarket
industries. The Company’s facility in Matamoros, Mexico provides manufacturing services for Core
Automotive Technologies.
In August 2005, the Company formed Core Composites Cincinnati, LLC (“Core Composites Cincinnati”),
a Delaware limited liability company and wholly owned subsidiary of the Company. This entity was
formed for the purpose of establishing operations and holding assets acquired from the Cincinnati
Fiberglass Division of Diversified Glass Inc., which the Company acquired in August, 2005. The
Cincinnati Fiberglass Division of Diversified Glass, Inc. was a privately held manufacturer and
distributor of fiberglass reinforced plastic components supplied primarily to the heavy-duty truck
market. As a result of this acquisition, the Company leases a manufacturing facility in Batavia,
Ohio.
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DESCRIPTION OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
Certain statements under this caption of this Annual Report on Form 10-K constitute forward-looking
statements within the meaning of the federal securities laws. As a general matter, forward-looking
statements are those focused upon future plans, objectives or performance as opposed to historical
items and include statements of anticipated events or trends and expectations and beliefs relating
to matters not historical in nature. Such forward-looking statements involve known and unknown
risks and are subject to uncertainties and factors relating to Core Molding Technologies’
operations and business environment, all of which are difficult to predict and many of which are
beyond Core Molding Technologies’ control. These uncertainties and factors could cause Core Molding
Technologies’ actual results to differ materially from those matters expressed in or implied by
such forward-looking statements.
Core Molding Technologies believes that the following factors, among others, could affect its
future performance and cause actual results to differ materially from those expressed or implied by
forward-looking statements made in this report: business conditions in the plastics,
transportation, watercraft and commercial product industries; federal and state regulations
(including engine emission regulations); general economic, social and political environments in the
countries in which Core Molding Technologies operates; safety and security conditions in Mexico;
dependence upon two major customers as the primary source of Core Molding Technologies’ sales
revenues; recent efforts of Core Molding Technologies to expand its customer base; the actions of
competitors, customers, and suppliers; failure of Core Molding Technologies’ suppliers to perform
their obligations; the availability of raw materials; inflationary pressures; new technologies;
regulatory matters; labor relations; the loss or inability of Core Molding Technologies to attract
and retain key personnel; federal, state and local environmental laws and regulations; the
availability of capital; the ability of Core Molding Technologies to provide on-time delivery to
customers, which may require additional shipping expenses to ensure on-time delivery or otherwise
result in late fees; risk of cancellation or rescheduling of orders; risks related to the transfer
of production from Core Molding Technologies’ Columbus facility to its Matamoros facility;
management’s decision to pursue new products or businesses which involve additional costs, risks or
capital expenditures; and other risks identified from time-to-time in Core Molding Technologies’
other public documents on file with the Securities and Exchange Commission, including those
described in Item 1A of this Annual Report on Form 10-K.
Core Molding Technologies and its subsidiaries operate in the plastics market in a family of
products known as “reinforced plastics.” Reinforced plastics are combinations of resins and
reinforcing fibers (typically glass or carbon) that are molded to shape. Core Molding Technologies
operates four production facilities in Columbus, Ohio; Batavia, Ohio; Gaffney, South Carolina; and
Matamoros, Mexico. The Columbus and Gaffney facilities produce reinforced plastics by compression
molding sheet molding compound (“SMC”) in a closed mold process. The Batavia facility produces
reinforced plastic products by a robotic spray-up open mold process and resin transfer molding
(“RTM”) closed mold process utilizing multiple insert tooling (“MIT”). The Matamoros facility also
utilizes spray-up and hand-lay-up open mold processes as well as RTM and SMC closed mold processes
to produce reinforced plastic products.
Reinforced plastics compete largely against metals and have the strength to function well during
prolonged use. Management believes that reinforced plastic components offer many advantages over
metals, including:
| • | heat resistance; |
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| • | corrosion resistance; |
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| • | lighter weight; |
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| • | lower cost; |
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| • | greater flexibility in product design; |
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| • | part consolidation for multiple piece assemblies; |
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| • | lower initial tooling costs for lower volume applications; |
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| • | high strength-to-weight ratio; and |
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| • | dent-resistance in comparison to steel or aluminum. |
The largest markets for reinforced plastics are transportation (automotive and truck),
construction, marine, and industrial applications. The Company currently has four manufacturing
facilities producing reinforced plastic products. Our manufacturing facilities utilize various
production processes; however, end products are similar and are not unique to a facility or
customer base. Operating decision makers (officers of the Company) are headquartered in Columbus,
Ohio and oversee all manufacturing operations for all products as well as oversee customer
relationships with all customers. The Company’s two major customers are Navistar and PACCAR, Inc.
(“PACCAR”), which are supplied reinforced plastic
products for medium and heavy-duty trucks. The Company also supplies reinforced plastic products
to other truck
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manufacturers, to automotive suppliers, to manufacturers of personal watercraft and
other commercial products, and to wholesale distributors and other end users of automotive
aftermarket products. In general, product growth and diversification are achieved in several
different ways: (1) resourcing of existing reinforced plastic product from another supplier by an
original equipment manufacturer (“OEM”); (2) obtaining new reinforced plastic products through a
selection process in which an OEM solicits bids; (3) successful marketing of reinforced plastic
products for previously non-reinforced plastic applications; (4) successful marketing of reinforced
plastic products for the automotive and light truck aftermarket; and (5) acquiring an existing
business. The Company’s efforts continue to be directed towards all five areas.
MAJOR COMPETITORS
The Company believes that it is one of the four largest compounders and molders of reinforced
plastics using the SMC, spray-up, hand-lay-up, VRIM, and MIT molding processes in the United
States. The Company faces competition from a number of other molders including, most
significantly, Decoma Composites (an operating unit of Magna International), Molded Fiber Glass
Companies, Continental Structural Plastics, Sigma Industries and Premix. The Company believes that
it is well positioned to compete based primarily on manufacturing capability and location, product
quality, engineering capability, cost, and delivery. However, the industry remains highly
competitive and some of the Company’s competitors have greater financial resources, research and
development facilities, design engineering, manufacturing, and marketing capabilities.
MAJOR CUSTOMERS
The Company currently has two major customers, Navistar and PACCAR. Major customers are defined as
customers whose current year sales individually consist of more than ten percent of total sales.
The loss of a significant portion of sales to Navistar or PACCAR would have a material adverse
effect on the business of the Company.
The North American truck market in which Navistar and PACCAR compete is highly competitive and the
demand for heavy and medium-duty trucks is subject to considerable volatility as it moves in
response to cycles in the overall business environment and is particularly sensitive to the
industrial sector, which generates a significant portion of the freight tonnage hauled. Truck
demand also depends on general economic conditions, among other factors.
Relationship with Navistar
The Company entered into a new Comprehensive Supply Agreement, effective as of June 24, 2008. On
January 28, 2010, the Company entered into a First Addendum to the Comprehensive Supply Agreement,
agreeing to shift production of certain products from the Company’s Columbus, Ohio facility to its
Matamoros, Mexico facility, in order to meet the needs of Navistar as a result of its relocation of
certain production to its Escobedo, Mexico assembly plant. Under this Comprehensive Supply
Agreement, as amended, the Company continues to be the primary supplier of Navistar’s original
equipment and service requirements for fiberglass reinforced parts, as long as the Company remains
competitive in cost, quality and delivery, through October 31, 2013.
The Company makes products for Navistar’s Springfield, Ohio; Garland, Texas; Tulsa, Oklahoma; and
Escobedo, Mexico assembly plants. The Company works closely on new product development with
Navistar’s engineering and research personnel at Navistar’s Fort Wayne, Indiana Technical Center.
Some of the products sold to Navistar include hoods, roofs, air deflectors, air fairings, fenders,
splash panels, and other components. Sales to Navistar amounted to approximately 55% and 54% of
total sales for 2010 and 2009, respectively.
Relationship with PACCAR
In April 2007, the Company entered into a Supply Agreement with PACCAR to supply certain fiberglass
reinforced products. While the Company continues to operate under substantially the same terms of
the Supply Agreement, the Supply Agreement expired on June 30, 2010. Management of the Company
does not believe the expiration of the Supply Agreement poses a substantial risk to the Company.
The Company is currently in the process of negotiating a new Supply Agreement with PACCAR.
The Company makes products for PACCAR’s Chillicothe, Ohio; Denton, Texas; Renton, Washington; St.
Therese (Canada); and Mexicali, Mexico assembly plants. The Company also works closely on new
product development with PACCAR’s
engineering and research personnel. Products sold to PACCAR include hoods, roofs, back panels, air
deflectors, air fairings,
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fenders, splash panels, and other components. Sales to PACCAR amounted
to approximately 27% and 29% of total sales in 2010 and 2009, respectively.
OTHER CUSTOMERS
The Company also produces products for other truck manufacturers, the automotive industry, marine
industry, commercial product industries, automotive aftermarket industries, and various other
customers. Sales to these customers individually were all less than 10% of total annual sales.
Sales to these customers amounted to approximately 18% and 17% of total sales in 2010 and 2009,
respectively.
EXPORT SALES
The Company provides products to some of its customers that have manufacturing and service
locations in Canada and Mexico. Export sales, which are denominated in United States dollars, were
approximately $14,531,000 and $7,059,000 for the years ended 2010 and 2009, respectively. These
export sales dollars represent approximately 15% and 8% of total sales for 2010 and 2009,
respectively.
FOREIGN OPERATIONS
As a result of the Airshield Asset Acquisition, the Company began importing products into the
United States, as many products produced in the Company’s Mexican facility are sold to customers in
the United States. Import sales, which are denominated in United States dollars, were
approximately $28,323,000 and $16,442,000 for the years ended 2010 and 2009, respectively. The
sales of products imported were approximately 28% and 20% of total sales in 2010 and 2009,
respectively. The increase in import sales in 2010 is a result of transferring certain production
lines from the Company’s Columbus facility to its Matamoros, Mexico facility as well as the overall
increase in production of North American medium and heavy-duty trucks.
The Company owns long-lived assets at its Matamoros, Mexico facility with a net book value of
$23,848,000 at December 31, 2010.
PRODUCTS
Sheet
Molding Compound (“SMC”)
SMC is a combination of resins, fiberglass, catalysts, and fillers compounded and cured in sheet
form, which is then used to manufacture compression-molded products, as discussed below, and on a
limited basis sold to other molders.
The Company incorporates a sophisticated computer program in the process of compounding various
complex SMC formulations tailored to customer needs. The program provides for the following:
| • | Control information during various production processes; and |
| • | Data for statistical batch controls. |
The Company has the capacity to manufacture approximately 48 million pounds of SMC annually. The
following table shows production of SMC for 2010 and 2009.
| SMC Pounds | ||||
| Produced | ||||
| Year | (Millions) | |||
2010 |
18 | |||
2009 |
14 | |||
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Glass Mat Thermoplastic Compound (“GMT”)
GMT is a combination of glass and thermoplastic resins which the Company purchases in sheet form.
GMT is heated just prior to being used to manufacture compression-molded products.
Closed Molded Products
The Company manufactures reinforced plastic products using compression molding and vacuum resin
infusion molding process methods of closed molding.
Compression Molding — Compression molding is a process whereby SMC or GMT is molded to form by
matched die steel molds through which a combination of heat and pressure are applied via a molding
press. This process produces high quality, dimensionally consistent products. This process is
typically used for high volume products, which is necessary to justify the customers’ investment in
molds.
As of December 31, 2010, the Company owned 15 compression-molding presses in its Columbus, Ohio
plant, which range in size from 500 to 4,500 tons. The Company also
owns 7 presses in its
Gaffney, South Carolina plant, which range in size from 1,000 to 3,000 tons and 10 presses in its
Matamoros, Mexico manufacturing facility ranging from 250 to 3,000 tons.
Large platen, high tonnage presses (2,000 tons or greater) provide the ability to compression mold
very large SMC parts. The Company believes that it possesses a significant portion of the large
platen, high tonnage molding capacity in the industry.
To enhance the surface quality and paint finish of products, the Company uses both in-mold coating
and vacuum molding processes. In-mold coating is the process of injecting a liquid over the molded
part surface and then applying pressure at elevated temperatures during an extended molding cycle.
The liquid coating serves to fill and/or bridge surface porosity as well as provide a barrier
against solvent penetration during subsequent top-coating operations.
Vacuum molding is the removal of air during the molding cycle for the purpose of reducing the
amount of surface porosity. The Company believes that it is among the industry leaders in in-mold
coating and vacuum molding applications, based on the size and complexity of parts molded.
Resin Transfer Molding (“RTM”) — This process employs two molds, typically a core and a cavity,
similar to matched die molding. The composite is produced by placing glass mat, chopped strand, or
continuous strand fiberglass in the mold cavity in the desired pattern. Parts used for cosmetic
purposes typically have a gel coat applied to the mold surface. The core mold is then fitted to
the cavity, and upon a satisfactory seal, a vacuum is applied. When the proper vacuum is achieved,
the resin is injected into the mold to fill the part. Finally, the part is allowed to cure and is
then removed from the mold and trimmed to shape. Fiberglass reinforced products produced from the
RTM process exhibit a high quality surface on both sides of the part and excellent part thickness.
The MIT technique can be utilized in the RTM process to improve throughput based upon volume
requirements.
Open Molded Products
The Company produces reinforced plastic products using both the spray-up and hand-lay-up methods of
open molding.
Hand-Lay-Up — This process utilizes a shell mold, typically the cavity, where glass cloth, either
chopped strand or continuous strand glass mat, is introduced into the cavity. Resin is then
applied to the cloth and rolled out to achieve a uniform wet-out from the glass and to remove any
trapped air. The part is then allowed to cure and removed from the mold. After removal, the part
typically undergoes trimming to achieve the shape desired. Parts used for cosmetic purposes
typically have a gel coat applied to the mold surface prior to the lay-up to improve the surface
quality of the finished part. Parts produced from this process have a smooth outer surface and an
unfinished or rough interior surface. These fiberglass-reinforced products are typically
non-cosmetic components or structural reinforcements that are sold externally or used internally as
components of larger assemblies.
Spray-Up — This process utilizes the same type of shell mold, but instead of using glass cloth to
produce the composite part, a chopper/spray system is employed. Glass yarns and resin feed the
chopper/spray gun. The resin coated, chopped glass, which is approximately one inch in length, is
sprayed into the mold to the desired thickness. The resin coated glass in the
mold is then rolled out to ensure complete wet-out and to remove any trapped air. The part is then
allowed to cure, is
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removed from the mold and is then trimmed to the desired shape. Parts used for
cosmetic purposes typically have a gel coat applied to the mold surface prior to the resin-coated
glass being sprayed into the mold to improve the surface quality of the finished part. Parts
produced from this process have a smooth outer surface and an unfinished or rough interior surface.
The Company also has a chain driven robotic gel-coating and spray-up line and a hand spray-up cell
at the Batavia, Ohio location. Part sizes weigh from a few pounds to several thousand pounds with
surface quality tailored for the end use application.
Assembly, Machining, and Paint Products
Many of the products molded by the Company are assembled, machined, prime painted, or topcoat
painted to result in a completed product used by the Company’s end-customers.
The Company has demonstrated manufacturing flexibility that accepts a range of low volume hand
assembly and machining work, to high volume, highly automated assembly and machining systems.
Robotics are used as deemed productive for material handling, machining, and adhesive applications.
In addition to conventional machining methods, water-jet cutting technology is also used where
appropriate. The Company utilizes paint booths and batch ovens in its facilities when warranted.
The Company generally contracts with outside parties for higher volume applications that require
top coat paint.
RAW MATERIALS
The principal raw materials used in the compounding of SMC and the closed and open molding
processes are polyester, vinyl ester and epoxy resins, fiberglass rovings, and filler. Other
significant raw materials include adhesives for assembly of molded components and in-mold coating,
gel-coat, prime paint for preparation of cosmetic surfaces, and hardware (steel components). Many
of the raw materials used by the Company are petroleum and energy based, and therefore, the costs
of certain raw materials can fluctuate based on changes in costs of these underlying commodities.
During the last several years, the Company has experienced price fluctuations for certain
materials, which has caused suppliers to be reluctant to enter into long-term contracts. The
Company generally has supplier alternatives for each raw material, regularly evaluates its supplier
base for certain supplies, repair items, and componentry to improve its overall purchasing
position.
BACKLOG
The Company relies on production schedules provided by its customers to plan and implement
production. These schedules are normally provided on a weekly basis and typically considered firm
for four weeks. Some customers can update these schedules daily for changes in demand, allowing
them to run their inventories on a “just-in-time” basis. The ordered backlog was approximately
$8.9 million and $6.8 million at December 31, 2010 and 2009, respectively, all of which the Company
expects to ship during the first quarter of the following year.
CAPACITY CONSTRAINTS
In the past, the Company has been required to work an extended shift and day schedule, up to a
three shift/seven day operation, to meet its customers’ production requirements. The Company has
used various methods from overtime to a weekend manpower crew to support the different shift
schedules required. Based on recent and expected 2011 production schedules, the Company has not
had and does not anticipate difficulty meeting customer requirements for 2011. Based on industry
analysts’ forecasts for medium and heavy-duty truck production levels for 2012 and beyond, combined
with recent business awards, the Company expects to add production capacity to its Matamoros
facility to meet 2012 demand. See further discussion of machine and facility capacities at Item 2
“Properties” contained elsewhere in this Annual Report on Form 10-K.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures totaled approximately $2.2 million and $10.1 million in 2010 and 2009,
respectively. Capital expenditures in 2010 consist of building improvements and purchases of
production equipment to manufacture parts. In 2009 capital expenditures consisted primarily of
investments related to the Company’s new manufacturing facility in Mexico.
Product development is a continuous process at the Company. Research and development activities
focus on developing new SMC formulations, new structural plastic products, and improving existing
products and manufacturing processes.
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The Company does not maintain a separate research and development organization or facility, but
uses its production equipment, as necessary, to support these efforts and cooperates with its
customers and its suppliers in research and development efforts. Likewise, manpower to direct and
advance research and development is integrated with the existing manufacturing, engineering,
production, and quality organizations. Management of the Company has estimated that costs related
to research and development were approximately $249,000 and $181,000 in 2010 and 2009,
respectively.
ENVIRONMENTAL COMPLIANCE
The Company’s manufacturing operations are subject to federal, state, and local environmental laws
and regulations, which impose limitations on the discharge of hazardous and non-hazardous
pollutants into the air and waterways. The Company has established and implemented standards for
the treatment, storage, and disposal of hazardous waste. The Company’s policy is to conduct its
business with due regard for the preservation and protection of the environment. The Company’s
environmental waste management involves the regular auditing of satellite hazardous waste
accumulation points, hazardous waste activities and authorized treatment, storage and disposal
facility. As part of the Company’s environmental policy all manufacturing employees are trained on
waste management and other environmental issues.
In June 2003, the Ohio Environmental Protection Agency (“Ohio EPA”) issued Core Molding
Technologies’ final Title V Operating Permit for the Columbus, Ohio facility, and in May 2004 the
Ohio EPA issued a final Title V Operating Permit for the Cincinnati, Ohio facility. In August
2005, the South Carolina Department of Health and Environmental Control issued a final Title V
Operating Permit for the Gaffney, South Carolina facility. Since that time, Core Molding
Technologies has substantially complied with the requirements of these permits. The Company has
applied and continues to work with the Ohio EPA and the South Carolina Department of Health and
Environmental Control to finalize renewal of the Title V Operating Permit for each of its US
facilities.
