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 September 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from To
Commission File Number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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31-1481870 |
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(State or other jurisdiction
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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800 Manor Park Drive, P.O. Box 28183 |
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Columbus, Ohio
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43228-0183 |
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(Address of principal executive office)
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(Zip Code) |
Registrants telephone number, including area code (614) 870-5000
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 is a large accelerated filer, an accelerated
filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of
large
accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Act.
Yes o NO þ
As
of November 11, 2008, the latest practicable date, 6,850,896 shares of the registrants
common shares were issued and outstanding.
Part 1 Financial Information
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
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September 30, |
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December 31, |
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2008 |
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2007 |
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(Unaudited) |
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Assets |
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Current Assets: |
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Cash |
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$ |
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$ |
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Accounts receivable (less allowance for doubtful accounts: |
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September 30, 2008 - $160,000; December 31, 2007 - $334,000) |
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19,905,714 |
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12,469,502 |
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Inventories: |
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Finished and work in process goods |
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3,103,421 |
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3,333,119 |
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Stores |
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4,860,906 |
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5,011,291 |
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Total inventories |
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7,964,327 |
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8,344,410 |
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Deferred tax asset-current portion |
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1,625,781 |
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1,625,781 |
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Foreign sales tax receivable |
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1,198,690 |
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959,767 |
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Prepaid expenses and other current assets |
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566,286 |
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632,329 |
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Total current assets |
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31,260,798 |
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24,031,789 |
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Property, plant and equipment |
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67,845,644 |
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59,906,910 |
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Accumulated depreciation |
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(32,318,839 |
) |
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(29,691,245 |
) |
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Property, plant and equipment net |
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35,526,805 |
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30,215,665 |
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Deferred tax asset |
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6,172,389 |
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6,173,514 |
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Goodwill |
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1,097,433 |
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1,097,433 |
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Customer list / Non-compete |
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49,518 |
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87,629 |
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Other assets |
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71,491 |
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89,168 |
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Total |
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$ |
74,178,434 |
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$ |
61,695,198 |
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Liabilities and Stockholders Equity |
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Liabilities: |
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Current liabilities
Current portion of long-term debt |
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$ |
1,895,716 |
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$ |
1,865,716 |
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Notes payable line of credit |
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8,190,773 |
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2,251,863 |
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Current portion of postretirement benefits liability |
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489,000 |
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489,000 |
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Accounts payable |
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8,469,801 |
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8,537,895 |
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Tooling in progress |
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7,706 |
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102,419 |
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Accrued liabilities: |
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Compensation and related benefits |
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5,103,649 |
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3,350,867 |
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Interest payable |
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98,376 |
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89,721 |
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Taxes |
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680,249 |
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23,221 |
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Other |
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1,048,450 |
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1,067,792 |
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Total current liabilities |
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25,983,720 |
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17,778,494 |
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Long-term debt |
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4,489,276 |
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5,913,563 |
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Interest rate swap |
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251,054 |
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223,566 |
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Postretirement benefits liability |
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16,934,911 |
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15,952,891 |
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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: September 30, 2008 and December 31, 2007 - 0 |
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Common stock $0.01 par value, authorized shares - 20,000,000;
Outstanding shares: 6,762,790 at September 30, 2008 and
6,727,871 at December 31, 2007 |
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67,628 |
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67,279 |
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Paid-in capital |
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22,958,433 |
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22,614,127 |
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Accumulated other comprehensive loss, net of income tax benefit |
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(2,129,747 |
) |
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(2,209,540 |
) |
Treasury stock |
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(26,179,054 |
) |
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(26,179,054 |
) |
Retained earnings |
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31,802,213 |
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27,533,872 |
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Total stockholders equity |
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26,519,473 |
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21,826,684 |
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Total |
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$ |
74,178,434 |
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$ |
61,695,198 |
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See notes to consolidated financial statements.
3
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net Sales: |
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Products |
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$ |
29,497,102 |
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$ |
23,744,611 |
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$ |
84,875,561 |
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$ |
79,080,653 |
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Tooling |
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533,461 |
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6,175,333 |
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4,179,133 |
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20,363,658 |
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Total Sales |
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30,030,563 |
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29,919,944 |
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89,054,694 |
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99,444,311 |
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Cost of sales |
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23,456,538 |
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25,214,124 |
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71,387,397 |
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84,106,093 |
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Postretirement benefits expense |
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536,163 |
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626,753 |
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1,692,266 |
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1,828,391 |
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Total cost of sales |
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23,992,701 |
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25,840,877 |
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73,079,663 |
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85,934,484 |
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Gross Margin |
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6,037,862 |
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4,079,067 |
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15,975,031 |
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13,509,827 |
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Selling, general and administrative expense |
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3,076,224 |
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2,667,215 |
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8,621,814 |
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8,273,378 |
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Postretirement benefits expense |
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|
109,816 |
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119,381 |
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372,380 |
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391,963 |
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Total selling, general and administrative
expense |
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3,186,040 |
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2,786,596 |
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8,994,194 |
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8,665,341 |
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Income before interest and taxes |
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2,851,822 |
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1,292,471 |
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6,980,837 |
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4,844,486 |
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Interest income |
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49,103 |
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|
542,166 |
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Interest expense |
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|
(179,395 |
) |
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|
(228,696 |
) |
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|
(540,866 |
) |
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|
(491,409 |
) |
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Income before income taxes |
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2,672,427 |
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1,112,878 |
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6,439,971 |
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4,895,243 |
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Income tax expense |
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984,500 |
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|
395,696 |
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2,171,630 |
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1,699,158 |
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Net Income |
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$ |
1,687,927 |
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$ |
717,182 |
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$ |
4,268,341 |
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$ |
3,196,085 |
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Net income per common share: |
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Basic |
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$ |
0.25 |
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$ |
0.10 |
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$ |
0.63 |
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$ |
0.34 |
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Diluted |
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$ |
0.24 |
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$ |
0.09 |
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$ |
0.61 |
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$ |
0.33 |
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Weighted average shares outstanding: |
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Basic |
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|
6,748,590 |
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|
7,441,871 |
|
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|
6,740,225 |
|
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|
9,339,984 |
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Diluted |
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|
7,048,520 |
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|
7,727,088 |
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|
7,054,157 |
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|
9,658,583 |
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See notes to consolidated financial statements.
4
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders Equity
(Unaudited)
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Accumulated |
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Common Stock |
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Other |
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Total |
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Outstanding |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income (Loss) |
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Stock |
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Equity |
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|
Balance at January 1,
2008 |
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|
6,727,871 |
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|
$ |
67,279 |
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|
$ |
22,614,127 |
|
|
$ |
27,533,872 |
|
|
$ |
(2,209,540 |
) |
|
$ |
(26,179,054 |
) |
|
$ |
21,826,684 |
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|
|
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|
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|
|
|
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|
Net income |
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|
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|
|
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|
4,268,341 |
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|
4,268,341 |
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|
Hedge accounting
effect of the interest
rate swaps, net of
deferred income tax
expense of $9,209 |
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|
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|
|
|
|
|
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|
17,877 |
|
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|
17,877 |
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|
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|
Amortization of
unrecognized net loss
on post retirement
benefit, net of tax
expense of $34,083 |
|
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|
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|
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|
61,916 |
|
|
|
|
|
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|
61,916 |
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|
|
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|
|
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|
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|
Comprehensive
income |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,348,134 |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
Common shares issued
from exercise of
stock options |
|
|
29,000 |
|
|
|
290 |
|
|
|
90,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,500 |
|
|
|
|
|
|
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|
|
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|
|
|
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Restricted stock |
|
|
5,919 |
|
|
|
59 |
|
|
|
41,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,351 |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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Share-based
compensation |
|
|
|
|
|
|
|
|
|
|
212,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,804 |
|
|
|
|
Balance at September
30, 2008 |
|
|
6,762,790 |
|
|
$ |
67,628 |
|
|
$ |
22,958,433 |
|
|
$ |
31,802,213 |
|
|
$ |
(2,129,747 |
) |
|
$ |
(26,179,054 |
) |
|
$ |
26,519,473 |
|
|
|
|
See notes to consolidated financial statements.
