Core Molding Technologies Inc.
03/10/2026 | Press release | Distributed by Public on 03/10/2026 14:12
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DESCRIPTION OF THE COMPANY
Core Molding Technologies and its subsidiaries operate in the engineered materials market as one operating segment as a molder of thermoplastic and thermoset structural products. During the year ended December 31, 2025 the Company's operating segment consisted of one component reporting unit. The Company produces and sells molded products for varied markets, including medium and heavy-duty trucks, power sports, building products, industrial and utilities and other commercial markets. Core Molding Technologies has its headquarters in Columbus, Ohio, and operates six production facilities in the United States, Canada and Mexico.
BUSINESS OVERVIEW
General
The Company's business and operating results are directly affected by changes in overall customer demand, operational costs, and performance and leverage of our fixed cost and selling, general and administrative ("SG&A") infrastructure.
Product sales fluctuate in response to several factors, including many that are beyond the Company's control, such as general economic conditions, interest rates, government regulations, consumer spending, labor availability, and our customers' production rates and inventory levels. Product sales consist of demand from customers in many different markets with different levels of cyclicality and seasonality. The Company's largest market, North American truck, which is highly cyclical, accounted for 44%, 56%, and 52% of the Company's product revenue for the years ended December 31, 2025, 2024, and 2023, respectively.
Operating performance is dependent on the Company's ability to manage changes in input costs for items such as raw materials, labor, and overhead operating costs. The Company has certain contractual commitments that restrict its ability to pass through changes in input costs to certain customers. As a result, during periods of significant increases or decreases in input costs operating results may be impacted.
Performance is also affected by manufacturing efficiencies, including items such as on time delivery, quality, scrap, and productivity. Market factors of supply and demand can impact operating costs. In periods of rapid increases or decreases in customer demand, the Company is required to ramp operational activity up or down quickly, which may impact manufacturing efficiencies more than in periods of steady demand.
Operating performance is also dependent on the Company's ability to effectively launch new customer programs, which are typically extremely complex in nature. The start of production of a new program is the result of a process of developing new molds and assembly equipment, validation testing, manufacturing process design, development and testing, along with training and often hiring employees. Meeting the targeted levels of manufacturing efficiency for new programs usually occurs over time as the Company gains experience with new tools and processes. Therefore, during a new program launch period, start-up costs and inefficiencies can affect operating results.
Business Outlook
Looking forward, based on industry analyst projections, customer forecasts, cyclical demand, anticipated program launches and price changes, the Company expects revenues for the calendar year 2026 to increase by approximately 0 to 5 percent as compared to 2025 and the second half of 2026 to be greater than the first half of 2026. The Company also expects a consistent mix in 2026 as compared to 2025 between product revenues and tooling revenues as new programs launch during 2026. In 2026, the Company expects to incur incremental one-time costs of approximately $2,500,000 in connection with the Mexico Expansion Project, primarily related to press relocations and the temporary overlap of two facility leases in Monterrey, as well as approximately $1,000,000 associated with the Company's succession plan. Both expenses will primarily be incurred during the first half of 2026 and will be recorded in Selling, General, and Administrative expenses.
The Company continues to monitor evolving geopolitical tensions involving Iran and any potential impact such developments may have on global supply chains, such as cost and availability. While disruptions could create volatility in the costs of certain inputs used in the Company's manufacturing processes, the Company maintains contractual raw material adjustment mechanisms with many of its customers that allow for changes in material costs to be passed through, which may help mitigate the financial impact of such fluctuations.
2025 compared to 2024
Net sales for the years ended December 31, 2025 and 2024 totaled $273,798,000 and $302,378,000, respectively. Included in total sales were tooling project sales of $41,593,000 and $11,286,000 for the years ended December 31, 2025 and 2024, respectively. These sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis. Product sales, excluding tooling project sales, for the year ended December 31, 2025 were $232,205,000 compared to $291,092,000 for the same period in 2024. The decrease in sales is primarily the result of lower demand from the medium and heavy-duty truck and power sports, including transitioning the Company's business with Volvo from existing programs that the Company currently supplies to new programs that the Company does not support, offset by new program launches and price increases.
