Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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for the transition period from To |
Commission File Number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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31-1481870 |
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(State or other jurisdiction
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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800 Manor Park Drive
Columbus, Ohio
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43228-0183 |
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(Address of principal executive office)
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(Zip Code) |
Registrants telephone number, including area code (614) 870-5000
N/A
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of accelerated filer,
large accelerated filer, and smaller reporting company, in Rule 12b-2 of the Exchange Act
(Check one).
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the
Exchange Act.
Yes o NO þ
As of August 12, 2010, the latest practicable date, 7,076,676 shares of the registrants common
stock were issued and outstanding.
Part 1 Financial Information
Core Molding Technologies, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
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June 30, |
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December 31, |
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2010 |
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2009 |
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Assets |
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Current Assets: |
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Cash |
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$ |
3,077,211 |
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$ |
4,141,838 |
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Accounts receivable (less allowance for doubtful accounts: |
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June 30, 2010 $116,000; December 31, 2009 $113,000) |
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14,143,162 |
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11,936,335 |
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Inventories: |
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Finished goods |
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2,414,473 |
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863,166 |
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Work in process |
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1,177,630 |
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1,253,975 |
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Stores |
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4,524,180 |
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4,896,221 |
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Total inventories |
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8,116,283 |
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7,013,362 |
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Deferred tax asset-current portion |
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1,195,831 |
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1,195,831 |
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Foreign sales tax receivable |
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737,772 |
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652,155 |
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Income tax receivable |
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115,246 |
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1,021,093 |
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Prepaid expenses and other current assets |
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1,312,692 |
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562,176 |
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Total current assets |
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28,698,197 |
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26,522,790 |
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Property, plant and equipment |
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83,203,580 |
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81,670,080 |
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Accumulated depreciation |
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(38,400,792 |
) |
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(36,726,836 |
) |
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Property, plant and equipment net |
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44,802,788 |
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44,943,244 |
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Deferred tax asset |
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5,523,247 |
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6,570,802 |
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Goodwill |
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1,097,433 |
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1,097,433 |
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Other assets |
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30,106 |
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42,029 |
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Total |
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$ |
80,151,771 |
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$ |
79,176,298 |
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Liabilities and Stockholders Equity |
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Liabilities: |
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Current liabilities |
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Current portion of long-term debt |
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$ |
5,464,278 |
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$ |
3,675,005 |
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Current portion of postretirement benefits liability |
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673,000 |
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667,000 |
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Accounts payable |
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5,664,340 |
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4,805,468 |
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Tooling in progress |
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907,314 |
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484,786 |
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Accrued liabilities: |
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Compensation and related benefits |
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2,423,555 |
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2,400,587 |
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Interest payable |
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76,607 |
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102,069 |
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Other |
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954,986 |
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800,912 |
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Total current liabilities |
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16,164,080 |
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12,935,827 |
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Long-term debt |
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14,113,568 |
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17,732,842 |
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Interest rate swap |
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420,153 |
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198,809 |
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Postretirement benefits liability |
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18,319,051 |
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18,076,696 |
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Commitments and Contingencies |
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Stockholders Equity: |
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Preferred stock $0.01 par value, authorized shares 10,000,000;
Outstanding shares: June 30, 2010 and December 31, 2009 0 |
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Common stock $0.01 par value, authorized shares 20,000,000;
Outstanding shares: 6,829,300 at June 30, 2010 and
6,799,641 at December 31, 2009 |
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68,293 |
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67,996 |
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Paid-in capital |
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23,558,582 |
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23,336,197 |
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Accumulated other comprehensive loss, net of income tax benefit |
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(1,430,145 |
) |
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(1,805,897 |
) |
Treasury stock |
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(26,179,054 |
) |
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(26,179,054 |
) |
Retained earnings |
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35,117,243 |
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34,812,882 |
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Total stockholders equity |
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31,134,919 |
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30,232,124 |
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Total |
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$ |
80,151,771 |
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$ |
79,176,298 |
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See notes to unaudited consolidated financial statements.
3
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Net sales: |
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Products |
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$ |
21,473,293 |
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$ |
16,643,805 |
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$ |
41,169,225 |
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$ |
34,474,085 |
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Tooling |
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2,002,499 |
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656,303 |
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2,748,607 |
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1,210,140 |
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Total sales |
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23,475,792 |
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17,300,108 |
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43,917,832 |
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35,684,225 |
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Total cost of sales |
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20,056,987 |
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16,315,841 |
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36,415,103 |
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33,126,619 |
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Gross margin |
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3,418,805 |
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984,267 |
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7,502,729 |
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2,557,606 |
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Total selling, general and
administrative expense |
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2,293,334 |
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2,255,738 |
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4,619,270 |
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4,755,741 |
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Income (loss) before interest and taxes |
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1,125,471 |
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(1,271,471 |
) |
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2,883,459 |
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(2,198,135 |
) |
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Interest expense |
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(457,290 |
) |
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(30,241 |
) |
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(877,473 |
) |
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(140,395 |
) |
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Income (loss) before income taxes |
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668,181 |
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(1,301,712 |
) |
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2,005,986 |
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(2,338,530 |
) |
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Income tax expense (benefit) |
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226,878 |
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(456,902 |
) |
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1,701,625 |
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(856,226 |
) |
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Net income (loss) |
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$ |
441,303 |
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$ |
(844,810 |
) |
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$ |
304,361 |
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$ |
(1,482,304 |
) |
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Net income (loss) per common share: |
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Basic |
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$ |
0.06 |
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$ |
(0.12 |
) |
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$ |
0.04 |
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$ |
(0.22 |
) |
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Diluted |
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$ |
0.06 |
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$ |
(0.12 |
) |
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$ |
0.04 |
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$ |
(0.22 |
) |
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Weighted average shares outstanding: |
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Basic |
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6,817,365 |
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6,784,442 |
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6,808,542 |
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6,769,442 |
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Diluted |
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7,078,959 |
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6,784,442 |
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7,132,176 |
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6,769,442 |
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See notes to unaudited consolidated financial statements.
4
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders Equity
(Unaudited)
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Accumulated |
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Common Stock |
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Other |
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Total |
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Outstanding |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income (Loss) |
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Stock |
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Equity |
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Balance at January 1,
2010 |
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6,799,641 |
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$ |
67,996 |
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$ |
23,336,197 |
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$ |
34,812,882 |
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$ |
(1,805,897 |
) |
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$ |
(26,179,054 |
) |
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$ |
30,232,124 |
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Net income |
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304,361 |
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304,361 |
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Curtailment of post
retirement benefit |
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|
298,000 |
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|
298,000 |
|
Amortization of
unrecognized net loss
on post retirement
benefit, net of tax
expense of $19,607 |
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38,059 |
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38,059 |
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Hedge accounting
effect of the interest
rate swaps, net of
deferred income tax
expense of $20,448 |
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39,693 |
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39,693 |
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Comprehensive
income |
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|
680,113 |
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Common stock issued |
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12,000 |
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|
120 |
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|
33,800 |
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33,920 |
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Restricted stock issued |
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17,659 |
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|
177 |
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|
95,413 |
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|
95,590 |
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Share-based
compensation |
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|
93,172 |
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93,172 |
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Balance at June 30, 2010 |
|
|
6,829,300 |
|
|
$ |
68,293 |
|
|
$ |
23,558,582 |
|
|
$ |
35,117,243 |
|
|
$ |
(1,430,145 |
) |
|
$ |
(26,179,054 |
) |
|
$ |
31,134,919 |
|
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|
See notes to unaudited consolidated financial statements.
