EDGAR 10-K Filing

Company CIK: 1026655
Filing Year: 2021
Filename: 1026655_10-K_2021_0001026655-21-000003.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
HISTORICAL DEVELOPMENT OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
In 1996, RYMAC Mortgage
Investment Corporation (“RYMAC”) incorporated Core
Molding Technologies, Inc. (“Core
Molding
Technologies” or the “Company”), formerly known as Core Materials
Corporation before changing its name on August
28, 2002,
for the purpose of acquiring the
Columbus Plastics unit of Navistar, Inc.
(“Navistar”), formerly known as International
Truck &
Engine Corporation. On
December
31, 1996, RYMAC
merged with and into
the Company, with the
Company as the surviving
entity. Immediately after
the merger, the
Company acquired substantially
all the assets
and liabilities of
the Columbus Plastics
unit from Navistar in
return for a
secured note, which has
been repaid, and
4,264,000 shares of newly
issued common stock
of
the Company. On
July
18, 2007, the
Company entered into
a stock repurchase
agreement with Navistar,
pursuant to which
the
Company repurchased 3,600,000 shares of the Company’s
common stock, from Navistar.
On August
16, 2013, Navistar sold its
remaining 664,000 shares of common stock in a series of open market
sales.
In 1998, the Company opened a second compression molding plant located in Gaffney, South Carolina as part of the Company’s
growth strategy to expand its customer base. This facility
provided the Company with additional capacity and a strategic location
to serve both current and prospective customers.
In October 2001,
the Company incorporated
Core Composites Corporation as
a wholly owned subsidiary
under the laws of
the
State of Delaware. This entity was established for the purpose of holding and establishing operations for Airshield Corporation’s
assets, which the Company
acquired on October
16, 2001 (the “Airshield
Asset Acquisition”) as
part of the Company’s diversified
growth strategy.
Airshield Corporation
was a
privately held
manufacturer and
marketer of
fiberglass reinforced
plastic parts
primarily for
the truck
industry. The
Company purchased
substantially all
of the
assets of
Airshield Corporation
through the
United States Bankruptcy Court
as Airshield Corporation
had been operating under
Chapter 11 bankruptcy protection
since March
2001.
In conjunction
with establishment
of operations
for the
assets acquired
in the
Airshield Asset
Acquisition, the
Company
established a Mexican
subsidiary and leased
a production facility
in Mexico. In
October 2001,
the Company (5%
owner) and
Core Composites Corporation (95%
owner) incorporated Corecomposites de
Mexico, S. de R.L. de
C.V. (“Corecomposites”) in
Matamoros, Mexico. Corecomposites was organized to operate under a maquiladora
program whereby substantially all products
produced are exported back to
Core Composites Corporation which sells
such products to United States
based external customers.
In June
of 2009, the Company
completed construction and took
occupancy of a new
production facility in Matamoros,
Mexico
that replaced its leased facility.
In August 2005, the
Company formed Core
Composites Cincinnati, LLC,
("Core Composites
Cincinnati") a Delaware
limited
liability company and wholly
owned subsidiary of the
Company. This entity was
formed for the purpose
of establishing operations
and holding assets
acquired from the
Cincinnati Fiberglass Division
of Diversified Glass
Inc., which the
Company acquired in
August 2005. The Cincinnati Fiberglass Division
of Diversified Glass, Inc. was
a privately held manufacturer and
distributor of
fiberglass reinforced plastic
components supplied primarily
to the heavy
-duty truck market.
As a result
of this acquisition,
the
Company leases a manufacturing facility in Batavia, Ohio.
In March 2015,
the Company acquired
substantially all of
the assets of
CPI Binani, Inc.,
a Minnesota based
manufacturer and
producer of
direct long
fiber thermoplastic
products, and
a wholly owned
subsidiary of
Binani Industries
Limited, located
in
Winona, Minnesota ("CPI"). The purpose of the acquisition was to increase the Company's process capabilities and diversify the
Company's customer base.
On January
16, 2018, 1137925
B.C Ltd., subsequently
renamed Horizon Plastics
International Inc., a
wholly owned subsidiary
of the Company, entered into an Asset Purchase Agreement (the "Agreement")
with Horizon Plastics International Inc.,1541689
Ontario Inc., 2551024
Ontario Inc. and Horizon
Plastics de Mexico, S.A.
de C.V. (collectively "Horizon
Plastics"). Pursuant to
the terms of
the Agreement the
Company acquired substantially all
of the assets
and assumed certain liabilities
of Horizon Plastics.
Horizon Plastics is a
custom low-pressure structural plastic molder, which
utilizes both structural foam and
structural web process
technologies, operating within two
manufacturing facilities located in
Cobourg, Canada and Escobedo,
Mexico. The purpose of
the acquisition was to increase the Company's process capabilities to include structural
foam and structural web molding, expand
its geographical footprint, and diversify the Company's customer base.
DESCRIPTION OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
Certain statements
under this
caption of
this Annual Report
on Form
10-K constitute
forward-looking statements
within the
meaning of the
federal securities laws.
As a general
matter,
forward-looking statements
are those focused
upon future plans,
objectives or performance as opposed to historical items and include statements of
anticipated events or trends and expectations
and beliefs relating to matters
not historical in nature. Such
forward-looking statements involve known
and unknown risks and
are subject to
uncertainties and factors relating
to Core Molding
Technologies' operations and business
environment, all of
which
are difficult to
predict and many
of which are
beyond Core Molding
Technologies' control. Words
such as “may,” “will,”
“could,”
“would,” “should,”
“anticipate,” “predict,”
“potential,” “continue,”
“expect,” “intend,”
“plans,” “projects,”
“believes,”
“estimates,” “encouraged,” “confident”
and similar expressions are
used to identify
these forward-looking statements.
These
uncertainties and factors could cause
Core Molding Technologies'
actual results to
differ materially from
those matters expressed
in or implied by such forward-looking statements.
Core Molding Technologies
believes that
the following
factors, among
others, could
affect its
future performance and
cause
actual results to differ materially from those expressed or implied by forward-looking statements made in
this Annual Report on
Form 10-K: business conditions in the plastics, transportation, marine and commercial
product industries (including changes in
demand for truck production); federal and
state regulations (including engine emission regulations); general economic,
social,
regulatory (including foreign
trade policy)
and political
environments in the
countries in
which Core Molding
Technologies
operates; the
adverse impact
of coronavirus
(COVID-19) global
pandemic on
our business,
results of
operations, financial
position, liquidity or cash flow, as well as
impact on customers and supply chains; safety and
security conditions in Mexico and
Canada; fluctuations in
foreign currency exchange rates;
dependence upon certain
major customers as
the primary source of
Core Molding Technologies’
sales revenues; efforts
of Core Molding
Technologies to expand
its customer base;
the ability to
develop new and innovative products and to diversify markets, materials
and processes and increase operational
enhancements;
ability to accurately
quote and execute
manufacturing processes for new
business; the actions
of competitors, customers,
and
suppliers; failur
e
of Core
Molding Technologies’
suppliers to
perform their
obligations; the
availability of
raw materials;
inflationary pressures; new
technologies; regulatory
matters; labor
relations; labor
availability; a
work stoppage
or labor
disruption at
one of our
union locations or
one of our
customer or supplier
locations; the
loss or inability
of Core Molding
Technologies to attract and
retain key personnel; the Company's
ability to successfully identify,
evaluate and manage potential
acquisitions and to benefit from and properly integrate any
completed acquisitions; federal, state and local
environmental laws
and regulations; the
availability of sufficient
capital; the ability
of Core Molding
Technologies to provide
on-time delivery to
customers, which may require additional shipping expenses to ensure on-time delivery or otherwise result in late fees
and other
customer charges; risk of cancellation or rescheduling of
orders; management’s decision to pursue new
products or businesses
which involve additional costs,
risks or capital expenditures;
inadequate insurance coverage to
protect against potential
hazards;
equipment and machinery
failure; product liability
and warranty claims;
and other risks
identified from time
to time in
Core
Molding Technologies’ other public documents on file with
the Securities and Exchange Commission, including those
described
in Item 1A of this Annual Report on Form 10-K.
Core Molding Technologies
and its subsidiaries
operate in one
operating segment as
a molder of
thermoplastic and thermoset
structural products. The
Company's operating segment consists of two component
reporting units, Core Traditional and Horizon
Plastics. The Company offers customers a wide range of manufacturing processes to fit various
program volume and investment
requirements. These processes
include compression
molding of sheet
molding compound
("SMC"), bulk
molding compounds
("BMC"), resin
transfer molding
("RTM"), liquid
molding of
dicyclopentadiene ("DCPD"),
spray-up and
hand-lay-up, direct
long-fiber thermoplastics ("D
-LFT") and structural
foam and structural
web injection molding
("SIM"). Core Molding
Technologies serves
a wide
variety of
markets, including the
medium and
heavy-duty truck,
marine, automotive,
agriculture,
construction, and
other commercial
products. The demand
for Core
Molding Technologies’
products is
affected by
economic
conditions in the United
States, Mexico, and
Canada. Core Molding Technologies
’
manufacturing operations have a
significant
fixed cost
component. Accordingly,
during periods
of changing
demand, the
profitability of
Core Molding
Technologies’
operations may change proportionately more than revenues from operations.
Structural plastics compete largely against metals and have the strength
to function well during prolonged use.
Management
believes that structural plastic components offer many advantages
over metals, including:
●
heat resistance;
●
corrosion resistance;
●
lighter weight;
●
lower cost;
●
greater flexibility in product design;
●
part consolidation for multiple piece assemblies;
●
lower initial tooling costs for lower volume applications;
●
high strength-to-weight ratio; and
●
dent-resistance in comparison to steel or aluminum.
The largest
markets for
structural plastics
are transportation
(automotive and
truck), agriculture,
construction, marine,
and
industrial applications. As of December
31, 2020, the Company operated seven production facilities
in Columbus, Ohio; Batavia,
Ohio; Gaffney, South
Carolina; Winona, Minnesota; Matamoros
and Escobedo, Mexico;
and Cobourg, Canada,
which produce
structural plastic products.
Our manufacturing facilities utilize
various production processes; however,
end products are similar
and are
not unique to
a facility or
customer base.
Operating decision
makers (officers of
the Company)
are headquartered
in
Columbus, Ohio
and oversee
all manufacturing
operations for
all products
as well as
oversee customer
relationships with
all
customers. The Company supplies structural plastic products to truck manufacturers, automotive suppliers, and manufacturers of
marine and other commercial products.
In general, product growth and diversification are achieved in several different ways:
(1) resourcing of existing structural plastic
products
from another supplier
by an original
equipment manufacturer
(“OEM”); (2) obtaining
new structural plastic
products
through a selection process in which an OEM
solicits bids; (3) successful marketing of structural
plastic products for previously
non-structural plastic applications;
(4) converting alternative materials
to structural plastics; (5)
successful marketing of
structural
plastic products to OEMs outside
of our traditional markets; (6)
developing of new materials, technology and
processes to meet
current or
prospective customer
requirements; and
(7) acquiring
an existing
business. The
Company's efforts
continue to
be
directed towards all seven areas.
MAJOR COMPETITORS
The Company believes that it
is one of the largest
compounders and molders of
structural plastics using the
SMC, RTM, spray-
up, hand-lay-up, D-LFT and SIM molding processes in North America.
The Company faces competition from a number of other
molders including, most significantly,
Molded Fiber Glass Companies,
Continental Structural Plastics, Ashley
Industrial Molding,
René Matériaux
Composite Ltée
("RMC"), STS
Group and
The Composites
Group.
The Company
believes that
it is
well
positioned to compete
based primarily
on manufacturing capability
and location, product
quality, engineering capability,
cost,
and delivery.
However, the industry remains
highly competitive and some of
the Company's competitors have
greater financial
resources, research and development facilities, design engineering, manufacturing,
and marketing capabilities.
MAJOR CUSTOMERS
The Company had
five major customers
during the year
ended December
31, 2020, Universal
Forest Products,
Inc. (“UFP”),
Navistar, Inc. (“Navistar ”), PACCAR, Inc. (“PACCAR”), Volvo Group North America, LLC (“Volvo”), and BRP, Inc. (“BRP”).
Major customers are
defined as customers
whose sales individually
consist of more
than ten percent
of total sales
during any
annual or interim reporting
period in the
current year. The loss
of a significant portion
of sales to these
customers could have
a
material adverse effect on the business of the Company.
The North American truck
market in which
Navistar, Volvo, and
PACCAR compete is
highly competitive and
the demand for
heavy and
medium-duty trucks
is subject
to considerable
volatility as
it moves
in response
to cycles
in the
overall business
environment and
is particularly
sensitive to
the industrial
sector, which
generates a
significant portion
of the
freight tonnage
hauled.
Truck demand also depends on general economic conditions, among other
factors.
UFP supplies products to three
industry segments:
retail, industrial, and construction.
These are a highly
-competitive markets,
with suppliers
competing for
a share
of available
shelf space
at large
“big box”
retailers and
independent contractors.
As a
discretionary product category, suppliers must also strive continuously to differentiate their products with unique designs,
colors,
and features, in addition
to maintaining a
constant focus on
cost reduction.
Demand for these products
is driven by residential
and commercial construction and general economic conditions, among other
influences.