The Company's product sales for the year ended December 31, 2025 compared to the same period of 2024 by market are as follows (in thousands):
| 2025 | 2024 | ||||||||||
| Medium and heavy-duty truck | $ | 101,305 | 163,915 | ||||||||
| Power sports | $ | 63,480 | 68,445 | ||||||||
| Building products | $ | 22,522 | 17,011 | ||||||||
| Industrial and utilities | $ | 22,614 | 18,829 | ||||||||
| All other | $ | 22,284 | 22,892 | ||||||||
| Net product revenue | $ | 232,205 | $ | 291,092 | |||||||
Gross margin was approximately 17.4% of sales for the year ended December 31, 2025, compared with 17.6% for the year ended December 31, 2024. The gross margin percentage decrease was due to unfavorable product mix and production inefficiencies of 1.0% offset by net changes in selling price and raw material cost of 0.8%.
Selling, general and administrative expense ("SG&A") totaled $33,364,000 for the year ended December 31, 2025, which included severance expense of $1,455,000 and portfolio optimization related expense of $420,000. Excluding severance and portfolio optimization costs, SG&A cost for the year ended December 31, 2025 totaled $31,489,000 compared to $35,271,000, when excluding $1,294,000 of severance costs in 2024. Decreased SG&A expenses resulted primarily from lower bonus, labor and benefits of $2,044,000 and lower stock compensation of $761,000, offset by higher healthcare cost of $628,000.
Net interest expense totaled $1,000 for the year ended December 31, 2025, compared to net interest income of $193,000 for the year ended December 31, 2024. The Company recognized interest income of $1,218,000 from investment of the Company's accumulated cash balances during the year ended December 31, 2025 compared to $1,443,000 in 2024.
Income tax expense was approximately $3,482,000, or 23.7% of total income before income taxes for the year ended December 31, 2025. Income tax expense was approximately $4,182,000, or 23.9% of total income before income taxes for the year ended December 31, 2024.
The Company recorded net income for 2025 of $11,195,000 or $1.29 per diluted share, compared with net income of $13,299,000 or $1.51 per diluted share for 2024.
Comprehensive income totaled $12,841,000 in 2025, compared with comprehensive income of $10,290,000 in 2024. The increase was primarily related to increase of foreign currency hedges of $4,605,000 offset by decreases in net income of $2,104,000.
2024 compared to 2023
Net sales for the years ended December 31, 2024 and 2023 totaled $302,378,000 and $357,738,000, respectively. Included in total sales were tooling project sales of $11,286,000 and $10,363,000 for the years ended December 31, 2024 and 2023, respectively. These sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis. Product sales, excluding tooling project sales, for the year ended December 31, 2024 were $291,092,000 compared to $347,375,000 for the same period in 2023. The decrease in sales is primarily the result of lower demand from customers in all of the Company's significant markets.
The Company's product sales for the year ended December 31, 2024 compared to the same period of 2023 by market are as follows (in thousands):
| 2024 | 2023 | ||||||||||
| Medium and heavy-duty truck | $ | 163,915 | 181,376 | ||||||||
| Power sports | $ | 68,445 | 84,688 | ||||||||
| Building products | $ | 17,011 | 28,743 | ||||||||
| Industrial and utilities | $ | 18,829 | 23,658 | ||||||||
| All other | $ | 22,892 | 28,910 | ||||||||
| Net product revenue | $ | 291,092 | $ | 347,375 | |||||||
Gross margin was approximately 17.6% of sales for the year ended December 31, 2024, compared with 18.0% for the year ended December 31, 2023. The gross margin percentage decrease was due to lower fixed cost leverage of 1.4% and unfavorable product mix and production inefficiencies of 1.3% offset by net changes in selling price and raw material cost of 2.3%.