The Company holds various environmental operating permits for its production facility in Matamoros,
Mexico as required by US and Mexican state and federal regulations. The Company has substantially
complied with all requirements of these operating permits.
EMPLOYEES
As of December 31, 2010, the Company employed a total of 1,014 employees, which consists of 405
employees in its United States operations and 609 employees in its Mexican operations. Of these
1,014 employees, 164 are covered by a collective bargaining agreement with the International
Association of Machinists and Aerospace Workers (“IAM”), which extends to August 10, 2013, and 522
are covered by a collective bargaining agreement with Sindicato de Jorneleros y Obreros, which
extends to January 16, 2013.
PATENTS, TRADE NAMES, AND TRADEMARKS
The Company will evaluate, apply for, and maintain patents, trade names, and trademarks where it
believes that such patents, trade names, and trademarks are reasonably required to protect its
rights in its products. The Company does not believe that any single patent, trade name, or
trademark or related group of such rights is materially important to its business or its ability to
compete.
SEASONALITY & BUSINESS CYCLE
The Company’s business is affected annually by the production schedules of its customers. Certain
of the Company’s customers typically shut down their operations on an annual basis for a period of
one to several weeks during the Company’s third quarter. Certain customers also typically shut
down their operations during the last week of December. As a result, demand for the Company’s
products typically decreases during the third and fourth quarters. Demand for medium and
heavy-duty trucks, personal watercraft, and automotive products also fluctuate on an economic,
cyclical and a seasonal basis, causing a corresponding fluctuation for demand of the Company’s
products.
| ITEM 1A. | RISK FACTORS |
The following risk factors describe various risks that may affect our business, financial
condition, and operations. References to “we,” “us,” and “our” in this “Risk Factors” section
refer to Core Molding Technologies and its subsidiaries, unless otherwise specified or unless the
context otherwise requires.
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We are dependent on sales to our major customers.
Sales to Navistar and PACCAR constituted approximately 55% and 27%, respectively, of our 2010 total
sales. No other customer accounted for more than 10% of our total sales for this period. The loss
of any significant portion of sales to any of our major customers could have a material adverse
effect on our business, results of operations, and financial condition.
We are a regular supplier to both of these customers, which results in recurring revenues. If we
could not maintain our supplier relationship with either customer it could have a material adverse
effect on our business, results of operations, or financial condition.
We are continuing to engage in efforts intended to improve and expand our relations with Navistar
and PACCAR as well as provide support for our entire customer base. We have supported our position
with customers through direct and active contact through our sales, quality, engineering, and
operational personnel. We cannot make any assurances that we will maintain or improve our
customer relationships, whether these customers will continue to do business with us as they have
in the past or whether we will be able to supply these customers or any of our other customers at
current levels.
Our business is affected by the cyclical nature of the industries and markets that we serve.
The North American heavy and medium-duty truck industries are highly cyclical. In 2010
approximately 92% of product sales were in these industries. These industries and markets fluctuate
in response to factors that are beyond our control, such as general economic conditions, interest
rates, federal and state regulations (including engine emissions regulations, tariffs, import
regulations, and other taxes), consumer spending, fuel costs, and our customers’ inventory levels
and production rates. Our manufacturing operations have a significant fixed cost component.
Accordingly, during periods of changing demands, the profitability of our operations may change
proportionately more than revenues from operations. In addition, our operations are typically
seasonal as a result of regular customer maintenance shutdowns, which typically vary from year to
year based on production demands and occur in the third and fourth quarter of each calendar year.
This seasonality may result in decreased net sales and profitability during the third and fourth
fiscal quarters of each calendar year. Weakness in overall economic conditions or in the markets
that we serve, or significant reductions by our customers in their inventory levels or future
production rates, could result in decreased demand for our products and could have a material
adverse effect on our business, results of operations, or financial condition.
Price increases in raw materials and availability of raw materials could adversely affect our
operating results and financial condition.
We purchase resins and fiberglass for use in production as well as steel and other components for
product assembly. The prices of raw materials are affected by the prices of crude oil, natural gas,
and benzene as well as processing capacity versus demand and we have incurred increases in raw
material costs over the past few years. We attempt to reduce our exposure to increases by working
with suppliers, evaluating new suppliers, improving material efficiencies, and when necessary
through sales price adjustments to customers. If we are unsuccessful in developing ways to
mitigate these raw material increases we may not be able to improve productivity or realize our
ongoing cost reduction programs sufficiently to help offset the impact of these increased raw
material costs. As a result, higher raw material costs could result in declining margins and
operating results.
Cost reduction and quality improvement initiatives by original equipment manufacturers could have a
material adverse effect on our business, results of operations, or financial condition.
We are primarily a components supplier to the heavy and medium-duty truck industries, which are
characterized by a small number of original equipment manufacturers (“OEMs”) that are able to exert
considerable pressure on components suppliers to reduce costs, improve quality, and provide
additional design and engineering capabilities. Given the fragmented nature of the industry, OEMs
continue to demand and receive price reductions and measurable increases in quality through their
use of competitive selection processes, rating programs, and various other arrangements. We may be unable
to generate sufficient production cost savings in the future to offset such price reductions. OEMs
may also seek to save costs by relocating production to countries with lower cost structures, which
could in turn lead them to purchase components from suppliers with lower production costs that are
geographically closer to their new production facilities. These decisions by OEMs could require
us to shift production between our plants so that we are more competitive. Moving production lines
between our plants could result in significant one-time costs required for transfer expenses and
capital investment. Additionally,
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OEMs have generally required component suppliers to provide more
design engineering input at earlier stages of the product development process, the costs of which
have, in some cases, been absorbed by the suppliers. Future price reductions, increased quality
standards, and additional engineering capabilities required by OEMs may reduce our profitability
and have a material adverse effect on our business, results of operations, or financial condition.
We operate in highly competitive markets.
The markets in which we operate are highly competitive. We compete with a number of other
manufacturers that produce and sell similar products. Our products primarily compete on the basis
of capability, product quality, cost, and delivery. Some of our competitors have greater financial
resources, research and development facilities, design engineering, manufacturing, and marketing
capabilities.
We may be subject to additional shipping expense or late fees if we are not able to meet our
customers’ on-time demand for our products.
We must continue to meet our customers’ demand for on-time delivery of our products. Factors that
could result in our inability to meet customer demands include a failure by one or more of our
suppliers to supply us with the raw materials and other resources that we need to operate our
business effectively or poor management of our company or one or more of its’ plants and an
unforeseen spike in demand for our products, among other factors. If this occurs, we may be
required to incur additional shipping expenses to ensure on-time delivery or otherwise be required
to pay late fees, which could have a material adverse effect on our business, results of
operations, or financial condition.
If we fail to attract and retain key personnel our business could be harmed.
Our success largely depends on the efforts and abilities of our key personnel. Their skills,
experience, and industry contacts significantly benefit us. The inability to retain key personnel
could have a material adverse effect on our business, results of operations, or financial
condition. Our future success will also depend in part upon our continuing ability to attract and
retain highly qualified personnel.
Work stoppages or other labor issues at our facilities or at our customers’ facilities could
adversely affect our operations.
As of December 31, 2010, unions at our Columbus, Ohio and Matamoros, Mexico facilities represented
approximately 68% of our entire workforce. As a result, we are subject to the risk of work
stoppages and other labor-relations matters. The current Columbus, Ohio and Matamoros, Mexico
union contracts extend through August 10, 2013 and January 16, 2013, respectively. Any prolonged
work stoppage or strike at either our Columbus, Ohio or Matamoros, Mexico unionized facilities
could have a material adverse effect on our business, results of operations, or financial
condition. These collective bargaining agreements expire at various times. Any failure by us to
reach a new agreement upon expiration of such union contracts may have a material adverse effect on
our business, results of operations, or financial condition.
In addition, if any of our customers or suppliers experiences a material work stoppage, that
customer may halt or limit the purchase of our products or the supplier may interrupt supply of our
necessary production components. This could cause us to shut down production facilities relating to
these products, which could have a material adverse effect on our business, results of operations,
or financial condition.
Changes in the legal, regulatory and social responses to climate change, including any possible
effect on energy prices, could adversely affect our business and reduce our profitability.
It is possible that various proposed legislative or regulatory initiatives related to climate
changes, such as cap-and-trade systems, increased limits on emissions of greenhouse gases, or other
measures, could in the future have a material impact on us, our customers, or the markets we serve,
thereby resulting in a material adverse effect on our financial condition or results of operation.
For example, customers in the transportation (automotive and truck) industry could be required to
incur greater
costs in order to comply with such initiatives, which could have an adverse impact on their
profitability or viability. This could in turn lead to further changes in the structure of the
transportation industry that could reduce demand for our products. We are also reliant on energy to
manufacture our products, with our operating costs being subject to increase if energy costs rise.
During periods of higher energy costs we may not be able to recover our operating cost increases
through production efficiencies and price increases. While we may hedge our exposure to higher
prices via future energy purchase contracts,
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increases in energy prices for any reason (including
as a result of new initiatives related to climate change) will increase our operating costs and
likely reduce our profitability.
Our business is subject to risks associated with manufacturing processes.
We convert raw materials into molded products through a manufacturing process at production
facilities in Columbus, Ohio; Gaffney, South Carolina; Batavia, Ohio; and Matamoros, Mexico. While
we maintain insurance covering our manufacturing and production facilities, including business
interruption insurance, a catastrophic loss of the use of all or a portion of our facilities due to
accident, fire, explosion, or natural disaster, whether short or long-term, could have a material
adverse effect on our business, results of operations, or financial condition.
Unexpected failures of our equipment and machinery may result in production delays, revenue loss,
and significant repair costs, as well as injuries to our employees. Any interruption in production
capability may require us to make large capital expenditures to remedy the situation, which could
have a negative impact on our profitability and cash flows. Our business interruption insurance
may not be sufficient to offset the lost revenues or increased costs that we may experience during
a disruption of our operations. Because we supply our products to OEMs, a temporary or long-term
business disruption could result in a permanent loss of customers. If this were to occur, our
future sales levels and therefore our profitability could be materially adversely affected.
Our insurance coverage may be inadequate to protect against the potential hazards incident to our
business.
We maintain property, business interruption, product liability, and casualty insurance coverage,
but such insurance may not provide adequate coverage against potential claims, including losses
resulting from war risks, terrorist acts, or product liability claims relating to products we
manufacture. Consistent with market conditions in the insurance industry, premiums and deductibles
for some of our insurance policies have been increasing and may continue to increase in the future.
In some instances, some types of insurance may become available only for reduced amounts of
coverage, if at all. In addition, there can be no assurance that our insurers would not challenge
coverage for certain claims. If we were to incur a significant liability for which we were not
fully insured or that our insurers disputed, it could have a material adverse effect on our
financial position.
We have made acquisitions and may make acquisitions in the future. We may not realize the improved
operating results that we anticipate from these acquisitions or from acquisitions we may make in
the future, and we may experience difficulties in integrating the acquired businesses or may
inherit significant liabilities related to such businesses.
We explore opportunities to acquire businesses that we believe are related to our core competencies
from time to time, some of which may be material to us. We expect such acquisitions will produce
operating results consistent with our other operations, however, we cannot provide assurance that
this assumption will prove correct with respect to any acquisition.
Any acquisitions may present significant challenges for our management due to the increased time
and resources required to properly integrate management, employees, information systems, accounting
controls, personnel, and administrative functions of the acquired business with those of ours and
to manage the combined company on a going forward basis. The diversion of management’s attention
and any delays or difficulties encountered in connection with the integration of these businesses
could adversely impact our business, results of operations, and liquidity, and the benefits we
anticipate may never materialize.
If we are unable to meet future capital requirements, our business may be adversely affected.
As we grow our business, we may have to incur significant capital expenditures. We may make
capital investments to, among other things, build new or upgrade our facilities, purchase leased
facilities and equipment, and enhance our production processes. We cannot assure you that we will
have, or be able to obtain, adequate funds to make all necessary capital expenditures when
required, or that the amount of future capital expenditures will not be materially in excess of our
anticipated or current expenditures. If we are unable to make necessary capital expenditures we
may not have the capability
to support our customer demands, which, in turn could reduce our sales and profitability and impair
our ability to satisfy our customers’ expectations. In addition, even if we are able to invest
sufficient resources, these investments may not generate net sales that exceed our expenses,
generate any net sales at all, or result in any commercially acceptable products.
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Our failure to comply with our debt covenants could have a material adverse effect on our business,
financial condition or results of operations.
Our debt agreements contain certain covenants. A breach of any of these covenants could result in a
default under the applicable agreement. If a default were to occur, we would likely seek a waiver
of that default, attempt to reset the covenant, or refinance the instrument and accompanying
obligations. If we were unable to obtain this relief, the default could result in the acceleration
of the total due related to that debt obligation. If a default were to occur, we may not be able
to pay our debts or borrow sufficient funds to refinance them. Any of these events, if they occur,
could materially adversely affect our results of operations, financial condition, and cash flows.
We may not achieve expected efficiencies related to the proximity of our customers’ production
facilities to our manufacturing facilities, or with respect to existing or future production
relocation plans.
Our facilities are located in close proximity to our customers in order to minimize both our
customer’s and our own costs. If any of our customers were to move or if nearby facilities are
closed, that may impact our ability to remain competitive. This might also require us to move
closer to our customers, build new facilities or shift production between our current facilities to
meet our customer’s needs, resulting in additional cost and expense. In January 2010, we announced
our agreement with Navistar to shift production of certain products from our Columbus, Ohio
facility to our Matamoros, Mexico facility as a result of the relocation of certain production by
Navistar to its Escobedo, Mexico assembly plant. In 2010 the Company incurred $1.47 million of
expense for transfer and startup costs and $1.32 million in capital costs associated with this
production shift to Matamoros.
Our products may be rendered obsolete or less attractive if there are changes in technology,
regulatory requirements, or competitive processes.
Changes in technology, regulatory requirements, and competitive processes may render certain
products obsolete or less attractive. Our ability to anticipate changes in these areas will be a
significant factor in our ability to remain competitive. If we are unable to identify or
compensate for any one of these changes it may have a material adverse effect on our business,
results of operations, or financial condition.
Our stock price can be volatile.
Our stock price can fluctuate widely in response to a variety of factors. Factors include actual
or anticipated variations in our quarterly operating results, our relatively small public float,
changes in securities analysts’ estimates of our future earnings, and the loss of major customers
or significant business developments relating to us or our competitors, and other factors,
including those described in this “Risk Factors” section. Our common stock also has a low average
daily trading volume, which limits a person’s ability to quickly accumulate or quickly divest
themselves of large blocks of our stock. In addition, a low average trading volume can lead to
significant price swings even when a relatively few number of shares are being traded.
We are subject to environmental rules and regulations that may require us to make substantial
expenditures.
Our operations, facilities, and properties are subject to extensive and evolving laws and
regulations pertaining to air emissions, wastewater discharges, the handling and disposal of solid
and hazardous materials and wastes, the investigation and remediation of contamination, and
otherwise relating to health, safety, and the protection of the environment and natural resources.
As a result, we may be involved from time to time in administrative or legal proceedings relating
to environmental, health and safety matters, and may need to incur capital costs and other
expenditures relating to such matters.
Although we do not presently anticipate terminating any senior management employees, certain senior
management employees have entered into potentially costly severance arrangements with us if
terminated after a change in control.
We have entered into executive severance agreements with certain senior management employees that
provide for significant severance payments in the event such employee’s employment with us is
terminated within two years of a change in control (as defined in the severance agreement) either
by the employee for good reason (as defined in the severance agreement) or by us for any reason
other than cause (as defined in the severance agreement), or for death, or disability. A change in
control under these agreements includes any transaction or series of related transactions as a
result of which less than fifty percent (50%) of the combined voting power of the then-outstanding
securities immediately after such transaction are held in the
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aggregate by the holders of our
voting stock immediately prior to such transaction; any person has become the beneficial owner of
securities representing 50% or more of our voting stock; we file a report or proxy statement with
the SEC that a change in control of the Company has occurred; or within any two year period, the
directors at the beginning of the period cease to constitute at least a majority thereof. These
agreements would make it costly for us to terminate certain of our senior management employees and
such costs may also discourage potential acquisition proposals, which may negatively affect our
stock price.
Our stock price may be adversely affected as a result of shares eligible for future sale by
Navistar.
Navistar received 4,264,000 shares of our common stock in connection with the sale of the Columbus
Plastics unit to us in 1996. On July 18, 2007, we entered into a stock repurchase agreement with
Navistar, pursuant to which we purchased 3,600,000 of these shares from Navistar. The remaining
664,000 shares which Navistar received and still owns may not be sold in the absence of
registration under the Securities Act or an exemption therefrom, including the exemptions contained
in Rule 144 under the Securities Act. We previously entered into a Registration Rights Agreement
with Navistar pursuant to which Navistar and its transferees were granted the right to demand
registration of the resale of such shares at any time. Navistar was also granted unlimited
piggyback registration rights with respect to these shares under the Registration Rights Agreement.
No prediction can be made as to the effect, if any, of future sales of our shares of common stock
by Navistar, if any, on the market price of our shares of common stock prevailing from time to
time. Sales of substantial amounts of our common stock by Navistar, or the perception that such
sales could occur, could adversely affect prevailing market prices for those securities.
Our foreign operations subject us to risks that could negatively affect our business.
We operate a manufacturing facility in Matamoros, Mexico and, as a result, our business and
operations are subject to the risk of changes in economic conditions, tax systems, consumer
preferences, social conditions, safety and security conditions and political conditions inherent in
Mexico, including changes in the laws and policies that govern foreign investment, as well as
changes in United States laws and regulations relating to foreign trade and investment. In
addition, our results of operations and the value of our foreign assets are affected by
fluctuations in Mexican currency exchange rates, which may favorably or adversely affect reported
earnings. Having transferred certain of our production lines to Matamoros, Mexico in recent years,
our operations in Mexico have increased materially, and accordingly our exposure to the
aforementioned risks relating to foreign operations has increased. There can be no assurance as to
the future effect of any such changes on our results of operations, financial condition, or cash
flows.
Economic conditions and disruptions in the financial markets could have an adverse effect on
our business, financial condition and results of operations.
Over the last several years financial markets experienced turmoil and uncertainty that required
significant intervention of the U.S. federal government. While the ultimate outcome of these events
in the financial market cannot be predicted, they could have a material adverse effect on our
liquidity and financial condition if our ability to borrow money from our existing lenders were to
be impaired. A crisis in the financial markets may also have a material adverse impact on the
availability and cost of credit in the future. Our ability to pay our debt or refinance our
obligations will depend on our future performance, which could be affected by, among other things,
prevailing economic conditions. A financial crisis may also have an adverse effect on the U.S. and
world economies, which would have a negative impact on demand for our products. In addition,
tightening of credit markets may have an adverse impact on our customers’ ability to finance the
sale of new trucks or our suppliers’ ability to provide us with raw materials, either of which
could adversely affect our business and results of operations.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
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| ITEM 2. | PROPERTIES |
The Company owns three production facilities that are situated in Columbus, Ohio, Gaffney, South
Carolina and Matamoros Mexico and leases a production facility in Batavia, Ohio. The Company
believes that, through productive use, these facilities have adequate production capacity to meet
2011 production volume. Based on industry analysts’ forecasts for medium and heavy-duty truck
production levels for 2012 and beyond, combined with recent business awards and to allow for further growth, the Company expects to
add production capacity to its Matamoros facility in 2011.