BRP provides a portfolio of industry-leading
products comprising of snowmobiles,
watercraft, on and off-road vehicles,
marine
propulsion systems as
well as engines for
karts, motorcycles and
recreational aircraft.
Demand for these products
is driven by
consumer demand and general economic conditions.
Relationship with Navistar
The Company has
historically had a
Comprehensive Supply Agreement with Navistar
that provides for
the Company to be
the
primary supplier of Navistar’s original
equipment and service requirements
for fiberglass reinforced parts,
as long as
the Company
remains competitive in
cost, quality, and
delivery.
The Company's current
Comprehensive Supply Agreement with
Navistar is
effective through November
2, 2021.
The Company makes
products for
Navistar's Springfield,
Ohio; Tulsa, Oklahoma;
and Escobedo,
Mexico assembly plants,
as
well as aftermarket
products for
service distribution centers.
The Company works
closely on new
product development
with
Navistar's engineering
and research
personnel.
Products sold
to Navistar
include hoods,
roofs, air
deflectors, cab
extenders,
fender extensions, splash
panels, and other
components.
Sales to Navistar
amounted to approximately
18%, 20%,
and 20% of
total sales for 2020, 2019, and 2018,
respectively.
Relationship with Volvo
The Company has a Price Agreement with Volvo that governs supply of parts, pricing and payment terms.
The Price Agreement
with Volvo
is effective
through December
31, 2023.
The Company
makes products
for Volvo’s
New River
Valley (Dublin,
Virginia) and
Macungie, Pennsylvania
assembly plants,
as well
as aftermarket
products for
service distribution
centers.
The
Company works
closely on
new product
development with
Volvo’s engineering
and research
teams. Products
sold to
Volvo
include hoods, roofs,
sunvisors, air deflectors,
cab extenders and
other components. Sales to
Volvo amounted to approximately
12%, 17%, and 17% of total sales for 2020, 2019, and 2018, respectively.
Relationship with PACCAR
The Company has a Long-Term Supply Agreement with PACCAR that governs supply of parts, pricing and payment terms.
The
Agreement is effective
through November 30,
2023. The Company makes
products for PACCAR's
Chillicothe, Ohio; Denton,
Texas; Renton,
Washington; St.
Therese, Canada;
and Mexicali,
Mexico assembly
plants, as
well as aftermarket
products for
service distribution centers.
The Company also
works closely on
new product development
with PACCAR's engineering
and
research personnel.
Products sold
to PACCAR
include hoods,
roofs, back
panels, air
deflectors, air
fairings, fenders,
splash
panels, cab extenders, and other
components.
Sales to PACCAR amounted to
approximately 13%, 16%, and
16% of total sales
for 2020, 2019, and 2018, respectively.
Relationship with UFP
The Company
manufactures a
line of
outdoor living
and home
decor products
as part
of UFP's
broad offerings
to "big
box"
retailers. These products
are labeled and
packaged for direct
placement onto retail
shelves and are
shipped to UFP distribution
facilities primarily throughout North
America. The Company works
directly with UFP
on innovative product advances
that reduce
cost and extend
the appeal of
the products to
consumers. Sales to
UFP amounted to approximately
17%, 9%, and
10% of total
sales for 2020, 2019, and 2018, respectively.
Relationship with BRP
The Company manufactures molded products for BRP's assembly plants located in
Queretaro and Juarez, Mexico.
Products sold
to BRP include various molded components to support the assembly of personal watercraft and all-terrain vehicles. Sales to BRP
amounted to approximately 10%, 7%, and 6% of total sales in 2020,
2019 and 2018, respectively.
OTHER CUSTOMERS
The Company
also produces
products for
other truck
manufacturers, the
automotive industry,
marine industry,
commercial
product industries, and various
other customers and industries.
Sales to these customers
individually were all less
than 10% of
total sales for interim and annual reporting during 2020.
Sales to these customers amounted to approximately 31% of total sales
for each year ended 2020, 2019, and 2018.
GEOGRAPHIC INFORMATION
Substantially all
of the Company's
products are
sold in U.S.
dollars.
The following
table provides
information related
to the
Company's sales by country, based on the ship to location of customers'
production facilities, for the years ended December
31:
United States
$
136,424,000
$
178,953,000
$
181,207,000
Mexico
64,942,000
79,761,000
74,029,000
Canada
16,827,000
16,988,000
12,494,000
Other
4,163,000
8,588,000
1,755,000
Total
$
222,356,000
$
284,290,000
$
269,485,000
The following
table provides
information related
to the
location of
the Company's
property, plant
and equipment,
net, as
of
December
31:
United States
$
36,698,000
$
39,132,000
Mexico
29,537,000
31,865,000
Canada
7,817,000
8,209,000
Total
$
74,052,000
$
79,206,000
PRODUCTS
Sheet Molding Compound (“SMC”)
SMC is primarily
a combination of
resins, fiberglass, fillers,
and catalysts compounded
and cured in
sheet form, which
is then
used to
manufacture compression
-molded products,
as discussed
below. The Company
incorporates a
sophisticated computer
program in
the process
of compounding
various complex
SMC formulations
tailored to
meet customer
needs. The
program
provides for the control of information during various production processes and data
for statistical batch controls. The Company
also sells SMC to other molders.
Closed Molded Products
The Company manufactures
plastic products using
compression molding, resin
transfer molding, and
injection molding. As of
December
31, 2020, the
Company owned 75
molding presses in
its Columbus, Ohio
facility (16); Matamoros,
Mexico facility
(21); Cobourg, Canada facility (19);
Gaffney, South Carolina facility (10);
Winona, Minnesota facility (5); and
Escobedo, Mexico
(4).
The Company's molding presses range in size from 250 to
5,000 tons.
Compression Molding of SMC -
Compression molding is a process
whereby SMC is molded
to form by matched
die steel molds
through which
a combination
of heat
and pressure
are applied
via a
molding press.
This process
produces high
quality,
dimensionally consistent
products and
is typically
used for
high volume
products.
Higher volumes
justify the
customer's
investment in matched die steel molds.
Large platen, high
tonnage presses
(2,000 tons
or greater)
provide the ability
to mold very
large reinforced
plastic parts.
The
Company believes that
it possesses a
significant portion of
the large platen,
high tonnage molding
capacity in the
industry.
To
enhance the surface
quality and the
paint finish of
our products, the
Company uses both
in-mold coating and
vacuum molding
processes.
In-mold coating
is the
process of
injecting a
liquid over
the molded
part surface
and then
applying pressure
at elevated
temperatures during an extended molding cycle. The liquid coating
serves to fill and/or bridge surface porosity as
well as provide
a barrier against solvent penetration during subsequent top
-coating operations.
Vacuum molding is the removal of
air during the molding cycle for
the purpose of reducing the amount
of surface porosity. The
Company believes that it
is among the industry
leaders in in-mold
coating and vacuum molding
applications, based on the
size
and complexity of parts molded.
Resin Transfer Molding
(“RTM”) -
This process
employs two
molds, typically
a core
and a
cavity, similar
to matched
die
molding.
The composite is produced by placing glass mat, chopped
strand, or continuous strand fiberglass in the mold cavity
in
the desired pattern.
Parts used for cosmetic purposes typically have a gel coat applied to the mold surface. The core mold is then
fitted to the cavity, and
upon a satisfactory seal, a
vacuum is applied. When the proper
vacuum is achieved, the resin
is injected
into the mold
to fill the
part.
Finally, the part
is allowed
to cure
and is then
removed from
the mold
and trimmed
to shape.
Fiberglass reinforced
products produced
from the
RTM process
exhibit a
high-quality surface
on both
sides of
the part
and
excellent part thickness. The
multiple insert tooling technique
can be utilized in
the RTM process
to improve throughput based
upon volume requirements.
Structural Foam and Web Injection
Molding (“SIM”) -
Structural foam and structural web
are low-pressure injection molding
processes that develop high-strength,
rigid parts at low
weight.
This is accomplished by
mixing a foaming agent
(usually, nitrogen
gas) with the melted
polymer (structural foam
process), or by injecting
nitrogen gas into the
mold cavity immediately after
the
plastic resin is injected (structural web molding).
Structural foam produces a cellular interior structure that can provide twice the
rigidity of a solid plastic molding.
The structural web process pushes the plastic out to the mold cavity walls, uniformly packing
out the entire mold and hollowing out thicker sections to create products
of varying wall thicknesses.
As a result, structural web
molded parts have a smoother, glossier finish than
other low-pressure parts.
Both processes give part designers flexibility when
designing products that need strength and stiffness at low weight.
Direct Long-Fiber Thermoplastics (“D-LFT”)
-
D-LFT molding employs two molds,
typically a core and
a cavity, similar to
matched die molding. This is
a process for compounding
and molding thermoplastic
materials with "long" fibers
(typically, 0.5
inch or
longer). Engineered
thermoplastic pellets
and performance
additives are
compounded in
a screw
extruder, to
which
chopped reinforcements (typically, glass fibers) are added and further extruded. A "charge" of material is cut to a precise weight,
and this "
charge" is directly
moved to a
compression or injection
-transfer process, where
it is molded
into a finished
part. The
process allows for direct processing of the compounded
material, bypassing the expense and delay of producing an intermediate
product (pellets or sheets)
as is used in
other fiber-reinforced thermoplastic molding processes. The
D-LFT process is an
attractive
option for
products that
have complex
geometry, require
high strength
and stiffness,
and benefit
from the
recyclability of
a
thermoplastic resin.
Reaction Injection
Molding (“RIM”)
- This is
a process
whereby a
composite is
produced through
the injection
of a
two-
component thermoset
resin system
utilizing dicyclopentadiene
(“DCPD”) technology.
DCPD technology
involves injecting
a
liquid compound into matched die
aluminum molds to form the part.
In this process the mold is prepared,
closed and the liquid
compound is
injected into
the tool
then cured.
Additional finishing
is required
when the
part is
designated for
top coat
painting.
The RIM
process is an
alternative to
other closed mold
processes for
mid-volume parts
that require a
high level of
impact resistance.
Open Molded Products
The Company produces
reinforced plastic
products using both
the hand lay
-up and spray
-up methods of
open molding
at our
Batavia, Ohio and
Matamoros, Mexico locations.
Part sizes weigh
from a few
pounds to several
hundred pounds with
surface
quality tailored for the end use application.
Hand Lay-Up -
This process utilizes
a shell mold,
typically the cavity,
where glass cloth,
either chopped strand
or continuous
strand glass mat, is introduced into the cavity. Resin is then applied to the cloth and rolled out to achieve a uniform wet-out from
the glass and to remove
any trapped air. The part
is then allowed to cure
and is removed from the
mold. After removal, the part
typically undergoes trimming to achieve the
shape desired. Parts used for
cosmetic purposes typically have a gel coat
applied to
the mold surface prior
to the lay-up to
improve the surface quality
of the finished part.
Parts produced from this
process have a
smooth outer surface and an unfinished or
rough interior surface. These fiberglass-reinforced products are typically
non-cosmetic
components or structural reinforcements that are sold externally
or used internally as components of larger assemblies.
Spray-Up -
This process
utilizes the same
type of shell
mold as
hand-lay-up, but
instead of
using glass
cloth to
produce the
composite part,
a chopper/spray
system is
employed.
Glass rovings
and resin
feed the
chopper/spray gun.
The resin
coated,
chopped glass is
sprayed into the
mold to the
desired thickness. The
resin coated glass
in the mold
is then rolled
out to ensure
complete wet-out and to remove any trapped air.
The part is then allowed to cure, is
removed from the mold, and is then
trimmed
to the desired
shape. Parts used
for cosmetic purposes
typically have a
gel coat applied
to the mold
surface prior to
the resin-
coated glass being
sprayed into the
mold to improve
the surface quality
of the finished
part. Parts
produced from this
process
have a smooth outer surface and an unfinished or rough interior
surface.
Assembly, Machining, and Paint Products
Many of
the products
molded by the
Company are
assembled, machined,
and prime
painted or
topcoat painted
to result in
a
completed product used by the Company's customers.
The Company
has demonstrated
manufacturing flexibility
that accommodates
a range
of low
volume hand
assembly and
machining work, to high
volume, highly automated
assembly and machining
systems. Robotics are
used as deemed productive
for material handling,
machining, and adhesive
applications. In addition
to conventional machining
methods, water-jet cutting
technology is also used where
appropriate. The Company also utilizes
paint booths and batch ovens in
its facilities. The Company
generally contracts with outside providers for higher volume
applications that require top coat paint.
RAW MATERIALS
The principal raw materials used in the Company's processes are unsaturated polyester; vinyl ester;
polyethylene, polypropylene
and dicyclopentadiene
resins; fiberglass;
and filler. Other
significant raw
materials include
adhesives for assembly
of molded
components, in-mold coating, gel-coat, prime paint for preparation of cosmetic surfaces,
and hardware (primarily metal
components).
Many of
the raw
materials used
by the
Company are
crude oil
based, natural
gas based
and downstream
components, and therefore, the
costs of certain raw
materials can be affected
by changes in
costs of these underlying
commodities.
Due to fluctuating commodity prices,
suppliers are typically reluctant to enter
into long-term contracts. The Company generally
has supplier alternatives
for each raw
material, and regularly
evaluates its supplier
base for certain
supplies, repair items,
and
components to improve its overall purchasing position.
BACKLOG
The Company relies on production schedules provided
by its customers to plan and implement production.