5
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,268,341 |
|
|
$ |
3,196,085 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,683,383 |
|
|
|
2,622,594 |
|
Deferred income taxes |
|
|
(42,162 |
) |
|
|
(19,504 |
) |
Ineffectiveness of swap |
|
|
54,573 |
|
|
|
9,780 |
|
Share based compensation |
|
|
254,154 |
|
|
|
206,265 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(1,039 |
) |
(Gain)/Loss on translation of foreign currency financial statements |
|
|
(26,077 |
) |
|
|
7,826 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(7,436,212 |
) |
|
|
2,550,481 |
|
Inventories |
|
|
380,083 |
|
|
|
(713,489 |
) |
Prepaid and other assets |
|
|
(172,882 |
) |
|
|
(70,005 |
) |
Accounts payable |
|
|
(185,845 |
) |
|
|
1,749,603 |
|
Accrued and other liabilities |
|
|
2,304,415 |
|
|
|
(3,313,544 |
) |
Postretirement benefits liability |
|
|
1,078,013 |
|
|
|
1,548,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,159,784 |
|
|
|
7,773,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(7,794,907 |
) |
|
|
(2,507,335 |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7,794,907 |
) |
|
|
(2,506,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
90,500 |
|
|
|
341,732 |
|
Tax effect from exercise of stock options |
|
|
|
|
|
|
112,217 |
|
Payments related to acquisition of stock |
|
|
|
|
|
|
(26,215,054 |
) |
Gross repayments on line of credit |
|
|
(33,752,230 |
) |
|
|
(6,480,357 |
) |
Gross borrowings on line of credit |
|
|
39,691,140 |
|
|
|
12,237,392 |
|
Payments of principal on secured note payable |
|
|
(964,287 |
) |
|
|
(964,285 |
) |
Payment of principal on industrial revenue bond |
|
|
(430,000 |
) |
|
|
(395,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
4,635,123 |
|
|
|
(21,363,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
|
|
|
|
(16,096,223 |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
16,096,223 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Cash paid (received) for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
463,650 |
|
|
$ |
(128,812 |
) |
|
|
|
|
|
|
|
Income taxes (net of tax refunds) |
|
$ |
1,561,622 |
|
|
$ |
(412,264 |
) |
|
|
|
|
|
|
|
Non cash: |
|
|
|
|
|
|
|
|
Fixed asset purchases in accounts payable |
|
$ |
143,827 |
|
|
$ |
69,701 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q for smaller reporting companies and include all of the information
and disclosures required by accounting principles generally accepted in the United States of
America for interim reporting, which are less than those required for annual reporting. In the
opinion of management, the accompanying unaudited consolidated financial statements contain all
adjustments (all of which are normal and recurring in nature) necessary to present fairly the
financial position of Core Molding Technologies, Inc. and its subsidiaries (Core Molding
Technologies or the Company) at September 30, 2008, the results of operations for the three and
nine months ended September 30, 2008, and the cash flows for the nine months ended September 30,
2008. The Consolidated Notes to Financial Statements, which are contained in the 2007 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 and RTM closed mold process to produce
reinforced plastic products.
2. Net Income per Common Share
Net income per common share is computed based on the weighted average number of common shares
outstanding during the period. Diluted net income per common share is computed similarly but
include the effect of the assumed exercise of dilutive stock options and restricted stock under the
treasury stock method.
The computation of basic and diluted net income per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
1,687,927 |
|
|
$ |
717,182 |
|
|
$ |
4,268,341 |
|
|
$ |
3,196,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
Outstanding |
|
|
6,748,590 |
|
|
|
7,441,871 |
|
|
|
6,740,225 |
|
|
|
9,339,984 |
|
Plus: dilutive options assumed exercised |
|
|
550,225 |
|
|
|
593,700 |
|
|
|
550,225 |
|
|
|
593,700 |
|
Less: shares
assumed repurchased with proceeds from exercise |
|
|
(283,037 |
) |
|
|
(324,299 |
) |
|
|
(281,788 |
) |
|
|
(304,545 |
) |
Plus: dilutive effect of nonvested restricted stock grants |
|
|
32,742 |
|
|
|
15,816 |
|
|
|
45,495 |
|
|
|
29,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and potentially
issuable common shares outstanding |
|
|
7,048,520 |
|
|
|
7,727,088 |
|
|
|
7,054,157 |
|
|
|
9,658,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
0.25 |
|
|
$ |
0.10 |
|
|
$ |
0.63 |
|
|
$ |
0.34 |
|
Diluted net income per common share |
|
$ |
0.24 |
|
|
$ |
0.09 |
|
|
$ |
0.61 |
|
|
$ |
0.33 |
|
For the nine months ended September 30, 2008 and 2007 there were 25,000 and 33,000 antidilutive
options, respectively.
7
3. Sales
Core Molding Technologies currently has two major customers, Navistar, Inc. (Navistar) formerly
known as International Truck & Engine Corporation, and PACCAR, Inc. (PACCAR). Major customers
are defined as customers whose sales individually consist of more than ten percent of total sales.
The following table presents sales revenue for the above-mentioned customers for the three and nine
months ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Navistar product sales |
|
$ |
17,434,140 |
|
|
$ |
11,175,119 |
|
|
$ |
47,533,592 |
|
|
$ |
34,894,733 |
|
Navistar tooling sales |
|
|
74,750 |
|
|
|
36,603 |
|
|
|
2,868,221 |
|
|
|
8,179,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Navistar sales |
|
|
17,508,890 |
|
|
|
11,211,722 |
|
|
|
50,401,813 |
|
|
|
43,074,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PACCAR product sales |
|
|
7,350,397 |
|
|
|
7,318,936 |
|
|
|
22,424,684 |
|
|
|
21,529,607 |
|
PACCAR tooling sales |
|
|
380,818 |
|
|
|
6,007,125 |
|
|
|
840,964 |
|
|
|
11,521,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PACCAR sales |
|
|
7,731,215 |
|
|
|
13,326,061 |
|
|
|
23,265,648 |
|
|
|
33,051,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other product sales |
|
|
4,712,565 |
|
|
|
5,250,556 |
|
|
|
14,917,285 |
|
|
|
22,656,313 |
|
Other tooling sales |
|
|
77,893 |
|
|
|
131,605 |
|
|
|
469,948 |
|
|
|
661,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other sales |
|
|
4,790,458 |
|
|
|
5,382,161 |
|
|
|
15,387,233 |
|
|
|
23,318,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
29,497,102 |
|
|
|
23,744,611 |
|
|
|
84,875,561 |
|
|
|
79,080,653 |
|
Total tooling sales |
|
|
533,461 |
|
|
|
6,175,333 |
|
|
|
4,179,133 |
|
|
|
20,363,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
30,030,563 |
|
|
$ |
29,919,944 |
|
|
$ |
89,054,694 |
|
|
$ |
99,444,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Comprehensive Income
Comprehensive income represents net income plus the results of certain equity changes not reflected
in the Consolidated Statements of Income. The components of comprehensive income, net of tax, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
1,687,927 |
|
|
$ |
717,182 |
|
|
$ |
4,268,341 |
|
|
$ |
3,196,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge accounting
effect of interest
rate swaps, net of
deferred income tax
expense of $11,996
and $9,209 for the
three and nine
months ended
September 30, 2008
and net of deferred
tax benefit of
$38,860 and $25,843
for the three and
nine months ended
September 30, 2007,
respectively. |
|
|
23,286 |
|
|
|
(61,309 |
) |
|
|
17,877 |
|
|
|
(40,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
previously
unrecognized
postretirement plan
loss, net of
deferred tax
expense of $11,361
and $34,083 for the
three and nine
months ended
September 30, 2008
deferred income tax
expense of $24,877
and $74,630 for the
three and nine
months ended
September 30, 2007,
respectively. |
|
|
20,639 |
|
|
|
42,908 |
|
|
|
61,916 |
|
|
|
128,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
1,731,852 |
|
|
$ |
698,781 |
|
|
$ |
4,348,134 |
|
|
$ |
3,284,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
5. Postretirement Benefits
The component of expense for all of Core Molding Technologies postretirement benefits plans for
the three and nine months ended September 30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Pension expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined contribution plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions |
|
$ |
66,000 |
|
|
$ |
127,000 |
|
|
$ |
315,000 |
|
|
$ |
354,000 |
|
Multi-employer plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions |
|
|
126,000 |
|
|
|
103,000 |
|
|
|
389,000 |
|
|
|
318,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense |
|
|
192,000 |
|
|
|
230,000 |
|
|
|
704,000 |
|
|
|
672,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and life insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
|
159,000 |
|
|
|
199,000 |
|
|
|
477,000 |
|
|
|
598,000 |
|
Interest cost |
|
|
263,000 |
|
|
|
249,000 |
|
|
|
788,000 |
|
|
|
747,000 |
|
Amortization of net loss |
|
|
32,000 |
|
|
|
68,000 |
|
|
|
96,000 |
|
|
|
203,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
454,000 |
|
|
|
516,000 |
|
|
|
1,361,000 |
|
|
|
1,548,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement
benefits expense |
|
$ |
646,000 |
|
|
$ |
746,000 |
|
|
$ |
2,065,000 |
|
|
$ |
2,220,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Molding Technologies has made payments of approximately $701,000 to pension plans and
$282,000 for postretirement healthcare costs through September 30, 2008 and expects to make
approximately $177,000 of pension plans payments through the remainder of 2008. The Company also
expects to make approximately $207,000 of postretirement healthcare payments through the remainder
of 2008, all of which are accrued.
