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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, 2020
 
 
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
31-1481870
(State or other jurisdiction
incorporation or organization)
(I.R.S. Employer Identification No.)
 
800 Manor Park Drive
,
Columbus
,
Ohio
43228-0183
(Address of principal executive office)
(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
Trading
Symbol (s)
Name of each exchange on which
registered
Common Stock, par value $0.01
CMT
NYSE American LLC
Preferred Stock purchase rights, par
value $0.01
N/A
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,
 
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 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
☐
Smaller reporting company
☑
(Do not
 
check if a
 
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 has
 
filed a
 
report on
 
and attestation
 
to its
 
management’s assessment
 
of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or
 
issued its audit report.
☐
 
 
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, 2020,
 
the aggregate market value of
 
the registrant's voting and non
 
-voting common equity held
 
by non-affiliates
of the registrant
 
was approximately $
22,061,000
, based upon
 
the closing sale
 
price of $4.12
 
on the NYSE
 
American LLC on
June
 
30, 2020
 
,
 
the last business
 
day of registrant's
 
most recently completed
 
second fiscal
 
quarter.
 
As of March
 
10, 2021,
 
the
latest practicable date,
8,476,047
 
shares of the registrant’s common stock
 
were issued, which includes
507,835
 
shares of unvested
restricted common stock.
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
 
Portions of the
 
registrant's 2021
 
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.
 
 
 
 
2
 
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
 
3
12
20
20
Item 3. Legal Proceedings
22
22
23
24
25
37
38
67
68
68
69
69
69
69
69
70
70
71
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
 
 
3
 
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
 
industry. 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 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
 
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.
 
 
On January
 
16, 2018, 1137925
 
B.C Ltd., subsequently
 
renamed Horizon Plastics
 
International Inc., 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
 
4
 
the terms of
 
the Agreement the
 
Company acquired substantially all
 
of the assets
 
and assumed certain liabilities
 
of Horizon Plastics.
Horizon Plastics is a
 
custom low-pressure structural plastic molder, which
 
utilizes both structural foam and
 
structural web process
technologies, operating within two
 
manufacturing facilities located in
 
Cobourg, Canada and Escobedo,
 
Mexico. 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.
 
 
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 changes 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; the
 
adverse impact
 
of coronavirus
 
(COVID-19) global
 
pandemic on
 
our business,
 
results of
 
operations, financial
position, liquidity or cash flow, as well as
 
impact on customers and supply chains; safety and
 
security conditions in Mexico and
Canada; fluctuations in
 
foreign currency exchange rates;
 
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;
ability to accurately
 
quote and execute
 
manufacturing processes for new
 
business; the actions
 
of competitors, customers,
 
and
suppliers; failur
 
e
 
of Core
 
Molding Technologies’
 
suppliers to
 
perform their
 
obligations; the
 
availability of
 
raw materials;
inflationary pressures; new
 
technologies; regulatory
 
matters; labor
 
relations; labor
 
availability; a
 
work stoppage
 
or labor
disruption at
 
one of our
 
union locations or
 
one of our
 
customer or supplier
 
locations; 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; federal, state and local
 
environmental laws
and regulations; the
 
availability of sufficient
 
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
 
and other
customer charges; 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.
 
 
Core Molding Technologies
 
and its subsidiaries
 
operate in one
 
operating segment as
 
a molder of
 
thermoplastic and thermoset
structural products. The
 
Company's operating segment consists of two component
 
reporting units, Core Traditional and Horizon
Plastics. The Company offers customers a wide range of manufacturing processes to fit various
 
program volume and investment
requirements. These processes
 
include compression
 
molding of sheet
 
molding compound
 
("SMC"), bulk
 
molding compounds
("BMC"), resin
 
transfer molding
 
("RTM"), liquid
 
molding of
 
dicyclopentadiene ("DCPD"),
 
spray-up and
 
hand-lay-up, direct
long-fiber thermoplastics ("D
 
-LFT") and structural
 
foam and structural
 
web injection molding
 
("SIM"). Core Molding
Technologies serves
 
a wide
 
variety of
 
markets, including the
 
medium and
 
heavy-duty truck,
 
marine, automotive,
 
agriculture,
construction, and
 
other commercial
 
products. The demand
 
for Core
 
Molding Technologies’
 
products is
 
affected by
 
economic
 
5
 
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.
 
 
Structural plastics compete largely against metals and have the strength
 
to function well during prolonged use.
 
Management
believes that structural 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
 
structural plastics
 
are transportation
 
(automotive and
 
truck), agriculture,
 
construction, marine,
 
and
industrial applications. As of December
 
31, 2020, the Company operated seven production facilities
 
in Columbus, Ohio; Batavia,
Ohio; Gaffney, South
 
Carolina; Winona, Minnesota; Matamoros
 
and Escobedo, Mexico;
 
and Cobourg, Canada,
 
which produce
structural plastic products.
 
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 structural 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 structural plastic
products
 
from another supplier
 
by an original
 
equipment manufacturer
 
(“OEM”); (2) obtaining
 
new structural plastic
 
products
through a selection process in which an OEM
 
solicits bids; (3) successful marketing of structural
 
plastic products for previously
non-structural plastic applications;
 
(4) converting alternative materials
 
to structural plastics; (5)
 
successful marketing of
 
structural
plastic products to OEMs outside
 
of our traditional markets; (6)
 
developing of new materials, technology and
 
processes to meet
current or
 
prospective customer
 
requirements; and
 
(7) acquiring
 
an existing
 
business. The
 
Company's efforts
 
continue to
 
be
directed towards all seven areas.
 
 
MAJOR COMPETITORS
 
 
The Company believes that it
 
is one of the largest
 
compounders and molders of
 
structural plastics using the
 
SMC, RTM, spray-
up, hand-lay-up, D-LFT and SIM 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,
René Matériaux
 
Composite Ltée
 
("RMC"), STS
 
Group 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
 
during the year
 
ended December
 
31, 2020, Universal
 
Forest Products,
 
Inc. (“UFP”),
Navistar, Inc. (“Navistar ”), PACCAR, Inc. (“PACCAR”), Volvo Group North America, LLC (“Volvo”), and BRP, Inc. (“BRP”).
Major customers are
 
defined as customers
 
whose 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 these
 
customers could have
 
a
material adverse effect on the business of the Company.
 
 
6
 
 
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.
 
 
UFP supplies products to three
 
industry segments:
 
 
retail, industrial, and construction.
 
 
These are a highly
 
-competitive markets,
with suppliers
 
competing for
 
a share
 
of available
 
shelf space
 
at large
 
“big box”
 
retailers and
 
independent contractors.
 
 
As a
discretionary product category, suppliers must also strive continuously to differentiate their products with unique designs,
 
colors,
and features, in addition
 
to maintaining a
 
constant focus on
 
cost reduction.
 
 
Demand for these products
 
is driven by residential
and commercial construction and general economic conditions, among other
 
influences.
 
 
BRP provides a portfolio of industry-leading
 
products comprising of snowmobiles,
 
watercraft, on and off-road vehicles,
 
marine
propulsion systems as
 
well as engines for
 
karts, motorcycles and
 
recreational aircraft.
 
Demand for these products
 
is driven by
consumer demand and general economic conditions.
 
 
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 November
 
2, 2021.
 
 
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
 
18%, 20%,
 
and 20% of
total sales for 2020, 2019, and 2018,
 
respectively.
 
 
Relationship with Volvo
 
 
The Company has a Price Agreement with Volvo that governs supply of parts, pricing and payment terms.
 
The Price Agreement
with Volvo
 
is effective
 
through December
 
31, 2023.
 
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
12%, 17%, and 17% of total sales for 2020, 2019, and 2018, respectively.
 
 
Relationship with PACCAR
 
 
The Company has a Long-Term Supply Agreement with PACCAR that governs supply of parts, pricing and payment terms.
 
The
Agreement is effective
 
through November 30,
 
2023. 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 13%, 16%, and
 
16% of total sales
for 2020, 2019, and 2018, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
Relationship with UFP
 
 
The Company
 
manufactures a
 
line of
 
outdoor living
 
and home
 
decor products
 
as part
 
of UFP's
 
broad offerings
 
to "big
 
box"
retailers. These products
 
are labeled and
 
packaged for direct
 
placement onto retail
 
shelves and are
 
shipped to UFP distribution
facilities primarily throughout North
 
America. The Company works
 
directly with UFP
 
on innovative product advances
 
that reduce
cost and extend
 
the appeal of
 
the products to
 
consumers. Sales to
 
UFP amounted to approximately
 
17%, 9%, and
 
10% of total
sales for 2020, 2019, and 2018, respectively.
 
 
Relationship with BRP
 
 
The Company manufactures molded products for BRP's assembly plants located in
 
Queretaro and Juarez, Mexico.
 
Products sold
to BRP include various molded components to support the assembly of personal watercraft and all-terrain vehicles. Sales to BRP
amounted to approximately 10%, 7%, and 6% of total sales in 2020,
 
2019 and 2018, respectively.
 
 
OTHER CUSTOMERS
 
 
The Company
 
also produces
 
products for
 
other truck
 
manufacturers, the
 
automotive industry,
 
marine industry,
 
commercial
product 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 2020.
 
Sales to these customers amounted to approximately 31% of total sales
for each year ended 2020, 2019, and 2018.
 
 
GEOGRAPHIC INFORMATION
 
 
Substantially 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:
 
 
 
2020
2019
2018
United States
$
136,424,000
$
178,953,000
$
181,207,000
Mexico
64,942,000
79,761,000
74,029,000
Canada
16,827,000
16,988,000
12,494,000
Other
4,163,000
8,588,000
1,755,000
Total
$
222,356,000
$
284,290,000
$
269,485,000
 
The following
 
table provides
 
information related
 
to the
 
location of
 
the Company's
 
property, plant
 
and equipment,
 
net, as
 
of
December
 
31:
 
 
 
2020
2019
United States
$
36,698,000
$
39,132,000
Mexico
29,537,000
31,865,000
Canada
7,817,000
8,209,000
Total
$
74,052,000
$
79,206,000
 
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
 
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. The Company
also sells SMC to other molders.
 
 
8
 
 
Closed Molded Products
 
 
The Company manufactures
 
plastic products using
 
compression molding, resin
 
transfer molding, and
 
injection molding. As of
December
 
31, 2020, the
 
Company owned 75
 
molding presses in
 
its Columbus, Ohio
 
facility (16); Matamoros,
 
Mexico facility
(21); Cobourg, Canada facility (19);
 
Gaffney, South Carolina facility (10);
 
Winona, Minnesota facility (5); and
 
Escobedo, Mexico
(4).
 
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 and
 
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.
 
 
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.
 
 
Structural Foam and Web Injection
 
Molding (“SIM”) -
Structural foam and structural web
 
are low-pressure injection molding
processes that develop high-strength,
 
rigid parts at low
 
weight.
 
 
This is accomplished by
 
mixing a foaming agent
 
(usually, nitrogen
gas) with the melted
 
polymer (structural foam
 
process), or by injecting
 
nitrogen gas into the
 
mold cavity immediately after
 
the
plastic resin is injected (structural web molding).
 
 
Structural foam produces a cellular interior structure that can provide twice the
rigidity of a solid plastic molding.
 
 
The structural web process pushes the plastic out to the mold cavity walls, uniformly packing
out the entire mold and hollowing out thicker sections to create products
 
of varying wall thicknesses.
 
 
As a result, structural web
molded parts have a smoother, glossier finish than
 
other low-pressure parts.
 
 
Both processes give part designers flexibility when
designing products that need strength and stiffness at low weight.
 
 
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
 
9
 
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 is 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.
 
 
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;
 
polyethylene, 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
 
10
 
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 $21.3
 
million (all of which the Company shipped during the first month of
2021)
 
and $20.7
 
million at December
 
31, 2020 and 2019, respectively.
 
 
CAPACITY CONSTRAINTS
 
 
Capacity utilization is
 
measured based on
 
standard cycle times and
 
a standard work
 
week, which can range
 
from five days
 
per
week, three-shifts per
 
day to seven days
 
per week, three-shifts per
 
day, depending on the
 
facility and molding process.
 
During
times when demand
 
exceeds the standard
 
five day, three
 
-shift capacity, the
 
Company will work
 
weekends to create
 
additional
capacity, which
 
can provide
 
capacity utilization
 
percentages greater
 
than 100%.
 
During 2020,
 
the Company has
 
used various
methods from overtime to a weekend manpower crew to support
 
the customers' production requirements.
 
 
The approximate SMC production line capacity utilization was
 
66% and 73%
 
for the years ended December 31, 2020 and 2019,
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 28
large molding presses at these
 
facilities at December
 
31, 2020. The combined
 
approximate large press capacity utilization in
 
these
production facilities was 55% and 83% for the years ended December 31, 2020 and 2019, respectively. The decreased utilization
mainly resulted from decrease demand due to COVID-19
 
and improved production efficiency.
 
 
The Company
 
measures facility
 
capacity in terms
 
of its large
 
molding presses (750
 
tons or
 
greater) for
 
the Cobourg, Canada
facility. The Company
 
owned 7
 
large molding presses
 
at this facility
 
at December
 
31, 2020.
 
The combined approximate
 
large
press capacity utilization in this facility was 89% and 72% for
 
the years ended December 31, 2020 and 2019, respectively.
 
 
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
 
 
Capital expenditures
 
totaled approximately
 
$3.7 million,
 
$7.5
 
million,
 
and $5.8
 
million in 2020,
 
2019, and 2018
 
respectively.
 
These capital expenditures primarily consisted of building and equipment improvements and additional production equipment to
manufacture parts.
 
 
The Company continuously
 
engages in
 
product development.
 
Research and development
 
activities focus
 
on developing
 
new
material formulations,
 
new structural
 
composite 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.
 
Management of
 
the Company has
 
estimated that
costs related
 
to research and
 
development were
 
approximately $1.2
 
million, $1.2
 
million and $1.0
 
million in 2020,
 
2019, and
2018, 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
 
11
 
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, authorized
treatment, and 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 Company holds
 
various environmental
 
operating permits
 
for its production
 
facilities in
 
the U.S., Mexico,
 
and Canada as
required by
 
U.S., Mexican
 
and Canadian
 
state and
 
federal regulations.
 
The Company
 
has substantially
 
complied with
 
all
requirements of these operating permits.
 
 
HUMAN CAPITAL MANAGEMENT
 
 
As of December 31,
 
2020, the Company employed
 
a total of 1,617
 
employees, which consisted of
 
679 employees in its
 
United
States operations,
 
722 employees
 
in its
 
Mexican operations
 
and 216
 
employees in
 
its Canadian
 
operation.
 
Of these
 
1,617
employees, 518 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 7, 2022,
 
534 employees at
the Company
 
’s Matamoros,
 
Mexico facility
 
are covered
 
by a collective
 
bargaining agreement
 
with Sindicato de
 
Jorneleros y
Obreros, which
 
extends to
 
January 21,
 
2022,
 
191 employees
 
at the
 
Company's Cobourg,
 
Canada facility
 
are covered
 
by a
collective bargaining agreement
 
with United Food
 
& Commercial Workers
 
Canada ("UFCW"), which
 
extends to November
 
1,
2021, and
 
73 employees at
 
the Company's
 
Escobedo, Mexico
 
facility are
 
covered by
 
a collective
 
bargaining agreement
 
with
Sindicato de
 
trabajadores de
 
la industria metalica
 
y del comercio
 
del estado
 
de Nuevo
 
Leon Presidente
 
Benito Juarez
 
Garcia
C.T.M., which
 
extends to
 
February 1,
 
2021. The
 
Company is
 
currently negotiating
 
an extension
 
to the
 
Escobedo, Mexico
collective bargaining agreement.
 
 
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.
 
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,
automotive, and
 
commercial products
 
also fluctuates
 
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.
 
 
12
 
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.
 
 
Risks Relating to our Business
 
 
Our business has concentration risks associated with significant customers.
 
 
Sales to five customers constituted approximately 70%
 
of our 2020 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
 
64% of
 
accounts receivable
 
at December
 
31, 2020.
 
 
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 2020, approximately 43%
 
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.
 
 
13
 
 
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 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 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.
 
 
 
14
 
Work stoppages
 
or other labor issues at our facilities or at our customers' facilities could adversely affect our operations.
 
 
As of December
 
31, 2020,
 
unions at our
 
Columbus, Ohio,
 
Matamoros and
 
Escobedo, Mexico,
 
and Cobourg
 
Canada facilities
represented approximately 81% 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, Matamoros,
 
Mexico, Cobourg, Canada
 
,
 
and Escobedo, Mexico
 
union contracts
extend through August
 
7, 2022, January
 
21, 2022,
 
November
 
1, 2021 and
 
February
 
1, 2021,
 
respectively. Any prolonged work
stoppage
 
or strike at
 
either our
 
Columbus, Ohio; Matamoros
 
and Escobedo,
 
Mexico; or
 
Cobourg, Canada
 
unionized facilities
could have a
 
material 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.
The Company
 
is currently
 
negotiating an
 
extension to
 
then Escobedo,
 
Mexico collective
 
bargaining
agreement.
 
In addition, if any
 
of our customers or suppliers
 
experience a material work stoppage,
 
that customer may halt or
 
limit the purchase
of our products or that 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.
 
 
Our foreign operations in Mexico and Canada subject us to risks that could negatively affect our business.
 
 
We operate manufacturing facilities in Matamoros and 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. 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.
 
 
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.
 
 
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.
 
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.
 
 
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
manufacturing of our products
 
and executing the manufacturing
 
process in a cost-effective
 
manner.
 
There can be
 
no assurance
 
15
 
that all costs
 
will be
 
accurately identified
 
during the
 
Company's quoting
 
process or
 
that the
 
expected level
 
of manufacturing
efficiency will be achieved. As a result, we may not realize the anticipated operating results
 
related to 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.
 
 
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, 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.
 
 
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 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.
 
 
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
 
customers' 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.
 
 
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
 
16
 
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.
 
 
Difficulty in hiring, training, and retaining skilled labor could result in increased cost overruns, an inability
 
to satisfy customer
demands, and otherwise adversely affect our business.
 
 
We depend on
 
skilled labor
 
in the manufacturing
 
of our products.
 
High demand
 
for skilled manufacturing
 
labor in the
 
United
States has resulted in
 
difficulty hiring, training, and
 
retaining labor in
 
a tightening labor market.
 
Difficulties in securing
 
skilled
labor can result
 
in increased hiring
 
and training costs,
 
increased overtime to
 
meet demand, increased
 
wage rates to
 
attract and
retain operators, and higher scrap and rework costs due to inexperienced
 
workers which would adversely affect our business.
 
 
Financial and Accounting Risks
 
 
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 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 have incurred impairment charges in
 
the past and we
 
may be required to incur additional
 
impairment charges in the future
on a portion
 
or all of
 
the carrying value
 
of our goodwill
 
or other intangible
 
assets associated with
 
our reporting units, which
may adversely affect our financial condition and results of operations.
 