These schedules are
normally provided on a weekly basis and typically considered firm for approximately four weeks.
Some customers update these
schedules daily for changes in demand, allowing them
to run their inventories on a “just-in-time”
basis.
The ordered backlog of
four weeks of expected shipments was approximately $21.3
million (all of which the Company shipped during the first month of
2021)
and $20.7
million at December
31, 2020 and 2019, respectively.
CAPACITY CONSTRAINTS
Capacity utilization is
measured based on
standard cycle times and
a standard work
week, which can range
from five days
per
week, three-shifts per
day to seven days
per week, three-shifts per
day, depending on the
facility and molding process.
During
times when demand
exceeds the standard
five day, three
-shift capacity, the
Company will work
weekends to create
additional
capacity, which
can provide
capacity utilization
percentages greater
than 100%.
During 2020,
the Company has
used various
methods from overtime to a weekend manpower crew to support
the customers' production requirements.
The approximate SMC production line capacity utilization was
66% and 73%
for the years ended December 31, 2020 and 2019,
respectively.
The Company measures
facility capacity in
terms of its
large molding presses
(2,000 tons or
greater) for the
Columbus, Ohio,
Gaffney, South Carolina, Winona, Minnesota and the SMC molding at the Matamoros, Mexico facility. The Company owned 28
large molding presses at these
facilities at December
31, 2020. The combined
approximate large press capacity utilization in
these
production facilities was 55% and 83% for the years ended December 31, 2020 and 2019, respectively. The decreased utilization
mainly resulted from decrease demand due to COVID-19
and improved production efficiency.
The Company
measures facility
capacity in terms
of its large
molding presses (750
tons or
greater) for
the Cobourg, Canada
facility. The Company
owned 7
large molding presses
at this facility
at December
31, 2020.
The combined approximate
large
press capacity utilization in this facility was 89% and 72% for
the years ended December 31, 2020 and 2019, respectively.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures
totaled approximately
$3.7 million,
$7.5
million,
and $5.8
million in 2020,
2019, and 2018
respectively.
These capital expenditures primarily consisted of building and equipment improvements and additional production equipment to
manufacture parts.
The Company continuously
engages in
product development.
Research and development
activities focus
on developing
new
material formulations,
new structural
composite products,
new production
capabilities and
processes, and
improving existing
products and manufacturing
processes.
The Company does
not maintain a
separate research and
development organization or
facility, but uses its
production equipment, as necessary,
to support these efforts
and cooperates with its
customers and its suppliers
in research and development efforts.
Likewise, manpower to direct and advance research and development is integrated with the
existing manufacturing,
engineering, production,
and quality organizations.
Management of
the Company has
estimated that
costs related
to research and
development were
approximately $1.2
million, $1.2
million and $1.0
million in 2020,
2019, and
2018, respectively.
ENVIRONMENTAL COMPLIANCE
The Company's
manufacturing operations
are subject
to federal,
state, and
local environmental
laws and
regulations, which
impose limitations on
the discharge of
hazardous and non
-hazardous pollutants into
the air and
waterways.
The Company has
established and implemented
standards for the treatment,
storage, and disposal of
hazardous waste. The Company's
policy is to
conduct its business with due regard for
the preservation and protection of the environment.
The Company's environmental waste
management process involves the
regular auditing of hazardous
waste accumulation points, hazardous
waste activities, authorized
treatment, and storage and disposal
facilities.
As part of the Company's
environmental policy, all manufacturing
employees are
trained on waste management and other environmental issues.
The Company holds
various environmental
operating permits
for its production
facilities in
the U.S., Mexico,
and Canada as
required by
U.S., Mexican
and Canadian
state and
federal regulations.
The Company
has substantially
complied with
all
requirements of these operating permits.
HUMAN CAPITAL MANAGEMENT
As of December 31,
2020, the Company employed
a total of 1,617
employees, which consisted of
679 employees in its
United
States operations,
722 employees
in its
Mexican operations
and 216
employees in
its Canadian
operation.
Of these
1,617
employees, 518 employees at the Company’s Columbus, Ohio facility are covered by a collective bargaining agreement with the
International Association of Machinists
and Aerospace Workers (“IAM”),
which extends to
August 7, 2022,
534 employees at
the Company
’s Matamoros,
Mexico facility
are covered
by a collective
bargaining agreement
with Sindicato de
Jorneleros y
Obreros, which
extends to
January 21,
2022,
191 employees
at the
Company's Cobourg,
Canada facility
are covered
by a
collective bargaining agreement
with United Food
& Commercial Workers
Canada ("UFCW"), which
extends to November
1,
2021, and
73 employees at
the Company's
Escobedo, Mexico
facility are
covered by
a collective
bargaining agreement
with
Sindicato de
trabajadores de
la industria metalica
y del comercio
del estado
de Nuevo
Leon Presidente
Benito Juarez
Garcia
C.T.M., which
extends to
February 1,
2021. The
Company is
currently negotiating
an extension
to the
Escobedo, Mexico
collective bargaining agreement.
PATENTS, TRADE NAMES, AND TRADEMARKS
The Company will
evaluate, apply for,
and maintain patents,
trade names, and
trademarks where
it believes that
such patents,
trade names, and trademarks are reasonably required to protect its
rights in its products.
However, the Company does not believe
that any single patent, trade name, or trademark or related group of
such rights is materially important to its business or its ability
to compete.
SEASONALITY & BUSINESS CYCLE
The Company's business is affected annually by the production
schedules of its customers.
Certain of the Company's customers
typically shut down their operations on
an annual basis for a period
of one to several weeks during the
Company's third quarter.
Certain customers
also typically
shut down
their operations
during the
last week
of December.
As a
result, demand
for the
Company's products typically decreases during
the third and fourth
quarters.
Demand for medium and heavy-duty
trucks, marine,
automotive, and
commercial products
also fluctuates
on an
economic, cyclical
and seasonal
basis, causing
a corresponding
fluctuation for demand of the Company's products.
AVAILABLE INFORMATION
We maintain a
website at www.coremt.com.
Annual reports on
Form 10-K, quarterly
reports on Form
10-Q, current reports
on
Form 8-K, all amendments
to those reports,
and other information about
us are available free
of charge through this
website as
soon as reasonably practicable after the reports are electronically
filed with the SEC. These materials are also available from the
SEC’s website at www.sec.gov.

---

ITEM 1A. RISK FACTORS
ITEM 1A.
RISK FACTORS
The following risk factors describe various risks that may affect our business, financial condition, and operations.
References to
“we,” “us,” and
“our” in this
“Risk Factors”
section refer to
Core Molding Technologies
and its subsidiaries,
unless otherwise
specified or unless the context otherwise requires.
Risks Relating to our Business
Our business has concentration risks associated with significant customers.
Sales to five customers constituted approximately 70%
of our 2020 total sales. No other customer
accounted for more than 10%
of our total
sales for this
period.
The loss of
any significant portion
of sales to
any of our
significant customers could
have a
material adverse effect on our business, results of operations, and
financial condition.
Accounts receivable
balances with
five customers
accounted for
64% of
accounts receivable
at December
31, 2020.
The
Company performs ongoing credit evaluations of its
customers’
financial condition and maintains reserves for potential bad debt
losses.
If the financial conditions of
any of these customers were
to deteriorate, impacting their
ability to pay their receivables,
our reserves may not be
adequate which could have a
material adverse effect on our
business, results of operations,
or financial
condition.
We are
continuing to engage
in efforts intended
to strengthen and
expand our relations
with significant customers,
as well as
provide support for
our entire customer base.
We have supported our
position with customers through
direct and active
contact
through our
sales, quality,
engineering, and
operational personnel.
We cannot
make any
assurances that
we will
maintain or
improve our customer
relationships, whether
these customers
will continue to
do business with
us as they
have in the
past or
whether we will be able to supply these customers or any of our
other customers at current levels.
Our business is affected by the cyclical and overall nature of the industries and markets that we serve.
The North American heavy and
medium-duty truck industries
are highly cyclical.
In 2020, approximately 43%
of our product
sales were in these industries.
These industries and markets
fluctuate in response to
factors that are beyond
our control, such as
general economic conditions, interest
rates, federal and state regulations
(including engine emissions regulations,
tariffs, import
regulations, and
other taxes),
consumer spending,
fuel costs,
and our
customers' inventory
levels and
production rates.
Our
manufacturing operations have a significant fixed cost component.
Accordingly, during periods of changing demands, including
an increase or
slowdown in truck
demand, the profitability
of our operations
may change proportionately
more than revenues
from operations.
In addition, our operations are typically seasonal as a result
of regular customer maintenance shutdowns, which
typically vary from
year to year
based on production
demands and occur
in the third
and fourth quarter
of each calendar
year.
This seasonality may
result in decreased
net sales and
profitability during the
third and fourth
fiscal quarters of
each calendar
year. Weakness in overall economic conditions or in the
markets that we serve, or significant reductions by our customers
in their
inventory levels or future production rates, could result in
decreased demand for our products and could
have a material adverse
effect on our business, results of operations, or financial condition.
Price increases in
raw materials and
availability of raw
materials could
adversely affect
our operating results
and financial
condition.
We purchase resins
and fiberglass for
use in production
as well as
hardware and other
components for product
assembly. The
prices for purchased materials
are affected by the
prices of material
feed stocks such as
crude oil, natural
gas, and downstream
components, as well
as processing capacity
versus demand.
We attempt to
reduce our exposure
to increases by
working with
suppliers, evaluating
new suppliers,
improving material
efficiencies, and
when necessary
through sales
price adjustments
to
customers.
If we are unsuccessful
in developing ways
to mitigate these
raw material increases
we may not be
able to improve
productivity or realize savings from cost reduction programs sufficiently to help offset
the impact of these increased raw material
costs. As a result, higher raw material costs could result in declining margins and operating results.
Cost reduction and quality improvement
initiatives by original equipment manufacturers
could have a material adverse effect on
our business, results of operations, or financial condition.
We are
primarily a
components supplier
to the
heavy and
medium-duty truck
industries, which
are characterized
by a
small
number of original equipment
manufacturers (“OEMs”)
that are able to
exert considerable pressure on
components suppliers to
reduce costs, improve
quality, and provide
additional design and
engineering capabilities.
Given the fragmented
nature of the
industry, OEMs
continue to
demand and
receive price
reductions and
measurable increases
in quality
through their
use of
competitive selection
processes, rating
programs, and
various other
arrangements. We
may be
unable to
generate sufficient
production cost savings in the
future to offset such
price reductions. OEMs may also
seek to save costs by
purchasing components
from suppliers that
are geographically closer
to their production
facilities or relocating
production to locations
with lower cost
structures and purchasing components from suppliers with lower production costs. These decisions by OEMs could require us to
shift production between our facilities,
move production lines between our
facilities, or open new
facilities to remain competitive.
Shifting production,
moving production
lines, or
opening new
locations could
result in
significant costs
required for
capital
investment, transfer expenses, and operating
costs. Additionally, OEMs
have generally required component suppliers
to provide
more design engineering input at earlier stages of the product development process, the costs of which have, in some cases, been
absorbed by the suppliers.
To the extent that
the Company does not
meet the quality standards
or demands of quality
improvement
initiatives sought by OEMs,
or does not match
the quality of suppliers
of comparable products, OEMs
may choose to purchase
from these
alternative suppliers,
and as
a result
the Company
may lose
existing or
new business
with OEMs.
Future price
reductions, increased quality
standards, and additional
engineering capabilities required
by OEMs
may reduce our
profitability
and have a material adverse effect on our business, results of
operations, or financial condition.
We operate in highly competitive markets, and if
we are unable to effectively compete it may negatively impact future operating
results, sales, and earnings.
The markets in
which we operate
are highly competitive.
We compete with
a number of
other manufacturers that
produce and
sell similar products. Our products primarily compete on the basis of capability, product quality, cost, and delivery.
Some of our
competitors have
greater financial
resources, research
and development
facilities, design
engineering, manufacturing,
and
marketing capabilities. If we are unable to develop
new and innovative products, diversify the markets,
materials, and processes
we utilize
and increase
operational enhancements,
we may
fall behind
competitors or
lose the ability
to achieve
competitive
advantages.
In the
highly competitive
market in which
we operate,
this may negatively
impact our
ability to
retain existing
customers or attract new customers, and if that occurs, it may
negatively impact future operating results, sales, and earnings.
We may be subject to additional shipping
expense or late fees if we are not able to
meet our customers' on-time demand for our
products.
We must continue to meet our customers' demand
for on-time delivery of our products.
Factors that could result in our inability
to meet customer demands
include a failure by
one or more of
our suppliers to
supply us with the
raw materials and other
resources
that we need to operate our
business effectively and an unforeseen spike
in demand for our products, which
would create capacity
constraints, among
other factors.
If this occurs,
we may be
required to
incur additional
shipping expenses
to ensure
on-time
delivery or otherwise be
required to pay
late fees, which could
have a material
adverse effect on our
business, results of operations,
or financial condition.
If we fail to attract and retain key personnel our business could be harmed.
Our success
largely depends
on the
efforts and
abilities of
our key
personnel. Their
skills, experience,
and industry
contacts
significantly benefit
us. The inability
to retain
key personnel
could have a
material adverse
effect on our
business, results
of
operations, or
financial condition.