6. Debt
Interest Rate Swaps
In conjunction with its variable rate Industrial Revenue Bond (IRB) the Company has entered into
an interest rate swap agreement, which is designated as a cash flow hedging instrument. Under this
agreement, the Company pays a fixed rate of 4.89% to the counterparty and receives 76% of the
30-day commercial paper rate. The swap term and notional amount matches the payment schedule on
the IRB with final maturity in April 2013. The difference paid or received varies as short-term
interest rates change and is accrued and recognized as an adjustment to interest expense. While
the Company is exposed to credit loss on its interest rate swap in the event of non-performance by
the counterparty to the swap, management believes such non-performance is unlikely to occur given
the financial resources of the counterparty. The effectiveness of the swap is assessed at each
financial reporting date by comparing the commercial paper rate of the swap to the benchmark rate
underlying the variable rate of the IRB. Any ineffectiveness of the swap is recorded as an
adjustment to interest expense and historically has not been material. Interest expense of $54,573
and $9,780 was recorded for the nine months ended September 30, 2008 and 2007, respectively,
related to ineffectiveness of the swap. The fair value of the swap was a liability of $232,485 and
$228,156 as of September 30, 2008 and December 31, 2007, respectively. None of the changes in fair
value of the interest rate swap have been excluded from the assessment of hedge effectiveness.
Effective January 1, 2004, the Company entered into an interest rate swap agreement, which is
designated as a cash flow hedge of the Companys bank note payable. Under this agreement, the
Company pays a fixed rate of 5.75% to the counterparty and receives LIBOR plus 200 basis points.
The swap term and notional amount match the payment schedule on the bank note payable with final
maturity in January 2011. The interest rate swap is a highly effective hedge because the amount,
benchmark interest rate index, term, and repricing dates of both the interest rate swap and the
hedged variable interest cash flows are exactly the same. The fair value of the swap was a
liability of $18,569 and an asset of $4,590 as of September 30, 2008 and December 31, 2007,
respectively. While the Company is exposed to credit loss on its interest rate swap in the even 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.
9
Line of Credit
At September 30, 2008, the Company had available a $15,000,000 variable rate bank revolving line of
credit scheduled to mature on April 30, 2009. The line of credit bears interest at LIBOR plus 200
basis points. The line of credit is collateralized by all the Companys assets. At September 30,
2008 and December 31, 2007 there was an outstanding balance of $8,190,773 and $2,251,863,
respectively. The outstanding balance on the line of credit is due April 2009; therefore the
Company has classified the outstanding balance as a current liability on its consolidated balance
sheet. Included in the balance of the line of credit at September 30, 2008 is approximately
$7,179,000 of spending for the construction of a new manufacturing facility and transition costs
related to that project. The Company has commitments from a bank for new loan facilities to fund
this project, but has not yet closed on these loans. Upon closing of these loans, proceeds will be
used to pay down the balance on the Line of Credit for this spending.
7. Income Taxes
On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48). As a
result of the implementation of FIN 48 the Company recognized a $68,000 increase to retained
earnings. This increase is represented by the recognition of state tax benefits of $212,000 and
related accrued interest receivable of $16,000. These benefits generate a federal tax liability of
$60,000. The Company also recorded a liability for unrecognized tax benefits of $52,000 and
$48,000 related to uncertain state and foreign tax positions, respectively and the amounts were
recorded in income tax receivable in the consolidated balance sheet. As of December 31, 2007, the
unrecognized tax benefit liability had been reduced to $24,000 due to the resolution of certain
state and foreign tax matters. The unrecognized tax liability of $24,000 favorably settled in 2008
and therefore was credited to tax expense.
The Company files income tax returns in the U.S. federal jurisdiction, Mexico and various state
jurisdictions. The Company is no longer subject to U.S. federal and state income tax examinations
by tax authorities for years before 2005 and is subject to income tax examinations by Mexican
authorities since the Company began business in Mexico in 2001. The Company does not anticipate
that the unrecognized tax benefits will significantly change within the next twelve months. The
Company recently was notified that the Companys 2006 Federal income tax return will be audited.
The audit is in the initial stages and no findings have been made at this time.
8. Stock Based Compensation
The Company has a Long Term Equity Incentive Plan (the 2006 Plan), as approved by the
shareholders in May 2006. This 2006 Plan replaced the Long Term Equity Incentive Plan (the
Original Plan) as originally approved by the shareholders in May 1997 and as amended in May 2000.
The 2006 Plan allows for grants to directors and key employees of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock, performance shares,
performance units and other incentive awards (Stock Awards) up to an aggregate of 3,000,000
awards, each representing a right to buy a share of Core Molding Technologies common stock. Stock
Awards can be granted under the 2006 Plan through the earlier of December 31, 2015, or the date the
maximum number of available awards under the 2006 Plan have been granted.
Stock Options
The following summarizes the activity relating to stock options under the plans mentioned above for
the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Weighted |
|
|
|
of |
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Outstanding at December 31, 2007 |
|
|
620,700 |
|
|
$ |
3.33 |
|
Exercised |
|
|
(29,000 |
) |
|
|
3.12 |
|
Granted |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(16,475 |
) |
|
|
4.73 |
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008 |
|
|
575,225 |
|
|
$ |
3.30 |
|
|
|
|
|
|
|
|
Exercisable at September 30, 2008 |
|
|
447,310 |
|
|
$ |
3.27 |
|
|
|
|
|
|
|
|
10
The following summarizes the status of, and changes to, unvested options during the nine months
ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Weighted |
|
|
|
Of |
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Unvested at December 31, 2007 |
|
|
162,350 |
|
|
$ |
3.46 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(23,635 |
) |
|
|
3.24 |
|
Forfeited |
|
|
(10,800 |
) |
|
|
4.67 |
|
|
|
|
|
|
|
|
Unvested at September 30, 2008 |
|
|
127,915 |
|
|
$ |
3.40 |
|
|
|
|
|
|
|
|
At September 30, 2008 and 2007, there was $170,208 and $315,282, respectively, of total
unrecognized compensation cost, related to unvested stock options granted under the plans. Total
compensation cost related to incentive stock options for the nine months ended September 30, 2008
and 2007 was $93,220 and, $96,773, respectively. This compensation expense is allocated such that
$66,977 and $70,375 are included in selling, general and administrative expenses and $26,243 and
$26,398 are recorded in cost of sales for the nine months ended September 30, 2008 and 2007,
respectively.