5
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
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|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income (loss) |
|
$ |
304,361 |
|
|
$ |
(1,482,304 |
) |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,966,716 |
|
|
|
1,849,330 |
|
Deferred income taxes |
|
|
1,021,501 |
|
|
|
(44,095 |
) |
Ineffectiveness of swaps |
|
|
267,485 |
|
|
|
(252,461 |
) |
Share-based compensation |
|
|
188,762 |
|
|
|
178,194 |
|
Loss on disposal of assets |
|
|
14,277 |
|
|
|
49,405 |
|
Gain on translation of foreign currency financial statements |
|
|
(50,334 |
) |
|
|
(71,217 |
) |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,206,827 |
) |
|
|
3,197,613 |
|
Inventories |
|
|
(1,102,922 |
) |
|
|
2,148,500 |
|
Prepaid and other assets |
|
|
(422,744 |
) |
|
|
(493,832 |
) |
Accounts payable |
|
|
867,609 |
|
|
|
(1,741,123 |
) |
Accrued and other liabilities |
|
|
1,021,037 |
|
|
|
(1,354,238 |
) |
Postretirement benefits liability |
|
|
604,021 |
|
|
|
476,488 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,472,942 |
|
|
|
2,460,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(1,741,488 |
) |
|
|
(8,703,156 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,741,488 |
) |
|
|
(8,703,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs for new credit agreement |
|
|
|
|
|
|
(224,321 |
) |
Gross repayments on line of credit |
|
|
|
|
|
|
(27,109,191 |
) |
Gross borrowings on line of credit |
|
|
|
|
|
|
26,788,460 |
|
Payments of principal on Capex loan |
|
|
(857,143 |
) |
|
|
(142,857 |
) |
Payments of principal on term loan |
|
|
(642,858 |
) |
|
|
(642,858 |
) |
Payment of principal on industrial revenue bond |
|
|
(330,000 |
) |
|
|
(305,000 |
) |
Borrowing on construction loans |
|
|
|
|
|
|
7,878,663 |
|
Proceeds from issuance of common stock |
|
|
33,920 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(1,796,081 |
) |
|
|
6,242,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(1,064,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
4,141,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
3,077,211 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
542,510 |
|
|
$ |
433,240 |
|
|
|
|
|
|
|
|
Income taxes (net of tax refunds) |
|
$ |
167,812 |
|
|
$ |
326,000 |
|
|
|
|
|
|
|
|
Non Cash: |
|
|
|
|
|
|
|
|
Fixed asset purchases in accounts payable |
|
$ |
65,545 |
|
|
$ |
175,317 |
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
6
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and include all of the information and disclosures required by
accounting principles generally accepted in the United States of America for interim reporting,
which are less than those required for annual reporting. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments (all of which are
normal and recurring in nature) necessary to present fairly the financial position of Core Molding
Technologies, Inc. and its subsidiaries (Core Molding Technologies or the Company) at June 30,
2010, and the results of operations and cash flows for the six months ended June 30, 2010. The
Notes to Consolidated Financial Statements, which are contained in the 2009 Annual Report to
Shareholders, should be read in conjunction with these consolidated financial statements.
Core Molding Technologies and its subsidiaries operate in the plastics market in a family of
products known as reinforced plastics. Reinforced plastics are combinations of resins and
reinforcing fibers (typically glass or carbon) that are molded to shape. Core Molding Technologies
operates four production facilities in Columbus, Ohio; Batavia, Ohio; Gaffney, South Carolina; and
Matamoros, Mexico. The Columbus and Gaffney facilities produce reinforced plastics by compression
molding sheet molding compound (SMC) in a closed mold process. The Batavia facility produces
reinforced plastic products by a robotic spray-up open mold process and resin transfer molding
(RTM) closed mold process utilizing multiple insert tooling (MIT). The Matamoros facility
utilizes spray-up and hand lay-up open mold processes, RTM and SMC closed mold process to produce
reinforced plastic products.
As disclosed in the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2010 the
Company determined that certain of its previously filed financial statements contained an error
related to the understatement of a deferred tax asset for certain retiree drug subsidies (RDS)
available to sponsors of retiree health benefit plans that provide a benefit that is at least
actuarially equivalent to the benefits under Medicare Part D. In order to assess materiality with
respect to these errors, the Company considered Staff Accounting Bulletin (SAB) 99, Materiality
and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements, and determined that the impact of these errors on prior period
consolidated financial statements was immaterial. Accordingly, the Companys consolidated balance
sheet as of December 31, 2009 and the related consolidated statements of operations and cash flows
for the three and six months ended June 30, 2009 were revised and reflect the correction of this
immaterial error. Correction of this error in the Companys consolidated balance sheet as of
December 31, 2009 resulted in an increase in deferred tax assets of approximately $1,035,000, an
increase to retained earnings of approximately $618,000 and an increase to accumulated other
comprehensive income of approximately $417,000. The consolidated results of operations and other
comprehensive loss for the three and six months ended June 30, 2009 reflect an increase in income
tax benefit of approximately $22,000 and $45,000, respectively.
2. Net Income (Loss) per Common Share
Net income (loss) per common share is computed based on the weighted average number of common
shares outstanding during the period. Diluted net income per common share is computed similarly
but includes the effect of the assumed exercise of dilutive stock options and restricted stock
under the treasury stock method.
7
The computation of basic and diluted net income (loss) per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
441,303 |
|
|
$ |
(844,810 |
) |
|
$ |
304,361 |
|
|
$ |
(1,482,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
Outstanding |
|
|
6,817,365 |
|
|
|
6,784,442 |
|
|
|
6,808,542 |
|
|
|
6,769,442 |
|
Plus: dilutive options assumed exercised |
|
|
519,825 |
|
|
|
|
|
|
|
519,825 |
|
|
|
|
|
Less: shares assumed repurchased with
proceeds from exercise |
|
|
398,815 |
|
|
|
|
|
|
|
323,480 |
|
|
|
|
|
Plus: dilutive effect of nonvested
restricted
stock grants |
|
|
140,584 |
|
|
|
|
|
|
|
127,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and potentially
issuable common shares outstanding |
|
|
7,078,959 |
|
|
|
6,784,442 |
|
|
|
7,132,176 |
|
|
|
6,769,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share |
|
$ |
0.06 |
|
|
$ |
(0.12 |
) |
|
$ |
0.04 |
|
|
$ |
(0.22 |
) |
Diluted net income (loss) per common
share |
|
$ |
0.06 |
|
|
$ |
(0.12 |
) |
|
$ |
0.04 |
|
|
$ |
(0.22 |
) |
25,000 shares of unexercised stock options at June 30, 2010 and 570,225 stock options at June 30,
2009 were not included in diluted earnings per share, as they were anti-dilutive.
3. Sales
Core Molding Technologies currently has two major customers, Navistar, Inc. (Navistar) and
PACCAR, Inc. (PACCAR). Major customers are defined as customers whose sales individually consist
of more than ten percent of total sales. The following table presents sales revenue for the
above-mentioned customers for the three and six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navistar product sales |
|
$ |
12,888,372 |
|
|
$ |
8,979,649 |
|
|
$ |
23,785,041 |
|
|
$ |
19,036,872 |
|
Navistar tooling sales |
|
|
1,342,434 |
|
|
|
171,953 |
|
|
|
1,771,359 |
|
|
|
474,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Navistar sales |
|
|
14,230,806 |
|
|
|
9,151,602 |
|
|
|
25,556,400 |
|
|
|
19,511,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PACCAR product sales |
|
|
5,347,502 |
|
|
|
5,482,819 |
|
|
|
11,134,611 |
|
|
|
9,674,548 |
|
PACCAR tooling sales |
|
|
643,965 |
|
|
|
195,220 |
|
|
|
889,460 |
|
|
|
206,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PACCAR sales |
|
|
5,991,467 |
|
|
|
5,678,039 |
|
|
|
12,024,071 |
|
|
|
9,881,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other product sales |
|
|
3,237,419 |
|
|
|
2,181,337 |
|
|
|
6,249,573 |
|
|
|
5,762,665 |
|
Other tooling sales |
|
|
16,100 |
|
|
|
289,130 |
|
|
|
87,788 |
|
|
|
528,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other sales |
|
|
3,253,519 |
|
|
|
2,470,467 |
|
|
|
6,337,361 |
|
|
|
6,291,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
21,473,293 |
|
|
|
16,643,805 |
|
|
|
41,169,225 |
|
|
|
34,474,085 |
|
Total tooling sales |
|
|
2,002,499 |
|
|
|
656,303 |
|
|
|
2,748,607 |
|
|
|
1,210,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
23,475,792 |
|
|
$ |
17,300,108 |
|
|
$ |
43,917,832 |
|
|
$ |
35,684,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
4. Comprehensive Income (Loss)
Comprehensive income (loss) represents net income (loss) plus the results of certain equity changes
not reflected in the Consolidated Statements of Operations. The components of comprehensive income
(loss), net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
441,303 |
|
|
$ |
(844,810 |
) |
|
$ |
304,361 |
|
|
$ |
(1,482,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment of post retirement benefit |
|
|
298,000 |
|
|
|
|
|
|
|
298,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge accounting effect of interest rate
swaps, net of deferred income tax expense
of $9,945, and $20,448 for the three and
six months ended June 30, 2010 and
deferred income tax expense of $15,620 and
$10,030 for the three and six months ended
June 30, 2009, respectively |
|
|
19,304 |
|
|
|
31,468 |
|
|
|
39,693 |
|
|
|
20,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of previously unrecognized
postretirement plan loss, net of deferred
tax expense of $9,917 and $19,607 for the
three and six months ended June 30, 2010,
respectively. |
|
|
19,250 |
|
|
|
|
|
|
|
38,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
777,857 |
|
|
$ |
(813,342 |
) |
|
$ |
680,113 |
|
|
$ |
(1,461,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Postretirement Benefits
The components of expense for all of Core Molding Technologies postretirement benefits plans for
the three and six months ended June 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Pension expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined contribution plan
contributions |
|
$ |
80,000 |
|
|
$ |
73,000 |
|
|
$ |
171,000 |
|
|
$ |
176,000 |
|
Multi-employer plan
contributions |
|
|
86,000 |
|
|
|
87,000 |
|
|
|
208,000 |
|
|
|
195,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense |
|
|
166,000 |
|
|
|
160,000 |
|
|
|
379,000 |
|
|
|
371,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and life insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
|
87,000 |
|
|
|
152,000 |
|
|
|
180,000 |
|
|
|
304,000 |
|
Interest cost |
|
|
269,000 |
|
|
|
237,000 |
|
|
|
538,000 |
|
|
|
474,000 |
|
Amortization of net loss |
|
|
29,000 |
|
|
|
|
|
|
|
58,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
385,000 |
|
|
|
389,000 |
|
|
|
776,000 |
|
|
|
778,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement
benefits expense |
|
$ |
551,000 |
|
|
$ |
549,000 |
|
|
$ |
1,155,000 |
|
|
$ |
1,149,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Molding Technologies has made contributions of approximately $555,000 to pension plans and
$192,000 of postretirement healthcare payments through June 30, 2010, and expects to make
approximately $180,000 of multi-employer pension payments through the remainder of 2010. The
Company also expects to make approximately $481,000 of postretirement healthcare payments through
the remainder of 2010, all of which are accrued.