Our future success
will also depend
in part upon
our continuing ability
to attract and
retain
highly qualified personnel.
Work stoppages
or other labor issues at our facilities or at our customers' facilities could adversely affect our operations.
As of December
31, 2020,
unions at our
Columbus, Ohio,
Matamoros and
Escobedo, Mexico,
and Cobourg
Canada facilities
represented approximately 81% of our entire
workforce.
As a result, we are
subject to the risk of
work stoppages
and other labor-
relations matters. The current
Columbus, Ohio, Matamoros,
Mexico, Cobourg, Canada
,
and Escobedo, Mexico
union contracts
extend through August
7, 2022, January
21, 2022,
November
1, 2021 and
February
1, 2021,
respectively. Any prolonged work
stoppage
or strike at
either our
Columbus, Ohio; Matamoros
and Escobedo,
Mexico; or
Cobourg, Canada
unionized facilities
could have a
material adverse effect
on our business,
results of operations,
or financial condition.
Any failure by
us to reach
a
new agreement upon expiration of such union contracts may have
a material adverse effect on our business, results of operations,
or financial
condition.
The Company
is currently
negotiating an
extension to
then Escobedo,
Mexico collective
bargaining
agreement.
In addition, if any
of our customers or suppliers
experience a material work stoppage,
that customer may halt or
limit the purchase
of our products or that supplier may interrupt supply of
our necessary production components. This could cause us to shut
down
production facilities relating to these products, which could have a material adverse
effect on our business, results of operations,
or financial condition.
Our foreign operations in Mexico and Canada subject us to risks that could negatively affect our business.
We operate manufacturing facilities in Matamoros and Escobedo, Mexico and
Cobourg, Canada. As a
result, a significant portion
of our business and operations is subject to
the risk of changes in economic
conditions, tax systems, consumer preferences, social
conditions, safety and security conditions, and political conditions inherent in Mexico and Canada, including changes
in the laws
and policies that govern foreign investment, as well as
changes in United States laws and regulations relating to foreign
trade and
investment. Changes in laws and regulations related to foreign trade and investment may have an adverse effect on our results of
operations, financial condition, or cash flows.
Our business is subject to risks associated with manufacturing equipment and infrastructure.
We convert raw materials into molded products
through a manufacturing process at each
production facility. While we maintain
insurance covering our manufacturing and
production facilities, including business interruption
insurance, a catastrophic loss of
the use of all
or a portion of
our facilities due to
accident, fire, explosion, or
natural disaster, whether short
or long-term, could
have a material adverse effect on our business, results of operations, or
financial condition.
Unexpected failures of our equipment and machinery
may result in production delays, revenue loss, and
significant repair costs,
as well as injuries to our employees.
Any interruption in production capability may require us to make large capital expenditures
to remedy
the situation,
which could
have a
negative impact
on our
profitability and
cash flows.
Our business
interruption
insurance may not be
sufficient to offset the
lost revenues or
increased costs that we
may experience during a
disruption of our
operations.
Because we supply our products to OEMs, a temporary or long-term business disruption could result in a permanent
loss of
customers.
If this
were to
occur, our
future sales
levels and
therefore our
profitability could
be materially
adversely
affected.
Our business is subject
to risks associated with
new business awards.
In order to recognize profit from new
business, we must
accurately estimate product costs as part of
the quoting process and implement effective
and efficient manufacturing processes.
Expected future sales
from business awards
may not
materialize.
We may
not realize the
sales or
operating results that
we
anticipate from new
business awards, and
we may experience
difficulties in meeting
the production demands
of new business
awards.
The success of our business relies on our
ability to produce products which meet the quality, performance, and price expectations
of our customers.
Our ability to
recognize profit is largely
dependent upon accurately
identifying the costs
associated with the
manufacturing of our products
and executing the manufacturing
process in a cost-effective
manner.
There can be
no assurance
that all costs
will be
accurately identified
during the
Company's quoting
process or
that the
expected level
of manufacturing
efficiency will be achieved. As a result, we may not realize the anticipated operating results
related to new business awards.
We will continue to pursue, and
may be awarded, new business
from existing or new customers.
The Company may make capital
investments, which may be
material to the Company,
in order to meet the
expected production requirements
of existing or new
customers related to
these business awards,
and to support
the potential production
demands which may
result from continued
sales growth.
The anticipated impact on the Company's
sales and operating results related
to these business awards, for
various
reasons, may not materialize.
Any delays or production
difficulties encountered in connection
with these business awards,
and
any change in
customer demand, could
adversely impact our
business, results of
operations, and liquidity,
and the benefits
we
anticipate may never materialize.
We have made acquisitions and may make acquisitions in the future.
We may not realize the operating results that we anticipate
from these acquisitions
or from acquisitions
we may make
in the future,
and we may
experience difficulties in
integrating the
acquired businesses or may inherit significant liabilities related to such businesses.
We explore opportunities to
acquire businesses that we
believe are related to
our core competencies from time
to time, some of
which may be
material to us.
We expect such
acquisitions will
produce operating
results consistent with
our other operations;
however, we cannot provide assurance that this assumption will prove
correct with respect to any acquisition.
Any acquisitions, may
present significant
challenges for
our management
due to the
increased time
and resources
required to
properly integrate management, employees, information systems, accounting controls, personnel, and
administrative functions of
the acquired
business with
those of
ours and
to manage
the combined
company on
a going
forward basis.
The diversion
of
management's attention and
any delays or
difficulties encountered in
connection with the
integration of these
businesses could
adversely impact our business, results of operations, and liquidity, and
the benefits we anticipate may never materialize.
If we are unable to meet future capital requirements,
our business may be adversely affected.
As we grow our
business, we may have
to incur significant capital
expenditures.
We may make capital
investments to, among
other things, build new or upgrade
our facilities, purchase equipment, and
enhance our production processes.
We cannot assure
you that we will have, or be
able to obtain, adequate funds to
make all necessary capital expenditures when
required, or that the
amount of future capital expenditures will not be materially
in excess of our anticipated or current expenditures.
If we are unable
to make necessary
capital expenditures we
may not have
the capability to
support our customer
demands, which in
turn could
reduce our sales and profitability and impair our ability to satisfy our customers' expectations.
In addition, even if we are able to
invest sufficient resources, these
investments may not generate
net sales that exceed
our expenses, generate any
net sales at all,
or result in any commercially acceptable products.
We may not
achieve expected efficiencies
related to the proximity
of our customers'
production facilities to our
manufacturing
facilities, or with respect to existing or future production relocation
plans.
Certain facilities are located in close proximity to
our customers in order to minimize both our
customers' and our own costs.
If
any of
our customers
were to
move or
if nearby
facilities are
closed, that
may impact
our ability
to remain
competitive.
Additionally, our
competitors could
build a
facility that
is closer
to our
customers' facilities
which may
provide them
with a
geographic advantage.
Any of
these events
might require
us to
move closer
to our
customers, build
new facilities,
or shift
production between our current facilities to meet our customers' needs,
resulting in additional cost and expense.
Our products
may be
rendered obsolete
or less
attractive if
there are
changes in
technology, regulatory
requirements, or
competitive processes.
Changes in
technology, regulatory
requirements, and
competitive processes
may render
certain products
obsolete or
less
attractive.
Future chemical regulations may restrict
our ability to manufacture products,
cause us to incur
substantial expenditures
to comply with
them, and
subject us
to liability for
adverse environmental
or health effects
linked to
the manufacture
of our
products.
Failure to comply
with future regulations
may subject
us to penalties
or other
enforcement actions.
Our ability
to
anticipate changes in these areas
will be a significant factor
in our ability to remain competitive.
If we are unable to
identify or
compensate for any one of these changes it may have a material adverse effect on our business, results of operations, or financial
condition.
Difficulty in hiring, training, and retaining skilled labor could result in increased cost overruns, an inability
to satisfy customer
demands, and otherwise adversely affect our business.
We depend on
skilled labor
in the manufacturing
of our products.
High demand
for skilled manufacturing
labor in the
United
States has resulted in
difficulty hiring, training, and
retaining labor in
a tightening labor market.
Difficulties in securing
skilled
labor can result
in increased hiring
and training costs,
increased overtime to
meet demand, increased
wage rates to
attract and
retain operators, and higher scrap and rework costs due to inexperienced
workers which would adversely affect our business.
Financial and Accounting Risks
Fluctuations in foreign currency
exchange rates could adversely affect our results
of operations, cash flow, liquidity, or financial
condition.
Because of our international operations,
we are exposed to risk associated
with value changes in foreign
currencies, which may
adversely affect our business. Historically,
our reported net sales, earnings,
cash flow, and financial condition
have been subjected
to fluctuations in foreign exchange rates. Our primary exchange
rate exposure is with the Canadian dollar and
the Mexican peso
against the U.S.
dollar. While we actively manage
the exposure of our
foreign currency risk as
part of our overall
financial risk
management policy,
we believe
we may experience
losses from
foreign currency
exchange rate
fluctuations, and
such losses
could adversely affect our sales, earnings, cash flow, liquidity, or
financial condition.
Our stock price can be volatile.
Our stock price
can fluctuate widely
in response to
a variety of
factors. Factors include
actual or anticipated
variations in our
quarterly operating results, our
relatively small public float, changes
in securities analysts' estimates
of our future earnings,
and
the loss of major
customers, or significant business developments
relating to us or
our competitors, and other factors,
including
those described in
this “Risk Factors”
section. Our common
stock also has
a low average
daily trading volume,
which limits a
person's ability to quickly
accumulate or quickly divest themselves
of large blocks of
our stock.
In addition, a low
average trading
volume can lead to significant price swings even when a relatively few number
of shares are being traded.
We have incurred impairment charges in
the past and we
may be required to incur additional
impairment charges in the future
on a portion
or all of
the carrying value
of our goodwill
or other intangible
assets associated with
our reporting units, which
may adversely affect our financial condition and results of operations.
Each year, and
more frequently on
an interim basis
if appropriate, we
are required by
ASC Topic 350,
“Intangibles--Goodwill
and Other,”
to assess the carrying value of
our indefinite lived intangible assets
and goodwill to determine whether
the carrying
value of those assets is impaired. Such assessment and determination involves significant judgments to estimate the fair
value of
our reporting units, including estimating future cash flows,
near term and long term revenue growth, and
determining appropriate
discount rates, among
other assumptions. If
operating earnings fall
below forecasted operating
earnings, we would
perform an
interim or
annual goodwill
impairment analysis.
Should that
analysis conclude
that the
reporting unit
’s fair
value were
to be
below carrying value a goodwill impairment charge
would be necessary. Any such charges could materially adversely affect our
financial results in the periods in which they are recorded.
Our ability to maintain effective internal control
over financial reporting may be insufficient to
allow us to accurately report our
financial results or prevent fraud, and this could cause our financial statements to
become materially misleading and adversely
affect the trading price of our common stock.
We require effective internal control
over financial reporting in order
to provide reasonable assurance with
respect to our financial
reports and to effectively prevent fraud.
Internal control over financial reporting may not
prevent or detect misstatements because
of its
inherent limitations,
including the
possibility of
human error,
the circumvention
or overriding
of controls,
or fraud.
Therefore, even
effective internal
controls can
provide only
reasonable assurance
with respect
to the
preparation and
fair
presentation of
financial statements.
If we
cannot provide
reasonable assurance
with respect
to our
financial statements
and
effectively prevent fraud, our financial statements could become materially
misleading, which could adversely affect the trading
price of our common stock.
If we are not
able to maintain
the adequacy of our
internal control over
financial reporting, including
any failure to
implement
required new or improved controls or if we experience difficulties in their implementation, our business, financial condition, and
operating results could be harmed. Any material weakness could affect
investor confidence in the accuracy and completeness
of
our financial statements.
As a result,
our ability to
obtain any additional
financing, or additional
financing on favorable
terms,
could be materially and adversely affected.
This, in turn, could materially and adversely
affect our business, financial condition,
and the market value of our stock and
require us to incur additional costs to improve our internal control
systems and procedures.
In addition, perceptions of the Company
among customers, suppliers, lenders, investors, securities analysts, and others
could also
be adversely affected.
We cannot assure that any material weaknesses will not arise in the future due to our failure to implement
and maintain adequate internal control over financial reporting.
Our failure to
comply with our debt
covenants could have a
material adverse effect on
our business, financial condition,
or results
of operations.
The Company’s credit
agreements contain certain
covenants.
The Company’s ability
to borrow money and
repay existing debt
on scheduled terms under its existing credit agreements
requires the Company to be compliant with its
covenants. If a default of
covenants were to occur, we may not be able to pay our debts or
borrow sufficient funds, which could materially adversely affect
our results of operations, financial condition, and cash flows.
Legal, Insurance, Tax and Cybersecurity Risks
Changes in the legal,
regulatory, and social responses to climate
change, including any possible
effect on energy prices, could
adversely affect our business and reduce our profitability.