Restricted Stock
In May of 2006, Core Molding Technologies began granting shares of its common stock to certain
directors, officers, and key managers in the form of Restricted Stock. These awards are recorded at
the market value of Core Molding Technologies common stock on the date of issuance and amortized
ratably as compensation expense over the applicable vesting period.
The following summarizes the status of Restricted Stock grants as of September 30, 2008 and changes
during the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
|
Of |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested at December 31, 2007 |
|
|
61,416 |
|
|
$ |
7.02 |
|
Granted |
|
|
41,635 |
|
|
|
7.01 |
|
Vested |
|
|
(5,919 |
) |
|
|
6.99 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2008 |
|
|
97,132 |
|
|
$ |
7.02 |
|
|
|
|
|
|
|
|
As of September 30, 2008 and 2007, there was $421,954 and $309,976, respectively, of total
unrecognized compensation cost related to Restricted Stock granted under the 2006 Plan. The total
compensation costs related to restricted stock grants for the nine months ended September 30, 2008
and 2007 was $160,934 and $109,492, respectively, all of which was recorded to selling, general and
administrative expense.
9. Common Stock
On July 18, 2007, the Company entered into a stock repurchase agreement with Navistar, pursuant to
which the Company repurchased 3,600,000 shares of the Companys common stock, par value $0.01 per
share, from Navistar in a privately negotiated transaction at $7.25 per share, for a total purchase
price of $26,100,000. The Company used approximately $19 million of existing cash and $7.1 million
from its revolving line of credit to fund the repurchase. The Company also incurred approximately
$115,000 in costs related to the stock repurchase agreement, which is recorded on the balance sheet
in treasury stock.
Navistar continues to be a significant stockholder of the Companys common stock with 664,000
shares, or approximately 9.8% of the shares outstanding at September 30, 2008. Navistar is also the
Companys largest customer, accounting for approximately 57% of the Companys 2008 year-to-date
sales.
11
On July 16, 2007, the Board of Directors approved a Shareholders Rights Plan (the Plan) in
conjunction with the approval of the repurchase of shares of stock from Navistar. The Plan was
implemented to protect the interests of the Companys stockholders by encouraging potential buyers
to negotiate directly with the Board prior to attempting a takeover. Under the Plan, each
shareholder will receive a dividend of one right per share of common stock of the Company owned on
the record date, July 18, 2007. The rights will not initially be exercisable until, subject to
action by the Board of Directors, a person acquires 15% or more of the voting stock without
approval of the Board. If the rights become exercisable, all holders except the party triggering
the rights shall be entitled to purchase shares of the Company at a discount. Each right entitles
the registered holder to purchase from the Company a unit consisting of one one-thousandth of a
share of Series A Junior Participating Preferred Stock, par value $0.01 per share. In connection
with the adoption of the Rights Agreement, on July 18, 2007, the Company filed a Certificate of
Designations of Series A Junior Participating Preferred Stock with the Secretary of State of the
State of Delaware.
10. Recent Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the
financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN
48 provides guidance on the financial statement recognition and measurement of a tax position
taken, or expected to be taken, in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosures, and transition.
This interpretation is effective for fiscal years beginning after December 15, 2006, and became
effective for the Company on January 1, 2007. For benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by taxing authorities. The amount
recognized is measured as the largest amount of benefit that is greater than 50 percent likely of
being realized upon ultimate settlement. The impact of the adoption of FIN 48 is discussed in Note
7.
In September 2006, the FASB issued Statement No. 157 to define fair value, establish a framework
for measuring fair value and to expand disclosures about Fair Value Measurements (SFAS No.157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not change the requirements to apply
fair value in existing accounting standards. Under SFAS No. 157, fair value refers to the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants in the market in which the reporting entity transacts. The standard
clarifies that fair value should be based on the assumptions market participants would use when
pricing the asset or liability.
To increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of
input that is significant to the fair value measurement. The three levels of the fair value
hierarchy defined by SFAS No. 157 are as follows:
|
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for
identical asset or liabilities that the company has the ability to
access as of the reporting date. |
|
|
|
|
Level 2 inputs are inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly through corroboration with observable market
data. |
|
|
|
|
Level 3 inputs are unobservable inputs, such as internally developed
pricing models for the asset or liability due to little or no market
activity for the asset or liability. |
SFAS No. 157 became effective for the Company as of January 1, 2008. The provisions of SFAS No. 157
are to be applied prospectively, except for the initial impact on the following three items, which
are required to be recorded as an adjustment to the opening balance of retained earnings in the
year of adoption: (1) changes in fair value measurements of existing derivative financial
instruments measured initially using the transaction price under EITF Issue No. 02-3, (2) existing
hybrid financial instruments measured initially at fair value using the transaction price and (3)
blockage factor discounts. Under the current disclosure requirements of SFAS 157, the Companys
lone fair value measure is its interest rate swaps. The swaps fall under Level 2 of the fair value
hierarchy. For further discussion of the interest rate swaps see Note 6. The adoption of SFAS No.
157 did not have an impact on the Companys January 1, 2008 balance of retained earnings and is not
anticipated to have a material impact prospectively.
12
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP 157-2), Effective Date
of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS No.
157 for non-financial assets and non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value at least annually. In accordance with this
interpretation, we have only adopted the provisions of SFAS No. 157 with respect to our financial
assets and financial liabilities that are measured at fair value as of the beginning of fiscal year
2008. The provisions of SFAS No. 157 have not been applied to non-financial assets and
non-financial liabilities. The major categories of non-financial assets and non-financial
liabilities that are measured at fair value, for which we have not applied the provisions of SFAS
No. 157, are as follows: reporting units measured at fair value in the first step of a goodwill
impairment test and long-lived assets measured at fair value for an impairment assessment.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (FAS 159), provides companies with an option to report selected
financial assets and liabilities at fair value. The objective of FAS-159 is to reduce both
complexity in accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. FAS-159 was effective for fiscal years
beginning after November 15, 2007. The application of FAS-159 did not have any impact on the
Companys earnings or financial position, because the Company did not elect to use the fair value
option for any financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141R to improve the relevance, representational
faithfulness, and comparability of information that a reporting entity provides in its financial
reports regarding business combinations and its effects, including recognition of assets and
liabilities, the measurement of goodwill and required disclosures. This Statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008 and earlier adoption is prohibited. Management is currently evaluating the impact of the
provisions of SFAS No. 141R on the consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS 161 is an amendment of FASB Statement No. 133, and requires
enhanced disclosures about an entitys derivative and hedging activities and thereby improves the
transparency of financial reporting. The Statement is effective prospectively for fiscal years
beginning after November 15, 2008. Management is currently evaluating the impact of the provisions
of FAS-161 on the consolidated financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible
Assets. FSP FAS 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under
SFAS No. 142, Goodwill and Other Intangible Assets. This guidance for determining the useful life
of a recognized intangible asset applies prospectively to intangible assets acquired individually
or with a group of other assets in either an asset acquisition or business combination. FSP FAS
142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2008, and early adoption is prohibited. We are currently evaluating the impact FSP FAS
142-3 will have on our Consolidated Financial Statements.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of
Generally Accepted Accounting Principles (FAS 162). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used in the preparation
of financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the
independent auditors, as the entity is responsible for selecting accounting principles for
financial statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the Public Company
Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting
principles from the auditing standards. FAS 162 is not expected to have an impact on the Companys
financial condition, results of operations or cash flows.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) Issue No. 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. The
FSP concludes that unvested share-based payment awards that contain rights to receive
nonforfeitable dividends or dividend equivalents are participating securities, and thus, should be
included in the two-class method of computing earnings per share (EPS). This FSP is effective for
fiscal years beginning after December 15, 2008, and interim periods within those years and requires
that all prior period EPS be adjusted retroactively. We do not have share-based payment awards
that contain rights to nonforfeitable dividends, thus this FSP is not anticipated to have an impact
on our consolidated financial position and results of operations
13
Part I Financial Information
Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
This Managements Discussion and Analysis of Financial Conditions and Results of Operations
contains certain 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 quarterly report: business conditions in the plastics,
transportation, watercraft and commercial product industries; general economic conditions in the
markets, sometimes driven by federal and state regulations (including engine emission regulations)
in which Core Molding Technologies operates; dependence upon two major customers as the primary
source of Core Molding Technologies sales revenues; recent efforts of Core Molding Technologies to
expand its customer base; failure of Core Molding Technologies suppliers to perform their
contractual obligations; the availability of raw materials; inflationary pressures; new
technologies; competitive and regulatory matters; labor relations; the loss or inability of Core
Molding Technologies to attract and retain key personnel; compliance changes to federal, state and
local environmental laws and regulations; the availability of capital; the ability of Core Molding
Technologies to provide on-time delivery to customers, which may require additional shipping
expenses to ensure on-time delivery or otherwise result in late fees; risk of cancellation or
rescheduling of orders; 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 2007 Annual Report to Shareholders on Form
10-K.
