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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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X
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
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☐ |
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)
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Delaware
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31-1481870
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(State or other jurisdiction
incorporation or organization)
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(I.R.S. Employer Identification No.)
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800 Manor Park Drive, Columbus, Ohio
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43228-0183
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(Address of principal executive office)
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(Zip Code)
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Registrant’s telephone number, including area code
(614) 870-5000
N/A
__________________________________________________________
Former name, former address and former fiscal year, if changed
since last report.
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
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit 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 definition of “accelerated
filer,” “large accelerated filer,” and “smaller reporting company,”
in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
¨
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Accelerated filer
¨
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Non-accelerated Filer
¨
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Smaller reporting company
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☒ |
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(Do not check if a smaller reporting company)
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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.
¨
Indicate by check mark whether the registrant is a shell company as
defined in Rule 12b-2 of the Exchange Act. Yes
☐
No
☒
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Trading Symbol
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Common Stock, par value $0.01
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NYSE American LLC
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CMT
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As of November 5, 2021, the latest practicable date, 8,715,785
shares of the registrant’s common stock were issued, which includes
632,506 shares of unvested restricted common stock.
Table of Contents
Part I — Financial Information
Item 1. Financial Statements
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except for per share data)
(Unaudited)
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Three months ended
September 30, |
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Nine months ended
September 30, |
|
2021 |
|
2020 |
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2021 |
|
2020 |
|
Net sales |
$ |
81,025 |
|
|
$ |
59,873 |
|
|
|
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|
$ |
234,315 |
|
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$ |
161,705 |
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Cost of sales |
74,610 |
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49,035 |
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201,446 |
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137,192 |
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Gross margin |
6,415 |
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10,838 |
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32,869 |
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24,513 |
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Selling, general and administrative expense |
8,808 |
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6,517 |
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23,744 |
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17,136 |
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Operating income (loss) |
(2,393) |
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|
4,321 |
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9,125 |
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7,377 |
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Other income and expense |
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Interest expense |
563 |
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|
966 |
|
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1,725 |
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|
3,338 |
|
|
Net periodic post-retirement benefit |
(40) |
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|
(20) |
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(120) |
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(60) |
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Total other expense |
523 |
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|
946 |
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1,605 |
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3,278 |
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Income (loss) before taxes |
(2,916) |
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|
3,375 |
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7,520 |
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4,099 |
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|
Income tax expense (benefit) |
396 |
|
|
32 |
|
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3,290 |
|
|
(4,933) |
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|
Net income (loss) |
$ |
(3,312) |
|
|
$ |
3,343 |
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$ |
4,230 |
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$ |
9,032 |
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Net income (loss) per common share: |
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Basic |
$ |
(0.41) |
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$ |
0.39 |
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$ |
0.50 |
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$ |
1.08 |
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Diluted |
$ |
(0.41) |
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$ |
0.39 |
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$ |
0.50 |
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$ |
1.08 |
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See notes to unaudited consolidated financial
statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
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Three months ended
September 30, |
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Nine months ended
September 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net income (loss) |
$ |
(3,312) |
|
|
$ |
3,343 |
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$ |
4,230 |
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$ |
9,032 |
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Other comprehensive income (loss): |
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Foreign currency hedging derivatives: |
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Unrealized hedge gain (loss) |
— |
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|
415 |
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— |
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(456) |
|
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Income tax benefit (expense) |
— |
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|
(88) |
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— |
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98 |
|
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Interest rate swaps: |
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|
Unrealized hedge gain (loss) |
— |
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172 |
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— |
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(550) |
|
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Income tax benefit (expense) |
— |
|
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(39) |
|
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— |
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|
125 |
|
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Post-retirement benefit plan adjustments: |
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|
Amortization of net actuarial loss |
43 |
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46 |
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130 |
|
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136 |
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Amortization of prior service credits |
(124) |
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(124) |
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(372) |
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(372) |
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Income tax benefit |
18 |
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17 |
|
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51 |
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50 |
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Comprehensive income (loss) |
$ |
(3,375) |
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$ |
3,742 |
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$ |
4,039 |
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$ |
8,063 |
|
See notes to unaudited consolidated financial
statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except for share data)
(Unaudited)
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September 30,
2021 |
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December 31,
2020 |
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(Unaudited) |
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Assets: |
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Current assets: |
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Cash and cash equivalents |
$ |
615 |
|
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$ |
4,131 |
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Accounts receivable, net |
39,427 |
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27,584 |
|
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Inventories, net |
22,410 |
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18,360 |
|
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Income tax receivable |
2,601 |
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|
2,026 |
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Foreign tax receivable |
4,317 |
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|
1,916 |
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Prepaid expenses and other current assets |
1,613 |
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2,461 |
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Total current assets |
70,983 |
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|
56,478 |
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Right of use asset |
3,631 |
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|
2,754 |
|
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Property, plant and equipment, net |
74,377 |
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|
74,052 |
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Goodwill |
17,376 |
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17,376 |
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Intangibles, net |
10,054 |
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|
11,516 |
|
|
Other non-current assets |
3,033 |
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|
3,332 |
|
|
Total Assets |
$ |
179,454 |
|
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$ |
165,508 |
|
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Liabilities and Stockholders’ Equity: |
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Current liabilities: |