It is possible that various proposed legislative or regulatory initiatives related to climate changes, such as cap-and-trade systems,
increased limits on
emissions of greenhouse
gases and fuel
efficiency standards, or
other measures, could
in the future
have a
material impact on
us, our customers,
or the markets
we serve, thereby
resulting in a
material adverse
effect on our
financial
condition or results of operation. For example, customers in the transportation (automotive and truck) industry could be required
to incur
greater costs
in order
to comply
with such
initiatives, which
could have
an adverse
impact on
their profitability
or
viability. This could in
turn lead to
further changes in the
structure of the
transportation industry that
could reduce demand
for
our products. We
are also reliant
on energy to
manufacture our products,
with our operating
costs being
subject to
increase if
energy costs
rise. During
periods of
higher energy
costs we
may not be
able to
recover our
operating cost
increases through
production efficiencies
and price
increases. While
we may
hedge our
exposure to
higher prices
via future
energy purchase
contracts, increases in energy prices
for any reason (including
as a result of
new initiatives related to climate
change) will increase
our operating costs and likely reduce our profitability.
We may be
subject to product
liability claims, recalls
or warranty claims,
which could have
a material adverse
effect on our
business, results of operations, or financial condition.
As a components supplier to OEMs, we face a business risk of exposure to product liability claims in the event that
our products
malfunction and result in personal injury
or death. Product liability claims could result
in significant losses as a result
of expenses
incurred in
defending claims
or the
award of
damages.
In addition,
we may
be required
to participate
in recalls
involving
components sold by
us if any
prove to be
defective, or we
may voluntarily initiate
a recall or
make payments related
to such
claims in order
to maintain positive
customer relationships.
While we do
maintain product liability
insurance, it
may not be
sufficient to cover all product liability claims, and as
a result, any product liability claim brought against us could have
a material
adverse effect on our results of operations. Further, we warrant the quality of our products under limited warranties, and as such,
we are subject
to risk of warranty
claims in the
event that our
products do not
conform to our
customers’
specifications.
Such
warranty claims may
result in costly
product recalls, significant
repair costs, and
damage to our
reputation, all of
which would
adversely affect our results of operations.
Our insurance coverage may be inadequate to protect against the potential hazards to our business.
We maintain property,
business interruption,
stop loss for
healthcare and
workers' compensation,
director and officer,
product
liability, cyber, and casualty insurance coverage, but such insurance may not provide adequate coverage against potential claims,
including losses resulting from
war risks, terrorist acts,
or product liability claims
relating to products we
manufacture.
Consistent
with market
conditions in
the insurance
industry, premiums
and deductibles
for some
of our
insurance policies
have been
increasing and may
continue to increase
in the future.
In some instances, some
types of insurance
may become available
only
for reduced amounts of coverage, if at all.
In addition, there can be no assurance that our insurers would not challenge
coverage
for certain claims.
If we were to incur a significant
liability for which we were not
fully insured or that our insurers disputed,
it
could have a material adverse effect on our financial position.
We are subject to
environmental, occupational health and
safety rules and
regulations that may require us to
make substantial
expenditures or expose
us to
financial or
other obligations
including substantial
damages, penalties,
fines, civil
or criminal
sanctions, and remediation costs that could adversely affect our results.
Our operations, facilities,
and personnel are
subject to extensive
and evolving laws
and regulations pertaining
to air emissions,
wastewater discharges, the handling and disposal of
solid and hazardous materials and wastes, health
and safety, the investigation
and remediation of contamination, and the protection of the environment and
natural resources.
It is difficult to predict the future
interpretations and developments of environmental and
health and safety laws and
regulations or their impact on
our future results
and cash
flows.
Continued compliance
could result
in significant
increases in
capital expenditures
and operating
costs.
In
addition, we
may be
exposed to
obligations or
involved from
time to
time in
administrative or
legal proceedings
relating to
environmental, health
and safety
or other
regulatory matters,
and may
incur financial
and other
obligations relating
to such
matters.
Certain senior management employees have entered into potentially costly severance arrangements with
us if terminated by the
employee for good reason.
We have entered into executive employment agreements
with executive officers that provide for significant severance
payments
in the event such employee's employment
with us is terminated by the employee for good
reason (as defined in the employment
agreement). Good reason includes
one or more of
the following occurring within
one year of a
change in control: (i)
a material
reduction in
base salary,
(ii) a
material diminution
in the
executive's position
and/or duties,
(iii) a
material breach
of the
employment agreement
by the
person or
other entity
then controlling
the Company,
or (iv)
a disavowal
of the
employment
agreement by the person or
other entity then controlling the
Company. A
change in control occurs when
(a) one person (as defined
in the employment
agreement), or
more than one
person acting as
a group, acquires
ownership of stock
of the Company
that,
together with the
stock held by
such person or
group, constitutes more
than 50% of
the total fair
market value or
total voting
power of the stock
of the Company, (b) a
majority of the members
of the Company's Board of
Directors (the "Board") are replaced
during any twelve
-month period by
directors whose appointment
or election is
not endorsed by
a majority of the
Board before
the date of
appointment or election,
or (c) the
sale of all
or substantially all of
the Company’s
assets. These agreements
would
make it costly
for the employment
of certain of
our senior management
employees to
be terminated and
such costs may
also
discourage potential acquisition proposals, which may negatively affect our
stock price.
Our provision for income
tax, adverse tax audits, or changes
in tax policy could have an
adverse effect on our business, financial
condition, and results of operations.
We are subject to income taxes
in the United States, Mexico, and
Canada. Our provision for income taxes
and cash flow related
to taxes may be negatively impacted by: (1) changes in the mix
of earnings taxable in jurisdictions with different statutory
rates,
(2) changes
in tax
laws and
accounting principles,
(3) changes
in the
valuation of
our deferred
tax assets
and liabilities,
(4)
discovery of new information
during the course of
tax return preparation,
(5) increases in nondeductible
expenses, or (6)
being
subject to include foreign income in the United States as part
of the GILTI tax provision.
Tax audits may also
negatively impact our
business, financial condition,
and results of operations.
We are subject
to continued
examination of
our income
tax returns,
and tax
authorities may
disagree with
our tax positions
and assess
additional tax.
We
regularly evaluate
the likelihood
of adverse
outcomes resulting
from these
examinations to
determine the
adequacy of
our
provision for income taxes. There
can be no assurance that
the outcomes from examinations
will not have a negative
impact on
our future financial condition and operating results.
Cybersecurity attacks may
threaten our confidential
information, disrupt operations
and result in
harm to our
reputation and
adversely impact our business and financial performance.
Cybersecurity attacks
across industries,
including ours,
are increasing
in sophistication
and frequency
and may
range from
uncoordinated individual attempts to measures targeted
specifically at us. These attacks include but are not limited
to, malicious
software or
viruses, attempts
to gain
unauthorized access
to, or
otherwise disrupt,
our information
systems, attempts
to gain
unauthorized access to business,
proprietary or other confidential
information, and other
electronic security breaches that
could
lead to disruptions in critical systems,
unauthorized release of confidential or
otherwise protected information and corruption
of
data. Cybersecurity failures
may be caused by
employee error, malfeasance,
system errors or
vulnerabilities, including
vulnerabilities of our vendors, suppliers,
and their products. We have been subject
to cybersecurity attacks in the past.
Based on
information known to
date, past attacks
have not had
a material impact
on our financial
condition or results
of operations. We
may experience such attacks in the future, potentially with more frequency
or sophistication.
Failures of our IT systems as a
result of cybersecurity attacks or other
disruptions could result in a breach
of critical operational
or financial controls and lead
to a disruption of our
operations, commercial activities or financial processes.
Cybersecurity attacks
or other
disruptions impacting
significant customers
and/or suppliers
could also
lead to
a disruption
of our
operations or
commercial activities.
Despite our
attempts to
implement safeguards
on our
systems and
mitigate potential
risks, there
is no
assurance that such actions will
be sufficient to prevent cyberattacks
or security breaches that manipulate
or improperly use our
systems or networks, compromise
confidential or otherwise
protected information, destroy or
corrupt data, or otherwise
disrupt
our operations. The occurrence of such
events could have a material adverse effect on
our business financial condition and results
of operations.
Risks Related to Economic Conditions
The recent coronavirus
(COVID-19) outbreak has
adversely impacted
our business
and could
in the
future have a
material
adverse impact on our
business, results of operation, financial
condition and liquidity, the
nature and extent of which
is highly
uncertain.
The global outbreak of the
coronavirus (COVID-19) has significantly
increased economic, demand and
operational uncertainty.
We have global operations, customers
and suppliers, including in countries
impacted by COVID-19. Authorities
around the world
have taken a variety of measures to slow the
spread of COVID-19, including travel bans or restrictions, increased border controls
or closures, quarantines, shelter-in-place orders and business shutdowns and such authorities may impose
additional restrictions.
We have also
taken actions to
protect our employees
and to mitigate
the spread of
COVID-19, including embracing
guidelines
set by the
World Health Organization
and the Centers
for Disease Control
and Prevention on
social distancing, good
hygiene,
restrictions on
employee travel
and in
-person meetings,
and changes
to employee
work arrangements
including remote
work
arrangements where
feasible. The
actions taken
around the
world to
slow the
spread of
COVID-19 have
also impacted
our
customers and
suppliers, and
future developments
could cause
further disruptions
to the
Company due
to the
interconnected
nature of our
business relationships.
The extent
to which
COVID-19 will
impact our
ongoing business,
results of
operations,
financial condition or liquidity is highly uncertain and will depend on future developments, including the
control of the spread of
the virus, spread of new strains of the virus, additional actions taken by governmental authorities, and the ability to vaccinate the
general population.
Economic conditions and disruptions in the financial
markets could have an adverse effect on our business, financial
condition,
and results of operations.
Disruptions in the financial markets could have a material
adverse effect on our liquidity and financial condition
if our ability to
borrow money
were to
be impaired.
Disruptions in
the financial
markets may
also have
a material
adverse impact
on the
availability and cost
of credit in
the future. Our
ability to pay
our debt or
refinance our obligations
will depend on
our future
performance, which
could be
affected by,
among other
things, prevailing
economic conditions.
Disruptions in
the financial
markets may also have an
adverse effect on the U.S.
and world economies, which would
have a negative impact on
demand for
our products. In addition,
tightening of credit markets
may have an adverse
impact on our customers'
ability to finance the
sale
of new trucks or
our suppliers' ability to
provide us with raw
materials, either of which
could adversely affect our
business and
results of operations.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
ITEM 2.
PROPERTIES
The Company owned
four production facilities
as of December
31, 2020
that are situated
in Columbus, Ohio;
Gaffney, South
Carolina; Winona, Minnesota; and Matamoros, Mexico, and leases production facilities in Batavia,
Ohio; Cobourg, Canada; and
Escobedo, Mexico; and a distribution center in Brownsville, Texas.
The Columbus, Ohio
plant is located
at 800 Manor
Park Drive on approximately
28 acres of land.
The Company acquired
the
property at
800 Manor
Park Drive
in 1996
as a
result of
the Asset Purchase
Agreement with
Navistar. The
Company added
approximately 6,000 square feet to the Columbus plant during 2014 in connection with its SMC capacity expansion. The current
338,000 square feet of available floor space at the Columbus,
Ohio plant is comprised of the following:
Approximate
Square Feet
Manufacturing/Warehouse
322,000
Office
16,000
Total
338,000
The Gaffney, South Carolina plant, which was opened in 1998, is located at 24 Commerce Drive, Meadow Creek Industrial Park
on approximately 21 acres of land. The Company added approximately 28,800 square feet to the Gaffney plant during 2016. The
approximate 139,800 square feet of available floor space at the Gaffney,
South Carolina plant is comprised of the following:
Approximate
Square Feet
Manufacturing/Warehouse
134,800
Office
5,000
Total
139,800
The Winona, Minnesota plant which was acquired in
2015 is located at 1700 Wilkie Drive. The
facility consists of approximately
87,000 square feet on approximately 7 acres comprised of the
following:
Approximate
Square Feet
Manufacturing/Warehouse
81,000
Office
6,000
Total
87,000
The Matamoros, Mexico
plant which was
opened in 2009
is located at
Guillermo Gonzalez Camarena
y Thomas Alva Edison
Manzana, Matamoros, Tamaulipas, Mexico. The
facility consists of approximately 478,000 square
feet on approximately 22 acres
comprised of the following:
Approximate
Square Feet
Manufacturing/Warehouse
463,000
Office
15,000
Total
478,000
The Columbus, Ohio; Gaffney, South
Carolina; Winona, Minnesota; and Matamoros,
Mexico properties are subject
to liens and
security interests as
a result of
the properties being
pledged by the
Company as collateral
for its debt
as described in
Note 9
-
Debt
in Part II, Item 8 of this Annual Report on Form 10-K.
The Company leases a
production plant in
Batavia, Ohio located
at 4174 Half Acre Road on
approximately 9 acres of
land. On
July 23, 2019, a
new 5-year lease was
executed commencing on
August 1, 2019 and
ending on July 31,
2024.
During the year
ended, December 31,
2020, the Company
decided to close
the manufacturing facility
which it anticipates
completing in 2021.
The Company
has the
option to
provide a
six-month notification
to terminate
the lease
without penalties.
The approximate
108,000 square feet of available floor space at the Batavia, Ohio
plant is comprised of the following:
Approximate
Square Feet
Manufacturing/Warehouse
104,000
Office
4,000
Total
108,000
The Company
leases a
production plant
in Cobourg,
Canada located
at 3 West
Street on approximately
10 acres
of land.