 
Each year, and
 
more frequently on
 
an interim basis
 
if appropriate, we
 
are required by
 
ASC Topic 350,
 
“Intangibles--Goodwill
and Other,”
 
to assess the carrying value of
 
our indefinite lived intangible assets
 
and goodwill to determine whether
 
the carrying
value of those assets is impaired. Such assessment and determination involves significant judgments to estimate the fair
 
value of
our reporting units, including estimating future cash flows,
 
near term and long term revenue growth, and
 
determining appropriate
discount rates, among
 
other assumptions. If
 
operating earnings fall
 
below forecasted operating
 
earnings, we would
 
perform an
interim or
 
annual goodwill
 
impairment analysis.
 
Should that
 
analysis conclude
 
that the
 
reporting unit
 
’s fair
 
value were
 
to be
below carrying value a goodwill impairment charge
 
would be necessary. Any such charges could materially adversely affect our
financial results in the periods in which they are recorded.
 
 
 
17
 
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.
 
 
Our failure to
 
comply with our debt
 
covenants could have a
 
material adverse effect on
 
our business, financial condition,
 
or results
of operations.
 
 
The Company’s credit
 
agreements contain certain
 
covenants.
 
The Company’s ability
 
to borrow money and
 
repay existing debt
on scheduled terms under its existing credit agreements
 
requires the Company to be compliant with its
 
covenants. If a default of
covenants were to occur, we may not be able to pay our debts or
 
borrow sufficient funds, which could materially adversely affect
our results of operations, financial condition, and cash flows.
 
 
Legal, Insurance, Tax and Cybersecurity Risks
 
 
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.
 
 
18
 
 
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.
 
 
Our insurance coverage may be inadequate to protect against the potential hazards to our business.
 
 
We maintain property,
 
business interruption,
 
stop loss for
 
healthcare and
 
workers' compensation,
 
director and officer,
 
product
liability, cyber, 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 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 by the
employee for good reason.
 
 
We have entered into executive employment agreements
 
with executive officers that provide for significant severance
 
payments
in the event such employee's employment
 
with us is terminated by the employee for good
 
reason (as defined in the employment
agreement). Good reason includes
 
one or more of
 
the following occurring within
 
one year of a
 
change in control: (i)
 
a material
reduction in
 
base salary,
 
(ii) a
 
material diminution
 
in the
 
executive's position
 
and/or duties,
 
(iii) a
 
material breach
 
of the
employment agreement
 
by the
 
person or
 
other entity
 
then controlling
 
the Company,
 
or (iv)
 
a disavowal
 
of the
 
employment
agreement by the person or
 
other entity then controlling the
 
Company. A
 
change in control occurs when
 
(a) one person (as defined
in the employment
 
agreement), or
 
more than one
 
person acting as
 
a group, acquires
 
ownership of stock
 
of the Company
 
that,
together with the
 
stock held by
 
such person or
 
group, constitutes more
 
than 50% of
 
the total fair
 
market value or
 
total voting
power of the stock
 
of the Company, (b) a
 
majority of the members
 
of the Company's Board of
 
Directors (the "Board") are replaced
 
19
 
during any twelve
 
-month period by
 
directors whose appointment
 
or election is
 
not endorsed by
 
a majority of the
 
Board before
the date of
 
appointment or election,
 
or (c) the
 
sale of all
 
or substantially all of
 
the Company’s
 
assets. These agreements
 
would
make it costly
 
for the employment
 
of certain of
 
our senior management
 
employees to
 
be terminated and
 
such costs may
 
also
discourage potential acquisition proposals, which may negatively affect our
 
stock price.
 
 
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, Mexico, and
 
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)
 
being
subject to include foreign income in the United States as part
 
of the GILTI tax provision.
 
 
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.
 
 
Cybersecurity attacks may
 
threaten our confidential
 
information, disrupt operations
 
and result in
 
harm to our
 
reputation and
adversely impact our business and financial performance.
 
 
Cybersecurity attacks
 
across industries,
 
including ours,
 
are increasing
 
in sophistication
 
and frequency
 
and may
 
range from
uncoordinated individual attempts to measures targeted
 
specifically at us. These attacks include but are not limited
 
to, malicious
software or
 
viruses, attempts
 
to gain
 
unauthorized access
 
to, or
 
otherwise disrupt,
 
our information
 
systems, attempts
 
to gain
unauthorized access to business,
 
proprietary or other confidential
 
information, and other
 
electronic security breaches that
 
could
lead to disruptions in critical systems,
 
unauthorized release of confidential or
 
otherwise protected information and corruption
 
of
data. Cybersecurity failures
 
may be caused by
 
employee error, malfeasance,
 
system errors or
 
vulnerabilities, including
vulnerabilities of our vendors, suppliers,
 
and their products. We have been subject
 
to cybersecurity attacks in the past.
 
Based on
information known to
 
date, past attacks
 
have not had
 
a material impact
 
on our financial
 
condition or results
 
of operations. We
may experience such attacks in the future, potentially with more frequency
 
or sophistication.
 
 
Failures of our IT systems as a
 
result of cybersecurity attacks or other
 
disruptions could result in a breach
 
of critical operational
or financial controls and lead
 
to a disruption of our
 
operations, commercial activities or financial processes.
 
Cybersecurity attacks
or other
 
disruptions impacting
 
significant customers
 
and/or suppliers
 
could also
 
lead to
 
a disruption
 
of our
 
operations or
commercial activities.
 
Despite our
 
attempts to
 
implement safeguards
 
on our
 
systems and
 
mitigate potential
 
risks, there
 
is no
assurance that such actions will
 
be sufficient to prevent cyberattacks
 
or security breaches that manipulate
 
or improperly use our
systems or networks, compromise
 
confidential or otherwise
 
protected information, destroy or
 
corrupt data, or otherwise
 
disrupt
our operations. The occurrence of such
 
events could have a material adverse effect on
 
our business financial condition and results
of operations.
 
 
Risks Related to Economic Conditions
 
 
The recent coronavirus
 
(COVID-19) outbreak has
 
adversely impacted
 
our business
 
and could
 
in the
 
future have a
 
material
adverse impact on our
 
business, results of operation, financial
 
condition and liquidity, the
 
nature and extent of which
 
is highly
uncertain.
 
 
The global outbreak of the
 
coronavirus (COVID-19) has significantly
 
increased economic, demand and
 
operational uncertainty.
We have global operations, customers
 
and suppliers, including in countries
 
impacted by COVID-19. Authorities
 
around the world
have taken a variety of measures to slow the
 
spread of COVID-19, including travel bans or restrictions, increased border controls
 
 
 
 
 
 
 
 
 
 
 
 
20
 
or closures, quarantines, shelter-in-place orders and business shutdowns and such authorities may impose
 
additional restrictions.
We have also
 
taken actions to
 
protect our employees
 
and to mitigate
 
the spread of
 
COVID-19, including embracing
 
guidelines
set by the
 
World Health Organization
 
and the Centers
 
for Disease Control
 
and Prevention on
 
social distancing, good
 
hygiene,
restrictions on
 
employee travel
 
and in
 
-person meetings,
 
and changes
 
to employee
 
work arrangements
 
including remote
 
work
arrangements where
 
feasible. The
 
actions taken
 
around the
 
world to
 
slow the
 
spread of
 
COVID-19 have
 
also impacted
 
our
customers and
 
suppliers, and
 
future developments
 
could cause
 
further disruptions
 
to the
 
Company due
 
to the
 
interconnected
nature of our
 
business relationships.
 
The extent
 
to which
 
COVID-19 will
 
impact our
 
ongoing business,
 
results of
 
operations,
financial condition or liquidity is highly uncertain and will depend on future developments, including the
 
control of the spread of
the virus, spread of new strains of the virus, additional actions taken by governmental authorities, and the ability to vaccinate the
general population.
 
 
Economic conditions and disruptions in the financial
 
markets could have an adverse effect on our business, financial
 
condition,
and results of operations.
 
 
Disruptions in the financial markets could have a material
 
adverse effect on our liquidity and financial condition
 
if our ability to
borrow money
 
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.
 
 
 
 
ITEM 1B.
 
 
UNRESOLVED STAFF COMMENTS
 
 
None.
 
 
ITEM 2.
 
PROPERTIES
 
 
The Company owned
 
four production facilities
 
as of December
 
31, 2020
 
that are situated
 
in Columbus, Ohio;
 
Gaffney, South
Carolina; Winona, Minnesota; and Matamoros, Mexico, and leases production facilities in Batavia,
 
Ohio; Cobourg, Canada; and
Escobedo, Mexico; and a distribution center in Brownsville, Texas.
 
 
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:
 
 
 
 
Approximate
Square Feet
Manufacturing/Warehouse
322,000
Office
16,000
Total
338,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
 
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:
 
 
 
Approximate
Square Feet
Manufacturing/Warehouse
134,800
Office
5,000
Total
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:
 
 
 
Approximate
Square Feet
Manufacturing/Warehouse
81,000
Office
6,000
Total
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:
 
Approximate
Square Feet
Manufacturing/Warehouse
463,000
Office
15,000
Total
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
 
-
Debt
 
in Part II, Item 8 of this Annual Report on Form 10-K.
 
 
The Company leases a
 
production plant in
 
Batavia, Ohio located
 
at 4174 Half Acre Road on
 
approximately 9 acres of
 
land. On
July 23, 2019, a
 
new 5-year lease was
 
executed commencing on
 
August 1, 2019 and
 
ending on July 31,
 
2024.
 
During the year
ended, December 31,
 
2020, the Company
 
decided to close
 
the manufacturing facility
 
which it anticipates
 
completing in 2021.
The Company
 
has the
 
option to
 
provide a
 
six-month notification
 
to terminate
 
the lease
 
without penalties.
 
The approximate
108,000 square feet of available floor space at the Batavia, Ohio
 
plant is comprised of the following:
 
Approximate
Square Feet
Manufacturing/Warehouse
104,000
Office
4,000
Total
108,000
 
The Company
 
leases a
 
production plant
 
in Cobourg,
 
Canada located
 
at 3 West
 
Street on approximately
 
10 acres
 
of land.
 
On
August 13
th
, 2020, a new 5 year
 
lease was executed retroactively commencing
 
on January 1, 2020
 
and ending on December 31,
2024. The approximate 247,000 square feet of available floor space
 
at the Cobourg, Canada plant is comprised of the following:
 
 
 
Approximate
Square Feet
Manufacturing/Warehouse
241,000
Office
6,000
Total
247,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
 
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 Company is currently negotiating an extension. The approximate 61,000 square feet of available
 
floor space at
the Escobedo, Mexico plant is comprised of the following:
 
 
 
Approximate
Square Feet
Manufacturing/Warehouse
59,000
Office
2,000
Total
61,000
 
The Company leases a warehouse and
 
distribution center in Brownsville, Texas located
 
at 1385 Cheers Street on approximately
2 acres of land.
 
A new lease agreement was executed on July
 
22, 2019 extending the lease terms through October 2022,
 
with an
option to extend the lease for
 
36 months. The approximate 42,000
 
square feet of available floor space
 
at the Brownsville, Texas
location is comprised of the following:
 
Approximate
Square Feet
Warehouse/Distribution
39,000
Office
3,000
Total
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 not aware of
any material pending legal
 
proceedings to which the Company
 
or any of its
 
subsidiaries is a party or
 
of which any of
 
their property
is the subject
.
 
 
ITEM 4.
 
MINE SAFETY DISCLOSURE
 
 
None.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
 
PART II
 
 
ITEM 5.
 
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
 
MATTERS, AND ISSUER PURCHASE 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 Technolog
 
ies, Inc.
High
Low
Fourth Quarter
2020
$
14.23
$
7.69
Third Quarter
2020
10.82
3.81
Second Quarter
2020
5.35
1.03
First Quarter
2020
3.50
1.50
Fourth Quarter
2019
$
6.49
$
2.80
Third Quarter
2019
7.58
5.75
Second Quarter
2019
8.50
6.73
First Quarter
2019
9.00
6.79
 
The Company's common stock was held by 356 holders of record
 
on March
 
10, 2021.
 
 
The Company ended
 
the $0.05 per
 
share quarterly dividend
 
after the May 2018
 
declaration.
 
The Company made no
 
payments
for cash dividends during 2020 and 2019 and made payments totaling
 
of $792,000 for cash dividends during 2018.
 
 
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, 2020:
 
 
 
Plan Category
Number of Shares
 
to be Issued Upon
 
Exercise of
Outstanding
Options or
 
Vestin
 
g
Weighted
 
Average
 
Exercise Price
 
of Outstanding
 
Options
Number of
 
Shares
 
Remaining
 
Available for
Future Issuance
Equity compensation plans approved by stockholders
688,760
$
7.31
514,823
 
We repurchased 4,574 shares of our common stock during the year ended December
 
31, 2020. All stock was purchased to satisfy
tax withholding obligations upon
 
vesting of restricted stock
 
awards. Details of the repurchases
 
of our common stock during
 
the
three months ended December 31, 2020, are included in the following
 
table:
 
 
Period
Total number of
shares purchased
Average price paid
per share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
Maximum Number that
May Yet
 
be Purchased
Under the Plans or
Programs
October 1 to 31, 2020
—
$
—
—
—
November 1 to 30, 2020
—
—
—
—
December 1 to 31, 2020
—
—
—
—
Total
—
—
—
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
 
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.
 
 
 
Years
 
Ended December 31,
(In thousands, except per share data)
2020
2019
2018
2017
2016
Operating Data:
Product sales
$
210,580
$
268,987
$
256,217
$
148,623
$
146,624
Tooling sales
11,776
15,303
13,268
13,050
28,258
Net sales
222,356
284,290
269,485
161,673
174,882
Gross margin
34,474
21,506
27,141
24,631
27,906
Operating income (loss)
10,390
(11,528)
(3,100)
7,941
11,527
Net income (loss)
8,165
(15,223)
(4,782)
5,459
7,411
Earnings (Loss) Per Share Data:
Net income (loss) per common share:
Basic
$
0.98
$
(1.94)
$
(0.62)
$
0.71
$
0.97
Diluted
$
0.98
$
(1.94)
$
(0.62)
$
0.70
$
0.97
Balance Sheet Data:
Total assets
$
165,507
$
179,306
$
201,198
$
138,578
$
133,455
Working capital
20,483
(22,609)
40,111
40,369
38,590
Long-term debt
25,198
—
55,159
3,750
6,750
Stockholders' equity
93,932
84,426
98,929
101,893
96,766
Return on beginning equity
10
%
(15)
%
(5)
%
6
%
8
%
Book value per share
$
11.77
$
10.72
$
12.72
$
13.21
$
12.67
 
25
 
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 changes 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; the
 
adverse impact
 
of coronavirus
 
(COVID-19) global
 
pandemic on
 
our business,
 
results of
 
operations, financial
position, liquidity or cash flow, as well as
 
impact on customers and supply chains; safety and
 
security conditions in Mexico and
Canada; fluctuations in
 
foreign currency exchange rates;
 
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;
ability to accurately
 
quote and execute
 
manufacturing processes for new
 
business; 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; labor
 
availability; a
 
work stoppage
 
or labor
disruption at
 
one of our
 
union locations or
 
one of our
 
customer or supplier
 
locations; 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; federal, state and local
 
environmental laws
and regulations; the
 
availability of sufficient
 
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
 
and other
customer charges; 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.
 
 
DESCRIPTION OF THE COMPANY
 
 
Core Molding Technologies
 
and its subsidiaries
 
operate in one
 
operating segment as
 
a molder of
 
thermoplastic and thermoset
structural products. The Company's operating segment consists
 
of two component reporting units, Core
 
Traditional and Horizon
Plastics. The Company offers customers a wide range of manufacturing processes to fit various
 
program volume and investment
requirements. These processes
 
include compression
 
molding of sheet
 
molding compound
 
("SMC"), bulk
 
molding compounds
("BMC"), resin
 
transfer molding
 
("RTM"), liquid
 
molding of
 
dicyclopentadiene ("DCPD"),
 
spray-up and
 
hand-lay-up, direct
long-fiber thermoplastics ("D
 
-LFT") and structural
 
foam and structural
 
web injection molding
 
("SIM"). Core Molding
Technologies serves
 
a wide
 
variety of
 
markets, including the
 
medium and
 
heavy-duty truck,
 
marine, automotive,
 
agriculture,
construction, and
 
other commercial
 
products. 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. Accordi
 
ngly, during
 
periods of
 
changing demand,
 
the profitability
 
of Core
 
Molding Technologies’
operations may change
 
proportionately more than
 
revenues from operations.
 
Core Molding Technologies serves
 
a wide variety
 
26
 
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 43%
 
of the Company's sales
 
for the year ended
December
 
31, 2020
 
and 58% and
 
56% for the
 
years ended
 
December
 
31, 2019
 
and 2018,
 
respectively. 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 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 Cobourg, 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.
 
 
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 North American truck market, which is
 
highly cyclical, accounted for 43%, 58%, and 56% of the
Company’s product revenue for
 
the years ended December
 
31,
 
2020,
 
2019,
 
and 2018 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. 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 operations 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.
 
 
 
27
 
Results of 2020 Overview
 
 
Operating income increased
 
to $10,390,000 for
 
the year ended
 
December 31, 2020
 
compared to a
 
loss of $11,528,000
 
for the
same period a year ago on a product sales decrease of 22%. Lower demand from our customers as a
 
result of a cyclical downturn
in the truck market
 
and the negative effect
 
of COVID-19 on most
 
customer demand were the
 
primary drivers of the
 
sales decrease.
The increase
 
in operating
 
income was
 
largely due
 
to improved
 
manufacturing efficiencies
 
and cost
 
savings at
 
several of
 
the
Company's facilities. The Company also incurred lower SG&A costs and no goodwill impairment in 2020.
 
 
For the year ended December 31, 2020, product sales
 
to truck customers decreased by 38% compared to the
 
same period in 2019,
as a result of
 
a cyclical downturn in
 
the truck market and
 
demand deterioration related to
 
COVID-19. According to
 
ACT Research,
North American heavy-duty truck production decreased approximately 47% for the year
 
ended December 31, 2020 compared to
the same period in 2019.
 
 
For the year ended
 
December 31, 2020,
 
the Company recorded
 
net income of $8,165,000
 
or $0.98 per
 
basic and diluted
 
share,
compared with net loss of $15,223,000, or ($1.94) per basic
 
and diluted share for the year ended December 31, 2019. Net
 
income
in 2020 was favorably impacted by $5,279,000, or $0.67 per share, as a
 
result of a net tax valuation allowance reversal and a tax
rate benefit due
 
to tax law
 
changes that allow
 
the Company to
 
carryback net operating
 
losses to offset
 
taxable income in
 
2013
through 2015, where
 
the Company paid
 
tax at 34%
 
compared to the
 
valuation of the
 
losses being recorded
 
at the 21%
 
current
U.S. statutory tax rate.
 
