800 Manor Park Drive
Columbus, OH 43228
www.coremt.com
FOLD HERE
ANNUAL
REPORT
2017
CREATIVE
RELIABLE
COMPOSITES
CORE MOLDING TECHNOLOGIES, INC.
CMT-056 AnnualReport.2017.FA copy.indd 1-2
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2017
CORE MOLDING TECHNOLOGIES, INC.
ANNUAL REPORT TO SHAREHOLDERS
Core Molding Technologies, Inc. is a manufacturer of sheet molding compound (SMC) and molder of
thermoset and thermoplastic products. The Company produces high quality molded products, assemblies
and SMC materials for varied markets, including medium and heavy-duty trucks, automotive, marine, home
improvement, water management, agriculture, construction and other commercial markets. The Company
offers customers a wide range of manufacturing processes to fit various program volume and investment
requirements. These processes include compression molding of SMC, bulk molding compounds (BMC);
resin transfer molding (RTM), liquid molding of dicyclopentadiene (DCPD), spray-up and hand-lay-up, glass
mat thermoplastics (GMT), direct long-fiber thermoplastics (D-LFT) and structural foam and web injection
molding. Core Molding Technologies has its headquarters in Columbus, Ohio, and operates production
facilities in Columbus and Batavia, Ohio; Gaffney, South Carolina; Winona, Minnesota; Matamoros, Mexico,
Escobedo, Mexico; and Cobourg, Ontario, Canada. Core’s common stock is traded on the NYSE American LLC
under the symbol “CMT.”
NET SALES
(Dollars in millions)
199.1
175.2
174.9
161.7
144.1
$200
$150
$100
$50
$0
INCOME BEFORE INTEREST AND TAXES
(Dollars in millions)
NET INCOME PER SHARE
(Basic)
18.5
14.6
10.1
11.5
8.0
$20
$15
$10
$5
$0
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
1.59
1.28
0.95
0.97
0.71
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
FOLD HERE
INVESTOR INFORMATION
Share Trading
Shares of Core Molding Technologies common stock are traded on the NYSE American LLC
under the symbol “CMT.”
Notice of Annual Meeting
The Company’s 2018 annual meeting will be held on May 17, 2018. The meeting will be held at the
Company’s Gaffney, South Carolina facility, 24 Commerce Drive, Gaffney, South Carolina 29340
and will convene at 9:00 a.m.
Investor Relations
Investor inquiries, including requests to obtain copies without charge of the Company’s annual
report as filed with the Securities & Exchange Commission, should be directed to:
Core Molding Technologies, Inc.
Investor Relations
800 Manor Park Drive
Columbus, OH 43228
Website: www.coremt.com
Stockholder Inquiries
Questions such as changes of address, name changes or lost certificates should be directed to
the Company’s stock transfer agent:
American Stock Transfer & Trust Co., LLC
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
info@amstock.com
SELECTED FINANCIAL HIGHLIGHTS (dollars in millions except per share numbers)
CORPORATE OFFICERS
BOARD OF DIRECTORS
YEARS ENDED DECEMBER 31
Net Sales
Operating Income
Net Income
Net Income per common share: Basic
Net Income per common share: Diluted
Long-term debt
Stockholders’ equity
2017
161.7
8.0
5.5
0.71
0.70
3.8
101.9
2016
174.9
11.5
7.4
0.97
0.97
6.8
96.8
2015
199.1
18.5
12.1
1.59
1.58
9.8
88.7
2014
175.2
14.6
9.6
1.28
1.28
0.7
76.1
2013
144.1
10.1
6.9
0.95
0.92
2.4
67.4
Kevin L. Barnett
President and Chief Executive Officer
Robert P. Price
Vice President of Operations
Terrence J. O’Donovan
Vice President of Marketing and Sales
John P. Zimmer
Vice President, Secretary, Treasurer
and Chief Financial Officer
James L. Simonton, Chairman
Thomas R. Cellitti
James F. Crowley
Ralph O. Hellmold
Matthew E. Jauchius
Andrew O. Smith
Kevin L. Barnett
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TO OUR SHAREHOLDERS
The past year was one of transition for our primary market, the North American heavy-duty truck industry. The industry started the
year preparing for further declines in production levels after a significant reduction in 2016. By the second half of 2017, heavy-duty
truck production levels fully rebounded and 2017 saw an overall increase in unit production of approximately 12%. Although, the
upturn in the heavy-duty truck market in the second half of the year resulted in higher product sales for the year, the abrupt increase
also caused operational challenges as we ramped up business. At the same time, the Company was launching several significant
new products in multiple facilities. The increase in demand, the launch of new products along with increased material and labor
costs caused our gross margin for the year to be 15.3%, which is lower than our target margin of 16% - 19%. Thanks to the efforts
of our entire team of employees, even with the operational challenges, we were able to deliver net income of $5.5 million or $0.70
per diluted share.
We achieved several significant accomplishments in 2017:
Completed the negotiations and diligence that culminated in the acquisition of Horizon Plastics International, Inc.
(“Horizon Plastics”) on January 16, 2018.
Added two new processes, structural foam and structural web injection molding, and increased thermoplastic materials
Received several new product wins that will launch over the next couple of years in truck, automotive and industrial
capabilities through the acquisition of Horizon Plastics.
appliances, which is a new market for the Company.
Expanded our Matamoros, Mexico facility’s process capabilities to included Direct Long Fiber Thermoplastics, a
technology acquired in 2015 with the acquisition of CPI.
Initiated a quarterly dividend of $0.05 per share.
Financial Results
Total net sales for the year ended December 31, 2017, including tooling, were $161.7 million compared to $174.9 million for the
year ended December 31, 2016. Product sales for 2017 were $148.6 million compared to 2016 product sales of $146.6. Net income
was $5.5 million, or $0.70 per diluted share, compared to $7.4 million, or $0.97 per diluted share.
Our stockholders’ equity increased over $5 million from prior year-end to $101.9 million as of December 31, 2017, representing
$13.21 per share in book value equity. We are proud that our performance over the years has resulted in the Company’s shareholder
equity exceeding the $100 million mark for the first time ever.
Looking Ahead
Industry analysts are predicting North American Class 8 truck production to increase up to 25% compared to full year 2017 build
levels, which should have a favorable impact on our product sales in 2018. As the North America economy continues to accelerate,
we anticipate the increase in raw material and labor costs that affected us in 2017 to continue in 2018. Production inefficiencies
from the ramp up of business and the launch of new programs are expected to have an effect on 2018 margins as we manage through
the new employee hiring and training process. We will however, focus on operational improvements in 2018 to counter the expected
cost increases and production inefficiencies.
In January 2018, we completed the acquisition of Horizon Plastics. The acquisition accomplished several of our strategic goals
including expanding our technology offerings and diversifying our customer base and end-markets. In addition to new technology
offerings, the acquisition brings us existing business with industry leading customers in several new markets, experienced
leadership, a motivated and capable workforce, and an expanded geographic reach. We welcome our newest team members from
Horizon Plastics and look forward to integrating Horizon Plastics with Core in order to provide our combined customers with one of
the broadest process and material offerings in the industry.
Moving forward we continue to focus on the long-term growth of the Company and achieving our strategic goals of providing a
broad range of process and material offerings to a diversified market and customer base. We realize that our ability to deliver
successful results is dependent upon our relationships with our customers, suppliers, employees and shareholders. We would like to
express our gratitude to all of you for your ongoing support.
Sincerely,
Kevin L. Barnett
President and Chief Executive Officer
James L. Simonton
Chairman of the Board
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
incorporation or organization)
31-1481870
(I.R.S. Employer Identification No.)
800 Manor Park Drive, Columbus, Ohio
(Address of principal executive office)
43228-0183
(Zip Code)
Registrant's telephone number, including area code: (614) 870-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01
Preferred Stock purchase rights, par value $0.01
Name of each exchange on which registered
NYSE American LLC
NYSE American LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of June 30, 2017, the aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates of
the registrant was approximately $102,083,825, based upon the closing sale price of $21.61 on the NYSE American LLC on June
30, 2017, the last business day of registrant's most recently completed second fiscal quarter. As of the close of business on March 5,
2018, the number of shares of registrant's common stock outstanding was 7,866,809.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2018 definitive Proxy Statement to be filed with the Securities and Exchange Commission no later than
120 days after the end of the registrant's fiscal year are incorporated herein by reference in Part III of this Form 10-K.
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
3
11
19
19
20
20
21
23
24
33
34
58
58
59
59
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 59
59
59
61
Item 13. Certain Relationships, Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Signatures
Exhibit 23
Exhibit 24
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABEL LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
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PART I
ITEM 1. BUSINESS
HISTORICAL DEVELOPMENT OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
In 1996, RYMAC Mortgage Investment Corporation (“RYMAC”) incorporated Core Molding Technologies, Inc. (“Core Molding
Technologies” or the “Company”), formerly known as Core Materials Corporation before changing its name on August 28, 2002, for
the purpose of acquiring the Columbus Plastics unit of Navistar, Inc. (“Navistar”), formerly known as International Truck & Engine
Corporation. On December 31, 1996, RYMAC merged with and into the Company, with the Company as the surviving entity.
Immediately after the merger, the Company acquired substantially all the assets and liabilities of the Columbus Plastics unit from
Navistar in return for a secured note, which has been repaid, and 4,264,000 shares of newly issued common stock of the Company.
On July 18, 2007, the Company entered into a stock repurchase agreement with Navistar, pursuant to which the Company
repurchased 3,600,000 shares of the Company’s common stock, from Navistar. On August 16, 2013, Navistar sold its remaining
664,000 shares of common stock in a series of open market sales.
In 1998, the Company opened a second compression molding plant located in Gaffney, South Carolina as part of the Company’s
growth strategy to expand its customer base. This facility provided the Company with additional capacity and a strategic location to
serve both current and prospective customers.
In October 2001, the Company incorporated Core Composites Corporation as a wholly owned subsidiary under the laws of the State
of Delaware. This entity was established for the purpose of holding and establishing operations for Airshield Corporation’s assets,
which the Company acquired on October 16, 2001 (the “Airshield Asset Acquisition”) as part of the Company’s diversified growth
strategy. Airshield Corporation was a privately held manufacturer and marketer of fiberglass reinforced plastic parts primarily for the
truck and automotive aftermarket industries. The Company purchased substantially all of the assets of Airshield Corporation through
the United States Bankruptcy Court as Airshield Corporation had been operating under Chapter 11 bankruptcy protection since
March 2001.
In conjunction with establishment of operations for the assets acquired in the Airshield Asset Acquisition, the Company established a
Mexican subsidiary and leased a production facility in Mexico. In October 2001, the Company (5% owner) and Core Composites
Corporation (95% owner) incorporated Corecomposites de Mexico, S. de R.L. de C.V. (“Corecomposites”) in Matamoros, Mexico.
Corecomposites was organized to operate under a maquiladora program whereby substantially all products produced are exported
back to Core Composites Corporation which sells such products to United States based external customers. In June of 2009, the
Company completed construction and took occupancy of a new production facility in Matamoros, Mexico that replaced its leased
facility.
In September 2004, the Company formed Core Automotive Technologies, LLC (“Core Automotive”), a Delaware limited liability
company and wholly owned subsidiary of the Company. This entity was formed for the purpose of establishing operations and
holding assets acquired from Keystone Restyling, Inc., which the Company acquired as part of its diversified growth strategy in
September, 2004. Keystone Restyling, Inc. was a privately held manufacturer and marketer of fiberglass reinforced plastic parts
primarily for the automotive and light truck aftermarket industries. The Company’s facility in Matamoros, Mexico provides
manufacturing services for Core Automotive Technologies.
In August 2005, the Company formed Core Composites Cincinnati, LLC, ("Core Composites Cincinnati") a Delaware limited
liability company and wholly owned subsidiary of the Company. This entity was formed for the purpose of establishing operations
and holding assets acquired from the Cincinnati Fiberglass Division of Diversified Glass Inc., which the Company acquired in
August, 2005. The Cincinnati Fiberglass Division of Diversified Glass, Inc. was a privately held manufacturer and distributor of
fiberglass reinforced plastic components supplied primarily to the heavy-duty truck market. As a result of this acquisition, the
Company leases a manufacturing facility in Batavia, Ohio.
In March 2015, the Company acquired substantially all of the assets of CPI Binani, Inc., a Minnesota based manufacturer and
producer of direct long fiber thermoplastic ("D-LFT") products, and a wholly owned subsidiary of Binani Industries Limited,
located in Winona, Minnesota ("CPI"). The purpose of the acquisition was to increase the Company's process capabilities and
diversify the Company's customer base.
3
SUBSEQUENT EVENTS - JANUARY 2018 ACQUISITION OF HORIZON PLASTICS INTERNATIONAL INC.
On January 16 ,2018,1137925 B.C Ltd., a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the
"Agreement") with Horizon Plastics International Inc.,1541689 Ontario Inc., 2551024 Ontario Inc. and Horizon Plastics de Mexico,
S.A. de C.V. (collectively "Horizon Plastics"). Pursuant to the terms of the Agreement the Company acquired substantially all of the
assets and assumed certain specified liabilities of Horizon Plastics in exchange for approximately $63,000,000 in cash, subject to a
working capital closing adjustment
Horizon Plastics is a custom low-pressure structural plastic molder, which utilizes both structural foam and structural web process
technologies, with approximately 250 employees operating within two manufacturing facilities located in Cobourg, Canada and
Escobedo, Mexico. Horizon Plastics had annual sales for its fiscal year ended August 31, 2017 of approximately $60 million. The
Company expects the transaction to be approximately $0.15 to $0.20 accretive to earnings per share for calendar year 2018. The
purpose of the acquisition was to increase the Company's process capabilities to include structural foam and structural web molding,
expand its geographical footprint, and diversify the Company's customer base.
The completion of the acquisition occurred simultaneously with entry into the Agreement. The Agreement contained customary
representations, warranties and indemnification provisions, as well as non-compete and non-solicitation provisions. The Company
has the right to make claims for indemnifiable matters directly against Horizon Plastics in certain limited circumstances and subject
to certain limitations. A portion of the purchase price was held by a third-party escrow agent as security for the indemnification
obligations of Horizon Plastics. The acquisition was funded through a combination of available cash on hand and borrowings under
the Amended and Restated Credit Agreement with KeyBank National Association, as further described below.
Additional information pertaining to the acquisition of Horizon Plastics is included below in this Item 1 “Business,” as well as in
Item 1A., “Risk Factors,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
Note 16, “Subsequent Events,” to the Consolidated Financial Statements appearing in Item 8. Additional information regarding the
acquisition of Horizon Plastics is also included in the Company’s Current Report on Form 8-K filed with the SEC on January 19,
2018 and subsequent filings the Company will make with the SEC.
DESCRIPTION OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
Certain statements under this caption of this Annual Report on Form 10-K constitute forward-looking statements within the meaning
of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or
performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs
relating to matters not historical in nature. Such forward-looking statements involve known and unknown risks and are subject to
uncertainties and factors relating to Core Molding Technologies' operations and business environment, all of which are difficult to
predict and many of which are beyond Core Molding Technologies' control. Words such as “may,” “will,” “could,” “would,”
“should,” “anticipate,” “predict,” “potential,” “continue,” “expect,” “intend,” “plans,” “projects,” “believes,” “estimates,”
“encouraged,” “confident” and similar expressions are used to identify these forward-looking statements. 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 Annual Report on Form 10-
K: business conditions in the plastics, transportation, marine and commercial product industries (including slowdown in demand for
truck production); federal and state regulations (including engine emission regulations); general economic, social, regulatory
(including foreign trade policy) and political environments in the countries in which Core Molding Technologies operates; safety
and security conditions in Mexico and Canada; dependence upon certain major customers as the primary source of Core Molding
Technologies’ sales revenues; efforts of Core Molding Technologies to expand its customer base; the ability to develop new and
innovative products and to diversify markets, materials and processes and increase operational enhancements; the actions of
competitors, customers, and suppliers; failure of Core Molding Technologies’ suppliers to perform their obligations; the availability
of raw materials; inflationary pressures; new technologies; regulatory matters; labor relations; the loss or inability of Core Molding
Technologies to attract and retain key personnel; the Company's ability to successfully identify, evaluate and manage potential
acquisitions and to benefit from and properly integrate any completed acquisitions, including the recent acquisition of Horizon
Plastics; the risk that the integration of Horizon Plastics may be more difficult, time-consuming or costly than expected; expected
revenue synergies and cost savings from acquisition of Horizon Plastics may not be fully realized within the expected timeframe;
revenues following the acquisition of Horizon Plastics may be lower than expected; customer and employee relationships and
business operations may be disrupted by the acquisition of Horizon Plastics; 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
4
rescheduling of orders; management’s decision to pursue new products or businesses which involve additional costs, risks or capital
expenditures; inadequate insurance coverage to protect against potential hazards; equipment and machinery failure; product
liability and warranty claims; and other risks identified from time to time in Core Molding Technologies’ other public documents on
file with the Securities and Exchange Commission, including those described in Item 1A of this Annual Report on Form 10-K.
Core Molding Technologies and its subsidiaries operate in the plastics market in a family of products known as “reinforced plastics.”
Reinforced plastics are combinations of resins and reinforcing fibers (typically glass or carbon) that are molded to shape. Core
Molding Technologies is a manufacturer of sheet molding compound ("SMC") and molder of fiberglass reinforced plastics. The
Company specializes in large-format moldings and offers a wide range of fiberglass processes, including compression molding of
SMC, glass mat thermoplastics ("GMT"), bulk molding compounds ("BMC") and D-LFT; spray-up, hand-lay-up, and resin transfer
molding ("RTM"). Additionally, the Company offers reaction injection molding ("RIM"), utilizing dicyclopentadiene technology.
Effective January 16, 2018, the Company acquired Horizon Plastics, which acquisition increased the Company’s process capabilities
to include structural foam and structural web molding production.
Reinforced plastics compete largely against metals and have the strength to function well during prolonged use. Management
believes that reinforced plastic components offer many advantages over metals, including:
•
•
•
•
•
•
•
•
•
heat resistance;
corrosion resistance;
lighter weight;
lower cost;
greater flexibility in product design;
part consolidation for multiple piece assemblies;
lower initial tooling costs for lower volume applications;
high strength-to-weight ratio; and
dent-resistance in comparison to steel or aluminum.
The largest markets for reinforced plastics are transportation (automotive and truck), agriculture, construction, marine, and industrial
applications. As of December 31, 2017, the Company operated five production facilities in Columbus, Ohio; Batavia, Ohio; Gaffney,
South Carolina; Winona, Minnesota; and Matamoros, Mexico, which produce reinforced plastic products. Effective as of January
16, 2018, the Company began operating two manufacturing facilities that were acquired as part of the Company’s acquisition of
Horizon Plastics, which manufacturing facilities are located in Cobourg, Canada and Escobedo, Mexico, which produce structural
foam and structural web molding. Our manufacturing facilities utilize various production processes; however, end products are
similar and are not unique to a facility or customer base. Operating decision makers (officers of the Company) are headquartered in
Columbus, Ohio and oversee all manufacturing operations for all products as well as oversee customer relationships with all
customers. The Company supplies reinforced plastic products to truck manufacturers, automotive suppliers, and manufacturers of
marine and other commercial products. In general, product growth and diversification are achieved in several different ways: (1)
resourcing of existing reinforced plastic product from another supplier by an original equipment manufacturer (“OEM”); (2)
obtaining new reinforced plastic products through a selection process in which an OEM solicits bids; (3) successful marketing of
reinforced plastic products for previously non-reinforced plastic applications; (4) successful marketing of reinforced plastic products
to OEMs outside of our traditional markets; (5) development of new materials, technology and processes to meet current or
prospective customer requirements; and (6) acquiring an existing business. The Company's efforts continue to be directed towards
all six areas.
MAJOR COMPETITORS
The Company believes that it is one of the three largest compounders and molders of reinforced plastics using the SMC, spray-up,
hand-lay-up, RTM, and D-LFT molding processes in North America. The Company faces competition from a number of other
molders including, most significantly, Molded Fiber Glass Companies, Continental Structural Plastics, Ashley Industrial Molding,
Sigma Industries and The Composites Group. The Company believes that it is well positioned to compete based primarily on
manufacturing capability and location, product quality, engineering capability, cost, and delivery. However, the industry remains
highly competitive and some of the Company's competitors have greater financial resources, research and development facilities,
design engineering, manufacturing, and marketing capabilities.
MAJOR CUSTOMERS
The Company had five major customers, Navistar, Volvo Group ("Volvo"), PACCAR Inc. ("PACCAR"), Yamaha Motor
Manufacturing Corporation of America ("Yamaha") and Bombardier Recreational Production ("BRP"), in 2017. Major customers
are defined as customers whose current year sales individually consist of more than ten percent of total sales during any annual or
5
interim reporting period in the current year. The loss of a significant portion of sales to Navistar, Volvo, PACCAR, Yamaha or BRP
would have a material adverse effect on the business of the Company.
The North American truck market in which Navistar, Volvo, and PACCAR compete is highly competitive and the demand for heavy
and medium-duty trucks is subject to considerable volatility as it moves in response to cycles in the overall business environment
and is particularly sensitive to the industrial sector, which generates a significant portion of the freight tonnage hauled. Truck
demand also depends on general economic conditions, among other factors.
Yamaha Motor Manufacturing Corporation of America, a wholly owned subsidiary of Yamaha Motor Corporation, U.S.A., and BRP
are top manufacturers of recreational vehicles including golf carts, all-terrain vehicles, personal watercraft and side by side utility
vehicles. Demand in the recreational vehicle market is typically influenced by the rapid introduction of new models creating a short
product lifecycle, the brand recognition of the various competitors, general economic conditions, and seasonal effects, among other
factors.
Relationship with Navistar
The Company has historically had a Comprehensive Supply Agreement with Navistar that provides for the Company to be the
primary supplier of Navistar’s original equipment and service requirements for fiberglass reinforced parts, as long as the Company
remains competitive in cost, quality, and delivery. The Company's current Comprehensive Supply Agreement with Navistar is
effective through October 31, 2018.
The Company makes products for Navistar's Springfield, Ohio; Tulsa, Oklahoma; and Escobedo, Mexico assembly plants, as well as
aftermarket products for service distribution centers. The Company works closely on new product development with Navistar's
engineering and research personnel. Products sold to Navistar include hoods, roofs, air deflectors, cab extenders, fender extensions,
splash panels, and other components. Sales to Navistar amounted to approximately 25%, 24% and 28% of total sales for 2017, 2016
and 2015, respectively.