Overview
Core Molding Technologies is a compounder of sheet molding composite (SMC) and molder of
fiberglass reinforced plastics. Core Molding Technologies produces high quality fiberglass
reinforced molded products and SMC materials for varied markets, including light, medium, and
heavy-duty trucks, automobiles and automotive aftermarkets, personal watercraft, and other
commercial products. The demand for Core Molding Technologies products is affected by economic
conditions in the United States, Canada and Mexico, the cyclicality of markets we serve, regulatory
requirements, interest rates and other factors. Core Molding Technologies manufacturing
operations have a significant fixed cost component. Accordingly, during periods of changing
demands, the profitability of Core Molding Technologies operations may change proportionately more
than revenues from operations.
On December 31, 1996, Core Molding Technologies acquired substantially all of the assets and
assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of Navistars truck
manufacturing division since its formation in late 1980. Columbus Plastics, located in Columbus,
Ohio, was a compounder and compression molder of SMC. In 1998 Core Molding Technologies began
compression molding operations at its second facility in Gaffney, South Carolina, and in October
2001, Core Molding Technologies acquired certain assets of Airshield Corporation. As a result of
this acquisition, Core Molding Technologies expanded its fiberglass molding capabilities to include
the spray up, hand-lay-up open mold processes and resin transfer (RTM) closed mold 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 robotic spray-up open mold process and resin transfer
molding (RTM) utilizing multiple insert tooling (MIT) closed mold process.
14
Core Molding Technologies recorded net income for the nine months ended September 30, 2008 of
$4,268,000 or $.63 per basic and $.61 per diluted share, compared with $3,196,000, or $.34 per
basic and $.33 per diluted share, for the nine months ended September 30, 2007. In July 2007, the
Company purchased 3,600,000 shares of its stock from Navistar. This share repurchase resulted in
a favorable impact on earnings per share for the nine months ended September 30, 2008 compared to
the nine months ended September 30, 2007, due to lower
outstanding shares.
The Company anticipates some softening in sales levels during the fourth quarter of 2008 as a result of
the uncertainties in the current economy.
However, Core Molding Technologies is planning for a modest
improvement in truck demand in 2009. Industry sources are forecasting anywhere from a modest decrease to a significant increase
in truck orders for this time period.
Additionally, in connection with the construction of a new manufacturing facility in Mexico, the
Company expensed approximately $375,000 of transition costs through September 30,
2008. The Company expects to incur approximately $750,000 of additional transition expenses in the fourth quarter of 2008.
Results of Operations
Three Months Ended September 30, 2008, As Compared To Three Months Ended September 30, 2007
Net sales for the three months ended September 30, 2008, totaled $30,031,000, compared to
$29,920,000 reported for the three months ended September 30, 2007. Included in total sales are
tooling project sales of $533,000 and $6,175,000 for the three months ended September 30, 2008 and
September 30, 2007, respectively. Tooling project sales result from billings to customers for
molds and assembly equipment built specifically for their products. These sales are sporadic in
nature. Total product sales of $29,497,000, which excludes tooling project sales, were
approximately 24% higher for the three months ended September 30, 2008, compared to $23,745,000 for
the same period a year ago. The increase in product sales is primarily due to increased volume for
programs started in 2007.
Sales to Navistar totaled $17,509,000 for the three months ended September 30, 2008, increasing 56%
from $11,212,000 in sales for the three months ended September 30, 2007. Included in total sales
is $75,000 of tooling sales for the three months ended September 30, 2008 compared to $37,000 for
the same three months in 2007. Product sales to Navistar were $17,434,000, a 56% increase for the
three months ended September 30, 2008 compared to product sales of $11,175,000 for the same period
in 2007. The increase in product sales is primarily due to increased volume for programs started
in 2007, as well as some improvement in the demand for other products that the Company manufactures
for Navistar.
Sales to PACCAR totaled $7,731,000 for the three months ended September 30, 2008, decreasing 42%
from $13,326,000 in sales for the three months ended September 30, 2007. Included in total sales
is $381,000 of tooling sales for the three months ended September 30, 2008 compared to $6,007,000
for the same three months in 2007. Product sales to PACCAR were $7,350,000 for the three months
ended September 30, 2008 compared to $7,319,000 for the same period of the prior year. Product
sales were favorably affected by increased volume for programs started in 2007 but largely offset
by a decrease in sales for other products the Company manufactures for PACCAR.
Sales to other customers for the three months ended September 30, 2008 decreased 11% to $4,790,000
compared to $5,382,000 for the three months ended September 30, 2007. This decrease is primarily
related to decreases in product sales to customers in the marine industry, which was partially
offset by increased sales to other customers.
Gross margin was approximately 20% of sales for the three months ended September 30, 2008, compared
with 14% for the three months ended September 30, 2007. The increase was due to favorable operating
efficiencies and increased fixed cost absorption related to higher product sales. Our
manufacturing operations have significant fixed costs such as depreciation, post retirement
healthcare costs, salary labor, lease expense and energy that do not change proportionately with
sales.
Selling, general and administrative expenses (SG&A) totaled $3,186,000 for the three months ended
September 30, 2008, increasing from $2,787,000 for the three months ended September 30, 2007. The
increase was primarily due to increases in the Companys profit sharing amounts resulting from
improved earnings for the three months ended September 30, 2008 compared to the three months ended
September 30, 2007.
15
Net interest expense totaled $179,000 for the three months ended September 30, 2008, compared to
$180,000 for the three months ended September 30, 2007. The Company had no interest income for the
three months ended September 30, 2008 compared to $49,000 for the three months ended September 30,
2007 due to cash previously used for investing being used to repurchase Core Molding Technologies
stock from Navistar in July of 2007.
Interest expense decreased for the three months ending September 30, 2008 compared to the three
months ending September 30, 2007 due to lower outstanding balances on the line of credit as well as
a reduction in term debt from regularly scheduled principal payments. Partially offsetting the
decrease in interest expense was an increase in expense recorded related to ineffectiveness of the
IRB interest rate swap. Variable interest rates experienced by Core Molding Technologies with
respect to its two long-term borrowing facilities have decreased; however, due to the interest rate
swaps Core Molding Technologies has previously entered into, the interest rate is essentially fixed
for these two debt instruments.
