e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended March 31, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from To
Commission File Number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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31-1481870 |
(State or other jurisdiction
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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800 Manor Park Drive, Columbus, Ohio |
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43228-0183 |
(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).
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the
Exchange Act.
Yes o NO þ
As of May 12, 2011, the latest practicable date, 7,152,809 shares of the registrants common stock
were issued and outstanding.
Part 1 Financial Information
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
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March 31, |
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2011 |
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December 31, |
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(Unaudited) |
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2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
378,280 |
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$ |
5,656,865 |
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Accounts receivable (less allowance for doubtful
accounts: March
31, 2011 $133,000; December 31, 2010 $118,000) |
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18,973,643 |
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14,746,138 |
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Inventories: |
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Finished goods |
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1,169,516 |
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1,491,886 |
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Work in process |
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1,146,427 |
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1,125,153 |
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Stores |
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7,216,988 |
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5,791,491 |
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Total inventories, net |
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9,532,931 |
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8,408,530 |
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Deferred tax asset-current portion |
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1,390,928 |
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1,390,928 |
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Foreign sales tax receivable |
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1,131,765 |
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1,001,039 |
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Prepaid expenses and other current assets |
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1,102,176 |
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874,041 |
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Total current assets |
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32,509,723 |
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32,077,541 |
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Property, plant and equipment |
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84,027,259 |
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83,657,334 |
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Accumulated depreciation |
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(41,272,568 |
) |
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(40,314,403 |
) |
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Property, plant and equipment net |
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42,754,691 |
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43,342,931 |
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Deferred tax asset |
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2,519,457 |
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2,519,567 |
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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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22,139 |
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24,793 |
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Total Assets |
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$ |
78,903,443 |
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$ |
79,062,265 |
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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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$ |
4,059,289 |
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$ |
4,151,420 |
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Accounts payable |
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6,220,682 |
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6,487,983 |
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Tooling in progress |
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250,357 |
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320,041 |
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Current portion of post retirement benefits liability |
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933,000 |
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933,000 |
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Accrued liabilities: |
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Compensation and related benefits |
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3,509,739 |
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3,678,692 |
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Interest payable |
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63,420 |
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67,971 |
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Taxes |
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962,545 |
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|
456,351 |
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Other |
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910,694 |
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1,065,727 |
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Total current liabilities |
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16,909,726 |
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17,161,185 |
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Long-term debt |
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11,362,854 |
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13,581,425 |
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Interest rate swaps |
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273,394 |
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350,916 |
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Post retirement benefits liability |
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9,927,456 |
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9,904,000 |
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Total Liabilities |
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38,473,430 |
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40,997,526 |
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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: 0 at March 31, 2011 and December 31, 2010 |
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Common stock $0.01 par value, authorized shares 20,000,000;
Outstanding shares: 6,898,545 at March 31, 2011 and
6,880,295 at December 31, 2010 |
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68,985 |
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68,803 |
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Paid-in capital |
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23,920,799 |
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23,790,263 |
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Accumulated other comprehensive income, net of income taxes |
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3,178,402 |
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3,213,197 |
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Treasury stock |
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(26,253,478 |
) |
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(26,253,478 |
) |
Retained earnings |
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39,515,305 |
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37,245,954 |
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Total Stockholders Equity |
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40,430,013 |
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38,064,739 |
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Total Liabilities and Stockholders Equity |
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$ |
78,903,443 |
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$ |
79,062,265 |
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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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March 31, |
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2011 |
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2010 |
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Net sales: |
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Products |
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$ |
28,974,420 |
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$ |
19,695,932 |
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Tooling |
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14,881 |
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746,108 |
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Total sales |