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Current portion of long-term debt |
$ |
3,774 |
|
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$ |
2,535 |
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Revolving debt |
2,320 |
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|
420 |
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Accounts payable |
24,149 |
|
|
16,994 |
|
|
Taxes payable |
2,557 |
|
|
2,613 |
|
|
Contract liability |
3,062 |
|
|
1,319 |
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Compensation and related benefits |
7,269 |
|
|
8,305 |
|
|
Accrued other liabilities |
4,292 |
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|
3,809 |
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Total current liabilities |
47,423 |
|
|
35,995 |
|
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|
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Other non-current liabilities |
2,742 |
|
|
2,560 |
|
|
Long-term debt |
22,252 |
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|
25,198 |
|
|
Post-retirement benefits liability |
7,745 |
|
|
7,823 |
|
|
Total Liabilities |
80,162 |
|
|
71,576 |
|
|
Commitments and Contingencies |
— |
|
|
— |
|
|
Stockholders’ Equity: |
|
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|
Preferred stock — $0.01 par value, authorized shares — 10,000,000;
no shares outstanding at September 30, 2021 and
December 31, 2020
|
— |
|
|
— |
|
|
Common stock — $0.01 par value, authorized shares – 20,000,000;
outstanding shares 8,083,279 at September 30, 2021 and
7,980,516 at December 31, 2020
|
81 |
|
|
80 |
|
|
Paid-in capital |
37,543 |
|
|
36,127 |
|
|
Accumulated other comprehensive income, net of income
taxes |
1,184 |
|
|
1,375 |
|
|
Treasury stock - at cost, 3,818,166 shares at September 30,
2021 and 3,810,929 shares at December 31, 2020
|
(28,617) |
|
|
(28,521) |
|
|
Retained earnings |
89,101 |
|
|
84,871 |
|
|
Total Stockholders’ Equity |
99,292 |
|
|
93,932 |
|
|
Total Liabilities and Stockholders’ Equity |
$ |
179,454 |
|
|
$ |
165,508 |
|
See notes to unaudited consolidated financial
statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
(In thousands, except for share data)
(Unaudited)
For the three months ended September 30, 2020:
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Common Stock
Outstanding |
|
Paid-In
Capital |
|
Accumulated
Other
Comprehensive
Income |
|
Treasury
Stock |
|
Retained
Earnings |
|
Total
Stockholders'
Equity |
|
|
Shares |
|
Amount |
|
|
|
|
|
|
Balance at June 30, 2020 |
7,965,289 |
|
|
$ |
80 |
|
|
$ |
35,476 |
|
|
$ |
2 |
|
|
$ |
(28,501) |
|
|
$ |
82,395 |
|
|
$ |
89,452 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
3,343 |
|
|
3,343 |
|
|
Change in post-retirement benefits, net of tax $17
|
|
|
|
|
|
|
(61) |
|
|
|
|
|
|
(61) |
|
|
Change in unrealized foreign currency hedge, net of tax
$88
|
|
|
|
|
|
|
327 |
|
|
|
|
|
|
327 |
|
|
Change in interest rate swaps, net of tax $39
|
|
|
|
|
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|
133 |
|
|
|
|
|
|
133 |
|
|
Purchase of treasury stock |
(4,574) |
|
|
|
|
|
|
|
|
(20) |
|
|
|
|
(20) |
|
|
Restricted stock vested |
11,158 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
— |
|
|
Share-based compensation |
|
|
|
|
355 |
|
|
|
|
|
|
|
|
355 |
|
|
Balance as of September 31, 2020 |
7,971,873 |
|
|
$ |
80 |
|
|
$ |
35,831 |
|
|
$ |
401 |
|
|
$ |
(28,521) |
|
|
$ |
85,738 |
|
|
$ |
93,529 |
|
|
For the nine months ended September 30, 2020: |
|
|
Common Stock
Outstanding |
|
Paid-In
Capital |
|
Accumulated
Other
Comprehensive
Income |
|
Treasury
Stock |
|
Retained
Earnings |
|
Total
Stockholders'
Equity |
|
|
Shares |
|
Amount |
|
|
|
|
|
|
Balance at December 31, 2019 |
7,877,945 |
|
|
$ |
79 |
|
|
$ |
34,772 |
|
|
$ |
1,370 |
|
|
$ |
(28,501) |
|
|
$ |
76,706 |
|
|
$ |
84,426 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
9,032 |
|
|
9,032 |
|
|
Change in post-retirement benefits, net of tax $50
|
|
|
|
|
|
|
(186) |
|
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|
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|
|
(186) |
|
|
Change in unrealized foreign currency hedge, net of tax
$98
|
|
|
|
|
|
|
(358) |
|
|
|
|
|
|
(358) |
|
|
Change in interest rate swaps, net of tax $125
|
|
|
|
|
|
|
(425) |
|
|
|
|
|
|
(425) |
|
|
Purchase of treasury stock |
(4,574) |
|
|
|
|
|
|
|
|
(20) |
|
|
|
|
(20) |
|
|
Restricted stock vested |
98,502 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Share-based compensation |
|
|
|
|
1,059 |
|
|
|
|
|
|
|
|
1,059 |
|
|
Balance as of September 30, 2020 |
7,971,873 |
|
|
$ |
80 |
|
|
$ |
35,831 |
|
|
$ |
401 |
|
|
$ |
(28,521) |
|
|
$ |
85,738 |
|
|
$ |
93,529 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2021 |
|
Common Stock
Outstanding |
|
Paid-In
Capital |
|
Accumulated
Other
Comprehensive
Income |
|
Treasury
Stock |
|
Retained
Earnings |
|
Total
Stockholders'
Equity |
|
Shares |
|
Amount |
|
|
|
|
|
|
Balance at June 30, 2021 |
8,040,748 |
|
|
$ |
80 |
|
|
$ |
36,931 |
|
|
$ |
1,247 |
|
|
$ |
(28,568) |
|
|
$ |
92,413 |
|
|
$ |
102,103 |
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(3,312) |
|
|
(3,312) |
|
|
Change in post-retirement benefits, net of tax $18
|
|
|
|
|
|
|
(63) |
|
|
|
|
|
|
(63) |
|
|
Purchase of treasury stock |
(3,363) |
|
|
|
|
|
|
|
|
(49) |
|
|
|
|
(49) |
|
|
Restricted stock vested |
45,894 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Share-based compensation |
|
|
|
|
612 |
|
|
|
|
|
|
|
|
612 |
|
|
Balance at September 30, 2021 |
8,083,279 |
|
|
$ |
81 |
|
|
$ |
37,543 |
|
|
$ |
1,184 |
|
|
$ |
(28,617) |
|
|
$ |
89,101 |
|
|
$ |
99,292 |
|
For the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
Outstanding |
|
Paid-In
Capital |
|
Accumulated
Other
Comprehensive
Income |
|
Treasury
Stock |
|
Retained
Earnings |
|
Total
Stockholders'
Equity |
|
Shares |
|
Amount |
|
|
|
|
|
|
Balance at December 31, 2020 |
7,980,516 |
|
|
$ |
80 |
|
|
$ |
36,127 |
|
|
$ |
1,375 |
|
|
$ |
(28,521) |
|
|
$ |
84,871 |
|
|
$ |
93,932 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
4,230 |
|
|
4,230 |
|
|
Change in post-retirement benefits, net of tax $51
|
|
|
|
|
|
|
(191) |
|
|
|
|
|
|
(191) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
(7,237) |
|
|
|
|
|
|
|
|
(96) |
|
|
|
|
(96) |
|
|
Restricted stock vested |
110,000 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Share-based compensation |
|
|
|
|
1,416 |
|
|
|
|
|
|
|
|
1,416 |
|
|
Balance at September 30, 2021 |
8,083,279 |
|
|
$ |
81 |
|
|
$ |
37,543 |
|
|
$ |
1,184 |
|
|
$ |
(28,617) |
|
|
$ |
89,101 |
|
|
$ |
99,292 |
|
See notes to unaudited consolidated financial
statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, |
|
2021 |
|
2020 |
|
Cash flows from operating activities: |
|
|
|
|
Net income |
$ |
4,230 |
|
|
$ |
9,032 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
9,273 |
|
|
8,425 |
|
|
Loss on disposal of property, plant and equipment |
625 |
|
|
— |
|
|
Deferred income tax |
(595) |
|
|
517 |
|
|
Share-based compensation |
1,416 |
|
|
1,059 |
|
|
Losses on foreign currency translation |
214 |
|
|
203 |
|
|
Change in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
(11,843) |
|
|
6,118 |
|
|
Inventories |
(4,050) |
|
|
6,449 |
|
|
Prepaid and other assets |
(1,829) |
|
|
(747) |
|
|
Accounts payable |
6,841 |
|
|
(2,053) |
|
|
Accrued and other liabilities |
1,085 |
|
|
2,238 |
|
|
Post-retirement benefits liability |
(319) |
|
|
(189) |
|
|
Net cash provided by operating activities |
5,048 |
|
|
31,052 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Purchase of property, plant and equipment |
(8,301) |
|
|
(2,716) |
|
|
Net cash used in investing activities |
(8,301) |
|
|
(2,716) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Gross repayments on revolving line of credit |
(9,707) |
|
|
(59,356) |
|
|
Gross borrowings on revolving line of credit |
11,607 |
|
|
47,349 |
|
|
Payments related to the purchase of treasury stock |
(96) |
|
|
(20) |
|
|
Payment of deferred loan costs |
(2) |
|
|
(140) |
|
|
Proceeds from term loan |
— |
|
|
175 |
|
|
Payment of principal on term loans |
(2,065) |
|
|
(3,391) |
|
|
Net cash used in financing activities |
(263) |
|
|
(15,383) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
(3,516) |
|
|
12,953 |
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
4,131 |
|
|
1,856 |
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
$ |
615 |
|
|
$ |
14,809 |
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
Interest |
$ |
1,376 |
|
|
$ |
3,523 |
|
|
Income taxes |
$ |
4,313 |
|
|
$ |
467 |
|
|
Non-cash investing activities: |
|
|
|
|
Fixed asset purchases in accounts payable |
$ |
123 |
|
|
$ |
146 |
|
See notes to unaudited consolidated financial
statements.
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and
include all of the information and disclosures required by
accounting principles generally accepted in the United States of
America for interim reporting, which are less than those required
for annual reporting. In the opinion of management, the
accompanying unaudited consolidated financial statements contain
all adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position of Core Molding
Technologies, Inc. and its subsidiaries (“Core Molding
Technologies” or the “Company”) at September 30, 2021, and the
results of operations and cash flows for the nine months ended
September 30, 2021. The “Notes to Consolidated Financial
Statements” contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 2020, should be read in
conjunction with these consolidated financial
statements.
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 one reporting unit. The Company
produces and sells molded products for varied markets, including
medium and heavy-duty trucks, automobiles, marine, construction and
agriculture, building products and other commercial markets. The
Company offers customers a wide range of manufacturing processes to
fit various program volume and investment requirements. These
processes include compression molding of sheet molding compound
("SMC"), 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
has its headquarters in Columbus, Ohio, and operates seven
production facilities in Columbus and Batavia, Ohio; Gaffney, South
Carolina; Winona, Minnesota; Matamoros and Escobedo, Mexico; and
Cobourg, Ontario, Canada. All production facilities produce
structural composite products. On November 5, 2020, the Company
announced it will close the manufacturing facility located in
Batavia, Ohio and is expected to complete the closure in the fourth
quarter of 2021.
2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Principles of Consolidation:
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.
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. On an on-going
basis, management evaluates its estimates and judgments. 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.
Revenue Recognition:
The Company recognizes revenue from two streams, product revenue
and tooling revenue. Product revenue is earned from the manufacture
and sale of thermoplastic and thermoset structural products.
Revenue from product sales is generally recognized as products are
shipped, as the Company transfers title and risk of ownership to
the customer and is entitled to payment. In limited circumstances,
the Company recognizes revenue from product sales when products are
produced and the customer takes title and risk of ownership at the
Company's production facility.
Tooling revenue is earned from manufacturing 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.
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 recorded an allowance for doubtful accounts of $107,000
and $41,000 at September 30, 2021 and December 31, 2020,
respectively.
Management also records an allowance for estimated customer
chargebacks for returns, price discounts and adjustments, premium
freight and expediting costs and customer production line
disruption costs resulting from late deliveries. At times,
customers have asserted a right to significant production line
disruption charges to recover damages as a result of late delivery.