Selling, general and administrative expense ("SG&A") totaled $36,565,000 for the year ended December 31, 2024, which included severance expense of $1,294,000. Excluding severance expense, SG&A cost for the year ended December 31, 2024 totaled $35,271,000 compared to $37,983,000 in 2023. Decreased SG&A expenses resulted primarily from lower bonus, labor and benefits of $2,380,000 and lower stock compensation of $426,000, offset by higher foreign currency translation of $1,336,000.
Net interest income totaled $193,000 for the year ended December 31, 2024, compared to net interest expense of $1,011,000 for the year ended December 31, 2023. The Company recognized interest income of $1,443,000 from investment of the Company's accumulated cash balances during the year ended December 31, 2024 compared to $357,000 in 2023.
Income tax expense was approximately $4,182,000, or 23.9% of total income before income taxes for the year ended December 31, 2024. Income tax expense was approximately $5,422,000, or 21.3% of total income before income taxes for the year ended December 31, 2023. The increase in tax expense percentage year-over-year was due to increase in foreign taxes and permanent compensation differences, offset by foreign direct investment tax deduction.
The Company recorded net income for 2024 of $13,299,000 or $1.51 per diluted share, compared with net income of $20,324,000 or $2.31 per diluted share for 2023.
Comprehensive income totaled $10,290,000 in 2024, compared with comprehensive income of $22,572,000 in 2023. The decrease was primarily related to decreases in net income of $7,025,000, foreign currency hedges of $2,674,000, and post retirement benefit plan adjustments of $2,747,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
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, repayments of debt, and acquisitions. The Company from time to time will enter into foreign exchange contracts and interest rate swaps to mitigate risk of foreign exchange and interest rate volatility. As of December 31, 2025, the Company had outstanding foreign exchange contracts and interest rate swaps with notional amounts totaling $66,856,000 and $19,843,000, respectively. At December 31, 2024, the Company had outstanding foreign exchange contracts and interest rate swaps with notional amounts totaling $29,668,000 and $21,719,000, respectively.
Cash provided by operating activities totaled $19,185,000 for the year ended December 31, 2025. Net income of $11,195,000 positively impacted operating cash flows. Cash flows were positively impacted by non-cash deductions in net income from depreciation and amortization and share based compensation of $12,348,000 and $1,788,000, respectively. An increase in working capital of $5,332,000 resulted in a decrease in cash. The decrease in cash from working capital was primarily related to net changes in accounts payable, inventory and prepaid and other assets.
Cash used in investing activities totaled $17,268,000 for the year ended December 31, 2025, of which $10,809,000 relates to purchases of property, plant and equipment for additional capacity, automation, new programs and equipment improvements at the Company's production facilities and $6,459,000 relates to the Mexico expansion project. At December 31, 2025, purchase commitments for capital expenditures in progress were approximately $13,766,000. The Company anticipates spending approximately $25,000,000 to $30,000,000 during 2026 on property, plant and equipment purchases for all of the Company's operations. Included in the Company's anticipated spending in 2026 is approximately $18,000,000 to $20,000,000 for the Mexico expansion project.
Cash used in financing activities totaled $5,662,000 for the year ended December 31, 2025. Cash activity primarily consisted of the purchase of treasury stock related to the Company's stock buy back plan of $3,174,000, repayments of long-term debt of $1,887,000 and purchase of treasury stock of $601,000 in exchange for payment of taxes related to net share settlements of equity awards.
At December 31, 2025, the Company had $38,058,000 of cash on hand, an available revolving line of credit of $25,000,000 and capex line of credit of $25,000,000. 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.
Management believes cash on hand, cash flow from operating activities and available borrowings under the Company's credit agreement will be sufficient to meet the Company's current liquidity needs.