Income taxes for the three months ended September 30, 2008, are estimated to be approximately 37%
of total earnings before taxes. In the three months ended September 30, 2007 income taxes were
estimated to be 36% of total earnings before taxes. The effective tax
rate increased as a result of a larger proportion of income generated
in higher taxing jurisdictions for the three months ended September
30, 2008 as compared to the three months ended September 30, 2007.
Core Molding Technologies recorded net income for the three months ended September 30, 2008 of
$1,688,000 or $.25 per basic and $.24 per diluted share, compared with $717,000, or $.10 per basic
and $.09 per diluted share, for the three months ended September 30, 2007. Weighted average
shares outstanding decreased from 7,441,871 in the third quarter 2007, to 6,748,590 in the same
period in 2008 primarily due to the affect of the Companys purchase of Treasury Stock in July
2007.
Nine Months Ended September 30, 2008, As Compared To Nine Months Ended September 30, 2007
Net sales for the nine months ended September 30, 2008, totaled $89,055,000, representing an
approximate 10% decrease from the $99,444,000 reported for the nine months ended September 30,
2007. Included in total sales are tooling project sales of $4,179,000 and $20,364,000 for the nine
months ended September 30, 2008 and September 30, 2007, respectively. Tooling project sales result
from billings to customers for molds and assembly equipment built specifically for their products.
These sales are sporadic in nature. Total product sales of $84,876,000, which excludes tooling
project sales, were approximately 7% higher for the nine months ended September 30, 2008, compared
to product sales of $79,081,000 for the nine months ended September 30, 2007. The increase in
product sales is primarily due to increased volume of programs started in 2007.
Sales to Navistar totaled $50,402,000 for the nine months ended September 30, 2008, compared to
$43,075,000 for the nine months ended September 30, 2007. Included in total sales were $2,868,000
of tooling sales for the nine months ended September 30, 2008 compared to $8,180,000 for the nine
months ended September 30, 2007. Total product sales to Navistar were $47,534,000 an increase of
36% for the nine months ended September 30, 2008 compared to product sales of $34,895,000 for the
nine months ended September 30, 2007. The increase in product sales is primarily due to increased
volume for programs started in 2007.
Sales to PACCAR totaled $23,266,000 for the nine months ended September 30, 2008, as compared to
$33,052,000 reported for the nine months ended September 30, 2007. Included in total sales were
$841,000 of tooling sales for the nine months ended September 30, 2008 compared to $11,522,000 for
the nine months ended September 30, 2007. Total product sales to PACCAR were $22,425,000 an
increase of 4% for the nine months ended September 30, 2008 compared to product sales of
$21,530,000 for the nine months ended September 30, 2007. The increase in product sales is due to
increased volume for programs started in 2007, partially offset by a decrease in sales for other
products the Company manufactures for PACCAR.
Sales to other customers for the nine months ended September 30, 2008, decreased approximately 34%
to $15,387,000 from $23,318,000 for the nine months ended September 30, 2007. This decrease is
primarily related to decreases in product sales to customers in the marine industry of
approximately $5,360,000 and a decrease in product sales to an automotive customer of $1,115,000.
Gross margin was approximately 18% of sales for the nine months ended September 30, 2008, compared
with 14% for the nine months ended September 30, 2007. The increase was due to a combination of
factors including higher fixed cost absorption due to product sales volumes and production
efficiencies. Our manufacturing operations have significant fixed costs such as depreciation, post
retirement healthcare costs, salary labor, lease expense and energy that do not change
proportionately with sales. Also contributing to the increase in gross margin was the dilutive
effect tooling project revenue has on gross margin for the nine months ended September 30, 2007.
Historically, Core Molding Technologies has not achieved margins on tooling projects similar to
margins on its sales of its products.
16
Selling, general and administrative expenses (SG&A) totaled $8,994,000 for the nine months ended
September 30, 2008, increasing from $8,665,000 for the nine months ended September 30, 2007. The
increase was primarily due to increases in the Companys profit sharing amounts resulting from
improved earnings for the nine months ended September 30, 2008 compared to the three months ended
September 30, 2007.
Net interest expense totaled $541,000 for the nine months ended September 30, 2008, compared to net
interest income of $51,000 for the nine months ended September 30, 2007. The Company had no
interest income for the nine months ended September 30, 2008 compared to $542,000 for the nine
months ended September 30, 2007 due to cash previously used for investing being used to repurchase
Core Molding Technologies stock from Navistar in July of 2007. Interest expense increased to
$541,000 compared to $491,000 for the nine months ended September 30, 2007. The increase in
interest expense is primarily a result of borrowings on the line of credit which were used to
finance a portion of the stock repurchase from Navistar. Also contributing to the increase is
additional expense recorded related to ineffectiveness of the IRB interest rate swap. Variable
interest rates experienced by Core Molding Technologies with respect to its two long-term borrowing
facilities have decreased; however, due to the interest rate swaps Core Molding Technologies has
entered into, the interest rate is essentially fixed for these two debt instruments.
Income taxes for the nine months ended September 30, 2008, are estimated to be approximately 34% of
total earnings before taxes or $2,172,000. In the nine months ended September 30, 2007 income
taxes were estimated to be 35% of total earnings before taxes or $1,699,000.
Core Molding Technologies recorded net income for the nine months ended September 30, 2008 of
$4,268,000 or $.63 per basic and $.61 per diluted share, compared with $3,196,000, or $.34 per
basic and $.33 per diluted share, for the nine months ended September 30, 2007. Weighted average
shares outstanding decreased from 9,339,984 in the three months ended September 30, 2007, to
6,740,225 in the same period in 2008 primarily due to the Companys purchase of Treasury Stock in
July 2007.
Liquidity and Capital Resources
The Companys primary sources of funds have been cash generated from operating activities and
borrowings from third parties. Primary cash requirements are for operating expenses and capital
expenditures.
As widely reported, financial markets in the United States, Europe and Asia have been experiencing
extreme disruption in recent months, including, among other things, extreme volatility in security
prices, severely diminished liquidity and credit availability, rating downgrades of certain
investments and declining valuations of others. Governments have taken unprecedented actions
intended to address extreme market conditions that include severely restricted credit and declines
in real estate values. While currently these conditions have not impaired the Companys ability to
access credit markets and finance our operations, there can be no assurance that there will not be
a further deterioration in financial markets and confidence in major economies, which may impact
the Companys ability to borrow in the future.
Cash provided by operating activities for the nine months ended September 30, 2008 totaled
$3,160,000. Net income contributed $4,268,000 to operating cash flow. Non-cash deductions of
depreciation and amortization also contributed $2,683,000 to operating cash flow. In addition, the
increase in the postretirement healthcare benefits liability of $1,078,000 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 $5,110,000. Changes in working capital primarily relate to an increase in accounts
receivable due to increased product sales for the three months ended September 30, 2008 compared to
the three months ended December 31, 2007 which is partially offset by lower accrued and other
liabilities.
Cash used in investing activities for the nine months ended September 30, 2008 was $7,795,000,
primarily representing purchases related to the Companys construction of a new manufacturing
facility in Mexico. The Company previously announced plans to invest approximately $20.2 million
in the new facility that will replace its existing leased facility in Mexico and add compression
molding capabilities. To finance this project, the Company has received bank financing commitments
for new borrowings. Currently, the Company is using its line of credit until the new financing has
been closed. The Company plans to spend an additional $6,095,000 for the remainder of the year for
capital projects, $5,301,000 of which relates to the Companys new facility in Mexico. The planned
capital additions are expected to be funded from the new financing, borrowings on the Companys
line of credit and cash provided by operations. The Company may also undertake other capital
improvement projects in the future as deemed necessary and appropriate.
17
Financing activities increased cash by $4,635,000. This increase is related to net borrowings of
$5,939,000 on the line of credit. This was partially offset by principal repayments on its secured
note payable of $964,000 and its industrial revenue bond of $430,000.
At September 30, 2008, the Company had no cash on hand and a line of credit of $15,000,000, with a
scheduled maturity of April 30, 2009. At September 30, 2008, Core Molding Technologies had
outstanding borrowings of $8,191,000 on this line of credit.