On
August 13
th
, 2020, a new 5 year
lease was executed retroactively commencing
on January 1, 2020
and ending on December 31,
2024. The approximate 247,000 square feet of available floor space
at the Cobourg, Canada plant is comprised of the following:
Approximate
Square Feet
Manufacturing/Warehouse
241,000
Office
6,000
Total
247,000
The Company leases a production
plant in Escobedo, Mexico located at
Avenida Internacional #220, Parque Industrial
VYNMSA
Escobedo, C.P. 66053, Escobedo, Nuevo Leon, Mexico on approximately 3 acres of land. The current lease agreement expires in
March 2021. The Company is currently negotiating an extension. The approximate 61,000 square feet of available
floor space at
the Escobedo, Mexico plant is comprised of the following:
Approximate
Square Feet
Manufacturing/Warehouse
59,000
Office
2,000
Total
61,000
The Company leases a warehouse and
distribution center in Brownsville, Texas located
at 1385 Cheers Street on approximately
2 acres of land.
A new lease agreement was executed on July
22, 2019 extending the lease terms through October 2022,
with an
option to extend the lease for
36 months. The approximate 42,000
square feet of available floor space
at the Brownsville, Texas
location is comprised of the following:
Approximate
Square Feet
Warehouse/Distribution
39,000
Office
3,000
Total
42,000

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to
the conduct of its business.
The Company is not aware of
any material pending legal
proceedings to which the Company
or any of its
subsidiaries is a party or
of which any of
their property
is the subject
.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.
MINE SAFETY DISCLOSURE
None.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES
The Company's common stock is traded on the NYSE American LLC under the symbol “CMT”.
The table below sets forth the high and low sale
prices of the Company for each full quarterly period
within the two most recent
fiscal years for which such stock was traded.
Core Molding Technolog
ies, Inc.
High
Low
Fourth Quarter
$
14.23
$
7.69
Third Quarter
10.82
3.81
Second Quarter
5.35
1.03
First Quarter
3.50
1.50
Fourth Quarter
$
6.49
$
2.80
Third Quarter
7.58
5.75
Second Quarter
8.50
6.73
First Quarter
9.00
6.79
The Company's common stock was held by 356 holders of record
on March
10, 2021.
The Company ended
the $0.05 per
share quarterly dividend
after the May 2018
declaration.
The Company made no
payments
for cash dividends during 2020 and 2019 and made payments totaling
of $792,000 for cash dividends during 2018.
Equity Compensation Plan Information
The following
table shows
certain information
concerning our
common stock
to be
issued in
connection with
our equity
compensation plans as of December
31, 2020:
Plan Category
Number of Shares
to be Issued Upon
Exercise of
Outstanding
Options or
Vestin
g
Weighted
Average
Exercise Price
of Outstanding
Options
Number of
Shares
Remaining
Available for
Future Issuance
Equity compensation plans approved by stockholders
688,760
$
7.31
514,823
We repurchased 4,574 shares of our common stock during the year ended December
31, 2020. All stock was purchased to satisfy
tax withholding obligations upon
vesting of restricted stock
awards. Details of the repurchases
of our common stock during
the
three months ended December 31, 2020, are included in the following
table:
Period
Total number of
shares purchased
Average price paid
per share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
Maximum Number that
May Yet
be Purchased
Under the Plans or
Programs
October 1 to 31, 2020
-
$
-
-
-
November 1 to 30, 2020
-
-
-
-
December 1 to 31, 2020
-
-
-
-
Total
-
-
-
-

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.
SELECTED FINANCIAL DATA
The following
selected financial
data is
derived from
the audited
consolidated financial
statements of
the Company.
The
information set forth below
should be read in
conjunction with “Management's Discussion
and Analysis of Financial Condition
and Results of Operations,”
the consolidated financial statements and related
notes included elsewhere in this Annual Report on
Form 10-K.
Years
Ended December 31,
(In thousands, except per share data)
Operating Data:
Product sales
$
210,580
$
268,987
$
256,217
$
148,623
$
146,624
Tooling sales
11,776
15,303
13,268
13,050
28,258
Net sales
222,356
284,290
269,485
161,673
174,882
Gross margin
34,474
21,506
27,141
24,631
27,906
Operating income (loss)
10,390
(11,528)
(3,100)
7,941
11,527
Net income (loss)
8,165
(15,223)
(4,782)
5,459
7,411
Earnings (Loss) Per Share Data:
Net income (loss) per common share:
Basic
$
0.98
$
(1.94)
$
(0.62)
$
0.71
$
0.97
Diluted
$
0.98
$
(1.94)
$
(0.62)
$
0.70
$
0.97
Balance Sheet Data:
Total assets
$
165,507
$
179,306
$
201,198
$
138,578
$
133,455
Working capital
20,483
(22,609)
40,111
40,369
38,590
Long-term debt
25,198
-
55,159
3,750
6,750
Stockholders' equity
93,932
84,426
98,929
101,893
96,766
Return on beginning equity
%
(15)
%
(5)
%
%
%
Book value per share
$
11.77
$
10.72
$
12.72
$
13.21
$
12.67

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Certain statements
under this
caption of
this Annual Report
on Form
10-K constitute
forward-looking statements
within the
meaning of the
federal securities laws.
As a general
matter,
forward-looking statements
are those focused
upon future plans,
objectives or performance as opposed to historical items and include statements of
anticipated events or trends and expectations
and beliefs relating to matters
not historical in nature. Such
forward-looking statements involve known
and unknown risks and
are subject to
uncertainties and factors relating
to Core Molding
Technologies' operations and business
environment, all of
which
are difficult to
predict and many
of which are
beyond Core Molding
Technologies' control. Words
such as “may,” “will,”
“could,”
“would,” “should,”
“anticipate,” “predict,”
“potential,” “continue,”
“expect,” “intend,”
“plans,” “projects,”
“believes,”
“estimates,” “confident” and similar expressions are
used to identify these forward-looking statements. These uncertainties and
factors could cause Core Molding Technologies' actual results to differ materially from those matters expressed
in or implied by
such forward-looking statements.
Core Molding Technologies
believes that
the following
factors, among
others, could
affect its
future performance and
cause
actual results to differ materially from those expressed or implied by forward-looking statements made in
this Annual Report on
Form 10-K: business conditions in the plastics, transportation, marine and commercial
product industries (including changes in
demand for truck production); federal and
state regulations (including engine emission regulations); general economic,
social,
regulatory (including foreign
trade policy)
and political
environments in the
countries in
which Core Molding
Technologies
operates; the
adverse impact
of coronavirus
(COVID-19) global
pandemic on
our business,
results of
operations, financial
position, liquidity or cash flow, as well as
impact on customers and supply chains; safety and
security conditions in Mexico and
Canada; fluctuations in
foreign currency exchange rates;
dependence upon certain
major customers as
the primary source of
Core Molding Technologies’
sales revenues; efforts
of Core Molding
Technologies to expand
its customer base;
the ability to
develop new and innovative products and to diversify markets,
materials and processes and increase
operational enhancements;
ability to accurately
quote and execute
manufacturing processes for new
business; the actions
of competitors, customers,
and
suppliers; failure
of Core
Molding Technologies’
suppliers to
perform their
obligations; the
availability of
raw materials;
inflationary pressures; new
technologies; regulatory
matters; labor
relations; labor
availability; a
work stoppage
or labor
disruption at
one of our
union locations or
one of our
customer or supplier
locations; the loss
or inability of
Core Molding
Technologies to attract and
retain key personnel; the Company's
ability to successfully identify,
evaluate and manage potential
acquisitions and to benefit from and properly integrate any
completed acquisitions; federal, state and local
environmental laws
and regulations; the
availability of sufficient
capital; the ability
of Core Molding
Technologies to provide
on-time delivery to
customers, which may require additional
shipping expenses to ensure on-time delivery or otherwise result in late fees
and other
customer charges; risk of cancellation or rescheduling of
orders; management’s decision to pursue new
products or businesses
which involve additional costs,
risks or capital expenditures;
inadequate insurance coverage to
protect against potential
hazards;
equipment and machinery
failure; product liability
and warranty claims;
and other risks
identified from time
to time in
Core
Molding Technologies’ other public documents on file with
the Securities and Exchange Commission, including those described
in Item 1A of this Annual Report on Form 10-K.
DESCRIPTION OF THE COMPANY
Core Molding Technologies
and its subsidiaries
operate in one
operating segment as
a molder of
thermoplastic and thermoset
structural products. The Company's operating segment consists
of two component reporting units, Core
Traditional and Horizon
Plastics. The Company offers customers a wide range of manufacturing processes to fit various
program volume and investment
requirements. These processes
include compression
molding of sheet
molding compound
("SMC"), bulk
molding compounds
("BMC"), resin
transfer molding
("RTM"), liquid
molding of
dicyclopentadiene ("DCPD"),
spray-up and
hand-lay-up, direct
long-fiber thermoplastics ("D
-LFT") and structural
foam and structural
web injection molding
("SIM"). Core Molding
Technologies serves
a wide
variety of
markets, including the
medium and
heavy-duty truck,
marine, automotive,
agriculture,
construction, and
other commercial
products. The demand
for Core
Molding Technologies
’
products is
affected by
economic
conditions in the United
States, Mexico, and
Canada. Core Molding Technologies
’
manufacturing operations have a
significant
fixed cost
component. Accordi
ngly, during
periods of
changing demand,
the profitability
of Core
Molding Technologies’
operations may change
proportionately more than
revenues from operations.
Core Molding Technologies serves
a wide variety
of markets, including
the medium
and heavy-duty
truck, marine,
automotive, agriculture,
construction, and
other commercial
products. Product sales to
medium and heavy-duty truck
markets accounted for 43%
of the Company's sales
for the year ended
December
31, 2020
and 58% and
56% for the
years ended
December
31, 2019
and 2018,
respectively. The demand
for Core
Molding Technologies’
products is affected
by economic conditions
in the United
States, Mexico, and
Canada. Core Molding
Technologies’
manufacturing operations
have a
significant fixed
cost component.
Accordingly, during
periods of
changing
demand, the
profitability of
Core Molding
Technologies’
operations may
change proportionately
more than
revenues from
operations.
In 1996, Core Molding Technologies acquired substantially all of the assets and assumed certain liabilities of Columbus Plastics,
a wholly owned
operating unit of
Navistar’s truck
manufacturing division since
its formation in
late 1980. Columbus
Plastics,
located in Columbus,
Ohio, was a
compounder and compression
molder of SMC.
In 1998, Core
Molding Technologies began
operations at its second facility in Gaffney, South Carolina, and in 2001, Core Molding Technologies added
a production facility
in Matamoros,
Mexico by
acquiring certain
assets of
Airshield Corporation.
As a
result of
this acquisition,
Core Molding
Technologies expanded its
fiberglass molding capabilities
to include the
spray up, hand
-lay-up open mold
processes and RTM
closed molding. In 2005, Core Molding Technologies acquired certain assets of the Cincinnati Fiberglass Division of Diversified
Glass, Inc.,
a Batavia,
Ohio-based, privately
held manufacturer
and distributor
of fiberglass
reinforced plastic
components
supplied primarily to the
heavy-duty truck market.
In 2009, the Company
completed construction of
a new production
facility
in Matamoros, Mexico
that replaced its
leased facility. In
March 2015, the
Company acquired substantially
all of the
assets of
CPI Binani, Inc., a
wholly owned subsidiary of
Binani Industries Limited, located in
Winona, Minnesota ("CPI"), which expanded
the Company's process capabilities to include D-LFT and diversified the customer base. In January 2018, the Company acquired
substantially all the assets of Horizon Plastics, which has manufacturing
operations in Cobourg, Ontario and Escobedo,
Mexico.
This acquisition expanded the Company's
customer base, geographic footprint, and process
capabilities to include structural foam
and structural web molding.
BUSINESS OVERVIEW
General
The Company’s
business and operating
results are directly
affected by changes
in overall customer
demand, operational
costs
and performance and leverage of our fixed cost and selling, general and
administrative ("SG&A") infrastructure.
Product sales fluctuate
in response to
several factors including
many that are
beyond the Company’s
control, such as
general
economic conditions, interest rates,
government regulations, consumer spending,
labor availability, and our
customers’
production
rates and inventory
levels. Product sales
consist of demand
from customers in
many different markets
with different levels
of
cyclicality and seasonality. The North American truck market, which is
highly cyclical, accounted for 43%, 58%, and 56% of the
Company’s product revenue for
the years ended December
31,
2020,
2019,
and 2018 respectively.
Operating performance is dependent on the Company’s
ability to manage changes in input costs for items such as raw materials,
labor, and overhead operating costs. Performance is also affected by manufacturing
efficiencies, including items such as on time
delivery, quality, scrap,
and productivity. Market
factors of supply
and demand can
impact operating costs.
In periods of
rapid
increases or decreases in customer demand, the Company is required
to ramp operations activity up or down quickly which may
impact manufacturing efficiencies more than in periods of steady demand.
Operating performance
is also
dependent on
the Company
’s ability
to effectively
launch new
customer programs,
which are
typically extremely complex
in nature. The
start of production
of a new
program is the
result of a
process of developing
new
molds and assembly equipment,
validation testing, manufacturing
process design, development
and testing, along with
training
and often hiring
employees. Meeting the targeted levels
of manufacturing efficiency for
new programs usually occurs over
time
as the Company gains
experience with new tools
and processes. Therefore,
during a new program
launch period, start
-up costs
and inefficiencies can affect operating results.