The Columbus, Ohio plant is located at 800 Manor Park Drive on approximately 28.2 acres of land.
The Company acquired the property at 800 Manor Park Drive in 1996 as a result of the Asset Purchase
Agreement with Navistar. The 331,558 square feet of available floor space at the Columbus, Ohio
plant is comprised of the following:
| Approximate | ||||
| Square Feet | ||||
Manufacturing/Warehouse |
315,409 | |||
Office |
16,149 | |||
Total |
331,558 | |||
The Gaffney, South Carolina plant, which was opened in early 1998, is located at 24 Commerce Drive,
Meadow Creek Industrial Park on approximately 20.7 acres of land. The approximate 110,900 square
feet of available floor space at the Gaffney, South Carolina plant is comprised of the following:
| Approximate | ||||
| Square Feet | ||||
Manufacturing/Warehouse |
105,700 | |||
Office |
5,200 | |||
Total |
110,900 | |||
The Matamoros, Mexico plant which was opened in mid 2009 is located at Guillermo Gonzalez Camarena
y Thomas Alva Edison Manzana, Matamoros, Tamaulipas, Mexico. The facility consists of
approximately 437,000 square feet on approximately 22 acres comprised of the following:
| Approximate | ||||
| Square Feet | ||||
Manufacturing/Warehouse |
422,000 | |||
Office |
15,000 | |||
Total |
437,000 | |||
The Columbus, Ohio, Gaffney, South Carolina and Matamoros, Mexico properties are subject to liens
and security interests as a result of the properties being pledged by the Company as collateral for
its debt as described in Note 6 of the “Notes to Consolidated Financial Statements” in Part II,
Item 8 of this Annual Report on Form 10-K.
The Company leases a production plant in Batavia, Ohio located at 4174 Half Acre Road on
approximately nine acres of land. The term of the lease is seven years through July 2012. The
Company has the option to terminate the lease at any time, by providing written notice to the
lessor no later than 90 days prior to the intended termination date. The Company has the option to
purchase the property at the end of every lease year. The approximate 107,740 square feet of
available floor space at the Batavia, Ohio plant is comprised of the following:
| Approximate | ||||
| Square Feet | ||||
Manufacturing/Warehouse |
103,976 | |||
Office |
3,764 | |||
Total |
107,740 | |||
The Company measures facility
capacity in terms of its large molding presses (2,000 tons or
greater) for the Columbus, Ohio, Gaffney, South Carolina and the SMC
molding portion at the Matamoros, Mexico
facility. The approximate large press capacity
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utilization for the molding of
production
products in these production facilities was 39% in the fourth quarter of both 2010 and
2009, respectively. The Company had 15 large molding presses at December 31, 2010, compared to 14
at December 31, 2009. Capacity utilization is measured on the basis of a five day, three-shifts
per day operation.
The capacity of production in the Cincinnati, Ohio facility and the spray-up, hand-lay-up and
RTM portion at the Matamoros, Mexico facility are not linked directly to equipment capacities,
due to the nature of the products produced. Capacity of these operations is tied to available
floor space and the availability of personnel. The approximate capacity utilization for these
operations was 56% and 41% in the fourth quarters of 2010 and 2009, respectively.
| ITEM 3. | LEGAL PROCEEDINGS |
From time to time, the Company is involved in litigation incidental to the conduct of its business.
The Company is presently not involved in any legal proceedings which in the opinion of management
are likely to have a material adverse effect on the Company’s consolidated financial position or
results of operations.
| ITEM 4. | (Removed and Reserved) |
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
The Company’s common stock is traded on the NYSE AMEX under the symbol “CMT”.
The table below sets forth the high and low sale prices of the Company for each full quarterly
period within the two most recent fiscal years for which such stock was traded.
| Core Molding Technologies, Inc. | High | Low | ||||||||||
Fourth Quarter |
2010 | $ | 6.07 | $ | 4.29 | |||||||
Third Quarter |
2010 | 6.15 | 3.99 | |||||||||
Second Quarter |
2010 | 6.12 | 3.40 | |||||||||
First Quarter |
2010 | 3.80 | 2.85 | |||||||||
Fourth Quarter |
2009 | $ | 3.39 | $ | 2.69 | |||||||
Third Quarter |
2009 | 4.19 | 2.16 | |||||||||
Second Quarter |
2009 | 3.00 | 1.30 | |||||||||
First Quarter |
2009 | 2.99 | 1.16 | |||||||||
The Company’s common stock
was held by 345 holders of record on March 24, 2011.
The Company made no payments of cash dividends during 2010 and 2009. The Company currently expects
that its earnings will be retained to finance the growth and development of its business and does
not anticipate paying dividends on its common stock in the foreseeable future.
Equity Compensation Plan Information
The following table shows certain information concerning our common stock to be issued in
connection with our equity compensation plans as of December 31, 2010:
| Number of Shares to | ||||||||||||
| be Issued Upon | Weighted Average | |||||||||||
| Exercise of | Exercise Price of | Number of Shares | ||||||||||
| Outstanding Options | Outstanding | Remaining | ||||||||||
| or Vesting of | Options or | Available for | ||||||||||
| Plan Category | Restricted Grants | Restricted Grants | Future Issuance | |||||||||
Equity compensation plans approved by
stockholders |
568,422 | $ | 3.56 | 1,814,766 | ||||||||
Equity compensation plans not
approved by
stockholders (1) |
155,650 | $ | 3.21 | — | ||||||||
| (1) | On August 4, 2003, the Company issued 261,250 options that were not covered under the Plan
at $3.21 to its Directors. |
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| ITEM 6. | SELECTED FINANCIAL DATA |
The following selected financial data are derived from the audited consolidated financial
statements of the Company. The information set forth below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the
financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
| (In thousands, | Years Ended December 31, | |||||||||||||||||||
| except per share data) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Operating Data: |
||||||||||||||||||||
Product sales |
$ | 89,903 | $ | 76,167 | $ | 110,539 | $ | 101,045 | $ | 150,174 | ||||||||||
Tooling sales |
10,355 | 7,172 | 6,116 | 21,667 | 12,156 | |||||||||||||||
Net sales |
100,258 | 83,339 | 116,655 | 122,712 | 162,330 | |||||||||||||||
Gross margin |
16,349 | 11,425 | 21,210 | 16,968 | 29,869 | |||||||||||||||
Income before interest and
taxes |
6,417 | 2,485 | 9,190 | 5,569 | 15,856 | |||||||||||||||
Net income |
2,433 | 1,107 | 5,741 | 3,829 | 10,519 | |||||||||||||||
Earnings Per Share Data: |
||||||||||||||||||||
Net income per common share: |
||||||||||||||||||||
Basic |
.36 | .16 | .85 | .44 | 1.04 | |||||||||||||||
Diluted |
.34 | .16 | .82 | .43 | 1.01 | |||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Total assets |
79,062 | 79,176 | 74,676 | 62,467 | 90,635 | |||||||||||||||
Working capital |
14,916 | 13,587 | 10,631 | 6,253 | 27,575 | |||||||||||||||
Long-term debt |
13,581 | 17,733 | 11,129 | 5,914 | 7,779 | |||||||||||||||
Stockholders’ equity |
38,065 | 30,232 | 29,820 | 22,599 | 43,823 | |||||||||||||||
Return on Equity |
6% | 4% | 19% | 17% | 24% | |||||||||||||||
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| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements within the meaning of the federal securities laws. As a general matter,
forward-looking statements are those focused upon future plans, objectives or performance as
opposed to historical items and include statements of anticipated events or trends and expectations
and beliefs relating to matters not historical in nature. Such forward-looking statements involve
known and unknown risks and are subject to uncertainties and factors relating to Core Molding
Technologies’ operations and business environment, all of which are difficult to predict and many
of which are beyond Core Molding Technologies’ control. These uncertainties and factors could cause
Core Molding Technologies’ actual results to differ materially from those matters expressed in or
implied by such forward-looking statements.
Core Molding Technologies believes that the following factors, among others, could affect its
future performance and cause actual results to differ materially from those expressed or implied by
forward-looking statements made in this report: business conditions in the plastics,
transportation, watercraft and commercial product industries; federal and state regulations
(including engine emission regulations); general economic, social and political environments in the
countries in which Core Molding Technologies operates; safety and security conditions in Mexico;
dependence upon two major customers as the primary source of Core Molding Technologies’ sales
revenues; recent efforts of Core Molding Technologies to expand its customer base; the actions of
competitors, customers, and suppliers; failure of Core Molding Technologies’ suppliers to perform
their obligations; the availability of raw materials; inflationary pressures; new technologies;
regulatory matters; labor relations; the loss or inability of Core Molding Technologies to attract
and retain key personnel; federal, state and local environmental laws and regulations; the
availability of capital; the ability of Core Molding Technologies to provide on-time delivery to
customers, which may require additional shipping expenses to ensure on-time delivery or otherwise
result in late fees; risk of cancellation or rescheduling of orders; risks related to the transfer
of production from Core Molding Technologies’ Columbus facility to its Matamoros facility;
management’s decision to pursue new products or businesses which involve additional costs, risks or
capital expenditures; and other risks identified from time-to-time in Core Molding Technologies
other public documents on file with the Securities and Exchange Commission, including those
described in Item 1A of this Annual Report on Form 10-K.
OVERVIEW
Core Molding Technologies is a manufacturer of sheet molding compound (“SMC”) and molder of
fiberglass reinforced plastics, primarily for the medium and heavy-duty truck market, which
accounted for approximately 92% and 93% of 2010 and 2009 product sales, respectively. Core Molding
Technologies produces high quality fiberglass reinforced molded products and SMC materials for
varied markets, including light, medium and heavy-duty trucks, automobiles and automotive
aftermarkets, personal watercraft, and other commercial products. The demand for Core Molding
Technologies’ products is affected by economic conditions in the United States, Canada, and Mexico.
Core Molding Technologies’ manufacturing operations have a significant fixed cost component.
Accordingly, during periods of changing demands, the profitability of Core Molding Technologies’
operations may change proportionately more than revenues from operations.
On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and
assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of Navistar’s truck
manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus,
Ohio, was a compounder and compression molder of SMC. In 1998, Core Molding Technologies began
compression molding operations at its second facility in Gaffney, South Carolina, and in October
2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of
this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include
the spray-up, hand-lay-up open mold processes and resin transfer (“RTM”) closed molding utilizing a
vacuum infusion process. In September 2004, Core Molding Technologies acquired substantially all
the operating assets of Keystone Restyling Products, Inc., a privately held manufacturer and
distributor of fiberglass reinforced products for the automotive-aftermarket industry. In August
2005, Core Molding Technologies acquired certain assets of the Cincinnati Fiberglass Division of
Diversified Glass, Inc., a Batavia, Ohio-based, privately held manufacturer and distributor of
fiberglass reinforced plastic components supplied primarily to the heavy-duty truck market. The
Batavia, Ohio facility produces reinforced plastic products by a spray-up open mold process and
resin transfer molding (“RTM”) utilizing multiple insert tooling (“MIT”) closed mold process. In
June of 2009, the Company completed construction of its new 437,000 square foot production facility
in Matamoros, Mexico that replaced its leased facility. In conjunction with the construction of
its new facility, the Company also added compression molding operations in Matamoros, Mexico.
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Core Molding Technologies recorded net income in 2010 of $2,433,000 or $0.36 per basic and $0.34
per diluted share, compared with $1,107,000 or $0.16 per basic and diluted share, in 2009. Product
sales in 2010 increased 18% from 2009 product sales, which is primarily the result of increased
demand from North American medium and heavy-duty truck customers as well as increased sales from
recent business awards.
Negatively impacting the Company’s net income for the year ended December 31, 2010 were increases
in deferred tax expense and certain other charges. In March 2010, Congress passed the Patient
Protection and Affordable Care Act (“PPACA”) which repealed the tax benefits the Company previously
received related to certain retiree prescription drug costs. As a result of this change, the
Company reduced its deferred tax asset related to that subsidy and recorded a non-cash charge to
income tax expense of $1,021,000 in the first quarter of 2010. The Company also incurred
approximately $1,467,000, or $968,000, net of tax, of expense for costs associated with
transferring certain operations from its Columbus, Ohio to its Matamoros, Mexico facilities.
Excluding these charges, and considering the associated increase in profit sharing expense of
$293,000, or $194,000 net of tax, income would have been $4,228,000, or $0.62 per basic share and
$0.60 per diluted share.
In 2009 the Company recorded approximately $2,001,000, or $1,321,000 net of tax, of expense for
transfer and start-up costs associated with the Company’s new production facility in Matamoros,
Mexico. Excluding these costs, the Company’s 2009 net income would have been $2,428,000, or $0.36
per basic and diluted share.
Looking forward the Company anticipates 2011 sales levels to continue to increase as industry
analysts are forecasting increases in truck production in 2011 as compared to 2010.
RESULTS OF OPERATIONS
2010 COMPARED WITH 2009
Sales for 2010 totaled $100,258,000, an approximate 20% increase from $83,339,000 reported for
2009. Included in total sales are tooling project revenues of $10,355,000 for 2010 and $7,172,000
for 2009. Tooling project sales result from billings to customers primarily for molds and assembly
equipment specific to their products as well as other non production billings. These sales are
sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period
basis. Total product sales for 2010, excluding tooling project revenue, totaled $89,903,000, an
18% increase from the $76,167,000 reported for 2009. The primary reasons for the increase were
higher demand from North American medium and heavy-duty truck customers as well as recent business
awards. Increased demand for the Company’s existing products had a favorable impact on product sales of
$8,309,000. Awards of new business had a favorable impact on product sales
of $8,134,000. The increases were offset by the effects of product pricing which decreased 2010
sales by approximately $2,707,000. The decrease in pricing was primarily the result of the transfer
of certain products to the Company’s Matamoros production facility.
Sales to Navistar in 2010 totaled $55,138,000, an approximate 23% increase from the 2009 amount of
$44,678,000. Included in total sales are tooling sales of $7,434,000 and $3,050,000 in 2010 and
2009, respectively. Included in 2010 tooling sales were approximately $2,809,000 of billings to
Navistar for services provided and expenses incurred in connection with the relocation of certain
production lines from the Company’s Columbus, Ohio production facility to its Matamoros production
facility. Product sales to Navistar increased by 15% in 2010 as compared to 2009. The primary
reason for the increase was higher demand for North American medium and heavy-duty trucks. The
increase was partially off-set by decreased pricing for certain products transferred to the
Company’s Matamoros, Mexico production facility.
Sales to PACCAR in 2010 totaled $26,736,000, an approximate 11% increase from the 2009 amount of
$24,184,000. Included in total sales are tooling sales of $1,632,000 and $1,069,000 in 2010 and
2009, respectively. Product sales to PACCAR increased 9% in 2010 as compared to 2009. The primary
reason for the increase was higher demand from the medium and heavy-duty truck markets as noted
above. Total product sales to PACCAR were negatively impacted by lower sales for a product that
has reached the end of its production life, which had the effect of reducing overall PACCAR product
sales increases by approximately 7%.
Sales to other customers in 2010
totaled $18,383,000, an approximate 27% increase from 2009 sales
of $14,477,000. Included in sales are tooling sales of $1,288,000 and $3,053,000 in 2010 and 2009,
respectively. Product sales to other customers increased by $3,907,000 in 2010 as compared to
2009, with approximately 75% of the increase resulting from increased
product sales to other medium and heavy-duty truck manufacturers. The remaining increase in
other product sales was due to increased
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demand for the Company’s products from customers outside the
medium and heavy-duty truck market.
Gross margin was approximately 16% of sales in 2010 compared to 14% of sales in 2009. Contributing
approximately 3% to gross margin as a percent of sales in 2010 was higher fixed cost absorption due
to higher production volumes. The Company’s manufacturing operations have significant overhead
costs which do not change proportionately with production. Labor and benefit costs decreased by 2%
of sales, which also contributed favorably to gross margin. The Company incurred approximately
$1,467,000 in transition costs related to the movement of product lines from its Columbus, Ohio
facility to its Matamoros, Mexico facility during 2010. Included in 2009 cost of sales were
approximately $1,783,000 of transfer and start-up costs associated with the construction of the
Company’s new production facility in Mexico. These costs had an unfavorable impact of approximately
1.5% and 2% of sales in 2010 and 2009, respectively. The decrease in transition costs contributed
approximately 0.5% of sales to gross margin in 2010. Partially offsetting these increases were
higher material costs and a change in sales mix in 2010 which negatively impacted gross margin by
2.5% and 1%, respectively.
Selling, general, and administrative expenses (“SG&A”) totaled $9,931,000 in 2010, increasing from
$8,940,000 in 2009. The primary reason for the increase was higher benefit costs including
employee profit sharing expense of $755,000. Also contributing to the increase were increases in
travel costs and professional services costs of approximately $100,000 and $78,000, respectively,
in 2010.
Net interest expense totaled $1,342,000 for the year ended December 31, 2010, compared to net
interest expense of $951,000 for the year ended December 31, 2009. The primary cause of the
increase was mark-to-market adjustments on the Company’s interest rate swaps. In 2010
approximately $234,000 of expense was recorded related to the mark to market of the Company’s
interest rate swaps, compared to $210,000 of income related to interest rate swaps for 2009.
Additionally, the Company capitalized interest of approximately $167,000 in 2009 related to
construction of its new production facility in Mexico which was placed into service in June 2009.
Excluding interest related to swaps, interest costs in 2010 were lower due to reduced interest
rates as a result of a May 11, 2010 amendment to the Company’s Credit Agreement as well as lower
average outstanding debt balances.
Income tax expense was approximately 52% and 28% of total income before taxes in 2010 and 2009,
respectively. The increase in the Company’s effective tax rate in 2010, as compared to 2009, is
due to the impact of the write off of certain deferred tax assets of $1,021,000. The deferred tax
write off was due to the passage of the Patient Protection and Affordable Care Act (“PPACA”) which
repealed the tax benefit associated with certain retiree prescription drug subsidies previously
recorded by the Company. Without this charge the Company’s effective tax rate was 32% in 2010.
Net income for 2010 was $2,433,000 or $0.36 per basic and $0.34 per diluted share, representing an
increase of $1,326,000 from the 2009 net income of $1,107,000 or $0.16 per basic and diluted share.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of funds have been cash generated from operating activities and bank
borrowings. The Company’s primary cash requirements are for operating expenses and capital
expenditures.
On December 9, 2008, the Company and its wholly owned subsidiary, CoreComposites de Mexico, S. de
R.L. de C.V., entered into a Credit Agreement to refinance some existing debt and borrow funds to
finance the construction of the Company’s new manufacturing facility in Mexico.
Under this Credit Agreement, the Company received certain loans, subject to the terms and
conditions stated in the agreement, which included (1) a $12,000,000 Capex loan; (2) an $8,000,000
Mexican loan; (3) an $8,000,000 revolving line of credit; (4) a $2,678,563 term loan to refinance
an existing term loan; and (5) a letter of credit in an undrawn face amount of $3,332,493 with
respect to the Company’s existing industrial development revenue bond financing. The Credit
Agreement is secured by a guarantee of each U.S. subsidiary of the Company, and by a lien on
substantially all of the present and future assets of the Company and its U.S. subsidiaries, except
that only 65% of the stock issued by CoreComposites de Mexico, S. de C.V. has been pledged. The
$8,000,000 Mexican loan is also secured by substantially all of the present and future assets of
the Company’s Mexican subsidiary.