Relationship with Volvo
The Company makes products for Volvo’s New River Valley (Dublin, Virginia) and Macungie, Pennsylvania assembly plants, as
well as aftermarket products for service distribution centers. The Company works closely on new product development with
Volvo’s engineering and research teams. Products sold to Volvo include hoods, roofs, sunvisors, air deflectors, cab extenders and
other components. Sales to Volvo amounted to approximately 22%, 29% and 28% of total sales for 2017, 2016 and 2015,
respectively.
Relationship with PACCAR
The Company makes products for PACCAR's Chillicothe, Ohio; Denton, Texas; Renton, Washington; St. Therese (Canada); and
Mexicali, Mexico assembly plants, as well as aftermarket products for service distribution centers. The Company also works closely
on new product development with PACCAR's engineering and research personnel. Products sold to PACCAR include hoods, roofs,
back panels, air deflectors, air fairings, fenders, splash panels, cab extenders, and other components. Sales to PACCAR amounted to
approximately 18%, 16% and 17% of total sales for 2017, 2016 and 2015, respectively.
Relationship with Yamaha
The Company manufactures sheet molding compound and molded products for Yamaha’s assembly plant located in Newnan, GA.
The Company also works closely on new product and material development with Yamaha’s engineering and research personnel.
Products sold to Yamaha include sheet molding compound and various molded components to support the assembly of personal
watercraft. Sales to Yamaha amounted to approximately 11%, 9%, and 8% of total sales in 2017, 2016 and 2015, respectively.
Relationship with BRP
The Company manufactures molded products for BRP's assembly plant located in Queretaro, Mexico. Products sold to BRP include
various molded components to support the assembly of personal watercraft. Sales to BRP amounted to approximately 8%, 7%, and
4% of total sales in 2017, 2016 and 2015, respectively.
6
OTHER CUSTOMERS
The Company also produces products for other truck manufacturers, the automotive industry, marine industry, commercial product
industries, automotive aftermarket industries, and various other customers and industries. Sales to these customers individually
were all less than 10% of total sales for interim and annual reporting during 2017. Sales to these customers amounted to
approximately 16%, 15% and 15% of total sales for 2017, 2016 and 2015, respectively.
GEOGRAPHIC INFORMATION
All of the Company's products are sold in U.S. dollars. The following table provides information related to the Company's sales by
country, based on the ship to location of customers' production facilities, for the years ended December 31:
United States
Mexico
Canada
Total
2017
103,513,000 $
52,496,000
5,664,000
161,673,000 $
2016
119,018,000 $
51,389,000
4,475,000
174,882,000 $
2015
129,651,000
63,586,000
5,831,000
199,068,000
$
$
The following table provides information related to the location of the Company's property, plant and equipment, net, as of
December 31:
United States
Mexico
Total
2017
40,594,000 $
28,037,000
68,631,000 $
2016
42,547,000
28,054,000
70,601,000
$
$
PRODUCTS
Sheet Molding Compound (“SMC”)
SMC is primarily a combination of resins, fiberglass, fillers, and catalysts compounded and cured in sheet form, which is then used
to manufacture compression-molded products, as discussed below. The Company also sells SMC to other molders.
The Company incorporates a sophisticated computer program in the process of compounding various complex SMC formulations
tailored to meet customer needs. The program provides for the control of information during various production processes and data
for statistical batch controls.
Closed Molded Products
The Company manufactures plastic products using compression molding, resin transfer molding and reaction injection molding. As
of December 31, 2017, the Company owned 51 molding presses in its Columbus, Ohio facility (16), Matamoros, Mexico facility
(20), Gaffney, South Carolina facility (10) and Winona, Minnesota facility (5). The Company's molding presses range in size from
250 to 5,000 tons.
Compression Molding of SMC - Compression molding is a process whereby SMC is molded to form by matched die steel molds
through which a combination of heat and pressure are applied via a molding press. This process produces high quality,
dimensionally consistent products. This process is typically used for high volume products. Higher volumes justify the customer's
investment in matched die steel molds.
Large platen, high tonnage presses (2,000 tons or greater) provide the ability to mold very large reinforced plastic parts. The
Company believes that it possesses a significant portion of the large platen, high tonnage molding capacity in the industry. To
enhance the surface quality and the paint finish of our products, the Company uses both in-mold coating and vacuum molding
processes.
7
In-mold coating is the process of injecting a liquid over the molded part surface and then applying pressure at elevated temperatures
during an extended molding cycle. The liquid coating serves to fill and/or bridge surface porosity as well as provide a barrier against
solvent penetration during subsequent top-coating operations.
Vacuum molding is the removal of air during the molding cycle for the purpose of reducing the amount of surface porosity. The
Company believes that it is among the industry leaders in in-mold coating and vacuum molding applications, based on the size and
complexity of parts molded.
Resin Transfer Molding (“RTM”) - This process employs two molds, typically a core and a cavity, similar to matched die
molding. The composite is produced by placing glass mat, chopped strand, or continuous strand fiberglass in the mold cavity in the
desired pattern. Parts used for cosmetic purposes typically have a gel coat applied to the mold surface. The core mold is then fitted
to the cavity, and upon a satisfactory seal, a vacuum is applied. When the proper vacuum is achieved, the resin is injected into the
mold to fill the part. Finally, the part is allowed to cure and is then removed from the mold and trimmed to shape. Fiberglass
reinforced products produced from the RTM process exhibit a high quality surface on both sides of the part and excellent part
thickness. The multiple insert tooling technique can be utilized in the RTM process to improve throughput based upon volume
requirements.
Direct Long-Fiber Thermoplastics ("D-LFT") - D-LFT molding employs two molds, typically a core and a cavity, similar to
matched die molding. This is a process for compounding and molding thermoplastic materials with "long" fibers (typically, 0.5 inch
or longer). Engineered thermoplastic pellets and performance additives are compounded in a screw extruder, to which chopped
reinforcements (typically, glass fibers) are added and further extruded. A "charge" of material is cut to a precise weight, and this
"charge" is directly moved to a compression or injection-transfer process, where it is molded into a finished part. The process allows
for direct processing of the compounded material, bypassing the expense and delay of producing an intermediate product (pellets or
sheets) as is used in other fiber-reinforced thermoplastic molding processes. The D-LFT process is an attractive option for products
that have complex geometry, require high strength and stiffness and benefit from the recyclability of a thermoplastic resin.
Reaction Injection Molding (“RIM”) - This is a process whereby a composite is produced through the injection of a two-
component thermoset resin system utilizing dicyclopentadiene (“DCPD”) technology. DCPD technology involves injecting a liquid
compound into matched die aluminum molds to form the part. In this process the mold is prepared, closed and the liquid compound
is injected into the tool then cured. Additional finishing is required when the part is designated for top coat painting. The RIM
process is an alternative to other closed mold processes for mid-volume parts that require a high level of impact resistance.
Open Molded Products
The Company produces reinforced plastic products using both the hand lay-up and spray-up methods of open molding at our
Batavia, Ohio and Matamoros, Mexico locations. Part sizes weigh from a few pounds to several hundred pounds with surface
quality tailored for the end use application.
Hand Lay-Up - This process utilizes a shell mold, typically the cavity, where glass cloth, either chopped strand or continuous strand
glass mat, is introduced into the cavity. Resin is then applied to the cloth and rolled out to achieve a uniform wet-out from the glass
and to remove any trapped air. The part is then allowed to cure and removed from the mold. After removal, the part typically
undergoes trimming to achieve the shape desired. Parts used for cosmetic purposes typically have a gel coat applied to the mold
surface prior to the lay-up to improve the surface quality of the finished part. Parts produced from this process have a smooth outer
surface and an unfinished or rough interior surface. These fiberglass-reinforced products are typically non-cosmetic components or
structural reinforcements that are sold externally or used internally as components of larger assemblies.
Spray-Up - This process utilizes the same type of shell mold as hand-lay-up, but instead of using glass cloth to produce the
composite part, a chopper/spray system is employed. Glass rovings and resin feed the chopper/spray gun. The resin coated, chopped
glass is sprayed into the mold to the desired thickness. The resin coated glass in the mold is then rolled out to ensure complete wet-
out and to remove any trapped air. The part is then allowed to cure, is removed from the mold and is then trimmed to the desired
shape. Parts used for cosmetic purposes typically have a gel coat applied to the mold surface prior to the resin-coated glass being
sprayed into the mold to improve the surface quality of the finished part. Parts produced from this process have a smooth outer
surface and an unfinished or rough interior surface.
Assembly, Machining, and Paint Products
Many of the products molded by the Company are assembled, machined and prime painted or topcoat painted to result in a
completed product used by the Company's customers.
8
The Company has demonstrated manufacturing flexibility that accommodates a range of low volume hand assembly and machining
work, to high volume, highly automated assembly and machining systems. Robotics are used as deemed productive for material
handling, machining, and adhesive applications. In addition to conventional machining methods, water-jet cutting technology is also
used where appropriate. The Company also utilizes paint booths and batch ovens in its facilities. The Company generally contracts
with outside providers for higher volume applications that require top coat paint.
RAW MATERIALS
The principal raw materials used in the Company's processes are unsaturated polyester, vinyl ester, polypropylene and
dicyclopentadiene resins, fiberglass, and filler. Other significant raw materials include adhesives for assembly of molded
components, in-mold coating, gel-coat, prime paint for preparation of cosmetic surfaces, and hardware (primarily metal
components). Many of the raw materials used by the Company are crude oil based, natural gas based and downstream components,
and therefore, the costs of certain raw materials can be affected by changes in costs of these underlying commodities. Due to
fluctuating commodity prices, suppliers are typically reluctant to enter into long-term contracts. The Company generally has supplier
alternatives for each raw material, and regularly evaluates its supplier base for certain supplies, repair items, and components to
improve its overall purchasing position.
BACKLOG
The Company relies on production schedules provided by its customers to plan and implement production. These schedules are
normally provided on a weekly basis and typically considered firm for approximately four weeks. Some customers update these
schedules daily for changes in demand, allowing them to run their inventories on a “just-in-time” basis. The ordered backlog of four
weeks of expected shipments, was approximately $13.2 million (all of which the Company shipped during the first month of 2018)
and $11.1 million at December 31, 2017 and 2016, respectively.
CAPACITY CONSTRAINTS
Capacity utilization is measured based on a standard work week of five days per week, three-shifts per day. During times when
demand exceeds a five day, three-shift capacity, the Company will work weekends to create additional capacity, which can provide
capacity utilization percentages greater than 100%.
The approximate SMC production line capacity utilization was 54% and 57% for the years ended December 31, 2017 and 2016,
respectively.
The Company measures facility capacity in terms of its large molding presses (2,000 tons or greater) for the Columbus, Ohio,
Gaffney, South Carolina, Winona, Minnesota and the SMC molding at the Matamoros, Mexico facility.
The Company owned 27 large molding presses at December 31, 2017. The combined approximate large press capacity utilization in
these production facilities was 63% and 61% for the years ended December 31, 2017 and 2016, respectively. The increased
utilization mainly resulted from increase in demand from customers in the heavy truck and marine markets.
The capacity of production in the Batavia, Ohio facility and the spray-up, hand-lay-up and RTM at the Matamoros, Mexico facility
are not linked directly to equipment capacities, due to the nature of the products produced. Capacity of these operations is tied to
available floor space and equipment capacity throughput rates. The approximate capacity utilization for these operations was 35%
and 30% for the years ended December 31, 2017 and 2016, respectively.
The Company has been required at times to run up to a three shift/seven day operation to meet its customers' production
requirements. The Company has used various methods from overtime to a weekend manpower crew to support the customers'
production requirements.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures totaled approximately $4.3 million, $2.9 million and $5.7 million in 2017, 2016 and 2015 respectively. These
capital expenditures primarily consisted of building improvements, a new SMC production line and purchases of production
equipment to manufacture parts.
The Company continuously engages in product development. Research and development activities focus on developing new
material formulations, new structural plastic products, new production capabilities and processes, and improving existing products
and manufacturing processes. The Company does not maintain a separate research and development organization or facility, but
9
uses its production equipment, as necessary, to support these efforts and cooperates with its customers and its suppliers in research
and development efforts. Likewise, manpower to direct and advance research and development is integrated with the existing
manufacturing, engineering, production, and quality organizations. Management of the Company has estimated that costs related to
research and development were approximately $848,000, $965,000 and $719,000 in 2017, 2016 and 2015, respectively.
ENVIRONMENTAL COMPLIANCE
The Company's manufacturing operations are subject to federal, state, and local environmental laws and regulations, which impose
limitations on the discharge of hazardous and non-hazardous pollutants into the air and waterways. The Company has established
and implemented standards for the treatment, storage, and disposal of hazardous waste. The Company's policy is to conduct its
business with due regard for the preservation and protection of the environment. The Company's environmental waste management
process involves the regular auditing of hazardous waste accumulation points, hazardous waste activities and authorized treatment,
storage and disposal facilities. As part of the Company's environmental policy, all manufacturing employees are trained on waste
management and other environmental issues.
The Ohio Environmental Protection Agency has issued Core Molding Technologies Title V Operating Permits for its Columbus,
Ohio facility and its Batavia, Ohio facility. The South Carolina Department of Health and Environmental Control has issued a Title
V Operating Permit for the Gaffney, South Carolina facility. Core Molding Technologies has substantially complied with these and
all other environmental compliance permits at its U.S. production facilities.
The Company holds various environmental operating permits for its production facility in Matamoros, Mexico as required by U.S.
and Mexican state and federal regulations. The Company has substantially complied with all requirements of these operating
permits.
Beginning in 2018, the Company will be subject to applicable Canadian environmental laws and regulations in connection with its
acquisition of Horizon Plastics and the manufacture of products in Canada.
EMPLOYEES
As of December 31, 2017, the Company employed a total of 1,304 employees, which consists of 596 employees in its United States
operations and 708 employees in its Mexico operations. Of these 1,304 employees, 248 employees at the Company's Columbus,
Ohio facility are covered by a collective bargaining agreement with the International Association of Machinists and Aerospace
Workers (“IAM”), which extends to August 10, 2019, and 611 employees at the Company's Matamoros, Mexico facility are covered
by a collective bargaining agreement with Sindicato de Jorneleros y Obreros, which extends to December 31, 2019.
PATENTS, TRADE NAMES, AND TRADEMARKS
The Company will evaluate, apply for, and maintain patents, trade names, and trademarks where it believes that such patents,
trade names, and trademarks are reasonably required to protect its rights in its products. The Company has increased its activity
related to trademark protection in recent years, including the federal registration of the trademarks N-sulGuard®, Featherlite®,
Airilite®, FeatherliteXL®, Econolite® and Hydrilite®. However, the Company does not believe that any single patent, trade
name, or trademark or related group of such rights is materially important to its business or its ability to compete.
SEASONALITY & BUSINESS CYCLE
The Company's business is affected annually by the production schedules of its customers. Certain of the Company's customers
typically shut down their operations on an annual basis for a period of one to several weeks during the Company's third quarter.
Certain customers also typically shut down their operations during the last week of December. As a result, demand for the
Company's products typically decreases during the third and fourth quarters. Demand for medium and heavy-duty trucks, marine,
and automotive products also fluctuate on an economic, cyclical and seasonal basis, causing a corresponding fluctuation for demand
of the Company's products.
AVAILABLE INFORMATION
We maintain a website at www.coremt.com. Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, all amendments to those reports and other information about us are available free of charge through this website as soon as
reasonably practicable after the reports are electronically filed with the SEC. These materials are also available from the SEC’s
website at www.sec.gov.
10
ITEM 1A. RISK FACTORS
The following risk factors describe various risks that may affect our business, financial condition, and operations. References to
“we,” “us,” and “our” in this “Risk Factors” section refer to Core Molding Technologies and its subsidiaries, unless otherwise
specified or unless the context otherwise requires.
Our business has concentration risks associated with significant customers.
Sales to five customers constituted approximately 84% of our 2017 total sales. No other customer accounted for more than 10% of
our total sales for this period. The loss of any significant portion of sales to any of our significant customers could have a material
adverse effect on our business, results of operations, and financial condition.
Accounts receivable balances with five customers accounted for 84% of accounts receivable at December 31, 2017. The Company
performs ongoing credit evaluations of its customers’ financial condition and maintains reserves for potential bad debt losses. If the
financial conditions of any of these customers were to deteriorate impacting their ability to pay their receivables, our reserves may
not be adequate which could have a material adverse effect on our business, results of operations, or financial condition.
We are continuing to engage in efforts intended to strengthen and expand our relations with significant customers, as well as provide
support for our entire customer base. We have supported our position with customers through direct and active contact through our
sales, quality, engineering, and operational personnel. We cannot make any assurances that we will maintain or improve our
customer relationships, whether these customers will continue to do business with us as they have in the past or whether we will be
able to supply these customers or any of our other customers at current levels.
Our business is affected by the cyclical and overall nature of the industries and markets that we serve.
The North American heavy and medium-duty truck industries are highly cyclical. In 2017, approximately 68% of our product sales
were in these industries. These industries and markets fluctuate in response to factors that are beyond our control, such as general
economic conditions, interest rates, federal and state regulations (including engine emissions regulations, tariffs, import regulations,
and other taxes), consumer spending, fuel costs, and our customers' inventory levels and production rates. Our manufacturing
operations have a significant fixed cost component. Accordingly, during periods of changing demands, including an increase or
slowdown in truck demand, the profitability of our operations may change proportionately more than revenues from operations. In
addition, our operations are typically seasonal as a result of regular customer maintenance shutdowns, which typically vary from
year to year based on production demands and occur in the third and fourth quarter of each calendar year. This seasonality may
result in decreased net sales and profitability during the third and fourth fiscal quarters of each calendar year. Weakness in overall
economic conditions or in the markets that we serve, or significant reductions by our customers in their inventory levels or future
production rates, could result in decreased demand for our products and could have a material adverse effect on our business, results
of operations, or financial condition.
Price increases in raw materials and availability of raw materials could adversely affect our operating results and financial
condition.
We purchase resins and fiberglass for use in production as well as hardware and other components for product assembly. The prices
for purchased materials are affected by the prices of material feed stocks such as crude oil, natural gas, and downstream
components, as well as processing capacity versus demand. We attempt to reduce our exposure to increases by working with
suppliers, evaluating new suppliers, improving material efficiencies, and when necessary through sales price adjustments to
customers. If we are unsuccessful in developing ways to mitigate these raw material increases we may not be able to improve
productivity or realize savings from cost reduction programs sufficiently to help offset the impact of these increased raw material
costs. As a result, higher raw material costs could result in declining margins and operating results.
Cost reduction and quality improvement initiatives by original equipment manufacturers could have a material adverse
effect on our business, results of operations, or financial condition.
We are primarily a components supplier to the heavy and medium-duty truck industries, which are characterized by a small number
of original equipment manufacturers (“OEMs”) that are able to exert considerable pressure on components suppliers to reduce costs,
improve quality, and provide additional design and engineering capabilities. Given the fragmented nature of the industry,
OEMs continue to demand and receive price reductions and measurable increases in quality through their use of competitive
selection processes, rating programs, and various other arrangements. We may be unable to generate sufficient production cost
savings in the future to offset such price reductions. OEMs may also seek to save costs by purchasing components from suppliers
that are geographically closer to their production facilities or relocating production to locations with lower cost structures and
11
purchasing components from suppliers with lower production costs. These decisions by OEMs could require us to shift production
between our facilities, move production lines between our facilities or open new facilities to remain competitive. Shifting
production, moving production lines or opening new locations could result in significant costs required for capital investment,
transfer expenses and operating costs. Additionally, OEMs have generally required component suppliers to provide more design
engineering input at earlier stages of the product development process, the costs of which have, in some cases, been absorbed by the
suppliers. To the extent that the Company does not meet the quality standards or demands of quality improvement initiatives sought
by OEMs, or does not match the quality of suppliers of comparable products, OEMs may choose to purchase from these alternative
suppliers, and as a result the Company may lose existing or new business with OEMs. Future price reductions, increased quality
standards, and additional engineering capabilities required by OEMs may reduce our profitability and have a material adverse effect
on our business, results of operations, or financial condition.
We may be subject to product liability claims, recalls or warranty claims, which could have a material adverse effect on our
business, results of operations, or financial condition.
As a components supplier to OEMs, we face a business risk of exposure to product liability claims in the event that our products
malfunction and result in personal injury or death. Product liability claims could result in significant losses as a result of expenses
incurred in defending claims or the award of damages. In addition, we may be required to participate in recalls involving
components sold by us if any prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims
in order to maintain positive customer relationships. While we do maintain product liability insurance, it may not be sufficient to
cover all product liability claims, and as a result, any product liability claim brought against us could have a material adverse effect
on our results of operations. Further, we warrant the quality of our products under limited warranties, and as such, we are subject to
risk of warranty claims in the event that our products do not conform to our customers’ specifications. Such warranty claims may
result in costly product recalls, significant repair costs and damage to our reputation, all of which would adversely affect our results
of operations.
We operate in highly competitive markets, and if we are unable to effectively compete it may negatively impact future
operating results, sales and earnings.
The markets in which we operate are highly competitive. We compete with a number of other manufacturers that produce and sell
similar products. Our products primarily compete on the basis of capability, product quality, cost, and delivery. Some of our
competitors have greater financial resources, research and development facilities, design engineering, manufacturing, and marketing
capabilities. If we are unable to develop new and innovative products, diversify the markets, materials and processes we utilize and
increase operational enhancements, we may fall behind competitors or lose the ability to achieve competitive advantages. In the
highly competitive market in which we operate, this may negatively impact our ability to retain existing customers or attract new
customers, and if that occurs, it may negatively impact future operating results, sales and earnings.
We may be subject to additional shipping expense or late fees if we are not able to meet our customers' on-time demand for
our products.
We must continue to meet our customers' demand for on-time delivery of our products. Factors that could result in our inability to
meet customer demands include a failure by one or more of our suppliers to supply us with the raw materials and other resources
that we need to operate our business effectively and an unforeseen spike in demand for our products which would create capacity
constraints, among other factors. If this occurs, we may be required to incur additional shipping expenses to ensure on-time delivery
or otherwise be required to pay late fees, which could have a material adverse effect on our business, results of operations, or
financial condition.
If we fail to attract and retain key personnel our business could be harmed.
Our success largely depends on the efforts and abilities of our key personnel. Their skills, experience, and industry contacts
significantly benefit us. The inability to retain key personnel could have a material adverse effect on our business, results of
operations, or financial condition. Our future success will also depend in part upon our continuing ability to attract and retain highly
qualified personnel.
Work stoppages or other labor issues at our facilities or at our customers' facilities could adversely affect our operations.