 
Looking forward, based on
 
industry analysts’
 
projections and customer
 
forecasts, the Company expects
 
sales levels for 2021
 
to
increase compared to
 
2020.
 
In the Company
 
’s largest market,
 
North American heavy-duty truck,
 
ACT Research is forecasting
production to
 
increase approximately 41%.
 
In several other
 
industries the Company
 
serves, customers
 
are forecasting
 
higher
demand in 2021 including in the marine and all-terrain vehicle
 
markets.
 
 
 
The Company
 
anticipates higher
 
raw material
 
costs in
 
2021 as
 
global economies
 
continue to
 
strengthen from
 
the COVID
 
-19
effected 2020 economic
 
levels. Global demand
 
for certain raw
 
materials the Company
 
uses has increased
 
in the second
 
half of
2020 and in the first quarter of 2021.
 
As a result, suppliers have been increasing the price of
 
these materials.
 
The Company has
the ability to pass through a portion, but not all, of the cost increases
 
to its customers.
 
 
 
In February 2021, an unprecedented winter storm in Texas and Mexico caused operational disruptions to
 
many companies in the
area including the Company’s
 
Matamoros and Monterey Mexico
 
operations as well as to
 
our customers and suppliers.
 
Much of
North American resins
 
and glass supply
 
originate from the region
 
and these supplier operations
 
were significantly affected causing
suppliers to claim
 
force majeure and
 
set supply allocations.
 
While the Company
 
has been able
 
to coordinated its
 
raw material
supply with customer demand, other supplier disruptions throughout our customers
 
’
 
supply chain have resulted in our customers
delaying orders.
 
In addition,
 
suppliers of certain
 
materials, such as
 
polypropylene, have
 
increased prices
 
due to a
 
shortage of
supply.
 
Suppliers have indicated they anticipate supply levels to recover
 
during the second quarter of 2021.
 
 
 
2020 Compared to 2019
 
 
Net sales for
 
the years ended
 
December 31,
 
2020 and 2019
 
totaled $222,356,000
 
and $284,290,000, respectively.
 
Included in
total sales
 
were tooling
 
project sales
 
of $11,776,000
 
and $15,303,000
 
for the
 
years ended
 
December 31,
 
2020 and
 
2019,
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, 2020 were $210,580,000 compared
 
to
$268,987,000 for
 
the same period
 
in 2019. This
 
decrease in sales
 
is primarily the
 
result of lower
 
cyclical demand
 
from truck
customers as well
 
as lower demand
 
from most all
 
customers as a
 
result of COVID
 
-19, offset by
 
the increase in
 
demand from
customers in building products industry.
 
 
Gross margin was approximately 15.5% of sales for the year
 
ended December 31, 2020, compared with 7.6% for the year
 
ended
December 31, 2019. The
 
gross margin increase, as
 
a percent of sales,
 
was due to
 
favorable product mix and
 
production efficiencies
of 8.4% and changes in selling price and material costs of 1.0%,
 
offset by lower leverage of fixed costs of 1.5%.
 
 
28
 
 
Selling, general
 
and administrative
 
expense (“SG&A”)
 
totaled $24,08
 
4,000 in
 
2020, compared
 
to $28,934,000
 
in 2019.
 
The
decrease in SG&A expense primarily resulted from lower professional and outside
 
services of $2,023,000, government subsides
received in 2020 enacted as a result of COVID-19 of $1,416,000,
 
and lower travel costs of $783,000.
 
 
The Company incurred a
 
goodwill impairment of $4,100,000
 
associated with its Horizon Plastics
 
reporting unit during the year
ended December 31, 2019. In
 
2019, the Company incurred lower
 
profit margins in its Horizon
 
Plastics reporting unit caused by
selling price decreases that the Company had not been able to
 
fully offset with material cost reductions.
 
 
Interest expense totaled
 
$5,923,000 for the
 
year ended December 31,
 
2020, compared to
 
interest expense of $4,144,000
 
for the
year ended December 31, 2019.
 
The increase in interest expense was primarily due to
 
a loss on termination of interest rate swaps
of $1,253,000
 
and a one-time
 
expense related to
 
the deferred
 
loan costs for
 
the debt refinancing
 
of $583,000,
 
offset by lower
average outstanding debt in 2020.
 
 
Income tax
 
benefit was
 
approximately 80%
 
of total
 
income before
 
income taxes
 
in 2020
 
and 2%
 
of total
 
loss in
 
2019. The
Company’s effective
 
tax rate reflects
 
the effects of
 
taxable income and
 
taxable losses being
 
generated in tax
 
jurisdictions with
different tax rates, and in 2020
 
a net valuation allowance change of
 
$2,074,000 and a rate benefit of
 
$3,205,000 based on losses
being carried back to
 
years where the Company paid
 
tax at 34% compared
 
to the valuation of the
 
losses being recorded at
 
21%
current U.S. statutory tax rate.
 
 
The Company
 
recorded net
 
income for
 
2020 of
 
$8,165,000 or
 
$0.98 per
 
basic and
 
diluted share,
 
compared with
 
net loss
 
of
$15,223,000 or $(1.94) per basic and diluted share for 2019.
 
 
Comprehensive income totaled $8,170,000 in 2020, compared to a
 
comprehensive loss of $15,970,000 in 2019. The
 
increase was
primarily related to
 
higher net income
 
of $23,388,000
 
and a change
 
in net actuarial
 
adjustments of $1,982,000
 
for other post-
retirement benefit obligations.
 
 
2019
 
Compared to 2018
 
Net sales for 2019 totaled $284,290,000, which was an increase from the $269,485,000 reported for 2018. Included in total sales
were tooling project sales
 
of $15,303,000 for 2019
 
and $13,268,000 for 2018.
 
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 2019, excluding tooling project sales, totaled $268,987,000, representing a 5% increase from the
 
$256,217,000 reported
for 2018. The increase in product
 
sales is primarily the result of increased
 
sales to our truck and marine
 
customers of $11,707,000
and $3,144,000, respectively.
 
 
Gross margin was approximately 7.6% of sales in 2019 and 10.1% in 2018. The gross margin
 
decrease, as a percent of sales, was
due to unfavorable
 
product mix and
 
production inefficiencies of
 
3.8%.
 
These reductions were
 
offset by net
 
changes in selling
price and material costs of 1.3%.
 
 
Selling, general
 
and administrative
 
expense (“SG&A”)
 
totaled $28,934,000
 
in 2019,
 
compared to
 
$27,838,000 in
 
2018. The
increase in SG&A expense
 
primarily resulted from
 
higher labor and
 
benefit costs of
 
$1,144,000 and
 
higher insurance costs
 
of
$327,000 offset by lower professional and outside services of $1,017,000.
 
For the year ended December
 
31, 2018, the Company
incurred one-time acquisition fees of $1,289,000.
 
 
Goodwill impairment totaled
 
$4,100,000 and
 
$2,403,000 in 2019
 
and 2018, respectively,
 
based on the
 
Company's annual and
interim goodwill impairment
 
assessment for its
 
reporting units.
 
See
Note 2 -
 
Summary of Significant
 
Accounting Policies
, for
further details.
 
 
 
29
 
Net interest expense totaled
 
$4,144,000 for the year ended
 
December
 
31, 2019, compared to
 
net interest expense of $2,394,000
for the year ended December
 
31, 2018.
 
The increase in interest expense was primarily due
 
to a higher average outstanding debt
balance as well has higher interest rates in 2019.
 
 
Income tax benefit was approximately 2% of
 
total loss before income taxes in 2019
 
and 12% in 2018.
 
The effective income tax
rate in both
 
years is a
 
result of
 
the net effect
 
of taxable
 
losses in
 
lower statutory
 
rate tax jurisdictions
 
being offset
 
by taxable
income in higher statutory
 
rate tax jurisdictions.
 
Additionally, the effective rate
 
in 2019 includes the
 
impact of recording a
 
full
valuation allowance against net deferred tax assets in the United States
 
of approximately $3,267,000.
 
 
Net loss for 2019
 
was $15,223,000 or $(1.94)
 
per basic and diluted
 
share, compared with
 
net loss of $4,782,000
 
or $(0.62) per
basic and diluted share for 2018.
 
 
Comprehensive loss totaled
 
$15,970,000 in 2019,
 
compared to a
 
comprehensive loss of
 
$4,735,000 in 2018.
 
The decrease was
primarily related
 
to higher
 
net loss
 
of $10,441,000
 
and a
 
change in
 
net actuarial
 
adjustments of
 
$1,630,000 for
 
other post-
retirement benefit obligations offset by a change in hedging
 
derivatives of $836,000.
 
The net actuarial changes in 2018 and 2019
were primarily due to changes in discount rate.
 
 
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,
 
2020, the
 
Company had
 
no outstanding
 
foreign exchange
 
contracts, compared
 
to
notional amounts of
 
$15,358,000 outstanding
 
as of December
 
31, 2019. As of
 
December 31,
 
2020, the Company
 
also had no
outstanding interest rate swaps, compared to notional amount of $29,750,000
 
outstanding as of December 31, 2019.
 
 
Cash provided by
 
operating activities totaled
 
$28,164,000 for
 
the year ended
 
December 31,
 
2020.
 
Net income of
 
$8,165,000
positively impacted operating cash flows.
 
Non-cash deductions included in net
 
income from depreciation and
 
amortization and
share based compensation amounted to $11,662,000 and $1,355,000, respectively. A decrease in working capital resulted in cash
provided of
 
$5,648,000. The
 
decrease in
 
working capital
 
was primarily
 
related to
 
increase cash
 
from accounts
 
receivable,
inventory and other
 
accrued liabilities, offset
 
by decrease cash
 
from accounts payable
 
and prepaid
 
expenses and other
 
current
assets.
 
 
Cash used in
 
investing activities
 
totaled $3,683,000
 
for the year
 
ended December
 
31, 2020,
 
primarily related
 
to purchases
 
of
property, plant
 
and equipment
 
for new
 
programs and
 
equipment improvements
 
at the
 
Company’s production
 
facilities. The
Company anticipates spending approximately $19,500,000 during 2021 on property, plant and equipment purchases for all of the
Company's operations, including
 
approximately $8,500,000
 
to expand the
 
Company’s DLFT
 
capacity in Matamoros,
 
Mexico.
 
The Company
 
anticipates using
 
cash from
 
operations and
 
its revolving
 
line of
 
credit to
 
finance this
 
capital investment.
 
The
Company may also use equipment
 
financing for the DLFT
 
capacity expansion.
 
At December 31, 2020,
 
purchase commitments
for capital expenditures in progress were approximately $677,000.
 
 
Cash used in financing activities totaled $22,206,000 for the year ended December 31, 2020. Cash
 
activity primarily consisted of
net repayments
 
of revolving
 
loans of
 
$11,588,000, repayments
 
of principal
 
on outstanding
 
term loans
 
of $38,72
 
5,000, and
payment of deferred loan costs of $2,038,000, offset by borrowings under
 
new term loans of $30,165,000.
 
 
At December 31, 2020,
 
the Company had $4,131,000
 
of cash on hand and
 
an available revolving line
 
of credit of $19,223,000.
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.
 
 
30
 
 
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.
 
 
Term Loans
 
 
Wells Fargo Term Loans
 
On October 27, 2020,
 
the Company entered into
 
a credit agreement (the
 
“Credit Agreement”) with Wells Fargo Bank,
 
National
Association, as administrative
 
agent, lead arranger
 
and book runner,
 
and the lenders
 
party thereto (the
 
“Lenders”). Pursuant to
the terms of
 
the Credit Agreement, the
 
Lenders made available
 
to the Company
 
secured term loans
 
(the “WF Term
 
Loans”) in
the maximum aggregate principal amount of
 
$18,500,000 ($16,790,000 of which was
 
advanced to the Company on October
 
28,
2020). The
 
proceeds from
 
the WF
 
Term Loans
 
were used
 
to pay
 
off the
 
Company’s existing
 
outstanding indebtedness
 
with
KeyBank National Association, and to pay certain fees and expenses associated with the financing.
 
 
At the option of the Company, the WF Term Loans bears interest at a per annum rate equal to LIBOR plus a margin
 
of 300 basis
points or base
 
rate plus a
 
margin of 200
 
basis points.
 
LIBOR rate means
 
the greater
 
of (a) 0.75%
 
per annum and
 
(b) the per
annum published LIBOR rate for interest periods of one, three or six months as chosen by
 
the Company.
 
Base rate is the greater
of (a) 1.0% per
 
annum, (b) the Federal
 
Funds Rate plus 0.5%,
 
(c) LIBOR Rate plus
 
100 basis or (d)
 
prime rate.
 
The weighted
average interest rate was 3.77% as of December 31, 2020.
 
 
 
The WF Term Loans are to
 
be repaid in monthly installments
 
of $200,000 plus interest, with
 
the remaining outstanding balance
due on November
 
30, 2024, subject
 
to certain optional
 
and mandatory repayment
 
terms. The Company’s
 
obligations under the
WF Term Loans are unconditionally guaranteed by each
 
of the Company’s U.S. and Canadian subsidiaries, with such obligations
of the Company and such subsidiaries being secured by a lien on
 
substantially all of their U.S. and Canadian assets.
 
 
 
The WF Term
 
Loans contains reporting, indebtedness, and
 
financial covenants.
 
The Company is in
 
compliance with its covenants
as of December 31, 2020.
 
 
 
Voluntary prepayments of amounts outstanding under the WF Term Loans are permitted at any
 
time without premium or penalty.
 
To the extent applicable, LIBOR breakage fees may be charged
 
in connection with any prepayment.
 
 
FGI Equipment Finance LLC Term Loan
 
On October 20,
 
2020, the Company
 
entered into a
 
Master Security Agreement and
 
a Promissory Note,
 
among FGI Equipment
Finance LLC, (“FGI”) the Company
 
as debtor, and each of
 
Core Composites Corporation, a subsidiary of
 
the Company organized
in Delaware, and CC HPM,
 
S. de R.L. de C.V., a
 
subsidiary of the Company organized
 
in Mexico, as guarantors, a term
 
loan in
the principal amount of $13,200,000
 
(the “FGI Term Loan”). On October 27, 2020,
 
FGI advanced to the Company $12,000,000
which proceeds were used to pay off the Company’s existing
 
outstanding indebtedness with KeyBank National Association, and
to pay certain fees
 
and expenses associated
 
with the transactions,
 
and $1,200,000 which
 
proceeds were used
 
to fund a
 
security
deposit to be held
 
by FGI. Interest on
 
the FGI Term Loan is
 
a fixed rate of
 
8.25% and is payable
 
monthly. The Company notes
that the security deposit of $1,200,000 is located in prepaid
 
expenses and other current assets on the balance sheet.
 
 
Following the advance
 
of funds by
 
FGI, the FGI
 
Term Loans are
 
to be repaid
 
in monthly principal
 
and interest installments
 
of
$117,000 for the
 
first 12 months,
 
$246,000 for the
 
subsequent 59 months
 
and $1,446,000 due
 
on October 31,
 
2026, subject to
certain optional and mandatory repayment
 
terms. The Company’s
 
obligations under the Master Security
 
Agreement are secured
by certain machinery and equipment of the guarantors located in Mexico, and real property of Core composites de Mexico, S. de
R.L. de C.V., also a subsidiary of the Company organized in Mexico,
 
located in Matamoros, Mexico.
 
 
 
The Company may
 
prepay in full
 
or in part
 
(but not less than
 
the amount equal
 
to 20% of
 
the original principal
 
amount of the
loan) outstanding amounts before they are due
 
on any scheduled Payment Date upon at
 
least thirty (30) days’
 
prior written notice.
 
The Company will
 
pay a “Prepayment
 
Fee” in an
 
amount equal to
 
an additional sum
 
equal to the
 
following percentage of
 
the
principal amount to be
 
prepaid for prepayments occurring
 
in the indicated period:
 
four percent (4.0%) (for
 
prepayments occurring
 
31
 
prior to
 
the first anniversary
 
of the Loan);
 
three percent (3.0%)
 
(for prepayments occurring
 
on and thereafter
 
and prior
 
to the
second anniversary
 
of the
 
Loan); two
 
percent (2.0%)
 
(for prepayments
 
occurring on
 
and thereafter
 
and prior
 
to the
 
third
anniversary of the Loan ); and one percent (1.0%) (for
 
prepayments occurring any time thereafter).
 
 
 
Leaf Capital Funding
 
On April 24, 2020
 
the Company entered
 
into a finance
 
agreement with Leaf
 
Capital Funding of
 
$175,000 for equipment.
 
The
parties agreed
 
to a
 
fixed interest
 
rate of
 
5.5% and
 
a term
 
of 60
 
months. The amount
 
outstanding at
 
December 31,
 
2020 was
$152,000 of which, $120,000 was classified as long-term debt.
 
 
Revolving Loans
 
 
Wells Fargo Revolving Loan
 
On October 27, 2020,
 
the Company entered into
 
a credit agreement (the
 
“Credit Agreement”) with Wells Fargo Bank,
 
National
Association, as adminis
 
trative agent, lead
 
arranger and book
 
runner, and the
 
lenders party thereto
 
(the “Lenders”). Pursuant
 
to
the terms of the
 
Credit Agreement, the
 
Lenders made available to
 
the Company a
 
revolving loan commitment (the
 
“WF Revolving
Loan”) of $25,000,000
 
($8,745,000 of which was
 
advanced to the
 
Company on October
 
28, 2020). The proceeds
 
from the WF
Revolving Loan were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and
to pay certain fees and expenses associated with the financing.
 
 
The Credit Agreement also makes available
 
to the Company an
 
incremental revolving commitment
 
in the maximum amount
 
of
$10,000,000 at the Company’s
 
option at any time during the three (3) year period following the closing.
 
 
The borrowing availability under the line of credit is the lesser of (a) the loan commitment of $25,000,000 or (b) the sum of 90%
of eligible investment grade accounts receivable,
 
85% of non-investment grade eligible accounts
 
receivable and 65% of eligible
inventory.
 
 
 
At the option of the Company,
 
the WF Revolving Loan bears
 
interest at a per annum
 
rate equal to LIBOR plus
 
a margin of 200
to 250 basis points
 
or base rate plus
 
a margin of 100 to
 
150 basis points, with
 
the margin rate being based
 
on the excess availability
amount under the line of credit.
 
LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR
rate for interest periods of one,
 
three or six months as chosen
 
by the Company.
 
Base rate is the greater of
 
(a) 1.0% per annum,
(b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate
 
plus 100 basis and (d) prime rate.
 
The weighted average interest rate was
4.75% as of December 31, 2020.
 