9
The Companys liability for post retirement healthcare and life insurance relates primarily to its
Columbus, Ohio employee base. As a result of the shift of production of certain product lines from
the Companys Columbus, Ohio facility to the Matamoros facility, the Company recognized a
curtailment in its other post employment benefits liability of $298,000 during the second quarter
of 2010 due to remeasurement of this liability.
6. Debt
Credit Agreement; Amendments
On December 9, 2008, the Company and its wholly owned subsidiary, Corecomposites de Mexico, S. de
R.L. de C.V., entered into a Credit Agreement to refinance some existing debt and borrow funds to
finance the construction of the Companys new manufacturing facility in Mexico.
Under this Credit Agreement, the Company received certain loans, subject to the terms and
conditions stated in the agreement, which include (i) a $12,000,000 Capex loan, (ii) an $8,000,000
Mexican loan, (iii) an $8,000,000 revolving line of credit, and (iv) a $2,678,563 term loan to
refinance an existing term loan. The Credit Agreement is secured by a guarantee of each U.S.
subsidiary of the Company, and by a lien on substantially all of the present and future assets of
the Company and its U.S. subsidiaries, except that only 65% of the stock issued by Corecomposites
de Mexico, S. de C.V. has been pledged. The $8,000,000 Mexican loan is also secured by
substantially all of the present and future assets of the Companys Mexican subsidiary.
On March 8, 2010, the Company entered into a fourth amendment (the Fourth Amendment) to the
Credit Agreement. Pursuant to the terms of the Fourth Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These modifications included (1) modification of the
definition of EBITDA to add back transition costs of up to $2,000,000 associated with the
relocation of certain products from the Companys Columbus, Ohio facility to its Matamoros, Mexico
facility (2) modification to the fixed charge definition to exclude capital expenditures of up to
$2,000,000 associated with the relocation of certain products from the Companys Columbus, Ohio
facility to its Matamoros, Mexico facility; (3) retroactive modification of the amortization
schedule of the Mexican loan to forgo the principal payment due January 31, 2010 of $1,600,000 as a
result of the Company limiting its borrowing to $6,400,000 instead of the full amount of the loan
contemplated ($8,000,000); and (4) consent to transfer certain assets of the Company from Columbus,
Ohio to Matamoros, Mexico.
On May 11, 2010, the Company entered into a fifth amendment (the Fifth Amendment) to the Credit
Agreement. Pursuant to the terms of the Fifth Amendment, the parties agreed to modify certain
terms of the Credit Agreement. These modifications included (1) decrease in the applicable margin
for interest rates to 275 basis points from 375 basis points for the Capex and Mexican loans and
the revolving line of credit, effective May 1, 2010 and (2) extension of the commitment for the
revolving line of credit to April 30, 2012. Previous amendments are disclosed in Core Molding
Technologies 2009 Annual Report on Form 10-K.
Bank Covenants
The Company is required to meet certain financial covenants included in the Credit Agreement with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of June 30, 2010, the Company was in compliance with its
financial covenants associated with the loans made under the Credit Agreement as described above.
Based upon the Companys forecasts, which are primarily based on industry analysts estimates of
heavy and medium-duty truck production volumes, as well as other assumptions management believes to
be reasonable, management believes that the Company will be able to maintain compliance with the
financial covenants set forth in the Credit Agreement, as amended, for the next 12 months.
Management believes that cash flow from operating activities together with available borrowings
under the Credit Agreement will be sufficient to meet 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.
10
Interest Rate Swaps
In conjunction with its variable rate Industrial Revenue Bond, the Company entered into an interest
rate swap agreement, 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. The swap term and notional amount matches the payment schedule on the IRB
with final maturity in April 2013. During 2010 the Company determined this interest rate swap was
no longer highly effective. As a result, the Company discontinued the use of hedge accounting
effective January 1, 2010 related to this swap, and began recording mark-to-market adjustments
within interest expense in the Companys Consolidated Statement of Operations. The pre-tax amount
previously recognized in Accumulated Other Comprehensive Loss, totaling $199,990 as of December 31,
2009, is being amortized as an increase to interest expense of $3,384 per month, net of tax, over
the remaining term of the interest rate swap agreement beginning January 2010. The fair value of
the swap was a liability of $170,725 and $199,990 as of June 30, 2010 and December 31, 2009,
respectively. The Company recorded interest income of $29,265 for a mark-to-market adjustment of
swap fair value for the first six months of 2010 related to this swap. The notional amount at June
30, 2010 for this swap was $2,285,000.
Effective January 1, 2004, the Company entered into an interest rate swap agreement, which is
designated as a cash flow hedge of the Term loan. Under this agreement, the Company pays a fixed
rate of 5.75% to the bank and receives LIBOR plus 200 basis points. The swap term and notional
amount matches the payment schedule on the secured Term loan with final maturity in January 2011.
The interest rate swap is a highly effective hedge because the amount, benchmark interest rate
index, term, and repricing dates of both the interest rate swap and the hedged variable interest
cash flows are substantially the same. The fair value of the swap was a liability of $8,525 and
$27,492 as of June 30, 2010 and December 31, 2009 respectively. While the Company is exposed to
credit loss on its interest rate swap in the event of non-performance by the counterparty to the
swap, management believes that such non-performance is unlikely to occur given the financial
resources of the counterparty. The notional amount at June 30, 2010 for this swap was $749,989.
Effective December 18, 2008, the Company entered into an interest rate swap agreement that became
effective May 1, 2009, which was designated as a cash flow hedge of the $12,000,000 Capex loan.
Under this agreement, the Company pays a fixed rate of 2.295% to the counterparty and receives
LIBOR. Effective March 31, 2009, the interest terms in the Companys Credit Agreement related to
the $12,000,000 Capex loan were amended. The Company then determined that the interest rate swap
was no longer highly effective. As a result, the Company discontinued the use of hedge accounting
effective March 31, 2009 related to this swap, and began recording mark-to-market adjustments
within interest expense in the Companys Consolidated Statement of Operations. The pre-tax amount
previously recognized in Accumulated Other Comprehensive Loss, totaling $145,684 as of March 31,
2009, is being amortized as an increase to interest expense of $1,145 per month, net of tax, over
the remaining term of the interest rate swap agreement beginning June 2009. The fair value of the
swap as of June 30, 2010 and December 31, 2009 was a liability of $240,903 and an asset of $28,673,
respectively. The Company recorded interest expense of $269,576 for a mark-to-market adjustment of
swap fair value for the first six months of 2010 related to this swap. The notional amount at June
30, 2010 for this swap was $10,142,857.
Line of Credit
At June 30, 2010, the Company had available under the Credit Agreement 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. The line of credit is collateralized by all the
Companys assets. At June 30, 2010 and December 31, 2009 there was no outstanding balance on the
bank revolving line of credit.
7. Income Taxes
In the first quarter of 2010 the Patient Protection and Affordable Care Act (PPACA) was signed
into law. The PPACA changes the tax treatment related to existing RDS available to sponsors of
retiree health benefit plans that provide a benefit that is at least actuarially equivalent to the
benefits under Medicare Part D. As a result of the PPACA, RDS payments will effectively become
taxable in tax years beginning in 2013, by requiring the amount of the subsidy received to be
offset against the Companys deduction for health care expenses. Accordingly, during the first
quarter of 2010, the Company recorded a one time charge to income tax expense of $1,021,000 related
to the write down of its deferred tax asset for RDS.