As of December 31, 2017, unions at our Columbus, Ohio and Matamoros, Mexico facilities represented approximately 66% of our
entire workforce. As a result, we are subject to the risk of work stoppages and other labor-relations matters. The current Columbus,
Ohio and Matamoros, Mexico union contracts extend through August 10, 2019 and December 31, 2019, respectively. Any
prolonged work stoppage or strike at either our Columbus, Ohio or Matamoros, Mexico unionized facilities could have a material
12
adverse effect on our business, results of operations, or financial condition. Any failure by us to reach a new agreement upon
expiration of such union contracts may have a material adverse effect on our business, results of operations, or financial condition.
In addition, if any of our customers or suppliers experiences a material work stoppage, that customer may halt or limit the purchase
of our products or the supplier may interrupt supply of our necessary production components. This could cause us to shut down
production facilities relating to these products, which could have a material adverse effect on our business, results of operations, or
financial condition.
Changes in the legal, regulatory and social responses to climate change, including any possible effect on energy prices, could
adversely affect our business and reduce our profitability.
It is possible that various proposed legislative or regulatory initiatives related to climate changes, such as cap-and-trade systems,
increased limits on emissions of greenhouse gases and fuel efficiency standards, or other measures, could in the future have a
material impact on us, our customers, or the markets we serve, thereby resulting in a material adverse effect on our financial
condition or results of operation. For example, customers in the transportation (automotive and truck) industry could be required to
incur greater costs in order to comply with such initiatives, which could have an adverse impact on their profitability or viability.
This could in turn lead to further changes in the structure of the transportation industry that could reduce demand for our products.
We are also reliant on energy to manufacture our products, with our operating costs being subject to increase if energy costs rise.
During periods of higher energy costs we may not be able to recover our operating cost increases through production efficiencies
and price increases. While we may hedge our exposure to higher prices via future energy purchase contracts, increases in energy
prices for any reason (including as a result of new initiatives related to climate change) will increase our operating costs and likely
reduce our profitability.
Our foreign operations in Mexico and, beginning in 2018, Canada, subject us to risks that could negatively affect our
business.
We operate a manufacturing facility in Matamoros, Mexico and effective as of January 16, 2018, also operate facilities in Escobedo,
Mexico and Cobourg, Canada. As a result, a significant portion of our business and operations is subject to the risk of changes in
economic conditions, tax systems, consumer preferences, social conditions, safety and security conditions and political conditions
inherent in Mexico and Canada, including changes in the laws and policies that govern foreign investment, as well as changes in
United States laws and regulations relating to foreign trade and investment, including the North American Free Trade Agreement
("NAFTA"). It remains unclear whether the United States will take action to withdraw from or materially modify NAFTA. Changes
in laws and regulations related to foreign trade and investment may have an adverse effect on our results of operations, financial
condition, or cash flows.
Fluctuations in foreign currency exchange rates could adversely affect our results of operations, cash flow, liquidity or
financial condition.
Because of our international operations, we are exposed to risk associated with value changes in foreign currencies, which may
adversely affect our business. Historically, our reported net sales, earnings, cash flow and financial condition have been subjected to
fluctuations in foreign exchange rates. Our primary exchange rate exposure is with the Canadian dollar and the Mexican peso
against the U.S. dollar. While we actively manage the exposure of our foreign currency risk as part of our overall financial risk
management policy, we believe we may experience losses from foreign currency exchange rate fluctuations, and such losses could
adversely affect our sales, earnings, cash flow, liquidity or financial condition.
Our business is subject to risks associated with manufacturing equipment and infrastructure.
We convert raw materials into molded products through a manufacturing process at each production facility. While we maintain
insurance covering our manufacturing and production facilities, including business interruption insurance, a catastrophic loss of the
use of all or a portion of our facilities due to accident, fire, explosion, or natural disaster, whether short or long-term, could have a
material adverse effect on our business, results of operations, or financial condition.
Unexpected failures of our equipment and machinery may result in production delays, revenue loss, and significant repair costs, as
well as injuries to our employees. Any interruption in production capability may require us to make large capital expenditures to
remedy the situation, which could have a negative impact on our profitability and cash flows. Our business interruption insurance
may not be sufficient to offset the lost revenues or increased costs that we may experience during a disruption of our operations.
Because we supply our products to OEMs, a temporary or long-term business disruption could result in a permanent loss of
customers. If this were to occur, our future sales levels and therefore our profitability could be materially adversely affected.
13
Our business is subject to risks associated with new business awards. In order to recognize profit from new business, we
must accurately estimate product costs as part of the quoting process and implement effective and efficient manufacturing
processes.
The success of our business relies on our ability to produce products which meet the quality, performance and price expectations of
our customers. Our ability to recognize profit is largely dependent upon accurately identifying the costs associated with the
manufacture of our products, and executing the manufacturing process in a cost effective manner. There can be no assurance that all
costs will be accurately identified during the Company's quoting process, or that the expected level of manufacturing efficiency will
be achieved, and as a result we may not realize the anticipated operating results related to new business awards.
Our insurance coverage may be inadequate to protect against the potential hazards incident to our business.
We maintain property, business interruption, stop loss for healthcare and workers' compensation, director and officer, product
liability, and casualty insurance coverage, but such insurance may not provide adequate coverage against potential claims, including
losses resulting from war risks, terrorist acts, or product liability claims relating to products we manufacture. Consistent with
market conditions in the insurance industry, premiums and deductibles for some of our insurance policies have been increasing and
may continue to increase in the future. In some instances, some types of insurance may become available only for reduced amounts
of coverage, if at all. In addition, there can be no assurance that our insurers would not challenge coverage for certain claims. If we
were to incur a significant liability for which we were not fully insured or that our insurers disputed, it could have a material adverse
effect on our financial position.
We face various risks arising from our recent acquisition of Horizon Plastics. We may fail to realize growth opportunities
and other benefits from the acquisition of Horizon Plastics and we may fail to successfully integrate the Horizon Plastics
business with our existing business, either of which could adversely affect our financial condition and results of operations.
We may fail to realize growth opportunities and other benefits from the acquisition of Horizon Plastics, which we acquired on
January 16, 2018. We have no prior experience operating manufacturing operations in Canada, and we may not be as successful in
operating and growing this business in Canada as we have been in the United States and elsewhere. We may be unable to continue
existing, or to develop new, vendor and customer relationships, and enhance our position in Canada. Further, our operations in
Canada are subject to the various risks and uncertainties to which our United States and Mexican operations are subject.
Our ability to successfully integrate Horizon Plastics is subject to risks, including delays or difficulties in completing integration and
higher than expected costs. In connection with the integration efforts, our management’s attention and our resources could be
diverted from other business concerns. The integration process is underway and we expect integration to continue throughout 2018.
However, if integration difficulties arise, the diversion of attention and resources may be increased. Horizon Plastics' production
facilities are located in Canada and Mexico and sells products to customers in the United States, Canada and Mexico. While a
majority of Horizon Plastics’ sales are denominated in Unites States Dollar, the entity is subject to currency risk associated with
certain operating costs in Canada and Mexico. Additionally, Horizon Plastics’ operations are subject to the risk of changes in
economic conditions, tax systems, consumer preferences, social conditions, safety and security conditions and political conditions
inherent in Canada and Mexico. Any of these may adversely affect our financial condition and results of operations.
The audited and unaudited financial information of Horizon Plastics, and unaudited pro forma financial information for
Horizon Plastics, may not be representative of our combined results, and accordingly, investors may have limited financial
information on which to evaluate the combined company.
As referenced in our Current Report on Form 8-K filed with the SEC on January 19, 2018, we intend to file financial statements and
pro forma financial information related to Horizon Plastics an amendment to the original Form 8-K filing within the time frame
required by the SEC. The unaudited pro forma financial information and stand-alone Horizon Plastics financial information that we
ultimately file may not be representative of our combined results, and accordingly, investors may have limited financial information
on which to evaluate the combined company. We and Horizon Plastics operated as separate companies prior to the acquisition. We
have had no prior history as a combined company. The pro forma financial information we intend to file by amendment to the
original Current Report on Form 8-K will be presented for informational purposes only and will not necessarily be indicative of the
financial position or results of operations that actually would have occurred had the acquisition been completed at or as of the dates
indicated, nor is it indicative of the future operating results or financial position of the combined company.
14
In addition to Horizon Plastics, we have made acquisitions and may make acquisitions in the future. We may not realize the
operating results that we anticipate from these acquisitions or from acquisitions we may make in the future, and we may
experience difficulties in integrating the acquired businesses or may inherit significant liabilities related to such businesses.
We explore opportunities to acquire businesses that we believe are related to our core competencies from time to time, some of
which may be material to us. We expect such acquisitions will produce operating results consistent with our other operations,
however, we cannot provide assurance that this assumption will prove correct with respect to any acquisition.
Any acquisitions, including the recent acquisition of Horizon Plastics, may present significant challenges for our management due to
the increased time and resources required to properly integrate management, employees, information systems, accounting controls,
personnel, and administrative functions of the acquired business with those of ours and to manage the combined company on a
going forward basis. The diversion of management's attention and any delays or difficulties encountered in connection with the
integration of these businesses could adversely impact our business, results of operations, and liquidity, and the benefits we
anticipate may never materialize.
Expected future sales from business awards may not materialize. We may not realize the sales or operating results that we
anticipate from new business awards, and we may experience difficulties in meeting the production demands of new business
awards.
We will continue to pursue, and may be awarded, new business from existing or new customers. The Company may make capital
investments, which may be material to the Company, in order to meet the expected production requirements of existing or new
customers related to these business awards, and to support the potential production demands which may result from continued sales
growth. The anticipated impact on the Company's sales and operating results related to these business awards, for various reasons,
may not materialize. Any delays or production difficulties encountered in connection with these business awards, and any change in
customer demand, could adversely impact our business, results of operations, and liquidity, and the benefits we anticipate may never
materialize.
If we are unable to meet future capital requirements, our business may be adversely affected.
As we grow our business, we may have to incur significant capital expenditures. We may make capital investments to, among other
things, build new or upgrade our facilities, purchase leased facilities and equipment, and enhance our production processes. We
cannot assure you that we will have, or be able to obtain, adequate funds to make all necessary capital expenditures when required,
or that the amount of future capital expenditures will not be materially in excess of our anticipated or current expenditures. If we are
unable to make necessary capital expenditures we may not have the capability to support our customer demands, which, in turn
could reduce our sales and profitability and impair our ability to satisfy our customers' expectations. In addition, even if we are able
to invest sufficient resources, these investments may not generate net sales that exceed our expenses, generate any net sales at all, or
result in any commercially acceptable products.
Our failure to comply with our debt covenants could have a material adverse effect on our business, financial condition or
results of operations.
Our debt agreements contain certain covenants. A breach of any of these covenants could result in a default under the applicable
agreement. If a default were to occur, we would likely seek a waiver of that default, attempt to reset the covenant, or refinance the
instrument and accompanying obligations. If we were unable to obtain this relief, the default could result in the acceleration of the
total due related to that debt obligation. If a default were to occur, we may not be able to pay our debts or borrow sufficient funds to
refinance them. Any of these events, if they occur, could materially adversely affect our results of operations, financial condition,
and cash flows.
We may not achieve expected efficiencies related to the proximity of our customers' production facilities to our
manufacturing facilities, or with respect to existing or future production relocation plans.
Certain facilities are located in close proximity to our customers in order to minimize both our customer's and our own costs. If any
of our customers were to move or if nearby facilities are closed, that may impact our ability to remain competitive. Additionally, our
competitors could build a facility that is closer to our customers' facilities which may provide them with a geographic advantage.
Any of these events might require us to move closer to our customers, build new facilities or shift production between our current
facilities to meet our customers' needs, resulting in additional cost and expense.
15
Our products may be rendered obsolete or less attractive if there are changes in technology, regulatory requirements, or
competitive processes.
Changes in technology, regulatory requirements, and competitive processes may render certain products obsolete or less attractive.
Future chemical regulations may restrict our ability to manufacture products, cause us to incur substantial expenditures to comply
with them, and subject us to liability for adverse environmental or health effects linked to the manufacture of our products. Failure
to comply with future regulations may subject us to penalties or other enforcement actions. Our ability to anticipate changes in
these areas will be a significant factor in our ability to remain competitive. If we are unable to identify or compensate for any one of
these changes it may have a material adverse effect on our business, results of operations, or financial condition.
Our stock price can be volatile.
Our stock price can fluctuate widely in response to a variety of factors. Factors include actual or anticipated variations in our
quarterly operating results, our relatively small public float, changes in securities analysts' estimates of our future earnings, and the
loss of major customers or significant business developments relating to us or our competitors, and other factors, including those
described in this “Risk Factors” section. Our common stock also has a low average daily trading volume, which limits a person's
ability to quickly accumulate or quickly divest themselves of large blocks of our stock. In addition, a low average trading volume
can lead to significant price swings even when a relatively few number of shares are being traded.
We are subject to environmental, occupational health and safety rules and regulations that may require us to make
substantial expenditures or expose us to financial or other obligations including substantial damages, penalties, fines, civil or
criminal sanctions and remediation costs that could adversely affect our results.
Our operations, facilities, and personnel are subject to extensive and evolving laws and regulations pertaining to air emissions,
wastewater discharges, the handling and disposal of solid and hazardous materials and wastes, health and safety, the investigation
and remediation of contamination, and the protection of the environment and natural resources. It is difficult to predict the future
interpretations and developments of environmental and health and safety laws and regulations or their impact on our future results
and cash flows. Continued compliance could result in significant increases in capital expenditures and operating costs. In addition,
we may be exposed to obligations or involved from time to time in administrative or legal proceedings relating to environmental,
health and safety or other regulatory matters, and may incur financial and other obligations relating to such matters.
Certain senior management employees have entered into potentially costly severance arrangements with us if terminated
after a change in control.
We have entered into executive severance agreements with executive officers that provide for significant severance payments in the
event such employee's employment with us is terminated within two years of a change in control (as defined in the severance
agreement) either by the employee for good reason (as defined in the severance agreement) or by us for any reason other than cause
(as defined in the severance agreement), death or disability. A change in control under these agreements includes any transaction or
series of related transactions as a result of which less than fifty percent (50%) of the combined voting power of the then-outstanding
securities immediately after such transaction are held in the aggregate by the holders of our voting stock immediately prior to such
transaction; any person has become the beneficial owner of securities representing 50% or more of our voting stock; we file a report
or proxy statement with the SEC that a change in control of the Company has occurred; or within any two year period, the directors
at the beginning of the period cease to constitute at least a majority thereof. These agreements would make it costly for us to
terminate certain of our senior management employees and such costs may also discourage potential acquisition proposals, which
may negatively affect our stock price.
Economic conditions and disruptions in the financial markets could have an adverse effect on our business, financial
condition and results of operations.
In recent years, financial markets experienced turmoil and uncertainty. Disruptions in the financial markets 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.
Disruptions 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. Disruptions in the financial markets may also have an adverse effect on the U.S. and world
economies, which would have a negative impact on demand for our products. In addition, tightening of credit markets may have an
adverse impact on our customers' ability to finance the sale of new trucks or our suppliers' ability to provide us with raw materials,
either of which could adversely affect our business and results of operations.
16
Our provision for income tax, adverse tax audits or changes in tax policy could have an adverse effect on our business,
financial condition and results of operations.
We are subject to income taxes in the United States and Mexico and, beginning in 2018, Canada. Our provision for income taxes and
cash flow related to taxes may be negatively impacted by: (1) changes in the mix of earnings taxable in jurisdictions with different
statutory rates, (2) changes in tax laws and accounting principles, (3) changes in the valuation of our deferred tax assets and
liabilities, (4) discovery of new information during the course of tax return preparation, (5) increases in nondeductible expenses, or
(6) difficulties in repatriating earnings held abroad in a tax efficient manner.
Tax audits may also negatively impact our business, financial condition and results of operations. We are subject to continued
examination of our income tax returns, and tax authorities may disagree with our tax positions and assess additional tax. We
regularly evaluate the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision
for income taxes. There can be no assurance that the outcomes from examinations will not have a negative impact on our future
financial condition and operating results.
Recent changes to U.S. tax laws may adversely affect our financial condition or results of operation and create the risk that
we may need to adjust our accounting for these changes.
Many of our customers have production operations in Mexico and Canada and recent or future changes to United States tax law or
policy could motivate these customers to shift production to their facilities in the United States. Should customers decide to move
production it may impact our ability to remain competitive, or require us to add capacity and move production to our facilities in the
United States to meet our customers’ needs, which could adversely affect our business, cash flow and results of operations.
In addition, the Tax Cuts and Jobs Act, enacted in late 2017, makes significant changes to U.S. tax laws and includes numerous
provisions that affect businesses, including ours. For instance, as a result of lower corporate tax rates, the Act tends to reduce both
the value of deferred tax assets and the amount of deferred tax liabilities. It also limits interest rate deductions and the amount of net
operating losses that can be used each year and alters the expensing of capital expenditures. Other provisions have international tax
consequences for businesses like ours that operate internationally. The Act is unclear in certain respects and will require
interpretations and implementing regulations by the Internal Revenue Service, as well as state tax authorities, and the Act could be
subject to amendments and technical corrections, any of which could lessen or increase the adverse (and positive) impacts of the
Act. The accounting treatment of these tax law changes is complex, and some of the changes may affect both current and future
periods. Others will primarily affect future periods. As discussed elsewhere in this Annual Report on Form 10-K, we believe our
analysis and computations of the tax effects of the Act on us is substantially, but not entirely, complete. Consistent with guidance
from the SEC, our financial statements reflect our estimates of the tax effects of the Act on us. Although we believe these estimates
are reasonable, they are provisional and may be adjusted prior to the end of 2018. Any such adjustments could affect our current or
future financial statements, or both.
Our ability to maintain effective internal control over financial reporting may be insufficient to allow us to accurately report
our financial results or prevent fraud, and this could cause our financial statements to become materially misleading and
adversely affect the trading price of our common stock.
We require effective internal control over financial reporting in order to provide reasonable assurance with respect to our financial
reports and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of
its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore,
even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of
financial statements. If we cannot provide reasonable assurance with respect to our financial statements and effectively prevent
fraud, our financial statements could become materially misleading, which could adversely affect the trading price of our common
stock.
If we are not able to maintain the adequacy of our internal control over financial reporting, including any failure to implement
required new or improved controls, or if we experience difficulties in their implementation, our business, financial condition and
operating results could be harmed. Any material weakness could affect investor confidence in the accuracy and completeness of our
financial statements. As a result, our ability to obtain any additional financing, or additional financing on favorable terms, could be
materially and adversely affected. This, in turn, could materially and adversely affect our business, financial condition, and the
market value of our stock and require us to incur additional costs to improve our internal control systems and procedures. In
addition, perceptions of the Company among customers, suppliers, lenders, investors, securities analysts, and others could also be
adversely affected. We cannot assure that any material weaknesses will not arise in the future due to our failure to implement and
maintain adequate internal control over financial reporting.
17
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our
business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business
information and that of our customers, suppliers and business partners, and personally identifiable information of our employees, in
our data centers and on our networks. The secure maintenance of this information is critical to our operations. Despite our security
measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error,
malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be
accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or
proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations,
and damage our reputation, and cause a loss of confidence in our products, which could adversely affect our business, revenues and
competitive position.
18
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company owned four production facilities as of December 31, 2017 that are situated in Columbus, Ohio, Gaffney, South
Carolina, Winona, Minnesota and Matamoros, Mexico, and leases a production facility in Batavia, Ohio and a distribution center in
Brownsville, Texas. Effective as of January 16, 2018, the Company began conducting manufacturing operations at Cobourg,
Canada and Escobedo, Mexico as part of the Horizon Plastics acquisition.
The Columbus, Ohio plant is located at 800 Manor Park Drive on approximately 28 acres of land. The Company acquired the
property at 800 Manor Park Drive in 1996 as a result of the Asset Purchase Agreement with Navistar. The Company added
approximately 6,000 square feet to the Columbus plant during 2014 in connection with its SMC capacity expansion. The current
338,000 square feet of available floor space at the Columbus, Ohio plant is comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
322,000
16,000
338,000
The Gaffney, South Carolina plant, which was opened in 1998, is located at 24 Commerce Drive, Meadow Creek Industrial Park on
approximately 21 acres of land. The Company added approximately 28,800 square feet to the Gaffney plant during 2016. The
approximate 139,800 square feet of available floor space at the Gaffney, South Carolina plant is comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
134,800
5,000
139,800
The Winona, Minnesota plant which was acquired in 2015 is located at 1700 Wilkie Drive. The facility consists of approximately
87,000 square feet on approximately 7 acres comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
81,000
6,000
87,000
The Matamoros, Mexico plant which was opened in 2009 is located at Guillermo Gonzalez Camarena y Thomas Alva Edison
Manzana, Matamoros, Tamaulipas, Mexico. The facility consists of approximately 478,000 square feet on approximately 22 acres
comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
463,000
15,000
478,000
The Columbus, Ohio, Gaffney, South Carolina, Winona, Minnesota and Matamoros, Mexico properties are subject to liens and
security interests as a result of the properties being pledged by the Company as collateral for its debt as described in Note 9 of the
“Notes to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K.
19
The Company leases a production plant in Batavia, Ohio located at 4174 Half Acre Road on approximately 9 acres of land. The
current 7-year operating lease agreement expires in July 2019. The approximate 108,000 square feet of available floor space at the
Batavia, Ohio plant is comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
104,000
4,000
108,000
The Company leases a production plant in Cobourg, Canada located at 3 West Street on approximately 10 acres of land. The current
lease agreement expires in June 2019. The Company has the option to extend the lease up to 10 years. The approximate 247,000
square feet of available floor space at the Cobourg, Canada plant is comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
241,000
6,000
247,000
The Company leases a production plant in Escobedo, Mexico located at Avenida Internacional #220, Parque Industrial VYNMSA
Escobedo, C.P. 66053, Escobedo, Nuevo Leon, Mexico on approximately 3 acres of land. The current lease agreement expires in
March 2021. The approximate 61,000 square feet of available floor space at the Escobedo, Mexico plant is comprised of the
following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
59,000
2,000
61,000
The Company leases a warehouse and distribution center in Brownsville, Texas located at 1385 Cheers Street on approximately 2
acres of land. The current 5-year operating lease agreement expired in October 2017 and the Company is currently negotiating an
extension. The approximate 42,000 square feet of available floor space at the Brownsville, Texas location is comprised of the
following:
Warehouse/Distribution
Office
Total
Approximate
Square Feet
39,000
3,000
42,000
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to the conduct of its business. The Company is presently not
involved in any legal proceedings which in the opinion of management are likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURE
None.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the NYSE American LLC under the symbol “CMT”.