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28,989,301 |
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20,442,040 |
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Total cost of sales |
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22,397,054 |
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16,358,116 |
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Gross margin |
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6,592,247 |
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4,083,924 |
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Total selling, general and administrative
expense |
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2,923,252 |
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2,325,936 |
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Income before interest and taxes |
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3,668,995 |
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1,757,988 |
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Interest expense |
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181,388 |
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420,183 |
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Income before income taxes |
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3,487,607 |
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1,337,805 |
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Income tax expense |
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1,218,256 |
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1,474,747 |
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Net income (loss) |
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$ |
2,269,351 |
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$ |
(136,942 |
) |
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Net income (loss) per common share: |
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Basic |
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$ |
0.33 |
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$ |
(0.02 |
) |
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Diluted |
|
$ |
0.31 |
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$ |
(0.02 |
) |
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Weighted average shares outstanding: |
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Basic |
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6,892,288 |
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6,799,641 |
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Diluted |
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7,240,808 |
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6,799,641 |
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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 |
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Stock |
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Equity |
|
Balance at December 31, 2010 |
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|
6,880,295 |
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$ |
68,803 |
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$ |
23,790,263 |
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$ |
37,245,954 |
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|
$ |
3,213,197 |
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$ |
(26,253,478 |
) |
|
$ |
38,064,739 |
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|
Net Income |
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|
|
|
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|
|
|
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|
2,269,351 |
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2,269,351 |
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Change in post retirement benefits,
net of tax of $20,655 |
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|
|
|
|
|
|
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(48,595 |
) |
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(48,595 |
) |
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Change in interest rate swaps,
net of tax of $7,109 |
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13,800 |
|
|
|
|
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|
13,800 |
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Comprehensive Income |
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2,234,556 |
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Common stock issued |
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|
18,250 |
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|
182 |
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|
57,250 |
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|
57,432 |
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Share-based compensation |
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|
|
|
|
|
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|
73,286 |
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|
73,286 |
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|
Balance at March 31, 2011 |
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|
6,898,545 |
|
|
$ |
68,985 |
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|
$ |
23,920,799 |
|
|
$ |
39,515,305 |
|
|
$ |
3,178,402 |
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|
$ |
(26,253,478 |
) |
|
$ |
40,430,013 |
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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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Three Months Ended |
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March 31, |
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|
2011 |
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|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,269,351 |
|
|
$ |
(136,942 |
) |
|
|
|
|
|
|
|
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|
Adjustments to reconcile net income (loss) to net cash
used in operating activities: |
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|
|
|
|
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|
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|
Depreciation and amortization |
|
|
983,587 |
|
|
|
989,590 |
|
Deferred income taxes |
|
|
110 |
|
|
|
1,021,501 |
|
Mark-to-market of interest rate swaps |
|
|
(63,612 |
) |
|
|
96,799 |
|
Share-based compensation |
|
|
73,287 |
|
|
|
75,964 |
|
Gain on translation of foreign currency financial statements |
|
|
(150,853 |
) |
|
|
(135,769 |
) |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(4,227,505 |
) |
|
|
(1,187,253 |
) |
Inventories |
|
|
(1,124,401 |
) |
|
|
(3,238,093 |
) |
Prepaid and other assets |
|
|
(381,626 |
) |
|
|
(222,076 |
) |
Accounts payable |
|
|
(142,561 |
) |
|
|
585,125 |
|
Accrued and other liabilities |
|
|
107,860 |
|
|
|
1,845,299 |
|
Post retirement benefits liability |
|
|
(25,139 |
) |
|
|
302,152 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(2,681,502 |
) |
|
|
(3,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(343,813 |
) |
|
|
(753,405 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(343,813 |
) |
|
|
(753,405 |
) |
|
|
|
|
|
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|
|
|
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|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of principal on Mexican loan |
|
|
(1,600,000 |
) |
|
|
|
|
Payment of principal on capex loan |
|
|
(428,571 |
) |
|
|
(428,571 |
) |
Payment of principal on term loan |
|
|
(107,131 |
) |
|
|
(321,429 |
) |
Payment of principal on industrial revenue bond |
|
|
(175,000 |
) |
|
|
(165,000 |
) |
Proceeds from issuance of common stock |
|
|
57,432 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(2,253,270 |
) |
|
|
(915,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(5,278,585 |
) |
|
|
(1,672,108 |
) |
|
|
|
Cash and cash equivalents at beginning of period |
|
|
5,656,865 |
|
|
|
4,141,838 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
378,280 |
|
|
$ |
2,469,730 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
204,939 |
|
|
$ |
284,030 |
|
|
|
|
|
|
|
|
Income taxes (net of tax refunds) |
|
$ |
540,000 |
|
|
$ |
37,812 |
|
|
|
|
|
|
|
|
Non Cash: |
|
|
|
|
|
|
|
|
Fixed asset purchases in accounts payable |
|
$ |
77,360 |
|
|
$ |
56,953 |
|
|
|
|
|
|
|
|
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 March 31,
2011, and the results of operations and cash flows for the three months ended March 31, 2011. The
Notes to Consolidated Financial Statements, which are contained in the 2010 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, Matamoros and Gaffney facilities produce reinforced plastics by
compression molding sheet molding compound (SMC) in a closed mold process. The Batavia facility
produces reinforced plastic products by a robotic spray-up open mold process and resin transfer
molding (RTM) closed mold process utilizing multiple insert tooling (MIT). The Matamoros
facility also utilizes spray-up and hand lay-up open mold processes, and RTM closed mold
process to produce reinforced plastic products.
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.
The computation of basic and diluted net income (loss) per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,269,351 |
|
|
$ |
(136,942 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding |
|
|
6,892,288 |
|
|
|
6,799,641 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options |
|
|
238,394 |
|
|
|
|
|
Restricted stock |
|
|
110,126 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and
potentially issuable common
shares outstanding diluted |
|
|
7,240,808 |
|
|
|
6,799,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share |
|
$ |
0.33 |
|
|
$ |
(0.02 |
) |
Diluted net income (loss) per common share |
|
$ |
0.31 |
|
|
$ |
(0.02 |
) |
23,000 stock options at March 31, 2011 and 570,225 stock options at March 31, 2010 were not
included in diluted earnings per share as they were anti-dilutive.