11
Income tax expense for the six months ended June 30, 2010 is estimated to be approximately
$1,702,000 or 85% of total earnings before taxes. Without the write down of the deferred tax
asset, the Companys effective tax rate was
34% for the six months ended June 30, 2010. Income tax benefit for the six months ended June 30,
2009 was estimated to be approximately $856,000, or 37% of total earnings before taxes.
The Company follows the accounting guidance related to the uncertainty in income taxes. As of June
30, 2010, the Company had no liability for unrecognized tax benefit liability under this guidance.
The Company does not anticipate that the unrecognized tax benefits will significantly change within
the next twelve months.
The Company files income tax returns in the U.S. federal jurisdiction, Mexico and various state
jurisdictions. The Company is no longer subject to U.S. federal and state income tax examinations
by tax authorities for the years before 2007 and is subject to income tax examinations by Mexican
authorities since the Company began business in Mexico in 2001. There are currently no income tax
audits in process.
8. Stock Based Compensation
The Company has a Long Term Equity Incentive Plan (the 2006 Plan), as approved by the Companys
stockholders in May 2006. This 2006 Plan replaced the Long Term Equity Incentive Plan (the
Original Plan) as originally approved by the stockholders in May 1997 and as amended in May 2000.
The 2006 Plan allows for grants to directors and key employees of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock, performance shares,
performance units and other incentive awards (Stock Awards) up to an aggregate of 3,000,000
awards, each representing a right to buy a share of Core Molding Technologies common stock. Stock
Awards can be granted under the 2006 Plan through the earlier of December 31, 2015, or the date the
maximum number of available awards under the 2006 Plan have been granted.
Stock Options
The following summarizes the activity relating to stock options under the plans mentioned above for
the six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Weighted |
|
|
|
of |
|
|
Average |
|
|
|
Options |
|
|
Exercise Price |
|
Outstanding at December 31, 2009 |
|
|
558,825 |
|
|
$ |
3.30 |
|
Exercised |
|
|
(12,000 |
) |
|
|
2.83 |
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(2,400 |
) |
|
|
3.36 |
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010 |
|
|
544,425 |
|
|
$ |
3.31 |
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010 |
|
|
508,325 |
|
|
$ |
3.32 |
|
|
|
|
|
|
|
|
The following summarizes the status of, and changes to, unvested options during the six months
ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Weighted |
|
|
|
Of |
|
|
Average |
|
|
|
Options |
|
|
Exercise Price |
|
Unvested at December 31, 2009 |
|
|
44,500 |
|
|
$ |
3.29 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(8,000 |
) |
|
|
3.28 |
|
Forfeited |
|
|
(400 |
) |
|
|
6.40 |
|
|
|
|
|
|
|
|
Unvested at June 30, 2010 |
|
|
36,100 |
|
|
$ |
3.26 |
|
|
|
|
|
|
|
|
At June 30, 2010 and 2009, there was $37,692 and $100,161, respectively, of total unrecognized
compensation expense, related to unvested stock options granted under the plans. Total
compensation cost related to incentive stock options for the six months ended June 30, 2010 and
2009 was $24,810 and, $45,619, respectively. This compensation expense is allocated such that
$23,803 and $39,438 are included in selling, general and administrative expenses and $1,007 and
$6,181 are recorded in cost of sales for the six months ended June 30, 2010 and 2009, respectively.
12
Restricted Stock
Beginning in 2006, Core Molding Technologies began granting shares of its common stock to certain
directors, officers, and key managers in the form of unvested stock (Restricted Stock). These
awards are recorded at the market value of Core Molding Technologies common stock on the date of
issuance and amortized ratably as compensation expense over the applicable vesting period.
The following summarizes the status of Restricted Stock grants as of June 30, 2010 and changes
during the six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
|
Of |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested balance at December 31, 2009 |
|
|
187,445 |
|
|
$ |
3.91 |
|
Granted |
|
|
77,040 |
|
|
|
5.20 |
|
Vested |
|
|
(17,659 |
) |
|
|
5.41 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at June 30, 2010 |
|
|
246,826 |
|
|
$ |
4.21 |
|
|
|
|
|
|
|
|
As of June 30, 2010 and 2009, there was $604,823 and $547,341, respectively, of total unrecognized
compensation expense related to Restricted Stock granted under the 2006 Plan. The total
compensation costs related to restricted stock grants for the six months ended June 30, 2010 and
2009 was $163,952 and $132,575, respectively, all of which was recorded to selling, general and
administrative expense.
9. Fair Value of Financial Instruments
The Companys financial instruments consist of long-term debt, interest rate swaps, accounts
receivable, and accounts payable. The carrying amount of these financial instruments approximated
their fair value.
In September 2006, the Financial Accounting Standards Board (FASB) issued a standard to define
fair value, establish a framework for measuring fair value and to expand disclosures about fair
value measurements. This standard does not change the requirements to apply fair value in existing
accounting standards. Under this standard, fair value refers to the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. The standard clarifies that
fair value should be based on the assumptions market participants would use when pricing the asset
or liability.
To increase consistency and comparability in fair value measurements, this standard establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of
input that is significant to the fair value measurement. The three levels of the fair value
hierarchy are as follows:
|
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for
identical asset or liabilities that the company has the ability to
access as of the reporting date. |
|
|
|
|
Level 2 inputs are inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly through corroboration with observable market
data. |
|
|
|
|
Level 3 inputs are unobservable inputs, such as internally developed
pricing models for the asset or liability due to little or no market
activity for the asset or liability. |
13
The Companys has three Level 2 fair value measurements all of which relate to the Companys
interest rate swaps. The Company utilizes interest rate swap contracts to manage its targeted mix
of fixed and floating rate debt, and these swaps are valued using observable benchmark rates at
commonly quoted intervals for the full term of the swaps. These interest rate swaps are discussed
in detail in Note 6.
The following table presents financial liabilities measured and recorded at fair value on the
Companys Consolidated Balance Sheet on a recurring basis and their level within the fair value
hierarchy as of June 30, 2010 and December 31, 2009:
Recurring Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
June 30, 2010 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
420,153 |
|
|
$ |
|
|
|
$ |
420,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
420,153 |
|
|
$ |
|
|
|
$ |
420,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2009 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
198,809 |
|
|
$ |
|
|
|
$ |
198,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
198,809 |
|
|
$ |
|
|
|
$ |
198,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no non-recurring fair value measurements for the quarter ended June 30, 2010.
In March 2008, the FASB issued a standard to amend and expand the disclosure requirements of
derivative instruments with the intent to provide users of the financial statements with an
enhanced understanding of how and why an entity uses derivative instruments, how these derivatives
are accounted for and how the respective reporting entitys financial statements are affected. The
Company adopted this standard on January 1, 2009.