The Company typically works with its customers to minimize
disruption charges, validate damages and negotiate resolution. The
Company records accruals for customer chargebacks when a valid
charge is probable and the amount of the charge can be reasonably
estimated. Should customer chargebacks fluctuate from the estimated
amounts, additional allowances may be necessary. The Company
reduced accounts receivable for chargebacks by $611,000 at
September 30, 2021 and $179,000 at December 31,
2020.
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 $268,000 at
September 30, 2021 and $546,000 at December 31,
2020.
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. The
Company has recorded contract assets of $104,000 at
September 30, 2021, and $554,000 at December 31, 2020.
Contract assets are classified as current within prepaid expenses
and other current assets in the Consolidated Balance Sheets. For
the nine months ended September 30, 2021, the Company
recognized no impairments on contract assets. For the nine months
ended September 30, 2021, the Company recognized $4,867,000 of
revenue from contract liabilities related to open jobs outstanding
as of December 31, 2020.
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.
Long-Lived Assets:
Long-lived assets consist primarily of property, plant and
equipment and definite-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 property, plant and equipment 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 nine months ended September 30, 2021 and
September 30, 2020.
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.
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 period. The Company may resume the
qualitative assessment in any subsequent period.
Under a qualitative and quantitative approach, the impairment test
for goodwill consists of an assessment of whether it is
more-likely-than-not that the 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, 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, or if a qualitative assessment indicates it is
more-likely-than-not that the estimated carrying value exceeds its
fair value, the Company proceeds to a quantitative
approach.
There were no indicators of impairment for the nine months ended
September 30, 2021. The company also performed a qualitative
analysis for the year end December 31, 2020 and determined that no
impairment was needed for the year 2020.
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 September 30, 2021 and December 31, 2020 of $1,143,000
and $933,000, respectively.
Derivative Instruments:
Derivative instruments are utilized to manage exposure to
fluctuations in foreign currency exchange rates and interest rates
on long term debt obligations. All derivative instruments are
formally documented as cash flow hedges and are recorded at fair
value at each reporting period. Gains and losses related to
currency forward contracts and interest rate swaps are deferred and
recorded as a component of Accumulated Other Comprehensive Income
in the Consolidated Statement of Stockholders' Equity and then
subsequently recognized in the Consolidated Statement of Operations
when the hedged item affects net income. The ineffective portion of
the change in fair value of a hedge, if any, is recognized in
income. For additional information on derivative instruments, see
Note 14, "Fair Value of Financial Instruments".
Post-retirement Benefits:
Management records an accrual for post-retirement costs associated
with the health care plan sponsored by Core Molding Technologies.
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 Core Molding Technologies’ operations.
The effect of a change in healthcare costs is described in Note 12,
"Post-Retirement Benefits", of the Notes to Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 2020. Core Molding
Technologies had a liability for post-retirement healthcare
benefits based on actuarial computed estimates of $9,031,000 at
September 30, 2021 and $9,109,000 at December 31,
2020.
3. 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 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. This ASU will
have no material impact on our consolidated financial
statements.
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.
4. 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 appreciation rights and restricted stock under the
treasury stock method.
On May 13, 2021, the Company's shareholders approved the 2021 Long
Term Equity Incentive Plan (the “2021 Plan”) that replaced the 2006
Long Term Equity Incentive Plan (the “2006 Plan”) approved in May
2006 and amended in May 2015. The 2021 Plan provides restricted
stock award recipients voting rights equivalent to the Company's
common stock and accrual of dividends but not receipt of dividends
until all conditions or restrictions related to such award have
been satisfied. Accordingly, the restricted shares are not
considered participating shares. The 2006 Plan provides restricted
shares award recipients voting rights equivalent to the Company’s
common stock and accrual and receipt of dividends irrespective of
any conditions or restrictions related to such award being
satisfied. Accordingly, the restricted shares granted from the 2006
Plan 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.
The computation of basic and diluted net income (loss) per common
share (in thousands, except for per share data) is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, |
|
Nine months ended
September 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net income (loss) |
$ |
(3,312) |
|
|
$ |
3,343 |
|
|
$ |
4,230 |
|
|
$ |
9,032 |
|
|
Less: net income allocated to participating securities |
— |
|
|
207 |
|
|
234 |
|
|
438 |
|
|
Net income (loss) available to common shareholders |
$ |
(3,312) |
|
|
$ |
3,136 |
|
|
$ |
3,996 |
|
|
$ |
8,594 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic |
8,053,000 |
|
|
7,969,000 |
|
|
8,015,000 |
|
|
7,922,000 |
|
|
Effect of weighted average dilutive securities |
— |
|
|
— |
|
|
32,000 |
|
|
— |
|
|
Weighted average common and potentially issuable common shares
outstanding — diluted |
8,053,000 |
|
|
7,969,000 |
|
|
8,047,000 |
|
|
7,922,000 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share |
$ |
(0.41) |
|
|
$ |
0.39 |
|
|
$ |
0.50 |
|
|
$ |
1.08 |
|
|
Diluted net income (loss) per common share |
$ |
(0.41) |
|
|
$ |
0.39 |
|
|
$ |
0.50 |
|
|
$ |
1.08 |
|
The computation of basic and diluted net income per participating
share (in thousands, except for per share data) is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, |
|
Nine months ended
September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
Net income allocated to participating securities |
$ |
— |
|
|
$ |
207 |
|
|
$ |
234 |
|
|
$ |
438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average participating shares outstanding —
basic |
— |
|
|
526,000 |
|
|
470,000 |
|
|
404,000 |
|
|
|
Effect of dilutive securities on participating shares |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Weighted average common and potentially issuable participating
shares outstanding — diluted |
— |
|
|
526,000 |
|
|
470,000 |
|
|
404,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per participating share |
$ |
0.00 |
|
|
$ |
0.39 |
|
|
$ |
0.50 |
|
|
$ |
1.08 |
|
|
|
Diluted net income per participating share |
$ |
0.00 |
|
|
$ |
0.39 |
|
|
$ |
0.50 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. MAJOR CUSTOMERS
The Company had five major customers during the nine months ended
September 30, 2021, BRP, Inc. (“BRP”), Navistar, Inc.
(“Navistar”), PACCAR, Inc. (“PACCAR”), Universal Forest Products,
Inc. (“UFP”), and Volvo Group North America, LLC (“Volvo”). 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 Company.
The following table presents sales revenue for the above-mentioned
customers for the three and nine months ended September 30,
2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, |
|
Nine months ended
September 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
BRP product sales |
$ |
6,907 |
|
|
$ |
4,240 |
|
|
$ |
25,896 |
|
|
$ |
13,693 |
|
|
BRP tooling sales |
124 |
|
|
175 |
|
|
362 |
|
|
508 |
|
|
Total BRP sales
|
7,031 |
|
|
4,415 |
|
|
26,258 |
|
|
14,201 |
|
|
|
|
|
|
|
|
|
|
|
Navistar product sales |
10,027 |
|
|
8,065 |
|
|
30,933 |
|
|
25,231 |
|
|
Navistar tooling sales |
6,656 |
|
|
5,198 |
|
|
6,962 |
|
|
6,384 |
|
|
Total Navistar sales
|
16,683 |
|
|
13,263 |
|
|
37,895 |
|
|
31,615 |
|
|
|
|
|
|
|
|
|
|
|
PACCAR product sales |
6,872 |
|
|
8,268 |
|
|
27,056 |
|
|
19,383 |
|
|
PACCAR tooling sales |
715 |
|
|
179 |
|
|
1,547 |
|
|
386 |
|
|
Total PACCAR sales
|
7,587 |
|
|
8,447 |
|
|
28,603 |
|
|
19,769 |
|
|
|
|
|
|
|
|
|
|
|
UFP product sales |
7,551 |
|
|
12,188 |
|
|
33,323 |
|
|
30,659 |
|
|
UFP tooling sales |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Total UFP sales
|
7,551 |
|
|
12,188 |
|
|
33,323 |
|
|
30,659 |
|
|
|
|
|
|
|
|
|
|
|
Volvo product sales |
7,804 |
|
|
4,907 |
|
|
25,359 |
|
|
14,647 |
|
|
Volvo tooling sales |
70 |
|
|
38 |
|
|
117 |
|
|
2,186 |
|
|
Total Volvo sales
|
7,874 |
|
|
4,945 |
|
|
25,476 |
|
|
16,833 |
|
|
|
|
|
|
|
|
|
|
|
Other product sales |
28,482 |
|
|
16,572 |
|
|
73,327 |
|
|
48,406 |
|
|
Other tooling sales |
5,817 |
|
|
43 |
|
|
9,433 |
|
|
222 |
|
|
Total other sales
|
34,299 |
|
|
16,615 |
|
|
82,760 |
|
|
48,628 |
|
|
|
|
|
|
|
|
|
|
|
Total product sales |
67,643 |
|
|
54,240 |
|
|
215,894 |
|
|
152,019 |
|
|
Total tooling sales |
13,382 |
|
|
5,633 |
|
|
18,421 |
|
|
9,686 |
|
|
Total sales
|
$ |
81,025 |
|
|
$ |
59,873 |
|
|
$ |
234,315 |
|
|
$ |
161,705 |
|
6. INVENTORY
Inventories, net consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
Raw materials
|
$ |
14,662 |
|
|
$ |
11,640 |
|
|
Work in process
|
1,501 |
|
|
1,679 |
|
|
Finished goods
|
6,247 |
|
|
5,041 |
|
|
Total
|
$ |
22,410 |
|
|
$ |
18,360 |
|
Inventory quantities on-hand are regularly reviewed, and where
necessary, provisions for excess and obsolete inventory are
recorded based on historical and anticipated usage.