Huntington Credit Agreement
On July 22, 2022, the Company entered into a credit agreement and on March 7, 2024, entered into the First Amendment to the credit agreement (as amended, the "Huntington Credit Agreement") with The Huntington National Bank ("Huntington"), as the sole lender, administrative agent, lead arranger and book runner, and the lenders from time to time thereto. Pursuant to the terms of the Huntington Credit Agreement, Huntington made available to the Company secured loans (the "Huntington Loans") in the maximum aggregate principal amount of $75,000,000 ($38,689,000 of which was advanced to the Company on July 22, 2022), comprised of three $25,000,000 commitments: a term loan commitment, a CapEx loan commitment, and a revolving loan commitment.
At the option of the Company, the Huntington Loans shall be comprised of Alternative Base Rate (ABR) Loans or Secure Overnight Financing Rate (SOFR) Loans.
ABR Loans bear interest at a per annum rate equal to ABR plus a margin of 280 to 330 basis points determined based on the Company's leverage ratio. ABR is the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50% per annum and (c) Daily Simple SOFR for such day (taking into account any floor set forth in the definition of "Daily Simple SOFR") plus 1.00% per annum; provided, that if the ABR shall be less than 0.00%, then ABR shall be deemed to be 0.00%.
SOFR Loans bear interest at a per annum rate equal to Daily Simple SOFR plus a margin of 180 to 230 basis points determined based on the Company's leverage ratio. Daily Simple SOFR means, for any day (a "SOFR Rate Day"), a rate per annum equal to the greater of (a) SOFR for the day (such day, the "SOFR Determination Date") that is five (5) U.S.
Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is published by the SOFR Administrator on the SOFR Administrator's Website, and (b) 0.00%.
The Company's obligations under the Huntington Credit Agreement are secured by all of the U.S. and Canadian assets of the Company, including all of its equity interests in each of the Company's U.S. and Canadian subsidiaries and 65% of the Company's equity interest in its Mexican subsidiaries, and are unconditionally guaranteed by certain subsidiaries of the Company.
The Huntington Credit Agreement contains certain customary representations and warranties, conditions, affirmative and negative covenants and events of default. The Company is in compliance with such covenants as of December 31, 2025.
Voluntary prepayments of amounts outstanding under the Huntington Loans are permitted at any time without premium or penalty.
In connection with the credit agreement, the Company incurred debt origination fees of $402,000 related to the Huntington Credit Agreement, which is being amortized over the life of the Credit Agreement. The aggregate unamortized deferred financing fees as of December 31, 2025 and 2024 was $129,000 and $210,000, respectively.
Huntington Capex Loan
Pursuant to the terms of the Huntington Credit Agreement, Huntington made available to the Company secured Capex loan (the "Huntington Capex Loan") in the maximum aggregate principal amount of $25,000,000 (none of which was advanced to the Company on July 22, 2022 and through December 31, 2025). Proceeds of the Huntington Capex Loan would be used to finance the ongoing capital expenditure needs of the Company.
Any borrowings from the Huntington Capex Loan will be converted to new term loans annually each February, beginning February 2025, and will have monthly principal repayments based on a sixty-month amortization period with all amounts outstanding on the Huntington Capex Loan being fully due on July 22, 2027.
Huntington Revolving Loan
Pursuant to the terms of the Huntington Credit Agreement, Huntington made available to the Company a revolving loan commitment (the "Huntington Revolving Loan") of $25,000,000 ($13,689,000 of which was advanced to the Company on July 22, 2022). The Company has $25,000,000 of available revolving loans of which none is outstanding as of December 31, 2025. The interest rate for the Huntington Revolving Loan was 5.46% as of December 31, 2025.
The Huntington Credit Agreement makes available to the Company a revolving commitment in the maximum amount of $25,000,000 at the Company's option at any time during the five-year period following the closing. The revolving loan commitment terminates, and all outstanding borrowings thereunder must be repaid on July 22, 2027.