Core Molding Technologies derivative instruments located on the Consolidated Balance Sheets
(unaudited) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
Balance Sheet Location |
|
|
Fair Value |
|
|
Fair Value |
|
Derivatives designated as hedging instruments
Interest rate risk activities |
|
Interest rate swaps |
|
$ |
(8,525 |
) |
|
$ |
227,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
Interest rate risk activities |
|
Interest rate swaps |
|
$ |
(411,628 |
) |
|
$ |
(28,673 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
|
|
|
|
$ |
(420,153 |
) |
|
$ |
198,809 |
|
|
|
|
|
|
|
|
|
|
|
|
14
The effect of derivative instruments on the Consolidated Statement of Operations (unaudited) was as
follows:
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) Loss |
|
|
Location of (Gain) Loss |
|
|
Amount of (Gain) Loss |
|
|
|
Recognized in OCI on |
|
|
Reclassified from AOCI |
|
|
Reclassified from AOCI |
|
Derivatives in Cash Flow |
|
Derivative (Effective |
|
|
into Income (Effective |
|
|
into Expense (Effective |
|
Hedging Relationships |
|
Portion) |
|
|
Portion) |
|
|
Portion) |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
June 30, |
|
|
June 30, |
|
Three months ended |
|
2010 |
|
|
2009 |
|
|
|
|
|
2010 |
|
|
2009 |
|
Interest rate swaps |
|
$ |
(8,662 |
) |
|
$ |
(67,182 |
) |
|
Interest expense, net |
|
$ |
7,499 |
|
|
$ |
53,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
Six months ended |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Interest rate swaps |
|
$ |
(18,967 |
) |
|
$ |
(61,090 |
) |
|
Interest expense, net |
|
$ |
17,872 |
|
|
$ |
109,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of (Gain) Loss |
|
|
Amount of (Gain) Loss Recognized |
|
|
|
Recognized in Income on |
|
|
in Income of Derivative |
|
|
|
Derivative (Ineffective Portion |
|
|
(Ineffective Portion and Amount |
|
Derivatives in Cash Flow Hedging |
|
and Amount Excluded from |
|
|
Excluded from Effectiveness |
|
Relationships |
|
Effectivness Testing) |
|
|
Testing) |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
Three months ended |
|
|
|
|
2010 |
|
|
2009 |
|
Interest rate swaps |
|
Interest (income) expense |
|
$ |
|
|
|
$ |
(21,293 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
Six months ended |
|
|
|
|
|
2010 |
|
|
2009 |
|
Interest rate swaps |
|
Interest (income) expense |
|
$ |
|
|
|
$ |
(31,591 |
) |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
Realized/Unrealized (Gain) |
|
Derivatives Not Designated as Hedging |
|
Location of (Gain) Loss Recognized in |
|
|
Loss Recognized in Income |
|
Instruments |
|
Income on Derivatives |
|
|
on Derivatives |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
Three months ended |
|
|
|
|
2010 |
|
|
2009 |
|
Interest rate swaps |
|
Interest (income) expense |
|
$ |
170,686 |
|
|
$ |
(220,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
Six months ended |
|
|
|
|
|
2010 |
|
|
2009 |
|
Interest rate swaps |
|
Interest (income) expense |
|
$ |
267,485 |
|
|
$ |
(220,871 |
) |
|
|
|
|
|
|
|
|
|
|
As discussed in Note 6, the Company discontinued the use of hedge accounting for two of its
interest rate swaps, effective March 31, 2009 for the Capex swap and January 1, 2010 for the IRB
swap. The Company now records all mark to market adjustments related to these interest rate swaps
within interest expense in the Companys Consolidated Statement of Operations, since the date the
Company discontinued hedge accounting for each swap. It is anticipated that during the next twelve
months the expiration and settlement of cash flow hedge contracts along with the amortization of
losses on discontinued hedges will result in income statement recognition of amounts currently
classified in accumulated other comprehensive loss of approximately $54,350, net of taxes.
15
10. Subsequent Event
On August 7, 2010 the Company reached a new labor agreement with represented employees at the
Companys Columbus, Ohio production facility. The new labor agreement extends through August 10,
2013. A provision of this contract provides for the elimination of post retirement health and life
insurance benefits for all current and future members of the union who had not retired as of August
7, 2010 in consideration for a one-time cash payment to each current member. The cost of the
one-time payment will be approximately $1,300,000 and the Company plans for the cash buy-out to be
completed by the end of August. At June 30, 2010, the Company had a recorded liability of
$18,992,000 for post retirement health and life insurance benefits. This liability had been
recorded to reflect the Companys obligations for both retired and current members of the union as
well as certain non represented employees. As consideration for this one-time cash payment, the
Company will eliminate the portion of this liability that was related to the current members of the
union. The Company is evaluating the actuarial impacts of this settlement on the Companys
Consolidated Financial Statements.
16
Part I Financial Information
Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
This Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements within the meaning of the federal securities laws. As a general matter,
forward-looking statements are those focused upon future plans, objectives or performance as
opposed to historical items and include statements of anticipated events or trends and expectations
and beliefs relating to matters not historical in nature. Such forward-looking statements involve
known and unknown risks and are subject to uncertainties and factors relating to Core Molding
Technologies operations and business environment, all of which are difficult to predict and many of
which are beyond Core Molding Technologies control. These uncertainties and factors could cause
Core Molding Technologies actual results to differ materially from those matters expressed in or
implied by such forward-looking statements.
Core Molding Technologies believes that the following factors, among others, could affect its
future performance and cause actual results to differ materially from those expressed or implied by
forward-looking statements made in this report: business conditions in the plastics,
transportation, watercraft and commercial product industries; federal and state regulations
(including engine emission regulations); general economic, social and political environments in the
countries in which Core Molding Technologies operates; dependence upon two major customers as the
primary source of Core Molding Technologies sales revenues; recent efforts of Core Molding
Technologies to expand its customer base; the actions of competitors, customers, and suppliers;
failure of Core Molding Technologies suppliers to perform their obligations; the availability of
raw materials; inflationary pressures; new technologies; regulatory matters; labor relations; the
loss or inability of Core Molding Technologies to attract and retain key personnel; federal, state
and local environmental laws and regulations; the availability of capital; the ability of Core
Molding Technologies to provide on-time delivery to customers, which may require additional
shipping expenses to ensure on-time delivery or otherwise result in late fees; risk of cancellation
or rescheduling of orders; risks related to the transfer of production from Core Molding
Technologies Columbus facility to its Matamoros facility; managements decision to pursue new
products or businesses which involve additional costs, risks or capital expenditures; and other
risks identified from time-to-time in Core Molding Technologies other public documents on file with
the Securities and Exchange Commission, including those described in Item 1A of the 2009 Annual
Report to Shareholders on Form 10-K.
Overview
Core Molding Technologies is a compounder of sheet molding composite (SMC) and molder of
fiberglass reinforced plastics, primarily for the medium and heavy-duty truck market, which
accounted for 95% of the Companys sales for the six months ended June 30, 2010. Core Molding
Technologies produces high quality fiberglass reinforced molded products and SMC materials for
varied markets, including light, medium and heavy-duty trucks, automobiles and automotive
aftermarkets, personal watercraft, and other commercial products. The demand for Core Molding
Technologies products is affected by economic conditions in the United States, Canada, and Mexico.
Core Molding Technologies manufacturing operations have a significant fixed cost component.
Accordingly, during periods of changing demands, the profitability of Core Molding Technologies
operations may change proportionately more than revenues from operations.
On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and
assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of Navistars truck
manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus,
Ohio, was a compounder and compression molder of SMC. In 1998, Core Molding Technologies began
compression molding operations at its second facility in Gaffney, South Carolina, and in October
2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of
this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include
the spray up, hand-lay-up open mold processes and resin transfer (RTM) closed molding
utilizing a vacuum infusion process. In September 2004, Core Molding Technologies acquired
substantially all the operating assets of Keystone Restyling Products, Inc., a privately held
manufacturer and distributor of fiberglass reinforced products for the automotive-aftermarket
industry. In August 2005, Core Molding Technologies acquired certain assets of the Cincinnati
Fiberglass Division of Diversified Glass, Inc., a Batavia, Ohio-based, privately held manufacturer
and distributor of fiberglass reinforced plastic components supplied primarily to the heavy-duty
truck market. The Batavia, Ohio facility produces reinforced plastic products by a spray-up open
mold process and resin transfer molding (RTM) utilizing multiple insert tooling (MIT) closed
mold process. In June of 2009, the Company completed construction of its new 437,000 square foot
production facility in Matamoros, Mexico that replaced its leased facility. In conjunction with
the construction of its new facility, the Company also added compression molding operations in
Matamoros, Mexico.
17
Core Molding Technologies recorded net income for the six months ended June 30, 2010 of $304,000 or
$0.04 per basic and diluted share, compared with a net loss of $1,482,000, or $0.22 per basic and
diluted share, for the six months ended June 30, 2009. In March 2010, Congress passed the Patient
Protection and Affordable Care Act (PPACA) which repealed the tax benefits the Company previously
received related to certain retiree prescription drug costs. As a result of this change, the
Company reduced its deferred tax asset related to that subsidy and recorded a charge to income tax
expense of $1,021,000. Without this one time charge, the Companys net income for the six month
ended June 30, 2010 would have been $1,325,000 or $0.19 per basic and diluted share.
During the six months ended June 30, 2010, the Company recorded approximately $1,320,000 of expense
for transfer costs associated with the move of certain product lines from its Columbus, Ohio
production facility to its Matamoros, Mexico production facility and expects to incur up to
$480,000 of additional costs during the remainder of 2010. During the six months ended June 30,
2009, the Company incurred and recorded approximately $1,983,000 of expenses for transfer and
start-up costs associated with the construction of the Companys new production facility in Mexico.
The Company anticipates 2010 sales levels to increase over the 2009 levels, as industry analysts
continue to forecast some improvement in truck production for the second half of 2010. For the
first six months of 2010 product sales increased 19% as compared to the same period in 2009.
Results of Operations
Three Months Ended June 30, 2010, As Compared To Three Months Ended June 30, 2009
Net sales for the three months ended June 30, 2010, totaled $23,476,000, representing an
approximate 36% increase from the $17,300,000 reported for the three months ended June 30, 2009.
Included in total sales were tooling project sales of $2,002,000 and $656,000 for the three months
ended June 30, 2010 and June 30, 2009, respectively. Tooling project sales result from
non-production billings to customers primarily for molds and assembly
equipment specific to their products. These sales are sporadic in nature. Total product sales, excluding tooling
project sales, were approximately 29% higher for the three months ended June 30, 2010, as compared
to the same period a year ago. The primary reason for the increase is higher demand from the North
American medium and heavy-duty truck market.