The table below sets forth the high and low sale prices of the Company for each full quarterly period within the two most recent
fiscal years for which such stock was traded.
Core Molding Technologies, Inc.
High
Low
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
$
2017
2017
2017
2017
2016
2016
2016
2016
23.85 $
24.50
22.83
18.19
19.63 $
17.25
14.38
13.39
19.74
18.85
16.38
14.42
13.55
11.86
10.65
9.23
The Company's common stock was held by 365 holders of record on March 5, 2018.
The Company began making a $0.05 per share quarterly dividend in August 2017 and made payments of $786,000 for cash
dividends during 2017, and made no payments for cash dividends in 2016 and 2015, respectively. The Company currently expects to
continue to pay a $0.05 per share quarterly dividend based on expected earnings and ongoing cash flows.
Equity Compensation Plan Information
The following table shows certain information concerning our common stock to be issued in connection with our equity
compensation plans as of December 31, 2017:
Plan Category
Equity compensation plans approved by
stockholders
Number of Shares
to be Issued Upon
Exercise of
Outstanding
Options or
Vesting of
Restricted Grants
Weighted
Average
Exercise Price
of Outstanding
Options or
Restricted
Grants
Number of
Shares
Remaining
Available for
Future Issuance
141,095
$
16.79
1,369,528
There were no stock repurchases during the three months ended December 31, 2017.
21
22
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the audited consolidated financial statements of the Company. The information
set forth below should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of
Operations,” the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
(In thousands, except per share data)
2017
2016
2015
2014
2013
Years Ended December 31,
Operating Data:
Product sales
Tooling sales
Net sales
Gross margin
Operating income
Net income
Earnings Per Share Data:
Net income per common share:
Basic
Diluted
Balance Sheet Data:
Total assets
Working capital
Long-term debt
Stockholders' equity
Return on beginning equity
Book value per share
$ 148,623
13,050
161,673
24,680
7,990
5,459
$ 146,624
28,258
174,882
27,924
11,545
7,411
$ 189,103
9,965
199,068
36,252
18,498
12,050
$ 169,744
5,460
175,204
30,186
14,647
9,634
$ 134,096
10,029
144,125
23,574
10,114
6,866
$
$
0.71
0.70
$
$
0.97
0.97
$
$
1.59
1.58
$
$
1.28
1.28
$ 137,623
40,369
3,750
101,893
$ 133,455
38,590
6,750
96,766
$ 139,803
31,534
9,750
88,733
$ 117,715
23,244
714
76,146
$
$
$
6%
8%
16 %
14%
$
13.21
$
12.67
$
11.68
$
10.07
$
0.95
0.92
97,121
17,869
2,429
67,448
12%
9.22
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements under this caption of this Annual Report on Form 10-K constitute forward-looking statements within the meaning
of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or
performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs
relating to matters not historical in nature. Such forward-looking statements involve known and unknown risks and are subject to
uncertainties and factors relating to Core Molding Technologies' operations and business environment, all of which are difficult to
predict and many of which are beyond Core Molding Technologies' control. Words such as “may,” “will,” “could,” “would,”
“should,” “anticipate,” “predict,” “potential,” “continue,” “expect,” “intend,” “plans,” “projects,” “believes,” “estimates,”
“confident” and similar expressions are used to identify these forward-looking statements. 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 Annual Report on Form 10-
K: business conditions in the plastics, transportation, marine and commercial product industries (including slowdown in demand for
truck production); federal and state regulations (including engine emission regulations); general economic, social, regulatory
(including foreign trade policy) and political environments in the countries in which Core Molding Technologies operates; safety
and security conditions in Mexico and Canada; dependence upon certain major customers as the primary source of Core Molding
Technologies’ sales revenues; efforts of Core Molding Technologies to expand its customer base; the ability to develop new and
innovative products and to diversify markets, materials and processes and increase operational enhancements; the actions of
competitors, customers, and suppliers; failure of Core Molding Technologies’ suppliers to perform their obligations; the availability
of raw materials; inflationary pressures; new technologies; regulatory matters; labor relations; the loss or inability of Core Molding
Technologies to attract and retain key personnel; the Company's ability to successfully identify, evaluate and manage potential
acquisitions and to benefit from and properly integrate any completed acquisitions, including the recent acquisition of Horizon
Plastics; the risk that the integration of Horizon Plastics may be more difficult, time-consuming or costly than expected; expected
revenue synergies and cost savings from acquisition of Horizon Plastics may not be fully realized within the expected timeframe;
revenues following the acquisition of Horizon Plastics may be lower than expected; customer and employee relationships and
business operations may be disrupted by the acquisition of Horizon Plastics; 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; management’s decision to pursue new products or businesses which involve additional costs, risks or capital
expenditures; inadequate insurance coverage to protect against potential hazards; equipment and machinery failure; product
liability and warranty claims; and other risks identified from time to time in Core Molding Technologies’ other public documents on
file with the Securities and Exchange Commission, including those described in Item 1A of this Annual Report on Form 10-K.
OVERVIEW
Core Molding Technologies is a manufacturer of sheet molding compound ("SMC") and molder of fiberglass reinforced plastics.
The Company specializes in large-format moldings and offers a wide range of fiberglass processes, including compression molding
of SMC, glass mat thermoplastics ("GMT"), bulk molding compounds ("BMC") and direct long-fiber thermoplastics ("D-LFT");
spray-up, hand lay-up, and resin transfer molding ("RTM"). Additionally, the Company offers reaction injection molding ("RIM"),
utilizing dicyclopentadiene technology. Core Molding Technologies serves a wide variety of markets, including the medium and
heavy-duty truck, marine, automotive, agriculture, construction and other commercial products. Product sales to medium and heavy-
duty truck markets accounted for 68%, of the Company's sales for the years ended December 31, 2017, and 2016, respectively, and
78% for the year ended December 31, 2015. The demand for Core Molding Technologies’ products is affected by economic
conditions in the United States, Mexico, and Canada. Core Molding Technologies’ manufacturing operations have a significant fixed
cost component. Accordingly, during periods of changing demand, the profitability of Core Molding Technologies’ operations may
change proportionately more than revenues from operations.
In 1996, Core Molding Technologies acquired substantially all of the assets and assumed certain liabilities of Columbus Plastics, a
wholly owned operating unit of Navistar’s truck manufacturing division since its formation in late 1980. Columbus Plastics, located
in Columbus, Ohio, was a compounder and compression molder of SMC. In 1998, Core Molding Technologies began operations at
its second facility in Gaffney, South Carolina, and in 2001, Core Molding Technologies added a production facility in Matamoros,
Mexico by acquiring 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 RTM closed molding. In 2004, Core
Molding Technologies acquired substantially all the operating assets of Keystone Restyling Products, Inc., a privately held
24
manufacturer and distributor of fiberglass reinforced products for the automotive-aftermarket industry. In 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. In 2009, the Company completed construction of a new production facility in Matamoros, Mexico that replaced its leased
facility. In March 2015, the Company acquired substantially all of the assets of CPI Binani, Inc., a wholly owned subsidiary of
Binani Industries Limited, located in Winona, Minnesota ("CPI"), which expanded the Company's process capabilities to include D-
LFT and diversified the customer base. In January 2018, the Company acquired substantially all the assets of Horizon Plastics,
which has manufacturing operations in Colburg, Ontario and Escobedo, Mexico. This acquisition expanded the Company's customer
base, geographic footprint, and process capabilities to include structural foam and structural web molding.
Core Molding Technologies recorded net income in 2017 of $5,459,000, or $0.71 per basic and $0.70 per diluted share, compared
with net income of $7,411,000, or $0.97 per basic and diluted share in 2016. Product sales in 2017 increased 1% from 2016,
primarily from increased demand from the Company's heavy duty truck and marine market customers, partially offset by decreased
demand from automotive customers.
As discussed above in Part I, Item 1, “Business,” on January 16, 2018 the Company acquired substantially all of the assets and
assumed certain specified liabilities of Horizon Plastics, in exchange for approximately $63,000,000 in cash, subject to a working
capital closing adjustment. Horizon Plastics is a custom low-pressure structural plastic molder, which utilizes both structural foam
and structural web process technologies, with approximately 250 employees operating within two manufacturing facilities located in
Cobourg, Canada and Escobedo, Mexico. Horizon Plastics had annual sales for its fiscal year ended August 31, 2017 of
approximately $60 million. The Company expects the transaction to be approximately $0.15 to $0.20 accretive to earnings per share
for calendar year 2018. The acquisition was funded through a combination of available cash on hand and borrowings under an
Amended and Restated Credit Agreement entered into with KeyBank National Association, as further described below under
“Liquidity and Capital Resources.” The integration process for Horizon Plastics is underway and management expects integration
of business and financial systems to continue throughout 2018.
Looking forward, the Company anticipates that 2018 product sales levels will increase as compared to 2017, due to higher demand
from heavy duty truck customers and additional sales from the acquisition of Horizon Plastics. Heavy duty truck customers as well
as industry analysts are forecasting increases in Class 8 truck sales of 6% to 25% in 2018 compared to 2017.
RESULTS OF OPERATIONS
2017 COMPARED WITH 2016
Net sales for 2017 totaled $161,673,000, which was a decrease from the $174,882,000 reported for 2016. Included in total sales
were tooling project sales of $13,050,000 for 2017 and $28,258,000 for 2016. Tooling project sales result primarily from customer
approval and acceptance of molds and assembly equipment specific to their products as well as other non-production services. These
sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis. Total product sales for
2017, excluding tooling project sales, totaled $148,623,000, representing a 1% increase from the $146,624,000 reported for 2016. In
2017, product sales were positively impacted by a change in demand from customers in the heavy truck and marine markets,
partially offset by a change in demand from customers in the automotive market.
Sales to Navistar in 2017 totaled $39,768,000, compared to $41,750,000 reported for 2016. Included in total sales are tooling sales
of $159,000 and $1,994,000 for 2017 and 2016, respectively. Product sales to Navistar decreased slightly in 2017 as compared to
2016, primarily due to a change in demand, partially offset by new business awards.
Sales to Volvo in 2017 totaled $35,716,000, compared to $49,970,000 reported for 2016. Included in total sales are tooling sales of
$8,089,000 and $20,450,000 for 2017 and 2016, respectively. Product sales to Volvo decreased by 6% in 2017 as compared to 2016,
primarily due to a change in demand, partially offset by new business awards.
Sales to PACCAR in 2017 totaled $29,413,000, compared to $27,716,000 reported for 2016. Included in total sales are tooling sales
of $2,932,000 and $3,481,000 for 2017 and 2016, respectively. Product sales to PACCAR increased 9% in 2017 as compared to
2016. This increase primarily resulted from new business awards and a change in demand.
Sales to Yamaha in 2017 totaled $17,137,000, compared to $16,205,000 reported for 2016. The 6% increase in sales was due to
changes in demand from Yamaha.
25
Sales to BRP in 2017 totaled $13,663,000, compared to $12,494,000 reported for 2016. Included in total sales are tooling sales of
$639,000 and $1,624,000 for 2017 and 2016, respectively. Product sales to BRP increased by 20% in 2017 as compared to 2016.
This increase primarily resulted from new business awards and a change in demand.
Sales to other customers in 2017 totaled $25,976,000, decreasing 3% from $26,747,000 reported for 2016. Included in total sales are
tooling sales of $1,231,000 and $709,000 in 2017 and 2016, respectively. Product sales to other customers decreased 5% in 2017 as
compared to 2016, primarily due to a change in demand and programs reaching their end of life from customers in the automotive
market.
Gross margin was approximately 15.3% of sales in 2017 and 16.0% in 2016. The gross margin decrease, as a percent of sales, was
due to unfavorable net changes in selling price and material costs of 1.3% and lower leverage of fixed costs of 0.4%. These
decreases were offset by favorable product mix and production efficiencies of 0.7% and favorable foreign currency exchange effects
of 0.3%.
Selling, general and administrative expense (“SG&A”) totaled $16,690,000 in 2017, compared to $16,379,000 in 2016. The increase
in SG&A expense primarily resulted from higher professional and outside services of $880,000 of which $600,000 is associated
with the fees incurred with the Horizon Plastics acquisition, and higher labor and benefit expenses of $441,000, partially offset by
lower profit sharing expense of $1,203,000.
Net interest expense totaled $245,000 for the year ended December 31, 2017, compared to net interest expense of $298,000 for the
year ended December 31, 2016. The decrease in interest expense was primarily due to a lower average outstanding debt balance in
2017.
Income tax expense was approximately 30% of total income before income taxes in 2017 and 34% in 2016. The decrease primary
resulted from net benefits from adjustments associated with provisions for the impact of The Tax Cut and Jobs Act of $185,000 and
tax benefits from vesting of restricted stock for $126,000. Net income for 2017 was $5,459,000 or $0.71 per basic and $0.70 per
diluted share, compared with net income of $7,411,000 or $0.97 per basic and diluted share for 2016.
Comprehensive Income totaled $4,953,000 in 2017, compared to $7,180,000 in 2016. The decrease was primarily related to lower
net income of $1,952,000 and a change in net actuarial adjustments of $737,000 for other post-retirement benefit obligations. In
2017 the Company recorded a net actuarial loss of $417,000, which was primarily driven by a change in discount rate, compared to
recording an actuarial gain of $320,000 in 2016, which primarily associated with a change in census and mortality.
2016 COMPARED WITH 2015
Net sales for 2016 totaled $174,882,000, representing a 12% decrease from the $199,068,000 reported for 2015. Included in total
sales were tooling project sales of $28,258,000 for 2016 and $9,965,000 for 2015. Tooling project sales result primarily from
customer approval and acceptance of molds and assembly equipment specific to their products as well as other non-production
services. These sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis. Total
product sales for 2016, excluding tooling project sales, totaled $146,624,000, representing a 22% decrease from the
$189,103,000 reported for 2015. In 2016, product sales were negatively impacted by lower demand from customers in the heavy
truck market, partially offset by a full year of sales from CPI, which was acquired in March 2015, and other new business starting
production in 2016.
Sales to Navistar in 2016 totaled $41,750,000, compared to $56,415,000 reported for 2015. Included in total sales are tooling sales
of $1,994,000 and $6,246,000 for 2016 and 2015, respectively. Product sales to Navistar decreased 21% in 2016 as compared
to 2015, primarily due to a change in demand, partially offset by new business awards.
Sales to Volvo in 2016 totaled $49,970,000, compared to $55,125,000 reported for 2015. Included in total sales are tooling sales of
$20,450,000 and $1,600,000 for 2016 and 2015, respectively. Product sales to Volvo decreased by 45% in 2016 as compared
to 2015, primarily due to a change in demand.
Sales to PACCAR in 2016 totaled $27,716,000, compared to $34,430,000 reported for 2015. Included in total sales are tooling sales
of $3,481,000 and $978,000 for 2016 and 2015, respectively. Product sales to PACCAR decreased 28% in 2016 as compared
to 2015. This decrease was primarily resulted from lower sales for products reaching the end of their product life and a change in
demand, partially offset by new business awards.
Sales to Yamaha in 2016 totaled $16,205,000, compared to $16,766,000 reported for 2015. The 3% decrease in sales was due to
changes in demand from Yamaha.
26
sales of $2,333,000 and $1,141,000 in 2016 and 2015,
Sales to other customers in 2016 totaled $39,241,000, increasing 8% from $36,332,000 reported for 2015. Included in total sales are
tooling
to other customers
increased 5% in 2016 as compared to 2015. In 2016, product sales were positively impacted from the full year impact of CPI, which
was acquired in March 2015 and other new business starting production in 2016. Partially offsetting these increases were decreases
to another customer in the heavy truck market, due to lower demand and lower sales to an automotive customer, due to products
reaching the end of their production life.
respectively. Product
sales
Gross margin was approximately 16.0% of sales in 2016 and 18.2% in 2015. The gross margin decrease, as a percent of sales, was
due to unfavorable product mix and production inefficiencies of 2.5% and lower leverage of fixed costs of 0.9%. These decreases
were offset by favorable foreign currency exchange effects of 1.1% and favorable net changes in selling price and material costs of
0.1%.
Selling, general and administrative expense (“SG&A”) totaled $16,379,000 in 2016, compared to $17,754,000 in 2015. The
decrease in SG&A expense primarily resulted from lower profit sharing expense of $1,218,000, and lower travel of $175,000.
Partially offsetting these costs were higher labor and benefit expenses of $357,000. The Company also incurred acquisition related
expenses of $303,000 in 2015 that were not incurred in 2016.
Net interest expense totaled $298,000 for the year ended December 31, 2016, compared to net interest expense of $330,000 for the
year ended December 31, 2015. The decrease in interest expense was primarily due to a lower average outstanding debt balance
in 2016.
Income tax expense was approximately 34% of total income before income taxes in 2016 and 2015. Net income
for 2016 was $7,411,000 or $0.97 per basic and diluted share, compared with net income of $12,050,000 or $1.59 per basic and
$1.58 per diluted share for 2015.
Comprehensive Income totaled $7,180,000 in 2016, compared to $11,865,000 in 2015. The decrease was primarily related to lower
net income of $4,639,000 and a net unrealized foreign currency hedge loss of $200,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of funds have been cash generated from operating activities and borrowings from third parties.
Primary cash requirements are for operating expenses, capital expenditures and acquisitions.
On December 9, 2008, the Company and its wholly owned subsidiary, Corecomposites de Mexico, S. de R.L. de C.V., entered into a
credit agreement, as amended from time to time (the "Credit Agreement"), with a lender to provide various financing facilities.
Under this Credit Agreement, as amended from time to time, the Company received certain loans, subject to the terms and
conditions stated in the agreement, which included (1) a $12,000,000 Capex loan; (2) an $18,000,000 variable rate revolving line of
credit; (3) a term loan in an original amount of $15,500,000; and (4) a Letter of Credit Commitment of up to $250,000, of which
$175,000 has been issued. The Credit Agreement is secured by a guarantee of each U.S. subsidiary of the Company, and by a lien on
substantially all of the present and future assets of the Company and its U.S. subsidiaries, except that only 65% of the stock issued
by Corecomposites de Mexico, S. de R.L. de C.V. has been pledged.
On August 4, 2017, the Company and its wholly owned subsidiary, Corecomposites de Mexico, S. de R.L. de C.V., entered into a
twelfth amendment (the "Twelfth Amendment") to the Credit Agreement. Pursuant to the terms of the Twelfth Amendment, the
parties agreed to modify certain terms of the Credit Agreement. These modifications included amending the definition of
Consolidated Fixed Charges to include only Capital Distributions made in an aggregate amount in excess of Two Million Dollars
($2,000,000) and amending the restricted payment covenant provisions.
Cash provided by operating activities totaled $6,912,000 for the year ended December 31, 2017. Net income of $5,459,000
positively impacted operating cash flows. Non-cash deductions of depreciation and amortization included in net income amounted to
$6,240,000. Increased working capital resulted in decreased cash provided by operating activities by $5,148,000. Changes in
working capital primarily related to prepaid and other assets, inventory, accrued and other liabilities, and accounts payable.
Cash used in investing activities totaled $4,259,000 for the year ended December 31, 2017, all of which related to new programs,
equipment improvements and capacity expansion at the Company’s production facilities. The Company anticipates spending
approximately $9,000,000 during 2018 on property, plant and equipment purchases for all of the Company's operations. The
Company anticipates using cash from operations and its revolving line of credit to finance this capital investment. At December 31,
2017, purchase commitments for capital expenditures in progress were approximately $1,071,000.
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Cash used in financing activities totaled $4,158,000 for the year ended December 31, 2017. Cash was used to repay scheduled
principal on the Company’s Term loan totaling $3,000,000, pay cash dividends of $786,000 and purchases of treasury stock to
satisfy employee tax withholding requirements on vested restricted stock totaling $372,000.
At December 31, 2017, the Company had cash on hand of $26,780,000 and an available revolving line of credit of $18,000,000. If a
material adverse change in the financial position of the Company should occur, or if actual sales or expenses are substantially
different than what has been forecasted, the Company's liquidity and ability to obtain further financing to fund future operating and
capital requirements could be negatively impacted.
The Company is required to meet certain financial covenants included in the Credit Agreement with respect to leverage ratios, fixed
charge ratios, capital expenditures as well as other customary affirmative and negative covenants. As of December 31, 2017, the
Company was in compliance with its financial covenants.
Subsequent to year end, on January 16, 2018, 1137925 B.C. Ltd. (the “Subsidiary”), a wholly owned subsidiary of Core Molding
Technologies, Inc., acquired substantially all the assets and assumed certain liabilities of Horizon Plastics, in exchange for
approximately $63,000,000 in cash, subject to working capital closing adjustments. The acquisition, and repayment of the
Company's existing term loan, was funded through a combination of available cash on hand and borrowings of $49,500,000 under
an Amended and Restated Credit Agreement ("A/R Credit Agreement").
On January 16, 2018, the Company entered into an A/R Credit Agreement with KeyBank National Association as administrative
agent and various financial institutions party thereto as lenders (the "Lenders"). Pursuant to the terms of the A/R Credit Agreement
(i) the Company may borrow revolving loans in the aggregate principal amount of up to $40,000,000 (the “US Revolving Loans”)
from the Lenders and term loans in the aggregate principal amount of up to $32,000,000 from the Lenders, (ii) the Subsidiary may
borrow revolving loans in an aggregate principal amount of up to $10,000,000 from the Lenders (which revolving loans shall reduce
the availability of the US Revolving Loans to the Company on a dollar-for-dollar basis) and term loans in an aggregate principal
amount of up to $13,000,000 from the Lenders and (iii) the Company may increase the aggregate principal amount of the
aforementioned loans by up to an additional $25,000,000.
The Company also entered into two interest rate swap agreements that became effective January 18, 2018 and continue through
January 2023, one of which was designated as a cash flow hedge for $25,000,000 of the $32,000,000 term loan to the Company
mentioned above and the other designated as a cash flow hedge for $10,000,000 of the $13,000,000 term loan to the Subsidiary
mentioned above. Under these agreements, the Company will pay a fixed rate of 4.58% to the counterparty and receives daily
LIBOR.
Management believes that cash on hand, cash flow from operating activities and available borrowings under the A/R Credit
Agreement will be sufficient to meet the Company’s current liquidity needs.
