| CORE MOLDING TECHNOLOGIES INC ITEM 1A RISK FACTORS The following risk factors describe various risks that may affect our business, financial condition and operations |
| References to "e we, "e "e us, "e and "e our "e in this "e Risk Factors "e section refer to Core Molding Technologies and its subsidiaries, unless otherwise specified or unless the context otherwise requires |
| WE ARE DEPENDENT ON SALES TO A SMALL NUMBER OF OUR MAJOR CUSTOMERS Sales to International, Freightliner, PACCAR, and Yamaha constituted approximately 51prca, 13prca, 12prca and 8prca, respectively, of our 2005 net sales |
| The loss of any significant portion of sales to any of our major customers could have a material adverse effect on our business, results of operations or financial condition |
| We are a standard supplier to each of our major customers, which results in recurring revenues |
| If we could not maintain our supplier relationship with any of our major customers it could have a material adverse effect on our business, results of operations or financial condition |
| We are continuing to engage in efforts intended to improve and expand our relations with International, Freightliner, PACCAR, and Yamaha 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 NATURE OF THE INDUSTRIES AND MARKETS THAT WE SERVE The heavy- and medium-duty truck industries are highly cyclical |
| 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 &apos inventory levels and production rates |
| In addition, our operations are typically seasonal as a result of regular customer maintenance shutdowns, which typically 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 Core Molding Technologies purchases resins and fiberglass for use in production as well as steel components for product assembly |
| The prices of resins are affected by the prices of crude oil and natural gas as well as processing capacity versus demand and the Company has incurred increases in raw material costs over the past few years |
| The Company attempts to reduce its exposure to increases by working with suppliers, evaluating new suppliers, improving material efficiencies, and sales price adjustments |
| If we are unsuccessful in developing ways to mitigate these raw material increases we may not be able to improve productivity or realize our ongoing cost reduction programs sufficiently to help offset the impact of these increased raw material costs |
| 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 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 relocating production to countries with lower cost structures, which could in turn lead them to purchase components from suppliers with lower production 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 9 which have, in some cases, been absorbed by the suppliers |
| 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 OPERATE IN HIGHLY COMPETITIVE MARKETS 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 the Companyapstas competitors have greater financial resources, research and development facilities, design engineering, manufacturing and marketing capabilities |
| WE MAY BE SUBJECT TO ADDITIONAL SHIPPING EXPENSE OR LATE FEES IF WE ARE NOT ABLE TO MEET OUR CUSTOMERS &apos ON-TIME DEMAND FOR OUR PRODUCTS We must continue to meet our customers &apos demand for on-time deliver 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 or poor management of our company or one or more of its &apos plants and an unforeseen spike in demand for our products, 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 RETAIN KEY PERSONNEL OUR BUSINESS COULD BE HARMED Our success largely depends on the efforts and abilities of key personnel within the company |
| 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 &apos FACILITIES COULD ADVERSELY AFFECT OUR OPERATIONS As of December 31, 2005, unions at our Columbus, Ohio and Matamoros, Mexico facilities represented approximately 58prca 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 8, 2007 and January 16, 2007, respectively |
| Any prolonged work stoppage or strike at either our Columbus, Ohio or Matamoros, Mexico unionized facilities could have a material adverse effect on our business, results of operations or financial condition |
| These collective bargaining agreements expire at various times |
| 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 INCREASES IN ENERGY PRICES WILL INCREASE OUR OPERATING COSTS AND LIKELY REDUCE OUR PROFITABILITY We use energy to manufacture our products |
| Our operating costs increase if energy costs rise, which has occurred in 2005 due to higher oil and natural gas prices |
| 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 will increase our operating costs and likely reduce our profitability |
| OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH MANUFACTURING PROCESSES We convert raw materials into molded products through a manufacturing process at production facilities in Columbus, Ohio, Gaffney, South Carolina, Batavia, Ohio and Matamoros, Mexico |
| 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 the Company |
| 10 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 |
| OUR INSURANCE COVERAGE MAY BE INADEQUATE TO PROTECT AGAINST THE POTENTIAL HAZARDS INCIDENT TO OUR BUSINESS We maintain property, business interruption, 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 |
| IN SEPTEMBER 2004, WE ACQUIRED THE ASSETS OF KEYSTONE RESTYLING PRODUCTS, A PRIVATELY HELD MANUFACTURER AND MARKETER FOR THE AUTOMOTIVE AFTERMARKET INDUSTRY IN AUGUST 2005, WE ACQUIRED ASSETS OF THE CINCINNATI FIBERGLASS DIVISION OF DIVERSIFIED GLASS, A PRIVATELY HELD MANUFACTURER AND DISTRIBUTOR OF FIBERGLASS REINFORCED PLASTIC COMPONENTS SUPPLIED PRIMARILY TO THE HEAVY-DUTY TRUCK MARKET WE MAY NOT REALIZE THE IMPROVED 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 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 Core Molding Technologies and to manage the combined company on a going forward basis |
| The diversion of managementapstas 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 |
| 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, upgrade our facilities, purchase leased facilities and equipment and enhance our production processes |
| Although we currently have cash reserves 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 &apos 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 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 |
| 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 &apos 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 "e Risk Factors "e section |
| Our common stock also has a low average daily trading volume, which limits a personapstas 11 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 |