7. LEASES
The Company has operating leases with fixed payment terms for
certain buildings and warehouses. The Company's leases have
remaining lease terms of less than one year to four years, some of
which include options to extend the lease for five years. Operating
leases are included in operating lease right-of-use ("ROU") assets,
accrued other liabilities and other non-current liabilities in the
Consolidated Balance Sheets. ROU assets represent our right to use
an underlying asset for the lease term and lease liabilities
represent our 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 components of lease expense were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine months ended
September 30, |
|
2021 |
|
2020 |
|
2021 |
|
|
2020 |
|
Operating lease cost |
$ |
390 |
|
|
$ |
357 |
|
|
$ |
1,145 |
|
|
|
$ |
1,072 |
|
Other supplemental balance sheet information related to leases was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
Operating lease right of use assets |
$ |
3,631 |
|
|
$ |
2,754 |
|
|
|
|
|
|
|
Current operating lease liabilities(A)
|
$ |
1,137 |
|
|
$ |
1,023 |
|
|
Noncurrent operating lease liabilities(B)
|
2,453 |
|
|
1,670 |
|
|
Total operating lease liabilities |
$ |
3,590 |
|
|
$ |
2,693 |
|
|
|
|
|
|
(A)Current
operating lease liabilities are included in
accrued other liabilities on the Consolidated Balance
Sheets.
(B)Noncurrent
operating lease liabilities are included in
other non-current liabilities in the Consolidated
Balance Sheets.
The following table presents certain information related to lease
terms and discount rates for leases as of September 30, 2021 and
December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
September 30, 2021 |
|
December 31, 2020 |
|
|
Weighted average remaining lease term (in years): |
3.8 |
|
3.5 |
|
|
|
|
|
|
|
|
Weighted average discount rate: |
5.5 |
% |
|
5.9 |
% |
|
|
|
|
|
|
Other information related to leases were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, |
|
2021 |
|
2020 |
|
Cash paid for amounts included in the measurement of lease
liabilities |
|
|
|
|
Operating cash flows from operating leases(C)
|
$ |
1,145 |
|
|
$ |
1,072 |
|
(C)Cash
flow from operating leases are included in prepaid and other assets
in the Consolidated Statements of Cash Flows.
Maturities of operating lease liabilities were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
2021 (remainder of year) |
$ |
373 |
|
|
$ |
1,215 |
|
|
|
2022 |
1,143 |
|
|
811 |
|
|
|
2023 |
1,044 |
|
|
706 |
|
|
|
2024 |
1,050 |
|
|
705 |
|
|
|
2025 and beyond |
629 |
|
|
— |
|
|
|
Total lease payments |
4,239 |
|
|
3,437 |
|
|
|
Less: imputed interest |
(649) |
|
|
(744) |
|
|
|
Total lease obligations |
3,590 |
|
|
2,693 |
|
|
|
Less: current obligations |
(1,137) |
|
|
(1,023) |
|
|
|
Long-term lease obligations |
$ |
2,453 |
|
|
$ |
1,670 |
|
|
8. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment, net consisted of the following for
the periods specified (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
Property, plant and equipment |
$ |
181,556 |
|
|
$ |
174,553 |
|
|
Accumulated depreciation |
(107,179) |
|
|
(100,501) |
|
|
Property, plant and equipment — net |
$ |
74,377 |
|
|
$ |
74,052 |
|
Property, plant, and equipment are recorded at cost, unless
obtained through acquisition, then assets are recorded at estimated
fair value at the date of acquisition. 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 an adjustment to the depreciation period
or to the unamortized balance is warranted. Depreciation expense
for the three months ended September 30, 2021 and 2020 was
$2,471,000 and $2,273,000, respectively. Depreciation expense for
the nine months ended September 30, 2021 and 2020 was
$7,414,000 and $6,764,000, respectively. Amounts invested in
capital additions in progress were $5,227,000 and $1,422,000 at
September 30, 2021 and December 31, 2020, respectively.
At September 30, 2021 and December 31, 2020, purchase
commitments for capital expenditures in progress were $3,561,000
and $677,000, respectively.
9. GOODWILL AND INTANGIBLES
Goodwill activity for the nine months ended September 30, 2021
consisted of the following (in thousands):
|
|
|
|
|
|
|
Balance at December 31, 2020 |
$ |
17,376 |
|
|
Additions |
— |
|
|
Impairment |
— |
|
|
Balance at September 30, 2021 |
$ |
17,376 |
|
Intangibles, net at September 30, 2021 were comprised of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived Intangible Assets |
Amortization Period |
|
Gross Carrying
Amount |
|
Accumulated
Amortization |
|
Net Carrying
Amount |
|
Trade name |
25 Years |
|
$ |
250 |
|
|
$ |
(65) |
|
|
$ |
185 |
|
|
Trademarks |
10 Years |
|
1,610 |
|
|
(597) |
|
|
1,013 |
|
|
Non-competition agreement |
5 Years |
|
1,810 |
|
|
(1,343) |
|
|
467 |
|
|
Developed technology |
7 Years |
|
4,420 |
|
|
(2,342) |
|
|
2,078 |
|
|
Customer relationships |
10-12 Years
|
|
9,330 |
|
|
(3,019) |
|
|
6,311 |
|
|
Total |
|
|
$ |
17,420 |
|
|
$ |
(7,366) |
|
|
$ |
10,054 |
|
Intangibles, net at December 31, 2020 were comprised of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived Intangible Assets |
Amortization Period |
|
Gross Carrying
Amount |
|
Accumulated
Amortization |
|
Net Carrying
Amount |
|
Trade name |
25 Years |
|
$ |
250 |
|
|
$ |
(58) |
|
|
$ |
192 |
|
|
Trademarks |
10 Years |
|
1,610 |
|
|
(476) |
|
|
1,134 |
|
|
Non-competition agreement |
5 Years |
|
1,810 |
|
|
(1,071) |
|
|
739 |
|
|
Developed technology |
7 Years |
|
4,420 |
|
|
(1,869) |
|
|
2,551 |
|
|
Customer relationships |
10-12 Years
|
|
9,330 |
|
|
(2,430) |
|
|
6,900 |
|
|
Total |
|
|
$ |
17,420 |
|
|
$ |
(5,904) |
|
|
$ |
11,516 |
|
The aggregate intangible asset amortization expense was $488,000
and $487,000 for the three months ended September 30, 2021 and
2020, respectively. The aggregate intangible asset amortization
expense was $1,462,000 and $1,461,000 for the nine months ended
September 30, 2021 and 2020, respectively.
10. POST-RETIREMENT BENEFITS
The components of expense for the Company’s post-retirement benefit
plans are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, |
|
Nine months ended
September 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Pension expense: |
|
|
|
|
|
|
|
|
Multi-employer plan
|
$ |
179 |
|
|
$ |
157 |
|
|
$ |
600 |
|
|
$ |
549 |
|
|
Defined contribution plan
|
263 |
|
|
258 |
|
|
881 |
|
|
766 |
|
|
Total pension expense |
442 |
|
|
415 |
|
|
1,481 |
|
|
1,315 |
|
|
Health and life insurance: |
|
|
|
|
|
|
|
|
Interest cost
|
41 |
|
|
58 |
|
|
122 |
|
|
177 |
|
|
Amortization of prior service credits |
(124) |
|
|
(124) |
|
|
(372) |
|
|
(372) |
|
|
Amortization of net loss
|
43 |
|
|
46 |
|
|
130 |
|
|
135 |
|
|
Net periodic benefit credit |
(40) |
|
|
(20) |
|
|
(120) |
|
|
(60) |
|
|
Total post-retirement benefits expense |
$ |
402 |
|
|
$ |
395 |
|
|
$ |
1,361 |
|
|
$ |
1,255 |
|
The Company made payments of $1,602,000 to pension plans and
$198,000 for post-retirement healthcare and life insurance during
the nine months ended September 30, 2021. For the remainder of
2021, the Company expects to make approximately $300,000 of pension
plan payments, of which $136,000 was accrued at September 30,
2021. The Company also expects to make approximately $1,088,000 of
post-retirement healthcare and life insurance payments for the
remainder of 2021, all of which were accrued at September 30,
2021.