Results of 2020 Overview
Operating income increased
to $10,390,000 for
the year ended
December 31, 2020
compared to a
loss of $11,528,000
for the
same period a year ago on a product sales decrease of 22%. Lower demand from our customers as a
result of a cyclical downturn
in the truck market
and the negative effect
of COVID-19 on most
customer demand were the
primary drivers of the
sales decrease.
The increase
in operating
income was
largely due
to improved
manufacturing efficiencies
and cost
savings at
several of
the
Company's facilities. The Company also incurred lower SG&A costs and no goodwill impairment in 2020.
For the year ended December 31, 2020, product sales
to truck customers decreased by 38% compared to the
same period in 2019,
as a result of
a cyclical downturn in
the truck market and
demand deterioration related to
COVID-19. According to
ACT Research,
North American heavy-duty truck production decreased approximately 47% for the year
ended December 31, 2020 compared to
the same period in 2019.
For the year ended
December 31, 2020,
the Company recorded
net income of $8,165,000
or $0.98 per
basic and diluted
share,
compared with net loss of $15,223,000, or ($1.94) per basic
and diluted share for the year ended December 31, 2019. Net
income
in 2020 was favorably impacted by $5,279,000, or $0.67 per share, as a
result of a net tax valuation allowance reversal and a tax
rate benefit due
to tax law
changes that allow
the Company to
carryback net operating
losses to offset
taxable income in
through 2015, where
the Company paid
tax at 34%
compared to the
valuation of the
losses being recorded
at the 21%
current
U.S. statutory tax rate.
Looking forward, based on
industry analysts’
projections and customer
forecasts, the Company expects
sales levels for 2021
to
increase compared to
2020.
In the Company
’s largest market,
North American heavy-duty truck,
ACT Research is forecasting
production to
increase approximately 41%.
In several other
industries the Company
serves, customers
are forecasting
higher
demand in 2021 including in the marine and all-terrain vehicle
markets.
The Company
anticipates higher
raw material
costs in
2021 as
global economies
continue to
strengthen from
the COVID
effected 2020 economic
levels. Global demand
for certain raw
materials the Company
uses has increased
in the second
half of
2020 and in the first quarter of 2021.
As a result, suppliers have been increasing the price of
these materials.
The Company has
the ability to pass through a portion, but not all, of the cost increases
to its customers.
In February 2021, an unprecedented winter storm in Texas and Mexico caused operational disruptions to
many companies in the
area including the Company’s
Matamoros and Monterey Mexico
operations as well as to
our customers and suppliers.
Much of
North American resins
and glass supply
originate from the region
and these supplier operations
were significantly affected causing
suppliers to claim
force majeure and
set supply allocations.
While the Company
has been able
to coordinated its
raw material
supply with customer demand, other supplier disruptions throughout our customers
’
supply chain have resulted in our customers
delaying orders.
In addition,
suppliers of certain
materials, such as
polypropylene, have
increased prices
due to a
shortage of
supply.
Suppliers have indicated they anticipate supply levels to recover
during the second quarter of 2021.
2020 Compared to 2019
Net sales for
the years ended
December 31,
2020 and 2019
totaled $222,356,000
and $284,290,000, respectively.
Included in
total sales
were tooling
project sales
of $11,776,000
and $15,303,000
for the
years ended
December 31,
2020 and
2019,
respectively. These sales are sporadic
in nature and fluctuate in
regard to scope and
related revenue on a period
-to-period basis.
Product sales, excluding tooling project
sales, for the year ended December
31, 2020 were $210,580,000 compared
to
$268,987,000 for
the same period
in 2019. This
decrease in sales
is primarily the
result of lower
cyclical demand
from truck
customers as well
as lower demand
from most all
customers as a
result of COVID
-19, offset by
the increase in
demand from
customers in building products industry.
Gross margin was approximately 15.5% of sales for the year
ended December 31, 2020, compared with 7.6% for the year
ended
December 31, 2019. The
gross margin increase, as
a percent of sales,
was due to
favorable product mix and
production efficiencies
of 8.4% and changes in selling price and material costs of 1.0%,
offset by lower leverage of fixed costs of 1.5%.
Selling, general
and administrative
expense (“SG&A”)
totaled $24,08
4,000 in
2020, compared
to $28,934,000
in 2019.
The
decrease in SG&A expense primarily resulted from lower professional and outside
services of $2,023,000, government subsides
received in 2020 enacted as a result of COVID-19 of $1,416,000,
and lower travel costs of $783,000.
The Company incurred a
goodwill impairment of $4,100,000
associated with its Horizon Plastics
reporting unit during the year
ended December 31, 2019. In
2019, the Company incurred lower
profit margins in its Horizon
Plastics reporting unit caused by
selling price decreases that the Company had not been able to
fully offset with material cost reductions.
Interest expense totaled
$5,923,000 for the
year ended December 31,
2020, compared to
interest expense of $4,144,000
for the
year ended December 31, 2019.
The increase in interest expense was primarily due to
a loss on termination of interest rate swaps
of $1,253,000
and a one-time
expense related to
the deferred
loan costs for
the debt refinancing
of $583,000,
offset by lower
average outstanding debt in 2020.
Income tax
benefit was
approximately 80%
of total
income before
income taxes
in 2020
and 2%
of total
loss in
2019. The
Company’s effective
tax rate reflects
the effects of
taxable income and
taxable losses being
generated in tax
jurisdictions with
different tax rates, and in 2020
a net valuation allowance change of
$2,074,000 and a rate benefit of
$3,205,000 based on losses
being carried back to
years where the Company paid
tax at 34% compared
to the valuation of the
losses being recorded at
21%
current U.S. statutory tax rate.
The Company
recorded net
income for
2020 of
$8,165,000 or
$0.98 per
basic and
diluted share,
compared with
net loss
of
$15,223,000 or $(1.94) per basic and diluted share for 2019.
Comprehensive income totaled $8,170,000 in 2020, compared to a
comprehensive loss of $15,970,000 in 2019. The
increase was
primarily related to
higher net income
of $23,388,000
and a change
in net actuarial
adjustments of $1,982,000
for other post-
retirement benefit obligations.
Compared to 2018
Net sales for 2019 totaled $284,290,000, which was an increase from the $269,485,000 reported for 2018. Included in total sales
were tooling project sales
of $15,303,000 for 2019
and $13,268,000 for 2018.
Tooling project sales result
primarily from customer
approval and acceptance
of molds and
assembly equipment specific
to their products
as well as other
non-production services.
These sales are sporadic in nature and fluctuate in regard
to scope and related revenue on a period
-to-period basis. Total product
sales for 2019, excluding tooling project sales, totaled $268,987,000, representing a 5% increase from the
$256,217,000 reported
for 2018. The increase in product
sales is primarily the result of increased
sales to our truck and marine
customers of $11,707,000
and $3,144,000, respectively.
Gross margin was approximately 7.6% of sales in 2019 and 10.1% in 2018. The gross margin
decrease, as a percent of sales, was
due to unfavorable
product mix and
production inefficiencies of
3.8%.
These reductions were
offset by net
changes in selling
price and material costs of 1.3%.
Selling, general
and administrative
expense (“SG&A”)
totaled $28,934,000
in 2019,
compared to
$27,838,000 in
2018. The
increase in SG&A expense
primarily resulted from
higher labor and
benefit costs of
$1,144,000 and
higher insurance costs
of
$327,000 offset by lower professional and outside services of $1,017,000.
For the year ended December
31, 2018, the Company
incurred one-time acquisition fees of $1,289,000.
Goodwill impairment totaled
$4,100,000 and
$2,403,000 in 2019
and 2018, respectively,
based on the
Company's annual and
interim goodwill impairment
assessment for its
reporting units.
See
Note 2 -
Summary of Significant
Accounting Policies
, for
further details.
Net interest expense totaled
$4,144,000 for the year ended
December
31, 2019, compared to
net interest expense of $2,394,000
for the year ended December
31, 2018.
The increase in interest expense was primarily due
to a higher average outstanding debt
balance as well has higher interest rates in 2019.
Income tax benefit was approximately 2% of
total loss before income taxes in 2019
and 12% in 2018.
The effective income tax
rate in both
years is a
result of
the net effect
of taxable
losses in
lower statutory
rate tax jurisdictions
being offset
by taxable
income in higher statutory
rate tax jurisdictions.
Additionally, the effective rate
in 2019 includes the
impact of recording a
full
valuation allowance against net deferred tax assets in the United States
of approximately $3,267,000.
Net loss for 2019
was $15,223,000 or $(1.94)
per basic and diluted
share, compared with
net loss of $4,782,000
or $(0.62) per
basic and diluted share for 2018.
Comprehensive loss totaled
$15,970,000 in 2019,
compared to a
comprehensive loss of
$4,735,000 in 2018.
The decrease was
primarily related
to higher
net loss
of $10,441,000
and a
change in
net actuarial
adjustments of
$1,630,000 for
other post-
retirement benefit obligations offset by a change in hedging
derivatives of $836,000.
The net actuarial changes in 2018 and 2019
were primarily due to changes in discount rate.
LIQUIDITY AND CAPITAL
RESOURCES
Cash Flow
The Company’s primary sources
of funds have been cash generated from operating
activities and borrowings from third parties.
Primary cash requirements are for operating expenses, capital expenditures, repayments of debt, and acquisitions.
The Company
from time
to time will
enter into
foreign exchange
contracts and
interest rate
swaps to
mitigate risk
of foreign
exchange and
interest rate
volatility. As of
December 31,
2020, the
Company had
no outstanding
foreign exchange
contracts, compared
to
notional amounts of
$15,358,000 outstanding
as of December
31, 2019. As of
December 31,
2020, the Company
also had no
outstanding interest rate swaps, compared to notional amount of $29,750,000
outstanding as of December 31, 2019.
Cash provided by
operating activities totaled
$28,164,000 for
the year ended
December 31,
2020.
Net income of
$8,165,000
positively impacted operating cash flows.
Non-cash deductions included in net
income from depreciation and
amortization and
share based compensation amounted to $11,662,000 and $1,355,000, respectively. A decrease in working capital resulted in cash
provided of
$5,648,000. The
decrease in
working capital
was primarily
related to
increase cash
from accounts
receivable,
inventory and other
accrued liabilities, offset
by decrease cash
from accounts payable
and prepaid
expenses and other
current
assets.
Cash used in
investing activities
totaled $3,683,000
for the year
ended December
31, 2020,
primarily related
to purchases
of
property, plant
and equipment
for new
programs and
equipment improvements
at the
Company’s production
facilities. The
Company anticipates spending approximately $19,500,000 during 2021 on property, plant and equipment purchases for all of the
Company's operations, including
approximately $8,500,000
to expand the
Company’s DLFT
capacity in Matamoros,
Mexico.
The Company
anticipates using
cash from
operations and
its revolving
line of
credit to
finance this
capital investment.
The
Company may also use equipment
financing for the DLFT
capacity expansion.
At December 31, 2020,
purchase commitments
for capital expenditures in progress were approximately $677,000.
Cash used in financing activities totaled $22,206,000 for the year ended December 31, 2020. Cash
activity primarily consisted of
net repayments
of revolving
loans of
$11,588,000, repayments
of principal
on outstanding
term loans
of $38,72
5,000, and
payment of deferred loan costs of $2,038,000, offset by borrowings under
new term loans of $30,165,000.
At December 31, 2020,
the Company had $4,131,000
of cash on hand and
an available revolving line
of credit of $19,223,000.
If a material adverse change in the financial
position of the Company should occur, or if actual
sales or expenses are substantially
different than what has
been forecasted, the Company's
liquidity and ability to
obtain further financing to
fund future operating
and capital requirements could be negatively impacted.
Management believes cash
on hand, cash
flow from operating
activities and available
borrowings under the
Company’s credit
agreement will be sufficient to meet the Company’s
current liquidity needs.
Term Loans
Wells Fargo Term Loans
On October 27, 2020,
the Company entered into
a credit agreement (the
“Credit Agreement”) with Wells Fargo Bank,
National
Association, as administrative
agent, lead arranger
and book runner,
and the lenders
party thereto (the
“Lenders”). Pursuant to
the terms of
the Credit Agreement, the
Lenders made available
to the Company
secured term loans
(the “WF Term
Loans”) in
the maximum aggregate principal amount of
$18,500,000 ($16,790,000 of which was
advanced to the Company on October
28,
2020). The
proceeds from
the WF
Term Loans
were used
to pay
off the
Company’s existing
outstanding indebtedness
with
KeyBank National Association, and to pay certain fees and expenses associated with the financing.
At the option of the Company, the WF Term Loans bears interest at a per annum rate equal to LIBOR plus a margin
of 300 basis
points or base
rate plus a
margin of 200
basis points.
LIBOR rate means
the greater
of (a) 0.75%
per annum and
(b) the per
annum published LIBOR rate for interest periods of one, three or six months as chosen by
the Company.
Base rate is the greater
of (a) 1.0% per
annum, (b) the Federal
Funds Rate plus 0.5%,
(c) LIBOR Rate plus
100 basis or (d)
prime rate.
The weighted
average interest rate was 3.77% as of December 31, 2020.