On March 8, 2010, the Company entered into the fourth amendment (the “Fourth Amendment”) to the
Credit Agreement. Pursuant to the terms of the Fourth Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These
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modifications included (1) modification of the definition EBITDA to add back transition costs of up
to $2,000,000 associated with the relocation of certain products from the Company’s Columbus, Ohio
facility to its Matamoros, Mexico facility, (2) modification to the fixed charge definition to
exclude capital expenditures of up to $2,000,000 associated with the relocation of certain products
from the Company’s Columbus, Ohio facility to its Matamoros, Mexico facility, (3) retroactive
modification of the amortization schedule of the Mexican loan to forgo the principal payment due
January 31, 2010 of $1,600,000 as a result of the Company limiting its borrowing to $6,400,000
instead of the full amount of the loan contemplated ($8,000,000), and (4) consent to transfer
certain assets of the Company from Columbus, Ohio to Matamoros, Mexico.
On May 11, 2010, the Company entered into a fifth amendment (the “Fifth Amendment”) to the Credit
Agreement. Pursuant to the terms of the Fifth Amendment, the parties agreed to modify certain
terms of the Credit Agreement. These modifications included (1) a decrease in the applicable
margin for interest rates to 275 basis points from 375 basis points for the Capex and Mexican loans
and the revolving line of credit, effective May 1, 2010 and (2) an extension of the commitment for
the revolving line of credit to April 30, 2012.
Cash provided by operating activities totaled $7,367,000. Net income contributed $2,433,000 to
operating cash flow. Non-cash deductions for depreciation and amortization contributed $3,949,000
and a reduction of deferred income tax assets favorably impacted operating cash flow by $1,225,000.
The partial settlement of the post retirement benefits liability used cash of approximately
$1,257,000. Changes in working capital reduced cash provided by operating activities by $366,000
due to increases in accounts receivable and inventory, which were partially offset by increases in
accounts payable and accrued liabilities.
Cash used for investing activities was $2,206,000 for the year ended December 31, 2010, which
primarily represents additional investment made in the Company’s new manufacturing facility in
Mexico as well as the acquisition of machinery and equipment at all of the Company’s production
facilities. Commitments for capital expenditures were $184,000 at December 31, 2010.
Planned capital expenditures for 2011 are approximately
$4,200,000. As previously discussed the Company expects to add additional capacity to its Matamoros facility to meet
demand in 2012 and beyond. Given these capacity needs management is evaluating the specific production capacity
requirements and is likely to commit additional capital spending of
$10 million to $13 million in 2011.
Cash used in financing activities was $3,646,000 in 2010. The primary financing activities were
principal payments on the capex loan, term loan and industrial revenue bond.
At December 31, 2010, the Company had cash on hand of $5,657,000 and an available line of
credit of $8,000,000 (“Line of Credit”), which is scheduled to mature on April 30, 2012. At
December 31, 2010 and 2009, Core Molding Technologies had no outstanding borrowings on the Line of
Credit. Management expects the current cash balance along with this line of credit to be adequate
to meet Core Molding Technologies’ planned liquidity needs. However, the Company may seek additional bank funding
as deemed necessary to support the additional capital needs as mentioned above.
The Company is required to meet certain financial covenants included in its debt agreements with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of December 31, 2010, the Company was in compliance with
its financial debt covenants.
Based on the Company’s forecasts which are primarily based on industry analysts’ estimates of 2011
heavy and medium-duty truck production volumes as well as other assumptions management believes to
be reasonable, management believes that the Company will be able to maintain compliance with the
covenants to the Credit Agreement, as amended, for the next 12 months. Management believes that
cash flow from operating activities together with available borrowings under the Credit Agreement
will be sufficient to meet the Company’s liquidity needs. However, if a material adverse change in
the financial position of the Company should occur, or if actual sales or expenses are
substantially different than what has been forecasted, the Company’s liquidity and ability to
obtain further financing to fund future operating and capital requirements could be negatively
impacted.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET TRANSACTIONS
The Company has the following minimum commitments under contractual obligations, including purchase
obligations, as defined by the United States Securities and Exchange Commission (“SEC”). A
“purchase obligation” is defined as an agreement to purchase goods or services that is enforceable
and legally binding on the Company and that specifies all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the
approximate timing of the transaction. Other long-term liabilities are defined as long-term
liabilities that are reflected on the Company’s balance sheet under accounting principles generally
accepted in the United States. Based on this definition,
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the table below includes only those contracts which include fixed or minimum obligations. It does
not include normal purchases, which are made in the ordinary course of business.
The following table provides aggregated information about the maturities of contractual obligations
and other long-term liabilities as of December 31, 2010:
| 2011 | 2012 – 2013 | 2014 – 2015 | 2016 and after | Total | ||||||||||||||||
Debt |
$ | 4,151,000 | $ | 7,840,000 | $ | 5,028,000 | $ | 714,000 | $ | 17,733,000 | ||||||||||
Line of credit |
— | — | — | — | — | |||||||||||||||
Interest |
633,000 | 735,000 | 208,000 | 7,000 | 1,583,000 | |||||||||||||||
Operating lease obligations |
316,000 | 179,000 | — | — | 495,000 | |||||||||||||||
Contractual commitments for
capital expenditures |
184,000 | — | — | — | 184,000 | |||||||||||||||
Post retirement benefits |
933,000 | 1,360,000 | 1,447,000 | 7,097,000 | 10,837,000 | |||||||||||||||
Total |
$ | 6,217,000 | $ | 10,114,000 | $ | 6,683,000 | $ | 7,818,000 | $ | 30,832,000 | ||||||||||
Interest is calculated based the effective interest rates on the Company’s borrowing arrangements
reflective of the interest rate swap agreements in place for the long-term borrowings. As of
December 31, 2010, the Company had no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss the
Company’s 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,
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 Company’s
customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The Company had an allowance for doubtful accounts of
$118,000 at December 31, 2010 and $113,000 at December 31, 2009. Management also records estimates
for chargebacks such as customer returns, customer rework chargebacks, discounts offered to
customers, and price adjustments. Should these customer returns, chargebacks, discounts, and price
adjustments fluctuate from the estimated amounts, additional allowances may be required. The
Company recorded allowances for chargebacks of $695,000 at December 31, 2010 and $519,000 at
December 31, 2009.
Inventories
Inventories, which include material, labor, and manufacturing overhead, are valued at the lower of
cost or market. The inventories are accounted for using the first-in, first-out (FIFO) method of
determining inventory costs. Inventory quantities on-hand are regularly reviewed, and where
necessary, provisions for excess and obsolete inventory are recorded based on historical and
anticipated usage. The Company had an allowance for slow moving and obsolete inventory of $750,000
at December 31, 2010 and $762,000 at December 31, 2009.
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Goodwill and Long-Lived Assets
Management evaluates whether impairment exists for goodwill and long-lived assets annually on
December 31 or at interim periods if an indicator of impairment exists. Should actual results
differ from the assumptions used to determine impairment, additional provisions may be required.
In particular, decreases in future cash flows from operating activities that are below our
assumptions could have an adverse effect on the Company’s ability to recover its long-lived assets.
The Company has not recorded any impairment to goodwill for long-lived assets for the years ended
December 31, 2010 and 2009. 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 worker’s compensation claims incurred but not reported at December
31, 2010 and 2009 of $1,041,000 and $944,000, respectively.
Post Retirement Benefits
Management records an accrual for post retirement costs associated with the health and life
insurance plan sponsored by Core Molding Technologies. Should actual results differ from the
assumptions used to determine the reserves, additional provisions may be required. In particular,
increases in future healthcare costs above the assumptions could have an adverse effect on Core
Molding Technologies’ operations. The effect of a change in healthcare costs is described in Note
10 of the Consolidated Financial Statements. As described in Note 10, in August 2010, the Company
eliminated its health and life insurance post retirement benefits for all current and future
represented employees who had not retired as of August 7, 2010. The elimination of benefits
resulted in a reduction of the Company’s post retirement health and life insurance benefits
liability of $10,282,000. Core Molding Technologies had a liability for post retirement health
and life insurance benefits based on actuarially computed estimates of $10,837,000 at December 31,
2010, and $18,744,000 at December 31, 2009.
Revenue Recognition
Revenue from product sales is recognized at the time products are shipped and title transfers.
Allowances for returned products, chargebacks and other credits are estimated and recorded as
revenue is recognized. Tooling revenue is recognized when the customer approves the tool and
accepts ownership. Progress billings and expenses are shown net as an asset or liability on the
Company’s balance sheet. Tooling in progress can fluctuate significantly from period to period and
is dependent upon the stage of tooling projects and the related billing and expense payment
timetable for individual projects and therefore does not necessarily reflect projected income or
loss from tooling projects. At December 31, 2010 the Company recorded a net liability related to
tooling in progress of $320,000, which represents approximately $2,697,000 of progress tooling
billings and $2,377,000 of progress tooling expenses. At December 31, 2009 the Company recorded a
net liability related to tooling in progress of $485,000, which represents approximately $2,424,000
of progress tooling billings and $1,939,000 of progress tooling expenses.
Income Taxes
Management records a valuation allowance to reduce its deferred tax assets to the amount that it
believes is more likely than not to be realized. The Company has considered future taxable income
in assessing the need for a valuation allowance and has not recorded a valuation allowance due to
anticipating it being more likely than not that the Company will realize these benefits.
An analysis is performed to determine the amount of the deferred tax asset that will be realized.
Such analysis is based upon the premise that the Company is and will continue as a going concern
and that it is more likely than not that deferred tax benefits will be realized through the
generation of future taxable income. Management reviews all available evidence, both positive and
negative, to assess the long-term earnings potential of the Company using a number of alternatives
to evaluate financial results in economic cycles at various industry volume conditions. Other
factors considered are the Company’s relationships with its two largest customers (Navistar and
PACCAR), and any recent customer diversification efforts. The projected availability of taxable
income to realize the tax benefits from net operating loss carryforwards and the reversal of
temporary differences before expiration of these benefits are also considered. Management believes
that, with the
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combination of available tax planning strategies and the maintenance of its relationships with its
key customers, earnings are achievable in order to realize the net deferred tax asset of
$3,910,000.
Management recognizes the financial statement effects of a tax position when it is more likely than
not the position will be sustained upon examination. Management has recognized all tax positions as
of December 31, 2010.
The net deferred tax asset of $3,910,000 at December 31, 2010 consists primarily of temporary
differences relating to post-retirement health and life insurance benefits of $3,903,000, as well
as temporary differences between the book and tax value for accrued liabilities, inventory
reserves, and accounts receivable of approximately $1,467,000. These are partially offset by a
deferred tax liability related to property, plant and equipment of $1,460,000.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely
affect our operating results. A high rate of inflation in the future may have an adverse effect on
our ability to maintain current levels of gross profit and selling, general and administrative
expenses as a percentage of net sales if the selling prices of our products do not increase with
these increased costs.
Recent Accounting Pronouncements
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest
entities (“VIE”), which was effective for our first fiscal quarter of 2010. The new guidance
requires a qualitative approach to identify a controlling financial interest in a VIE, and requires
ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder
the primary beneficiary of the VIE. The adoption of this guidance did not have a material effect
on our consolidated financial statements.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Core Molding Technologies’ primary market risk results from changes in the price of commodities
used in its manufacturing operations. Core Molding Technologies is also exposed to fluctuations in
interest rates and foreign currency fluctuations associated with the Mexican peso. Core Molding
Technologies does not hold any material market risk sensitive instruments for trading purposes.
Core Molding Technologies has the following six items that are sensitive to market risks: (1)
Industrial Revenue Bond (“IRB”) with a variable interest rate (although the Company has an interest
rate swap to fix the interest rate at 4.89%); (2) Revolving Line of Credit and Mexican loan payable
under the Credit Agreement, each of which bears a variable interest rate; (3) Capex loan payable
with a variable interest rate (although the Company has an interest rate swap to fix the variable
portion of the applicable interest rate at 2.3%); (4) bank Term loan under the Credit Agreement,
with a variable interest rate (although the Company has an interest rate swap to fix the interest
rate at 5.75%); (5) foreign currency purchases in which the Company purchases Mexican pesos with
United States dollars to meet certain obligations that arise due to operations at the facility
located in Mexico; and (6) raw material purchases in which Core Molding Technologies purchases
various resins and fiberglass for use in production. The prices and availability of these
materials are affected by the prices of crude oil and natural gas as well as processing capacity
versus demand.
Assuming a hypothetical 10% increase in commodity prices, Core Molding Technologies would be
impacted by an increase in raw material costs, which would have an adverse effect on operating
margins.
Assuming a hypothetical 10% change in short-term interest rates, interest paid on the Company’s
Line of Credit and the Mexican loan would have been impacted in 2010 and 2009. The interest rate
on these loans is based upon LIBOR. Although a 10% change in short-term interest rates would
impact the interest paid by the Company, it would not have a material effect on earnings before
tax.
A 10% change in future interest rate curves would significantly impact the fair value of the
Company’s interest rate swaps.
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Core Molding Technologies, Inc.
Columbus, Ohio
Core Molding Technologies, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Core Molding Technologies, Inc. and
Subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated
statements of income, stockholders’ equity, and cash flows for the years then ended. In connection
with our audits of the consolidated financial statements, we have also audited the financial
statement schedule listed in the accompanying index at Item 15. These financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Core Molding Technologies, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the
results of their operations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth
therein.
/s/ Crowe Horwath LLP
|
||
Columbus, Ohio |
||
March 29, 2011 |
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Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
| Years Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
Net sales: |
||||||||
Products |
$ | 89,903,012 | $ | 76,166,975 | ||||
Tooling |
10,354,632 | 7,171,701 | ||||||
Total sales |
100,257,644 | 83,338,676 | ||||||
Total cost of sales |
83,908,976 | 71,913,360 | ||||||
Gross margin |
16,348,668 | 11,425,316 | ||||||
Total selling, general, and administrative expense |
9,931,351 | 8,939,820 | ||||||
Income before interest and income taxes |
6,417,317 | 2,485,496 | ||||||
Interest expense |
1,341,734 | 951,051 | ||||||
Income before income taxes |
5,075,583 | 1,534,445 | ||||||
Income taxes: |
||||||||
Current |
1,665,551 | (608,815 | ) | |||||
Deferred |
976,960 | 1,036,189 | ||||||
Total income taxes |
2,642,511 | 427,374 | ||||||
Net income |
$ | 2,433,072 | $ | 1,107,071 | ||||
Net income per common share: |
||||||||
Basic |
$ | .36 | $ | .16 | ||||
Diluted |
$ | .34 | $ | .16 | ||||
Weighted average common shares outstanding: |
||||||||
Basic |
6,846,993 | 6,772,065 | ||||||
Diluted |
7,067,020 | 6,824,552 | ||||||
See notes to consolidated financial statements.
27
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
| December 31, | ||||||||
| 2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 5,656,865 | $ | 4,141,838 | ||||
Accounts receivable (less allowance for doubtful accounts: 2010
— $118,000 and 2009 — $113,000) |
14,746,138 | 11,936,335 | ||||||
Inventories: |
||||||||
Finished goods |
1,491,886 | 863,166 | ||||||
Work in process |
1,125,153 | 1,253,975 | ||||||
Stores |
5,791,491 | 4,896,221 | ||||||
Total inventories, net |
8,408,530 | 7,013,362 | ||||||
Deferred tax asset |
1,390,928 | 1,195,831 | ||||||
Foreign sales tax receivable |
1,001,039 | 652,155 | ||||||
Income tax receivable |
— | 562,176 | ||||||
Prepaid expenses and other current assets |
874,041 | 1,021,093 | ||||||
Total current assets |
32,077,541 | 26,522,790 | ||||||
Property, plant, and equipment |
83,657,334 | 81,670,080 | ||||||
Accumulated depreciation |
(40,314,403 | ) | (36,726,836 | ) | ||||
Property, plant, and equipment, net |
43,342,931 | 44,943,244 | ||||||
Deferred tax asset |
2,519,567 | 6,570,802 | ||||||
Goodwill |
1,097,433 | 1,097,433 | ||||||
Other assets |
24,793 | 42,029 | ||||||
Total Assets |
$ | 79,062,265 | $ | 79,176,298 | ||||
Liabilities and Stockholders’ Equity |
||||||||
Liabilities: |
||||||||
Current liabilities: |
||||||||
Current portion long-term debt |
$ | 4,151,420 | $ | 3,675,005 | ||||
Accounts payable |
6,487,983 | 4,805,468 | ||||||
Tooling in progress |
320,041 | 484,786 | ||||||
Current portion of post retirement benefits liability |
933,000 | 667,000 | ||||||
Accrued liabilities: |
||||||||
Compensation and related benefits |
3,678,692 | 2,400,587 | ||||||
Interest payable |
67,971 | 102,069 | ||||||
Taxes |
456,351 | — | ||||||
Other |
1,065,727 | 800,912 | ||||||
Total current liabilities |
17,161,185 | 12,935,827 | ||||||
Long-term debt |
13,581,425 | 17,732,842 | ||||||
Interest rate swaps |
350,916 | 198,809 | ||||||
Post retirement benefits liability |
9,904,000 | 18,076,696 | ||||||
Total Liabilities |
40,997,526 | 48,944,174 | ||||||
Commitments and Contingencies |
— | — | ||||||
Stockholders’ Equity: |
||||||||
Preferred stock — $0.01 par value, authorized shares —
10,000,000;
outstanding shares: 2010 and 2009 — 0 |
— | — | ||||||
Common stock — $0.01 par value, authorized shares —
20,000,000;
outstanding shares: 2010 — 6,880,295 and 2009 — 6,799,641 |
68,803 | 67,996 | ||||||
Paid-in capital |
23,790,263 | 23,336,197 | ||||||
Accumulated other comprehensive income (loss), net of income
tax |
3,213,197 | (1,805,897 | ) | |||||
Treasury stock |
(26,253,478 | ) | (26,179,054 | ) | ||||
Retained earnings |
37,245,954 | 34,812,882 | ||||||
Total Stockholders’ Equity |
38,064,739 | 30,232,124 | ||||||
Total Liabilities and Stockholders’ Equity |
$ | 79,062,265 | $ | 79,176,298 | ||||
See notes to consolidated financial statements.
28
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
for the Years Ended December 31, 2010 and 2009
for the Years Ended December 31, 2010 and 2009
| Accumulated | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| Common Stock | Comprehensive | Total | ||||||||||||||||||||||||||
| Outstanding | Paid-In | Retained | Income | Treasury | Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | (Loss) | Stock | Equity | ||||||||||||||||||||||
Balance at December 31, 2008 |
6,765,790 | $ | 67,658 | $ | 23,002,472 | $ | 33,705,811 | $ | (776,175 | ) | $ | (26,179,054 | ) | $ | 29,820,712 | |||||||||||||
Net Income |
1,107,071 | 1,107,071 | ||||||||||||||||||||||||||
Change in post retirement benefits,
net of tax of $800,823 |
(1,094,177 | ) | (1,094,177 | ) | ||||||||||||||||||||||||
Change in interest rate swaps, net of
tax of $29,076 |
64,455 | 64,455 | ||||||||||||||||||||||||||
Comprehensive Income |
77,349 | |||||||||||||||||||||||||||
Restricted stock issued |
33,851 | 338 | 183,070 | 183,408 | ||||||||||||||||||||||||
Share-based compensation |
150,655 | 150,655 | ||||||||||||||||||||||||||
Balance at December 31, 2009 |
6,799,641 | $ | 67,996 | $ | 23,336,197 | $ | 34,812,882 | $ | (1,805,897 | ) | $ | (26,179,054 | ) | $ | 30,232,124 | |||||||||||||
Net Income |
2,433,072 | 2,433,072 | ||||||||||||||||||||||||||
Change in post retirement benefits,
net
of tax of $2,739,066 |
4,946,813 | 4,946,813 | ||||||||||||||||||||||||||
Change in interest rate swaps, net of
tax of $37,236 |
72,281 | 72,281 | ||||||||||||||||||||||||||
Comprehensive Income |
7,452,166 | |||||||||||||||||||||||||||
Common stock issued |
34,550 | 346 | 102,970 | 103,316 | ||||||||||||||||||||||||
Purchase of treasury stock |
(14,584 | ) | (146 | ) | (74,424 | ) | (74,570 | ) | ||||||||||||||||||||
Restricted stock issued |
60,688 | 607 | 607 | |||||||||||||||||||||||||
Share-based compensation |
351,096 | 351,096 | ||||||||||||||||||||||||||
Balance at December 31, 2010 |
6,880,295 | $ | 68,803 | $ | 23,790,263 | $ | 37,245,954 | $ | 3,213,197 | $ | (26,253,478 | ) | $ | 38,064,739 | ||||||||||||||
See notes to consolidated financial statements.