Sales to Navistar totaled $14,231,000 for the three months ended June 30, 2010, increasing 55% from
$9,152,000 in sales for the three months ended June 30, 2009. Included in total sales was
$1,342,000 of tooling sales for the three months ended June 30, 2010 compared to $172,000 for the
same three months in 2009. Product sales to Navistar increased by 44% for the three months ended
June 30, 2010 versus the same period of the prior year. The primary reason for the increase is the
higher demand for North American medium and heavy-duty trucks as well as more orders for Navistars
military product line.
Sales to PACCAR totaled $5,991,000 for the three months ended June 30, 2010, increasing 6% from
$5,678,000 in sales for the three months ended June 30, 2009. Included in total sales was $644,000
of tooling sales for the three months ended June 30, 2010 compared to $195,000 for the same three
months in 2009. Product sales to PACCAR decreased by 2% for the three months ended June 30, 2010
compared to the same period of the prior year. The decrease in total product sales was primarily
due to decreased sales volumes for a product that is reaching the end of
its production life. This decrease was off-set by higher demand of other products the Company
manufactures for PACCAR due to the overall conditions in the medium and heavy duty truck markets as
noted above.
Sales to other customers for the three months ended June 30, 2010 increased 32% to $3,254,000
compared to $2,470,000 for the three months ended June 30, 2009. Included in total sales is $16,000
of tooling sales for the three months ended June 30, 2010 compared to $289,000 for the same three
months in 2009. The increase in sales was primarily due to an increase in product sales to other
North American medium and heavy-duty truck manufacturers amounting to approximately $924,000, as
well as additional sales of approximately $454,000 to a new customer. These increases were
partially off-set by a decrease in sales to a customer for whom the Company manufactures certain
commercial products.
18
Gross margin was approximately 15% of sales for the three months ended June 30, 2010, compared with
6% for the three months ended June 30, 2009. Negatively impacting gross margin for the three months
ending June 30, 2010 were costs of $1,000,000 related to the movement of product lines from the
Companys Columbus, Ohio facility to its Matamoros, Mexico facility. For the same period in 2009,
the Company incurred approximately $681,000 of transition and start up costs associated with the
construction of the Companys new production facility in Mexico. These costs had an unfavorable
impact of approximately 4% on gross margin for each of the three months ended June 30, 2010 and
2009. Contributing to the increase in gross margin for the three months ended June 30, 2010
compared to the same three months in 2009 was better fixed cost absorption due to higher production
volumes as well as production efficiencies. The Companys manufacturing operations have significant
overhead costs such as certain labor, energy, depreciation, lease expense and certain benefit
costs, including post retirement healthcare costs, which do not change proportionately with
production.
Selling, general and administrative expenses (SG&A) totaled $2,293,000 for the three months ended
June 30, 2010, compared to $2,256,000 for the three months ended June 30, 2009. Increases in
foreign currency losses, wages and travel were partially offset by decreases in professional and
outside services and business insurance costs.
Interest expense totaled $457,000 for the three months ended June 30, 2010, compared to interest
expense of $30,000 for the three month ended June 30, 2009. The primary cause for this fluctuation
in interest expense between periods is mark-to-market adjustments related to interest rate swaps.
Mark-to-market adjustments on interest rate swaps that are not designated as hedging instruments
are recorded directly to interest expense and resulted in additional interest expense of $171,000
for the three months ended June 30, 2010 compared to a reduction of interest expense of $221,000
for the same three months during 2009.
Income tax expense for the three months ended June 30, 2010, is estimated to be approximately 34%
of total earnings before taxes. In the three months ended June 30, 2009 income tax benefit was
estimated to be 35% of total losses before taxes.
Core Molding Technologies recorded net income for the three months ended June 30, 2010 of $441,000
or $0.06 per basic and diluted share, compared with a net loss of $845,000, or $0.12 per basic and
diluted share, for the three months ended June 30, 2009.
Six Months Ended June 30, 2010, As Compared To Six Months Ended June 30, 2009
Net sales for the six months ended June 30, 2010, totaled $43,918,000, representing an approximate
23% increase from the $35,684,000 reported for the six months ended June 30, 2009. Included in
total sales were tooling project sales of $2,749,000 and $1,210,000 for the six months ended June
30, 2010 and June 30, 2009, respectively. Tooling project sales result from non-production
billings to customers primarily for molds and assembly equipment specific to their
products. These sales are sporadic in nature. Total product sales, excluding tooling project
sales, increased by 19% to $41,169,000 for the six months ended June 30, 2010 as compared to
$34,474,000 for the six months ended June 30, 2009. The primary reason for the increase is higher
demand for North American medium and heavy-duty trucks.
Sales to Navistar totaled $25,556,000 for the six months ended June 30, 2010, as compared to
$19,512,000 for the six months ended June 30, 2009. Included in total sales was $1,771,000 of
tooling sales for the six months ended June 30, 2010 compared to $475,000 for the six months ended
June 30, 2009. Total product sales to Navistar
increased by 25% for the six months ended June 30, 2010 compared to the six months ended June 30,
2009. The primary reason for the increase in product sales were the market conditions for medium
and heavy-duty trucks as noted above as well as more orders for Navistars military product line.
Sales to PACCAR totaled $12,024,000 for the six months ended June 30, 2010, as compared to
$9,881,000 reported for the six months ended June 30, 2009. Included in total sales was $889,000
of tooling sales for the six months ended June 30, 2010 compared to $207,000 for the six months
ended June 30, 2009. Total product sales to PACCAR increased by 15% for the six months ended June
30, 2010 compared to the six months ended June 30, 2009. The increase in total product sales was
also due to the above noted market conditions for medium and heavy-duty trucks.
Sales to other customers for the six months ended June 30, 2010 were $6,337,000 compared to
$6,291,000 for the six months ended June 30, 2009. Contributing to the increase in sales to other
customers were the market conditions for medium and heavy-duty trucks as noted above along with a
new customer. These increases were partially off-set by a decrease in sales to a
customer for whom the Company manufactures certain commercial products.
19
Gross margin was approximately 17% of sales for the six months ended June 30, 2010, compared with
7% for the six months ended June 30, 2009. The Company incurred approximately $1,320,000 in
transition costs related to the movement of product lines from its Columbus, Ohio facility to its
Matamoros, Mexico facility for the six months ended June 30, 2010. For the same period in 2009, the
Company incurred approximately $1,752,000 of transition and start up costs associated with the
Companys new production in Mexico. These cost had an unfavorable impact of approximately 3% and 5%
on gross margin for the six months ended June 30, 2010 and 2009, respectively. Contributing to an
increase in gross margin in 2010 was better fixed cost absorption due to higher production volumes.
Production volumes increased due to increased demand as well as increasing inventory levels
necessary to support the transfer of certain products from the Companys Columbus facility to its
Matamoros facility. The Companys manufacturing operations have significant overhead costs such as
certain labor, energy, depreciation and certain benefit costs, including post retirement healthcare
costs, which do not change proportionately with production.
Selling, general and administrative expenses (SG&A) totaled $4,619,000 for the six months ended
June 30, 2010, decreasing from $4,756,000 for the six months ended June 30, 2009. Included in SG&A
at June 30, 2009 is approximately $231,000 of transition and start-up costs associated with
building and moving productions from a previously leased facility to the Companys new production
facility in Mexico. None of the 2010 transition expenses related to the production line relocation
are included in SG&A. Excluding the transition and start-up costs from 2009, the primary reason
for the overall increase in SG&A was the impact of foreign currency on its operations in Mexico.
The Company recognized foreign currency losses for the six months ended June 30, 2010 compared to
foreign currency gains for the same six months in 2009.
Interest expense totaled $877,000 for the six months ended June 30, 2010, as compared to net
interest expense of $140,000 for the six months ended June 30, 2009. The primary cause for this
fluctuation in interest expense between periods is mark-to-market adjustments related to interest
rate swaps. Mark-to-market adjustments on interest rate swaps that are not designated as hedging
instruments are recorded directly to interest expense and resulted in additional interest expense
of $268,000 for the six months ended June 30, 2010 compared to a reduction of interest expense of
$221,000 for the same six months during 2009. Additionally, the Company capitalized interest of
approximately $167,000 in 2009 related to its new production facility in Mexico which was placed
into service in June 2009.