Huntington Term Loan
Pursuant to the terms of the Huntington Credit Agreement, Huntington made available to the Company a Term Loan commitment (the "Huntington Term Loan") of $25,000,000 ($25,000,000 of which was advanced to the Company on July 22, 2022). The Huntington Term Loan is to be repaid in monthly installments beginning August 2022 of $104,000 per month for the first 24 months, $156,000 per month for the next 24 months, $208,000 for the next 12 months and the remaining balance to be paid on July 22, 2027. The interest rate for the Huntington Term Loan was 5.46% as of December 31, 2025.
Interest Rate Swap Agreement
The Company entered into an interest rate swap agreement that became effective July 22, 2022 and continues through July 2027, which was designed as a cash flow hedge for an initial aggregate amount of $25,000,000 of the Huntington Term Loan. Under this agreement, the Company will pay a fixed SOFR rate of 2.95% to the swap counterparty in exchange for the Term Loans daily variable SOFR. The fair value of the interest rate swap was an asset of $23,000 at December 31, 2025.
Shelf Registration
On December 22, 2023 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 January 8, 2024. The Registration Statement replaces an existing shelf Registration Statement which expired on December 16, 2023. 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. 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, 2025:
| 2026 | 2027 | 2028 | 2029 |
2030 and after |
Total | ||||||||||||||||||||||||||||||
| Long-term debt | $ | 2,135,000 | $ | 17,708,000 | $ | - | $ | - | $ | - | $ | 19,843,000 | |||||||||||||||||||||||
|
Interest(A)
|
891,000 | 596,000 | - | - | - | 1,487,000 | |||||||||||||||||||||||||||||
| Operating lease obligations | 2,599,000 | 2,311,000 | 2,355,000 | 2,382,000 | 9,781,000 | 19,428,000 | |||||||||||||||||||||||||||||
|
Contractual commitments for capital expenditures
|
$ | 13,766,000 | - | - | - | - | 13,766,000 | ||||||||||||||||||||||||||||
| Post retirement benefits | 182,000 | 176,000 | 180,000 | 184,000 | 2,565,000 | 3,287,000 | |||||||||||||||||||||||||||||
| Total | $ | 19,573,000 | $ | 20,791,000 | $ | 2,535,000 | $ | 2,566,000 | $ | 12,346,000 | $ | 57,811,000 | |||||||||||||||||||||||
(A)Estimated future interest payments based on the effective interest rate as of December 31, 2025.
As of December 31, 2025 and 2024, the Company had no significant off-balance sheet arrangements.
CRITICAL ACCOUNTING 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, revenue recognition 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 and conditions.
Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Accounts Receivable Allowances
Management maintains allowances for credit 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 determined that $58,000 allowance for credit losses was needed at December 31, 2025 and no allowances for credit losses was needed at December 31, 2024. 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 $212,000 at December 31, 2025 and $227,000 at December 31, 2024.
Inventories
Inventories, which include material, labor and manufacturing overhead, are valued at the lower of cost or net realizable value. 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 slow moving and obsolete inventory of $1,137,000 at December 31, 2025 and $1,392,000 at December 31, 2024.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment and finite-lived intangibles. 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, 2025, 2024, and 2023.
Goodwill
The purchase consideration of acquired businesses have been allocated to the assets and liabilities acquired based on the estimated fair values on the respective acquisition dates. Based on these values, the excess purchase consideration over the fair value of the net assets acquired was allocated to goodwill. The Company accounts for goodwill in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other. FASB ASC Topic 350 prohibits the amortization of goodwill and requires these assets be reviewed for impairment at the reporting unit level.
The annual impairment tests of goodwill may be completed through qualitative assessments; however the Company may elect to bypass the qualitative assessment and proceed directly to a quantitative impairment test for the reporting unit in any period. The Company may resume the qualitative assessment for the reporting unit in any subsequent period.
Under a qualitative and quantitative approach, the impairment test for goodwill consists of an assessment of whether it is more-likely-than-not that the reporting unit's fair value is less than its carrying amount. As part of the qualitative assessment, the Company considers relevant events and circumstances that affect the fair value or carrying amount of the Company. Such events and circumstances could include changes in economic conditions, industry and market conditions, cost factors, overall financial performance, reporting unit 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 step one of the impairment test. If the Company elects to bypass the qualitative assessment for the reporting unit, or if a qualitative assessment indicates it is more-likely-than-not that the estimated carrying value of the reporting unit exceeds its fair value, the Company proceeds to a quantitative approach.