11. DEBT
Debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021 |
|
December 31,
2020 |
|
|
|
|
|
Wells Fargo term loans payable |
$ |
14,591 |
|
|
$ |
16,390 |
|
|
FGI term loans payable |
12,906 |
|
|
13,148 |
|
|
Leaf Capital term loan payable |
127 |
|
|
152 |
|
|
Total |
27,624 |
|
29,690 |
|
Less deferred loan costs |
(1,598) |
|
(1,957) |
|
Less current portion |
(3,774) |
|
(2,535) |
|
Long-term debt |
$ |
22,252 |
|
|
$ |
25,198 |
|
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 September 30, 2021.
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
September 30, 2021.
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, 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 security
deposit of $1,200,000 is included in other assets in the
Consolidated Balance Sheets.
Following the advance of funds by FGI, the FGI Term Loan is 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.,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 FGI Term Loan; three percent (3.0%) for
prepayments occurring on the first anniversary of the FGI Term Loan
until the second anniversary of the FGI Term Loan; two percent
(2.0%) for prepayments occurring on and after the second
anniversary of the FGI Term Loan 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.
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-year period following the closing.
The borrowing availability under the WF Revolving Loan 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 4.25% as of September 30,
2021.
The WF Revolving Loan commitment terminates, and all outstanding
borrowings thereunder must be repaid, by November 30, 2024. The
Company has $24,321,000 of available rate revolving loans of which
$2,320,000 is outstanding as of September 30, 2021.
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 September 30, 2021, the Company had one
Letter of Credit outstanding for $160,000.
KeyBank Loan
On September 30, 2020, the Company had a term loan of $35,035,000
and no revolving loan balance with KeyBank National Association.
The Company’s term loan and revolving loan had variable interest
rate of 8.00% at September 30, 2020.
Bank Covenants
The Company is required to meet certain financial covenants
included in the Credit Agreement with respect to fixed coverage
charge ratio. As of September 30, 2021, the Company was in
compliance with its financial covenants associated with the loans
made under the Credit Agreement as described above.
12. INCOME TAXES
The Company evaluates the balance of deferred tax assets that will
be realized based on the premise that the Company is more likely
than not to realize deferred tax benefits through the generation of
future taxable income. Management makes assumptions, judgments, and
estimates to determine 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.
The Company’s Consolidated Balance Sheets include net deferred tax
assets of $460,000 for the Canadian and $469,000 for Mexican tax
jurisdictions and a net deferred tax liability of $288,000 for the
U.S. tax jurisdiction at September 30, 2021. The deferred tax
asset is classified in other non-current assets and deferred tax
liabilities are in other non-current liabilities. During the nine
months ended September 30, 2021, the Company increased its
valuation allowance from $1,193,000 at December 31, 2020 to
$2,259,000 at September 30, 2021. The valuation allowance is
against the interest limitation carryforward, U.S. state and local
net loss carryforward and a portion of the U.S. federal net loss
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.
Income tax expense for the nine months ended September 30,
2021 is estimated to be $3,290,000, approximately 43.8% of income
before income taxes, and includes tax expense in Canadian and
Mexican tax jurisdictions and a valuation allowance of $1,066,000
against U.S. tax jurisdiction deferred tax assets, offset by a tax
benefit in U.S. tax jurisdictions. Income tax benefit for the nine
months ended September 30, 2020 was estimated to be $4,933,000,
approximately 120.3% of income before income taxes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act") was enacted in response to the
COVID-19 pandemic, and among other things, provides tax relief to
businesses. Tax provisions of the CARES Act include the deferral of
certain payroll taxes, relief for retaining employees, and other
provisions, including allowing net operating losses to be carried
back five years versus an indefinite carryforward. An income tax
benefit of $5,638,000 was realized in the first quarter of 2020.
The income tax benefit consists of the reversal of the full
valuation allowance against net deferred tax assets in the United
States for approximately $3,267,000. The income tax benefit also
consists of a rate benefit of $2,371,000 based on the losses being
carried back to years 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.
The Company files income tax returns in the U.S., Mexico, Canada
and various state jurisdictions. The Company is not subject to U.S.
federal and state income tax examinations by tax authorities for
years prior to 2017, not subject to Mexican income tax examinations
by Mexican authorities for years prior to 2015 and not subject to
Canadian tax examinations by Canadian authorities for years prior
to 2018.
13. STOCK BASED COMPENSATION
On May 13, 2021, The Company's shareholders approved the 2021 Long
Term Equity Incentive Plan (the “2021 Plan”) that replaced the 2006
Long Term Equity Incentive Plan (the “2006 Plan”) approved in May
2006 and amended in May 2015. The 2021 Plan allows for grants to
employees, officers, non-employee directors, consultants,
independent contractors and advisors of non-qualified stock
options, incentive stock options, stock appreciation rights,
restricted stock, restricted stock units, and other stock-based
awards (“stock awards”) up to an aggregate of 924,823 awards.
Awards can be granted under the 2021 Plan through the earlier of
May 13, 2031, or the date the maximum number of available awards
under the 2021 Plan have been granted. No new awards may be granted
from the 2006 Plan.
Awards under the 2021 Plan vest over one to three years and shares
previously awarded and currently unvested under the 2006 Plan vest
over three years. Shares granted under both the 2006 and 2021 Plans
vest upon the date of a participant’s death, disability or change
in control.
Restricted Stock
The Company grants shares of its common stock to certain directors,
officers, key managers and employees in the form of unvested stock
and units (“Restricted Stock”). These awards are recorded at the
market value of the Company's common stock on the date of issuance
and amortized ratably as compensation expense over the applicable
vesting period, which is typically three years. The Company adjusts
compensation expense for actual forfeitures, as they
occur.
The following summarizes the status of Restricted Stock and changes
during the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares |
|
Weighted Average Grant Date Fair Value |
|
Unvested balance at December 31, 2020 |
507,835 |
|
|
$ |
6.25 |
|
|
Granted |
250,635 |
|
|
13.75 |
|
|
Vested |
(110,000) |
|
|
7.08 |
|
|
Forfeited |
(15,964) |
|
|
5.30 |
|
|
Unvested balance at September 30, 2021 |
632,506 |
|
|
$ |
9.06 |
|
At September 30, 2021 and 2020, there was $3,664,000 and
$1,928,000, respectively, of total unrecognized compensation
expense, related to Restricted Stock grants. The unrecognized
compensation expense at September 30, 2021 is expected to be
recognized over the weighted-average period of 2.3 years. Total
compensation cost related to Restricted Stock grants for the three
months ended September 30, 2021 and 2020 was $578,000 and
$319,000, respectively. Total compensation cost related to
Restricted Stock grants for the nine months ended September 30,
2021 and 2020 was $1,322,000 and $968,000, respectively, all of
which was recorded to selling, general and administrative
expense.
During the nine months ended September 30, 2021 and 2020,
employees surrendered 6,740 and 4,574 shares, respectively of the
Company's common stock to satisfy income tax withholding
obligations in connection with the vesting of restricted
awards.
Stock Appreciation Rights
As part of the Company's 2020 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 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 nine months ended September 30, 2021 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares |
|
Weighted Average Grant Date Fair Value |
|
Outstanding as of December 31, 2020 |
180,925 |
|
|
$ |
2.57 |
|
|
Granted |
— |
|
|
— |
|
|
Exercised |
— |
|
|
— |
|
|
Forfeited |
(3,909) |
|
|
2.57 |
|
|
Outstanding at end of the period ended September 30,
2021 |
177,016 |
|
|
$ |
2.57 |
|
|
Exercisable at end of the period ended September 30,
2021 |
124,801 |
|
|
$ |
2.57 |
|
The average remaining contractual term for those SARs outstanding
at September 30, 2021 is 2.5 years, with aggregate intrinsic
value of $267,000. At September 30, 2021 and 2020, there was
$81,000 and $225,000, respectively, of total unrecognized
compensation expense, related to SARs. The total unrecognized
compensation expenses as of September 30, 2021 is expected to
be recognized over the weighted average period of 0.5 years. Total
compensation cost related to SARs for the three months ended
September 30, 2021 and 2020 was $34,000 and $36,000,
respectively. Total compensation cost related to SARs for the nine
months ended September 30, 2021 and 2020 was $94,000 and $91,000,
respectively, all of which was recorded to selling, general and
administrative expense.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in a transaction between
market participants as of the measurement date. Fair value is
measured using the fair value hierarchy and related valuation
methodologies as defined in the authoritative literature. This
guidance provides a fair value framework that requires the
categorization of assets and liabilities into three levels based
upon the assumptions (inputs) used to price the assets or
liabilities. Level 1 provides the most reliable measure of fair
value, whereas Level 3 generally requires significant management
judgment.
The three levels are defined as follows:
Level 1 -Quoted
prices in active markets for identical assets and
liabilities.