As of September 30, 2008, the Company was in compliance with its financial debt covenants for the
secured note payable, the line of credit and letter of credit securing the industrial revenue bond
and certain equipment leases. The covenants relate to maintaining certain financial ratios.
Management expects Core Molding Technologies to meet these covenants for the year 2008. However,
if a material adverse change in the financial position of Core Molding Technologies should occur,
Core Molding Technologies liquidity and ability to obtain further financing to fund future
operating and capital requirements could be negatively impacted.
Recently Issued Accounting Standards
In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the
financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN
48 provides guidance on the financial statement recognition and measurement of a tax position
taken, or expected to be taken, in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosures, and transition.
This interpretation is effective for fiscal years beginning after December 15, 2006, and became
effective for the Company on January 1, 2007. For benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by taxing authorities. The amount
recognized is measured as the largest amount of benefit that is greater than 50 percent likely of
being realized upon ultimate settlement. The impact of the adoption of FIN 48 is discussed in Note
7.
In September 2006, the FASB issued Statement No. 157 to define fair value, establish a framework
for measuring fair value and to expand disclosures about Fair Value Measurements (SFAS No.157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not change the requirements to apply
fair value in existing accounting standards. Under SFAS No. 157, fair value refers to the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants in the market in which the reporting entity transacts. The standard
clarifies that fair value should be based on the assumptions market participants would use when
pricing the asset or liability.
To increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of
input that is significant to the fair value measurement. The three levels of the fair value
hierarchy defined by SFAS No. 157 are as follows:
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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. |
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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. |
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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. |
SFAS No. 157 became effective for the Company as of January 1, 2008. The provisions of SFAS No. 157
are to be applied prospectively, except for the initial impact on the following three items, which
are required to be recorded as an adjustment to the opening balance of retained earnings in the
year of adoption: (1) changes in fair value measurements of existing derivative financial
instruments measured initially using the transaction price under EITF Issue No. 02-3, (2) existing
hybrid financial instruments measured initially at fair value using the transaction price and (3)
blockage factor discounts. Under the current disclosure requirements of SFAS 157, the Companys
lone fair value measure is its interest rate swaps. The swaps fall under Level 2 of the fair value
hierarchy. For further discussion of the interest rate swaps see Note 6. The adoption of SFAS No.
157 did not have an impact on the Companys January 1, 2008 balance of retained earnings and is not
anticipated to have a material impact prospectively.
18
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP 157-2), Effective Date
of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS No.
157 for non-financial assets and non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value at least annually. In accordance with this
interpretation, we have only adopted the provisions of SFAS No. 157 with respect to our financial
assets and financial liabilities that are measured at fair value as of the beginning of fiscal year
2008. The provisions of SFAS No. 157 have not been applied to non-financial assets and
non-financial liabilities. The major categories of non-financial assets and non-financial
liabilities that are measured at fair value, for which we have not applied the provisions of SFAS
No. 157, are as follows: reporting units measured at fair value in the first step of a goodwill
impairment test and long-lived assets measured at fair value for an impairment assessment.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (FAS 159), provides companies with an option to report selected
financial assets and liabilities at fair value. The objective of FAS-159 is to reduce both
complexity in accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. FAS-159 was effective for fiscal years
beginning after November 15, 2007. The application of FAS-159 did not have any impact on the
Companys earnings or financial position, because the Company did not elect to use the fair value
option for any financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141R to improve the relevance, representational
faithfulness, and comparability of information that a reporting entity provides in its financial
reports regarding business combinations and its effects, including recognition of assets and
liabilities, the measurement of goodwill and required disclosures. This Statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008 and earlier adoption is prohibited. Management is currently evaluating the impact of the
provisions of SFAS No. 141R on the consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS 161 is an amendment of FASB Statement No. 133, and requires
enhanced disclosures about an entitys derivative and hedging activities and thereby improves the
transparency of financial reporting. The Statement is effective prospectively for fiscal years
beginning after November 15, 2008. Management is currently evaluating the impact of the provisions
of FAS-161 on the consolidated financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible
Assets. FSP FAS 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under
SFAS No. 142, Goodwill and Other Intangible Assets. This guidance for determining the useful life
of a recognized intangible asset applies prospectively to intangible assets acquired individually
or with a group of other assets in either an asset acquisition or business combination. FSP FAS
142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2008, and early adoption is prohibited. We are currently evaluating the impact FSP FAS
142-3 will have on our Consolidated Financial Statements.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of
Generally Accepted Accounting Principles (FAS 162). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used in the preparation
of financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the
independent auditors, as the entity is responsible for selecting accounting principles for
financial statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the Public Company
Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting
principles from the auditing standards. FAS 162 is not expected to have an impact on the Companys
financial condition, results of operations or cash flows.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) Issue No. 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. The
FSP concludes that unvested share-based payment awards that contain rights to receive
nonforfeitable dividends or dividend equivalents are participating securities, and thus, should be
included in the two-class method of computing earnings per share (EPS). This FSP is effective for
fiscal years beginning after December 15, 2008, and interim periods within those years and requires
that all prior period EPS be adjusted retroactively. We do not have share-based payment awards
that contain rights to nonforfeitable dividends, thus this FSP is not anticipated to have an impact
on our consolidated financial position and results of operations
19
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 $160,000 at September 30, 2008 and $334,000 at December 31,
2007. 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 $1,705,000 at September 30, 2008 and
$1,576,000 at December 31, 2007.
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 tests for impairment of goodwill annually on December
31st or as events occur or circumstances change, as defined by SFAS 142, that would more
likely than not reduce the fair value of a reporting unit below its carrying amount. Additionally,
management tests its long-lived assets for impairment if an indicator of impairment exists as
defined by SFAS 144, Accounting for Impairment or Disposal of Long-Lived Assets. Should actual
results differ from the assumptions used to determine impairment,
additional provisions may be
required. In particular, decreases in future cash flows from operating activities below the
assumptions could have an adverse effect on the Companys ability to recover its long-lived assets.
The Company did not have an indicator of impairment as of September 30, 2008 and has not recorded
any impairment to goodwill or long-lived assets for the nine months ended September 30, 2008.
Self-Insurance: The Company is self-insured with respect to most of its Columbus and Batavia, Ohio
and Gaffney, South Carolina medical and dental claims and Columbus and Batavia, Ohio workers
compensation claims. The Company has recorded an estimated liability for self-insured medical and
dental claims incurred but not reported and workers compensation claims incurred but not reported
at September 30, 2008 and December 31, 2007 of $1,127,000 and $1,141,000, respectively.
Post retirement benefits: Management records an accrual for postretirement costs associated with
the health care plan sponsored by Core Molding Technologies for certain Columbus facility employees. 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 11 of the Consolidated Notes to Financial
Statements, which are contained in the 2007 Annual Report to Shareholders. Core Molding
Technologies recorded a liability for postretirement healthcare benefits based on actuarially
computed estimates of $17,424,000 at September 30, 2008 and $16,442,000 at December 31, 2007.
20
Revenue Recognition: Revenue from product sales is recognized at the time products are shipped
and title transfers. Allowances for returned products and other credits are estimated and recorded
as revenue is recognized. Tooling revenue is recognized when the customer approves the tool and
accepts ownership. Progress billings and expenses are shown net as an asset or liability on the
Companys balance sheet. Tooling in progress can fluctuate significantly from period to period and
is dependent upon the stage of tooling projects and the related billing and expense payment
timetable for individual projects and therefore does not necessarily reflect projected income or
loss from tooling projects. At September 30, 2008 the Company has recorded a net liability related
to tooling in progress of $8,000, which represents approximately $3,573,000 of progress tooling
billings and $3,565,000 of progress tooling expenses. At December 31, 2007 the Company had
recorded a net liability related to tooling in progress of $102,000, which represents approximately
$4,738,000 of progress tooling billings and $4,636,000 of progress tooling expenses.