7
3. Sales
The Company 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 during any reporting period. The following table presents sales revenue
for the above-mentioned customers for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Navistar product sales |
|
$ |
13,772,891 |
|
|
$ |
10,896,669 |
|
Navistar tooling sales |
|
|
|
|
|
|
428,925 |
|
|
|
|
|
|
|
|
Total Navistar sales |
|
|
13,772,891 |
|
|
|
11,325,594 |
|
|
|
|
|
|
|
|
|
|
PACCAR product sales |
|
|
9,027,862 |
|
|
|
5,787,110 |
|
PACCAR tooling sales |
|
|
|
|
|
|
245,495 |
|
|
|
|
|
|
|
|
Total PACCAR sales |
|
|
9,027,862 |
|
|
|
6,032,605 |
|
|
|
|
|
|
|
|
|
|
Other product sales |
|
|
6,173,667 |
|
|
|
3,012,153 |
|
Other tooling sales |
|
|
14,881 |
|
|
|
71,688 |
|
|
|
|
|
|
|
|
Total other sales |
|
|
6,188,548 |
|
|
|
3,083,841 |
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
28,974,420 |
|
|
|
19,695,932 |
|
Total tooling sales |
|
|
14,881 |
|
|
|
746,108 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
28,989,301 |
|
|
$ |
20,442,040 |
|
|
|
|
|
|
|
|
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 |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,269,351 |
|
|
$ |
(136,942 |
) |
|
|
|
|
|
|
|
|
|
Change in post retirement benefits, net of tax
benefit of $20,655 and tax expense of $9,960
for the three months ended March 31, 2011
and 2010, respectively |
|
|
(48,595 |
) |
|
|
18,809 |
|
|
|
|
|
|
|
|
|
|
Change in interest rate swaps, net of tax of
$7,109 and $10,503 for the three months ended
March 31, 2011 and 2010, respectively |
|
|
13,800 |
|
|
|
20,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
2,234,556 |
|
|
$ |
(97,744 |
) |
|
|
|
|
|
|
|
8
5. Post Retirement Benefits
The components of expense for all of the Companys post retirement benefit plans for the three
months ended March 31, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Pension expense: |
|
|
|
|
|
|
|
|
Defined contribution plan
contributions |
|
$ |
166,000 |
|
|
$ |
111,000 |
|
Multi-employer plan
contributions |
|
|
94,000 |
|
|
|
122,000 |
|
|
|
|
|
|
|
|
Total pension expense |
|
|
260,000 |
|
|
|
233,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and life insurance: |
|
|
|
|
|
|
|
|
Service cost |
|
|
|
|
|
|
93,000 |
|
Interest cost |
|
|
133,000 |
|
|
|
269,000 |
|
Amortization of prior service costs |
|
|
(124,000 |
) |
|
|
|
|
Amortization of net loss |
|
|
55,000 |
|
|
|
29,000 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
64,000 |
|
|
|
391,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total post retirement benefits expense |
|
$ |
324,000 |
|
|
$ |
624,000 |
|
|
|
|
|
|
|
|
The Company made payments of $130,000 to pension plans and $96,000 for post retirement healthcare
during the three months ended March 31, 2011. For the remainder of 2011 the Company expects to
make approximately $765,000 of pension plan payments, of which $408,000 was accrued at March 31,
2011. The Company also expects to make approximately $837,000 of post retirement healthcare and
life insurance payments for the remainder of 2011, all of which are accrued at March 31, 2011.
On August 7, 2010, the Company entered into a new collective bargaining agreement with employees
represented by the International Association of Machinists and Aerospace Workers at the Companys
Columbus, Ohio production facility. As part of the new agreement, the post retirement health and
life insurance benefits for all current and future represented employees who were not retired as of
August 7, 2010 were eliminated in exchange for a one-time cash payment of $1,257,000. Individuals
who retired prior to August 7, 2010 remain eligible for post retirement health and life insurance
benefits.
The elimination of post retirement health and life insurance benefits described above resulted in a
reduction of the Companys post retirement benefits liability of approximately $10,282,000. This
reduction in post retirement benefits liability was treated as a negative plan amendment and is
being amortized as a reduction to net periodic benefit cost over approximately twenty years, the
remaining life expectancy of the remaining participants in the plan. This negative plan amendment
will result in net periodic benefit cost reductions of approximately $496,000 per year in 2011 and
thereafter, and lower interest costs associated with the reduced post retirement benefits
liability. The plan was remeasured using a discount rate of 5.1% at the time of the negative plan
amendment.
6. Debt
Credit Agreement
In 2008, the Company and its wholly owned subsidiary, CoreComposites de Mexico, S. de R.L. de C.V.,
entered into a credit agreement (the Credit Agreement) to refinance certain 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 included (1) a $12,000,000 Capex loan; (2) an $8,000,000
Mexican loan; (3) an $8,000,000 variable rate revolving line of credit; (4) a $2,678,563 term loan
to refinance an existing term loan; and (5) a letter of credit in an undrawn face amount of
$3,332,493 with respect to the Companys existing industrial development revenue bond financing.
The Credit Agreement is secured by a guarantee of each U.S. subsidiary of the Company, and by a
lien on substantially all of the present and future assets of the Company and its U.S.
subsidiaries, except that only 65% of the stock issued by
CoreComposites de Mexico, S. de C.V. has been pledged. The $8,000,000 Mexican loan is also secured
by substantially all of the present and future assets of the Companys Mexican subsidiary.
9
As disclosed in the 2010 Annual Report to Shareholders on Form 10-K, the Company plans to add
additional capacity to its Matamoros, Mexico facility to meet demand in 2012 and beyond. The
Company expects to invest approximately $14,000,000 for this capacity expansion, of which
approximately $11,000,000 is planned to be spent in 2011. To finance this capacity expansion, the
Company received an additional financing commitment from its primary lender during the second
quarter of 2011.
Revolving Line of Credit
At March 31, 2011, the Company had available an $8,000,000 variable rate revolving line of credit,
scheduled to mature on April 30, 2012. The revolving line of credit bears interest at daily LIBOR
plus 275 basis points and is collateralized by all of the present and future assets of the Company
and its U.S. subsidiaries (except that only 65% of the stock issued by CoreComposites de Mexico, S.
de C.V. has been pledged). At March 31, 2011 and December 31, 2010 there was no outstanding
balance under the revolving line of credit.
Bank Covenants
The Company is required to meet certain financial covenants included in the Credit Agreement with
respect to leverage ratios, fixed charge ratios, capital expenditures as well as other customary
affirmative and negative covenants. As of March 31, 2011, the Company was in compliance with its
financial covenants associated with the loans made under the Credit Agreement as described above.
Management regularly evaluates the Companys ability to meet its debt covenants based on the
Companys forecasts. Based upon the Companys forecasts, which are primarily based on industry
analysts estimates of heavy and medium-duty truck production volumes, as well as other assumptions and considering the
additional financing commitment noted above, management believes that the Company will be able to maintain compliance with its
financial covenants for the next 12 months.
Management believes that cash flow from operating activities, available borrowings under the Credit
Agreement and the additional financing commitment noted above will be sufficient to meet the
Companys liquidity needs. If a material adverse change in the financial position of the Company
should occur, or if actual sales or expenses are substantially different than what has been
forecasted, the Companys liquidity and ability to obtain further financing to fund future
operating and capital requirements could be negatively impacted.