Income tax expense for the six months ended June 30, 2010, is estimated to be approximately 85% of
total earnings before taxes or $1,702,000. In the six months ended June 30, 2009 income tax
benefit was estimated to be 37% of total losses before taxes. The increase in the Companys
effective tax rate in 2010 as compared to 2009 is due to the impact of the write off of certain
deferred tax assets of $1,021,000. The deferred tax write off was due to the passage of the Patient
Protection and Affordable Care Act (PPACA) which repealed the tax benefit associated with certain
retiree prescription drug subsidies previously recorded by the Company. Without this charge the
Companys estimated tax rate was 34% for the six months ended June 30, 2010.
Core Molding Technologies recorded net income for the six months ended June 30, 2010 of $304,000 or
$0.04 per basic and diluted share, compared with a net loss of $1,482,000, or $0.22 per basic and
diluted share, for the six months ended June 30, 2009.
Liquidity and Capital Resources
On March 8, 2010, the Company entered into a fourth amendment (the Fourth Amendment) to the
Credit Agreement. Pursuant to the terms of the Fourth Amendment, the parties agreed to modify
certain terms of the Credit Agreement. These modifications included (1) modification of the
definition EBITDA to add back transition costs of up to $2,000,000 associated with the relocation
of certain products from the Companys Columbus, Ohio facility to its Matamoros, Mexico facility
(2) modification to the fixed charge definition to exclude capital expenditures of up to $2,000,000
associated with the relocation of certain products from the Companys Columbus, Ohio facility to
its Matamoros, Mexico facility; (3) retroactive modification of the amortization schedule of the
Mexican loan to forgo the principal payment due January 31, 2010 of $1,600,000 as a result of the
Company limiting its borrowing to $6,400,000 instead of the full amount of the loan contemplated
($8,000,000); and (4) consent to transfer certain assets of the Company from Columbus, Ohio to
Matamoros, Mexico.
20
On May 11, 2010, the Company entered into a fifth amendment (the Fifth Amendment) to the Credit
Agreement. Pursuant to the terms of the Fifth Amendment, the parties agreed to modify certain
terms of the Credit Agreement. These modifications included (1) decrease in the applicable margin
for interest rates to 275 basis points from 375 basis points for the Capex and Mexican loans and
the revolving line of credit, effective May 1, 2010 and (2) extension of the commitment for the
revolving line of credit to April 30, 2012. Previous amendments are disclosed in Core Molding
Technologies 2009 Annual Report on Form 10-K.
The Companys primary sources of funds have been cash generated from operating activities and
borrowings from third parties. Primary cash requirements are for operating expenses and capital
expenditures.
Cash provided by operating activities for the six months ended June 30, 2010 totaled $2,473,000.
Net income of $304,000 positively impacted operating cash flows. Non-cash deductions of
depreciation and amortization contributed $1,967,000 to operating cash flow. In addition, the
increase in the postretirement healthcare benefits liability of $604,000 is not a current cash
obligation, and this item will not be a cash obligation until additional employees retire and begin
to utilize these benefits. Changes in working capital decreased cash provided by operating
activities by $1,844,000. Changes in working capital primarily relate to an increase in accounts
receivable due to increased product sales for the six months ended June 30, 2010 compared to the
fourth quarter of 2009 as well as higher inventory levels. These were offset by higher accrued
liabilities and accounts payable as of June 30, 2010 as compared to December 31, 2009.
Cash used in investing activities for the six months ended June 30, 2010 was $1,742,000, primarily
representing capital improvements to our Matamoros facility to support product lines being moved
from Columbus, Ohio to that facility. The Company currently plans an additional $1,894,000 of
capital expenditures for the remainder of the year, of which $463,000 relates to the completion of
the capital improvements to the Companys production facility in Mexico. These capital additions
will be funded by cash from operations and borrowings on the Companys line of credit. The Company
may also undertake other capital improvement projects in the future as deemed necessary and
appropriate.
Financing activities decreased cash by $1,796,000. This decrease was a result of repayments of
principal on the Companys Capex loan of $857,000, term loan of $643,000 and industrial revenue
bond of $330,000.
At June 30, 2010, the Company had cash on hand of $3,077,000 and a line of credit of $8,000,000,
with a scheduled maturity of April 30, 2012. At June 30, 2010, Core Molding Technologies had no
outstanding borrowings on the line of credit.
The Company is required to meet certain financial covenants included in the Credit Agreement with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of June 30, 2010, the Company was in compliance with its
financial debt covenants.
Based on the Companys forecasts which are primarily based on industry analysts estimates of heavy
and medium-duty truck production volumes as well as other assumptions management believes to be
reasonable, management believes that the Company will be able to maintain compliance with the
covenants as amended under the Credit Agreement, as amended, for the next 12 months. Management
believes that cash flow from operating activities together with available borrowings under the
Credit Agreement will be sufficient to meet Core Molding Technologies liquidity needs. However, if
a material adverse change in the financial position of Core Molding Technologies should occur, or
if actual sales or expenses are substantially different than what has been forecasted, Core Molding
Technologies liquidity and ability to obtain further financing to fund future operating and
capital requirements could be negatively impacted.
Critical Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations discuss the
Companys consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these consolidated
financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its estimates and
judgments, including those related to accounts receivable, inventories, 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.
21
Management believes the following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its consolidated financial
statements.
Accounts receivable allowances: Management maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required payments. If the
financial condition of the Companys customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The Company recorded an
allowance for doubtful accounts of $116,000 at June 30, 2010 and $113,000 at December 31, 2009.
Management also records estimates for customer returns and deductions, discounts offered to
customers, and for price adjustments. Should customer returns and deductions, discounts, and price
adjustments fluctuate from the estimated amounts, additional allowances may be required. The
Company has reduced accounts receivable for chargebacks by $639,000 at June 30, 2010 and $519,000
at December 31, 2009.
Inventories: Inventories, which include material, labor and manufacturing overhead, are valued at
the lower of cost or market. The inventories are accounted for using the first-in, first-out
(FIFO) method of determining inventory costs. Inventory quantities on-hand are regularly reviewed,
and where necessary, provisions for excess and obsolete inventory are recorded based on historical
and anticipated usage.
Goodwill and Long-Lived Assets: Management evaluates whether impairment exists for goodwill and
long-lived assets annually on December 31 or at interim periods if an indicator of impairment
exists. Should actual results differ from the assumptions used to determine impairment, additional
provisions may be required. If there is a sustained downturn in the economy or the disruption of
the financial and credit markets continues, demand for our products could fall below our current
expectations and our forecasts of revenues and operating results could decline. Impairment charges
of our goodwill or long-lived assets may be required in the future if our expected future cash
flows decline. The Company has not recorded any impairment to goodwill or long-lived assets for
the six months ended June 30, 2010 or the year ended December 31, 2009.
Self-Insurance: The Company is self-insured with respect to most of its Columbus and Batavia, Ohio
and Gaffney, South Carolina medical and dental claims and Columbus and Batavia, Ohio workers
compensation claims. The Company has recorded an estimated liability for self-insured medical and
dental claims incurred but not reported and workers compensation claims incurred but not reported
at June 30, 2010 and December 31, 2009 of $961,000 and $944,000, respectively.
Postretirement benefits: Management records an accrual for postretirement costs associated with
the health care plan sponsored by Core Molding Technologies. Should actual results differ from the
assumptions used to determine the reserves, additional provisions may be required. In particular,
increases in future healthcare costs above the assumptions could have an adverse effect on Core
Molding Technologies operations. The effect of a change in healthcare costs is described in Note
10 of the Notes to Consolidated Financial Statements, which are contained in the 2009 Annual Report
to Shareholders. Core Molding Technologies recorded a liability for postretirement healthcare
benefits based on actuarially computed estimates of $18,992,000 at June 30, 2010 and $18,744,000 at
December 31, 2009.
Revenue Recognition: Revenue from product sales is recognized at the time products are shipped
and title transfers. Allowances for returned products and other credits are estimated and recorded
as revenue is recognized. Tooling revenue is recognized when the customer approves the tool and
accepts ownership. Progress billings and expenses are shown net as an asset or liability on the
Companys balance sheet. Tooling in progress can fluctuate significantly from period to period and
is dependent upon the stage of tooling projects and the related billing and expense payment
timetable for individual projects and therefore does not necessarily reflect projected income or
loss from tooling projects. At June 30, 2010 the Company had a net liability related to tooling in
progress of $907,000, which represents approximately $6,146,000 of progress tooling billings and
$5,239,000 of progress tooling expenses. At December 31, 2009 the Company had a net liability
related to tooling in progress of $485,000, which represents approximately $2,424,000 of progress
tooling billings and $1,939,000 of progress tooling expenses.
Income taxes: The Consolidated Balance Sheet at June 30, 2010 and December 31, 2009, includes a
deferred tax asset of $6,719,000 and $7,767,000, respectively. The Company performs analyses to
evaluate the balance of deferred tax assets that will be realized. Such analyses are based on the
premise that the Company is, and will continue to be, a going concern and that it is more likely
than not that deferred tax benefits will be realized through the generation of future taxable
income. For more information, refer to Note 9 in Core Molding Technologies 2009 Annual Report to
Shareholders.