Income taxes: The Consolidated Balance Sheet at September 30, 2008 and December 31, 2007, includes
a deferred tax asset of $7,798,000 and $7,799,000, 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 10 in Core Molding Technologies 2007 Annual Report to
Shareholders.
21
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. The Company has an interest rate
swap to fix the interest rate at 4.89%; (2) revolving line of credit, which bears a variable
interest rate; (3) bank note payable with a variable interest rate. The Company entered into a
swap agreement effective January 1, 2004, to fix the interest rate at 5.75%; (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 materials for use in production.
The prices of these resins are affected by the prices of crude oil and natural gas as well as
processing capacity versus demand.
Assuming a hypothetical 10% increase in commodity prices, Core Molding Technologies would be
impacted by an increase in raw material costs, which would have an adverse affect on operating
margins.
Assuming a hypothetical 10% change in short-term interest rates in both the nine month periods
ended September 30, 2008 and 2007, interest expense would not change significantly, as the interest
rate swap agreements would generally offset the impact. Core Molding Technologies has utilized a
revolving line of credit which has a balance of $8,191,000 at September 30, 2008. The interest
rate is impacted by LIBOR. A hypothetical 10% change in short-term interest rates in 2008 could
impact the interest paid by the Company, however, it would not have a material effect on earnings
before tax.
22
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.
23
Part II Other Information
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Item 1.
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Legal Proceedings |
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Economic conditions and disruptions in the financial markets could have an
adverse effect on our business, financial condition and results of operations. |
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The financial markets could experience a period of turmoil, including the
bankruptcy, restructuring or sale of certain financial institutions and the
intervention of the U.S. federal government. While the ultimate outcome of these
types of events in the financial market cannot be predicted, they could have a
material adverse effect on our liquidity and financial condition if our ability to
borrow money from our existing lenders were to be impaired. A crisis in the
financial markets may also have a material adverse impact on the availability and
cost of credit in the future. Our ability to pay our debt or refinance our
obligations will depend on our future performance, which could be affected by, among
other things, prevailing economic conditions. A financial crisis may also have an
adverse effect on the U.S. and world economies, which would have a negative impact
on demand for our products. In addition, tightening of credit markets may have an
adverse impact on our customers ability to finance the purchase of new heavy-duty
trucks or our suppliers ability to provide us with raw materials, either of which
could adversely affect our business and results of operations |
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3.
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Defaults Upon Senior Securities |
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Item 4.
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Submission of Matters to a Vote of Security Holders |
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Item 5.
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Other Information |
24
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: November 12, 2008 |
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: November 12, 2008 |
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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25
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
|
Location |
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2(a)(1)
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Asset Purchase Agreement
Dated as of September 12, 1996,
As amended October 31, 1996,
between Navistar and RYMAC Mortgage
Investment Corporation1
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Incorporated by
reference to
Exhibit 2-A to
Registration
Statement on Form
S-4 (Registration
No. 333-15809) |
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2(a)(2)
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Second Amendment to Asset Purchase
Agreement dated December 16, 19961
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Incorporated by
reference to
Exhibit 2(a)(2) to
Annual Report on
Form 10-K for the
year-ended December
31, 2001 |
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2(b)(1)
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Agreement and Plan of Merger dated as of
November 1, 1996, between Core Molding
Technologies, Inc. and RYMAC Mortgage
Investment Corporation
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Incorporated by
reference to
Exhibit 2-B to
Registration
Statement on Form
S-4 (Registration
No. 333-15809) |
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2(b)(2)
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First Amendment to Agreement and Plan
of Merger dated as of December 27, 1996
Between Core Molding Technologies, Inc. and
RYMAC Mortgage Investment Corporation
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Incorporated by
reference to
Exhibit 2(b)(2) to
Annual Report on
Form 10-K for the
year ended December
31, 2002 |
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2(c)
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Asset Purchase Agreement dated as of October
10, 2001, between Core Molding Technologies,
Inc. and Airshield Corporation
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Incorporated by
reference to
Exhibit 1 to Form
8-K filed October
31, 2001 |
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3(a)(1)
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Certificate of Incorporation of
Core Molding Technologies, Inc.
As filed with the Secretary of State
of Delaware on October 8, 1996
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Incorporated by
reference to
Exhibit 4(a) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3(a)(2)
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Certificate of Amendment of
Certificate of Incorporation
of Core Molding Technologies, Inc.
as filed with the Secretary of State
of Delaware on November 6, 1996
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Incorporated by
reference to
Exhibit 4(b) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3(a)(3)
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Certificate of Incorporation of Core
Materials Corporation, reflecting
Amendments through November 6,
1996 [for purposes of compliance
with Securities and Exchange
Commission filing requirements only]
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Incorporated by
reference to
Exhibit 4(c) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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3(a)(4)
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Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of
State of Delaware on August 28, 2002
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Incorporated by
reference to
Exhibit 3(a)(4) to
Quarterly Report on
Form 10-Q for the
quarter ended
September 30, 2002 |
26
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Exhibit No. |
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Description |
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Location |
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3(a)(5)
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Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock as filed with the Secretary
of State of Delaware on July 18, 2007
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Incorporated by
reference to
Exhibit 3.1 to Form
8-K filed July 19,
2007 |
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3(b)
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Amended and Restated By-Laws of Core Molding
Technologies, Inc.
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Incorporated by
reference to
Exhibit 3.1 to
Current Report on
Form 8-K filed
January 4, 2008 |
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4(a)(1)
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Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the
Secretary of State of Delaware on October 8,
1996
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Incorporated by
reference to
Exhibit 4(a) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4(a)(2)
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|
Certificate of Amendment of Certificate
of Incorporation of Core Materials
Corporation as filed with the Secretary of
State of Delaware on November 6, 1996
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|
Incorporated by
reference to
Exhibit 4(b) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4(a)(3)
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|
Certificate of Incorporation of Core Materials
Corporation, reflecting amendments through
November 6, 1996 [for purposes of compliance
with Securities and Exchange Commission
filing requirements only]
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Incorporated by
reference to
Exhibit 4(c) to
Registration
Statement on Form
S-8 (Registration
No. 333-29203) |
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4(a)(4)
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|
Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of
State of Delaware on August 28, 2002
|
|
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
|
|
Incorporated by
reference to
Exhibit 4.1 to
Current Report From
8-K filed July 19,
2007 |
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|
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10(a)
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|
Maximum Guaranteed Price Design Construction
Contract, effective August 27, 2008, between
Corecomposites de Mexico, S. de R.L. de C.V.
and AS construcciones Del Norte, S.A. de C.V.
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|
Filed Herein |
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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)
|
|
Section 302 Certification by Kevin L.
Barnett, President, Chief Executive Officer,
and Director
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|
Filed Herein |
27
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Exhibit No. |
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Description |
|
Location |
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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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|
|
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32(a)
|
|
Certification of Kevin L. Barnett, Chief
Executive Officer of Core Molding
Technologies, Inc., dated November 12, 2008,
pursuant to 18 U.S.C. Section 1350
|
|
Filed Herein |
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|
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32(b)
|
|
Certification of Herman F. Dick, Jr., Chief
Financial Officer of Core Molding
Technologies, Inc., dated November 12, 2008,
pursuant to 18 U.S.C. Section 1350
|
|
Filed Herein |
1 The Asset Purchase Agreement, as filed with the Securities and Exchange Commission at
Exhibit 2-A to Registration Statement on Form S-4 (Registration No. 333-15809), omits the exhibits
(including, the Buyer Note, Special Warranty Deed, Supply Agreement, Registration Rights Agreement
and Transition Services Agreement, identified in the Asset Purchase Agreement) and schedules
(including, those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase Agreement.
Core Molding Technologies, Inc. will provide any omitted exhibit or schedule to the Securities and
Exchange Commission (SEC) upon request.
28