Management regularly evaluates the Company’s ability to effectively meet its debt covenants. Based on the Company’s forecast,
which is primarily based on industry analysts’ estimates of heavy and medium-duty truck production volumes, information obtained
as part of the due diligence process of the acquisition of Horizon Plastics, as well as other assumptions and customer provided
forecasts, management believes that the Company will be able to maintain compliance with its financial covenants for the next
12 months.
On November 14, 2017 the Company filed a universal shelf Registration Statement on Form S-3 (the “Registration Statement”) with
the SEC in accordance with the Securities Act of 1933, as amended, which became effective on November 20, 2017. The
Registration Statement registered common stock, preferred stock, debt securities, warrants, depositary shares, rights, units and any
combination of the foregoing, for a maximum aggregate offering price of up to $50 million, which may be sold from time to time.
The terms of any securities offered under the Registration Statement and intended use of proceeds will be established at the times of
the offerings and will be described in prospectus supplements filed with the SEC at the times of the offerings. The Registration
Statement has a three year term.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET TRANSACTIONS
The Company has the following minimum commitments under contractual obligations, including purchase obligations, as defined
by the SEC. A “purchase obligation” is defined as an agreement to purchase goods or services that is enforceable and legally binding
on the Company and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or
variable price provisions; and the approximate timing of the transaction. Other long-term liabilities are defined as long-term
liabilities that are reflected on the Company’s balance sheet under accounting principles generally accepted in the United States.
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Based on this definition, the table below includes only those contracts which include fixed or minimum obligations. It does not
include normal purchases, which are made in the ordinary course of business.
The following table provides aggregated information about the maturities of contractual obligations and other long-term liabilities as
of December 31, 2017:
Long-term debt
Interest(A)
Operating lease
obligations
Contractual
commitments for
capital expenditures(B)
Post retirement benefits
Total
2018
2019
$ 3,000,000 $ 3,000,000 $
182,000
80,000
2020
750,000 $
4,000
368,000
192,000
1,071,000
—
—
—
1,096,000
444,000
$ 5,717,000 $ 3,716,000 $ 1,228,000 $
474,000
2021
2022 and
after
Total
— $
—
—
—
— $ 6,750,000
266,000
—
—
—
560,000
1,071,000
9,050,000
6,541,000
495,000
495,000 $ 6,541,000 $ 17,697,000
(A) Variable interest rates were as of December 31, 2017.
(B) Includes $278,000 recorded on the balance sheet in accounts payable at December 31, 2017.
As of December 31, 2017, the Company had no significant off-balance sheet arrangements.
Subsequent to year end, the acquisition of Horizon Plastics and repayment of the Company's existing term loan was funded through
a combination of available cash on hand and borrowings of $49,500,000 under an A/R Credit Agreement. The following table
provides aggregated information about the maturities of borrowings of $49,500,000:
2018
2019
2020
2021
2022 and
after
Total
US Term Loan
Canadian Term Loan
Revolving Loans
Interest(A)
Total
$ 2,400,000 $ 2,400,000 $ 3,200,000 $ 4,000,000 $ 20,000,000 $ 32,000,000
8,125,000 13,000,000
4,500,000
—
1,161,000
8,310,000
29,286,000 57,810,000
975,000
—
1,876,000
5,251,000
975,000
4,500,000
2,079,000
9,954,000
1,300,000
—
1,706,000
6,206,000
1,625,000
—
1,488,000
7,113,000
(A) Variable interest rates were as of December 31, 2017.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss the Company’s consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to accounts receivable, inventories, goodwill and other
long-lived assets, self-insurance, 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.
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Accounts Receivable Allowances
Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. The Company has determined that no allowance for doubtful
accounts is needed at December 31, 2017 and December 31, 2016, respectively. Management also records estimates for chargebacks
for customer returns and deductions, discounts offered to customers, and price adjustments. Should customer chargebacks fluctuate
from the estimated amounts, additional allowances may be required. The Company has reduced accounts receivable for chargebacks
by $857,000 at December 31, 2017 and $309,000 at December 31, 2016.
Inventories
Inventories, which include material, labor and manufacturing overhead, are valued at the lower of cost or market. The inventories
are accounted for using the first-in, first-out (FIFO) method of determining inventory costs. Inventory quantities on-hand are
regularly reviewed, and where necessary, provisions for excess and obsolete inventory are recorded based on historical and
anticipated usage. The Company has recorded an allowance for excess and obsolete inventory of $624,000 at December 31, 2017
and $770,000 at December 31, 2016.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment and definite-lived intangibles. The Company acquired the
majority of the assets of CPI on March 20, 2015, which resulted in approximately $650,000 of definite-lived intangibles and
$12,474,000 of property, plant and equipment, all of which were recorded at fair value. The recoverability of long-lived assets is
evaluated by an analysis of operating results and consideration of other significant events or changes in the business environment.
The Company evaluates whether impairment exists for long-lived assets on the basis of undiscounted expected future cash flows
from operations before interest. There was no impairment of the Company's long-lived assets for the years ended December 31,
2017, 2016 and 2015.
Goodwill
The Company has recorded $2,403,000 of goodwill as a result of two acquisitions. In 2001, the Company acquired certain assets of
Airshield Corporation, and as a result, recorded goodwill in the amount of $1,097,000. The Company also acquired substantially all
of the assets of CPI on March 20, 2015, which resulted in approximately $1,306,000 of goodwill.
The Company evaluates goodwill annually on December 31st to determine whether impairment exists, or at interim periods if an
indicator of possible impairment exists. The Company evaluates goodwill for impairment utilizing the qualitative assessment. We
consider relevant events and circumstances that affect the fair value or carrying amount of the Company. Such events and
circumstances could include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance,
entity specific events and capital markets pricing. The Company places more weight on the events and circumstances that most
affect the Company's fair value or carrying amount. These factors are all considered by management in reaching its conclusion about
whether to perform the first step of the impairment test.
If the Company's fair value is determined to be more likely than not impaired based on the qualitative approach, a quantitative
valuation to estimate the fair value of the Company is performed. Fair value measurements are based on a projected discounted cash
flow valuation model, in accordance with ASC 350, “Intangibles-Goodwill and Other.”
There was no impairment of the Company's goodwill for the years ended December 31, 2017, 2016 and 2015.
Self-Insurance
The Company is self-insured with respect to its Columbus and Batavia, Ohio, Gaffney, South Carolina, Winona, Minnesota and
Brownsville, Texas medical, dental and vision claims and Columbus and Batavia, Ohio workers’ compensation claims, all of which
are subject to stop-loss insurance thresholds. The Company has recorded an estimated liability for self-insured medical and dental
claims incurred but not reported and worker’s compensation claims incurred but not reported at December 31, 2017 and 2016 of
$862,000 and $1,139,000, respectively.
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Post Retirement Benefits
Management records an accrual for post retirement costs associated with the health care plan sponsored by the Company for certain
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 the Company's operations.
The effect of a change in healthcare costs is described in Note 12 of the Notes to Consolidated Financial Statements. The Company
had a liability for post retirement healthcare benefits based on actuarially computed estimates of $9,050,000 at December 31, 2017
and $8,667,000 at December 31, 2016.
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 Company’s Consolidated
Balance Sheet. Tooling in progress can fluctuate significantly from period to period and is dependent upon the stage of tooling
projects and the related billing and expense payment timetable for individual projects and therefore does not necessarily reflect
projected income or loss from tooling projects. At December 31, 2017, the Company had a net asset related to tooling in progress of
$1,917,000, which represents approximately $8,724,000 of progress tooling billings and $10,641,000 of progress tooling expenses.
At December 31, 2016 the Company had a net liability related to tooling in progress of $1,084,000, which represents approximately
$11,052,000 of progress tooling billings and $9,968,000 of progress tooling expenses.
Income Taxes
Management assesses the need for a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely
than not to be realized. The Company has considered future taxable income in assessing the need for a valuation allowance and has
not recorded a valuation allowance due to anticipating it being more likely than not that the Company will realize these benefits.
An analysis is performed to determine the amount of the deferred tax asset that will be realized. Such analysis is based upon the
premise that deferred tax benefits will be realized through the generation of future taxable income. Management reviews all
available evidence, both positive and negative, to assess the long-term earnings potential of the Company using a number of
alternatives to evaluate financial results in economic cycles at various industry volume conditions. Other factors considered are the
Company’s relationships with its major customers, and any recent customer diversification efforts. The projected availability of
taxable income to realize the tax benefits from the reversal of temporary differences before expiration of these benefits are also
considered. Management believes that, with the combination of available tax planning strategies and the maintenance of its
relationships with its key customers, earnings are achievable in order to realize the net deferred tax asset.
Management recognizes the financial statement effects of a tax position when it is more likely than not the position will be sustained
upon examination.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue
Recognition. ASC Topic 606 is based on the principle that revenue is recognized to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. ASC Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs
incurred to obtain or fulfill a contract. The effective date for ASC Topic 606, as updated by ASU No. 2015-14 in August 2015, has
been delayed until the first quarter of fiscal year 2018. The Company will adopt the new revenue standard in the first quarter of
2018 using the modified retrospective adoption method. We have determined that certain tooling programs with customers meet the
criteria listed in ASU 2014-09 to recognize revenue over time. Prospectively, the Company expects to recognize revenue related
transactions from certain tooling programs earlier than we have historically.
In March 2017, FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). The amendments in this update require
that an employer disaggregate the service cost component from the other components of net periodic cost (benefit) and report that
component in the same line item as other compensation costs arising from services rendered by employees during the period. The
other components of net periodic cost (benefit) are required to be presented in the statement of operations separately from the
service cost component and outside of operating earnings. The amendment also allows for the service cost component of net
31
periodic cost (benefit) to be eligible for capitalization when applicable. The guidance will be effective for the Company on January
1, 2018 and interim periods within that reporting period; early adoption permitted. The guidance on the income statement
presentation of the components of net periodic cost (benefit) must be applied retrospectively, while the guidance limiting the
capitalization of net periodic cost (benefit) in assets to the service cost component must be applied prospectively. The Company will
adopt this standard update as required and does not expect the adoption of this ASU to have a material impact on our consolidated
financial statements. Upon adoption, the Company plans to update the presentation of net periodic cost (benefit) accordingly, noting
all components of the Company's net periodic cost (benefit) will be presented outside of operating earnings, as the plan is not active.
The estimated impact of adoption of this update will be a reclassification of all components of net periodic benefit from operating
earnings to other income in the amount of $49,000 and $18,000 for the years ended December 31, 2017 and December 31, 2016,
respectively.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax
Cuts and Jobs Act. The reclassifications should be applied either in the period of adoption or retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The amendments
also require certain disclosures about stranded tax effects. This ASU is effective for all entities for fiscal years beginning after
December 15, 2018 and interim periods within those fiscal years and may be early adopted. The Company has elected to early adopt,
which resulted in a reclassification of $162,000 from accumulated other comprehensive income to retained earnings at December
31, 2017.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Core Molding Technologies’ primary market risk results from changes in the price of commodities used in its manufacturing
operations. Core Molding Technologies is also exposed to fluctuations in interest rates and foreign currency fluctuations associated
with the Mexican Peso. Core Molding Technologies does not hold any material market risk sensitive instruments for trading
purposes.
Core Molding Technologies has the following three items that are sensitive to market risks at December 31, 2017: (1) Revolving
Line of Credit and the Term Loan under the Credit Agreement which bears a variable interest rate; (2) 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 (3) raw material purchases in which Core Molding Technologies purchases various resins and
fiberglass for use in production. The prices and availability of these materials are affected by the prices of crude oil and natural gas
as well as processing capacity versus demand.
Assuming a hypothetical 10% change in short-term interest rates, interest paid on the Company’s Line of Credit and Term Loan
would impact the interest paid by the Company, as the interest rate on these loans is based upon LIBOR, however, it would not have
a material effect on earnings before taxes.
Assuming a hypothetical 10% decrease in the United States dollar to Mexican Peso exchange rate, the Company would be impacted
by an increase in operating costs, which would have an adverse effect on operating margins. To mitigate risk associated with foreign
currency exchange, the Company from time to time will enter into forward contracts to exchange a fixed amount of U.S. dollars for
a fixed amount of Mexican Pesos, which will be used to fund future peso cash flows, see Note 14.
Assuming a hypothetical 10% increase in commodity prices, Core Molding Technologies would be impacted by an increase in raw
material costs, which would have an adverse effect on operating margins.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of Core Molding Technologies, Inc. and Subsidiaries
Columbus, Ohio
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Core Molding Technologies, Inc. and Subsidiaries (the
"Company") as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes
and Schedule II - Valuation and Qualifying Accounts and Reserves (collectively referred to as the "financial statements"). We also
have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
34
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Crowe Horwath LLP
We have served as the Company's auditor since 2009.
Columbus, Ohio
March 7, 2018
35
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31,
2017
2016
2015
$ 148,623,000 $ 146,624,000 $ 189,103,000
9,965,000
199,068,000
13,050,000
161,673,000
28,258,000
174,882,000
136,993,000
146,958,000
162,816,000
24,680,000
27,924,000
36,252,000
Net sales:
Products
Tooling
Total net sales
Total cost of sales
Gross margin
Total selling, general and administrative expense
16,690,000
16,379,000
17,754,000
Operating income
Net interest expense
7,990,000
11,545,000
18,498,000
245,000
298,000
330,000
Income before income taxes
7,745,000
11,247,000
18,168,000
Income Taxes:
Current
Deferred
Total income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
2,630,000
(344,000)
2,286,000
3,410,000
426,000
3,836,000
4,889,000
1,229,000
6,118,000
$
5,459,000 $
7,411,000 $ 12,050,000
$
$
0.71 $
0.70 $
0.97 $
0.97 $
1.59
1.58
7,690,000
7,747,000
7,621,000
7,661,000
7,583,000
7,623,000
36
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Net income
Other comprehensive income:
Foreign currency hedge:
Unrealized foreign currency hedge gain
(loss)
Income tax benefit (expense)
Interest rate swaps:
Adjustment for amortization of losses
included in net income
Income tax expense
Post retirement benefit plan adjustments:
Net actuarial (loss) gain
Prior service costs
Income tax benefit (expense)
Years Ended December 31,
2017
5,459,000 $
2016
7,411,000 $
2015
12,050,000
$
5,000
(2,000)
(303,000)
103,000
—
—
—
—
5,000
(2,000)
21,000
(8,000)
(268,000)
(496,000)
255,000
474,000
(496,000)
(12,000)
217,000
(496,000)
81,000
Comprehensive income
$
4,953,000 $
7,180,000 $
11,865,000
See notes to consolidated financial statements.
37
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets:
Current assets:
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts: $0 at December
31, 2017 and 2016)
Inventories:
Finished goods
Work in process
Raw materials and components
Total inventories, net
Tooling in progress
Foreign sales tax receivable
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangibles, net
Other non-current assets
Total Assets
Liabilities and Stockholders’ Equity:
Liabilities:
Current liabilities:
Current portion of long-term debt
Accounts payable
Tooling in progress
Current portion of post retirement benefits liability
Accrued liabilities:
Compensation and related benefits
Taxes
Other
Total current liabilities
Long-term debt
Deferred tax liability
Post retirement benefits liability
Total Liabilities
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock — $0.01 par value, authorized shares - 10,000,000; no shares
outstanding at December 31, 2017 and December 31, 2016
Common stock — $0.01 par value, authorized shares - 20,000,000; outstanding
shares: 7,711,277 at December 31, 2017 and 7,635,093 at December 31,
2016
December 31,
2017
2016
$
26,780,000 $
28,285,000
19,846,000
19,551,000
1,876,000
1,401,000
7,635,000
10,912,000
2,948,000
2,061,000
8,450,000
13,459,000
1,917,000
610,000
1,388,000
64,000,000
68,631,000
2,403,000
513,000
2,076,000
—
228,000
912,000
59,888,000
70,601,000
2,403,000
563,000
—
$ 137,623,000 $ 133,455,000
$
3,000,000 $
13,850,000
—
1,096,000
3,000,000
8,534,000
1,084,000
1,018,000
3,524,000
861,000
1,300,000
23,631,000
3,750,000
395,000
7,954,000
35,730,000
—
5,004,000
1,038,000
1,620,000
21,298,000
6,750,000
992,000
7,649,000
36,689,000
—
—
—
77,000
31,465,000
2,070,000
76,000
30,134,000
2,414,000
(28,153,000)
96,434,000
101,893,000
(27,781,000)
91,923,000
96,766,000
$ 137,623,000 $ 133,455,000
Paid-in capital
Accumulated other comprehensive income, net of income taxes
Treasury stock — at cost, 3,773,128 shares at December 31, 2017 and
3,753,595 shares at December 31, 2016
Retained earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements.
38
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
Common Stock
Outstanding
Amount
Shares
7,559,012 $ 76,000 $ 28,138,000 $
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Retained
Earnings
Total
Stockholders
’
Equity
2,830,000 $ (27,360,000) $ 72,462,000 $ 76,146,000
12,050,000
12,050,000
Balance at January 1, 2015
Net income
Change in post retirement
benefits, net of tax of $81,000
Change in interest rate swaps,
net of tax of $8,000
Common stock issued
Excess tax benefit — equity
transactions
Purchase of treasury stock
Restricted stock vested
3,000
19,000
205,000
(12,141)
46,629
785,000
Share-based compensation
Balance at December 31, 2015 7,596,500 $ 76,000 $ 29,147,000 $
Net income
Change in post retirement
benefits, net of tax of $12,000
Change in interest rate swaps,
net of tax of $2,000
Unrealized foreign currency
hedge (loss), net of tax of
$103,000
Excess tax benefit — equity
transactions
Purchase of treasury stock
Restricted stock vested
(16,000)
(10,590)
49,183
1,003,000
Share-based compensation
Balance at December 31, 2016 7,635,093 $ 76,000 $ 30,134,000 $
Net income
Cash Dividends Paid
Change in post retirement
benefits, net of tax of
$255,000
Unrealized foreign currency
hedge gain, net of tax of
$2,000
Adoption of Accounting
Standards Update 2018-02
Purchase of treasury stock
Restricted stock vested
(19,533)
95,717
1,000
1,331,000
Share-based compensation
Balance at December 31, 2017 7,711,277 $ 77,000 $ 31,465,000 $
See notes to consolidated financial statements.
39
(198,000)
13,000
(198,000)
13,000
19,000
205,000
(287,000)
(287,000)
—
785,000
2,645,000 $ (27,647,000) $ 84,512,000 $ 88,733,000
7,411,000
7,411,000
(34,000)
3,000
(200,000)
(34,000)
3,000
(200,000)
(16,000)
(134,000)
(134,000)
—
1,003,000
2,414,000 $ (27,781,000) $ 91,923,000 $ 96,766,000
5,459,000
(786,000)
5,459,000
(786,000)
(509,000)
3,000
162,000
(509,000)
3,000
—
(162,000)
(372,000)
(372,000)
1,000
1,331,000
2,070,000 $ (28,153,000) $ 96,434,000 $ 101,893,000
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
2017
Years Ended
2016
2015
$ 5,459,000 $ 7,411,000 $ 12,050,000
6,240,000
(597,000)
—
1,331,000
8,000
6,283,000
426,000
3,000
1,003,000
(110,000)
6,041,000
1,229,000
(14,000)
785,000
(54,000)
(295,000)
(2,547,000)
—
(2,934,000)
5,347,000
(4,719,000)
(381,000)
6,912,000
17,335,000
2,785,000
670,000
(266,000)
(4,689,000)
(4,422,000)
(360,000)
26,069,000
(911,000)
(1,387,000)
1,616,000
1,395,000
2,095,000
(3,786,000)
(444,000)
18,615,000
(4,259,000)
—
(4,259,000)
(2,863,000)
—
(2,863,000)
(5,683,000)
(14,512,000)
(20,195,000)
—
—
—
(3,000,000)
—
—
(372,000)
(786,000)
—
(4,158,000)
(1,505,000)
—
—
—
(3,000,000)
(714,000)
(16,000)
(134,000)
—
—
(3,864,000)
19,342,000
(10,102,000)
7,334,000
15,500,000
(2,750,000)
(1,714,000)
211,000
(287,000)
—
19,000
8,211,000
6,631,000
28,285,000
8,943,000
2,312,000
$ 26,780,000 $ 28,285,000 $ 8,943,000
247,000 $
279,000
$
$ 2,411,000 $ 1,884,000 $ 4,218,000
289,000 $
$
278,000 $
316,000 $
464,000
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Deferred income taxes
Mark-to-market of interest rate swap
Share-based compensation
(Gain) loss on foreign currency translation
Change in operating assets and liabilities, net of effects of
acquisition:
Accounts receivable
Inventories
Income taxes receivable
Prepaid and other assets
Accounts payable
Accrued and other liabilities
Post retirement benefits liability
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of assets of CPI Binani Inc.
Net cash used in investing activities
Cash flows from financing activities:
Gross repayments on revolving line of credit
Gross borrowings on revolving line of credit
Proceeds from term loan
Payment of principal of term loan
Payment of principal on capex loan
Excess tax (payable) benefit from equity incentive plans
Payments related to the purchase of treasury stock
Cash dividends paid
Proceeds from issuance of common stock
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid for:
Interest (net of amounts capitalized)
Income taxes
Non Cash:
Fixed asset purchases in accounts payable
See notes to consolidated financial statements.
40
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation
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 is a manufacturer of sheet molding compound ("SMC") and molder of fiberglass reinforced plastics. The
Company specializes in large-format moldings and offers a wide range of fiberglass processes, including compression molding of
SMC, glass mat thermoplastics ("GMT"), bulk molding compounds ("BMC") and direct long-fiber thermoplastics ("D-LFT");
spray-up, hand-lay-up, and resin transfer molding ("RTM"). Additionally, the Company offers reaction injection molding ("RIM"),
utilizing dicyclopentadiene technology. As of December 31, 2017, Core Molding Technologies operated five production facilities in
Columbus, Ohio; Batavia, Ohio; Gaffney, South Carolina; Winona, Minnesota; and Matamoros, Mexico, which produce reinforced
plastic products. Effective as of January 16, 2018, the Company began operating two manufacturing facilities that were acquired as
part of the Company’s acquisition of Horizon Plastics, which manufacturing facilities are located in Cobourg, Canada and Escobedo,
Mexico, which produce structural foam and structural web molding.
The Company operates in one business segment as a manufacturer of SMC and molder of fiberglass reinforced plastics. The
Company produces and sells SMC and molded products for varied markets, including medium and heavy-duty trucks, automobiles,
marine, construction and other commercial markets.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of all subsidiaries after
elimination of all intercompany accounts, transactions, and profits.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities, and reported amounts of revenues and expenses during the reporting
period. Significant estimates relate to allowances for doubtful accounts, inventory reserves, self-insurance reserves related to
healthcare and workers compensation, deferred taxes, post retirement benefits, goodwill and long-lived assets. Actual results could
differ from those estimates.