Interest Rate Swaps
In conjunction with its variable rate IRB, the Company entered into an interest rate swap agreement
through April 2013, which was initially designated as a cash flow hedging instrument. Under this
agreement, the Company pays a fixed rate of 4.89% to the bank and receives 76% of the 30-day
commercial paper rate. During 2010 the Company determined this interest rate swap was no longer
highly effective. As a result, the Company discontinued the use of hedge accounting effective
January 1, 2010 related to this swap, and began recording mark-to-market adjustments within
interest expense in the Companys Consolidated Statement of Operations. The pre-tax amount
previously recognized in Accumulated Other Comprehensive Income (Loss), totaling $(199,990) as of
December 31, 2009, is being amortized as an increase to interest expense of $3,384 per month, net
of tax, over the remaining term of the interest rate swap agreement beginning January 2010. The
fair value of the swap was a liability of $103,082 and $126,095 as of March 31, 2011 and December
31, 2010, respectively. The Company recorded interest income of $23,013 for a mark-to-market
adjustment of swap fair value for the first three months of 2011 related to this swap. The
notional amount of the swap at March 31, 2011 and December 31, 2010 was $1,765,000 and $1,940,000,
respectively.
Effective January 1, 2004, the Company entered into an interest rate swap agreement, which is
designated as a cash flow hedge of the Term loan. This swap agreement expired in January 2011
along with the final maturity of the secured term loan to which the swap related. Under this
agreement, the Company paid a fixed rate of 5.75% to the bank and received LIBOR plus 200 basis
points. The swap term and notional amount matched the payment schedule on the secured Term loan
which came to final maturity in January 2011. The interest rate swap was 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 were substantially the same. As of March 31,
2011 there was no liability under this swap agreement. As of December 31, 2010 the fair value of
the swap was a liability of $322. The notional amount of the swap at December 31, 2010 was
$107,131.
10
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 Income (Loss), totaling $(145,684) as of March 31, 2009, is being amortized as an
increase to interest expense of $1,145 per month, net of tax, over the remaining term of the
interest rate swap agreement beginning June 2009. The fair value of the swap as of March 31, 2011
and December 31, 2010 was a liability of $170,312 and $224,499, respectively. The Company recorded
interest income of $54,187 for a mark-to-market adjustment of swap fair value for the first three
months of 2011 related to this swap. The notional amount of the swap at March 31, 2011 and
December 31, 2010, was $8,857,143 and $9,285,714, respectively.
7. Income Taxes
In the first quarter of 2010 the Patient Protection and Affordable Care Act (PPACA) was signed
into law. The PPACA changed the tax treatment related to an existing retiree drug subsidy (RDS)
available to sponsors of retiree health benefit plans that provide a benefit that is at least
actuarially equivalent to the benefits under Medicare Part D. As a result of the PPACA, RDS
payments will effectively become taxable in tax years beginning in 2013 by requiring the amount of
the subsidy received to be offset against the Companys deduction for health care expenses.
Accordingly, during the first quarter of 2010, the Company recorded a one time charge to income tax
expense of $1,021,000 related to the write down of its deferred tax asset for RDS.
The Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, include a net deferred tax
asset of $3,910,385 and $3,910,495, 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.
Income tax expense for the three months ended March 31, 2011 is estimated to be approximately
$1,218,256, or 35% of income before income taxes. Income tax expense for the three months ended
March 31, 2010 was estimated to be approximately $1,474,747, or 110% of total earnings before
taxes. Without the write down of the aforementioned deferred tax asset, the Companys effective
tax rate was estimated to be 34% for the three months ended March 31, 2010.
The Company follows accounting guidance related to uncertainty in income taxes. As of March 31,
2011, the Company had no liability for unrecognized tax benefits 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 2008 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.
11
Stock Options
The following summarizes the activity relating to stock options under the plans mentioned above for
the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Weighted |
|
|
|
of |
|
|
Average |
|
|
|
Options |
|
|
Exercise Price |
|
Outstanding at December 31, 2010 |
|
|
520,275 |
|
|
$ |
3.31 |
|
Exercised |
|
|
(18,250 |
) |
|
|
3.15 |
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
502,025 |
|
|
$ |
3.32 |
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011 |
|
|
476,225 |
|
|
$ |
3.35 |
|
|
|
|
|
|
|
|
The following summarizes the status of, and changes to, unvested options during the three months
ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Weighted |
|
|
|
Of |
|
|
Average |
|
|
|
Options |
|
|
Exercise Price |
|
Unvested at December 31, 2010 |
|
|
25,800 |
|
|
$ |
2.75 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2011 |
|
|
25,800 |
|
|
$ |
2.75 |
|
|
|
|
|
|
|
|
At March 31, 2011 and 2010, there was $20,840 and $48,454, respectively, of total unrecognized
compensation expense, related to unvested stock options granted under the plan. That cost is
expected to be recognized over the weighted-average period of 2.5 years. Total compensation cost
related to incentive stock options for the three months ended March 31, 2011 and 2010 was $1,294
and $14,048, respectively. This compensation expense is allocated such that $1,294 and $13,288 are
included in selling, general and administrative expenses and $0 and $760 are recorded in cost of
sales for the three months ended March 31, 2011 and 2010, respectively.
Restricted Stock
In 2006, the Company began granting shares of its common stock to certain directors, officers, and
key managers in the form of unvested stock (Restricted Stock). These awards are recorded at the
market value of Core Molding Technologies common stock on the date of issuance and amortized
ratably as compensation expense over the applicable vesting period.