Level 2 -Quoted
prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active and
model-derived valuations, in which all significant inputs are
observable in active markets.
Level 3 -Significant
unobservable inputs reflecting management's own assumptions about
the inputs used in pricing the asset or liability.
The Company’s financial instruments consist of 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 September 30, 2021 and December 31, 2020
approximate fair value due to the short-term maturities of these
financial instruments. The carrying amounts of WF Term Loan and WF
Revolving Loan approximate fair value as of September 30, 2021
and December 31, 2020 due to the short term nature of the
underlying variable rate LIBOR agreements. The FGI Term Loan
approximate fair value as of September 30, 2021 and
December 31, 2020 due to immaterial movement in interest rates
since the Company entered into the Promissory Note on October 20,
2020.The following tables summarize the amount of unrealized and
realized gain (loss) recognized in Accumulated Other Comprehensive
Income ("AOCI") for the three months ended September 30, 2021
and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
subtopic 815-20
Cash Flow Hedging
Relationship |
|
Amount of Unrealized
Gain (Loss) Recognized
in Accumulated Other
Comprehensive Income on
Derivative |
|
Location of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Income(A)
|
|
Amount of Realized Gain
(Loss) Reclassified from
Accumulated Other
Comprehensive Income |
|
|
|
2021 |
|
2020 |
|
|
|
2021 |
|
2020 |
Foreign exchange
contracts |
|
$ |
— |
|
|
$ |
668 |
|
|
Cost of goods sold |
|
$ |
— |
|
|
$ |
(219) |
|
|
|
|
|
|
|
|
Selling, general and administrative expense |
|
$ |
— |
|
|
$ |
(33) |
|
|
Interest rate swaps |
|
$ |
— |
|
|
$ |
321 |
|
|
Interest expense |
|
$ |
— |
|
|
$ |
(149) |
|
The following tables summarize the amount of unrealized and
realized gain (loss) recognized in Accumulated Other Comprehensive
Income ("AOCI") for the nine months ended September 30, 2021
and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
subtopic 815-20
Cash Flow Hedging
Relationship |
|
Amount of Unrealized
Loss Recognized
in Accumulated Other
Comprehensive Income on
Derivative |
|
Location of Loss
Reclassified from
Accumulated Other
Comprehensive Income
(A)
|
|
Amount of Realized Loss
Reclassified from
Accumulated Other
Comprehensive Income |
|
|
|
2021 |
|
2020 |
|
|
|
2021 |
|
2020 |
Foreign exchange
contracts |
|
$ |
— |
|
|
$ |
135,000 |
|
|
Cost of goods sold |
|
$ |
— |
|
|
$ |
(525,000) |
|
|
|
|
|
|
|
|
Selling, general and
administrative expense |
|
$ |
— |
|
|
$ |
(67,000) |
|
|
Interest rate swaps |
|
$ |
— |
|
|
$ |
(206,000) |
|
|
Interest expense |
|
$ |
— |
|
|
$ |
(343,000) |
|
(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 foreign currency spend.
15. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents changes in Accumulated Other
Comprehensive Income, net of tax, for the nine months ended
September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020: |
Derivative
Hedging
Activities |
|
Post Retirement
Benefit Plan
Items(A)
|
|
Accumulated
Other
Comprehensive
Income |
|
Balance at December 31, 2019 |
$ |
(191) |
|
|
$ |
1,561 |
|
|
$ |
1,370 |
|
|
Other comprehensive loss before reclassifications
|
(71) |
|
|
— |
|
|
(71) |
|
|
Amounts reclassified from accumulated other comprehensive
income |
(935) |
|
|
(236) |
|
|
(1,171) |
|
|
Income tax benefit
|
223 |
|
|
50 |
|
|
273 |
|
|
Balance at September 30, 2020 |
$ |
(974) |
|
|
$ |
1,375 |
|
|
$ |
401 |
|
|
|
|
|
|
|
|
|
2021: |
|
|
|
|
|
|
Balance at December 31, 2020 |
$ |
— |
|
|
$ |
1,375 |
|
|
$ |
1,375 |
|
|
Other comprehensive income before reclassifications |
— |
|
|
— |
|
|
— |
|
|
Amounts reclassified from accumulated other comprehensive
income |
— |
|
|
(242) |
|
|
(242) |
|
|
Income tax benefit
|
— |
|
|
51 |
|
|
51 |
|
|
Balance at September 30, 2021 |
$ |
— |
|
|
$ |
1,184 |
|
|
$ |
1,184 |
|
(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 10,
"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.
Part I — Financial Information
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition
and Results of Operations contains 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 Quarterly Report on Form
10-Q: 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
the Annual Report on Form 10-K for the year ended December 31,
2020.
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
one reporting unit. 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"), 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, construction
and agriculture, building products 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. 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, 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.
On November 5, 2020, the Company announced it will close the
manufacturing facility located in Batavia, Ohio and is expected to
complete the closure in the fourth quarter of 2021.
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, raw material cost inflation, labor availability,
and our customers’ production rates and inventory levels. The
Company's customers operate in many different markets with
different cyclicality and seasonality. The North American truck
market, which is highly cyclical, accounted for 41% and 42% of the
Company’s product revenue for the nine months ended
September 30, 2021 and 2020 respectively.
Operating performance is dependent on the Company’s ability to
manage changes in input costs for items such as raw materials,
labor, and overhead operating costs. The Company has certain
contractual commitments that restrict its ability to pass through
changes in input costs to certain customers.
As a result, during periods of significant increases or decreases
in input costs operating results may be impacted.
Performance is also affected by manufacturing efficiencies,
including items such as on time delivery, quality, scrap, and
productivity. Market factors of supply and demand can impact
operating costs. In periods of rapid increases or decreases in
customer demand, the Company is required to ramp operational
activity up or down quickly, which may impact manufacturing
efficiencies more than in periods of steady demand.
Operating performance is also dependent on the Company’s ability to
effectively launch new customer programs, which are 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.
For the nine months ended September 30, 2021, the Company
experienced larger than normal increases in raw material costs and
customer demand disruptions due to customer supply chain
challenges. For the nine months ended September 30, 2021, the
Company incurred raw material cost inflation of approximately
$19,103,000 of which the Company was able to recoup approximately
$12,253,000 from customers, which is included within product sales.
Due to contractual limitations, the Company is not able to pass
through all of its raw material price increases to its customers;
however, the Company is pursuing recovery of raw material inflation
costs, including from customers with contractual constraints and
customers whose contractual commitments expire.
The Company incurred operating losses, including closure costs, for
the three months and nine months ended September 30, 2021 of
$2,258,000 and $2,276,000, respectively, for the closure of its
Batavia, Ohio facility. The Company initially planned to complete
the closure of the facility in the first half of 2021 but was
delayed to ensure an orderly transition of customer products to
other Company facilities as well as other third-party suppliers.
During the third quarter of 2021, the Company completed the product
transition plan with its customers, which will allow for closure of
the facility by December 31, 2021. As a result of finalizing the
transition plan the Company has facility shutdown costs for losses
on disposal of fixed assets of $625,000, building repairs of
$431,000 and severance costs of $392,000. The Company does not
anticipate any additional material expenses related to the Batavia
manufacturing closure in the fourth quarter of 2021.
Forward Looking
Looking forward, based on industry analysts’ projections and
customer forecasts, the Company expects sales for the fourth
quarter of 2021 to increase as compared to the fourth quarter of
2020, primarily due to raw material cost inflation recoupment.
Excluding the raw material cost inflation recoupment, the Company
expects sales for the fourth quarter of 2021 to be flat to prior
year fourth quarter. In the Company’s largest market, North
American heavy-duty truck, ACT Research is forecasting production
of heavy-duty truck to be flat in the fourth quarter of 2021
compared to the same period in the prior year. The Company
anticipates that supply chain disruptions our customers have
experienced will continue in the fourth quarter and will result in
sporadic changes to demand.
The Company has experienced raw material cost inflation due to
ongoing raw material shortages and supply chain disruptions. The
Company anticipates increased raw material costs to continue
through the remainder of 2021. The Company will continue to pursue
recoupment of higher raw material costs where not contractually
constrained and where practical.
Labor markets in all Company locations have tightened over the past
several months and the Company anticipates the markets to remain
tight. The Company has had to raise wages and create other
solutions in order to hire and retain workers. The Company will
pursue customer price increases to recoup wage increases where
contractually possible and where such increases will not
significantly negatively impact demand.
Results of Operations
Three Months Ended September 30, 2021, as Compared to Three
Months Ended September 30, 2020
Net sales for the three months ended September 30, 2021 and
2020 totaled
$81,025,000
and $59,873,000, respectively. Included in net sales were tooling
project
sales of $13,382,000 and $5,663,000 for
the three months ended September 30, 2021 and 2020,
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 three
months ended September 30, 2021 were $67,643,000 compared to
$54,240,000 for the same period in 2020.