29
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| Years Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,433,072 | $ | 1,107,071 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||
Depreciation and amortization |
3,949,378 | 3,855,603 | ||||||
Deferred income taxes |
1,224,758 | 1,036,189 | ||||||
Net post retirement benefits settlement loss |
329,609 | — | ||||||
Share-based compensation |
351,703 | 334,063 | ||||||
Mark-to-market of interest rate swaps |
233,625 | (210,041 | ) | |||||
(Gain) loss on disposal of assets |
(7,823 | ) | 31,405 | |||||
Gain on translation of foreign currency
financial statements |
(114,372 | ) | (135,769 | ) | ||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
(2,809,803 | ) | 3,498,768 | |||||
Inventories |
(1,395,167 | ) | 2,718,861 | |||||
Prepaid expenses and other assets |
(292,890 | ) | (75,086 | ) | ||||
Accounts payable |
1,769,585 | (1,745,662 | ) | |||||
Accrued and other liabilities |
2,362,605 | (3,153,925 | ) | |||||
Partial settlement of post retirement benefits liability |
(1,256,650 | ) | — | |||||
Post retirement benefits liability |
589,301 | 972,799 | ||||||
Net cash provided by operating activities |
7,366,931 | 8,234,276 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property, plant, and equipment |
(2,227,748 | ) | (10,065,099 | ) | ||||
Proceeds from sale of property and equipment |
22,100 | 18,000 | ||||||
Net cash used in investing activities |
(2,205,648 | ) | (10,047,099 | ) | ||||
Cash flows from financing activities: |
||||||||
Payment of principal on capex loan |
(1,714,286 | ) | (1,000,000 | ) | ||||
Payment of principal on term loan |
(1,285,716 | ) | (1,285,716 | ) | ||||
Payment of principal on industrial revenue bond |
(675,000 | ) | (620,000 | ) | ||||
Proceeds from issuance of common stock |
103,316 | — | ||||||
Payments related to purchase of treasury stock |
(74,570 | ) | — | |||||
Gross repayments on revolving line of credit |
— | (34,389,061 | ) | |||||
Gross borrowings on revolving line of credit |
— | 33,195,096 | ||||||
Financing costs for new credit agreement |
— | (224,321 | ) | |||||
Borrowings on construction loans |
— | 10,278,663 | ||||||
Net cash (used in) provided by financing activities |
(3,646,256 | ) | 5,954,661 | |||||
Net increase in cash and cash equivalents |
1,515,027 | 4,141,838 | ||||||
Cash and cash equivalents at beginning of year |
4,141,838 | — | ||||||
Cash and cash equivalents at end of year |
$ | 5,656,865 | $ | 4,141,838 | ||||
Cash paid during the year for: |
||||||||
Interest |
$ | 1,048,339 | $ | 1,146,159 | ||||
Income taxes (net of tax refunds) |
$ | 570,583 | $ | 300,958 | ||||
Non Cash: |
||||||||
Fixed asset purchases in accounts payable |
$ | 51,247 | $ | 23,946 | ||||
See notes to consolidated financial statements.
30
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Business Formation, Nature of Operations and Basis of Presentation
Core Molding Technologies, Inc. and its subsidiaries (“Core Molding Technologies” or the “Company”)
operate in the plastics market in a family of products known as “reinforced plastics”. Reinforced
plastics are combinations of resins and reinforcing fibers (typically glass or carbon) that are
molded to shape. Core Molding Technologies operates four production facilities in Columbus, Ohio;
Batavia, Ohio; Gaffney, South Carolina; and Matamoros, Mexico. The Columbus and Gaffney facilities
produce reinforced plastics by compression molding sheet molding compound (“SMC”) in a closed mold
process. The Batavia facility produces reinforced plastic products by a robotic spray-up open mold
process and resin transfer molding (“RTM”) closed mold process utilizing multiple insert tooling
(“MIT”). The Matamoros facility utilizes spray-up and hand-lay-up open mold processes, RTM and SMC
closed mold process to produce reinforced plastic products. Core Molding Technologies also sells
reinforced plastic products in the automotive-aftermarket industry through one of its subsidiaries,
Core Automotive Technologies, doing business as Keystone Restyling Products.
The Company operates in one business segment as a manufacturer of SMC and molder of fiberglass
reinforced plastics. The Company produces and sells SMC and molded products for varied markets,
including light, medium, and heavy-duty trucks, automobiles and automotive aftermarket, personal
watercraft, and other commercial products.
As disclosed in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2010,
the Company determined that certain of its previously filed financial statements contained an error
related to the understatement of a deferred tax asset for certain retiree drug subsidies (“RDS”)
available to sponsors of retiree health benefit plans that provide a benefit that is at least
actuarially equivalent to the benefits under Medicare Part D. In order to assess materiality with
respect to these errors, the Company considered Staff Accounting Bulletin (“SAB”) 99, Materiality
and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements, and determined that the impact of these errors on prior period
consolidated financial statements was immaterial. Accordingly, the Company’s consolidated balance
sheet as of December 31, 2009 and the related consolidated statements of income, consolidated
statement of stockholders’ equity and cash flows for the year ended December 31, 2009 were revised
and reflect the correction of this immaterial error. Correction of this error in the Company’s
consolidated balance sheet as of December 31, 2009 resulted in an increase in deferred tax assets
of approximately $1,035,000, an increase to retained earnings of approximately $618,000 and an
increase to accumulated other comprehensive income of approximately $417,000. For the year ended
December 31, 2009, the consolidated statement of income reflects an increase in income tax benefit
of approximately $89,000, and other comprehensive income reflects an increase of $190,000.
Retained earnings and accumulated other comprehensive loss as of December 31, 2008 reflect an
increase of $528,000 and $317,000, respectively, due to the correction of this error.
2. Summary of Significant Accounting Policies
Principles of Consolidation — The accompanying consolidated financial statements include the
accounts of all subsidiaries after elimination of all intercompany accounts, transactions, and
profits.
Use of Estimates — The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition — Revenue from product sales is recognized at the time products are shipped
and title transfers. Allowances for returned products, chargebacks and other credits are estimated
and recorded as revenue is recognized. Tooling revenue is recognized when the customer approves
the tool and accepts ownership. Progress billings and expenses are shown net as an asset or
liability on the Company’s Consolidated Balance Sheet. Tooling in progress can fluctuate
significantly from period to period and is dependent upon the stage of tooling projects and the
related billing and expense payment timetable for individual projects and therefore does not
necessarily reflect projected income or loss from tooling projects. At December 31, 2010, the
Company recorded a net liability related to tooling in progress of $320,000, which represents
approximately $2,697,000 of progress tooling billings and $2,377,000 of progress tooling expenses.
At December 31, 2009, the Company recorded a net liability related to tooling in progress of
$485,000, which represents approximately $2,424,000 of progress tooling billings and $1,939,000 of
progress tooling expenses.
31
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Cash and Cash Equivalents — The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash is held primarily in one
bank. The Company had cash on hand of $5,657,000 at December 31, 2010 and $4,142,000 at December
31, 2009.
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 Company’s customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The Company had an
allowance for doubtful accounts of $118,000 at December 31, 2010 and $113,000 at December 31, 2009.
Management also records estimates for chargebacks such as customer returns, customer rework
chargebacks, discounts offered to customers, and price adjustments. Should these customer returns,
chargebacks, discounts, and price adjustments fluctuate from the estimated amounts, additional
allowances may be required. The Company had an allowance for chargebacks of $695,000 at December
31, 2010 and $519,000 at December 31, 2009. There have been no material changes in the methodology
of these calculations.
Inventories — Inventories are stated at the lower of cost (first-in, first-out) or market. The
Company has recorded an allowance for slow moving and obsolete inventory of $750,000 at December
31, 2010 and $762,000 at December 31, 2009.
Property, Plant, and Equipment — Property, plant, and equipment are recorded at cost. Depreciation
is provided on a straight-line method over the estimated useful lives of the assets. The carrying
amount of long-lived assets is evaluated annually to determine if adjustment to the depreciation
period or to the unamortized balance is warranted.
Ranges of estimated useful lives for computing depreciation are as follows: |
||
Land improvements |
20 years | |
Building and improvements |
20-40 years | |
Machinery and equipment |
3-15 years | |
Tools, dies and patterns |
3-5 years |
Depreciation expense was $3,841,000 and $3,705,000 for 2010 and 2009, respectively. The Company
capitalized interest cost of approximately $8,000 and $167,000 for the years ended December 31,
2010 and 2009, respectively.
Long-Lived Assets — Long-lived assets consist primarily of property and equipment and goodwill.
The recoverability of long-lived assets is evaluated by an analysis of operating results and
consideration of other significant events or changes in the business environment. The Company
evaluates whether impairment exists for property and equipment on the basis of undiscounted
expected future cash flows from operations before interest. For goodwill, the Company evaluates
annually on December 31st whether impairment exists or at interim periods if an
indicator of possible impairment exists. If impairment exists, the carrying amount of the
long-lived assets is reduced to its estimated fair value, less any costs associated with the final
settlement. There was no impairment of the Company’s long-lived assets for the years ended
December 31, 2010 and 2009.
Income Taxes — The Company records deferred income taxes for differences between the financial
reporting basis and income tax basis of assets and liabilities. A detailed breakout is located in
Note 9.
Self-insurance — The Company is self-insured with respect to its Columbus and Batavia, Ohio and
Gaffney, South Carolina medical and dental claims and Columbus and Batavia, Ohio workers’
compensation claims. The Company had an estimated liability for self-insured medical and dental
claims and worker’s compensation claims at December 31, 2010 and 2009 of $1,041,000 and $944,000,
respectively.
Fair Value of Financial Instruments — The Company’s financial instruments consist of long-term
debt, interest rate swaps, accounts receivable, and accounts payable. The carrying amount of these
financial instruments approximated their fair value.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued a standard to define
fair value, establish a framework for measuring fair value and to expand disclosures about fair
value measurements. This standard did not change the requirements to apply fair value in existing
accounting standards. Under this standard, fair value refers to the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market
participants in the
32
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
market in which the reporting entity transacts. The standard clarifies that fair value should be
based on the assumptions market participants would use when pricing the asset or liability.
To increase consistency and comparability in fair value measurements, this standard establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of
input that is significant to the fair value measurement. The three levels of the fair value
hierarchy are as follows:
| • | Level 1 inputs are quoted prices (unadjusted) in active markets for
identical asset or liabilities that the company has the ability to
access as of the reporting date. |
||
| • | Level 2 inputs are inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly through corroboration with observable market
data. |
||
| • | Level 3 inputs are unobservable inputs, such as internally developed
pricing models for the asset or liability due to little or no market
activity for the asset or liability. |
The following table presents financial liabilities measured and recorded at fair value on the
Company’s Consolidated Balance Sheets on a recurring basis and their level within the fair value
hierarchy as of December 31, 2010 and December 31, 2009:
| Total Liabilities as of | ||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | December 31, 2010 | |||||||||||||
Interest rate
swap
liabilities |
$ | — | $ | 350,916 | $ | — | $ | 350,916 | ||||||||
| Total Liabilities as of | ||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | December 31, 2009 | |||||||||||||
Interest rate
swap
liabilities |
$ | — | $ | 198,809 | $ | — | $ | 198,809 | ||||||||
There were no non-recurring fair value measurements for the year ended December 31, 2010.
In March 2008, the FASB issued a standard to amend and expand the disclosure requirements of
derivative instruments with the intent to provide users of the financial statements with an
enhanced understanding of how and why an entity uses derivative instruments, how these derivatives
are accounted for and how the respective reporting entity’s financial statements are affected. The
Company adopted this standard on January 1, 2009.
Core Molding Technologies derivative instruments located on the Consolidated Balance Sheets were as
follows:
| Balance Sheet | December 31, | December 31, | ||||||||||
| Location | 2010 Fair Value | 2009 Fair Value | ||||||||||
Derivatives designated as hedging instruments
Interest rate risk activities |
Interest rate swaps | $ | 322 | $ | 227,482 | |||||||
Derivatives not designated as hedging instruments
Interest rate risk activities |
Interest rate swaps | $ | 350,594 | $ | (28,673 | ) | ||||||
Total |
$ | 350,916 | $ | 198,809 | ||||||||
33
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The effect of derivative instruments on the Consolidated Statements of Income was as follows:
Derivatives in Cash Flow Hedging Relationships
| Location of Gain | ||||||||||||||||||||
| (Loss) Reclassified | ||||||||||||||||||||
| Amount of Gain (Loss) | from AOCI into | Amount of Gain (Loss) | ||||||||||||||||||
| Derivatives in Cash | Recognized in OCI on | Income | Reclassified from AOCI into | |||||||||||||||||
| Flow Hedging Relationships | Derivative (Effective Portion) | (Effective Portion) | Expense (Effective Portion) | |||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||||
| Year ended | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Interest rate swaps |
$ | 27,170 | $ | 129,215 | Interest expense, net | $ | (24,502 | ) | $ | (206,522 | ) | |||||||||
| Location of Gain (Loss) Recognized | Amount of Gain (Loss) Recognized in | |||||||||
| in Income on Derivative (Ineffective | Income of Derivative (Ineffective | |||||||||
| Derivatives in Cash Flow | Portion and Amount Excluded from | Portion and Amount Excluded from | ||||||||
| Hedging Relationship | Effectiveness Testing) | Effectiveness Testing) | ||||||||
| December 31, | December 31, | |||||||||
| Year ended | 2010 | 2009 | ||||||||
Interest rate swaps |
Interest income (expense) | $ | — | $ | 43,697 | |||||
Derivatives not designated as hedging instruments
| Amount of Realized/Unrealized Gain | ||||||||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized | (Loss) Recognized in Income on | ||||||||
| Hedging Instruments | in Income on Derivative | Derivatives | ||||||||
| December 31, | December 31, | |||||||||
| Year ended | 2010 | 2009 | ||||||||
Interest rate swaps |
Interest income (expense) | $ | (233,625 | ) | $ | 166,344 | ||||
During 2010 and 2009, the Company did not reclassify any amounts related to its cash flow hedges
from accumulated other comprehensive income (loss) to earnings due to the probability that certain
forecasted transactions would not occur. As discussed in Note 6, the Company discontinued the use
of hedge accounting for two of its interest rate swaps, effective March 31, 2009 for the Capex swap
and January 1, 2010 for the IRB swap. The Company now records all mark to market adjustments
related to these interest rate swaps within interest expense in the Company’s Consolidated
Statements of Income, since the date the Company discontinued hedge accounting for each swap. It
is anticipated that during the next twelve months the expiration and settlement of cash flow hedge
contracts along with the amortization of losses on discontinued hedges will result in income
statement recognition of amounts currently classified in accumulated other comprehensive loss of
approximately $54,350, net of tax.
Concentration of Credit Risk — The Company has significant transactions with two major customers
(see Note 3), which together comprised 82% and 83% of total sales in 2010 and 2009, respectively
and 73% and 74% of accounts receivable at December 31, 2010 and 2009, respectively. The Company
performs ongoing credit evaluations of its customers’ financial condition. The Company maintains
reserves for potential bad debt losses, and such bad debt losses have been historically within the
Company’s expectations. Export sales, including sales to Canada and Mexico, for products provided
to certain customers’ manufacturing and service locations totaled 15% and 8% of total sales for
2010 and 2009, respectively.
Earnings Per Common Share — Basic earnings per common share is computed based on the weighted
average number of common shares outstanding during the period. Diluted earnings per common share
are computed similarly but include the effect of the assumed exercise of dilutive stock options and
vesting of restricted stock under the treasury stock method.
34
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The computation of basic and diluted earnings per common share is as follows:
| Years Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
Net income |
$ | 2,433,072 | $ | 1,107,071 | ||||
Weighted average common shares outstanding |
6,846,993 | 6,772,065 | ||||||
Effect of dilutive securities: |
||||||||
Stock options |
120,601 | — | ||||||
Restricted stock |
99,426 | 52,487 | ||||||
Weighted average common and potentially issuable
common shares outstanding — diluted |
7,067,020 | 6,824,552 | ||||||
Basic earnings per common share |
$ | .36 | $ | .16 | ||||
Diluted earnings per common share |
$ | .34 | $ | .16 | ||||
23,000 shares at December 31, 2010 and 559,000 shares at December 31, 2009 were not included in
diluted earnings per share as they were anti-dilutive.
Accumulated Other Comprehensive Income (Loss) — Accumulated other comprehensive income (loss) is
comprised of the following, net of tax:
| December, 31 | ||||||||
| 2010 | 2009 | |||||||
Interest rate swaps |
$ | (121,800 | ) | $ | (194,081 | ) | ||
Post retirement benefits |
3,334,997 | (1,611,816 | ) | |||||
| $ | 3,213,197 | $ | (1,805,897 | ) | ||||
Research and Development — Research and development costs, which are expensed as incurred, totaled
approximately $249,000 in 2010 and $181,000 in 2009.
Recent Accounting Pronouncements — In June 2009, the FASB issued authoritative guidance on the
consolidation of variable interest entities (“VIE”), which was effective for our first fiscal
quarter of 2010. The new guidance requires a qualitative approach to identify a controlling
financial interest in a VIE, and requires ongoing assessment of whether an entity is a VIE and
whether an interest in a VIE makes the holder the primary beneficiary of the VIE. The adoption of
this guidance did not have a material effect on our consolidated financial statements.
Foreign Currency Adjustments — In conjunction with the Company’s acquisition of certain assets of
Airshield Corporation, the Company established operations in Mexico. The functional currency for
the Mexican operations is the United States dollar. All foreign currency asset and liability
amounts are remeasured into United States dollars at end-of-period exchange rates. Income
statement accounts are translated at the weighted monthly average rates. Gains and losses
resulting from translation of foreign currency financial statements into United States dollars and
gains and losses resulting from foreign currency transactions are included in current results of
operations. Aggregate foreign currency translation and transaction gains included in selling,
general and administrative expense totaled $97,059 and $104,993 in 2010 and 2009, respectively.
