Core Molding Technologies, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The company manufactures sheet molding compound and molded reinforced-plastic components for truck, automotive, marine, and commercial markets, operating facilities in the United States and Mexico. It acquired substantially all assets of CPI Binani in March 2015, adding direct long-fiber thermoplastics capability and a Winona, Minnesota facility.
Financial performance
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net sales | $199.1 million | $175.2 million | +14% |
| Product sales | $189.1 million | $169.7 million | +11% |
| Gross profit / margin | $36.3 million / 18.2% | $30.2 million / 17.2% | Margin +1.0 percentage point |
| Income before interest and taxes | $18.5 million | $14.6 million | +26% |
| Net income | $12.1 million | $9.6 million | +25% |
| Diluted EPS | $1.58 | $1.28 | +$0.30 |
| Operating cash flow | $18.6 million | $10.8 million | +$7.8 million |
| Capital expenditures | $5.7 million | $10.7 million | -$5.0 million |
Gross-margin improvement reflected favorable foreign-exchange effects, selling-price/material-cost changes, and CPI contribution, partly offset by product mix, production inefficiencies, and higher fixed spending. Net interest expense rose to $330,000 from $122,000, primarily due to the CPI acquisition term loan and lower capitalized interest. The effective tax rate was approximately 34% in both years.
Balance sheet and liquidity
- At year-end, cash was $8.9 million, working capital $31.5 million, and total assets $139.8 million. Working capital increased from $23.2 million in 2014.
- Total debt was $13.5 million, including $3.7 million current and $9.8 million long-term; debt was $5.2 million at the prior year-end. The increase principally reflects acquisition financing.
- The company had an $18.0 million revolving credit facility available and no revolver borrowings at year-end. Management said cash, operating cash flow, and available credit should cover current liquidity needs. The company was in compliance with debt covenants.
- Operating cash flow of $18.6 million was below investing cash outflows of $20.2 million, including $14.5 million for CPI and $5.7 million for capital spending. Financing activities provided $8.2 million, including $15.0 million in net new term-loan proceeds, partly offset by debt repayments.
- Stockholders’ equity was $88.7 million, up from $76.1 million. No cash dividends were paid, and management did not anticipate dividends in the foreseeable future.
Changes versus prior periods
- Sales growth was driven by approximately $17 million from CPI and other new business, plus about $5 million from higher customer demand; lower PACCAR sales partly offset the increase. Tooling sales rose to $10.0 million from $5.5 million and are described as sporadic.
- Volvo sales increased 13% overall to $55.1 million; Navistar sales rose to $56.4 million, including $6.2 million in tooling; PACCAR sales fell to $34.4 million and Yamaha sales were nearly flat at $16.8 million.
- Four major customers represented approximately 82% of sales, versus 87% in 2014; 78% of product sales were to medium- and heavy-duty truck markets, down from 83%.
- SG&A increased to $17.8 million from $15.5 million, including CPI costs, higher profit sharing, labor and benefits, and travel.
Outlook, risks, and other notable items
- Management expected 2016 sales to decline from 2015 because of lower medium- and heavy-duty truck demand. Customers and industry analysts forecast approximately a 20% decrease in Class 8 truck production in 2016. The company anticipated occasional three-shift, seven-day operations to meet customer needs.
- Management forecast approximately $7 million of 2016 property, plant, and equipment spending. The filing gives no quantified full-year 2016 revenue or earnings guidance.
- Customer concentration is material: the four largest customers accounted for 82% of 2015 sales and 88% of year-end receivables. The loss or reduced purchasing of a major customer could materially affect results.
- Other principal risks include truck-industry cyclicality and fixed-cost leverage; raw-material price and supply volatility; OEM pricing and quality demands; production interruptions and delivery penalties; labor negotiations; Mexico security, currency, and operating risks; acquisition integration; and environmental, product-liability, and covenant risks.
- The CPI acquisition was funded through the amended credit facility; cash consideration after working-capital adjustment was $14.5 million. The company recorded $1.3 million of goodwill and $650,000 of definite-lived intangibles; $303,000 of acquisition costs was expensed.
- Four-week expected-shipment backlog was approximately $13.1 million at year-end, compared with $15.6 million a year earlier; the 2015 year-end backlog was shipped in the first quarter of 2016.
- Management and the independent auditor reported effective internal control over financial reporting; CPI was excluded from the 2015 control assessment. The auditor gave an unqualified opinion on the financial statements and controls. Management reported no litigation expected to have a material adverse effect.
Important facts for investors to verify
- Whether the forecast decline in truck production translated into lower company sales, margins, and covenant headroom in 2016.
- How much of 2015 growth and profitability came from CPI, new business, foreign-exchange effects, and nonrecurring tooling projects.
- Customer concentration and receivable exposure, particularly to Navistar, Volvo, PACCAR, and Yamaha.
- Debt repayment requirements, revolver availability and maturity, covenant compliance under lower-demand scenarios, and planned capital expenditures.
- CPI integration and performance, including whether the acquisition delivered the expected customer diversification and D-LFT growth.
- Exposure to raw-material costs, Mexican operations and security conditions, and upcoming union contract expirations in 2016 and 2017.