The increase in sales is primarily the result of higher demand from
the heavy-duty truck, power sports, and consumer product markets
and the recoupment of raw material inflation costs.
The Company experienced increased raw material costs in the three
months ended September 30, 2021 due to supply disruptions and
overall increase in global demand of certain materials. The Company
has the ability to pass through a portion, but not all, of the raw
material cost inflation incurred to its customers. For the three
months ended September 30, 2021, the Company had raw material
cost inflation of approximately $9,941,000. The Company was able to
recoup approximately $6,544,000 of the raw material cost inflation
during the three months ended September 30, 2021. Raw material
cost inflation was immaterial for the three months ended September
30, 2020.
Gross margin was approximately
7.9%
of sales for the three months ended September 30, 2021,
compared with 18.1% for the three months ended September 30,
2020.
The gross margin percentage decrease was due to net changes in
selling price and raw material cost of 7.0% and unfavorable product
mix and production inefficiencies of 4.9%, offset by higher fixed
cost leverage of 0.8%.
Included in selling, general and administrative expense
(“SG&A”)
for the three months ended
September 30, 2021
are closure costs of $1,768,000 related to the manufacturing
facility in Batavia, Ohio.
The remaining SG&A
costs for the three months ended
September 30, 2021
totaled $7,040,000 for the three months ended
September 30, 2021,
compared to $6,517,000 for the three months ended
September 30, 2020.
Increased SG&A expenses resulted primarily from higher labor
and benefits costs of $309,000 and increased travel costs of
$110,000.
Interest expense totaled $563,000 for the three months ended
September 30, 2021, compared to interest expense of $966,000
for the three months ended September 30, 2020. As a result of
restructuring the Company's debt in 2020, the Company had lower
average outstanding debt balance and lower interest rates during
the three months ended September 30, 2021, when compared to
the same period in 2020, which decreased interest expense in 2021.
Interest expense for the three months ended September 30, 2020
includes $225,000 of forbearance fees resulting from an amendment
of the Company’s credit agreement.
Income tax expense for the three months ended September 30,
2021 was $396,000 and includes statutory foreign tax expense from
foreign taxable income, offset by tax benefits net of valuation
allowance for tax losses in the United States. Income tax expense
for the three months ended September 30, 2020 was $32,000 and
includes statutory foreign tax expense from foreign taxable income
and an adjustment in the Company’s United States net operating
losses as the Company will receive a benefit from carrying back
2020 losses to previous tax years with higher tax
rates.
The Company recorded a net loss for the three months ended
September 30, 2021 of
$3,312,000 or $(0.41) per
basic and diluted share, compared with a net income of $3,343,000,
or $0.39 per basic and diluted share, for the three months ended
September 30, 2020. During the three months ended
September 30, 2021 the Company incurred net of tax losses of
$1,784,000 or ($0.22) per basic and diluted share for the Batavia
manufacturing facility closure.
Comprehensive loss totaled
$3,375,000 for the three months ended
September 30, 2021,
compared to comprehensive income of $3,742,000 for the same period
ended
September 30, 2020.
The decrease was primarily related to the decrease in net income of
$6,655,000 and foreign currency derivatives, net of tax of
$327,000.
Nine months Ended September 30, 2021, as Compared to Nine
Months Ended September 30, 2020
Net
sales for the nine months ended September 30, 2021 and 2020
totaled $234,315,000 and $161,705,000, respectively. Included in
net sales were tooling project sales of $18,421,000 and $9,686,000
for the nine months ended September 30, 2021 and 2020,
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 nine months
ended September 30, 2021 were $215,894,000 compared to
$152,019,000 for the same period in 2020. This increase in sales is
primarily the result of higher demand from the heavy-duty truck,
building product, power sports, and consumer product markets and
the recoupment of raw material cost inflation.
The Company experienced increased raw material costs in the nine
months ended September 30, 2021 due to supply disruptions and
overall increase in global demand of certain materials. The Company
has the ability to pass through a portion, but not all, of the raw
material cost inflation incurred to its customers. For the nine
months ended September 30, 2021, the Company had raw material
cost inflation of approximately $19,103,000. The Company was able
to recoup approximately $12,253,000 of the raw material cost
inflation during the nine months ended September 30,
2021.
Raw material cost inflation was immaterial for the nine months
ended September 30, 2020.
Gross margin was approximately
14.0%
of sales for the nine months ended September 30, 2021,
compared with 15.2% for the nine months ended September 30,
2020.
The gross margin percentage decrease was due to net changes in
selling price and raw material costs of 4.6%, offset by net
favorable product mix and production efficiencies of 1.3% and
higher fixed cost leverage of 2.4%.
Included in selling, general and administrative expense
(“SG&A”)
for the nine months ended
September 30, 2021
are closure costs of $2,027,000 related the manufacturing facility
in Batavia, Ohio.
Excluding closing costs, remaining SG&A
costs for the nine months ended
September 30, 2021
totaled $21,717,000 compared to $17,136,000 for the nine months
ended September 30, 2020. Increased SG&A expenses resulted
primarily from higher labor and benefits costs of $1,539,000,
increased business technology costs of $552,000 and increased
travel costs of $256,000. SG&A expenses for the nine months
ended
September 30, 2020
was favorably impacted from cost savings efforts implemented due to
COVID-19 and includes the favorable impact of COVID-19 related
government subsidies of $1,391,000.
Interest expense totaled $1,725,000 for the nine months ended
September 30, 2021, compared to interest expense of $3,338,000
for the nine months ended September 30, 2020.
As a result of restructuring the Company's debt in 2020, the
Company had lower average outstanding debt balance and lower
interest rates during the nine months ended September 30,
2021, when compared to the same period in 2020, which decreased
interest expense in 2021.
Interest expense for the nine months ended
September 30, 2020
includes $675,000 of forbearance fees resulting from amendments to
the Company’s credit agreement.
Income tax expense for the nine months ended September 30,
2021 was $3,290,000 and includes statutory foreign tax expense from
foreign taxable income offset by tax benefits, net of valuation
allowances, for tax losses in the United States. Income tax benefit
for the nine months ended September 30, 2020 was $4,933,000
and includes $5,638,000 of a 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 United
States statutory rate.
The Company recorded net income for the nine months ended
September 30, 2021 of
$4,230,000 or $0.50 per basic and diluted share,
compared with $9,032,000, or $1.08 per basic and diluted share, for
the nine months ended September 30, 2020. During the nine
months ended September 30, 2021 the Company incurred net of
tax losses of $1,798,000 or ($0.22) per basic and diluted share for
the Batavia manufacturing facility closure.
In 2020, net income was favorably impacted by $5,638,000, or $0.69
per share, as a result of a tax valuation allowance reversal and a
tax rate benefit due to tax law changes that allowed 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 United
States statutory rate.
Comprehensive income totaled $4,039,000
for the nine months ended
September 30, 2021,
compared to $8,063,000 for the same period ended
September 30, 2020.
The decrease was primarily related to the decrease in net income of
$4,802,000, offset by increases related to the foreign currency
derivatives, net of tax of $358,000 and interest rate swaps
derivatives, net of tax of $425,000.
Liquidity and Capital Resources
The Company’s primary sources of funds have been cash generated
from operating activities and borrowings from third parties.
Primary cash requirements are for operating expenses, capital
expenditures, 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. The Company had no outstanding foreign
exchange contracts nor interest rate swaps as of September 30,
2021.
Cash provided by operating activities for the nine months ended
September 30, 2021 totaled
$5,048,000. Net income of $4,230,000
positively impacted operating cash flows. Non-cash deductions of
depreciation and amortization included in net income amounted to
$9,273,000.
Changes in working capital decreased cash provided by operating
activities by $10,116,000. The decrease in working capital was
primarily related to changes in accounts receivable and inventory,
offset by change in accounts payable and accrued
liabilities.
Cash used in investing activities for the nine months ended
September 30, 2021
was $8,301,000, which
related to purchases of property, plant and equipment.
The Company anticipates spending up to $15,000,000 during 2021 on
property, plant and equipment purchases for all of the Company's
operations, including approximately $3,400,000 to expand the
Company’s DLFT capacity in Matamoros, Mexico. At
September 30, 2021, purchase commitments for capital
expenditures in progress were $3,561,000. The Company anticipates
using cash from operations, its available revolving line of credit
or equipment financing to fund capital investments.
Cash used for financing activities for the nine months ended
September 30, 2021 totaled
$263,000, which primarily consisted of net revolving loan
borrowings of $1,900,000 and scheduled repayments of principal on
outstanding term loans of $2,065,000.
At September 30, 2021, the Company had $615,000 cash on hand,
and a net available balance on the revolving line of credit of
$22,001,000.
The Company is required to meet certain financial covenants
included in the Credit Agreement with respect to fixed coverage
charge ratio. As of September 30, 2021, the Company was in
compliance with its financial covenants associated with the loans
made under the Credit Agreement as described above.