 
The WF Revolving Loan commitment
 
terminates, and all outstanding
 
borrowings thereunder must
 
be repaid, by November
 
30,
2024. The
 
Company has
 
available $19,223,000
 
of available
 
rate revolving
 
loans of
 
which
 
$420,000
 
is outstanding
 
as
of
 
December
 
31, 2020.
 
 
The WF Revolving Loan contains the same covenants as the WF Term Loans.
 
 
 
Wells Fargo Bank will issue up to $2,000,000 of Letters of Credit in accordance with
 
the terms of the Credit Agreement upon the
Company’s request. As of December 31, 2020, the Company
 
had one Letter of Credit outstanding for $160,000.
 
 
 
In conjunction with the October debt refinancing, the Company incurred
 
debt origination fees of $1,730,000 related to the Wells
Fargo financing,
 
which is
 
being amortized
 
over the
 
life of
 
the Credit
 
Agreement, which
 
expires on
 
November 30,
 
2024. In
addition, the Company
 
incurred debt origination
 
fees of $308,000
 
related to the FGI
 
Term loan, which is
 
being amortized over
the life of
 
the FGI Term
 
Loan, which expires
 
on October 31,
 
2026.
 
The aggregate unamortized
 
deferred financing fees
 
as of
December 31, 2020 totaled $1,957,000.
 
 
 
 
 
32
 
KeyBank Loan
 
 
On December 31, 2019, the
 
Company had a term
 
loan and revolving loan balance
 
of $38,250,000 and $12,008,000 with
 
KeyBank
National Association, respectively. The Company’s term loan and revolving loan had variable interest rates of 6.30% and 6.04%,
respectively at December
 
31, 2019. On
 
November 22, 2019
 
the Company entered
 
into a forbearance
 
agreement with KeyBank
and on
 
October 27,
 
2020 the
 
Company fully
 
repaid all
 
outstanding amounts.
 
As a
 
result of
 
the forbearance
 
agreement not
extending beyond a year, the Company’s remaining long-term debt balance was classified as a current liability in the Company’s
consolidated balance sheet as of December 31, 2019.
 
 
Interest Rate Swaps
 
 
The Company
 
entered into
 
two interest
 
rate swap
 
agreements that
 
became effective
 
January
 
18, 2018,
 
one of
 
which was
designated as a cash flow
 
hedge for $25,000,000 and the other
 
designated as a cash flow
 
hedge for $10,000,000 to the Company’s
subsidiary. Under these agreements, the
 
Company paid a fixed rate
 
of
 
2.49%
 
to the counterparty and
 
received a 30 day
 
LIBOR
 
for
both cash flow
 
hedges. Concurrent
 
with the closing
 
of the
 
KeyBank credit
 
agreement, the
 
Company settled
 
both outstanding
interest rate swaps, which
 
resulted in a loss
 
and cash outflow of
 
$1,253,000. These results were
 
categorized as interest expense
and operating activities in the Statement
 
of Operations and Statement of
 
Cash Flow, respectively. Due to the
 
settlement, the fair
value of the interest rate swaps was $0
 
at
 
December
 
31, 2020 compared to a liability of $706,000 at December 31,
 
2019.
 
 
Bank Covenants
 
 
The Company is required to meet certain financial covenants included in
 
the Credit Agreement with respect to fixed
 
charge ratio.
The following table presents the financial covenants specified in our Credit Agreement
 
and the actual covenant calculations as of
December 31, 2020:
 
 
 
Financial Covenants
Actual Covenants as of
December 31, 2020
Fixed Charges Coverage Ratio
Minimum 1.10
2.6
 
Shelf Registration
 
On December
 
11, 2020
 
the Company
 
filed a
 
new 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 December
 
16,
2020.
 
The Registration Statement replaces
 
an existing shelf Registration
 
Statement which expired on
 
November 14, 2020. 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
 
The following table provides
 
aggregated information about the maturities
 
of contractual obligations and
 
other long-term liabilities
as of December
 
31, 2020:
 
 
 
2021
2022
2023
2024
2025 and
 
after
Total
Long-term debt
$
3,019,000
$
4,428,000
$
4,601,000
$
11,585,000
$
6,057,000
$
29,690,000
Interest
(A)
1,653,000
1,452,000
1,180,000
889,000
574,000
5,748,000
Operating lease obligations
1,215,000
811,000
706,000
705,000
—
3,437,000
Contractual
 
commitments for
 
 
capital expenditures
677,000
—
—
—
—
677,000
Post retirement benefits
1,286,000
459,000
500,000
473,000
6,391,000
9,109,000
Total
$
7,850,000
$
7,150,000
$
6,987,000
$
13,652,000
$
13,022,000
$
48,661,000
 
(A)
 
Variable interest rates were as of December 31, 2020.
 
 
As of December
 
31, 2020 and 2019, the Company had no significant off
 
-balance sheet arrangements.
 
 
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
, due to
 
the uncertainty around
 
the magnitude and
 
duration of the
COVID-19 pandemic, as well as other factors.
 
Management believes the following
 
critical accounting policies, among
 
others, affect its more
 
significant judgments and estimates
used in the preparation of its consolidated financial statements.
 
 
Accounts Receivable Allowances
 
Management maintains allowances for doubtful
 
accounts for estimated losses resulting
 
from the inability of
 
its customers to make
required payments. If the financial condition of the 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 a
 
$41,000 allowance for
doubtful accounts is needed
 
at December 31,
 
2020 and $50,000
 
at December 31, 2019.
 
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 $179,000
 
at December 31, 2020 and
 
$476,000 at December 31,
 
2019.
 
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 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 $
 
546,000
at December 31, 2020 and $898,000 at December 31, 2019.
 
 
34
 
 
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, 2020, 2019,
 
and 2018.
 
 
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 each reporting unit. As a result of the Horizon Plastics acquisition on January 16, 2018 and the status
of its integration, the Company established two reporting units,
 
Core Traditional and Horizon Plastics.
 
 
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
 
any reporting unit in
 
any period.
The Company may resume the qualitative assessment for any
 
reporting unit in any subsequent period.
 
 
Under a qualitative and quantitative
 
approach, the impairment tes
 
t
 
for goodwill consists of an
 
assessment of whether it is
 
more-
likely-than-not that a
 
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 any
 
reporting unit, or
 
if a qualitative
 
assessment indicates it
 
is more-likely-than
 
-not that the
 
estimated carrying
value of a reporting unit exceeds its fair value, the Company proce
 
eds to a quantitative approach.
 
 
The company performed a qualitative analysis for the year end December 31, 2020 and determined that no impairment is needed
for the year 2020.
 
 
Due to the Company's
 
financial performance and continued depressed
 
stock price, the Company
 
performed a quantitative analysis
for both of its reporting units at September 30, 2019. During 2019, the Company incurred a loss of margin in its Horizon Plastics
reporting unit caused by selling price decreases that the Company
 
has not been able to fully offset with material cost reductions.
As a result of the quantitative
 
analysis, the Company concluded
 
that the carrying value of
 
Horizon Plastics was greater than
 
the
fair value, which resulted
 
in a goodwill impairment
 
charge of $4,100,000 at September
 
30, 2019 representing 19%
 
of the goodwill
related to the Horizon Plastics reporting unit. The company performed a
 
qualitative assessment at December 31, 2019, indicating
no additional goodwill impairment related to the Horizon Plastics reporting
 
unit.
 
 
The Company’s annual impairment assessment at December 31,
 
2018 consisted of a quantitative
 
analysis for both reporting units.
It concluded that the carrying value of Core
 
Traditional was greater than the fair value, which resulted
 
in a goodwill impairment
charge of $2,403,000, representing all the goodwill related to the Core Traditional reporting unit. The analysis of the Company’s
other reporting unit,
 
Horizon Plastics, indicated
 
no goodwill impairment
 
charge, based on
 
historical performance and
 
financial
projections at that time, as the excess of the estimated fair
 
value over the carrying value of its invested capital was approximately
23% of the book value of its net assets.
 
 
Self-Insurance
 
The Company is
 
self-insured with respec
 
t
 
to Columbus and
 
Batavia, Ohio; Gaffney,
 
South Carolina; Winona,
 
Minnesota;
 
and
Brownsville, Texas for medical, dental and vision claims and Columbus and Batavia, Ohio for
 
workers’ compensation claims, all
 
35
 
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, 2020 and December
 
31,
2019 of $933,000 and $1,203,000, 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 -
 
Post Retirement Benefits
.
 
Core Molding
Technologies had
 
a liability for
 
post retirement healthcare
 
benefits based
 
on actuarially computed
 
estimates of
 
$9,109,000 at
December 31, 2020 and $9,160,000 at December 31, 2019.
 
 
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.
 
The Company historically recognized
 
all tooling revenue at
 
a point in time,
 
upon customer acceptance,
 
before
the adoption of ASU 2014-09.
 
 
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 o
 
f
 
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 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.
 
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, 2020 the Company had
 
a net deferred tax asset
 
of $53,000 of which a
 
liability of $876,000 is related
 
to tax
positions in the
 
United States that is
 
displayed on the
 
balance sheet within the
 
other accrued liabilities portion,
 
an asset of
 
$460,000
related to tax positions in
 
Canada and an asset
 
of $469,000 related to
 
tax positions in Mexico.
The deferred tax liabilities
 
are in
other noncurrent liabilities
 
on the Consolidated
 
Balance Sheet.
 
During 2020,
 
the Company recorded
 
a valuation allowance
 
of
 
36
 
$1,193,000 against the
 
state net loss
 
carryforward and interest
 
limitation carryforward,
 
due to cumulative
 
losses in the
 
United
States over the
 
last three years
 
and uncertainty related
 
to the Company’s
 
ability to realize
 
net loss carryforwards
 
and other net
deferred tax assets
 
in the future.
 
The Company believes
 
that the deferred
 
tax assets associated
 
with the Canadian and
 
Mexican
tax jurisdictions are more-likely-than-not to be realizable based on estimates
 
of future taxable income and the Company's ability
to carryback losses.
 
 
Management recognizes
 
the financial
 
statement effects
 
of a
 
tax position
 
when it
 
is more
 
likely than
 
not the
 
position will
 
be
sustained upon examination.
 
 
COVID-19
 
In December 2019, COVID-19 surfaced and spread around the world resulting in business and social disruption. COVID-19 was
declared a Public Health Emergency of International Concern by the World Health Organization on January 30, 2020. The
 
extent
to which the
 
coronavirus could impact
 
the Company’s
 
business activity will
 
depend on future
 
developments, which are
 
highly
uncertain and cannot be
 
predicted. Factors include,
 
new information concerning
 
the severity of COVID
 
-19, rollout plan for
 
the
COVID-19 vaccine, and the effectiveness of a vaccine.
 
 
Recent Accounting Pronouncements
 
 
Current expected credit loss (CECL)
 
In June 2016, the FASB issued ASU 2016-13, “Financial
 
Instruments -Credit Losses,” which changes the
 
impairment model for
most financial assets
 
and certain other
 
instruments. For trade
 
and other receivables,
 
held-to-maturity debt securities,
 
loans and
other instruments, entities will
 
be required to use
 
a new forward-looking “expected loss”
 
model that will replace
 
today’s “incurred
loss” model and generally will result in
 
the earlier recognition of allowances for losses. For
 
available-for-sale debt securities with
unrealized losses,
 
entities will
 
measure credit
 
losses in
 
a manner
 
similar to
 
current practice,
 
except that
 
the losses
 
will b
 
e
recognized as an allowance. Subsequent to
 
issuing ASU 2016 -13, the FASB issued ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments -
 
Credit Losses,” for the purpose
 
of clarifying certain aspects of ASU 2016 -13.
 
ASU 2018-
19 has the
 
same effective date
 
and transition requirements
 
as ASU 2016
 
-13. In April 2019,
 
the FASB issued
 
ASU 2019 -04,
“Codification Improvements to Topic 326, Financial Instruments - Credit
 
Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments,
 
”
 
which is effective
 
with the adoption
 
of ASU 2016-13. In May
 
2019, the FASB
 
issued ASU 2019-
05, “Financial Instruments - Credit Losses (Topic 326),” which is
 
also effective with the adoption of ASU
 
2016-13. In November
2019, the FASB voted to delay the implementation date for certain companies, including those that qualify as a smaller reporting
company under SEC rules, until fiscal years beginning
 
after December 15, 2022. We will adopt
 
this ASU on its effective date of
January 1, 2023.
 
We do not
 
expect the adoption
 
of this ASU to
 
have a material
 
impact on our
 
consolidated financial
 
position,
results of operations, cash flows, or presentation thereof.
 
 
Simplifying the Accounting for Income Taxes
 
In December 2019, the FASB issued
 
ASU 2019-12, Income Taxes –
 
Simplifying the Accounting for Income
 
Taxes. This guidance
is intended to
 
simplify various aspects
 
of income tax
 
accounting including the
 
elimination of certain
 
exceptions related
 
to the
approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of
deferred tax
 
liabilities for
 
outside basis
 
differences. The
 
new guidance also
 
simplifies aspects
 
of the accounting
 
for franchise
taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis
of goodwill. The Company adopted
 
the new standard effective January
 
1, 2020 during the third
 
quarter with no material impact
on our consolidated financial statements. Adoption of this guidance requires certain changes to primarily be made prospectively,
with some changes to be made retrospectively.
 
 
Facilitation of the Effects of Reference Rate Reform
 
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on
 
Financial Reporting
 
(Topic 848). The ASU provides optional expedients and exceptions for applying GAAP
 
to transactions affected by reference rate
 
(e.g., LIBOR) reform
 
if certain criteria
 
are met, for
 
a limited period
 
of time to
 
ease the potential
 
burden in accounting
 
for (or
recognizing the
 
effects of)
 
reference rate
 
reform on
 
financial reporting.
 
The ASU is
 
effective as
 
of March
 
12, 2020
 
through
 
37
 
December 31, 2022.
 
We will evaluate
 
transactions or contract
 
modifications occurring as
 
a result of
 
reference rate reform
 
and
determine whether to apply the optional guidance on an ongoing basis.
 
 
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 and
 
Canadian Dollar.
 
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, 2020: (1) Term
 
Loans
and Revolving Loan which bear
 
a variable interest rate; (2)
 
foreign currency purchases in
 
which the Company purchases Mexican
Pesos or
 
Canadian Dollars
 
with United
 
States dollars
 
to meet
 
certain obligations
 
that arise
 
due to
 
operations at
 
the facilities
located in Mexico or Canada; 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 Revolving Loan 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 or
 
Canadian Dollar
 
exchange rates,
 
the
Company would be impacted by an increase in operating costs, which would
 
have an adverse effect on operating margins.
 
 
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.
 
 
38
 
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
 
 
Opinion on the Financial Statements
 
 
We have
 
audited the
 
accompanying consolidated
 
balance sheets
 
of Core
 
Molding Technologies,
 
Inc. and
 
Subsidiaries (the
"Company") as
 
of December
 
31, 2020
 
and 2019,
 
the related
 
consolidated statements
 
of operations,
 
comprehensive income,
stockholders’
 
equity, and cash flows for each of the three years in the period ended December 31, 2020, and the
 
related notes and
Schedule II (collectively
 
referred to as
 
the "financial statements").
 
In our opinion,
 
the financial statements
 
present fairly, in
 
all
material respects, the financial position of the Company as of December
 
31, 2020 and 2019, and the results of its operations and
its cash
 
flows for
 
each of
 
the three
 
years in
 
the period
 
ended December
 
31, 2020,
 
in conformity
 
with accounting
 
principles
generally accepted in the United States of America.
 
 
Basis for Opinion
 
 
These financial statements
 
are the responsibility
 
of the Company's
 
management. Our responsibility
 
is to express
 
an opinion on
the Company's financial
 
statements 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
audit to obtain
 
reasonable assurance about
 
whether the financial
 
statements are
 
free of material
 
misstatement, whether due
 
to
error or fraud. The
 
Company is not required
 
to have, nor were
 
we engaged to perform,
 
an audit of its
 
internal control over financial
reporting.
 
As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an
 
opinion on the effectiveness of
 
the Company's internal control over financial
 
reporting. Accordingly,
we express no such opinion.
 
 
 
Our audits 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. We believe that our audits provide a reasonable basis for our
 
opinion.
 
 
Critical Audit Matters
 
 
Critical audit matters
 
are matters
 
arising from the
 
current period
 
audit of the
 
financial statements that
 
were communicated
 
or
required to be communicated to
 
the audit committee and that:
 
(1) relate to accounts or
 
disclosures that are material to
 
the financial
statements and
 
(2) involved
 
our especially
 
challenging, subjective,
 
or complex
 
judgments.
 
We determined
 
that there
 
are no
critical audit matters.
 
 
 
 
 
/s/ Crowe LLP
 
 
We have served as the Company's auditor since 2009.
 