22
Part I Financial Information
Item 3
Quantitative and Qualitative Disclosures About Market Risk
Core Molding Technologies primary market risk results from changes in the price of commodities
used in its manufacturing operations. Core Molding Technologies is also exposed to fluctuations in
interest rates and foreign currency fluctuations associated with the Mexican Peso. Core Molding
Technologies does not hold any material market risk sensitive instruments for trading purposes.
Core Molding Technologies has the following six items that are sensitive to market risks: (1)
Industrial Revenue Bond (IRB) with a variable interest rate (although the Company has an interest
rate swap to fix the interest rate at 4.89%); (2) Revolving Line of Credit and Mexican loan payable
under the Credit Agreement, each of which bears a variable interest rate; (3) Capex loan payable
with a variable interest rate (although the Company has an interest rate swap to fix the variable
portion of the applicable interest rate at 2.3%) (4) bank Term loan under the Credit Agreement,
with a variable interest rate (although the Company has an interest rate swap to fix the interest
rate at 5.75%); (5) foreign currency purchases in which the Company purchases Mexican pesos with
United States dollars to meet certain obligations that arise due to operations at the facility
located in Mexico; and (6) raw material purchases in which Core Molding Technologies purchases
various resins and fiberglass for use in production. The prices and availability of these
materials are affected by the prices of crude oil and natural gas as well as processing capacity
versus demand.
Assuming a hypothetical 10% increase in commodity prices, Core Molding Technologies would be
impacted by an increase in raw material costs, which would have an adverse effect on operating
margins.
Assuming a hypothetical 10% change in short-term interest rates would impact the Company in both
2010 and 2009. It would have impacted the interest paid on the Companys Line of Credit and the
Mexican loan payable. The interest rate on these loans is impacted by LIBOR. Although a 10%
change in short-term interest rates would impact the interest paid by the Company, it would not
have a material effect on earnings before tax.
A 10% change in future interest rate curves would significantly impact the fair value of the
Companys interest rate swaps.
23
Part I Financial Information
Item 4T
Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an evaluation,
under the supervision and with the participation of its management, including its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon
this evaluation, the Companys management, including its Chief Executive Officer and its Chief
Financial Officer, concluded that the Companys disclosure controls and procedures were (i)
effective to ensure that information required to be disclosed in the Companys reports filed or
submitted under the Exchange Act was accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure, and (ii) effective to ensure that information required to
be disclosed in the Companys reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.
There were no changes in internal control over financial reporting (as such term is defined in
Exchange Act Rule 13a-15(f)) that occurred in the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
24
Part II Other Information
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
There have been no material changes in Core Molding Technologies risk factors from
those previously disclosed in Core Molding Technologies 2009 Annual Report on Form
10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Reserved
Item 5. Other Information
None
Item 6. Exhibits
See Index to Exhibits
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CORE MOLDING TECHNOLOGIES, INC.
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Date: August 13, 2010 |
By: |
/s/ Kevin L. Barnett
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Kevin L. Barnett |
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President, Chief Executive Officer, and
Director |
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Date: August 13, 2010 |
By: |
/s/ Herman F. Dick, Jr.
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Herman F. Dick, Jr. |
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Vice President, Secretary, Treasurer and Chief
Financial Officer |
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26
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
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Location |
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2(a)(1)
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Asset Purchase Agreement
Dated as of September 12, 1996,
As amended October 31, 1996,
between Navistar and RYMAC Mortgage
Investment Corporation1
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Incorporated by
reference to
Exhibit 2-A to
Registration
Statement on Form
S-4 (Registration
No. 333-15809) |
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2(a)(2)
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Second Amendment to Asset Purchase
Agreement dated December 16, 19961
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Incorporated by
reference to
Exhibit 2(a)(2) to
Annual Report on
Form 10-K for the
year-ended December
31, 2001 |
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2(b)(1)
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Agreement and Plan of Merger dated as of
November 1, 1996, between Core Molding
Technologies, Inc. and RYMAC Mortgage
Investment Corporation
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Incorporated by
reference to
Exhibit 2-B to
Registration
Statement on Form
S-4 (Registration
No. 333-15809) |
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2(b)(2)
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First Amendment to Agreement and Plan
of Merger dated as of December 27, 1996
Between Core Molding Technologies, Inc. and
RYMAC Mortgage Investment Corporation
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Incorporated by
reference to
Exhibit 2(b)(2) to
Annual Report on
Form 10-K for the
year ended December
31, 2002 |
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2(c)
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Asset Purchase Agreement dated as of October
10, 2001, between Core Molding Technologies,
Inc. and Airshield Corporation
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Incorporated by
reference to
Exhibit 1 to Form
8-K filed October
31, 2001 |
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3(a)(1)
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Certificate of Incorporation of
Core Molding Technologies, Inc.
as filed with the Secretary of State
of Delaware on October 8, 1996
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Incorporated by
reference to
Exhibit 4(a) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3(a)(2)
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Certificate of Amendment of
Certificate of Incorporation
of Core Molding Technologies, Inc.
as filed with the Secretary of State
of Delaware on November 6, 1996
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Incorporated by
reference to
Exhibit 4(b) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3(a)(3)
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Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of
State of Delaware on August 28, 2002
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Incorporated by
reference to
Exhibit 3(a)(4) to
Quarterly Report on
Form 10-Q for the
quarter ended
September 30, 2002 |
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3(a)(4)
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Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock as filed with the Secretary
of State of Delaware on July 18, 2007
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Incorporated by
reference to
Exhibit 3.1 to Form 8-k filed July 19,
2007 |
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3(b)
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Amended and Restated By-Laws of Core Molding
Technologies, Inc.
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Incorporated by
reference to
Exhibit 3.1 to
Current Report on
Form 8-K filed
January 4, 2008 |
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Exhibit No. |
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Description |
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Location |
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4(a)(1)
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Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the
Secretary of State of Delaware on October 8,
1996
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Incorporated by
reference to
Exhibit 4(a) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4(a)(2)
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Certificate of Amendment of Certificate
of Incorporation of Core Materials
Corporation as filed with the Secretary of
State of Delaware on November 6, 1996
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Incorporated by
reference to
Exhibit 4(b) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4(a)(3)
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Certificate of Incorporation of Core Materials
Corporation, reflecting amendments through
November 6, 1996 [for purposes of compliance
with Securities and Exchange Commission
filing requirements only]
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Incorporated by
reference to
Exhibit 4(c) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4(a)(4)
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Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of
State of Delaware on August 28, 2002
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Incorporated by
reference to
Exhibit 3(a)(4) to
Quarterly Report on
Form 10-Q for the
quarter ended
September 30, 2002 |
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4(a)(5)
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Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock as filed with the Secretary
of State of Delaware on July 18, 2007
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Incorporated by
reference to
Exhibit 3.1 to Form 8-K filed July 19,
2007 |
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4(b)
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Stockholder Rights Agreement dated as of July
18, 2007, between Core Molding Technologies,
Inc. and American Stock Transfer & Trust
Company
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Incorporated by
reference to
Exhibit 4.1 to
Current Report From
8-k filed July 19,
2007 |
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10(a)
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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.
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Incorporated by
reference to
Exhibit 10.1 to
Current Report on
Form 8-K filed
March 10, 2010 |
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11
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Computation of Net Income per Share
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Exhibit 11 omitted
because the
required
information is
Included in Notes
to Financial
Statement |
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31(a)
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Section 302 Certification by Kevin L.
Barnett, President, Chief Executive Officer,
and Director
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Filed Herein |
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31(b)
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Section 302 Certification by Herman F. Dick,
Jr., Vice President, Secretary, Treasurer,
and Chief Financial Officer
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Filed Herein |
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32(a)
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Certification of Kevin L. Barnett, Chief
Executive Officer of Core Molding
Technologies, Inc., dated August 13, 2010,
pursuant to 18 U.S.C. Section 1350
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Filed Herein |
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32(b)
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Certification of Herman F. Dick, Jr., Chief
Financial Officer of Core Molding
Technologies, Inc., dated August 13, 2010,
pursuant to 18 U.S.C. Section 1350
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Filed Herein |
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1 |
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The Asset Purchase Agreement, as filed with the Securities and Exchange Commission at
Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809), omits the exhibits
(including, the Buyer Note, Special Warranty Deed, Supply Agreement, Registration Rights Agreement
and Transition Services Agreement, identified in the Asset Purchase Agreement) and schedules
(including, those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase Agreement.
Core Molding Technologies, Inc. will provide any omitted exhibit or schedule to the Securities and
Exchange Commission upon request. |
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