3. Major Customers
The Company currently has two major customers, Navistar, Inc. (“Navistar”) formerly known as
International Truck & Engine Corporation, and PACCAR, Inc. (“PACCAR”). Major customers are defined
as customers whose sales individually consist of more than ten percent of total sales. The loss of
a significant portion of sales to Navistar, or PACCAR would have a material adverse effect on the
business of the Company.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The following table presents net sales for the above-mentioned customers for the years ended
December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
Navistar product sales |
$ | 47,704,058 | $ | 41,628,094 | ||||
Navistar tooling sales |
7,434,168 | 3,049,675 | ||||||
Total Navistar sales |
55,138,226 | 44,677,769 | ||||||
PACCAR product sales |
25,103,983 | 23,114,813 | ||||||
PACCAR tooling sales |
1,632,137 | 1,069,320 | ||||||
Total PACCAR sales |
26,736,120 | 24,184,133 | ||||||
Other product sales |
17,094,971 | 11,424,068 | ||||||
Other tooling sales |
1,288,327 | 3,052,706 | ||||||
Total other sales |
18,383,298 | 14,476,774 | ||||||
Total product sales |
89,903,012 | 76,166,975 | ||||||
Total tooling sales |
10,354,632 | 7,171,701 | ||||||
Total sales |
$ | 100,257,644 | $ | 83,338,676 | ||||
4. Foreign Operations
In conjunction with the Company’s acquisition of certain assets of Airshield Corporation on October
16, 2001, the Company established manufacturing operations in Mexico (under the Maquiladora
program). The Mexican operation is a captive manufacturing facility of the Company and the
functional currency is United States dollars. Essentially all sales of the
Mexican operations are made to United States customers in United States dollars, which totaled
$41,347,000 in 2010 and $21,385,000 in 2009. Expenses are incurred in the United States dollar and
the Mexican peso. Expenses incurred in pesos include labor, utilities, supplies and materials, and
amounted to approximately 25% of sales of the Matamoros facility in 2010 and 33% of sales of the
Matamoros facility in 2009. In June of 2009, the Company took occupancy of a new 437,000 square
foot production facility in Matamoros, Mexico that replaced its leased facility. The Company owns
long-lived assets that are geographically located in Mexico, which have a net book value of
$23,848,000 and $20,779,000 at December 31, 2010 and 2009, respectively. The Company’s
manufacturing operation in Mexico is subject to various political, economic, and other risks and
uncertainties including safety and security concerns inherent to Mexico. Among other risks, the
Company’s Mexican operations are subject to domestic and international customs and tariffs,
changing taxation policies, and governmental regulations.
5. Property, Plant, and Equipment
Property, plant, and equipment consisted of the following at December 31:
| 2010 | 2009 | |||||||
Land and land improvements |
$ | 5,097,692 | $ | 5,097,692 | ||||
Buildings |
36,017,954 | 35,395,651 | ||||||
Machinery and equipment |
41,483,799 | 40,363,751 | ||||||
Tools, dies, and patterns |
796,266 | 780,962 | ||||||
Additions in progress |
261,623 | 32,024 | ||||||
Total |
83,657,334 | 81,670,080 | ||||||
Less accumulated depreciation |
(40,314,403 | ) | (36,726,836 | ) | ||||
Property, plant, and equipment — net |
$ | 43,342,931 | $ | 44,943,244 | ||||
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Additions in progress at December 31, 2010 and 2009 relate to equipment purchases that were not yet
completed at year end. At December 31, 2010 and 2009, commitments for capital expenditures in
progress were $184,000 and $30,000, respectively. Capitalized interest for the years ended
December 31, 2010 and 2009 was approximately $8,000 and $167,000, respectively.
6. Debt and Leases
| December, 31 | ||||||||
| Debt consists of the following at: | 2010 | 2009 | ||||||
Capex loan payable to a bank, interest at a
variable rate with monthly payments of
interest and principal over a seven-year
period through May 2016. |
$ | 9,285,714 | $ | 11,000,000 | ||||
Mexican loan payable to a bank, interest at
a variable rate with annual principal and
monthly interest payments over a five-year
period through May 2014. |
6,400,000 | 6,400,000 | ||||||
Term loan payable to a bank, interest at a
variable rate with monthly payments of
interest and principal over a seven-year
period through January 2011. Paid in full
during January 2011. |
107,131 | 1,392,847 | ||||||
Industrial Revenue Bond, interest adjustable weekly (2010 average 0.65%; 2009
average 1.82%), payable quarterly,
principal due in variable quarterly
installments through April 2013, secured by
a bank letter of credit with a balance of
$1,998,000 and $2,694,000 as of December
31, 2010 and 2009, respectively. |
1,940,000 | 2,615,000 | ||||||
Revolving line of credit |
— | — | ||||||
Total |
17,732,845 | 21,407,847 | ||||||
Less current portion |
(4,151,420 | ) | (3,675,005 | ) | ||||
Long-term debt |
$ | 13,581,425 | $ | 17,732,842 | ||||
On December 9, 2008, the Company and its wholly owned subsidiary, CoreComposites de Mexico, S. de
R.L. de C.V., entered into a Credit Agreement to refinance some existing debt and borrow funds to
finance the construction of the Company’s new manufacturing facility in Mexico.
Under this Credit Agreement, the Company received certain loans, subject to the terms and
conditions stated in the agreement, which included (1) a $12,000,000 Capex loan; (2) an $8,000,000
Mexican loan; (3) an $8,000,000 revolving line of credit; (4) a $2,678,563 term loan to refinance
an existing term loan; and (5) a letter of credit in an undrawn face amount of $3,332,493 with
respect to the Company’s existing industrial development revenue bond financing. The Credit
Agreement is secured by a guarantee of each U.S. subsidiary of the Company, and by a lien on
substantially all of the present and future assets of the Company and its U.S. subsidiaries, except
that only 65% of the stock issued by CoreComposites de Mexico, S. de C.V. has been pledged. The
$8,000,000 Mexican loan is also secured by substantially all of the present and future assets of
the Company’s Mexican subsidiary.
On March 8, 2010, the Company entered into the fourth amendment (the “Fourth Amendment”) to the
Credit Agreement. Pursuant to the terms of the Fourth Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These modifications included (1) modification of the
definition EBITDA to add back transition costs of up to $2,000,000 associated
with the relocation of certain products from the Company’s Columbus, Ohio facility to its
Matamoros, Mexico facility; (2) modification to the fixed charge definition to exclude capital
expenditures of up to $2,000,000 associated with the relocation of certain products from the
Company’s Columbus, Ohio facility to its Matamoros, Mexico facility; (3) retroactive modification
of the amortization schedule of the Mexican loan to forgo the principal payment due January 31,
2010 of $1,600,000 as a result of the Company limiting its borrowing to $6,400,000 instead of the
full amount of the loan
contemplated ($8,000,000); and (4) consent to transfer certain assets of the Company from Columbus,
Ohio to Matamoros, Mexico.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
On May 11, 2010, the Company entered into a fifth amendment (the “Fifth Amendment”) to the Credit
Agreement. Pursuant to the terms of the Fifth Amendment, the parties agreed to modify certain
terms of the Credit Agreement. These modifications included (1) a decrease in the applicable
margin for interest rates to 275 basis points from 375 basis points for the Capex and Mexican loans
and the revolving line of credit, effective May 1, 2010 and (2) an extension of the commitment for
the revolving line of credit to April 30, 2012.
The $12,000,000 Capex loan was a construction draw loan that converted to a seven-year term loan
with fixed monthly principal payments. Borrowings made pursuant to this loan bears interest,
payable monthly at 30 day LIBOR plus 275 basis points. The 30 day Libor rate was 0.26% at December
31, 2010. This loan had a balance of $9,285,714 and $11,000,000 at December 31, 2010 and 2009,
respectively.
The $8,000,000 Mexican loan, was also a construction draw loan to finance the new production
facility in Matamoros, Mexico that was converted to a term loan in July 2009. This commitment had
an original term of five years with annual payment installments commencing January 31, 2010.
During 2009, the Company elected to only borrow $6,400,000 and forego the January 31, 2010 payment.
This modification of the original amortization schedule for the Mexican loan was completed with
the Fourth Amendment to the credit agreement. As a result, the Company’s first payment was not due
until January 31, 2011. Amounts borrowed under this loan may not be reborrowed once repaid.
Borrowings made pursuant to this loan bears interest, payable annually at daily LIBOR rate plus 275
basis points. The daily Libor rate was 0.25% at December 31, 2010. The Mexican loan had a balance
of $6,400,000 at December 31, 2010 and 2009.
On December 30, 2003, the Company borrowed $9,000,000 in the form of a term loan collateralized by
the Company’s assets. The Credit Agreement entered into by the Company on December 9, 2008
provided for refinancing the Company’s existing balance on this note. The terms of the refinance
with respect to the amortization and repayment of the principal amount of such indebtedness were
unchanged. Borrowings made pursuant to the refinanced term loan will bear interest, payable
monthly at 30 day LIBOR plus 200 basis points. The 30 day Libor rate was 0.26% at December 31,
2010. The term loan had a balance of $107,131 and $1,392,847 at December 31, 2010 and 2009,
respectively.
Industrial Revenue Bond
In May 1998, the Company borrowed $7,500,000 through the issuance of an Industrial Revenue Bond
(“IRB”). The IRB bears interest at a weekly adjustable rate and matures in April 2013. The
maximum interest rate that may be charged at any time over the life of the IRB is 10%.
As security for the IRB, the Company obtained a letter of credit from a commercial bank, which has
a balance of $1,998,000 as of December 31, 2010. The Credit Agreement entered into by the Company
on December 9, 2008 and subsequent amendments also included a commitment for this existing letter
of credit. The letter of credit can only be used to pay principal and interest on the IRB. Any
borrowings made under the letter of credit bear interest at the bank’s prime rate and are secured
by a lien and security interest in all of the Company’s assets. The letter of credit expires in
April 2012, and the Company intends to extend the letter of credit each year as required by the
IRB.
Revolving Line of Credit
At December 31, 2010, the Company had available an $8,000,000 variable rate bank revolving line of
credit scheduled to mature on April 30, 2012. The line of credit bears interest at daily LIBOR
plus 275 basis points. There was no balance on the bank revolving line of credit at December 31,
2010 and 2009.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Annual maturities of long-term debt are as follows:
2011 |
$ | 4,151,000 | ||
2012 |
4,106,000 | |||
2013 |
3,734,000 | |||
2014 |
3,314,000 | |||
2015 |
1,714,000 | |||
Thereafter |
714,000 | |||
Total |
$ | 17,733,000 | ||
Interest Rate Swaps
In conjunction with its variable rate Industrial Revenue Bond (“IRB”), the Company entered into an
interest rate swap agreement through April 2013, which was initially designated as a cash flow
hedging instrument. Under this agreement, the Company pays a fixed rate of 4.89% to the bank and
receives 76% of the 30-day commercial paper rate. During 2010 the Company determined this interest
rate swap was no longer highly effective. As a result, the Company discontinued the use of hedge
accounting effective January 1, 2010 related to this swap, and began recording mark-to-market
adjustments within interest expense in the Company’s Consolidated Statement of Income. The pre-tax
amount previously recognized in Accumulated Other Comprehensive
Income (Loss), totaling $(199,990) as
of December 31, 2009, is being amortized as an increase to interest expense of $3,384 per month,
net of tax, over the remaining term of the interest rate swap agreement beginning January 2010.
The fair value of the swap was a liability of $126,095 and $199,990 as of December 31, 2010 and
2009, respectively. Interest income of $73,895 for the mark-to-market adjustment of swap fair
value was recorded for the year ended 2010 related to this swap. Interest income of $43,697
related to the ineffectiveness of this swap was recorded for the year ended December 31, 2009. The
notional amount of the swap at December 31, 2010 and 2009 was $1,940,000 and $2,615,000,
respectively.
Effective January 1, 2004, the Company entered into an interest rate swap agreement, which is
designated as a cash flow hedge of the term loan. Under this agreement, the Company pays a fixed
rate of 5.75% to the bank and receives LIBOR plus 200 basis points. The swap term and notional
amount matches the payment schedule on the secured term loan with final maturity in January 2011.
The interest rate swap is a highly effective hedge because the amount, benchmark interest rate
index, term, and repricing dates of both the interest rate swap and the hedged variable interest
cash flows are substantially the same. The fair value of the swap was a liability of $322 and
$27,492 as of December 31, 2010 and 2009, respectively.
While the Company is exposed to credit loss on its interest rate swap in the event of
non-performance by the counterparty to the swap, management believes that such non-performance is
unlikely to occur given the financial resources of the counterparty. The notional amount of the
swap was $107,131 and $1,392,847 at December 31, 2010 and 2009, respectively.
Effective December 18, 2008, the Company entered into an interest rate swap agreement that became
effective May 1, 2009 and expires in May 2016, which was designated as a cash flow hedge of the
$12,000,000 Capex loan. Under this agreement, the Company pays a fixed rate of 2.295% to the
counterparty and receives LIBOR. Effective March 31, 2009, the interest terms in the Company’s
Credit Agreement related to the $12,000,000 Capex loan were amended. The Company determined that
the interest rate swap was no longer highly effective. As a result, the Company discontinued the
use of hedge accounting effective March 31, 2009 related to this swap, and began recording
mark-to-market adjustments within interest expense in the Company’s Consolidated Statement of
Income. The pre-tax amount previously recognized in Accumulated Other Comprehensive Income (Loss),
totaling $(145,684) as of March 31, 2009, is being amortized as an increase to interest expense of
$1,145 per month, net of tax, over the remaining term of the interest rate swap agreement beginning
June 2009. The fair value of the swap as of December 31, 2010 and 2009 was a liability of $224,499
and an asset of $28,673, respectively. The Company recorded interest expense of $253,172 and
interest income of $174,357 for mark-to-market adjustments of fair value in 2010 and 2009,
respectively, related to this swap. The notional amount of the swap was $9,285,714 and $11,000,000
at December 31, 2010 and 2009, respectively.
Interest expense includes approximately $179,000 and $360,000 of expense in 2010 and 2009,
respectively, for settlements related to the swaps.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Bank Covenants
The Company is required to meet certain financial covenants included in its debt agreements with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of December 31, 2010, the Company was in compliance with
its financial debt covenants for the line of credit, term loan, Capex loan Mexican loan and, the
letter of credit securing the Industrial Revenue Bond.
Based on the Company’s forecasts which are primarily based on industry analysts’ estimates of 2011
heavy and medium-duty truck production volumes as well as other assumptions management believes to
be reasonable, management believes that the
Company will be able to maintain compliance with the covenants as amended under all amendments to
the Credit Agreement for the next 12 months. Management believes that cash flow from operating
activities together with available borrowings under the Credit Agreement will be sufficient to meet
Core Molding Technologies’ liquidity needs. However, if a material adverse change in the financial
position of Core Molding Technologies should occur, or if actual sales or expenses are
substantially different than what has been forecasted, Core Molding Technologies’ liquidity and
ability to obtain further financing to fund future operating and capital requirements could be
negatively impacted.
Leases
In August 2005, in conjunction with the acquisition of the Cincinnati Fiberglass Division of
Diversified Glass, Inc., Core Composites Cincinnati, LLC entered into a 7-year operating lease
agreement through July 2012 for the manufacturing facility located in Batavia, Ohio. The Company
has the option to terminate the lease effective any time after July 31, 2006, by providing written
notice to the lessor no later than 90 days prior to intended termination date. The Company has the
option to purchase the property at the end of every lease year.
Total rental expense was $554,000 and $1,196,000 for 2010 and 2009, respectively. Included in
rental expense are rental costs related to the use of equipment during the normal course of
business under nonbinding terms. Rental expense in 2009 also includes the Company’s previously
leased facility in Matamoros, Mexico which was vacated in June 2009. Future minimum operating
lease payments are as follows:
2011 |
$ | 316,000 | ||
2012 |
179,000 | |||
Total minimum lease payments |
$ | 495,000 | ||
7. Equity
Treasury Stock
On July 18, 2007, the Company entered into a stock repurchase agreement with Navistar, pursuant to
which the Company repurchased 3,600,000 shares of the Company’s common stock, from Navistar in a
privately negotiated transaction at $7.25 per share, for a total purchase price of $26,100,000.
Navistar continues to be a significant stockholder of the Company’s common stock with 664,000
shares, or approximately 9.3% of the shares outstanding after the repurchase. Navistar is also the
Company’s largest customer, accounting for approximately 55% of the Company’s 2010 sales. The
Company used approximately $19 million of cash and $7.1 million from its revolving line of credit
to fund the repurchase. The Company also incurred approximately $115,000 in costs related to the
stock repurchase agreement, which were recorded as part of the cost of its treasury stock.
During 2010, employees surrendered 14,584 shares of the Company’s common stock to satisfy income
tax withholding obligations in connection with the vesting of restricted stock.
Anti-takeover Measures
The Company’s Certificate of Incorporation and By-laws contain certain provisions designed to
discourage specific types of transactions involving an actual or threatened change of control of
the Company. These provisions, which are designed to make it more difficult to change majority
control of the Board of Directors without its consent, include provisions related to
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
removal of Directors, the approval of a merger and certain other transactions as outlined in the
Certificate of Incorporation and any amendments to those provisions.
Restrictions on Transfer
On July 16, 2007, the Board of Directors approved a Shareholders Rights Plan (the “Plan”) in
conjunction with the approval of the repurchase of shares of stock from Navistar. The Plan was
implemented to protect the interests of the Company’s stockholders by encouraging potential buyers
to negotiate directly with the Board prior to attempting a takeover. Under the Plan, each
stockholder will receive a dividend of one right per share of common stock of the Company owned on
the record date, July 18, 2007. The rights will not initially be exercisable until, subject to
action by the Board of Directors, a person acquires 15% or more of the voting stock without
approval of the Board. If the rights become exercisable, all holders except the party triggering
the rights shall be entitled to purchase shares of the Company at a discount. Each right entitles
the registered holder to purchase from the Company a unit consisting of one one-thousandth of a
share of Series A Junior Participating Preferred Stock, par value $0.01 per share. In connection
with the adoption of the Rights Agreement, on July 18, 2007, the Company filed a Certificate of
Designations of Series A Junior Participating Preferred Stock with the Secretary of State of the
State of Delaware.
The Company’s Certificate of Incorporation contains a provision (the “Prohibited Transfer
Provision”) designed to help assure the continued availability of the Company’s previous
substantial net operating loss and capital loss carryforwards by seeking to prevent an “ownership
change” as defined under current Treasury Department income tax regulations. Under the Prohibited
Transfer Provision, if a stockholder transfers or agrees to transfer stock, the transfer will be
prohibited and void to the extent that it would cause the transferee to hold a “Prohibited
Ownership Percentage” (as defined in the Company’s Certificate of Incorporation, but generally,
means direct and indirect ownership of 4.5% or more of the Company’s common stock) or if the
transfer would result in the transferee’s ownership increasing if the transferee had held a
Prohibited Ownership Percentage within the three prior years or if the transferee’s ownership
percentage already exceeds the Prohibited Ownership Percentage under applicable Federal income tax
rules. The Prohibited Transfer Provision does not prevent transfers of stock between persons who do
not hold a Prohibited Ownership Percentage.
8. Stock Based Compensation
Core Molding Technologies has a Long Term Equity Incentive Plan (the “2006 Plan”), as approved by
the shareholders in May 2006. This 2006 Plan replaced the Long Term Equity Incentive Plan (the
“Original Plan”) as originally approved by the shareholders in May 1997 and as amended in May 2000.