 
Columbus, Ohio
 
March
 
11,
 
2021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
 
Core Molding Technologies, Inc. and Subsidiaries
 
Consolidated Statements of Operations
 
 
 
Years
 
Ended December 31,
2020
2019
2018
Net sales
$
222,356,000
$
284,290,000
$
269,485,000
Total
 
cost of sales
187,882,000
262,784,000
242,344,000
Gross margin
34,474,000
21,506,000
27,141,000
Selling, general and administrative expense
24,084,000
28,934,000
27,838,000
Goodwill impairment
—
4,100,000
2,403,000
Total
 
expenses
24,084,000
33,034,000
30,241,000
Operating income (loss)
10,390,000
(11,528,000)
(3,100,000)
Other income and expense
Net periodic post-retirement benefit
(80,000)
(94,000)
(48,000)
Net interest expense
5,923,000
4,144,000
2,394,000
Total
 
other income and expense
5,843,000
4,050,000
2,346,000
Income (loss) before income taxes
4,547,000
(15,578,000)
(5,446,000)
Income taxes:
Current
(5,713,000)
705,000
1,048,000
Deferred
2,095,000
(1,060,000)
(1,712,000)
Total
 
income taxes
(3,618,000)
(355,000)
(664,000)
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Net income (loss) per common share:
Basic
$
0.98
$
(1.94)
$
(0.62)
Diluted
$
0.98
$
(1.94)
$
(0.62)
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
 
Core Molding Technologies, Inc. and Subsidiaries
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
Years
 
Ended December 31,
2020
2019
2018
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Other comprehensive income (loss):
Foreign currency hedging derivatives:
Unrealized hedge gain (loss)
(452,000)
1,202,000
(452,000)
Income tax benefit (expense)
98,000
(286,000)
87,000
Interest rate hedging derivatives:
Unrealized benefit (loss)
705,000
(641,000)
(65,000)
Income tax benefit (expense)
(160,000)
146,000
15,000
Post retirement benefit plan adjustments:
Net actuarial gain (loss)
283,000
(985,000)
1,081,000
Prior service costs
(496,000)
(496,000)
(496,000)
Income tax benefit (expense)
27,000
313,000
(123,000)
Comprehensive income (loss)
$
8,170,000
$
(15,970,000)
$
(4,735,000)
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
 
Core Molding Technologies, Inc. and Subsidiaries
 
Consolidated Balance Sheets
 
December 31,
2020
2019
Assets:
Current assets:
Cash and cash equivalents
$
4,131,000
$
1,856,000
Accounts receivable, net
27,584,000
32,424,000
Inventories:
Raw materials and components
11,640,000
13,041,000
Work in process
1,679,000
1,818,000
Finished goods
5,041,000
6,823,000
Total inventories, net
18,360,000
21,682,000
Contract assets
554,000
888,000
Income tax receivable
2,026,000
653,000
Prepaid expenses and other current assets
3,823,000
3,721,000
Total current assets
56,478,000
61,225,000
Right of use asset
2,754,000
4,484,000
Property, plant and equipment,
 
net
74,052,000
79,206,000
Deferred tax asset
929,000
2,026,000
Goodwill
17,376,000
17,376,000
Intangibles, net
11,516,000
13,464,000
Other non-current assets
2,403,000
1,525,000
Total
 
Assets
$
165,508,000
$
179,306,000
Liabilities and Stockholders’ Equity:
Liabilities:
Current liabilities:
Current portion of long-term debt
$
2,535,000
$
37,443,000
Current portion of revolving debt
420,000
12,008,000
Accounts payable
16,994,000
19,910,000
Taxes payable
2,613,000
331,000
Contract liabilities
1,319,000
3,698,000
Current portion of post retirement benefits liability
1,286,000
1,233,000
Accrued liabilities:
Compensation and related benefits
8,305,000
5,515,000
Other
2,523,000
4,027,000
Total current liabilities
35,995,000
83,834,000
Other non-current liabilities
2,560,000
3,119,000
Long-term debt
25,198,000
—
Post retirement benefits liability
7,823,000
7,927,000
Total
 
Liabilities
71,576,000
94,880,000
Commitments and Contingencies
—
—
Stockholders’ Equity:
Preferred stock — $
0.01
 
par value, authorized shares -
10,000,000
;
no
 
shares
 
outstanding at
December 31, 2020 and December 31, 2019
—
—
Common stock — $
0.01
 
par value, authorized shares -
20,000,000
; outstanding
 
shares:
7,980,516
 
at December 31, 2020 and
7,877,945
 
at December 31, 2019
80,000
79,000
Paid-in capital
36,127,000
34,772,000
Accumulated other comprehensive income, net of income taxes
1,375,000
1,370,000
Treasury stock — at cost,
3,810,929
 
shares at December 31, 2020 and
 
3,806,355
 
shares at
December 31, 2019
(28,521,000)
(28,501,000)
Retained earnings
84,871,000
76,706,000
Total
 
Stockholders’ Equity
93,932,000
84,426,000
Total
 
Liabilities and Stockholders’ Equity
$
165,508,000
$
179,306,000
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
 
Core Molding Technologies, Inc. and Subsidiaries
 
Consolidated Statement of Stockholders’
 
Equity
 
 
 
Accumulated
Common Stock
Other
Total
Outstanding
Paid-In
Comprehensive
Treasury
Retained
Stockholders’
Shares
Amount
Capital
Income
Stock
Earnings
Equity
Balance at January 1, 2018
7,711,277
$
77,000
$
31,465,000
$
2,070,000
$
(28,153,000)
$
97,503,000
$
102,962,000
Net loss
(4,782,000)
(4,782,000)
Cash dividends paid
(792,000)
(792,000)
Change in post retirement
benefits, net of tax of
 
$
123,000
462,000
462,000
Unrealized foreign
currency hedge loss, net of
tax benefit of $
87,000
(365,000)
(365,000)
Change in interest rate
swaps, net of tax benefit of
$
15,000
(50,000)
(50,000)
Purchase of treasury stock
(17,180)
(250,000)
(250,000)
Restricted stock vested
82,067
1,000
1,000
Share-based compensation
1,743,000
1,743,000
Balance at December 31,
2018
7,776,164
$
78,000
$
33,208,000
$
2,117,000
$
(28,403,000)
$
91,929,000
$
98,929,000
Net loss
(15,223,000)
(15,223,000)
Change in post retirement
 
benefits, net of tax benefit
of $
313,000
(1,168,000)
(1,168,000)
Unrealized foreign
currency hedge gain, net of
tax of $
286,000
916,000
916,000
Change in interest rate
swaps, net of tax benefit of
$
146,000
(495,000)
(495,000)
Purchase of treasury stock
(16,047)
(98,000)
(98,000)
Restricted stock vested
117,828
1,000
1,000
Share-based compensation
1,564,000
1,564,000
Balance at December 31,
2019
7,877,945
$
79,000
$
34,772,000
$
1,370,000
$
(28,501,000)
$
76,706,000
$
84,426,000
Net income
8,165,000
8,165,000
Change in post retirement
benefits, net of tax benefit
of $
27,000
(186,000)
(186,000)
Unrealized foreign
currency hedge loss net of
tax benefit of $
98,000
(354,000)
(354,000)
Change in interest rate
swaps, net of tax expense
of $
160,000
545,000
545,000
Purchase of treasury stock
(4,574)
(20,000)
(20,000)
Restricted stock vested
107,145
1,000
1,000
Share-based compensation
1,355,000
1,355,000
Balance at December 31,
2020
7,980,516
$
80,000
$
36,127,000
$
1,375,000
$
(28,521,000)
$
84,871,000
$
93,932,000
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
Core Molding Technologies, Inc. and Subsidiaries
 
Consolidated Statements of Cash Flows
 
 
 
Years
 
Ended
2020
2019
2018
Cash flows from operating activities:
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Adjustments to reconcile net income (loss) to net cash (used
 
in)
 
provided by operating activities:
Depreciation and amortization
11,662,000
10,376,000
9,384,000
Deferred income taxes
1,097,000
(873,000)
(1,739,000)
Goodwill impairment
—
4,100,000
2,403,000
Mark-to-market of interest rate swap
—
67,000
159,000
Share-based compensation
1,355,000
1,564,000
1,743,000
Loss on foreign currency
237,000
33,000
5,000
Change in operating assets and liabilities, net of effects of
 
acquisition:
Accounts receivable
4,840,000
13,044,000
(17,945,000)
Inventories
3,322,000
4,083,000
(5,783,000)
Prepaid and other assets
(2,018,000)
2,587,000
(528,000)
Accounts payable
(3,142,000)
(4,849,000)
7,822,000
Accrued and other liabilities
2,910,000
3,420,000
3,122,000
Post retirement benefits liability
(264,000)
(1,628,000)
(389,000)
Net cash (used in) provided by operating activities
28,164,000
16,701,000
(6,528,000)
Cash flows from investing activities:
Purchase of property, plant
 
and equipment
(3,683,000)
(7,460,000)
(5,801,000)
Purchase of assets of Horizon Plastics
—
—
(63,005,000)
Net cash used in investing activities
(3,683,000)
(7,460,000)
(68,806,000)
Cash flows from financing activities:
Gross borrowings on revolving loans
56,793,000
194,414,000
133,848,000
Gross repayment on revolving loans
(68,381,000)
(199,782,000)
(116,473,000)
Proceeds from term loan
30,165,000
—
45,000,000
Payment of principal of term loan
(38,725,000)
(3,375,000)
(10,125,000)
Payment of deferred loan costs
(2,038,000)
(435,000)
(763,000)
Payments related to the purchase of treasury stock
(20,000)
(98,000)
(250,000)
Cash dividends paid
—
—
(792,000)
Net cash (used in) provided by financing activities
(22,206,000)
(9,276,000)
50,445,000
Net change in cash and cash equivalents
2,275,000
(35,000)
(24,889,000)
Cash and cash equivalents at beginning of year
1,856,000
1,891,000
26,780,000
Cash and cash equivalents at end of year
$
4,131,000
$
1,856,000
$
1,891,000
Cash paid for:
Interest (net of amounts capitalized)
$
3,854,000
$
3,869,000
$
2,261,000
Income taxes
$
570,000
$
1,284,000
$
1,033,000
Non Cash:
Fixed asset purchases in accounts payable
$
147,000
$
158,000
$
871,000
See notes to consolidated financial statements.
 
 
44
 
Core Molding Technologies, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements
 
 
1. Basis of Presentation
 
 
Core Molding
 
Technologies and
 
its subsidiaries
 
operate in
 
the composites
 
market as
one
 
operating segment
 
as a
 
molder of
thermoplastic and thermoset
 
structural products. The
 
Company's operating segment
 
consists of
two
 
component reporting units,
Core Traditional and
 
Horizon Plastics. The
 
Company offers customers
 
a wide range
 
of manufacturing processes
 
to fit various
program volume and
 
investment requirements.
 
These processes include
 
compression molding
 
of sheet molding
compound("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
 
structural web injection
 
molding ("SIM").
 
Core Molding Technologies
 
serves a wide
 
variety of markets,
including the medium and heavy-duty truck, marine, automotive, agriculture,
 
construction, and other commercial products.
 
 
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, progress billings for
 
tooling, goodwill and long-
lived assets.
 
Actual results could
 
differ from those
 
estimates
, due to
 
the uncertainty around
 
the magnitude and
 
duration of the
COVID-19 pandemic, as well as other factors.
 
 
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.
 
 
 
 
 
 
 
45
 
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 three
 
banks in
 
3 separate
 
jurisdictions. The
 
Company had
$
4,131,000
 
cash on hand at December 31, 2020 and had $
1,856,000
 
cash on hand at December
 
31, 2019.
 
 
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
 
a $
41,000
 
allowance for doubtful
 
accounts is needed
 
at December
 
31, 2020 and
 
$
50,000
 
at December 31,
2019.
 
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 $
179,000
 
at December 31,
2020 and $
476,000
 
at December
 
31, 2019.
 
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
 
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 $
546,000
 
at December 31, 2020 and $
898,000
 
at December
 
31, 2019.
 
 
Contract Assets/Liabilities
-
 
Contract assets and liabilities represent the net cumulative customer billings, vendor payments and
revenue recognized
 
for tooling
 
programs. For
 
tooling programs
 
where net
 
revenue recognized
 
and vendor
 
payments exceed
customer billings, the
 
Company recognizes a
 
contract asset. For
 
tooling programs where
 
net customer billings
 
exceed revenue
recognized and vendor payments, the Company recognizes a contract liability. Customer payment
 
terms vary by contract and can
range from progress payments
 
based on work performed
 
or one single payment
 
once the contract is
 
completed. Contract assets
are generally classified as current. During the
 
years ended December
 
31, 2020 and December
 
31, 2019, the Company recognized
no impairments
 
on contract
 
assets. Contract
 
liabilities are
 
also generally
 
classified as
 
current. The
 
Company recognized
$
6,828,000
 
at December 31,
 
2020 and $
1,240,000
 
at December
 
31, 2019,
 
corresponding with revenue
 
from contract liabilities
related to jobs outstanding as of December 31, 2019
 
and December 31, 2018, respectively.
 
 
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
3
 
-
15
 
years
Tools, dies and patterns
3
 
-
5
 
years
 
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, 2020,
 
2019 and 2018.
 
 
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 each reporting unit. As
 
a result of the Horizon Plastics
 
acquisition on January
 
16, 2018
and the status of its integration, the Company established two reporting
 
units, Core Traditional and Horizon Plastics.
 
 
46
 
 
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
 
any reporting unit in
 
any period.
The Company may resume the qualitative assessment for any
 
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 a
 
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 any
 
reporting unit, or
 
if a qualitative
 
assessment indicates it
 
is more-likely-than
 
-not that the
 
estimated carrying
value of a reporting unit exceeds its fair value, the Company proceeds
 
to a quantitative approach.
 
 
The company performed a
 
qualitative analysis for the year
 
end December 31, 2020
 
and determined there was no
 
impairment of
the Company’s goodwill.
 
 
 
Due to the Company's financial performance and depressed stock price,
 
the Company performed a quantitative analysis for both
of its reporting units at
 
September
 
30, 2019. During 2019, the
 
Company incurred a loss of
 
margin in its Horizon Plastics
 
reporting
unit caused by selling price decreases that the Company
 
has not been able to fully offset
 
with material cost reductions. As
 
a result
of the quantitative analysis,
 
the Company concluded that
 
the carrying value of
 
Horizon Plastics was greater
 
than the fair value,
which resulted in a
 
goodwill impairment charge
 
of
 
$
4,100,000
 
at September
 
30, 2019 representing
 
19
%
 
of the goodwill related
to the Horizon
 
Plastics reporting
 
unit. The company
 
performed a
 
qualitative assessment
 
at December
 
31, 2019,
 
indicating no
additional goodwill impairment related to the Horizon Plastics
 
reporting unit.
 
 
The Company’s annual impairment assessment at December
 
31, 2018 consisted of
 
a quantitative analysis for both
 
reporting units.
It concluded that the carrying value of Core
 
Traditional was greater than the fair value, which resulted
 
in a goodwill impairment
charge of $
2,403,000
, representing all the goodwill related to the Core Traditional reporting unit. The analysis of the Company’s
other reporting unit,
 
Horizon Plastics, indicated
 
no goodwill impairment
 
charge, based on
 
historical performance and
 
financial
projections at that time, as the excess of the estimated fair
 
value over the carrying value of its invested capital was approximately
23
% of the book value of its net assets.
 
 
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 - Income Taxes
.
 
 
Self-Insurance
- The Company is self
 
-insured with respect
 
to Columbus and Batavia,
 
Ohio; Gaffney, South Carolina;
 
Winona,
Minnesota and
 
Brownsville, Texas
 
for medical,
 
dental and
 
vision claims
 
and Columbus
 
and Batavia,
 
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,
2020 and December
 
31, 2019 of $
933,000
 
and $
1,203,000
, 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 -
 
Post
Retirement Benefits
.
 
Core Molding
 
Technologies had
 
a liability
 
for post
 
retirement healthcare
 
benefits based
 
on actuarially
computed estimates of $
9,109,000
 
at December
 
31, 2020 and $
9,160,000
 
at December
 
31, 2019.
 
 
 
47
 
Fair Value of Financial Instruments
- The Company's financial instruments consist of long-term debt, revolving loans, 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 - Fair Value of Financial Instruments.
 
 
Concentration Risks
 
- The Company has concentration risk related to significant amounts of sales and accounts receivable with
certain customers.
 
The Company had five major customers during the year end December
 
31, 2020,
Navistar, Volvo, PACCAR,
BRP and UFP
.
 
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. Sales
 
to five major
 
customers comprised
70
%,
70
% and
70
% of total sales
 
in 2020, 2019 and
 
2018, respectively (see
Note 4 - Major
 
Customers
).
 
Concentrations of accounts
receivable balances with
 
five customers accounted
 
for
64
% and
56
% of accounts
 
receivable at
 
December
 
31, 2020
 
and 2019,
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 all customers' manufacturing and
 
service locations in Mexico and
 
Canada totaled
35
%,
34
% and
32
% of total sales for 2020,
2019 and 2018, respectively.
 
 
As of December 31,
 
2020, the Company employed
 
a total of
1,617
 
employees, which consisted of
679
 
employees in its United
States operations,
722
 
employees in
 
its Mexican
 
operations and
216
 
employees in
 
its Canadian
 
operation.
 
Of these
1,617
employees,
518
 
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 7, 2022,
534
 
employees at
the Company
 
’s Matamoros,
 
Mexico facility
 
are covered
 
by a collective
 
bargaining agreement
 
with Sindicato de
 
Jorneleros y
Obreros, which
 
extends to
 
January 21,
 
2022,
191
 
employees at
 
the Company's
 
Cobourg, Canada
 
facility are
 
covered by
 
a
collective bargaining agreement
 
with United Food
 
& Commercial Workers
 
Canada ("UFCW"), which
 
extends to November
 
1,
2021, and
73
 
employees at
 
the Company's
 
Escobedo, Mexico
 
facility are
 
covered by
 
a collective
 
bargaining agreement
 
with
Sindicato de
 
trabajadores de
 
la industria metalica
 
y del comercio
 
del estado
 
de Nuevo
 
Leon Presidente
 
Benito Juarez
 
Garcia
C.T.M., which
 
extends to
 
February 1,
 
2021. The
 
Company is
 
currently negotiating
 
an extension
 
to the
 
Escobedo, Mexico
collective bargaining agreement.
 
 
 
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. The Company's
restricted shares are
 
entitled to receive
 
dividends and voting
 
rights applicable to
 
the Company's common
 
stock, irrespective of
any vesting requirement. The
 
restricted shares are considered
 
a participating security and
 
the Company is required
 
to apply the
two-class method
 
to consider
 
the impact of
 
the restricted
 
shares on
 
the calculation
 
of basic
 
and diluted
 
earnings per
 
share. A
detailed computation of earnings per share is located in
Note 3 - Net Income (Loss) per Common Share
.
 
 
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
$
1,168,000
, $
1,171,000
 
and $
1,032,000
 
in 2020, 2019 and 2018.
 
 
Foreign Currency Adjustments
 
- The functional currency for the Mexican and Canadian 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 an expense
 
of $
214,000
, $
229,000
 
and $
88,000
 
in 2020, 2019
 
and 2018,
respectively.
 
 
 
48
 
COVID-19
 
- In December
 
2019, COVID-19 surfaced
 
and spread around
 
the world resulting
 
in business and
 
social disruption.
COVID-19 was declared a Public Health
 
Emergency of International Concern by the World
 
Health Organization on January 30,
2020. The extent to
 
which the coronavirus
 
could impact the
 
Company’s business
 
activity will depend
 
on future developments,
which are highly
 
uncertain and
 
cannot be predicted.
 
Factors include, new
 
information concerning
 
the severity of
 
COVID-19,
rollout plan for the COVID-19 vaccine, and the effectiveness of a
 
vaccine.
 
 
Recent Accounting Pronouncements
 
Current expected credit loss (CECL)
 
In June 2016, the
 
FASB issued ASU
2016-13
, “Financial Instruments-Credit Losses,”
 
which changes the impairment model
 
for
most financial assets
 
and certain other
 
instruments. For trade
 
and other receivables,
 
held-to-maturity debt securities,
 
loans and
other instruments, entities will
 
be required to use
 
a new forward-looking “expected loss”
 
model that will replace
 
today’s “incurred
loss” model and generally will result in
 
the earlier recognition of allowances for losses. For available-for-sale
 
debt securities with
unrealized losses,
 
entities will
 
measure credit
 
losses in
 
a manner
 
similar to
 
current practice,
 
except that
 
the losses
 
will be
recognized as an allowance.
 