The following summarizes the status of Restricted Stock grants as of March 31, 2011 and changes
during the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
|
Of |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested balance at December 31, 2010 |
|
|
203,797 |
|
|
$ |
3.91 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at March 31, 2011 |
|
|
203,797 |
|
|
$ |
3.91 |
|
|
|
|
|
|
|
|
As of March 31, 2011 and 2010, there was $385,447 and $324,494, respectively, of total unrecognized
compensation expense related to Restricted Stock granted under the 2006 Plan. That cost is
expected to be recognized over the weighted-average period of 1.7 years. Total compensation costs
related to restricted stock grants for the three months ended March 31, 2011 and 2010 were $71,993
and $61,916, respectively, all of which was recorded to selling, general and administrative
expense.
12
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. |
The Company has three Level 2 fair value measurements all of which relate to the Companys interest
rate swaps. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed
and floating rate debt, and these swaps are valued using observable benchmark rates at commonly
quoted intervals for the full term of the swaps. These interest rate swaps are discussed in detail
in Note 6.
The following table presents financial liabilities measured and recorded at fair value on the
Companys Consolidated Balance Sheets on a recurring basis and their level within the fair value
hierarchy as of March 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities as of |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
swap
liabilities |
|
$ |
|
|
|
$ |
273,394 |
|
|
$ |
|
|
|
$ |
273,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities as of |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
swap
liabilities |
|
$ |
|
|
|
$ |
350,916 |
|
|
$ |
|
|
|
$ |
350,916 |
|
There were no non-recurring fair value measurements for the quarter ended March 31, 2011.
Core Molding Technologies derivative instruments located on the Consolidated Balance Sheets were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
March 31, |
|
|
December 31, 2010 |
|
|
|
Location |
|
2011 Fair Value |
|
|
Fair Value |
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Interest rate risk activities |
|
Interest rate swaps |
|
$ |
|
|
|
$ |
322 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
| | |
|
| | |
Interest rate risk activities |
|
Interest rate swaps |
|
$ |
273,394 |
|
|
$ |
350,594 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
273,394 |
|
|
$ |
350,916 |
|
|
|
|
|
|
|
|
|
|
13
The effect of derivative instruments on the Consolidated Statements of Operations was as follows:
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Reclassified |
|
|
|
|
Derivatives in Cash |
|
Amount of Gain (Loss) |
|
|
from AOCI into |
|
|
Amount of Gain (Loss) |
|
Flow Hedging |
|
Recognized in OCI on |
|
|
Income |
|
|
Reclassified from AOCI into |
|
Relationships |
|
Derivative (Effective Portion) |
|
|
(Effective Portion) |
|
|
Expense (Effective Portion) |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
Three months ended |
|
2011 |
|
|
2010 |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Interest rate swaps |
|
$ |
322 |
|
|
$ |
10,304 |
|
|
Interest expense, net |
|
|
$ |
|
|
|
$ |
(10,373 |
) |
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Realized/Unrealized Gain |
|
Derivatives Not Designated as |
|
Location of Gain (Loss) Recognized |
|
(Loss) Recognized in Income on |
|
Hedging Instruments |
|
in Income on Derivative |
|
Derivatives |
|
|
|
|
|
March 31, |
|
|
March 31, |
|
Three months ended |
|
|
|
2011 |
|
|
2010 |
|
Interest rate swaps |
|
Interest income (expense) |
|
$ |
63,613 |
|
|
$ |
(96,799 |
) |
As discussed in Note 6, the Company discontinued the use of hedge accounting for two of its
interest rate swaps, effective March 31, 2009 for the Capex swap and January 1, 2010 for the IRB
swap. The Company now records all mark to market adjustments related to these interest rate swaps
within interest expense in the Companys Consolidated Statements of Operations, since the date the
Company discontinued hedge accounting for each swap. It is anticipated that during the next twelve
months the expiration and settlement of cash flow hedge contracts along with the amortization of
losses on discontinued hedges will result in income statement recognition of amounts currently
classified in accumulated other comprehensive loss of approximately $54,350, net of taxes.
14
Part I Financial Information
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
This Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of the federal securities laws. As a
general matter, forward-looking statements are those focused upon future plans, objectives or
performance as opposed to historical items and include statements of anticipated events or trends
and expectations and beliefs relating to matters not historical in nature. Such forward-looking
statements involve known and unknown risks and are subject to uncertainties and factors relating to
Core Molding Technologies operations and business environment, all of which are difficult to
predict and many of which are beyond Core Molding Technologies control. These uncertainties and
factors could cause Core Molding Technologies actual results to differ materially from those
matters expressed in or implied by such forward-looking statements.
Core Molding Technologies believes that the following factors, among others, could affect its
future performance and cause actual results to differ materially from those expressed or implied by
forward-looking statements made in this report: business conditions in the plastics,
transportation, watercraft and commercial product industries; federal and state regulations
(including engine emission regulations); general economic, social and political environments in the
countries in which Core Molding Technologies operates; safety and security conditions in Mexico;
dependence upon two major customers as the primary source of Core Molding Technologies sales
revenues; recent efforts of Core Molding Technologies to expand its customer base; the actions of
competitors, customers, and suppliers; failure of Core Molding Technologies suppliers to perform
their obligations; the availability of raw materials; inflationary pressures; new technologies;
regulatory matters; labor relations; the loss or inability of Core Molding Technologies to attract
and retain key personnel; federal, state and local environmental laws and regulations; the
availability of capital; the ability of Core Molding Technologies to provide on-time delivery to
customers, which may require additional shipping expenses to ensure on-time delivery or otherwise
result in late fees; risk of cancellation or rescheduling of orders; risks related to the transfer
of production from Core Molding Technologies Columbus facility to its Matamoros facility;
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 2010 Annual Report to Shareholders on Form 10-K.