Management regularly evaluates the Company’s ability to effectively
meet its debt covenants. Based on the Company’s forecasts, which
are based on industry analysts’ estimates of heavy and medium-duty
truck production volumes, customers' forecasts, as well as other
assumptions, management believes that the Company will be able to
maintain compliance with its financial covenants for the next 12
months. Management believes that existing cash, cash flow from
operating activities and available borrowings under the Credit
Agreement will be sufficient to meet the Company’s liquidity needs
for the next 12 months. 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.
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 September 30, 2021.
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
September 30, 2021.
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, 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 security
deposit of $1,200,000 is included in other assets in the
Consolidated Balance Sheets.
Following the advance of funds by FGI, the FGI Term Loan is 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.,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 FGI Term Loan; three percent (3.0%) for
prepayments occurring on the first anniversary of the FGI Term Loan
until the second anniversary of the FGI Term Loan; two percent
(2.0%) for prepayments occurring on and after the second
anniversary of the FGI Term Loan 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.
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-year period following the closing.
The borrowing availability under the WF Revolving Loan 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 4.25% as of September 30,
2021.
The WF Revolving Loan commitment terminates, and all outstanding
borrowings thereunder must be repaid, by November 30, 2024. The
Company has $24,321,000 of available rate revolving loans of which
$2,320,000 is outstanding as of September 30, 2021.
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 September 30, 2021, the Company had one
Letter of Credit outstanding for $160,000.
KeyBank Loan
On September 30, 2020, the Company had a term loan of $35,035,000
and no revolving loan balance with KeyBank National Association.
The Company’s term loan and revolving loan had variable interest
rate of 8.00% at September 30, 2020.
Off-Balance Sheet Arrangements
The Company did not have any significant off-balance sheet
arrangements as of September 30, 2021 or December 31,
2020.
The Company did not have or experience any material changes outside
the ordinary course of business as to contractual obligations,
including long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or other long
term liabilities reflected in the Company’s Consolidated Balance
Sheet under GAAP, as of September 30, 2021 and December 31,
2020.
Critical Accounting Policies and Estimates
For information on critical accounting policies and estimates, see
Note 2, "Critical Accounting Policies and Estimates," to the
consolidated financial statements included herein.
Recent Accounting Pronouncements
For information on the impact of recently issued accounting
pronouncements, see Note 3, "Recent Accounting Pronouncements," to
the consolidated financial statements included herein.
Part I — Financial Information
Item 3. 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. The Company may use derivative financial
instruments to hedge exposure to fluctuations in foreign exchange
rates and interest rates.
Core Molding Technologies has the following three items that are
sensitive to market risks: (1) Revolving Loans and Term Loans
under the Credit Agreement, some of which bear a variable interest
rate; (2) foreign currency purchases in which the Company purchases
Mexican pesos and Canadian dollars with United States dollars to
meet certain obligations; and (3) raw material purchases in which
Core Molding Technologies purchases various resins, fiberglass, and
metal components for use in production. The prices and availability
of these materials are affected by the prices of crude oil, natural
gas and other feedstocks, tariffs, as well as processing capacity
versus demand.
Assuming a hypothetical 10% change in short-term interest rates,
interest paid on the Term Loan would have been impacted, as the
interest rate on these loans is based upon LIBOR. It would not,
however, have a material effect on earnings before
tax.
Assuming a hypothetical 10% decrease in the United States dollar to
Mexican peso and Canadian dollar exchange rate, 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.
Part I — Financial Information
Item 4. 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 was
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
disclosure, 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. There were no changes in
internal controls over financial reporting (as such term is defined
in Exchange Act Rule 13a-15(f)) that occurred in the last
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.
Part II — Other Information
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation incidental
to the conduct of its business. The Company is presently not
involved in any legal proceedings which in the opinion of
management are likely to have a material adverse effect on the
Company's consolidated financial position or results of
operations.
Item 1A. Risk Factors
There have been no material changes in Core Molding Technologies'
risk factors from those previously disclosed in Core Molding
Technologies' Annual Report on Form 10-K for the year ended
December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
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Period |
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Total Number of Shares Purchased |
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Average Price Paid per Share |
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Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs |
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Maximum Number that May Yet be Purchased Under the Plans or
Programs |
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July 1 to 31, 2021 |
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3,363 |
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14.46 |
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— |
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— |
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August 1 to 31, 2021 |
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— |
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September 1 to 30, 2021 |
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— |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
SIGNATURES
Pursuant to the requirements 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.
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CORE MOLDING TECHNOLOGIES, INC.
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Date:
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November 8, 2021 |
By:
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/s/ David L. Duvall
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David L. Duvall
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President, Chief Executive Officer, and Director
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Date:
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November 8, 2021 |
By:
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/s/ John P. Zimmer
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John P. Zimmer
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Executive Vice President, Secretary, Treasurer and Chief Financial
Officer
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INDEX TO EXHIBIT
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Exhibit No. |
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Description |
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Location |
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2(a)(1) |
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Asset Purchase Agreement dated as of September 12, 1996, as
amended October 31, 1996, between Navistar and RYMAC Mortgage
Investment Corporation1
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2(a)(2) |
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Second Amendment to Asset Purchase Agreement dated
December 16, 19961
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2(b)(1) |
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Agreement and Plan of Merger dated as of November 1, 1996,
between Core Molding Technologies, Inc. and RYMAC Mortgage
Investment Corporation |
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2(b)(2) |
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First Amendment to Agreement and Plan of Merger dated as of
December 27, 1996 between Core Molding Technologies, Inc. and
RYMAC Mortgage Investment Corporation |
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2(c) |
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Asset Purchase Agreement dated as of October 10, 2001, between
Core Molding Technologies, Inc. and Airshield
Corporation |
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2(d) |
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Asset Purchase Agreement dated as of March 20, 2015, between
Core Molding Technologies, Inc and CPI Binani, Inc. |
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2(e) |
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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 |
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3(a)(1) |
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Certificate of Incorporation of Core Molding Technologies, Inc. as
filed with the Secretary of State of Delaware on October 8,
1996 |
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3(a)(2) |
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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 |
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3(a)(3) |
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Certificate of Amendment of Certificate of Incorporation as filed
with the Secretary of State of Delaware on August 28,
2002 |
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3(a)(4) |
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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 |
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3(a)(5) |
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Certificate of Elimination of Series A Junior Participating
Preferred Stock, as filed with the Secretary of State of the State
of Delaware on April 2, 2015. |
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3(b) |
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Amended and Restated By-Laws of Core Molding Technologies,
Inc. |
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3(b)(1) |
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Amendment No. 1 to the Amended and Restated By-Laws of Core Molding
Technologies, Inc. |
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Exhibit No. |
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Description |
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Location |
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4(a)(1) |
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Certificate of Incorporation of Core Molding Technologies, Inc. as
filed with the Secretary of State of Delaware on October 8,
1996 |
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4(a)(2) |
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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 |
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4(a)(3) |
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Certificate of Amendment of Certificate of Incorporation as filed
with the Secretary of State of Delaware on August 28,
2002 |
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4(a)(4) |
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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 |
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4(a)(5) |
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Certificate of Elimination of Series A Junior Participating
Preferred Stock, as filed with the Secretary of State of the State
of Delaware on April 2, 2015 |
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10 (m) |
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Form of Restricted Stock Agreement between Core Molding
Technologies, Inc. and certain executive officers, dated August 6,
2021 |
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10 (n) |
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Form of Executive Employment Agreement between David L. Duvall and
Core Molding Technologies, Inc, dated August 6, 2021 |
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10 (q) |
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Form of Executive Employment Agreement between Core Molding
Technologies, Inc. and certain executive officers, dated August 6,
2021 |
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11 |
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Computation of Net Income per Share |
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31(a) |
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Section 302 Certification by David L. Duvall, President, Chief
Executive Officer, and Director |
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31(b) |
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Section 302 Certification by John P. Zimmer, Vice President,
Secretary, Treasurer, and Chief Financial Officer |
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32(a) |
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Certification of David L. Duvall, Chief Executive Officer of Core
Molding Technologies, Inc., dated November 5, 2021, pursuant to 18
U.S.C. Section 1350 |
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32(b) |
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Certification of John P. Zimmer, Chief Financial Officer of Core
Molding Technologies, Inc., dated November 5, 2021, pursuant to 18
U.S.C. Section 1350 |
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101.INS |
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XBRL Instance Document |
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Filed Herein |
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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Filed Herein |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase |
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Filed Herein |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase |
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Filed Herein |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase |
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Filed Herein |
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Exhibit No. |
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Description |
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Location |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase |
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Filed Herein |
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104 |
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Cover Page Interactive Data File (formatted in Inline XBRL and
contained in Exhibit 101) |
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Filed Herein |
The Asset Purchase Agreement, as filed with the Securities and
Exchange Commission as 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.
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