Subsequent to issuing ASU 2016
 
-13, the FASB issued
 
ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments
 
- Credit Losses,” for
 
the purpose of clarifying
 
certain aspects of ASU 2016
 
-13. ASU 2018-
19 has
 
the same
 
effective date
 
and transition
 
requirements as
 
ASU 2016
 
-13. In
 
April 201
 
9, the
 
FASB issued
 
ASU 2019
 
-04,
“Codification Improvements to Topic 326, Financial Instruments - Credit
 
Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments,
 
”
 
which is effective
 
with the adoption
 
of ASU 2016-13. In
 
May 2019, the
 
FASB issued ASU 2019-
05, “Financial Instruments
 
- Credit Losses (Topic
 
326),” which is also
 
effective with the adoption
 
of ASU 2016-13. In October
2019, the FASB voted to delay the implementation date for certain companies, including those that qualify as a smaller reporting
company under SEC
 
rules, until January
 
1, 2023, with
 
revised ASU’s expected
 
to be issued
 
in November 2019.
 
We will adopt
this ASU on its effective
 
date of January
 
1, 2023. We
do not expect the adoption of this ASU to have a material impact
 
on our
consolidated financial position, results of operations, cash flows, or
 
presentation thereof.
 
 
Simplifying the Accounting for Income Taxes
 
In December 2019, the FASB issued
 
ASU
2019-12
, Income Taxes –
 
Simplifying the Accounting for Income
 
Taxes. This guidance
is intended to
 
simplify various aspects
 
of income tax
 
accounting including the
 
elimination of certain
 
exceptions related
 
to the
approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of
deferred tax
 
liabilities for
 
outside basis
 
differences. The
 
new guidance also
 
simplifies aspects
 
of the accounting
 
for franchise
taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis
of goodwill. The Company adopted
 
the new standard effective
January 1, 2020
 
during the third quarter with
no material impact
on our consolidated financial statements. Adoption of this guidance requires certain changes to primarily be made prospectively,
with some changes to be made retrospectively.
 
 
Facilitation of the Effects of Reference Rate Reform
 
In March 2020, the FASB issued ASU No.
2020-04
, Facilitation of the Effects of Reference Rate Reform on Financial Reporting
(Topic 848).
 
The ASU provides
 
optional expedients
 
and exceptions
 
for applying
 
GAAP to transactions
 
affected by
 
reference
rate(e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential
 
burden in accounting for (or
recognizing the
 
effects of)
 
reference rate
 
reform on
 
financial reporting.
 
The ASU is
 
effective as
 
of
March 12, 2020
 
through
December 31, 2022.
 
We will evaluate
 
transactions or contract
 
modifications occurring as
 
a result of
 
reference rate reform
 
and
determine whether to apply the optional guidance on an ongoing basis.
 
 
3. Net Income (Loss) per Common Share
 
 
Net income (loss) per common share
 
is computed based on the weighted
 
average number of common shares
 
outstanding during
the period. Diluted net income (loss) 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 Company's restricted shares
 
are entitled to receive dividends
 
and voting rights applicable
 
to the Company's common
 
stock,
irrespective of
 
any vesting
 
requirement.
 
Accordingly, the
 
restricted shares
 
are considered
 
a participating
 
security and
 
the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
 
Company is required to apply the two-class method to consider the impact of the restricted shares on the calculation of basic and
diluted earnings per share.
 
 
 
The computation of basic and diluted net income (loss) per common share
 
is as follows:
 
 
 
December 31,
2020
2019
2018
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Less: net income allocated to participating securities
424,000
—
—
Net income (loss) available to common shareholders
$
7,741,000
$
(15,223,000)
$
(4,782,000)
Weighted average common
 
shares outstanding — basic
7,936,000
7,830,000
7,750,000
Effect of dilutive securities
3,000
—
—
Weighted average common
 
and potentially issuable
 
 
common shares outstanding — diluted
7,939,000
7,830,000
7,750,000
Basic net income (loss) per common share
$
0.98
$
(1.94)
$
(0.62)
Diluted net income (loss) per common share
$
0.98
$
(1.94)
$
(0.62)
 
The computation of basic and diluted net income per participating shares
 
is as follows:
 
 
 
 
 
December 31,
2020
2019
2018
Net income allocated to participating securities
$
424,000
—
—
Weighted average participating
 
shares outstanding — basic
434,000
300,000
216,000
Effect of dilutive securities
—
—
—
Weighted average participating
 
and potentially issuable
 
 
participating shares outstanding — diluted
434,000
300,000
216,000
Basic net income per participating share
$
0.98
$
—
$
—
Diluted net income per participating share
$
0.98
$
—
$
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
 
4. Major Customers
 
 
The Company had five major customers during the year ended December 31,
 
2020, Navistar, Inc. (“Navistar ”), Universal Forest
Products, Inc.
 
(“UFP”), PACCAR,
 
Inc. (“PACCAR
 
”), Volvo
 
Group North
 
America, LLC
 
(“Volvo”), and
 
BRP, Inc.
 
(“BRP”).
Major customers are
 
defined as customers
 
whose sales individually
 
consist of more
 
than ten per
 
cent of total
 
sales during any
annual or interim reporting
 
period in the
 
current year. The loss
 
of a significant portion
 
of sales to these
 
customers could 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:
 
 
 
2020
2019
2018
Navistar product sales
$
33,656,000
$
54,798,000
$
52,347,000
Navistar tooling sales
6,569,000
2,084,000
2,806,000
Total Navistar sales
40,225,000
56,882,000
55,153,000
UFP product sales
38,530,000
25,395,000
27,906,000
UFP tooling sales
—
—
240,000
Total UFP sales
38,530,000
25,395,000
28,146,000
PACCAR product
 
sales
27,997,000
44,543,000
38,027,000
PACCAR tooling
 
sales
507,000
1,525,000
6,425,000
Total PACCAR
 
sales
28,504,000
46,068,000
44,452,000
Volvo
 
product sales
23,538,000
48,487,000
46,063,000
Volvo
 
tooling sales
2,186,000
262,000
97,000
Total Volvo
 
sales
25,724,000
48,749,000
46,160,000
BRP product sales
20,269,000
16,774,000
13,629,000
BRP tooling sales
1,662,000
4,208,000
2,169,000
Total BRP sales
21,931,000
20,982,000
15,798,000
Other product sales
66,590,000
78,990,000
78,245,000
Other tooling sales
852,000
7,224,000
1,531,000
Total other sales
67,442,000
86,214,000
79,776,000
Total product sales
210,580,000
268,987,000
256,217,000
Total tooling sales
11,776,000
15,303,000
13,268,000
Total sales
$
222,356,000
$
284,290,000
$
269,485,000
 
5. Foreign Operations
 
 
Primarily 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:
 
 
 
2020
2019
2018
United States
$
136,424,000
$
178,953,000
$
181,207,000
Mexico
64,942,000
79,761,000
74,029,000
Canada
16,827,000
16,988,000
12,494,000
Other
4,163,000
8,588,000
1,755,000
Total
$
222,356,000
$
284,290,000
$
269,485,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
 
The following table provides information related to the location of property,
 
plant and equipment, net, as of December
 
31:
 
 
 
2020
2019
United States
$
36,698,000
$
39,132,000
Mexico
29,537,000
31,865,000
Canada
7,817,000
8,209,000
Total
$
74,052,000
$
79,206,000
 
6. Property, Plant, and Equipment
 
 
Property, plant, and equipment consisted of the following at December
 
31:
 
 
 
2020
2019
Land and land improvements
$
6,009,000
$
6,009,000
Buildings
43,545,000
43,375,000
Machinery and equipment
121,382,000
118,366,000
Tools, dies, and patterns
2,195,000
1,516,000
Additions in progress
1,422,000
1,615,000
Total
174,553,000
170,881,000
Less accumulated depreciation
(100,501,000)
(91,675,000)
Property, plant and equipment,
 
net
$
74,052,000
$
79,206,000
 
Additions in progress
 
at December
 
31, 2020 and
 
2019 relate to
 
building improvements and
 
equipment purchases that
 
were not
yet completed and placed in service at year end.
 
At December
 
31, 2020, commitments for capital expenditures in progress were
$
677,000
 
and included $
145,000
 
recorded on the
 
balance sheet in accounts
 
payable.
 
At December
 
31, 2019, commitments
 
for
capital expenditures
 
in progress
 
were $
336,000
, and
 
included $
158,000
 
recorded on
 
the balance
 
sheet in
 
accounts payable.
 
Depreciation expense
 
was $
8,659,000
, $
8,187,000
 
and $
7,361,000
 
for the
 
years ended
 
December
 
31, 2020,
 
2019 and
 
2018,
respectively.
 
 
7. Leases
 
 
The Company has operating
 
leases with fixed payment
 
terms primarily associated with
 
buildings and warehouses. The
 
Company's
leases have
 
remaining lease
 
terms of
 
less than
 
one year
s to
 
four years
, some
 
of which
 
include options
 
to extend
 
the lease
for
 
five years
. Operating leases are included
 
in Right-of-use ("ROU") assets and
Other accrued liabilities
 
and
Other non-current
liabilities
 
on the Consolidated
 
Balance Sheets. ROU
 
assets represent the right
 
to use an underlying
 
asset for the lease
 
term and
lease liabilities represent the obligation to make lease payments arising
 
from the lease.
 
 
The Company used the applicable incremental
 
borrowing rate at implementation date to measure
 
lease liabilities and ROU assets.
The incremental borrowing rate used by
 
the Company was based on baseline rates
 
and adjusted by the credit spreads
commensurate with
 
the Company
 
’s secured
 
borrowing rate.
 
At each
 
reporting period
 
when there is
 
a new lease
 
initiated, the
Company will utilize
 
its incremental borrowing
 
rate to perform
 
lease classification
 
tests on
 
lease components and
 
to measure
ROU assets and lease liabilities.
 
 
The following table provides information related to the components of
 
lease expense as of December 31:
 
 
 
2020
2019
Operating lease cost
$
1,430,000
$
1,430,000
Total net lease cost
$
1,430,000
$
1,430,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
 
The following table provides
 
information related to other
 
supplemental balance sheet information
 
related to leases as
 
of December
31:
 
 
 
2020
2019
Operating lease:
Operating lease right of use assets
$
2,754,000
$
4,484,000
Total operating lease right of
 
use assets
$
2,754,000
$
4,484,000
 
Current operating lease liabilities
(A)
$
1,023,000
$
1,304,000
Noncurrent operating lease liabilities
(B)
1,670,000
3,119,000
Total operating lease liabilities
$
2,693,000
$
4,423,000
 
(A)
 
Current operating lease liability included in "Other Current Accrued Liabilities" on the Consolidated
 
Balance Sheet
.
 
(B)
 
Noncurrent operating lease liability included in "Other Non
 
-Current Liabilities" on the Consolidated Balance Sheet.
 
 
 
 
 
Weighted average remaining
 
lease term (in years):
Operating leases
3.5
4.0
 
Weighted average discount
 
rate:
Operating lease
5.9
%
4.9
%
Other information related to leases as of December 31:
 
 
 
2020
2019
Cash Paid for amounts included in the measurement of
 
lease liabilities
Operating cash flow from operating leases
(C)
$
1,455,000
$
1,455,000
 
 
(C)
Cash flow from operating lease included in "Prepaid and other assets"
 
on the Consolidated Statements of Cash Flows.
 
 
As of December
 
31, 2020, maturities of lease liabilities were as follows:
 
 
 
Operating Leases
2021
$
1,215,000
2022
811,000
2023
706,000
2024
705,000
2025
—
Total lease payments
3,437,000
Less: imputed interest
(744,000)
Total lease obligations
2,693,000
Less: current obligations
(1,023,000)
Long-term lease obligations
$
1,670,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
 
As of December
 
31, 2019, maturities of lease liabilities were as follows:
 
 
 
Operating Leases
2020
$
1,433,000
2021
1,174,000
2022
1,102,000
2023
1,000,000
2024
530,000
Total lease payments
5,239,000
Less: imputed interest
(816,000)
Total lease obligations
4,423,000
Less: current obligations
(1,304,000)
Long-term lease obligation
$
3,119,000
 
8. Goodwill and Intangibles
 
 
Goodwill activity for the year ended December
 
31, 2020 and December
 
31, 2019 consisted of the following:
 
 
 
2020
2019
Balance at beginning of year
$
17,376,000
$
21,476,000
Additions
—
—
Impairment
—
(4,100,000)
Balance at end of year
$
17,376,000
$
17,376,000
 
Intangible assets at December
 
31, 2020 were comprised of the following:
 
 
 
Definite-lived Intangible Assets
Amortization Period
Gross Carrying
 
Amount
Accumulated
 
Amortization
Net Carrying
 
Amount
Trade Name
25 Years
$
250,000
$
(58,000)
$
192,000
Trademarks
10 Years
1,610,000
(476,000)
1,134,000
Non-competition Agreement
5 Years
1,810,000
(1,071,000)
739,000
Developed Technology
7 Years
4,420,000
(1,869,000)
2,551,000
Customer Relationships
10
-
12
 
Years
9,330,000
(2,430,000)
6,900,000
Total
$
17,420,000
$
(5,904,000)
$
11,516,000
 
Intangible assets at December
 
31, 2019 were comprised of the following:
 
 
 
Definite-lived Intangible Assets
Amortization Period
Gross Carrying
 
Amount
Accumulated
 
Amortization
Net Carrying
 
Amount
Trade Name
25 Years
$
250,000
$
(48,000)
$
202,000
Trademarks
10 Years
1,610,000
(315,000)
1,295,000
Non-competition Agreement
5 Years
1,810,000
(709,000)
1,101,000
Developed Technology
7 Years
4,420,000
(1,237,000)
3,183,000
Customer Relationships
10
-
12
 
Years
9,330,000
(1,647,000)
7,683,000
Total
$
17,420,000
$
(3,956,000)
$
13,464,000
 
 
The Company incurred
 
$
1,948,000
, $
1,949,000
 
and $
1,869,000
 
amortization expense for
 
the years ended
 
December
 
31, 2020,
2019, and 2018, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
 
As of December
 
31, 2020, future intangible amortization was follows:
 
 
 
Amortization Expense
2021
$
1,949,000
2022
1,949,000
2023
1,602,000
2024
1,587,000
2025
951,000
2026 and thereafter
3,478,000
Total intangibles as of December
 
31, 2020
$
11,516,000
 
9. Debt
 
 
Long-term debt consists of the following at:
 
 
 
December 31,
 
2020
December 31,
 
2019
Wells Fargo
 
term loans payable
$
16,390,000
$
—
FGI term loans payable
13,148,000
—
Leaf Capital term loan payable
152,000
—
KeyBank term loans payable
—
38,250,000
KeyBank revolving loan
—
12,008,000
Total
29,690,000
50,258,000
Less: deferred loan costs
(1,957,000)
(807,000)
Less: current portion
(2,535,000)
(49,451,000)
Long-term debt
$
25,198,000
$
—
 
Term Loans
 
 
Wells Fargo Term Loans
 
On October 27, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National
Association, as administrative agent, lead arranger and book runner, and the lenders party thereto (the “Lenders”). Pursuant to
the terms of the Credit Agreement, the Lenders made available to the Company secured term loans (the “WF Term Loans”) in
the maximum aggregate principal amount of $18,500,000 ($16,790,000 of which was advanced to the Company on October 28,
2020).
 
The proceeds
 
from the
 
WF Term Loans
 
were used
 
to pay
 
off the
 
Company’s existing
 
outstanding indebtedness
 
with
KeyBank National Association, and to pay certain fees and expenses associated with the financing.
 
 
At the option of the Company, the WF Term Loans bears interest at a per annum rate equal to LIBOR plus a margin of 300 basis
points or base rate plus a margin of 200 basis points. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per
annum published LIBOR rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater
of (a) 1.0% per annum, (b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis or (d) prime rate. The weighted
average interest rate was 3.77% as of December 31, 2020.
 
 
 
The WF Term Loans are to be repaid in monthly installments of $200,000 plus interest, with the remaining outstanding balance
due on November 30, 2024, subject to certain optional and mandatory repayment terms. The Company’s obligations under the
WF Term Loans are unconditionally guaranteed by each of the Company’s U.S. and Canadian subsidiaries, with such obligations
of the Company and such subsidiaries being secured by a lien on substantially all of their U.S. and Canadian assets.
 
 
 
The WF Term Loans contains reporting, indebtedness, and financial covenants.
 
The Company is in compliance with its covenants
as of December 31, 2020.
 
 
 
 
55
 
Voluntary prepayments of amounts outstanding under the WF Term Loans are permitted at any time without premium or penalty.
To the extent applicable, LIBOR breakage fees may be charged in connection with any prepayment.
 
 
FGI Equipment Finance LLC Term Loan
 
On October 20, 2020, the Company entered into a Master Security Agreement and a Promissory Note, among FGI Equipment
Finance LLC, (“FGI”) the Company as debtor, and each of Core Composites Corporation, a subsidiary of the Company organized
in Delaware, and CC HPM, S. de R.L. de C.V., a subsidiary of the Company organized in Mexico, as guarantors, a term loan in
the principal amount of $13,200,000 (the “FGI Term Loan”).
 
On October 27, 2020, FGI advanced to
 
the Company $
12,000,000
which proceeds were used to pay off the Company’s existing
 
outstanding indebtedness with KeyBank National Association, and
to pay certain
 
fees and expenses
 
associated with the
 
transactions, and $
1,200,000
 
which proceeds were used
 
to fund a
 
security
deposit to be held
 
by FGI.
Interest on the FGI Term Loan is a fixed rate of 8.25% and is payable monthly.
 
The Company notes
that the security deposit of $
1,200,000
 
is located in prepaid expenses and other current assets on the balance sheet.
 
 
Following the advance of funds by FGI, the FGI Term Loans are to be repaid in monthly principal and interest installments of
$117,000 for the first 12 months, $246,000 for the subsequent 59 months and $1,446,000 due on October 31, 2026, subject to
certain optional and mandatory repayment terms.
 
The Company’s
 
obligations under the Master Security
 
Agreement are secured
by certain machinery and equipment of the guarantors located in Mexico, and real property of Core composites de Mexico, S. de
R.L. de C.V., also a subsidiary of the Company organized in Mexico,
 
located in Matamoros, Mexico.
 
 
 
The Company may prepay in full or in part (but not less than the amount equal to 20% of the original principal amount of the
loan) outstanding amounts before they are due on any scheduled Payment Date upon at least thirty (30) days’ prior written notice.
The Company will pay a “Prepayment Fee” in an amount equal to an additional sum equal to the following percentage of the
principal amount to be prepaid for prepayments occurring in the indicated period: four percent (4.0%) (for prepayments occurring
prior to the first anniversary of the Loan); three percent (3.0%) (for prepayments occurring on and thereafter and prior to the
second anniversary of the Loan); two percent (2.0%) (for prepayments occurring on and thereafter and prior to the third
anniversary of the Loan ); and one percent (1.0%) (for prepayments occurring any time thereafter).
 