The 2006 Plan allows for grants to directors and key employees of
non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock,
performance shares, performance units, and other incentive awards (“Stock Awards”) up to an
aggregate of 3,000,000 awards, each representing a right to buy a share of Core Molding
Technologies common stock. Stock Awards can be granted under the 2006 Plan through the earlier of
December 31, 2015, or the date the maximum number of available awards under the 2006 Plan have been
granted.
The options that have been granted under the 2006 Plan have vesting schedules of five or nine and
one-half years from the date of grant, or immediately upon change in ownership, are not exercisable
after ten years from the date of grant, and were granted at prices which equal or exceed the fair
market value of Core Molding Technologies common stock at the date of grant. Restricted stock
granted under the 2006 Plan require the individuals receiving the grants to maintain certain common
stock ownership thresholds and vest over three years or upon the date of the participants’
sixty-fifth birthday, death, disability or change in control.
Effective January 1, 2006, Core Molding Technologies adopted the provisions of FASB ASC 718
requiring that compensation cost relating to share-based payment transactions be recognized in the
financial statements. The cost is measured at the grant date, based on the calculated fair value of
the award, and is recognized as an expense over the employee’s requisite service period (generally
the vesting period of the equity award). Core Molding Technologies adopted FASB ASC 718 using the
modified prospective method. Under this method, FASB ASC 718 applies to all awards granted or
modified after the date of adoption. In addition, compensation expense must be recognized for any
unvested stock option awards outstanding as of the date of adoption on a straight-line basis over
the remaining vesting period.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Stock Options
There were no grants of options in the years ended December 31, 2010 and 2009. Total
compensation cost related to incentive stock options for the years ended December 31, 2010 and 2009
was $40,000 and $83,000, respectively. Compensation expense was allocated such that $38,000 and
$75,000 is included in selling, general, and administrative expenses and $2,000 and $8,000 is
recorded in cost of sales for the years ended December 31, 2010 and 2009, respectively. There was
no tax benefit recorded for this compensation cost as the expense primarily relates to incentive
stock options that do not qualify for a tax deduction until, and only if, a disqualifying
disposition occurs.
During the year ended December 31, 2010, Core Molding Technologies received approximately $103,000
in cash from the exercise of stock options. The aggregate intrinsic value of these options was
approximately $67,000. The intrinsic value of a stock option is the amount by which the market
value of the underlying stock exceeds the exercise price of the option. Tax benefit received as a
result of disqualified dispositions was $29,000. There were no stock options exercised during
2009.
The following summarizes all stock option activity for the years ended December 31:
| 2010 | 2009 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Number | Exercise | Number of | Exercise | |||||||||||||
| of Options | Price | Options | Price | |||||||||||||
Outstanding-
beginning of year |
558,825 | $ | 3.30 | 570,225 | $ | 3.30 | ||||||||||
Granted |
— | — | — | — | ||||||||||||
Exercised |
(34,550 | ) | 2.99 | — | — | |||||||||||
Forfeited |
(4,000 | ) | 4.58 | (11,400 | ) | 3.21 | ||||||||||
Outstanding-end of
year |
520,275 | $ | 3.31 | 558,825 | $ | 3.30 | ||||||||||
Exercisable at
December 31 |
494,475 | $ | 3.34 | 514,325 | $ | 3.30 | ||||||||||
Vested or expected to
vest at December 31 |
520,275 | $ | 3.31 | 556,600 | $ | 3.30 | ||||||||||
As of December 31, 2010, outstanding options had an aggregate intrinsic value of approximately
$1,296,000 and a weighted average remaining contractual term of approximately three years. Vested
and exercisable stock options had an aggregate intrinsic value of $1,218,000 and a weighted average
remaining contractual term of approximately three years.
The following summarizes the status of, and changes to, unvested options during the years ended
December 31, 2010 and 2009:
| Weighted | ||||||||
| Number | Average | |||||||
| Of | Grant Date | |||||||
| Shares | Fair Value | |||||||
Unvested at December 31, 2008 |
88,830 | $ | 3.37 | |||||
Granted |
— | — | ||||||
Vested |
(44,330 | ) | 3.44 | |||||
Forfeited |
— | — | ||||||
Unvested at December 31, 2009 |
44,500 | $ | 3.29 | |||||
Granted |
— | — | ||||||
Vested |
(18,300 | ) | 3.99 | |||||
Forfeited |
(400 | ) | 6.40 | |||||
Unvested at December 31, 2010 |
25,800 | $ | 2.75 | |||||
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
At December 31, 2010, there was $22,000 of total unrecognized compensation cost related to stock
options granted under the Original Plan expected to be recognized over the weighted average
remaining contractual term of approximately three years.
The following table summarizes information about stock options outstanding and exercisable as of
December 31, 2010:
| Options | ||||||||||||
| Options Outstanding | Exercisable | |||||||||||
| Weighted | ||||||||||||
| Average | ||||||||||||
| Contractual | ||||||||||||
| Range of | Number of | Life | Number of | |||||||||
| Exercise Prices | Options | In Years | Options | |||||||||
$2.75 |
67,100 | 3.8 | 41,300 | |||||||||
$3.21 |
390,175 | 3.1 | 390,175 | |||||||||
$3.28 |
40,000 | 4.2 | 40,000 | |||||||||
$6.40 |
18,000 | 4.8 | 18,000 | |||||||||
$7.98 |
5,000 | 5.0 | 5,000 | |||||||||
| 520,275 | 494,475 | |||||||||||
Restricted Stock
In May of 2006, Core Molding Technologies began awarding shares of its common stock to certain
directors, officers, and key executive employees in the form of 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 the Restricted Stock and changes during the years ended
December 31:
| 2010 | 2009 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Number of | Average Fair | Number of | Average Fair | |||||||||||||
| Shares | Value | Shares | Value | |||||||||||||
Unvested- beginning of year |
187,445 | $ | 3.91 | 85,106 | $ | 7.01 | ||||||||||
Granted |
77,040 | 5.20 | 150,210 | 2.56 | ||||||||||||
Vested |
(60,688 | ) | 5.54 | (33,851 | ) | 5.42 | ||||||||||
Forfeited |
— | — | (14,020 | ) | 4.65 | |||||||||||
Unvested at end of year |
203,797 | $ | 3.91 | 187,445 | $ | 3.91 | ||||||||||
Vested and expected to
vest at
December 31 |
312,943 | $ | 4.36 | 236,720 | $ | 4.44 | ||||||||||
As of December 31, 2010 there was $457,000 of total unrecognized compensation cost related to
restricted stock granted. That remaining cost is expected to be recognized over the weighted
average remaining contractual term of 2.3 years. The total compensation expense related to
restricted stock grants during the years ended December 31, 2010 and 2009 was $311,000 and
$251,000, respectively, and is recorded as selling, general, and administrative expense.
9. Income Taxes
In the first quarter of 2010 the Patient Protection and Affordable Care Act (“PPACA”) was signed
into law. The PPACA changes the tax treatment related to existing RDS available to sponsors of
retiree health benefit plans that provide a benefit that is at least actuarially equivalent to the
benefits under Medicare Part D. As a result of the PPACA, RDS payments will effectively become
taxable in tax years beginning in 2013 by requiring the amount of the subsidy received to be offset
against the Company’s deduction for health care expenses. Accordingly, during the first quarter of
2010, the Company recorded a one time charge to income tax expense of $1,021,000 related to the
write down of its deferred tax asset for RDS.
43
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The Consolidated Balance Sheets include a net deferred tax asset of $3,910,000 and $7,767,000, as
of December 31, 2010 and 2009, respectively. During 2010, the Company reduced its deferred tax
asset by approximately $3,413,000 as a result of the remeasurement and partial settlement of the
post retirement benefits liability and by approximately $1,021,000 in association with the PPACA as
noted above. The reduction in deferred tax asset for the remeasurement and partial settlement
was recorded as a component of other comprehensive income in 2010. 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.
Components of the provision (credit) for income taxes are as follows:
| 2010 | 2009 | |||||||
Current: |
||||||||
Federal — US |
$ | 1,420,000 | $ | (806,000 | ) | |||
Federal — Foreign |
199,000 | 94,000 | ||||||
State and local |
47,000 | 103,000 | ||||||
| 1,666,000 | (609,000 | ) | ||||||
Deferred: |
||||||||
Federal |
972,000 | 1,145,000 | ||||||
State and local |
5,000 | (109,000 | ) | |||||
| 977,000 | 1,036,000 | |||||||
Provision for income taxes |
$ | 2,643,000 | $ | 427,000 | ||||
A reconciliation of the income tax provision based on the federal statutory income tax rate of 34%
to the Company’s income tax provision for the years ended December 31 is as follows:
| 2010 | 2009 | |||||||
Provision at federal statutory rate — US |
$ | 1,712,000 | $ | 522,000 | ||||
Effect of PPACA adjustment |
1,021,000 | — | ||||||
Effect of foreign taxes |
(93,000 | ) | (16,000 | ) | ||||
Other |
3,000 | (79,000 | ) | |||||
Provision for income taxes |
$ | 2,643,000 | $ | 427,000 | ||||
The American Jobs Creation Act provides a tax deduction calculated as a percentage of qualified
income from manufacturing in the United States. The deduction percentage increases from 3% to 9%
over a six-year period beginning in 2005. The amount of the deduction available to the Company in
2010 was $44,000. There was no deduction in 2009 due to a federal tax loss for 2009. In December
2004, the FASB issued a new staff position providing for this deduction to be treated as a special
deduction, as opposed to a tax rate reduction. Certain tax benefits related to incentive stock
options recorded directly to additional paid in capital totaled $29,000 and $0 in 2010 and 2009,
respectively.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
Deferred tax assets consist of the following at December 31:
| 2010 | 2009 | |||||||
Current asset (liability): |
||||||||
Accrued liabilities |
$ | 605,000 | $ | 569,000 | ||||
Accounts receivable |
292,000 | 221,000 | ||||||
Inventory |
568,000 | 495,000 | ||||||
Other, net |
(74,000 | ) | (89,000 | ) | ||||
Total current asset |
1,391,000 | 1,196,000 | ||||||
Non-current asset (liability): |
||||||||
Property, plant, and equipment |
(1,460,000 | ) | (1,227,000 | ) | ||||
Post retirement benefits |
3,903,000 | 7,763,000 | ||||||
Interest rate swap |
119,000 | 122,000 | ||||||
Other, net |
(43,000 | ) | (87,000 | ) | ||||
Total non-current asset |
2,519,000 | 6,571,000 | ||||||
Total deferred tax asset — net |
$ | 3,910,000 | $ | 7,767,000 | ||||
At December 31, 2010, a provision has not been made for U.S. taxes on accumulated undistributed
earnings of approximately $3,356,000 of the Company’s Mexican subsidiary that would become payable
upon repatriation to the United States. It is the intention of the Company to reinvest all such
earnings in operations and facilities outside of the United States.
At December 31, 2010 and 2009 the Company had no liability for unrecognized tax benefits under
guidance relating to tax uncertainties. The Company does not anticipate that the unrecognized tax
benefits will significantly change within the next twelve months.
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 2007 due to the expiration of the statute of limitations and is
subject to income tax examinations by Mexican authorities since the Company began business in
Mexico in 2001. The Company recognizes interest and/or penalties related to income tax matters in
income tax expense.
10. Post Retirement Benefits
The Company provides post retirement benefits to certain of its United States employees. Costs
associated with post retirement benefits include health care and life insurance expense and expense
related to contributions to three 401(k) defined contribution plans. In addition, all of the
Company’s United States union employees are covered under a multi- employer defined benefit pension
plan administered under a collective bargaining agreement. The Company does not administer this
plan and contributions are determined in accordance with provisions in the negotiated labor
contract.
Prior to the acquisition of Columbus Plastics, certain of the Company’s employees were participants
in Navistar’s post retirement plan. The post retirement health and life insurance plan provides
healthcare and life insurance for certain employees upon their retirement, along with their spouses
and certain dependents and requires cost sharing between the Company, Navistar and the participants
in the form of premiums, co-payments, and deductibles. The Company and Navistar share the cost of
benefits for certain employees, using a formula that allocates the cost based upon the respective
portion of time that the employee was an active service participant after the acquisition of
Columbus Plastics to the period of active service prior to the acquisition of Columbus Plastics.
The Company’s liability for postretirement health and life insurance benefits relates primarily to
its Columbus, Ohio employee base. During the second quarter of 2010, the Company recognized a
curtailment in its postretirement benefits liability of $298,000 as a result of a reduction in
personnel in Columbus. This reduction in personnel was caused by a
45
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
production shift of certain product lines from the Company’s Columbus, Ohio facility to its
Matamoros facility. The Plan was remeasured using a discount rate of 5.9% which is consistent with
the discount rate used at December 31, 2009.
On August 7, 2010, the Company entered into a new collective bargaining agreement with represented
employees at the Company’s Columbus, Ohio production facility. As part of the new agreement, the
postretirement health and life insurance benefits for all current and future represented employees
who had not retired as of August 7, 2010 were eliminated in exchange for a one-time cash payment
totaling $1,257,000. Individuals who retired prior to August 7, 2010 remain eligible for
postretirement health and life insurance benefits.
The elimination of postretirement health and life insurance benefits resulted in a reduction of the
Company’s postretirement benefits liability of approximately $10,282,000. This reduction in
postretirement benefits liability was treated as a negative plan amendment and will be amortized as
a reduction to net periodic benefit cost over approximately twenty years, the remaining life
expectancy of the remaining participants in the plan. This negative plan amendment will result in
net periodic benefit cost reductions of approximately $496,000 per year in 2011 and thereafter, and
lower interest costs associated with the reduced postretirement benefits liability. The Plan was
remeasured using a discount rate of 5.1% at the time of the negative plan amendment.
The one-time cash payment of $1,257,000, as noted above, was made on August 19, 2010. The Company
accounted for the one-time cash payment as a partial plan settlement and recorded a one-time charge
of $584,000, or $330,000 net of tax, in the third quarter of 2010 to recognize a portion of the
previously unrecognized actuarial losses recorded in accumulated other comprehensive income due to
the partial settlement.
The funded status of the Company’s post retirement health and life insurance benefits plan as of
December 31, 2010 and 2009 and reconciliation with the amounts recognized in the consolidated
balance sheets are provided below.
| Post Retirement Benefits | ||||||||
| 2010 | 2009 | |||||||
Change in benefit obligation: |
||||||||
Benefit obligation at beginning of year |
$ | 18,744,000 | $ | 15,878,000 | ||||
Service cost |
208,000 | 609,000 | ||||||
Interest cost |
827,000 | 947,000 | ||||||
Curtailment |
(298,000 | ) | — | |||||
Plan amendment |
(10,282,000 | ) | — | |||||
Settlement |
(1,257,000 | ) | — | |||||
Unrecognized loss |
3,273,000 | 1,895,000 | ||||||
Benefits paid |
(378,000 | ) | (585,000 | ) | ||||
Benefit obligation at end of year |
$ | 10,837,000 | $ | 18,744,000 | ||||
Plan Assets |
— | — | ||||||
Amounts recorded in accumulated other
comprehensive income: |
||||||||
Prior service credit |
$ | (10,075,000 | ) | $ | — | |||
Net loss |
5,442,000 | 3,189,000 | ||||||
Plan Assets |
$ | (4,633,000 | ) | $ | 3,189,000 | |||
Weighted-average assumptions as of December 31: |
||||||||
Discount rate used to determine benefit
obligation and net
periodic benefit cost |
5.20 | % | 5.90 | % | ||||
46
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The components of expense for all of the Company’s post retirement benefits plans are as follows:
| 2010 | 2009 | |||||||
Pension expense: |
||||||||
Multi-employer plan
contributions |
$ | 385,000 | $ | 428,000 | ||||
Defined contribution plan
contributions |
333,000 | 346,000 | ||||||
Total pension expense |
718,000 | 774,000 | ||||||
Health and life insurance: |
||||||||
Service cost |
208,000 | 609,000 | ||||||
Interest cost |
827,000 | 947,000 | ||||||
Recognition of previously unrecognized actuarial
losses due to partial settlement |
584,000 | — | ||||||
Amortization of prior service costs |
(207,000 | ) | — | |||||
Amortization of net loss |
139,000 | — | ||||||
Net periodic benefit cost |
1,551,000 | 1,556,000 | ||||||
Total post retirement benefits expense |
$ | 2,269,000 | $ | 2,330,000 | ||||
The Company accounts for post retirement benefits under FASB ASC 715, which requires the
recognition of the funded status of a defined benefit pension or post retirement plan in the
consolidated balance sheets. For the year ended December 31, 2010, the Company recognized net
actuarial losses of $3,273,000 on the Consolidated Balance Sheet. This amount was recorded as
other comprehensive loss in the amount of $2,098,000, net of tax, for the year ended December 31,
2010. For the year ended December 31, 2009, the Company recognized net actuarial loss of
$1,895,000 on the Consolidated Balance Sheet. This amount was recorded as other comprehensive loss
in the amount of $1,195,000, net of tax.
During 2010 the Company recognized a reduction in its balance sheet liability of $10,282,000 as a
result of a negative plan amendment, which was recorded as other comprehensive income in the amount
of $6,592,000, net of tax.
Amounts not yet recognized as a component of net periodic benefit costs at December 31, 2010 and
2009 were a net prior service cost credit of $4,633,000 and a loss of $3,189,000, respectively.
The amount in accumulated other comprehensive income expected to be recognized as components of net
periodic post retirement cost during 2011 consists of a prior service credit of $496,000, or
$318,000 net of tax, and a net loss of $219,000, or $124,000 net of tax. In addition, 2011
interest expense related to post retirement healthcare is expected to be $530,000, or $340,000 net
of tax, for a total post retirement healthcare expense of approximately $254,000, or $146,000 net
of tax, in 2011. The Company expects contributions in 2011 to be
consistent with estimated future benefit payments as shown in the
table below.
The weighted average rate of increase in the per capita cost of covered health care benefits is
projected to be 7%. The rate is projected to decrease gradually to 5% by the year 2017 and remain
at that level thereafter. The comparable assumptions for the prior year were 7% and 5%,
respectively.
The effect of changing the health care cost trend rate by one-percentage point for each future year
is as follows:
| 1-Percentage | 1-Percentage | |||||||
| Point Increase | Point Decrease | |||||||
Effect on total of service and interest cost components |
$ | 166,000 | $ | (136,000 | ) | |||
Effect on post retirement benefit obligation |
$ | 1,231,000 | $ | (1,034,000 | ) | |||
47
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
The estimated future benefit payments of the health care plan are as follows:
Fiscal 2011 |
$ | 933,000 | ||
Fiscal 2012 |
$ | 656,000 | ||
Fiscal 2013 |
$ | 704,000 | ||
Fiscal 2014 |
$ | 714,000 | ||
Fiscal 2015 |
$ | 733,000 | ||
Fiscal 2016 – 2020 |
$ | 3,306,000 |
11. Related Party Transactions
In connection with the acquisition of Columbus Plastics, the Company and Navistar entered into a
Supply Agreement. Under the terms of the Supply Agreement, Navistar agreed to purchase from the
Company, and the Company agreed to sell to Navistar all of Navistar’s original equipment and
service requirements for fiberglass reinforced parts using the Sheet Molding Compound process as
they then existed or as they may be improved or modified. In 2008, the Company entered into a new
Comprehensive Supply Agreement, effective as of June 24, 2008. On January 28, 2010, the Company
entered into a First Addendum to the Comprehensive Supply Agreement, agreeing to shift production
of certain products from the Company’s Columbus, Ohio facility to its Matamoros, Mexico facility,
in order to meet the needs of Navistar as a result of its relocation of certain production to its
Escobedo, Mexico assembly plant. Under this Comprehensive Supply Agreement, as amended, the
Company continues to be the primary supplier of Navistar’s original equipment and service
requirements for fiberglass reinforced parts, as long as the Company remains competitive in cost,
quality and delivery, through October 31, 2013.