Description of the Company
Core Molding Technologies is a manufacturer of sheet molding compound (SMC) and molder of
fiberglass reinforced plastics, primarily for the medium and heavy-duty truck market, which
accounted for 90% of the Companys sales for the three months ended March 31, 2011. Core Molding
Technologies produces high quality fiberglass reinforced molded products and SMC materials for
varied markets, including light, medium and heavy-duty trucks, automobiles and automotive
aftermarkets, personal watercraft, and other commercial products. The demand for Core Molding
Technologies products is affected by economic conditions in the United States, Canada, and Mexico.
Core Molding Technologies manufacturing operations have a significant fixed cost component.
Accordingly, during periods of changing demand, the profitability of Core Molding Technologies
operations may change proportionately more than revenues from operations.
On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and
assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of Navistars truck
manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus,
Ohio, was a compounder and compression molder of SMC. In 1998, Core Molding Technologies began
compression molding operations at its second facility in Gaffney, South Carolina, and in October
2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of
this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include
the spray up, hand-lay-up open mold processes and resin transfer (RTM) closed molding utilizing a
vacuum infusion process. In September 2004, Core Molding Technologies acquired substantially all
the operating assets of Keystone Restyling Products, Inc., a privately held manufacturer and
distributor of fiberglass reinforced products for the automotive-aftermarket industry. In August
2005, Core Molding Technologies acquired certain assets of the Cincinnati Fiberglass Division of
Diversified Glass, Inc., a Batavia, Ohio-based, privately held manufacturer and distributor of
fiberglass reinforced plastic components supplied primarily to the heavy-duty truck market. The
Batavia, Ohio facility produces reinforced plastic products by a spray-up open mold process and
resin transfer molding (RTM) utilizing multiple insert tooling (MIT) closed mold process. In
June of 2009, the Company completed construction of its new 437,000 square foot production facility
in Matamoros, Mexico that replaced its leased facility. In conjunction with the construction of
its new facility, the Company also added compression molding operations in Matamoros, Mexico.
15
Overview
For the three months ended March 31, 2011 the Company recorded net income of $2,269,000 or $0.33
per basic and $0.31 per diluted share, compared with a net loss of $137,000, or $0.02 per basic and
diluted share, for the three months ended March 31, 2010. Negatively impacting the net loss for
the three months ended March 31, 2010 was a charge to income tax expense of $1,021,000 related to
the Patient Protection and Affordable Care Act (PPACA), which repealed the tax benefits the
Company previously received related to certain retiree prescription drug costs. Additionally,
during the three months ended March 31, 2010, the Company recorded approximately $320,000 of
expenses for transfer costs associated with the move of certain product lines from its Columbus,
Ohio production facility to its Matamoros, Mexico production facility.
For the first three months of 2011, product sales increased 47% as compared to the same period in
2010, which is primarily the result of increased demand from North American medium and heavy-duty
truck customers, as well as increased sales from new business awards.
Looking forward, the Company anticipates 2011 sales levels to continue to increase, as industry
analysts continue to forecast increased volume in truck production for the remainder of 2011.
Results of Operations
Three Months Ended March 31, 2011, As Compared To Three Months Ended March 31, 2010
Net sales for the three months ended March 31, 2011 totaled $28,989,000, representing an
approximate 42% increase from the $20,442,000 reported for the three months ended March 31, 2010.
Included in total sales were tooling project sales of $15,000 and $746,000 for the three months
ended March 31, 2011 and 2010, respectively. Tooling project sales result from billings to
customers primarily for molds and assembly equipment specific to their products as well as other
non-production billings. These sales are sporadic in nature and fluctuate in regard to scope and
related revenue on a period-to-period basis. Total product sales, excluding tooling project sales,
were approximately 47% higher for the three months ended March 31, 2011, as compared to the same
period a year ago. The primary reason for the increase is higher demand from North American medium
and heavy-duty truck customers. Increased demand for the Companys products and awards of new
business had a favorable impact on sales of $10,498,000. This increase was offset by the effects
of pricing which decreased product sales by approximately $1,220,000. The decrease in pricing was
primarily the result of the transfer of certain products to the Companys Matamoros, Mexico
production facility.
Sales to Navistar totaled $13,773,000 for the three months ended March 31, 2011, increasing 22%
from $11,326,000 in sales for the three months ended March 31, 2010. Product sales to Navistar
increased by 26% for the three months ended March 31, 2011 as compared to the same period in the
prior year. The primary reason for the increase in product sales is higher demand for North
American medium and heavy-duty trucks. This increase was partially off-set by decreased pricing
for certain products transferred to the Companys Matamoros, Mexico production facility during
2010. There were no tooling sales to Navistar for the three months ended March 31, 2011 compared
to $429,000 in tooling sales for the same three months in 2010.
Sales to PACCAR totaled $9,028,000 for the three months ended March 31, 2011, increasing 50% from
$6,033,000 in sales for the three months ended March 31, 2010. Product sales to PACCAR increased
by 56% for the three months ended March 31, 2011 as compared to the same period in the prior year.
The primary reasons for the increase in product sales is higher demand for North American medium
and heavy-duty trucks as noted above as well as increased demand for truck models for which the
Company provides content. There were no tooling sales to PACCAR for the three months ended March
31, 2011 compared to $245,000 in tooling sales for the same three months in 2010.
Sales to other customers for the three months ended March 31, 2011 increased 101% to $6,189,000
compared to $3,084,000 for the three months ended March 31, 2010. Included in total sales was
$15,000 of tooling sales for the three months ended March 31, 2011 compared to $72,000 for the same
three months in 2010. Product sales to other customers increased by 105% for the three months
ended March 31, 2011 as compared to the same period in the prior year, with approximately 44% of
the increase resulting from increased product sales to other medium and heavy-duty truck
manufacturers. The remaining increase in other product sales was due to increased demand for the
Companys products from customers outside of the medium and heavy-duty truck market.