 
 
Leaf Capital Funding
 
On April 24, 2020 the Company entered into a finance agreement with Leaf Capital Funding of $175,000 for equipment. The
parties agreed to a fixed interest rate of 5.5% and a term of 60 months.
 
The amount
 
outstanding at
 
December 31,
 
2020 was
$
152,000
 
of which, $
120,000
 
was classified as long-term debt.
 
 
Revolving Loans
 
 
Wells Fargo Revolving Loan
 
On October 27, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National
Association, as administrative agent, lead arranger and book runner, and the lenders party thereto (the “Lenders”). Pursuant to
the terms of the Credit Agreement, the Lenders made available to the Company a revolving loan commitment (the “WF Revolving
Loan”) of $25,000,000 ($8,745,000 of which was advanced to the Company on October 28, 2020).
 
The proceeds from
 
the WF
Revolving Loan were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and
to pay certain fees and expenses associated with the financing.
 
 
The Credit Agreement also makes available to the Company an incremental revolving commitment in the maximum amount of
$10,000,000 at the Company’s option at any time during the three (3) year period following the closing.
 
 
The borrowing availability under the line of credit is the lesser of (a) the loan commitment of $25,000,000 or (b) the sum of 90%
of eligible investment grade accounts receivable, 85% of non-investment grade eligible accounts receivable and 65% of eligible
inventory.
 
 
 
At the option of the Company, the WF Revolving Loan bears interest at a per annum rate equal to LIBOR plus a margin of 200
to 250 basis points or base rate plus a margin of 100 to 150 basis points, with the margin rate being based on the excess availability
 
 
 
 
 
 
 
 
 
 
56
 
amount under the line of credit. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR
rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater of (a) 1.0% per annum,
(b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis and (d) prime rate. The weighted average interest rate was
4.75% as of December 31, 2020.
 
 
The WF Revolving Loan commitment terminates, and all outstanding borrowings thereunder must be repaid, by November 30,
2024.
 
The Company
 
has available
 
$
19,223,000
 
of available
 
rate revolving
 
loans of
 
which
 
$
420,000
 
is outstanding
 
as
of
 
December
 
31, 2020.
 
 
The WF Revolving Loan contains the same covenants as the WF Term Loans.
 
 
 
Wells Fargo Bank will issue up to $
2,000,000
 
of Letters of Credit in accordance with the terms of the Credit
 
Agreement upon the
Company’s request. As of December 31, 2020, the Company
 
had one Letter of Credit outstanding for $
160,000
.
 
 
 
In conjunction with the October debt refinancing, the Company incurred
 
debt origination fees of $
1,730,000
 
related to the Wells
Fargo financing,
 
which is
 
being amortized
 
over the
 
life of
 
the Credit
 
Agreement,
 
which expires
 
on November
 
30, 2024.
 
In
addition, the Company incurred
 
debt origination fees of $
308,000
 
related to the FGI Term Loan,
 
which is being amortized over
the life of
 
the FGI Term
 
Loan, which expires
 
on October 31,
 
2026.
 
The aggregate unamortized
 
deferred financing fees
 
as of
December 31, 2020 totaled $
1,957,000
.
 
 
 
 
Annual maturities of long-term debt are as follows:
 
 
 
2021
$
3,019,000
2022
4,428,000
2023
4,601,000
2024
11,585,000
2025 and thereafter
6,057,000
Total
$
29,690,000
 
KeyBank Loan
 
 
On December 31, 2019, the
 
Company had a term
 
loan and revolving loan balance
 
of $
38,250,000
 
and $
12,008,000
 
with KeyBank
National Association, respectively. The Company’s term loan and revolving loan had variable interest rates of
6.30
% and
6.04
%,
respectively at December
 
31, 2019. On
 
November 22, 2019
 
the Company entered
 
into a forbearance
 
agreement with KeyBank
and on
 
October 27,
 
2020 the
 
Company fully
 
repaid all
 
outstanding amounts.
 
As a
 
result of
 
the forbearance
 
agreement not
extending beyond a year, the Company’s remaining long-term debt balance was classified as a current liability in the Company’s
consolidated balance sheet as of December 31, 2019.
 
 
Interest Rate Swaps
 
 
The Company
 
entered into
two
 
interest rate
 
swap agreements
 
that became
 
effective January
 
18, 2018,
one
 
of which
 
was
designated as a cash flow
 
hedge for $
25,000,000
 
and the other designated as
 
a cash flow hedge for
 
$
10,000,000
 
to the Company’s
subsidiary. Under these agreements, the
 
Company paid a fixed rate
 
of
 
2.49
%
 
to the counterparty and
 
received a
30 day LIBOR
 
for
both cash flow
 
hedges. Concurrent
 
with the closing
 
of the
KeyBank credit agreement
, the
 
Company settled
 
both outstanding
interest rate swaps, which
 
resulted in a loss
 
and cash outflow of
 
$
1,253,000
. These results were categorized
 
as
interest expense
and operating activities in the Statement
 
of Operations and Statement of
 
Cash Flow, respectively. Due to the
 
settlement, the fair
value of the interest rate swaps was $0
 
at
 
December
 
31, 2020 compared to a liability of $
706,000
 
at December 31, 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
 
Bank Covenants
 
 
The Company is
 
required to meet
 
certain financial
 
covenants included in
 
the Credit Agreement with
 
respect to fixed
 
coverage
charge ratio.
 
The following
 
table presents
 
the financial
 
covenants specified
 
in the
 
Credit Agreement and
 
the actual
 
covenant
calculations as of December 31, 2020:
 
 
Financial Covenants
Actual Covenants as of
December 31, 2020
Fixed Charge Coverage Ratio
Minimum 1.10
2.6
 
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
514,823
.
 
 
Restricted stock granted under the 2006 Plan 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 requi
 
ring 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).
 
 
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 duri
 
ng the years ended December
 
31:
 
 
 
2020
2019
2018
Number
of
Shares
Wtd. Avg.
Grant Date
 
Fair Value
Number
of
Shares
Wtd. Avg.
Grant Date
Fair Value
Number
of
Shares
Wtd. Avg.
Grant Date
 
Fair Value
Unvested - beginning of year
343,919
$
9.37
349,885
$
10.62
141,095
$
16.79
Granted
292,886
4.70
135,268
7.65
315,429
11.32
Vested
(107,145)
10.21
(117,828)
13.81
(82,067)
16.57
Forfeited
(21,825)
9.86
(23,406)
15.02
(24,572)
16.91
Unvested - end of year
507,835
$
6.35
343,919
$
9.37
349,885
$
10.62
 
At December
 
31, 2020 and 2019,
 
there was $
1,614,000
 
and $
1,923,000
, 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
1.9
 
years. Total compensation expense related to
 
restricted stock grants for the
 
years ended December
 
31, 2020,
 
2019 and 2018
was $
1,254,000
, $
1,369,000
, and $
1,774,000
, respectively, and is recorded as selling, general and administrative expense.
 
 
Tax deficiencies in connection with payment of taxes upon the
 
vesting of restricted stock previously issued to employees
 
for the
years ended December
 
31, 2020, 2019 and 2018 were a tax deficiency of $
97,000
, $
98,000
, and $
110,000
, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58
 
 
During 2020, 2019 and
 
2018, employees surrendered
4,574
,
16,047
 
and
17,180
 
shares, respectfully, of the Company's
 
common
stock to satisfy income tax withholding obligations in connection with
 
the vesting of restricted stock.
 
 
Stock Appreciation Rights
 
As part of the Company's 2019 annual grant, Stock Appreciation Rights (SARs) were granted with a grant price of $10. These
awards have a contractual term of five years and vest ratably over a period of three years or immediately vest if the recipient is
over 65 years of age. These awards are valued using the Black-Scholes option pricing model.
 
 
A summary of the Company's stock appreciation rights activity for the years ended December
 
31, 2020 and 2019 is as follows:
 
 
2020
2019
Number
of
Shares
Wtd. Avg.
Grant Date
 
Fair Value
Number
of
Shares
Wtd. Avg.
Grant Date
Fair Value
Outstanding - beginning of year
222,112
$
2.57
—
$
—
Granted
—
—
226,021
2.57
Vested
—
—
—
—
Forfeited
(41,187)
2.57
(3,909)
2.57
Outstanding - end of year
180,925
$
2.57
222,112
$
2.57
Exercisable - end of year
73,888
$
2.57
29,028
$
2.57
 
The average
 
remaining contractual
 
term for
 
SARs outstanding
 
at December
 
31, 2020
 
is
3.3
 
years, with
 
$
114,000
 
aggregate
intrinsic value. At
 
December
 
31, 2020 and 2019, there was $
179,000
 
and $
386,000
, respectively, of total unrecognized
compensation expense, net of
 
estimated forfeitures, related
 
to SARs. That cost
 
is expected to be
 
recognized over the weighted-
average period of
1.3
 
years.
 
 
Total compensation cost related to SARs for the
 
twelve months ended December
 
31, 2020 and 2019 was $
101,000
 
and $
185,000
,
respectively, all of which was recorded to selling, general and
 
administrative expense.
 
 
11. Income Taxes
 
 
Components of the provision for income taxes are as follows:
 
 
 
2020
2019
2018
Current:
Federal
$
(8,378,000)
$
—
$
11,000
Foreign
2,660,000
685,000
1,023,000
State and local
5,000
20,000
14,000
(5,713,000)
705,000
1,048,000
Deferred:
Federal
955,000
738,000
(1,355,000)
Foreign
1,098,000
(1,824,000)
(289,000)
State and local
42,000
26,000
(68,000)
2,095,000
(1,060,000)
(1,712,000)
Provision (benefit) for income taxes
$
(3,618,000)
$
(355,000)
$
(664,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
59
 
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:
 
 
 
2020
2019
2018
Provision at United States federal statutory rate
$
954,000
$
(3,274,000)
$
(1,145,000)
Valuation
 
allowance
(2,074,000)
3,267,000
—
Net operating loss carryback at
34
% tax rate
(3,205,000)
—
—
Effect of foreign taxes
790,000
(209,000)
213,000
Adoption of ASC 606
—
—
236,000
State and local tax expense
(372,000)
(102,000)
(54,000)
Other
289,000
(37,000)
86,000
Provision (benefit) for income taxes
$
(3,618,000)
$
(355,000)
$
(664,000)
 
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, 2020 the Company had a net deferred tax asset of $
53,000
 
consisting of a liability of $
876,000
 
related to tax
positions in the
 
United States,
 
an asset of
 
$
460,000
 
related to tax
 
positions in Canada
 
and an asset
 
of $
469,000
 
related to tax
positions in Mexico.
The deferred
 
tax liabilities are
 
in other noncurrent
 
liabilities on
 
the Consolidated
 
Balance Sheet.
During
2020, the Company recorded
 
a valuation allowance of
 
$
1,193,000
 
against the entire state
 
and local net loss
 
carryforward and a
portion of
 
the interest
 
limitation carryforward,
 
due to
 
cumulative losses
 
in the
 
United States
 
over the
 
last three
 
years and
uncertainty related
 
to the Company
 
’s ability
 
to realize
 
the deferred
 
assets. The Company
 
believes that
 
the deferred
 
tax assets
associated with the Canadian and Mexican tax jurisdictions are more-likely-than-not to be realizable based on estimates
 
of future
taxable income.
 
 
Deferred tax assets consist of the following at December
 
31:
 
 
 
2020
2019
Net operating loss carryforwards
$
535,000
$
4,928,000
Interest limitation carryforwards
1,033,000
686,000
Accrued liabilities
391,000
477,000
Accounts receivable
40,000
108,000
Inventory
322,000
587,000
Property, plant, and equipment
(5,509,000)
(5,580,000)
Post retirement benefits
2,068,000
2,090,000
Goodwill and finite-lived assets, net
2,210,000
1,973,000
Other, net
156,000
24,000
Total deferred
 
tax asset
1,246,000
5,293,000
Valuation
 
allowance for deferred tax assets
(1,193,000)
(3,267,000)
Total deferred
 
tax asset, net
$
53,000
$
2,026,000
 
At December
 
31, 2020, the
 
Company had estimated
 
net operating loss
 
carryforwards in the
 
state and local
 
tax jurisdictions
 
of
$
25,990,000
 
and interest limitation carryforwards in United States federal
 
jurisdictions of $
4,697,000
. Both carryforwards do not
expire. At December 31, 2020, the Company had
no
 
net operating loss carryforwards in Canada, Mexico or United States federal
jurisdictions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
 
At December
 
31, 2020
 
and 2019
 
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
 
United States,
 
Mexico, Canada
 
and various
 
state and
 
local jurisdictions.
 
The
Company is not subject
 
to United States federal and
 
state income tax examinations
 
by tax authorities for
 
the years before 2017,
not subject to
 
Mexican income tax
 
examinations by Mexican
 
authorities for the
 
years before 2015
 
and not subject to
 
Canadian
income tax examinations by Canadian authorities for the years
 
before 2018.
 
 
12.
 
Post Retirement Benefits
 
 
The Company provides post retirement
 
benefits to certain of its
 
United States and Canadian employees,
 
including contributions
to
a multi-employer defined benefit pension plan, health care and life insurance benefits
, and contributions
 
to several defined
retirement 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, 2020
 
and
2019 is outlined
 
in the table
 
below.
 
The most recent
 
Pension Protection
 
Act ("PPA")
 
zone status is
 
for the plan
 
’s year
 
-end at
December 31, 2020
. 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.
 
 
 
Expiration
 
FIP/RP
Date of
 
Pension Protection
Status
Contributions of the
 
Collective
EIN/Pension
 
Act Zone Status
Pending/
 
Company
Surcharge
 
Bargaining
 
Pension Fund
Plan Number
2020
2019
Implemented
2020
2019
Imposed
Agreement
IAM National Pension Fund /
National Pension Plan
(A)
51-6031295
 
-
002
 
as of 12/31/19
 
as of 12/31/18
Implemented
$
676,000
$
971,000
Yes
8/7/2022
Total Contributions:
$
676,000
$
971,000
 
 
(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, 2019.
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 $1.55 per hour from August 10, 2019 through August 6, 2022. The Company is paying a surcharge of $2.40.
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61
 
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 2020, 2019 and 2018, and will result in
net periodic benefit cost reductions of approximately $
496,000
 
in 2021 and each year thereafter during the amortization period.
 
 
The funded status
 
of the Company's
 
post retirement health
 
and life insurance
 
benefits plan as
 
of December
 
31, 2020 and
 
2019
and reconciliation with the amounts recognized in the consolidated
 
balance sheets are provided below:
 
 
 
Post Retirement Benefits
2020
2019
Change in benefit obligation:
Benefit obligation at January 1
$
9,160,000
$
8,076,000
Interest cost
237,000
285,000
Unrecognized loss (gain)
(102,000)
1,099,000
Benefits paid, net
(186,000)
(300,000)
Benefit obligation at December 31
$
9,109,000
$
9,160,000
Plan Assets
—
—
Amounts recorded in accumulated other comprehensive
 
income:
Prior service credit
$
(5,114,000)
$
(5,610,000)
Net loss
3,351,000
3,634,000
Total
$
(1,763,000)
$
(1,976,000)
Weighted-average
 
assumptions as of December 31:
Discount rate used to determine benefit obligation and net periodic
 
benefit cost
2.0
%
2.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
62
 
The components of expense for all of the Company's post retirement
 
benefit plans for the years ended December
 
31:
 
 
 
2020
2019
2018
Pension expense:
Multi-employer plan
$
676,000
$
971,000
$
760,000
Defined contribution plans
1,173,000
1,258,000
1,059,000
Total pension expense
1,849,000
2,229,000
1,819,000
Health and life insurance:
Interest cost
235,000
285,000
277,000
Amortization of prior service costs
(496,000)
(496,000)
(496,000)
Amortization of net loss
181,000
117,000
171,000
Net periodic benefit cost
(80,000)
(94,000)
(48,000)
Total
 
post retirement benefits expense
$
1,769,000
$
2,135,000
$
1,771,000
 
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, 2020, the
Company recognized
 
a net actuarial
 
gain of $
102,000
 
which is comprised
 
of differences between
 
actual and expected
 
benefit
payments, expenses and balance sheet accruals resulting
 
in a gain of $
1,047,000
, offset by an actuarial loss of $
945,000
. For the
year ended December
 
31, 2019, the Company
 
recognized a net actuarial
 
loss of $
1,099,000
, which is comprised
 
of an actuarial
loss of
 
$
1,956,000
, offset
 
by differences
 
between actual
 
and expected
 
benefit payments,
 
expenses and
 
balance sheet
 
accrual
resulting in a gain
 
of $
857,000
. The net actuarial
 
gain and loss for
 
the years ended
 
December 31, 2020
 
and 2019, respectively,
were recorded in
accumulated other comprehensive income
.
 
 
Amounts
 
not yet recognized
 
as a component
 
of net periodic
 
benefit costs at
 
December
 
31, 2020 and
 
2019 were a
 
net credit of
$
1,763,000
 
and $
1,976,000
, respectively.
 
The amount in accumulated other comprehensive income expected to be recognized as
components of
 
net periodic
 
post retirement
 
cost during
 
2021 consists
 
of a
 
prior service
 
credit of
 
$
496,000
 
and a
 
net loss
 
of
 
$
173,000
.
 
In addition, 2021
 
interest expense related
 
to post retirement
 
healthcare is expected
 
to be $
161,000
, for a
 
total post
retirement healthcare net gain of approximately
 
$
162,000
 
in 2021.
 
The Company expects benefits paid in
 
2021 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
5.1
%.
 
The rate is
projected to decrease gradually to medical pre age 65 of
5.0
%, medical post age 65 of
4.25
% and drugs – all ages of
5.0
% by the
year
2027
 
and remain at that level thereafter.
 
The comparable assumptions for the prior year were
6.0
% and
5.0
%, respectively.
 
 
The effect of changing the health care cost trend rate by one
 
-percentage point for each future year is as follows:
 
 
 
1- Percentage
Point Increase
1-Percentage
Point Decrease
Effect on total of service and interest cost components
$
34,000
$
(29,000)
Effect on post retirement benefit obligation
$
1,081,000
$
(924,000)
 
 
 
 
 
 
 
 
 
 
63
 
The estimated future benefit payments of the health care plan for the next
 
ten years are as follows:
 
 
 
Postretirement
 
Health Care
 
Benefits Plan
2021
$
1,286,000
2022
459,000
2023
500,000
2024
473,000
2025
471,000
2026 - 2030
2,265,000
 
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.
 
 
 
 
64
 
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 historically consisted of
 
cash and cash equivalents, accounts receivable, accounts payable,
debt, interest rate swaps and foreign
 
currency derivatives. Cash and
 
cash equivalents, accounts receivable
 
and accounts payable
carrying values as of December 31, 2020 and December
 
31, 2019 approximate fair value due to the
 
short-term maturities of these
financial instruments.
 