In 1996, the Company acquired substantially all of the assets and liabilities of the Columbus
Plastics unit from Navistar, in return for a secured note, which has been repaid, and 4,264,000
shares of Common Stock of the Company. On July 18, 2007, the Company entered into a stock
repurchase agreement with Navistar, pursuant to which the Company repurchased 3,600,000 shares of
common stock, from Navistar as detailed in Note 7. At December 31, 2010, Navistar owned 9.3% of
the Company’s outstanding common stock. Sales to Navistar were $55,138,000 in 2010 and $44,678,000
in 2009, of which $8,421,000 and $6,211,000 were included in accounts receivable as of December 31,
2010 and 2009, respectively.
12. Labor Concentration
As of December 31, 2010, the Company employed a total of 1,014 employees, which consisted of 405
employees in its United States operations and 609 employees in its Mexican operations. Of these
1,014 employees, 164 are covered by a collective bargaining agreement with the International
Association of Machinists and Aerospace Workers (“IAM”), which extends to August 10, 2013, and 522
are covered by a collective bargaining agreement with Sindicato de Jorneleros y Obreros, which
extends to January 16, 2013.
13. Commitments and Contingencies
From time to time, the Company is involved in litigation incidental to the conduct of its business.
However, the Company is presently not involved in any legal proceedings which in the opinion of
management are likely to have a material adverse effect on the Company’s consolidated financial
position or results of operations.
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Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Notes to Consolidated Financial Statements — (Continued)
14. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations for the years ended
December 31, 2010 and 2009.
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Total Year | ||||||||||||||||
2010: |
||||||||||||||||||||
Product sales |
$ | 19,695,932 | $ | 21,473,293 | $ | 23,041,088 | $ | 25,692,699 | $ | 89,903,012 | ||||||||||
Tooling sales |
746,108 | 2,002,499 | 2,253,508 | 5,352,517 | 10,354,632 | |||||||||||||||
Net sales |
20,442,040 | 23,475,792 | 25,294,596 | 31,045,216 | 100,257,644 | |||||||||||||||
Gross margin |
4,083,924 | 3,418,805 | 3,133,914 | 5,712,025 | 16,348,668 | |||||||||||||||
Income before interest and taxes |
1,757,988 | 1,125,471 | 844,652 | 2,689,206 | 6,417,317 | |||||||||||||||
Net income (loss) |
(136,942 | ) | 441,303 | 307,418 | 1,821,293 | 2,433,072 | ||||||||||||||
Net income (loss) per common
share: |
||||||||||||||||||||
Basic (1) |
$ | (0.02 | ) | $ | 0.06 | $ | 0.04 | $ | 0.27 | $ | 0.36 | |||||||||
Diluted (1) |
$ | (0.02 | ) | $ | 0.06 | $ | 0.04 | $ | 0.25 | $ | 0.34 | |||||||||
2009: |
||||||||||||||||||||
Product sales |
$ | 17,830,280 | $ | 16,643,805 | $ | 19,801,193 | $ | 21,891,697 | $ | 76,166,975 | ||||||||||
Tooling sales |
553,837 | 656,303 | 4,624,339 | 1,337,222 | 7,171,701 | |||||||||||||||
Net sales |
18,384,117 | 17,300,108 | 24,425,532 | 23,228,919 | 83,338,676 | |||||||||||||||
Gross margin |
1,573,340 | 984,267 | 3,983,981 | 4,883,728 | 11,425,316 | |||||||||||||||
Income (loss) before interest and
taxes |
(926,663 | ) | (1,271,471 | ) | 1,852,951 | 2,830,679 | 2,485,496 | |||||||||||||
Net income (loss) |
(637,494 | ) | (844,810 | ) | 849,362 | 1,740,013 | 1,107,071 | |||||||||||||
Net income (loss) per common
share: |
||||||||||||||||||||
Basic (1) |
$ | (0.09 | ) | $ | (0.12 | ) | $ | 0.13 | $ | 0.26 | $ | 0.16 | ||||||||
Diluted |
$ | (0.09 | ) | $ | (0.12 | ) | $ | 0.12 | $ | 0.25 | $ | 0.16 | ||||||||
| (1) | Sum of the quarters do not sum to total year due to rounding. |
49
Table of Contents
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE |
Not applicable.
| ITEM 9A(T). | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an evaluation,
under the supervision and with the participation of its management, including its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon
this evaluation, the Company’s management, including its Chief Executive Officer and its Chief
Financial Officer, concluded that the Company’s disclosure controls and procedures were (i)
effective to ensure that information required to be disclosed in the Company’s reports filed or
submitted under the Exchange Act were accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosures, and (ii) effective to ensure that information required to
be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is a process designed by, or
under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and
effected by the Company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Company’s
financial statements in accordance with accounting principles generally accepted in the United
States of America. Because of its inherent limitations, internal control over financial reporting
is not intended to provide absolute assurance that a misstatement of the Company’s financial
statements would be prevented or detected.
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of the Company’s internal control over
financial reporting based on the framework and criteria established in Internal Control —
Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. This evaluation included review of the documentation of controls, evaluation of the
design effectiveness of controls, testing of the operating effectiveness of controls and a
conclusion on this evaluation. Based on this evaluation, management concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2010.
This annual report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by the Company’s registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only management’s report in
this annual report.
Changes In Internal Controls
There were no changes in internal control over financial reporting (as such term is defined in
Exchange Act Rule 13a-15(f)) that occurred in the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
| ITEM 9B. | OTHER INFORMATION |
None.
50
Table of Contents
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The information required by this Part III, Item 10 is incorporated by reference from the Company’s
definitive proxy statement for its annual meeting of stockholders to be held on or about May 11,
2011, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Part III, Item 11 is incorporated by reference from the Company’s
definitive proxy statement for its annual meeting of stockholders to be held on or about May 11,
2011, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required by
this Part III, Item 12 is incorporated by reference from the Company’s
definitive proxy statement for its annual meeting of stockholders to be held on or about
May 11,
2011, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
| ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Part III, Item 13 is incorporated by reference from the Company’s
definitive proxy statement for its annual meeting of stockholders to be held on or about May 11,
2011, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Part III, Item 14 is incorporated by reference from the Company’s
definitive proxy statement for its annual meeting of stockholders to be held on or about May 11,
2011, which is expected to be filed with the SEC pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
51
Table of Contents
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Documents filed as Part of this Report:
(1) Financial Statements
The following consolidated financial statements are included in Part II, Item 8 of this Annual
Report on Form 10-K:
| 26 | ||||
| 27 | ||||
| 28 | ||||
| 29 | ||||
| 30 | ||||
| 31 |
(2) Financial Statement Schedules
The following consolidated financial statement schedules are filed with this Annual Report on Form
10-K:
All other schedules are omitted because of the absence of the conditions under which they
are required.
(3) Exhibits
See Index to Exhibits filed with this Annual Report on Form 10-K.
52
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| CORE MOLDING TECHNOLOGIES, INC. | ||||
By |
/s/ Kevin L. Barnett | |||
| Kevin L. Barnett | ||||
| President and Chief Executive Officer | ||||
| Date: March 29, 2011 | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated:
/s/ Kevin L. Barnett |
|
|||
| Kevin L. Barnett | President, Chief Executive Officer, and Director (principal executive officer) | March 29, 2011 | ||
/s/ Herman F. Dick, Jr. |
||||
Herman F. Dick, Jr. |
Vice President, Secretary, Treasurer, and Chief Financial Officer (principal financial officer and principal accounting officer) | March 29, 2011 | ||
* |
||||
Thomas R. Cellitti |
Director | March 29, 2011 | ||
* |
||||
James F. Crowley |
Director | March 29, 2011 | ||
* |
||||
Ralph O. Hellmold |
Director | March 29, 2011 | ||
* |
||||
Malcolm M. Prine |
Director | March 29, 2011 | ||
| *By /s/ Herman F. Dick, Jr. | ||||
Herman F. Dick, Jr. |
Attorney-In-Fact | March 29, 2011 |
53
Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Schedule II
Consolidated valuation and qualifying accounts and reserves for the years ended December 31, 2010
and 2009.
Reserves deducted from asset to which it applies — allowance for doubtful accounts.
| Additions | ||||||||||||||||||||
| (Recovered)/ | ||||||||||||||||||||
| Balance at | Charged to | Charged to | ||||||||||||||||||
| Beginning | Costs & | Other | Deductions | Balance At | ||||||||||||||||
| of Year | Expenses | Accounts | (A) | End of Year | ||||||||||||||||
Year Ended December
31, 2010 |
$ | 113,000 | $ | 37,000 | — | $ | 32,000 | $ | 118,000 | |||||||||||
Year Ended December
31, 2009 |
$ | 109,000 | $ | 10,000 | — | $ | 6,000 | $ | 113,000 | |||||||||||
| (A) | Amount represents uncollectible accounts written off. |
54
Table of Contents
INDEX TO EXHIBITS
| Exhibit No. | Description | Location | ||
2(a)(1)
|
Asset Purchase Agreement dated as of September 12, 1996, as amended October 31, 1996, between Navistar and RYMAC1 | Incorporated by reference to Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809) | ||
2(a)(2)
|
Second Amendment to Asset Purchase Agreement dated December 16, 19961 | Incorporated by reference to Exhibit 2(a)(2) to Annual Report on Form 10-K for the year ended December 31, 2001 | ||
2(b)(1)
|
Agreement and Plan of Merger dated as of November 1, 1996, between Core Molding and RYMAC | Incorporated by reference to Exhibit 2-B to Registration Statement on Form S-4 (Registration No. 333-15809) | ||
2(b)(2)
|
First Amendment to Agreement and Plan of Merger dated as of December 27, 1996 between Core Molding and RYMAC | Incorporated by reference to Exhibit 2(b)(2) to Annual Report on Form 10-K for the year ended December 31, 2002 | ||
2(c)
|
Asset Purchase Agreement dated as of October 10, 2001, between Core Molding Technologies, Inc. and Airshield Corporation | Incorporated by reference to Exhibit 1 to Form 8-K filed October 31, 2001 | ||
3(a)(1)
|
Certificate of Incorporation of Core Molding Technologies, Inc. as filed with the Secretary of State of Delaware on October 8, 1996 | Incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-8, (Registration No. 333-29203) | ||
3(a)(2)
|
Certificate of Amendment of Certificate of Incorporation of Core Molding Technologies, Inc. as filed with the Secretary of State of Delaware on November 6, 1996 | Incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-8 (Registration No. 333-29203) |
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Table of Contents
| Exhibit No. | Description | Location | ||
3(a)(3)
|
Certificate of Amendment of Certificate of Incorporation as filed with the Secretary of State of Delaware on August 28, 2002 | Incorporated by reference to Exhibit 3(a)(4) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 | ||
3(a)(4)
|
Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock as filed with the Secretary of State of Delaware on July 18, 2007 | Incorporated by reference to Exhibit 3.1 to Form 8-K filed July 19, 2007 | ||
3(b)
|
Amended and Restated By-Laws of Core Molding Technologies, Inc. | Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed January 4, 2008 | ||
4(a)(1)
|
Certificate of Incorporation of Core Molding Technologies, Inc. as filed with the Secretary of State of Delaware on October 8, 1996 | Incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-8 (Registration No. 333-29203) | ||
4(a)(2)
|
Certificate of Amendment of Certificate of Incorporation of Core Molding Technologies, Inc. as filed with the Secretary of State of Delaware on November 6, 1996 | Incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-8 (Registration No. 333-29203) | ||
4(a)(3)
|
Certificate of Amendment of Certificate of Incorporation as filed with the Secretary of State of Delaware on August 28, 2002 | Incorporated by reference to Exhibit 3(a)(4) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 | ||
4(a)(4)
|
Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock as filed with the Secretary of State of Delaware on July 18, 2007 | Incorporated by reference to Exhibit 3.1 to Form 8-K filed July 19, 2007 | ||
4(b)
|
Stockholder Rights Agreement dated as of July 18, 2007, between Core Molding Technologies, Inc. and American Stock Transfer & Trust Company | Incorporated by reference to Exhibit 4.1 to Current Report Form 8-K filed July 19, 2007 | ||
10(a)
|
Supply Agreement, dated June 23, 2008 between Core Molding Technologies, Inc. and Core Composites Corporation and Navistar, Inc.3 | Incorporated by reference to Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 | ||
10(a)(1)
|
Addendum to Supply Agreement, dated January 28, 2010 between Core Molding Technologies, Inc. and Core Composites Corporation and Navistar, Inc.3 | Incorporated by reference to Exhibit 10(a)(1) to Annual Report on Form 10-K for the year ended December 31, 2009 |
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Table of Contents
| Exhibit No. | Description | Location | ||
10(b)
|
Registration Rights Agreement, dated December 31, 1996, by and between Navistar International Transportation Corp. and various other persons who become parties pursuant to the agreement | Incorporated by reference to Exhibit 10(d) to Annual Report on Form 10-K for the year ended December 31, 2001 | ||
10(c)
|
Credit agreement, dated December 9, 2008, by and between Core Molding Technologies, Inc and CoreComposites de Mexico, S De. R.L. de C.V. and KeyBank National Association | Incorporated by reference to Exhibit 10(d) to Annual Report on Form 10-K for the year ended December 31, 2008 | ||
10(c)(1)
|
First Amendment Agreement, dated March 31, 2009, to the Credit Agreement dated December 9, 2008, among Core Molding Technologies, Inc., Core Composites de Mexico, S. De R.L. de C.V. and KeyBank National Association. | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed April 2, 2009 | ||
10(c)(2)
|
Second Amendment Agreement, dated June 30, 2009, to the Credit Agreement dated December 9, 2008, among Core Molding Technologies, Inc., Core Composites de Mexico, S. De R.L. de C.V. and KeyBank National Association. | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed July 2, 2009 | ||
10(c)(3)
|
Third Amendment Agreement, dated December 1, 2009, to the Credit Agreement dated December 9, 2008, among Core Molding Technologies, Inc., Core Composites de Mexico, S. De R.L. de C.V. and KeyBank National Association. | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed December 7, 2009 | ||
10(c)(4)
|
Fourth Amendment Agreement, dated March 8, 2010, to the Credit Agreement dated December 9, 2008, among Core Molding Technologies, Inc., Core Composites de Mexico, S. De R.L. de C.V. and KeyBank National Association. | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated March 10, 2010 | ||
10(c)(5)
|
Fifth Amendment Agreement, dated May 11, 2010, to the Credit Agreement dated December 9, 2008, among Core Molding Technologies, Inc., Core Composites de Mexico, S. De R.L. de C.V. and KeyBank National Association. | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated May 11, 2010 | ||
10(d)
|
Loan Agreement, dated April 1, 1998, by and between South Carolina Jobs — Economic Development Authority and Core Molding Technologies, Inc. | Incorporated by reference to Exhibit 10(g) to Annual Report on Form 10-K for the year ended December 31, 2003 | ||
10(e)
|
Reimbursement Agreement, dated April 1, 1998, by and between Core Molding Technologies, Inc. and KeyBank National Association | Incorporated by reference to Exhibit 10(h) to Annual Report on Form 10-K for the year ended December 31, 2003 |
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Table of Contents
| Exhibit No. | Description | Location | ||
10(f)
|
Core Molding Technologies, Inc. Employee Stock Purchase Plan2 | Incorporated by reference to Exhibit 4(e) to Registration Statement on Form S-8 (Registration No. 333-60909) | ||
10(f)(1)
|
2002 Core Molding Technologies, Inc. Employee Stock Purchase Plan (as amended May 17, 2006) 2 | Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K dated May 23, 2006 | ||
10(g)
|
Letter Agreement Regarding Terms and Conditions of Interest Rate Swap Agreement between KeyBank National Association and Core Molding Technologies, Inc. | Incorporated by reference to Exhibit 10(j) to Annual Report on Form 10-K for the year ended December 31, 2003 | ||
10(g)(1)
|
Letter Agreement Regarding Terms and Conditions of Interest Rate Swap Agreement between KeyBank National Association and Core Molding Technologies, Inc. | Incorporated by reference to Exhibit 10(i)(1) to Annual Report on Form 10-K for the year ended December 31, 2009 | ||
10(h)
|
2006 Core Molding Technologies, Inc. Long Term Equity Incentive Plan2 | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated May 23, 2006 | ||
10(i)
|
Core Molding Technologies, Inc. Cash Profit Sharing Plan2 | Filed Herein | ||
10(j)
|
Form of Amended and Restated Executive Severance Agreement between Core Molding Technologies, Inc. and certain executive officers 2 | Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated December 29,2008 | ||
10(k)
|
Form of Amended and Restated Restricted Stock Agreement between Core Molding Technologies, Inc. and certain executive officers 2 | Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated January 4, 2008 | ||
10(l)
|
Form of Executive Severance Agreement between Core Molding Technologies, Inc. and certain executive officers2 | Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K dated May 23, 2006 | ||
10(m)
|
Form of Restricted Stock Agreement between Core Molding Technologies, Inc. and certain executive officers2 | Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated May 23, 2006 | ||
11
|
Computation of Net Income per Share | Exhibit 11 is omitted because the required information is included in the Notes to Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K | ||
14
|
Code of Conduct and Business Ethics | Incorporated by reference to Exhibit 14 to Annual Report on Form 10-K for the year ended December 31, 2003 | ||
23
|
Consent of Crowe Horwath LLP | Filed Herein |
58
Table of Contents
| Exhibit No. | Description | Location | ||
24
|
Powers of Attorney | Filed Herein | ||
31(a)
|
Section 302 Certification by Kevin L. Barnett, President and Chief Executive Officer | Filed Herein | ||
31(b)
|
Section 302 Certification by Herman F. Dick, Jr., Vice President, Secretary, Treasurer, and Chief Financial Officer | Filed Herein | ||
32(a)
|
Certification of Kevin L. Barnett, Chief Executive Officer of Core Molding Technologies, Inc., dated March 29, 2011, pursuant to 18 U.S.C. Section 1350 | Filed Herein | ||
32(b)
|
Certification of Herman F. Dick, Jr., Vice President, Treasurer, Secretary, and Chief Financial Officer of Core Molding Technologies, Inc., dated March 29, 2011, pursuant to 18 U.S.C. Section 1350 | Filed Herein |
| 1 | The Asset Purchase Agreement, as filed with the SEC at Exhibit 2-A to Registration
Statement on Form S-4 (Registration No. 333-15809), omits the exhibits (including, the Buyer Note,
Special Warranty Deed, Supply Agreement, Registration Rights Agreement, and Transition Services
Agreement, identified in the Asset Purchase Agreement) and schedules (including, those identified
in Sections 1, 3, 4, 5, 6, 8, and 30 of the Asset Purchase Agreement). Core Molding Technologies,
Inc. will provide any omitted exhibit or schedule to the SEC upon request. |
|
| 2 | Indicates management contracts or compensatory plans that are required to be filed as
an exhibit to this Annual Report on Form 10-K. |
|
| 3 | Certain portions of this Exhibit have been omitted intentionally subject to a
confidentiality treatment request. A complete version of the Exhibit has been filed separately
with the Securities and Exchange Commission. |
59