Gross margin was approximately 23% of sales for the three months ended March 31, 2011, compared
with 20% for the three months ended March 31, 2010. Contributing approximately 5% to gross margin
as a percent of sales for 2011 were lower labor and benefit costs. Labor costs decreased primarily
due to improved efficiencies. Benefit costs decreased primarily due to lower health care costs
including lower post retirement health benefit costs. Included in cost of sales for the three months
ended March 31, 2010 were approximately $313,000 of costs associated with transferring certain
operations to the Companys
production facility in Mexico. There were no such costs for the same period in 2011, as the
transfer of these operations was completed in 2010. The decrease in these costs had a favorable
impact of approximately 1.5% of sales to gross margin for the three months ended March 31, 2011.
Partially offsetting these were higher material costs and a change in sales mix, which
negatively impacted gross margin by 2.4% and 0.6%, respectively, for the three months ended March
31, 2011.
16
Selling, general and administrative expense (SG&A) was $2,923,000 for the three months ended
March 31, 2011, compared to $2,326,000 for the three months ended March 31, 2010. The primary
reason for the increase was higher employee profit sharing expense of $495,000 and higher labor and
benefit costs of approximately $150,000. These costs were partially offset by lower professional
and outside service expense of $85,000.
Interest expense totaled $181,000 for the three months ended March 31, 2011, compared to interest
expense of $420,000 for the three months ended March 31, 2010. The primary cause of the decrease
was mark to market adjustments on the Companys interest rate swaps. In the three months ended
March 31, 2011 approximately $64,000 of income was recorded related to the mark to market of the
Companys interest rate swaps as compared to approximately $97,000 of expense for the three months
ended March 31, 2010. Also contributing to the decrease in interest expense were reductions to
interest rates on outstanding borrowings under the Credit Agreement, as amended, as well as
reductions in outstanding loan balances due to regularly scheduled principal payments.
Income tax expense for the three months ended March 31, 2011 was approximately 35% of total income
before income taxes. Income tax expense for the three months ended March 31, 2010 was
approximately 110% of total earnings before taxes. The Companys effective rate in 2010 includes
the impact of the write off of deferred tax assets of $1,021,000. The deferred tax write off was
due to the passage of the 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 three months ended March 31, 2010.
Core Molding Technologies recorded net income for the three months ended March 31, 2011 of
$2,269,000 or $0.33 per basic and $0.31 per diluted share, compared with a net loss of $137,000, or
$0.02 per basic and diluted share, for the three months ended March 31, 2010.
Liquidity and Capital Resources
The Companys primary sources of funds have been cash generated from operating activities and
borrowings from third parties. Primary cash requirements are for operating expenses and capital
expenditures.
Cash used in operating activities for the three months ended March 31, 2011 totaled $2,682,000.
Changes in working capital reduced cash flows from operating activities by $5,793,000. Changes in
working capital primarily relate to an increase in accounts receivable due to increased product
sales as well as higher inventory levels. Net income of $2,269,000 positively impacted operating
cash flows. Non-cash deductions of depreciation and amortization contributed $984,000 to operating
cash flow.
Cash used in investing activities for the three months ended March 31, 2011 was $344,000, primarily
representing capital improvements to our Columbus and Cincinnati, Ohio facilities. As disclosed in
the 2010 Annual Report to Shareholders on Form 10-K, the Company expects to add additional capacity
to its Matamoros, Mexico facility to meet demand in 2012 and beyond. Given these capacity needs
management plans to invest approximately $14,000,000 for this capacity expansion, of which
approximately $11,000,000 is planned to be spent in 2011. To finance this capacity expansion, the
Company has received a bank financing commitment in the second quarter of 2011 for increased
borrowings. Total planned capital expenditures for the remainder of 2011, including the
$11,000,000 noted above, are approximately $13,000,000.
Financing activities decreased cash by $2,253,000. This decrease was primarily the result of
repayments of principal on the Companys Mexican loan, capex loan, term loan and industrial revenue
bond.
At March 31, 2011, the Company had cash on hand of $378,000 and line of credit availability of
$8,000,000, with a scheduled maturity of April 30, 2012. At March 31, 2011, 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 March 31, 2011, the Company was in compliance with its
financial covenants.
17
Management regularly evaluates the Companys ability to effectively meet its debt covenants based
on the Companys forecasts. Based on the Companys forecasts which are primarily based on industry
analysts estimates of heavy and medium-duty truck production volumes, as well as other assumptions and considering the additional financing commitment noted
above, management believes that the Company will be able to maintain compliance with its financial covenants for the next 12 months. Management believes that cash flow from operating activities,
available borrowings under the Credit Agreement and the additional financing commitment obtained in
the second quarter of 2011 will be sufficient to meet the Companys liquidity needs. 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.
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 $133,000 at March 31, 2011 and $118,000 at December 31, 2010.
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 $718,000 at March 31, 2011 and $695,000
at December 31, 2010.
Inventories: Inventories, which include material, labor and manufacturing overhead, are valued at
the lower of cost or market. The inventories are accounted for using the first-in, first-out
(FIFO) method of determining inventory costs. Inventory quantities on-hand are regularly reviewed,
and where necessary, provisions for excess and obsolete inventory are recorded based on historical
and anticipated usage.
Goodwill and Long-Lived Assets: Management evaluates whether impairment exists for goodwill and
long-lived assets annually on December 31 or at interim periods if an indicator of impairment
exists. Should actual results differ from the assumptions used to determine impairment, additional
provisions may be required. If there is a sustained downturn in the economy or the disruption of
the financial and credit markets continues, demand for our products could fall below our current
expectations and our forecasts of revenues and operating results could decline. Impairment charges
of our goodwill or long-lived assets may be required in the future if our expected future cash
flows decline. The Company has not recorded any impairment to goodwill or long-lived assets for
the three months ended March 31, 2011.