Revenue Recognition - Revenue from product sales is recognized at the time products are shipped and title transfers. Allowances
for returned products and other credits are estimated and recorded as revenue is recognized. Tooling revenue is recognized when the
customer approves the tool and accepts ownership. Progress billings and expenses are shown net as an asset or liability on the
Company’s Consolidated Balance Sheet. Tooling in progress can fluctuate significantly from period to period and is dependent upon
the stage of tooling projects and the related billing and expense payment timetable for individual projects and therefore does not
necessarily reflect projected income or loss from tooling projects. At December 31, 2017, the Company had a net asset related to
tooling in progress of $1,917,000, which represents approximately $8,724,000 of progress tooling billings and $10,641,000 of
progress tooling expenses. At December 31, 2016, the Company had a net liability related to tooling in progress of $1,084,000
which represents approximately $11,052,000 of progress tooling billings and $9,968,000 of progress tooling expenses.
Cash and Cash Equivalents - The Company considers all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash is held primarily in one bank. The Company had cash on hand of $26,780,000 at
December 31, 2017 and $28,285,000 at December 31, 2016.
Accounts Receivable Allowances - Management maintains allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be required. The Company has determined
that no allowance for doubtful accounts is needed at December 31, 2017 and December 31, 2016, respectively. 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 had an allowance for estimated chargebacks of $857,000 at December 31, 2017 and $309,000 at
December 31, 2016. There have been no material changes in the methodology of these calculations.
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
41
anticipated usage. The Company has recorded an allowance for slow moving and obsolete inventory of $624,000 at December 31,
2017 and $770,000 at December 31, 2016.
Property, Plant, and Equipment - Property, plant, and equipment are recorded at cost. Depreciation is provided on a straight-line
method over the estimated useful lives of the assets. The carrying amount of long-lived assets is evaluated annually to determine if
adjustment to the depreciation period or to the unamortized balance is warranted.
Ranges of estimated useful lives for computing depreciation are as follows:
Land improvements
20 years
Buildings and improvements
20 - 40 years
Machinery and equipment
Tools, dies and patterns
3 - 15 years
3 - 5 years
Depreciation expense was $6,190,000, $6,217,000 and $5,955,000 for the years ended December 31, 2017, 2016 and 2015,
respectively. The Company capitalized interest costs of approximately $7,000 and $0 for the years ended December 31, 2017 and
2016, respectively.
Long-Lived Assets - Long-lived assets consist primarily of property, plant and equipment and definite-lived intangibles. The
Company acquired substantially all of the assets of CPI on March 20, 2015, which resulted in approximately $650,000 of definite-
lived intangibles and $12,474,000 of property, plant and equipment, all of which were recorded at fair value. The recoverability of
long-lived assets is evaluated by an analysis of operating results and consideration of other significant events or changes in the
business environment. The Company evaluates, whether impairment exists for long-lived assets on the basis of undiscounted
expected future cash flows from operations before interest. There was no impairment of the Company's long-lived assets for the
years ended December 31, 2017, 2016 and 2015.
Goodwill - The Company has recorded $2,403,000 of goodwill as a result of two acquisitions. In 2001, the Company acquired
certain assets of Airshield Corporation, and as a result, recorded goodwill in the amount of $1,097,000. The Company also acquired
substantially all of the assets of CPI on March 20, 2015, which resulted in approximately $1,306,000 of goodwill.
The Company evaluates goodwill annually on December 31st to determine whether impairment exists, or at interim periods if an
indicator of possible impairment exists. The Company evaluates goodwill for impairment utilizing the qualitative assessment. We
consider relevant events and circumstances that affect the fair value or carrying amount of the Company. Such events and
circumstances could include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance,
entity specific events and capital markets pricing. The Company places more weight on the events and circumstances that most
affect the Company's fair value or carrying amount. These factors are all considered by management in reaching its conclusion about
whether to perform the first step of the impairment test.
If the Company's carrying amount is determined to be more likely than not impaired based on the qualitative approach, a
quantitative valuation to estimate the fair value of the Company is performed. Fair value measurements are based on a projected
discounted cash flow valuation model, in accordance with ASC 350, “Intangibles-Goodwill and Other.”
There was no impairment of the Company's goodwill for the years ended December 31, 2017, 2016 and 2015.
Income Taxes - The Company records deferred income taxes for differences between the financial reporting basis and income tax
basis of assets and liabilities. A detailed breakout is located in Note 11.
Self-Insurance - The Company is self-insured with respect to its Columbus and Batavia, Ohio, Gaffney, South Carolina and
Brownsville, Texas medical, dental and vision claims and Columbus and Batavia, Ohio workers’ compensation claims, all of which
are subject to stop-loss insurance thresholds. The Company has recorded an estimated liability for self-insured medical, dental and
vision claims incurred but not reported and worker’s compensation claims incurred but not reported at December 31, 2017 and
December 31, 2016 of $862,000 and $1,139,000, respectively.
Post Retirement Benefits - Management records an accrual for post retirement costs associated with the health care plan sponsored
by the Company for certain 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
the Company's operations. The effect of a change in healthcare costs is described in Note 12 of the Notes to Consolidated Financial
42
Statements. Core Molding Technologies had a liability for post retirement healthcare benefits based on actuarially computed
estimates of $9,050,000 at December 31, 2017 and $8,667,000 at December 31, 2016.
Fair Value of Financial Instruments - The Company's financial instruments consist of long-term debt, interest rate swaps, foreign
currency hedges, accounts receivable, and accounts payable. The carrying amount of these financial instruments approximated their
fair value. Further detail is located in Note 14.
Concentration Risks - The Company has concentration risk related to significant amounts of sales and accounts receivable with
certain customers. Sales to five major customers comprised 84%, 85% and 85% of total sales in 2017, 2016 and 2015, respectively
(see Note 4). Concentrations of accounts receivable balances with five customers accounted for 84% and 85% of accounts
receivable at December 31, 2017 and 2016, respectively. The Company performs ongoing credit evaluations of its customers'
financial condition. The Company maintains reserves for potential bad debt losses, and such bad debt losses have been historically
within the Company's expectations. Sales to certain customers' manufacturing and service locations in Mexico and Canada totaled
36%, 32% and 35% of total sales for 2017, 2016 and 2015, respectively.
As of December 31, 2017, the Company employed a total of 1,304 employees, which consisted of 596 employees in its United
States operations and 708 employees in its Mexican operations. Of these 1,304 employees, 248 are covered by a collective
bargaining agreement with the International Association of Machinists and Aerospace Workers (“IAM”), which extends to August
10, 2019, and 611 are covered by a collective bargaining agreement with Sindicato de Jorneleros y Obreros, which extends to
December 31, 2019.
Earnings Per Common Share - Basic earnings per common share is computed based on the weighted average number of common
shares outstanding during the period. Diluted earnings per common share are computed similarly but include the effect of the
assumed exercise of dilutive stock options and vesting of restricted stock under the treasury stock method. A detailed computation
of earnings per share is located in Note 3.
Research and Development - Research and development activities focus on developing new material formulations, new products,
new production capabilities and processes, and improving existing products and manufacturing processes. The Company does not
maintain a separate research and development organization or facility, but uses its production equipment, as necessary, to support
these efforts and cooperates with its customers and its suppliers in research and development efforts. Likewise, manpower to direct
and advance research and development is integrated with the existing manufacturing, engineering, production, and quality
organizations. Research and development costs, which are expensed as incurred, totaled approximately $848,000, $965,000 and
$719,000 in 2017, 2016 and 2015.
Foreign Currency Adjustments - In conjunction with the Company's acquisition of certain assets of Airshield Corporation, the
Company established operations in Mexico. The functional currency for the Mexican operations is the United States dollar. All
foreign currency asset and liability amounts are remeasured into United States dollars at end-of-period exchange rates. Income
statement accounts are translated at the weighted monthly average rates. Gains and losses resulting from translation of foreign
currency financial statements into United States dollars and gains and losses resulting from foreign currency transactions are
included in current results of operations. Net foreign currency translation and transaction activity is included in selling, general and
administrative expense. This activity resulted in a gain of $30,000, $89,000 and $54,000 in 2017, 2016 and 2015, respectively.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue
Recognition. ASC Topic 606 is based on the principle that revenue is recognized to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. ASC Topic 606 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs
incurred to obtain or fulfill a contract. The effective date for ASC Topic 606, as updated by ASU No. 2015-14 in August 2015, has
been delayed until the first quarter of fiscal year 2018. The Company will adopt the new revenue standard in the first quarter of
2018 using the modified retrospective adoption method. We have determined that certain tooling programs with customers meet the
criteria listed in ASU 2014-09 to recognize revenue over time. Prospectively, the Company expects to recognize revenue related
transactions from certain tooling programs earlier than we have historically.
In March 2017, FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). The amendments in this update require
that an employer disaggregate the service cost component from the other components of net periodic cost (benefit) and report that
43
component in the same line item as other compensation costs arising from services rendered by employees during the period. The
other components of net periodic cost (benefit) are required to be presented in the statement of operations separately from the
service cost component and outside of operating earnings. The amendment also allows for the service cost component of net
periodic cost (benefit) to be eligible for capitalization when applicable. The guidance will be effective for the Company on January
1, 2018 and interim periods within that reporting period; early adoption permitted. The guidance on the income statement
presentation of the components of net periodic cost (benefit) must be applied retrospectively, while the guidance limiting the
capitalization of net periodic cost (benefit) in assets to the service cost component must be applied prospectively. The Company will
adopt this standard update as required and does not expect the adoption of this ASU to have a material impact on our consolidated
financial statements. Upon adoption, the Company plans to update the presentation of net periodic cost (benefit) accordingly, noting
all components of the Company's net periodic cost (benefit) will be presented outside of operating earnings, as the plan is not active.
The estimated impact of adoption of this update will be a reclassification of all components of net periodic benefit from operating
earnings to other income in the amount of $49,000 and $18,000 for the years ended December 31, 2017 and December 31, 2016,
respectively.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax
Cuts and Jobs Act. The reclassifications should be applied either in the period of adoption or retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The amendments
also require certain disclosures about stranded tax effects. This ASU is effective for all entities for fiscal years beginning after
December 15, 2018 and interim periods within those fiscal years and may be early adopted. The Company has elected to early adopt,
which resulted in a reclassification of $162,000 from accumulated other comprehensive income to retained earnings at December
31, 2017.
3. 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 includes the effect of the assumed exercise of dilutive stock options
and restricted stock under the treasury stock method.
The computation of basic and diluted net income per common share is as follows:
December 31,
Net income
2017
2016
$ 5,459,000 $ 7,411,000 $ 12,050,000
2015
Weighted average common shares outstanding —
basic
Effect of dilutive securities
Weighted average common and potentially issuable
common shares outstanding — diluted
Basic net income per common share
Diluted net income per common share
7,690,000
57,000
7,621,000
40,000
7,583,000
40,000
7,747,000
7,661,000
$
$
0.71 $
0.70 $
0.97 $
0.97 $
7,623,000
1.59
1.58
44
4. Major Customers
The Company had five major customers during 2017, Navistar, Volvo, PACCAR, Yamaha and BRP. Major customers are defined as
customers whose current year sales individually consist of more than ten percent of total sales during any annual or interim reporting
period in the current year. The loss of a significant portion of sales to Navistar, Volvo, PACCAR, Yamaha or BRP would have a
material adverse effect on the business of the Company.
The following table presents sales revenue for the above-mentioned customers for the years ended December 31:
Navistar product sales
Navistar tooling sales
Total Navistar sales
Volvo product sales
Volvo tooling sales
Total Volvo sales
PACCAR product sales
PACCAR tooling sales
Total PACCAR sales
Yamaha product sales
Yamaha tooling sales
Total Yamaha sales
BRP product sales
BRP tooling sales
Total BRP sales
Other product sales
Other tooling sales
Total other sales
Total product sales
Total tooling sales
Total sales
2017
2015
159,000 $
39,768,000
1,994,000 $
41,750,000
2016
$ 39,609,000 $ 39,756,000 $ 50,169,000
6,246,000
$
56,415,000
$ 27,627,000 $ 29,520,000 $ 53,525,000
1,600,000
55,125,000
33,452,000
978,000
34,430,000
16,766,000
—
16,766,000
7,082,000
—
7,082,000
28,109,000
1,141,000
29,250,000
189,103,000
9,965,000
$ 161,673,000 $ 174,882,000 $ 199,068,000
20,450,000
49,970,000
24,235,000
3,481,000
27,716,000
16,205,000
—
16,205,000
10,870,000
1,624,000
12,494,000
26,038,000
709,000
26,747,000
146,624,000
28,258,000
8,089,000
35,716,000
26,481,000
2,932,000
29,413,000
17,137,000
—
17,137,000
13,024,000
639,000
13,663,000
24,745,000
1,231,000
25,976,000
148,623,000
13,050,000
5. Foreign Operations
In conjunction with the Company's acquisition of certain assets of Airshield Corporation on October 16, 2001, the Company
established manufacturing operations in Mexico (under the Maquiladora program). The Mexican operation is a captive
manufacturing facility of the Company and the functional currency is United States dollars. Essentially all sales of the Mexican
operations are made in United States dollars, which totaled $50,727,000, $49,708,000 and $69,235,000 in 2017, 2016 and 2015,
respectively. Expenses are incurred in the United States dollar and the Mexican peso. Expenses incurred in pesos include labor,
utilities, supplies and materials, and amounted to approximately 24%, 22% and 19% of sales produced at the Matamoros operations
in 2017, 2016 and 2015, respectively. The Company's manufacturing operation in Mexico is subject to various political, economic,
and other risks and uncertainties including safety and security concerns inherent to Mexico. Among other risks, the Company's
Mexican operations are subject to domestic and international customs and tariffs, changing taxation policies, and governmental
regulations.
All of the Company's product is sold to U.S. based customers in U.S. dollars. The following table provides information related to
sales by country, based on the ship to location of customers' production facilities, for the years ended December 31:
United States
Mexico
Canada
Total
2017
103,513,000 $
52,496,000
5,664,000
161,673,000 $
2016
119,018,000 $
51,389,000
4,475,000
174,882,000 $
2015
129,651,000
63,586,000
5,831,000
199,068,000
$
$
45
The following table provides information related to the location of property, plant and equipment, net, as of December 31:
United States
Mexico
Total
2017
40,594,000 $
28,037,000
68,631,000 $
2016
42,547,000
28,054,000
70,601,000
$
$
6. Property, Plant, and Equipment
Property, plant, and equipment consisted of the following at December 31:
$
Land and land improvements
Buildings
Machinery and equipment
Tools, dies, and patterns
Additions in progress
Total
Less accumulated depreciation
Property, plant, and equipment - net
$
2017
6,009,000 $
42,769,000
92,218,000
808,000
3,045,000
144,849,000
(76,218,000)
68,631,000 $
2016
5,958,000
42,593,000
89,692,000
808,000
1,607,000
140,658,000
(70,057,000)
70,601,000
Additions in progress at December 31, 2017 and 2016 relate to building improvements and equipment purchases that were not yet
completed at year end. At December 31, 2017, commitments for capital expenditures in progress were $1,071,000 and included
$278,000 recorded on the balance sheet in accounts payable. At December 31, 2016, commitments for capital expenditures in
progress were $616,000, and included $316,000 recorded on the balance sheet in accounts payable. The Company capitalized
interest of $7,000 and $0 for the years ended December 31, 2017 and 2016, respectively.
7. Acquisition of CPI
On March 20, 2015, the Company acquired substantially all of the assets of CPI Binani, Inc., a wholly owned subsidiary of Binani
Industries Limited, located in Winona, Minnesota for a cash purchase price of $15,000,000, which expanded the Company's process
capabilities to include D-LFT and diversified the customer base. The purchase price was subject to working capital adjustments
resulting in a reduction in the purchase price of $488,000.
Cash paid at closing was financed through borrowing under the Company's existing credit facility, as amended and further described
in Note 9 below.
Consideration was allocated to assets acquired and liabilities assumed based on their fair values as of the acquisition date as follows:
Accounts Receivable
$
Inventory
Other Current Assets
Property and Equipment
Intangibles
Goodwill
Accounts Payable
Other Current Liabilities
$
1,615,000
675,000
171,000
12,474,000
650,000
1,306,000
(2,277,000)
(102,000)
14,512,000
The purchase price included consideration for strategic benefits, including an assembled workforce, operational infrastructure and
synergistic revenue opportunities, which resulted in the recognition of goodwill. The goodwill is deductible for income tax purposes.
The acquisition was not deemed significant to the Company's consolidated balance sheet and results of operations at the time of
acquisition. Accordingly, no pro-forma results are provided prior to the effective date of the acquisition. The Company incurred
46
$303,000 of expenses during the year ended December 31, 2015 associated with the acquisition, which was recorded in selling,
general and administrative expense.
8. Goodwill and Intangibles
Goodwill activity for the year ended December 31, 2017 consisted of the following:
Balance at December 31, 2016
Additions
Impairment
Balance at December 31, 2017
$
$
2,403,000
—
—
2,403,000
Intangible assets at December 31, 2017 were comprised of the following:
Definite-lived
Intangible Assets
Trade Name
Amortization Period
25 Years
$
Customer Relationships
10 Years
$
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
250,000 $
400,000
650,000 $
(27,000) $
(110,000)
(137,000) $
223,000
290,000
513,000
Intangible assets at December 31, 2016 were comprised of the following:
Definite-lived
Intangible Assets
Trade Name
Amortization Period
25 Years
$
Customer Relationships
10 Years
$
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
250,000 $
400,000
650,000 $
(17,000) $
(70,000)
(87,000) $
233,000
330,000
563,000
The aggregate intangible asset amortization expense was $50,000 for the years ended December 31, 2017 and 2016,
respectively, and expects amortization expense to be $50,000 each year for the next five years. The Company incurred $37,000
amortization expense for the year ended December 31, 2015.
9. Debt and Leases
Long-term debt consists of the following at:
Term loan payable to a bank, interest at a variable rate (3.36% and 2.55% at
December 31, 2017 and 2016, respectively) with monthly payments of
interest and principal through March 2020.
Revolving Line of Credit
Total
Less current portion
Long-term debt
December 31,
2017
December 31,
2016
6,750,000
—
6,750,000
(3,000,000)
3,750,000 $
9,750,000
—
9,750,000
(3,000,000)
6,750,000
$
Credit Agreement
On December 9, 2008, the Company and its wholly owned subsidiary, Corecomposites de Mexico, S. de R.L. de C.V., entered into a
credit agreement, as amended from time to time (the "Credit Agreement"), with a lender to provide various financing facilities.
Under this Credit Agreement the Company received certain loans, subject to the terms and conditions stated in the agreement, which
included (1) a $12,000,000 Capex loan; (2) an $18,000,000 variable rate revolving line of credit; (3) a term loan in an original
amount of $15,500,000; and (4) a Letter of Credit Commitment of up to $250,000, of which $175,000 has been issued. The Credit
47
Agreement is secured by a guarantee of each U.S. subsidiary of the Company, and by a lien on substantially all of the present and
future assets of the Company and its U.S. subsidiaries, except that only 65% of the stock issued by Corecomposites de Mexico, S. de
R.L. de C.V. has been pledged.
On August 4, 2017, the Company and its wholly owned subsidiary, Corecomposites de Mexico, S. de R.L. de C.V., entered into a
twelfth amendment (the "Twelfth Amendment") to the Credit Agreement. Pursuant to the terms of the Twelfth Amendment, the
parties agreed to modify certain terms of the Credit Agreement. These modifications included amending the definition of
Consolidated Fixed Charges to include only Capital Distributions made in an aggregate amount in excess of Two Million Dollars
($2,000,000) and amending the restricted payment covenant provisions.
Capex Loan
The $12,000,000 Capex loan was a construction draw loan that converted to a seven-year term loan with fixed monthly principal
payments. Borrowings made pursuant to this loan bear interest, payable monthly at 30 day LIBOR plus 160 basis points and was
paid in full May 2016.
Term Loan
The $15,500,000 Term Loan was used to finance the acquisition of CPI. This commitment has fixed monthly principal payments
payable over a five-year period. Borrowings made pursuant to this loan bear interest, payable monthly at 30 day LIBOR plus 180
basis points.
Revolving Line of Credit
At December 31, 2017, the Company had available an $18,000,000 variable rate revolving line of credit scheduled to mature on
May 31, 2018. The revolving line of credit bears interest at daily LIBOR plus 160 basis points and is collateralized by all of the
present and future assets of the Company and its U.S. subsidiaries (except that only 65% of the stock issued by Corecomposites de
Mexico, S. de C.V. has been pledged).
Annual maturities of long-term debt are as follows:
2018
2019
2020
Thereafter
Total
$
$
3,000,000
3,000,000
750,000
—
6,750,000
Bank Covenants
The Company is required to meet certain financial covenants included in the Credit Agreement with respect to leverage ratios, fixed
charge ratios, and capital expenditures, as well as other customary affirmative and negative covenants. As of December 31, 2017, the
Company was in compliance with its financial covenants associated with the loans made under the Credit Agreement as described
above.
Leases
The Company has entered into an operating lease agreement through July 2019 for the manufacturing facility located in Batavia,
Ohio. Additionally, the Company leases a warehouse and distribution center in Brownsville, Texas under a 5-year operating lease
agreement that expired in October 2017. The Company is currently negotiating a renewal to this lease.
Total rental expense was $825,000, $808,000 and $696,000 for 2017, 2016 and 2015, respectively. Included in rental expense are
both operating lease payments and rental costs related to the use of equipment during the normal course of business under
nonbinding terms. Future minimum operating lease payments are as follows:
2018
2019
2020
Thereafter
$
Total minimum lease payments
$
368,000
192,000
—
—
560,000
48
10. Stock Based Compensation
The Company has a Long Term Equity Incentive Plan (the “2006 Plan”), as approved by the Company’s stockholders in May 2006.
The 2006 Plan allows for grants to directors and 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, 2025, or the date the maximum number of available awards
under the 2006 Plan have been granted. The number of shares remaining available for future issuance is 1,369,528.
Restricted stock granted under the 2006 Plan typically require the individuals receiving the grants to maintain certain common stock
ownership thresholds and vest over three years or upon the date of the participants' sixty-fifth birthday, death, disability or change in
control.
Core Molding Technologies follows the provisions of FASB ASC 718 requiring that compensation cost relating to share-based
payment transactions be recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the
equity award). Core Molding Technologies adopted FASB ASC 718 using the modified prospective method. Under this method,
FASB ASC 718 applies to all awards granted or modified after the date of adoption.