As of
 
December 31,
 
2020, the
 
carrying amounts
 
of the
 
WF Term
 
Loans and
 
WF Revolving
 
Loan
approximate fair
 
value due
 
to the
 
short-term nature
 
of the
 
underlying variable
 
rate LIBOR
 
agreements. The
 
FGI Term Loan
approximate fair value
 
as of December
 
31, 2020, due
 
to the immaterial
 
movement in interest
 
rates since the
 
Company entered
into the
 
Promissory Note
 
on of
 
October 20,
 
2020. The
 
carrying amounts
 
of long
 
-term debt
 
and the
 
revolving line
 
of credit
approximate fair value as of December 31, 2019 due to the short-term nature of the underlying variable rate LIBOR
 
agreements.
The Company had
 
Level 2 fair
 
value measurements at
 
December 31,
 
2019 relating to
 
the Company’s
 
interest rate swaps
 
and
foreign currency derivatives.
 
 
Derivative and hedging activities
 
 
Foreign currency derivatives
 
 
The Company conducts business in foreign countries and pays certain
 
expenses in foreign currencies; therefore, the Company is
exposed to foreign currency
 
exchange risk between the
 
U.S. Dollar and foreign
 
currencies, 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 foreign
 
currency, which
 
were used to
 
fund future
reign currency cash flows. At
 
inception, all forward contracts were formally documented as cash flow
 
hedges and were 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 accumulated
 
other comprehensive income
 
and the ineffective
 
portion is reported
 
in earnings. The
 
impacts of these
contracts were
 
largely offset
 
by gains
 
and losses
 
resulting from
 
the impact
 
of changes
 
in exchange
 
rates on
 
transactions
denominated in the foreign currency. As of December 31, 2020, the Company had no outstanding
 
foreign currency derivatives.
 
 
 
Interest Rate Swaps
 
 
The Company
 
entered into
 
interest rate
 
swap contracts
 
to fix
 
the interest
 
rate on
 
an initial
 
aggregate amount
of
 
$
35,000,000
 
thereby reducing exposure to interest
 
rate changes. The Company paid
 
a fixed rate of
 
2.49
%
 
to the counterparty
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
 
and receives 30
 
day LIBOR
 
for both cash
 
flow hedges. At inception,
 
all interest rate
 
swaps were formally
 
documented as cash
flow hedges and are
 
measured at fair value
 
each reporting period
 
.
 
During the 2020 year,
 
the Company closed the
 
positions, see
Note 9 – Debt
, for additional information.
 
 
Financial statements impacts
 
The following tables detail amounts related to our derivatives designated
 
as hedging instruments as of December
 
31, 2019:
 
 
 
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
$
452,000
Accrued liabilities other
$
—
Notional contract values
$
15,358,000
$
—
Interest rate swaps
Other non-current assets
$
—
Other non-current
 
liabilities
$
706,000
Notional swap values
$
—
$
29,750,000
 
As of December
 
31, 2019, the
 
Company had foreign
 
exchange contracts related
 
to the Mexican
 
Peso and the
 
Canadian Dollar
with exchange rates ranging from
19.53
 
to
20.58
 
and
1.32
, respectively.
 
 
The following tables
 
summarize the amount
 
of unrealized /
 
realized gain and
 
loss recognized
 
in Accumulated Comprehensive
Income (AOCI) for the years ended December
 
31, 2020, 2019 and 2018:
 
 
 
Derivatives in
 
subtopic 815-20
 
Cash Flow
 
Hedging
 
Relationship
Amount of Unrealized Gain or
 
(Loss) Recognized in Accumulated
 
Other Comprehensive Income on
 
Derivative
Location of Gain or
 
(Loss) Reclassified
 
from Accumulated
 
Other Comprehensive
 
Income
(A)
Amount of Realized Gain or (Loss)
 
Reclassified from Accumulated
 
Other Comprehensive Income
2020
2019
2018
2020
2019
2018
Foreign exchange
 
contracts
$
142,000
$
1,499,000
$
(385,000)
Cost of goods sold
$
526,000
$
272,000
$
68,000
Selling, general and
 
administrative expense
$
68,000
$
25,000
$
—
Interest rate swaps
$
(915,000)
$
(708,000)
$
(223,000)
Interest Expense
$
(1,620,000)
$
(67,000)
$
(159,000)
 
(A)
 
The foreign currency derivative activity reclassified from
 
Accumulated Other Comprehensive Income is allocated to
cost of goods sold and selling, general and administrative expense based
 
on the percentage of Mexican Peso spend.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
 
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, 2020 and 2019:
 
 
 
Hedging
 
Derivative
 
Activities
Post
 
Retirement
 
Benefit Plan
 
Items
(A)
Total
2019:
Balance at January 1, 2019
$
(612,000)
$
2,729,000
$
2,117,000
Other comprehensive income before reclassifications
791,000
(1,102,000)
(311,000)
Amounts reclassified from accumulated other comprehensive
 
income
(230,000)
(379,000)
(609,000)
Income tax (expense) benefit
(140,000)
313,000
173,000
Balance at December 31, 2019
$
(191,000)
$
1,561,000
$
1,370,000
2020:
Balance at January 1, 2020
$
(191,000)
$
1,561,000
$
1,370,000
Other comprehensive income before reclassifications
(773,000)
102,000
(671,000)
Amounts reclassified from accumulated other comprehensive
 
income
1,026,000
(315,000)
711,000
Income tax (expense) benefit
(62,000)
27,000
(35,000)
Balance at December 31, 2020
$
—
$
1,375,000
$
1,375,000
 
(A)
 
The effect of
 
post-retirement benefit items
 
reclassified from Accumulated
 
Other Comprehensive Income
 
is included
 
in
other income
 
and expense
 
on the
 
Consolidated Statements
 
of Operations.
 
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 Operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67
 
16.
 
Quarterly Results of Operations (Unaudited)
 
 
The following is
 
a summary of
 
the unaudited quarterly
 
results of operations
 
for the years ended
 
December
 
31, 2020, 2019
 
and
2018.
 
 
 
 
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total
 
Year
2020:
Product sales
$
61,930,000
35,847,000
54,240,000
58,563,000
210,580,000
Tooling sales
2,093,000
1,959,000
5,633,000
2,091,000
11,776,000
Net sales
64,023,000
37,806,000
59,873,000
60,654,000
222,356,000
Gross margin
10,766,000
2,903,000
10,838,000
9,967,000
34,474,000
Operating income (loss)
4,261,000
(1,206,000)
4,321,000
3,014,000
10,390,000
Net income (loss)
7,961,000
(2,272,000)
3,343,000
(867,000)
8,165,000
Net income (loss) per common share:
Basic (1)
$
0.97
$
(0.29)
$
0.39
$
(0.10)
$
0.98
Diluted (1)
$
0.97
$
(0.29)
$
0.39
$
(0.10)
$
0.98
2019:
Product sales
$
71,451,000
$
75,440,000
$
67,511,000
$
54,585,000
$
268,987,000
Tooling sales
815,000
5,807,000
7,144,000
1,537,000
15,303,000
Net sales
72,266,000
81,247,000
74,655,000
56,122,000
284,290,000
Gross margin
3,149,000
8,491,000
6,484,000
3,382,000
21,506,000
Operating income (loss)
(4,017,000)
1,267,000
(4,657,000)
(4,121,000)
(11,528,000)
Net income (loss)
(3,845,000)
209,000
(6,125,000)
(5,462,000)
(15,223,000)
Net income (loss) per common share:
Basic (1)
$
(0.49)
$
0.03
$
(0.78)
$
(0.69)
$
(1.94)
Diluted (1)
$
(0.49)
$
0.03
$
(0.78)
$
(0.69)
$
(1.94)
2018:
Product sales
$
59,712,000
$
65,225,000
$
62,305,000
$
68,975,000
$
256,217,000
Tooling sales
3,334,000
3,376,000
2,371,000
4,187,000
13,268,000
Net sales
63,046,000
68,601,000
64,676,000
73,162,000
269,485,000
Gross margin
7,885,000
7,897,000
4,862,000
6,497,000
27,141,000
Operating income (loss)
1,125,000
1,418,000
(1,487,000)
(4,156,000)
(3,100,000)
Net income (loss)
518,000
445,000
(1,803,000)
(3,942,000)
(4,782,000)
Net income (loss) per common share:
Basic (1)
$
0.07
$
0.06
$
(0.23)
$
(0.51)
$
(0.62)
Diluted (1)
$
0.07
$
0.06
$
(0.23)
$
(0.51)
$
(0.62)
 
(1)
 
Sum of the quarters may not sum to total year due to rounding.
 
 
 
 
68
 
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,
 
2020.
 
 
This annual report
 
does not include an
 
attestation report of
 
the Company’s
 
registered public accounting
 
firm regarding internal
control over
 
financial reporting.
 
Management’s report
 
was not
 
subject to
 
attestation by
 
the Company
 
’s registered
 
public
accounting firm
 
pursuant to
 
rules of
 
the Securities
 
and Exchange
 
Commission that
 
permit the
 
Company to
 
provide only
management’s report in this annual
 
report.
 
 
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.
 
 
69
 
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 June 15, 2021, 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 June 15, 2021, 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 June 15, 2021, 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 June 15, 2021, 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 June 15, 2021, 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.
 
 
 
 
 
 
 
70
 
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,
2020, 2019,
 
and 2018
 
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.
 
 
ITEM 16. FORM 10-K SUMMARY
 
 
Not Applicable.
 
 
 
 
 
 
 
 
 
 
 
 
71
 
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/ David L. Duvall
David L. Duvall
President and Chief Executive Officer
March 11, 2021
 
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/ David L. Duvall
David L. Duvall
President, Chief
 
Executive Officer,
 
and Director
(Principal Executive Officer)
March 11, 2021
/s/ John P. Zimmer
John P. Zimmer
Vice President,
 
Secretary, Treasurer,
 
and Chief
Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
March 11, 2021
*
Sandra L. Kowaleski
Director
March 11, 2021
*
Thomas R. Cellitti
Director
March 11, 2021
*
James F. Crowley
Director
March 11, 2021
*
Ralph O. Hellmold
Director
March 11, 2021
*
Matthew Jauchius
Director
March 11, 2021
*
Andrew O. Smith
Director
March 11, 2021
*By /s/ John P. Zimmer
John P. Zimmer
Attorney-In-Fact
March 11, 2021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
 
Core Molding Technologies, Inc. and Subsidiaries
 
 
Schedule II
 
 
Consolidated valuation and qualifying accounts and reserves
 
for the years ended December
 
31, 2020, 2019 and 2018.
 
 
Reserves deducted from asset to which it applies:
 
 
Allowance for Doubtful Accounts
 
Additions
Balance at
 
Beginning of
 
Year
(Recovered)/
Charged to
 
Costs &
 
Expenses
Charged to
 
Other
 
Accounts
Deductions
(A)
Balance at End
 
of Year
Year
 
Ended December 31, 2020
$
50,000
$
27,000
$
$
36,000
$
41,000
Year
 
Ended December 31, 2019
$
25,000
$
4,000
$
36,000
$
15,000
$
50,000
Year
 
Ended December 31, 2018
$
—
$
25,000
$
—
$
—
$
25,000
 
Customer Chargeback Allowance
 
Additions
Balance at
 
Beginning of
 
Year
(Recovered)/
Charged to
 
Costs &
 
Expenses
Charged to
 
Other
 
Accounts
Deductions (B)
Balance at End
of Year
Year
 
Ended December 31, 2020
$
476,000
$
291,000
$
—
$
588,000
$
179,000
Year
 
Ended December 31, 2019
$
2,344,000
$
1,316,000
$
—
$
3,184,000
$
476,000
Year
 
Ended December 31, 2018
$
857,000
$
2,639,000
$
—
$
1,152,000
$
2,344,000
 
(A)
 
Amount represents uncollectible accounts written off.
 
(B)
 
Amount represents customer returns and deductions, discounts and price
 
adjustments accepted.
 
 
 
 
 
 
 
73
 
INDEX TO EXHIBITS
 
 
Exhibit No.
Description
Location
2(a)(1)
Asset Purchase Agreement Dated as of September
12,
1996, As amended October
31, 1996, between
Navistar and RYMAC Mortgage Investment
Corporation
1
2(a)(2)
Second Amendment to Asset Purchase Agreement
dated December
16, 1996
1
2(b)(1)
Agreement and Plan of Merger dated as of
November
1, 1996, between Core Molding
Technologies, Inc. and RYMAC Mortgage
Investment Corporation
2(b)(2)
First Amendment to Agreement and Plan of Merger
dated as of December
27, 1996 Between Core
Molding Technologies, Inc. and RYMAC Mortgage
Investment Corporation
2(c)
Asset Purchase Agreement dated as of October
10,
2001, between Core Molding Technologies, Inc. and
Airshield Corporation
2(d)
Asset Purchase Agreement dated as of March
20,
2015, between Core Molding Technologies, Inc. and
CPI Binani, Inc.
2(e)
Asset Purchase Agreement dated as of January
16,
2018 between 1137952 B.C. Ltd., Horizon Plastics
International, Inc., 1541689 Ontario Inc., 2551024
Ontario Inc., Horizon Plastics de Mexico, S.A. de
C.V., and Brian Read
3(a)(1)
Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the Secretary of State
of Delaware on October
8, 1996
3(a)(2)
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
3(a)(3)
Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of State of
Delaware on August
28, 2002
3(a)(4)
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
3(a)(5)
Certificate of Elimination of the Series A Junior
Participant Preferred Stock as filed with the Delaware
Sec. of State on April
2, 2015
3(b)(1)
Amended and Restated By-Laws of Core Molding
Technologies, Inc.
3(b)(2)
Amendment No. 1 to the Amended and Restated By-
Laws of Core Molding Technologies, Inc.
4(a)(1)
Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the Secretary of State
of Delaware on October
8, 1996
No.
 
 
 
 
 
 
 
 
 
 
 
 
74
 
Exhibit No.
Description
Location
4(a)(2)
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
4(a)(3)
Certificate of Amendment of Certificate of Incorporation as
filed with the Secretary of State of Delaware on August
28,
2002
4(a)(4)
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
4(a)(5)
Certificate of Elimination of the Series A Junior Participant
Preferred Stock as filed with the Delaware Sec. of State on
April
2, 2015
4(a)(6)
Certificate of Designation, Preferences and Rights of Series
B Junior Participating Preferred Stock, as filed with the
Secretary of State of the State of Delaware on April 21, 2020
20
4(a)(7)
Rights Agreement, dated as of April 21, 2020, by and
between Core Molding Technologies, Inc. and American
Stock Transfer & Trust Company, as Rights Agent
10(a)
Supply Agreement, dated August
4, 2014 between Core
Molding Technologies, Inc. and Core Composites
Corporation and Navistar, Inc.
3
10(b)
Credit Agreement, dated October 27, 2020, between Core
Molding Technologies, Inc.
 
and Wells
 
Fargo Bank, National
Association, as administrative agent, lead arranger and book
runner, and the lenders party thereto.
10 (b)(1)
Master Security Agreement, dated as of October 20, 2020,
among FGI Equipment Finance LLC, Core Molding
Technologies, Inc. as debtor,
 
and each of Core Composites
Corporation and CC HPM, S. de R.L. de C.V.,
 
as guarantors
10 (b)(2)
Promissory Note, dated October 20, 2020, between Core
Molding Technologies, Inc.
 
and FGI Equipment Finance
LLC.
10(c)
Reimbursement Agreement, dated April
1, 1998, by and
between Core Molding Technologies, Inc. and KeyBank
National Association
10(d)
Core Molding Technologies, Inc. Employee Stock Purchase
Plan
2
10(d)(1)
2002 Core Molding Technologies, Inc. Employee Stock
Purchase Plan (as amended May
17, 2006)
2
10(e)
Letter Agreement Regarding Terms and Conditions of
Interest Rate Swap Agreement between KeyBank National
Association and Core Molding Technologies, Inc.
10(e)(1)
Letter Agreement Regarding Terms and Conditions of
Interest Rate Swap Agreement between KeyBank National
Association and Core Molding Technologies, Inc.
10(f)
2006 Core Molding Technologies, Inc. Long Term Equity
Incentive Plan as amended and restated effective May
12,
2017
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75
 
10(g)
Core Molding Technologies, Inc. Executive Cash Incentive
Plan
2
Exhibit No.
Description
Location
10(h)
Core Molding Technologies,
 
Inc. Salaried
 
Employee Bonus
Plan
10(i)
Form of Amended
 
and Restated Executive Severance
Agreement between
 
Core Molding
 
Technologies, Inc.
 
and
certain executive officers
2
10(j)
Form of Amended and Restated Restricted Stock Agreement
between Core Molding Technologies, Inc. and certain
executive officers
2
10(k)
Form of Executive Severance Agreement between Core
Molding Technologies, Inc. and certain executive officers
2
10(l)
Form of Restricted Stock
 
Agreement between Core
 
Molding
Technologies, Inc.
 
and certain
 
executive officers
2
10(m)
Form of Award for
 
Stock Appreciation Rights between
 
Core
Molding Technologies, Inc. and certain executive officers
ay
20, 2019
10(n)
Form of Executive Employment Agreement,
 
dated October
3,
2018, between
 
David L.
 
Duvall and
 
Core Molding
Technologies, Inc.
10(o)
First Amendment to
 
Executive Employment
 
Agreement,
effective as
 
of December
 
30, 2019,
 
by and
 
between Core
Molding Technologies, Inc. and David L. Duvall
 
10(p)
Confidential Release
 
Agreement, dated
 
as of
 
January 28,
2020, by and
 
between Core Molding
 
Technologies, Inc.
 
and
Terrence J. O’Donovan
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
21
List of Subsidiaries
23
Consent of Crowe LLP
24
Powers of Attorney
31(a)
Section
302 Certification by
 
David L. Duvall,
 
President,
Chief Executive Officer, and Director
31(b)
Section
302 Certification by John P.
 
Zimmer, Vice President,
Secretary, Treasurer, and Chief Financial Officer
32(a)
Certification of David
 
L. Duvall, Chief Executive
 
Officer of
Core Molding Technologies,
 
Inc., dated March
11, 2021,
pursuant to 18 U.S.C. Section
1350
32(b)
Certification of
 
John P.
 
Zimmer, Chief
 
Financial Officer
 
of
Core Molding Technologies,
 
Inc., dated March
11, 2021,
pursuant to 18 U.S.C. Section
1350
101.INS
XBRL Instance Document
Filed Herein
101.SCH
XBRL Taxonomy Extension Schema Document
Filed Herein
 
76
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Filed Herein
101.LAB
XBRL Taxonomy Extension Label Linkbase
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.
 
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