Self-Insurance: The Company is self-insured with respect to most of its Columbus and Batavia, Ohio
and Gaffney, South Carolina medical and dental claims and Columbus and Batavia, Ohio workers
compensation claims. The Company has recorded an estimated liability for self-insured medical and
dental claims incurred but not reported and workers compensation claims incurred but not reported
at March 31, 2011 and December 31, 2010 of $991,000 and $1,041,000, respectively.
18
Post retirement benefits: Management records an accrual for post retirement 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 2010 Annual Report
to Shareholders. As further described in Note 5, in August 2010, the Company eliminated its post
retirement health and life insurance benefits for all current and future represented employees who
had not retired as of August 7, 2010. The elimination of benefits resulted in a reduction of the
Companys post retirement benefits liability of $10,282,000. Core Molding Technologies had a
liability
for post retirement healthcare benefits based on actuarially computed estimates of $10,860,000 at
March 31, 2011 and $10,837,000 at December 31, 2010.
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 Consolidated Balance Sheet. Tooling in progress can fluctuate significantly from period
to period and is dependent upon the stage of tooling projects and the related billing and expense
payment timetable for individual projects and therefore does not necessarily reflect projected
income or loss from tooling projects. At March 31, 2011 the Company had a net liability related to
tooling in progress of $250,000, which represents approximately $3,294,000 of progress tooling
billings and $3,044,000 of progress tooling expenses. At December 31, 2010 the Company had a net
liability related to tooling in progress of $320,000, which represents approximately $2,697,000 of
progress tooling billings and $2,377,000 of progress tooling expenses.
Income taxes: The Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, include a
deferred tax asset of $3,910,000. 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 2010 Annual Report to Shareholders.
19
Part I Financial Information
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Core Molding Technologies primary market risk results from changes in the price of
commodities used in its manufacturing operations. Core Molding Technologies is also exposed to
fluctuations in interest rates and foreign currency fluctuations associated with the Mexican Peso.
Core Molding Technologies does not hold any material market risk sensitive instruments for trading
purposes.
Core Molding Technologies has the following five items that are sensitive to market risks: (1)
Industrial Revenue Bond (IRB) with a variable interest rate (although 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) 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 (5) raw material purchases in which Core
Molding Technologies purchases various resins and fiberglass for use in production. The prices and
availability of these materials are affected by the prices of crude oil and natural gas as well as
processing capacity versus demand.
Assuming a hypothetical 10% increase in commodity prices, Core Molding Technologies would be
impacted by an increase in raw material costs, which would have an adverse effect on operating
margins.
Assuming a hypothetical 10% change in short-term interest rates, interest paid on the Companys
Line of Credit and the Mexican loan would have been impacted in 2011 and 2010. The interest rate
on these loans is based upon LIBOR. Although a 10% change in short-term interest rates would
impact the interest paid by the Company, it would not have a material effect on earnings before
tax.
A 10% change in future interest rate curves would significantly impact the fair value of the
Companys interest rate swaps.
20
Part I Financial Information
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Item 4T. |
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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.
21
Part II Other Information
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Item 1. |
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Legal Proceedings |
None
There have been no material changes in Core Molding Technologies risk factors from
those previously disclosed in Core Molding Technologies 2010 Annual Report on Form
10-K.
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
None
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Item 3. |
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Defaults Upon Senior Securities |
None
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Item 4. |
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(Removed and Reserved) |
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Item 5. |
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Other Information |
None
See Index to Exhibits
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CORE MOLDING TECHNOLOGIES, INC.
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Date: May 13, 2011 |
By: |
/s/ Kevin L. Barnett
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Kevin L. Barnett |
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President, Chief Executive Officer, and
Director |
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Date: May 13, 2011 |
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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23
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) |
|
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) |
|
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) |
|
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 |
24
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Exhibit No. |
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Description |
|
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 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)(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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4 |
(b) |
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Stockholder Rights Agreement dated as of
July 18, 2007, between Core Molding
Technologies, Inc. and American Stock
Transfer & Trust Company
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Incorporated by
reference to
Exhibit 4.1 to
Current Report From
8-k filed July 19,
2007 |
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11 |
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Computation of Net Income per Share
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Exhibit 11 omitted
because the
required
information is
Included in Notes
to Financial
Statement |
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31 |
(a) |
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Section 302 Certification by Kevin L.
Barnett, President, Chief Executive
Officer, and Director
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Filed Herein |
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31 |
(b) |
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Section 302 Certification by Herman F.
Dick, Jr., Vice President, Secretary,
Treasurer, and Chief Financial Officer
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Filed Herein |
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32 |
(a) |
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Certification of Kevin L. Barnett, Chief
Executive Officer of Core Molding
Technologies, Inc., dated May 13, 2011,
pursuant to 18 U.S.C. Section 1350
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Filed Herein |
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32 |
(b) |
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Certification of Herman F. Dick, Jr.,
Chief Financial Officer of Core Molding
Technologies, Inc., dated May 13, 2011,
pursuant to 18 U.S.C. Section 1350
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Filed Herein |
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1 |
|
The Asset Purchase Agreement, as filed with the Securities and Exchange Commission at
Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809), omits the exhibits
(including, the Buyer Note, Special Warranty Deed, Supply Agreement, Registration Rights Agreement
and Transition Services Agreement, identified in the Asset Purchase Agreement) and schedules
(including, those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase Agreement.
Core Molding Technologies, Inc. will provide any omitted exhibit or schedule to the Securities and
Exchange Commission upon request. |
25