Restricted Stock
The Company grants shares of its common stock to certain directors, officers, and key employees in the form of unvested stock
(“Restricted Stock”). These awards are recorded at the market value of Core Molding Technologies’ common stock on the date of
issuance and amortized ratably as compensation expense over the applicable vesting period.
The following summarizes the status of Restricted Stock and changes during the years ended December 31:
2017
2016
2015
Unvested - beginning of year
Granted
Vested
Forfeited
Unvested - end of year
Number
of
Shares
158,261 $
84,643
(95,717)
(6,092)
141,095 $
Wtd. Avg.
Grant Date
Fair Value
14.55
19.17
15.25
17.93
16.79
Number
of
Shares
112,907 $
122,963
(49,183)
(28,426)
158,261 $
Wtd. Avg.
Grant Date
Fair Value
16.86
12.59
14.16
15.93
14.55
Number
of
Shares
104,068 $
56,662
(46,629)
(1,194)
112,907 $
Wtd. Avg.
Grant Date
Fair Value
10.79
24.39
11.82
24.39
16.86
At December 31, 2017 and 2016, there was $1,601,000 and $1,356,000, respectively, of total unrecognized compensation expense
related to Restricted Stock granted under the 2006 Plan. That cost is expected to be recognized over the weighted-average period of
1.5 years. Total compensation expense related to restricted stock grants for the years ended December 31, 2017, 2016 and 2015 was
$1,331,000, $1,003,000 and $785,000, respectively, and is recorded as selling, general and administrative expense.
During first quarter 2017, the Company adopted Accounting Standards Update 2016-09, Compensation - Stock Compensation. The
new standard provided for changes to accounting for stock compensation, including excess tax benefits and tax deficiencies related
to share based payment awards to be recognized in income tax expense in the reporting period in which they occurred. Tax benefits
and tax deficiencies before this update were recorded as an increase or decrease in additional paid in capital. Tax benefits and
deficiencies for the years ended December 31 2017, 2016 and 2015 were a benefit of $126,000, a deficiency of $16,000 and a
benefit of $202,000, respectively.
During 2017, 2016 and 2015, employees surrendered 19,533, 10,590 and 12,141 shares, respectfully, of the Company's common
stock to satisfy income tax withholding obligations in connection with the vesting of restricted stock.
49
11. Income Taxes
Components of the provision for income taxes are as follows:
$
Current:
Federal - US
Federal - Foreign
State and local
Deferred:
Federal
Federal- Foreign
State and local
Provision for income taxes
$
2017
2016
2015
1,993,000 $
613,000
24,000
2,630,000
(407,000)
52,000
11,000
(344,000)
2,286,000 $
3,408,000 $
—
2,000
3,410,000
490,000
(86,000)
22,000
426,000
3,836,000 $
4,466,000
405,000
18,000
4,889,000
1,143,000
27,000
59,000
1,229,000
6,118,000
A reconciliation of the income tax provision based on the federal statutory income tax rate to the Company's income tax provision
for the years ended December 31 is as follows:
Provision at federal statutory rate - US
Adjustments for US tax law changes
Excess tax benefit — equity transactions
Effect of foreign taxes
State and local tax expense
Other
Provision for income taxes
2017
2,634,000 $
(185,000)
(126,000)
(58,000)
35,000
(14,000)
2,286,000 $
2016
3,823,000 $
—
—
34,000
24,000
(45,000)
3,836,000 $
2015
6,177,000
—
—
(84,000)
76,000
(51,000)
6,118,000
$
$
The Tax Cuts and Jobs Act (“the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax
rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were
previously tax deferred, creates new taxes on certain foreign sourced earnings, provides for acceleration of business asset expensing,
and reduces the amount of executive pay that may qualify as a tax deduction, among other changes. FASB ASC 740 requires the
recognition of the effects of tax law changes in the period of enactment. However, due to the complexities of the new tax legislation,
the SEC has issued SAB 118 which allows for the recognition of provisional amounts during a measurement period.
The Company’s accounting for the income tax effects of the Act is generally complete. Specifically, the charge recorded related to
the re-measurement of our deferred tax balance was a net benefit of $484,000, which we believe to be complete and accurate. The
Act's one-time transition tax calculation is complex, and as such our accounting for this item is provisional at this time. We have
made a reasonable estimate of the effects of the one-time transition tax, and the provisional amount recorded related to the transition
tax, net of estimated foreign tax credits, was a charge of $299,000. A more thorough analysis of the Company’s overall foreign
earnings and profits, including expense allocations and foreign tax credit calculations, will be completed to finalize this calculation,
which is expected to occur no later than the second quarter of 2018.
During first quarter 2017, the Company adopted Accounting Standards Update 2016-09, Compensation - Stock Compensation. The
new standard provided for changes to accounting for stock compensation, including recording excess tax benefits and tax
deficiencies related to share based payment awards in income tax expense in the reporting period in which they occurred. Tax
benefits and tax deficiencies before this update were recorded in additional paid in capital. Tax benefits and deficiencies for the
years ended December 31 2017, 2016 and 2015 were a benefit of $126,000, a deficiency of $16,000 and a benefit of $211,000,
respectively.
In October 2016, the Internal Revenue Service entered into a unilateral agreement with the Large Taxpayer Division of Mexico's
Servicio de Administracion Tributaria (SAT) to provide for a Fast Track methodology to resolve all pending Advanced Pricing
Agreements (APA) for the Maquiladora industry. The Company's Mexican subsidiary filed an APA and qualifies for and has adopted
this methodology.
50
The Company performs an analysis to evaluate the balance of deferred tax assets that will be realized. The analysis is based on the
premise that the deferred tax benefits will be realized through the generation of future taxable income. Based on the analysis, the
Company has not recorded a valuation allowance on the deferred tax assets as of December 31, 2017 and 2016.
Deferred tax assets consist of the following at December 31:
Current asset (liability):
Accrued liabilities
Accounts receivable
Inventory
Other, net
Total current asset
Non-current asset (liability):
Property, plant, and equipment
Post retirement benefits
Other, net
Total non-current liability
Total deferred tax liability - net
$
2017
2016
608,000 $
156,000
371,000
(292,000)
843,000
938,000
110,000
588,000
(255,000)
1,381,000
(3,345,000)
2,060,000
47,000
(1,238,000)
$
(395,000) $
(5,274,000)
3,212,000
(311,000)
(2,373,000)
(992,000)
At December 31, 2017 and 2016 the Company had no liability for unrecognized tax benefits under guidance relating to tax
uncertainties. The Company does not anticipate that the unrecognized tax benefits will significantly change within the next twelve
months.
The Company files income tax returns in the U.S. federal jurisdiction, Mexico and various state and local jurisdictions. The
Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for the years before 2014, and no
longer subject to Mexican income tax examinations by Mexican authorities for the years before 2012.
12. Post Retirement Benefits
The Company provides post retirement benefits to certain of its United States employees, including contributions to a multi-
employer defined benefit pension plan, health care and life insurance benefits, and contributions to three 401(k) defined contribution
plans.
The Company contributes to a multi-employer defined benefit pension plan for its employees represented by the International
Association of Machinists and Aerospace Workers ("IAM") at the Company’s Columbus, Ohio production facility. The Company
does not administer this plan and contributions are determined in accordance with provisions of the collective bargaining agreement.
The risks of participating in this multi-employer plan are different from a single-employer plan in the following aspects:
• Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other
participating employers.
•
•
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
If the Company chooses to stop participating in its multi-employer plan, the Company may be required to pay the plan an
amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company’s participation in the multi-employer defined benefit pension plan for the years ended December 31, 2017 and 2016 is
outlined in the table below. The most recent Pension Protection Act ("PPA") zone status available in 2017 and 2016 is for the plan’s
year-end at December 31, 2016, and December 31, 2015, respectively. The zone status is based on information the Company
received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65%
funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The “FIP/RP Status
Pending/Implemented” column indicates whether a financial improvement plan ("FIP") or a rehabilitation plan ("RP") is either
pending or has been implemented.
51
Pension Fund
EIN/Pension
Plan Number
IAM National Pension Fund /
National Pension Plan (A)
51-6031295 - 002
Pension Protection
Act Zone Status
2017
2016
Green
as of
12/31/16
Green
as of
12/31/15
FIP/RP
Status
Pending/
Implemented
Contributions of the
Company
2017
2016
Surcharge
Imposed
Expiration
Date of
Collective
Bargaining
Agreement
No
$647,000 $710,000
No
8/10/2019
Total Contributions: $647,000 $710,000
(A) The plan re-certified its zone status after using the amortization provisions of the Code. The Company's contributions to the
plan did not represent more than 5% of total contributions to the plan as indicated in the plan's most recently available annual
report for the plan year ended December 31, 2016. Under the terms of the collective-bargaining agreement, the Company is
required to make contributions to the plan for each hour worked up to a maximum of 40 hours per person, per week, at the
following rates: $1.45 per hour from August 8, 2016 through August 6, 2017; $1.50 per hour from August 7, 2017 through
August 5, 2018; $1.55 per hour from August 6, 2018 through August 10, 2019.
Prior to the acquisition of Columbus Plastics, certain of the Company's employees were participants, or were eligible to participate,
in Navistar's post retirement health and life insurance benefit plan. This plan provides healthcare and life insurance benefits for
certain employees upon their retirement, along with their spouses and certain dependents and requires cost sharing between the
Company, Navistar and the participants, in the form of premiums, co-payments, and deductibles. The Company and Navistar share
the cost of benefits for these employees, using a formula that allocates the cost based upon the respective portion of time that the
employee was an active service participant after the acquisition of Columbus Plastics to the period of active service prior to the
acquisition of Columbus Plastics.
The Company also sponsors a post retirement health and life insurance benefit plan for certain union retirees of its Columbus, Ohio
production facility. In August 2010, as part of a new collective-bargaining agreement, the post retirement health and life insurance
benefits for all current and future represented employees who were not retired were eliminated in exchange for a one-time cash
payment. Individuals who retired prior to August 2010 remain eligible for post retirement health and life insurance benefits.
The elimination of post retirement health and life insurance benefits described above resulted in a reduction of the Company’s post
retirement benefits liability of approximately $10,282,000 in 2010. This reduction in post retirement benefits liability was treated as
a negative plan amendment and is being amortized as a reduction to net periodic benefit cost over approximately twenty years, the
actuarial life expectancy of the remaining participants in the plan at the time of the amendment. This negative plan amendment
resulted in net periodic benefit cost reductions of approximately $496,000 in 2017, 2016 and 2015, and will result in net periodic
benefit cost reductions of approximately $496,000 in 2018 and each year thereafter during the amortization period.
52
The funded status of the Company's post retirement health and life insurance benefits plan as of December 31, 2017 and 2016 and
reconciliation with the amounts recognized in the consolidated balance sheets are provided below.
Post Retirement Benefits
2017
2016
Change in benefit obligation:
Benefit obligation at January 1
Interest cost
Unrecognized loss (gain)
Benefits paid
Benefit obligation at December 31
Plan Assets
Amounts recorded in accumulated other comprehensive
income:
Prior service credit
Net loss
Total
Weighted-average assumptions as of December 31:
Discount rate used to determine benefit obligation and net
periodic benefit cost
$
$
$
$
$
8,667,000
298,000
417,000
(332,000)
9,050,000
$
9,006,000
323,000
(320,000)
(342,000)
8,667,000
—
—
(6,602,000) $
3,733,000
(2,869,000) $
(7,098,000)
3,464,000
(3,634,000)
3.4%
3.8%
The components of expense for all of the Company's post retirement benefit plans for the years ended December 31:
Pension expense:
Multi-employer plan
Defined contribution plans
Total pension expense
Health and life insurance:
Interest cost
Amortization of prior service costs
Amortization of net loss
Net periodic benefit cost
2017
2016
2015
$
647,000 $
752,000
1,399,000
710,000 $
766,000
1,476,000
863,000
836,000
1,699,000
298,000
(496,000)
149,000
(49,000)
323,000
(496,000)
155,000
(18,000)
316,000
(496,000)
169,000
(11,000)
Total post retirement benefits expense
$
1,350,000
$
1,458,000
$
1,688,000
The Company accounts for post retirement benefits under FASB ASC 715, which requires the recognition of the funded status of a
defined benefit pension or post retirement plan in the consolidated balance sheets. For the year ended December 31, 2017, the
Company recognized a net actuarial loss of $417,000 and for the year ended December 31, 2016 recognized a net actuarial gain of
$320,000, both of which were recorded in accumulated other comprehensive income.
Amounts not yet recognized as a component of net periodic benefit costs at December 31, 2017 and 2016 were a net credit of
$2,869,000 and $3,634,000, respectively. The amount in accumulated other comprehensive income expected to be recognized as
components of net periodic post retirement cost during 2018 consists of a prior service credit of $496,000, and a net loss of
$171,000. In addition, 2018 interest expense related to post retirement healthcare is expected to be $277,000, for a total post
retirement healthcare net gain of approximately $48,000 in 2018. The Company expects benefits paid in 2018 to be consistent with
estimated future benefit payments as shown in the table below.
The weighted average rate of increase in the per capita cost of covered health care benefits is projected to be 7%. The rate is
projected to decrease gradually to 5% by the year 2025 and remain at that level thereafter. The comparable assumptions for the prior
year were 7% and 5%, respectively.
53
The effect of changing the health care cost trend rate by one-percentage point for each future year is as follows:
Effect on total of service and interest cost components
Effect on post retirement benefit obligation
$
$
48,000 $
1,264,000 $
(40,000 )
(1,068,000 )
1- Percentage
Point Increase
1-Percentage
Point Decrease
The estimated future benefit payments of the health care plan for the next ten years are as follows:
Year
2018
2019
2020
2021
2022
2023-2027
$
Postretirement
Health Care
Benefits Plan
1,096,000
444,000
474,000
495,000
518,000
2,456,000
13. Commitments and Contingencies
From time to time, the Company is involved in litigation incidental to the conduct of its business. However, the Company is
presently not involved in any legal proceedings which in the opinion of management are likely to have a material adverse effect on
the Company's consolidated financial position or results of operations.
14. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market
participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation methodologies as
defined in the authoritative literature. This guidance provides a fair value framework that requires the categorization of assets and
liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most
reliable measure of fair value, whereas Level 3 generally requires significant management judgment.
The three levels are defined as follows:
Level 1 - Quoted prices in active markets for identical assets and liabilities.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active and model-derived valuations, in which all significant inputs are observable in active
markets.
Level 3 - Significant unobservable inputs reflecting management's own assumptions about the inputs used in pricing the
asset or liability.
The Company’s financial instruments consist of debt, foreign currency derivatives, accounts receivable, and accounts payable. The
carrying amount of these financial instruments approximated their fair value. During 2017, the Company had one Level 2 fair value
measurement, which related to the Company’s foreign currency derivatives.
Derivative and hedging activities
The Company conducts business in Mexico and pays certain expenses in Mexican Pesos. The Company is exposed to foreign
currency exchange risk between the U.S. dollar and the Mexican Peso, which could impact the Company’s operating income and
cash flows. To mitigate risk associated with foreign currency exchange, the Company entered into forward contracts to exchange a
fixed amount of U.S. dollars for a fixed amount of Mexican Pesos, which will be used to fund future peso cash flows. At inception,
all forward contracts are formally documented as cash flow hedges and are measured at fair value each reporting period. Derivatives
are formally assessed both at inception and at least quarterly thereafter, to ensure that derivatives used in hedging transactions are
highly effective in offsetting changes in cash flows of the hedged item. If it is determined that a derivative ceases to be a highly
effective hedge, or if the anticipated transaction is no longer probable of occurring, hedge accounting is discontinued, and any future
mark-to-market adjustments are recognized in earnings. The effective portion of gain or loss is reported in other comprehensive
income and the ineffective portion is reported in earnings. The impacts of these contracts were largely offset by gains and losses
54
resulting from the impact of changes in exchange rates on transactions denominated in the Mexican Peso. As of December 31, 2017
and 2016, the Company had no ineffective portion related to the cash flow hedges.
Financial statements impacts
The following tables detail amounts related to our derivatives designated as hedging instruments as of December 31, 2017:
Fair Values of Derivatives Instruments
Asset Derivatives
Liability Derivatives
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Foreign exchange contracts
Prepaid expense other
current assets
Notional contract values
—
—
Accrued liabilities other
$ 298,000
$ 8,766,000
As of December 31, 2017, the Company had foreign exchange contracts related to the Mexican Peso with exchange rates ranging
from 19.17 to 20.41.
The following tables detail amounts related to our derivatives designated as hedging instruments as of December 31, 2016:
Fair Values of Derivatives Instruments
Asset Derivatives
Liability Derivatives
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Foreign exchange contracts
Prepaid expense other
current assets
Notional contract values
—
—
Accrued liabilities other
$ 303,000
$ 6,502,000
As of December 31, 2016, the Company had foreign exchange contracts related to the Mexican Peso with exchange rates ranging
from 20.01 to 20.68.
The following tables summarize the amount of unrealized / realized gain and loss recognized in Accumulated Comprehensive
Income (AOCI) for the years ended December 31, 2017, 2016 and 2015:
Derivatives in
subtopic 815-20
Cash Flow
Hedging
Relationship
Amount of Unrealized Gain or
(Loss) Recognized in Accumulated
other Comprehensive Income on
Derivative
2017
2016
2015
Location of Gain or
(Loss) Reclassified from
Accumulated Other
Comprehensive
Income(A)
Amount of Realized Gain or
(Loss) Reclassified from
Accumulated Other
Comprehensive Income
2017
2016
2015
Foreign exchange
contracts
$517,000
(289,000) —
Cost of goods sold
$445,000 12,000 —
Sales, general and
administrative expense
$67,000
2,000
—
(A) The foreign currency derivative activity reclassified from Accumulated Other Comprehensive Income is allocated to cost
of goods sold and sales, general and administrative expense based on the percentage of Mexican Peso spend.
Non-recurring fair value measurements
There were no non-recurring fair value measurements for the year ended December 31, 2017 or 2016.
55
15. Accumulated Other Comprehensive Income
The following table presents changes in Accumulated Other Comprehensive Income by component, net of tax, for the years
ended December 31, 2017 and 2016:
Foreign
Currency
Derivative
Activities(A)
Post
Retirement
Benefit Plan
Items(B)
Total
2016:
Balance at January 1, 2016
Other comprehensive income before
reclassifications
Amounts reclassified from accumulated other
comprehensive income
Income tax (expense) benefit
Balance at December 31, 2016
$
$
— $
2,645,000 $
2,645,000
(289,000)
319,000
30,000
(14,000)
103,000
(200,000) $
(336,000)
(14,000)
2,614,000 $
(350,000)
89,000
2,414,000
2017:
Balance at January 1, 2017
Other comprehensive income before
reclassifications
Amounts reclassified from accumulated other
comprehensive income
Income tax (expense) benefit
Adoption of Accounting Standards Update
2018-02
$
(200,000) $
2,614,000 $
2,414,000
517,000
(417,000)
100,000
(512,000)
(2,000)
(347,000)
255,000
(859,000)
253,000
Balance at December 31, 2017
$
(197,000) $
—
162,000
2,267,000 $
162,000
2,070,000
(A) The foreign currency derivative activity reclassified from Accumulated Other Comprehensive Income is allocated to cost
of goods sold and sales, general and administrative expense based on the percentage of Mexican Peso spend. The tax
effect of the foreign currency derivative activity reclassified from Accumulated Other Comprehensive Income is included
in income tax expense on the Consolidated Statements of Income.
(B) The Company has historically disclosed both interest rate swap activity and post-retirement benefit activity separately,
however due to immaterial interest rate swap activity the components associated with interest rate swaps have been
combined in the post retirement disclosures above. The effect of post-retirement benefit items reclassified from
Accumulated Other Comprehensive Income is included in total cost of sales on the Consolidated Statements of Income.
These Accumulated Other Comprehensive Income components are included in the computation of net periodic benefit
cost (see Note 12 "Post Retirement Benefits" for additional details). The tax effect of post-retirement benefit items
reclassified from Accumulated Other Comprehensive Income is included in income tax expense on the Consolidated
Statements of Income.
16. Subsequent Events
On January 16, 2018, 1137925 B.C. Ltd. (the “Subsidiary”), a wholly owned subsidiary of Core Molding Technologies, Inc. (the
“Company”), entered into an Asset Purchase Agreement (the “Agreement”) with Horizon Plastics International Inc., 1541689
Ontario Inc., 2551024 Ontario Inc. and Horizon Plastics de Mexico, S.A. de C.V. (collectively “Horizon Plastics”). Pursuant to the
terms of the Agreement the Company acquired substantially all of the assets and assumed certain specified liabilities of Horizon
Plastics in exchange for approximately $63,000,000 in cash, subject to a working capital closing adjustment. The initial accounting
for the business combination was not complete at the time the financial statements were issued due to the timing of the acquisition
and the filing of this Annual Report on Form 10-K. As a result, disclosures required under ASC 805-10-50, Business Combinations,
cannot be made at this time.
The acquisition was funded through a combination of available cash on hand and borrowings under the Amended and Restated
Credit Agreement ("A/R Credit Agreement") entered in to on January 16, 2018 with KeyBank National Association as
56
administrative agent and the various financial institutions party thereto as lenders (the "lenders"). Pursuant to the terms of the A/R
Credit Agreement (i) the Company may borrow revolving loans in the aggregate principal amount of up to $40,000,000 (the “US
Revolving Loans”) from the Lenders and term loans in the aggregate principal amount of up to $32,000,000 from the Lenders, (ii)
the Subsidiary may borrow revolving loans in an aggregate principal amount of up to $10,000,000 from the Lenders (which
revolving loans shall reduce the availability of the US Revolving Loans to the Company on a dollar-for-dollar basis) and term loans
in an aggregate principal amount of up to $13,000,000 from the Lenders and (iii) the Company may increase the aggregate principal
amount of the aforementioned loans by up to an additional$25,000,000.
On January 16, 2018, the Company entered into two interest rate swap agreements that became effective January 18, 2018 and
continues through January 2023, one of which was designated as a cash flow hedge for $25,000,000 of the $32,000,000 term loan to
the Company mentioned above and the other was designated as a cash flow hedge for $10,000,000 of the $13,000,000 term loan to
the Subsidiary mentioned above. Under these agreements, the Company will pay a fixed rate of 4.58% to the counterparty and
receives daily LIBOR.
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2017, 2016 and 2015.