The Company performed its annual impairment test for the years end December 31, 2025 and 2024, and determined there was no impairment of the Company's goodwill.
Self-Insurance
The Company is self-insured with respect to Columbus, Ohio; Gaffney, South Carolina; Winona, Minnesota; and Brownsville, Texas for medical, dental and vision claims and Columbus, Ohio for workers' compensation claims, all of which are subject to stop-loss insurance thresholds. The Company is also self-insured for dental and vision with respect to its Cobourg, Canada location. 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, 2025 and December 31, 2024 of $845,000 and $1,087,000, respectively. The accrual was included within the Other Current Liabilities on the Company's Consolidated Balance Sheets.
Post-Retirement Benefits
Management records an accrual for post-retirement costs associated with the health care plan sponsored by the Company for certain retirees. 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 14 - Post Retirement Benefits. The Company had a liability for post-retirement healthcare benefits based on actuarial computed estimates of $3,287,000 at December 31, 2025 and $3,298,000 at December 31, 2024.
Revenue Recognition
The Company historically has recognized revenue from two streams, product revenue and tooling revenue. Product revenue is earned from the manufacture and sale of sheet molding compound and thermoset and thermoplastic products. Revenue from product sales is generally recognized as products are shipped, as the Company transfers control to the customer and is entitled to payment upon shipment. In certain circumstances, the Company recognizes revenue from product sales when products are produced and the customer takes control at our production facility.
Tooling revenue is earned from manufacturing multiple tools, molds and assembly equipment as part of a tooling program for a customer. Given that the Company is providing a significant service of producing highly interdependent component parts of the tooling program, each tooling program consists of a single performance obligation to provide the customer the capability to produce a single product. Based on the arrangement with the customer, the Company recognizes revenue either at a point in time or over time. When the Company does not have an enforceable right to payment, the Company recognizes tooling revenue at a point in time. In such cases, the Company recognizes revenue upon customer acceptance, which is when the customer has legal title to the tools.
Certain tooling programs include an enforceable right to payment. In those cases, the Company recognizes revenue over time based on the extent of progress towards completion of its performance obligation. The Company uses a cost-to-cost measure of progress for such contracts because it best depicts the transfer of value to the customer and also correlates with the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. Under the cost-to-cost measure of progress, progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.
Income Taxes
The Company evaluates the balance of deferred tax assets that will be realized based on the premise that the Company is more likely than not to realize deferred tax benefits through the generation of future taxable income. Management makes assumptions, judgments, and estimates to determine our current and deferred tax provision and also the deferred tax assets and liabilities. The Company evaluates provisions and deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available evidence.
As of December 31, 2025 the Company had a net deferred tax asset of $1,402,000 and $221,000 related to tax positions in Mexico and Canada and deferred tax liabilities of $1,035,000 related to tax positions in the United States. Deferred tax assets are included in "Other non-current assets" on the Consolidated Balance Sheets and deferred tax liabilities are included in "Other non-current liabilities" on the Consolidated Balance Sheets. As of December 31, 2025, the Company had a valuation allowance of $1,327,000 against the deferred tax asset related to local (city) jurisdiction tax positions, due to cumulative losses over the last three years in the local jurisdiction and uncertainty related to the Company's ability to realize the deferred assets. The Company believes that the net deferred tax assets associated with the Mexican and Canada tax jurisdictions are more-likely-than-not to be realizable based on estimates of future taxable income.
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 December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as additional disclosures regarding income taxes paid. The Company has fully implemented the requirements of ASU 2023-09 for the current reporting period and has included the corresponding disaggregated reconciliation tables and income tax paid disclosures within the related footnote. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. (See Note 13, Income Taxes.)
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