2017:
Product sales
Tooling sales
Net sales
Gross margin
Operating income
Net income
Net income per common share:
Basic (1)
Diluted (1)
2016:
Product sales
Tooling sales
Net sales
Gross margin
Operating income
Net income
Net income per common share:
Basic (1)
Diluted (1)
2015:
Product sales
Tooling sales
Net sales
Gross margin
Operating income
Net income
Net income per common share:
Basic (1)
Diluted (1)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Year
36,336,000 $
410,000
36,746,000
6,491,000
2,566,000
1,688,000
36,794,000 $ 37,593,000 $
10,574,000
47,368,000
7,353,000
3,185,000
2,162,000
901,000
38,494,000
5,764,000
1,406,000
855,000
37,900,000 $ 148,623,000
13,050,000
1,165,000
161,673,000
39,065,000
24,680,000
5,072,000
7,990,000
833,000
5,459,000
754,000
0.22 $
0.22 $
0.28 $
0.28 $
0.11 $
0.11 $
0.10 $
0.10 $
0.71
0.70
42,530,000 $
2,938,000
45,468,000
8,863,000
4,442,000
2,890,000
36,813,000 $ 33,816,000 $
2,193,000
39,006,000
6,323,000
2,307,000
1,460,000
7,520,000
41,336,000
5,581,000
1,657,000
1,029,000
33,465,000 $ 146,624,000
28,258,000
15,607,000
174,882,000
49,072,000
27,924,000
7,157,000
11,545,000
3,139,000
7,411,000
2,032,000
0.38 $
0.38 $
0.19 $
0.19 $
0.13 $
0.13 $
0.27 $
0.26 $
0.97
0.97
47,854,000 $
1,745,000
49,599,000
9,025,000
4,890,000
3,196,000
53,514,000 $ 44,243,000 $
1,342,000
54,856,000
10,982,000
6,232,000
4,039,000
3,806,000
48,049,000
8,311,000
3,902,000
2,484,000
43,492,000 $ 189,103,000
9,965,000
3,072,000
199,068,000
46,564,000
36,252,000
7,934,000
18,498,000
3,474,000
12,050,000
2,331,000
0.42 $
0.42 $
0.53 $
0.53 $
0.33 $
0.33 $
0.31 $
0.31 $
1.59
1.58
$
$
$
$
$
$
$
$
$
(1) Sum of the quarters may not sum to total year due to rounding.
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the
design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon this
evaluation, the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, concluded that the
Company’s disclosure controls and procedures were (i) effective to ensure that information required to be disclosed in the
Company’s reports filed or submitted under the Exchange Act were accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosures, and (ii) effective to ensure that information required to be disclosed in the Company’s reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive
Officer and Chief Financial Officer and effected by the Company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements in
accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations,
internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial
statements would be prevented or detected.
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of the Company’s internal controls over financial reporting based on the criteria established in the
2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). This evaluation included a review of the documentation of controls, evaluation of the design effectiveness of controls,
testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management
concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.
The Company's independent registered public accounting firm, Crowe Horwath LLP, audited our internal control over financial
reporting as of December 31, 2017, as stated in their report in the section entitled "Report of Independent Registered Public
Accounting Firm" included elsewhere in this Form 10-K, which expressed an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting as of December 31, 2017.
Changes In Internal Controls
There were no changes in internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and Rule
15d-15(f)) that occurred in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
58
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Part III, Item 10 is incorporated by reference from the Company’s definitive proxy statement for its
annual meeting of stockholders to be held on or about May 17, 2018, which is expected to be filed with the SEC pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Part III, Item 11 is incorporated by reference from the Company’s definitive proxy statement for its
annual meeting of stockholders to be held on or about May 17, 2018, which is expected to be filed with the SEC pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Part III, Item 12 is incorporated by reference from the Company’s definitive proxy statement for its
annual meeting of stockholders to be held on or about May 17, 2018, which is expected to be filed with the SEC pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Part III, Item 13 is incorporated by reference from the Company’s definitive proxy statement for its
annual meeting of stockholders to be held on or about May 17, 2018, which is expected to be filed with the SEC pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Part III, Item 14 is incorporated by reference from the Company’s definitive proxy statement for its
annual meeting of stockholders to be held on or about May 17, 2018, which is expected to be filed with the SEC pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
59
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as Part of this Report:
(1) Financial Statements
See Part II, Item 8 hereof.
(2) Financial Statement Schedules and Independent Auditor's Report
The following consolidated financial statement schedules are filed with this Annual Report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts and Reserves for the Years Ended December 31,
2017, 2016 and 2015
62
All other schedules are omitted because of the absence of the conditions under which they are required.
(3) Exhibits
See Index to Exhibits filed with this Annual Report on Form 10-K.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CORE MOLDING TECHNOLOGIES, INC.
By
/s/ Kevin L. Barnett
Kevin L. Barnett
President and Chief Executive Officer
March 7, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
/s/ Kevin L. Barnett
Kevin L. Barnett
/s/ John P. Zimmer
John P. Zimmer
*
President, Chief Executive Officer, and Director
(Principal Executive Officer)
March 7, 2018
Vice President, Secretary, Treasurer, and Chief
Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
March 7, 2018
James L. Simonton
Director
March 7, 2018
*
Thomas R. Cellitti
Director
March 7, 2018
*
James F. Crowley
Director
March 7, 2018
*
Ralph O. Hellmold
Director
March 7, 2018
*
Matthew Jauchius
Director
March 7, 2018
*
Andrew O. Smith
Director
March 7, 2018
*By /s/ John P. Zimmer
John P. Zimmer
Attorney-In-Fact
March 7, 2018
61
Core Molding Technologies, Inc. and Subsidiaries
Schedule II
Consolidated valuation and qualifying accounts and reserves for the years ended December 31, 2017, 2016 and 2015.
Reserves deducted from asset to which it applies:
Allowance for Doubtful Accounts
Additions
Balance at
Beginning of
Year
(Recovered)/C
harged to
Costs &
Expenses
Charged to
Other
Accounts
Deductions (A)
Balance at End
of Year
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
$
$
$
— $
32,000 $
289,000 $
— $
(23,000) $
(167,000) $
— $
— $
— $
— $
9,000 $
90,000 $
—
—
32,000
Customer Chargeback Allowance
Additions
Balance at
Beginning of
Year
(Recovered)/C
harged to
Costs &
Expenses
Charged to
Other
Accounts
Deductions (B)
Balance at End
of Year
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
$
$
$
309,000 $
523,000 $
813,000 $
981,000 $
444,000 $
473,000 $
— $
— $
— $
433,000 $
658,000 $
763,000 $
857,000
309,000
523,000
(A) Amount represents uncollectible accounts written off.
(B) Amount represents customer returns and deductions, discounts and price adjustments accepted.
62
Exhibit No.
2(a)(1)
2(a)(2)
2(b)(1)
2(b)(2)
2(c)
2(d)
3(a)(1)
3(a)(2)
3(a)(3)
3(a)(4)
3(a)(5)
3(b)(1)
3(b)(2)
4(a)(1)
4(a)(2)
4(a)(3)
INDEX TO EXHIBITS
Description
Location
Asset Purchase Agreement Dated as of September 12,
1996, As amended October 31, 1996, between
Navistar and RYMAC Mortgage Investment
Corporation1
Second Amendment to Asset Purchase Agreement
dated December 16, 19961
Incorporated by reference to Exhibit 2-A to
Registration Statement on Form S-4 (Registration No.
333-15809)
Incorporated by reference to Exhibit 2(a)(2) to
Annual Report on Form 10-K for the year-ended
December 31, 2001
Agreement and Plan of Merger dated as of November
1, 1996, between Core Molding Technologies, Inc.
and RYMAC Mortgage Investment Corporation
Incorporated by reference to Exhibit 2-B to
Registration Statement on Form S-4 (Registration No.
333-15809)
First Amendment to Agreement and Plan of Merger
dated as of December 27, 1996 Between Core
Molding Technologies, Inc. and RYMAC Mortgage
Investment Corporation
Asset Purchase Agreement dated as of October 10,
2001, between Core Molding Technologies, Inc. and
Airshield Corporation
Asset Purchase Agreement dated as of March
20,2015, between Core Molding Technologies, Inc.
and CPI Binani, Inc.
Incorporated by reference to Exhibit 2(b)(2) to
Annual Report on Form 10-K for the year ended
December 31, 2002
Incorporated by reference to Exhibit 1 to Form 8-K
filed October 31, 2001
Incorporated by reference to Exhibit 2.1 to Form 8-K
filed March 23, 2015
Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the Secretary of State
of Delaware on October 8, 1996
Incorporated by reference to Exhibit 4(a) to
Registration Statement on Form S-8 (Registration No.
333-29203)
Certificate of Amendment of Certificate of
Incorporation of Core Molding Technologies, Inc. as
filed with the Secretary of State of Delaware on
November 6, 1996
Incorporated by reference to Exhibit 4(b) to
Registration Statement on Form S-8 (Registration No.
333-29203)
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
Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock as filed
with the Secretary of State of Delaware on July 18,
2007
Incorporated by reference to Exhibit 3.1 to Form 8-K
filed July 19, 2007
Certificate of Elimination of the Series A Junior
Participant Preferred Stock as filed with the Delaware
Sec. of State on April 2, 2015
Incorporated by reference to Exhibit 3(a)(5) to
Form 8-K filed April 2, 2015
Amended and Restated By-Laws of Core Molding
Technologies, Inc.
Incorporated by reference to Exhibit 3.1 to Current
Report on Form 8-K filed January 4, 2008
Amendment No. 1 to the Amended and Restated By-
Laws of Core Molding Technologies, Inc.
Incorporated by reference to Exhibit 3.1 to Current
Report on Form 8-K filed December 17, 2013
Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the Secretary of State
of Delaware on October 8, 1996
Incorporated by reference to Exhibit 4(a) to
Registration Statement on Form S-8 (Registration
No. 333-29203)
Certificate of Amendment of Certificate of
Incorporation of Core Molding Technologies, Inc. as
filed with the Secretary of State of Delaware on
November 6, 1996
Incorporated by reference to Exhibit 4(b) to
Registration Statement on Form S-8 (Registration
No. 333-29203)
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
63
Exhibit No.
4(a)(4)
Description
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
Location
Incorporated by reference to Exhibit 3.1 to Form
8-K filed July 19, 2007
4(a)(5)
10(a)
10(c)
10(c)(1)
10(c)(2)
10(c)(3)
10(c)(4)
10(c)(5)
10(c)(6)
10(c)(7)
10(c)(8)
10(c)(9)
Certificate of Elimination of the Series A Junior Participant
Preferred Stock as filed with the Delaware Sec. of State on
April 2, 2015
Incorporated by reference to Exhibit 3(a)(5) to
Form 8-K filed April 2, 2015
Supply Agreement, dated August 4, 2014 between Core
Molding Technologies, Inc. and Core Composites
Corporation and Navistar, Inc.3
Incorporated by reference to Exhibit 10(a) to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 2014
Credit agreement, dated December 9, 2008, by and between
Core Molding Technologies, Inc. and Corecomposites de
Mexico, S De. R.L. de C.V. and KeyBank National
Association
First Amendment Agreement, dated March 31, 2009, to the
Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and KeyBank National Association
Second Amendment Agreement, dated June 30, 2009, to the
Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and KeyBank National Association
Third Amendment Agreement, dated December 1, 2009, to
the Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and KeyBank National Association
Fourth Amendment Agreement, dated March 8, 2010, to the
Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and KeyBank National Association
Fifth Amendment Agreement, dated May 11, 2010, to the
Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and KeyBank National Association
Sixth Amendment Agreement, dated June 1, 2011, to the
Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and Keybank National Association
Seventh Amendment Agreement, dated July 9, 2012, to the
Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and Keybank National Association
Eighth Amendment Agreement, dated March 27, 2013, to
the Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and Keybank National Association
Ninth Amendment Agreement, dated October 31, 2013, to
the Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and Keybank National Association
Incorporated by reference to Exhibit 10(b) to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 2010
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed April 2, 2009
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed July 2, 2009
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed December 7,
2009
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated March 10,
2010
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated May 14,
2010
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed June 21, 2011
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed July 10, 2012
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed March 27,
2013
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed November 4,
2013
10(c)(10)
Tenth Amendment Agreement, dated March 20, 2015, to the
Credit Agreement dated December 9, 2008, among Core
Molding Technologies, Inc., Corecomposites de Mexico, S.
De R.L. de C.V. and Keybank National Association
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed March 23,
2015
64
10(e)
10(f)
Exhibit No.
10(c)(11)
Description
Location
Eleventh Amendment Agreement, dated June 21, 2016, to
the Credit Agreement dated December 9, 2008 among Core
Molding Technologies, Inc., Core Composites de Mexico, S.
De R. L. de C.V. and Keybank National Association
Incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed June 22, 2016.
10(c)(12)
Twelfth Amendment Agreement, dated August 4, 2017, to
the Credit Agreement dated December 9, 2008 among Core
Molding Technologies, Inc., Core Composites de Mexico, S.
De R. L. de C.V. and Keybank National Association
Incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed August 8, 2017
Reimbursement Agreement, dated April 1, 1998, by and
between Core Molding Technologies, Inc. and KeyBank
National Association
Incorporated by reference to Exhibit 10(h) to
Annual Report on Form 10-K for the year ended
December 31, 2003
Core Molding Technologies, Inc. Employee Stock Purchase
Plan2
10(f)(1)
2002 Core Molding Technologies, Inc. Employee Stock
Purchase Plan (as amended May 17, 2006) 2
Incorporated by reference to Exhibit 4(c) to
Registration Statement on Form S-8
(Registration No. 333-60909).
Incorporated by reference to Exhibit 10.3 to
Current Report on Form 8-K dated May 23,
2006
10(g)
10(g)(1)
Letter Agreement Regarding Terms and Conditions of
Interest Rate Swap Agreement between KeyBank National
Association and Core Molding Technologies, Inc.
Incorporated by reference to Exhibit 10(j) to
Annual Report on Form 10-K for the year ended
December 31, 2003
Letter Agreement Regarding Terms and Conditions of
Interest Rate Swap Agreement between KeyBank National
Association and Core Molding Technologies, Inc.
Incorporated by reference to Exhibit 10(i)(1) to
Annual Report on Form 10-K for the year ended
December 31, 2008
10(h)
10(i)
10(j)
10(k)
10(l)
10(m)
10(n)
2006 Core Molding Technologies, Inc. Long Term Equity
Incentive Plan as amended and restated effective May 12,
20172
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated May 15,
2017
Core Molding Technologies, Inc. Executive Cash Incentive
Plan2
Incorporated by reference to Exhibit A to
Definitive Proxy Statement on Schedule 14A,
dated April 8, 2016
Form of Amended and Restated Executive Severance
Agreement between Core Molding Technologies, Inc. and
certain executive officers2
Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated December
29, 2008
Form of Amended and Restated Restricted Stock Agreement
between Core Molding Technologies, Inc. and certain
executive officers2
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated January 4,
2008
Form of Executive Severance Agreement between Core
Molding Technologies, Inc. and certain executive officers2
Form of Restricted Stock Agreement between Core Molding
Technologies, Inc. and certain executive officers2
Incorporated by reference to Exhibit 10.4 to
Current Report on Form 8-K dated May 23,
2006
Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated May 15,
2012
Severance Agreement and Release in Full, dated August 24,
2016, between William Ringling and Core Molding
Technologies, Inc.
Incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed August 24,
2016.
11
Computation of Net Income per Share
Exhibit 11 omitted because the required
information is Included in Notes to Financial
Statements in Part II, Item 8 of this Annual
Report on Form 10-K
23
24
31(a)
Consent of Crowe Horwath LLP
Powers of Attorney
Section 302 Certification by Kevin L. Barnett, President,
Chief Executive Officer, and Director
Filed Herein
Filed Herein
Filed Herein
65
Exhibit No.
31(b)
32(a)
32(b)
Description
Location
Section 302 Certification by John P. Zimmer, Vice President,
Secretary, Treasurer, and Chief Financial Officer
Filed Herein
Certification of Kevin L. Barnett, Chief Executive Officer of
Core Molding Technologies, Inc., dated March 7, 2018,
pursuant to 18 U.S.C. Section 1350
Filed Herein
Certification of John P. Zimmer, Chief Financial Officer of
Core Molding Technologies, Inc., dated March 7, 2018,
pursuant to 18 U.S.C. Section 1350
Filed Herein
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
Filed Herein
Filed Herein
Filed Herein
Filed Herein
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Filed Herein
101.DEF
XBRL Taxonomy Extension Definition Linkbase
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 upon request.
2.
Indicates management contracts or compensatory plans that are required to be filed as an exhibit to this Annual Report on Form
10-K.
3. Certain portions of this Exhibit have been omitted intentionally subject to a confidentiality treatment request. A complete
version of the Exhibit has been filed separately with the Securities and Exchange Commission.
66
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-105819, No. 333-107143, No. 333-136123, and
No. 333-174349 on Forms S-8 and Registration Statement No. 333-221561 on Form S-3 of Core Molding Technologies, Inc. of our
report dated March 7, 2018, relating to the consolidated financial statements and financial statement schedule and the effectiveness
of internal control over financial reporting, appearing in this Annual Report on Form 10-K.
Exhibit 23
Columbus, Ohio
March 7, 2018
/s/ Crowe Horwath LLP
67
Exhibit 31(a)
I, Kevin L. Barnett, certify that:
1.
I have reviewed this annual report on Form 10-K of Core Molding Technologies, Inc.;
SECTION 302 CERTIFICATION
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 7, 2018
/s/ Kevin L. Barnett
Kevin L. Barnett
President, Chief Executive Officer, and Director
68
Exhibit 31(b)
I, John P. Zimmer, certify that:
SECTION 302 CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Core Molding Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this annual report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 7, 2018
/s/ John P. Zimmer
John P. Zimmer
Vice President, Secretary, Treasurer and Chief Financial
Officer
69
CORE MOLDING TECHNOLOGIES, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32(a)
In connection with the Annual Report of Core Molding Technologies, Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin L. Barnett,
President, Chief Executive Officer, and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Kevin L. Barnett
Kevin L. Barnett
President, Chief Executive Officer, and Director
March 7, 2018
CORE MOLDING TECHNOLOGIES, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32(b)
In connection with the Annual Report of Core Molding Technologies, Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John P. Zimmer,
Vice President, Secretary, Treasurer, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ John P. Zimmer
John P. Zimmer
Vice President, Secretary, Treasurer and Chief Financial Officer
March 7, 2018
70
[This page intentionally left blank]
2017
CORE MOLDING TECHNOLOGIES, INC.
ANNUAL REPORT TO SHAREHOLDERS
Core Molding Technologies, Inc. is a manufacturer of sheet molding compound (SMC) and molder of
thermoset and thermoplastic products. The Company produces high quality molded products, assemblies
and SMC materials for varied markets, including medium and heavy-duty trucks, automotive, marine, home
improvement, water management, agriculture, construction and other commercial markets. The Company
offers customers a wide range of manufacturing processes to fit various program volume and investment
requirements. These processes include compression molding of SMC, bulk molding compounds (BMC);
resin transfer molding (RTM), liquid molding of dicyclopentadiene (DCPD), spray-up and hand-lay-up, glass
mat thermoplastics (GMT), direct long-fiber thermoplastics (D-LFT) and structural foam and web injection
molding. Core Molding Technologies has its headquarters in Columbus, Ohio, and operates production
facilities in Columbus and Batavia, Ohio; Gaffney, South Carolina; Winona, Minnesota; Matamoros, Mexico,
Escobedo, Mexico; and Cobourg, Ontario, Canada. Core’s common stock is traded on the NYSE American LLC
under the symbol “CMT.”
NET SALES
(Dollars in millions)
199.1
175.2
174.9
161.7
144.1
$200
$150
$100
$50
$0
INCOME BEFORE INTEREST AND TAXES
(Dollars in millions)
NET INCOME PER SHARE
(Basic)
18.5
14.6
10.1
11.5
8.0
$20
$15
$10
$5
$0
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
1.59
1.28
0.95
0.97
0.71
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
FOLD HERE
INVESTOR INFORMATION
Share Trading
Shares of Core Molding Technologies common stock are traded on the NYSE American LLC
under the symbol “CMT.”
Notice of Annual Meeting
The Company’s 2018 annual meeting will be held on May 17, 2018. The meeting will be held at the
Company’s Gaffney, South Carolina facility, 24 Commerce Drive, Gaffney, South Carolina 29340
and will convene at 9:00 a.m.
Investor Relations
Investor inquiries, including requests to obtain copies without charge of the Company’s annual
report as filed with the Securities & Exchange Commission, should be directed to:
Core Molding Technologies, Inc.
Investor Relations
800 Manor Park Drive
Columbus, OH 43228
Website: www.coremt.com
Stockholder Inquiries
Questions such as changes of address, name changes or lost certificates should be directed to
the Company’s stock transfer agent:
American Stock Transfer & Trust Co., LLC
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
info@amstock.com
SELECTED FINANCIAL HIGHLIGHTS (dollars in millions except per share numbers)
CORPORATE OFFICERS
BOARD OF DIRECTORS
YEARS ENDED DECEMBER 31
Net Sales
Operating Income
Net Income
Net Income per common share: Basic
Net Income per common share: Diluted
Long-term debt
Stockholders’ equity
2017
161.7
8.0
5.5
0.71
0.70
3.8
101.9
2016
174.9
11.5
7.4
0.97
0.97
6.8
96.8
2015
199.1
18.5
12.1
1.59
1.58
9.8
88.7
2014
175.2
14.6
9.6
1.28
1.28
0.7
76.1
2013
144.1
10.1
6.9
0.95
0.92
2.4
67.4
Kevin L. Barnett
President and Chief Executive Officer
Robert P. Price
Vice President of Operations
Terrence J. O’Donovan
Vice President of Marketing and Sales
John P. Zimmer
Vice President, Secretary, Treasurer
and Chief Financial Officer
James L. Simonton, Chairman
Thomas R. Cellitti
James F. Crowley
Ralph O. Hellmold
Matthew E. Jauchius
Andrew O. Smith
Kevin L. Barnett
CMT-056 AnnualReport.2017.FA copy.indd 3-4
4/5/18 12:04 PM
FOLD HERE
800 Manor Park Drive
Columbus, OH 43228
www.coremt.com
FOLD HERE
ANNUAL
REPORT
2017
CREATIVE
RELIABLE
COMPOSITES
CORE MOLDING TECHNOLOGIES, INC.
CMT-056 AnnualReport.2017.FA copy.indd 1-2
4/5/18 12:04 PM
FOLD HERE