The WF Term Loans are to
be repaid in monthly installments
of $200,000 plus interest, with
the remaining outstanding balance
due on November
30, 2024, subject
to certain optional
and mandatory repayment
terms. The Company’s
obligations under the
WF Term Loans are unconditionally guaranteed by each
of the Company’s U.S. and Canadian subsidiaries, with such obligations
of the Company and such subsidiaries being secured by a lien on
substantially all of their U.S. and Canadian assets.
The WF Term
Loans contains reporting, indebtedness, and
financial covenants.
The Company is in
compliance with its covenants
as of December 31, 2020.
Voluntary prepayments of amounts outstanding under the WF Term Loans are permitted at any
time without premium or penalty.
To the extent applicable, LIBOR breakage fees may be charged
in connection with any prepayment.
FGI Equipment Finance LLC Term Loan
On October 20,
2020, the Company
entered into a
Master Security Agreement and
a Promissory Note,
among FGI Equipment
Finance LLC, (“FGI”) the Company
as debtor, and each of
Core Composites Corporation, a subsidiary of
the Company organized
in Delaware, and CC HPM,
S. de R.L. de C.V., a
subsidiary of the Company organized
in Mexico, as guarantors, a term
loan in
the principal amount of $13,200,000
(the “FGI Term Loan”). On October 27, 2020,
FGI advanced to the Company $12,000,000
which proceeds were used to pay off the Company’s existing
outstanding indebtedness with KeyBank National Association, and
to pay certain fees
and expenses associated
with the transactions,
and $1,200,000 which
proceeds were used
to fund a
security
deposit to be held
by FGI. Interest on
the FGI Term Loan is
a fixed rate of
8.25% and is payable
monthly. The Company notes
that the security deposit of $1,200,000 is located in prepaid
expenses and other current assets on the balance sheet.
Following the advance
of funds by
FGI, the FGI
Term Loans are
to be repaid
in monthly principal
and interest installments
of
$117,000 for the
first 12 months,
$246,000 for the
subsequent 59 months
and $1,446,000 due
on October 31,
2026, subject to
certain optional and mandatory repayment
terms. The Company’s
obligations under the Master Security
Agreement are secured
by certain machinery and equipment of the guarantors located in Mexico, and real property of Core composites de Mexico, S. de
R.L. de C.V., also a subsidiary of the Company organized in Mexico,
located in Matamoros, Mexico.
The Company may
prepay in full
or in part
(but not less than
the amount equal
to 20% of
the original principal
amount of the
loan) outstanding amounts before they are due
on any scheduled Payment Date upon at
least thirty (30) days’
prior written notice.
The Company will
pay a “Prepayment
Fee” in an
amount equal to
an additional sum
equal to the
following percentage of
the
principal amount to be
prepaid for prepayments occurring
in the indicated period:
four percent (4.0%) (for
prepayments occurring
prior to
the first anniversary
of the Loan);
three percent (3.0%)
(for prepayments occurring
on and thereafter
and prior
to the
second anniversary
of the
Loan); two
percent (2.0%)
(for prepayments
occurring on
and thereafter
and prior
to the
third
anniversary of the Loan ); and one percent (1.0%) (for
prepayments occurring any time thereafter).
Leaf Capital Funding
On April 24, 2020
the Company entered
into a finance
agreement with Leaf
Capital Funding of
$175,000 for equipment.
The
parties agreed
to a
fixed interest
rate of
5.5% and
a term
of 60
months. The amount
outstanding at
December 31,
2020 was
$152,000 of which, $120,000 was classified as long-term debt.
Revolving Loans
Wells Fargo Revolving Loan
On October 27, 2020,
the Company entered into
a credit agreement (the
“Credit Agreement”) with Wells Fargo Bank,
National
Association, as adminis
trative agent, lead
arranger and book
runner, and the
lenders party thereto
(the “Lenders”). Pursuant
to
the terms of the
Credit Agreement, the
Lenders made available to
the Company a
revolving loan commitment (the
“WF Revolving
Loan”) of $25,000,000
($8,745,000 of which was
advanced to the
Company on October
28, 2020). The proceeds
from the WF
Revolving Loan were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and
to pay certain fees and expenses associated with the financing.
The Credit Agreement also makes available
to the Company an
incremental revolving commitment
in the maximum amount
of
$10,000,000 at the Company’s
option at any time during the three (3) year period following the closing.
The borrowing availability under the line of credit is the lesser of (a) the loan commitment of $25,000,000 or (b) the sum of 90%
of eligible investment grade accounts receivable,
85% of non-investment grade eligible accounts
receivable and 65% of eligible
inventory.
At the option of the Company,
the WF Revolving Loan bears
interest at a per annum
rate equal to LIBOR plus
a margin of 200
to 250 basis points
or base rate plus
a margin of 100 to
150 basis points, with
the margin rate being based
on the excess availability
amount under the line of credit.
LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR
rate for interest periods of one,
three or six months as chosen
by the Company.
Base rate is the greater of
(a) 1.0% per annum,
(b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate
plus 100 basis and (d) prime rate.
The weighted average interest rate was
4.75% as of December 31, 2020.
The WF Revolving Loan commitment
terminates, and all outstanding
borrowings thereunder must
be repaid, by November
30,
2024. The
Company has
available $19,223,000
of available
rate revolving
loans of
which
$420,000
is outstanding
as
of
December
31, 2020.
The WF Revolving Loan contains the same covenants as the WF Term Loans.
Wells Fargo Bank will issue up to $2,000,000 of Letters of Credit in accordance with
the terms of the Credit Agreement upon the
Company’s request. As of December 31, 2020, the Company
had one Letter of Credit outstanding for $160,000.
In conjunction with the October debt refinancing, the Company incurred
debt origination fees of $1,730,000 related to the Wells
Fargo financing,
which is
being amortized
over the
life of
the Credit
Agreement, which
expires on
November 30,
2024. In
addition, the Company
incurred debt origination
fees of $308,000
related to the FGI
Term loan, which is
being amortized over
the life of
the FGI Term
Loan, which expires
on October 31,
2026.
The aggregate unamortized
deferred financing fees
as of
December 31, 2020 totaled $1,957,000.
KeyBank Loan
On December 31, 2019, the
Company had a term
loan and revolving loan balance
of $38,250,000 and $12,008,000 with
KeyBank
National Association, respectively. The Company’s term loan and revolving loan had variable interest rates of 6.30% and 6.04%,
respectively at December
31, 2019. On
November 22, 2019
the Company entered
into a forbearance
agreement with KeyBank
and on
October 27,
2020 the
Company fully
repaid all
outstanding amounts.
As a
result of
the forbearance
agreement not
extending beyond a year, the Company’s remaining long-term debt balance was classified as a current liability in the Company’s
consolidated balance sheet as of December 31, 2019.
Interest Rate Swaps
The Company
entered into
two interest
rate swap
agreements that
became effective
January
18, 2018,
one of
which was
designated as a cash flow
hedge for $25,000,000 and the other
designated as a cash flow
hedge for $10,000,000 to the Company’s
subsidiary. Under these agreements, the
Company paid a fixed rate
of
2.49%
to the counterparty and
received a 30 day
LIBOR
for
both cash flow
hedges. Concurrent
with the closing
of the
KeyBank credit
agreement, the
Company settled
both outstanding
interest rate swaps, which
resulted in a loss
and cash outflow of
$1,253,000. These results were
categorized as interest expense
and operating activities in the Statement
of Operations and Statement of
Cash Flow, respectively. Due to the
settlement, the fair
value of the interest rate swaps was $0
at
December
31, 2020 compared to a liability of $706,000 at December 31,
2019.
Bank Covenants
The Company is required to meet certain financial covenants included in
the Credit Agreement with respect to fixed
charge ratio.
The following table presents the financial covenants specified in our Credit Agreement
and the actual covenant calculations as of
December 31, 2020:
Financial Covenants
Actual Covenants as of
December 31, 2020
Fixed Charges Coverage Ratio
Minimum 1.10
2.6
Shelf Registration
On December
11, 2020
the Company
filed a
new universal
shelf Registration
Statement on
Form S
-3 (the
“Registration
Statement”) with the SEC in accordance
with the Securities Act of 1933, as amended, which became
effective on December
16,
2020.
The Registration Statement replaces
an existing shelf Registration
Statement which expired on
November 14, 2020. The
Registration Statement registered
common stock, preferred
stock, debt securities,
warrants, depositary shares,
rights, units, and
any combination of the foregoing, for a maximum aggregate offering price of up to $50
million, which may be sold from time to
time.
The terms of any
securities offered under
the Registration Statement
and intended use
of proceeds will
be established at
the times of the offerings
and will be described
in prospectus supplements filed with
the SEC at the times
of the offerings.
The
Registration Statement has a three-year term.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET TRANSACTIONS
The Company has the
following minimum commitments under contractual
obligations, including purchase obligations, as
defined
by the SEC.
A “purchase obligation”
is defined as
an agreement to
purchase goods or
services that is
enforceable and
legally
binding on the Company and
that specifies all significant terms,
including: fixed or minimum
quantities to be purchased;
fixed,
minimum, or variable price
provisions; and the approximate
timing of the transaction.
Other long-term liabilities are
defined as
long-term liabilities
that are
reflected on
the Company
’s balance
sheet under
accounting principles
generally accepted
in the
United States. Based on
this definition, the table
below includes only those
contracts which include fixed
or minimum obligations.
It does not include normal purchases, which are made in the ordinary
course of business.
The following table provides
aggregated information about the maturities
of contractual obligations and
other long-term liabilities
as of December
31, 2020:
2025 and
after
Total
Long-term debt
$
3,019,000
$
4,428,000
$
4,601,000
$
11,585,000
$
6,057,000
$
29,690,000
Interest
(A)
1,653,000
1,452,000
1,180,000
889,000
574,000
5,748,000
Operating lease obligations
1,215,000
811,000
706,000
705,000
-
3,437,000
Contractual
commitments for
capital expenditures
677,000
-
-
-
-
677,000
Post retirement benefits
1,286,000
459,000
500,000
473,000
6,391,000
9,109,000
Total
$
7,850,000
$
7,150,000
$
6,987,000
$
13,652,000
$
13,022,000
$
48,661,000
(A)
Variable interest rates were as of December 31, 2020.
As of December
31, 2020 and 2019, the Company had no significant off
-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion
and Analysis of Financial
Condition and Results
of Operations discuss
the Company’s
consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States.
The preparation of
these consolidated financial
statements requires management
to make estimates
and assumptions that
affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated
financial statements
and the
reported amounts
of revenues
and expenses
during the
reporting period.
On an
on-going basis,
management evaluates
its estimates
and judgments,
including those
related to
accounts receivable,
inventories, goodwill
and
other long-lived assets, self-insurance, post
retirement benefits, and income taxes.
Management bases its estimates and judgments
on historical experience
and on various
other factors that
are believed to
be reasonable under
the circumstances, the
results of
which form the
basis for making
judgments about the
carrying value of
assets and liabilities
that are not
readily apparent from
other sources. Actual results
may differ from
these estimates
, due to
the uncertainty around
the magnitude and
duration of the
COVID-19 pandemic, as well as other factors.
Management believes the following
critical accounting policies, among
others, affect its more
significant judgments and estimates
used in the preparation of its consolidated financial statements.
Accounts Receivable Allowances
Management maintains allowances for doubtful
accounts for estimated losses resulting
from the inability of
its customers to make
required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their
ability to make
payments, additional allowances
may be required.
The Company has
determined that a
$41,000 allowance for
doubtful accounts is needed
at December 31,
2020 and $50,000
at December 31, 2019.
Management also records estimates
for
customer returns
and deductions,
discounts offered
to customers,
and for
price adjustments.
Should customer
returns and
deductions, discounts, and price
adjustments fluctuate from the estimated
amounts, additional allowances may
be required. The
Company had an allowance for
estimated chargebacks of $179,000
at December 31, 2020 and
$476,000 at December 31,
2019.
There have been no material changes in the methodology of these calculations.
Inventories
Inventories, which include
material, labor and
manufacturing overhead, are
valued at the
lower of cost
or net realizable
value.
The inventories are accounted for using the first-in, first-out (FIFO) method of determining inventory costs. Inventory quantities
on-hand are
regularly reviewed,
and where
necessary, provisions
for excess
and obsolete
inventory are
recorded based
on
historical and anticipated usage.
The Company has recorded an allowance for
slow moving and obsolete inventory of $
546,000
at December 31, 2020 and $898,000 at December 31, 2019.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment
and finite-lived intangibles. The recoverability of long-lived
assets is evaluated
by an analysis
of operating results
and consideration of
other significant
events or changes
in the business
environment.
The Company evaluates,
whether impairment exists
for long-lived assets
on the basis
of undiscounted expected
future cash flows
from operations before
interest.
There was no
impairment of the
Company's long
-lived assets for
the years
ended December 31, 2020, 2019,
and 2018.
Goodwill
The purchase consideration of
acquired businesses have been
allocated to the assets
and liabilities acquired based on
the estimated
fair values on the respective acquisition dates. Based on these values, the excess purchase consideration over the fair
value of the
net assets acquired
was allocated to
goodwill. The Company accounts
for goodwill in
accordance with FASB
ASC Topic 350,
Intangibles -
Goodwill and
Other. FASB
ASC Topic
350 prohibits
the amortization
of goodwill
and requires
these assets
be
reviewed for impairment at each reporting unit. As a result of the Horizon Plastics acquisition on January 16, 2018 and the status
of its integration, the Company established two reporting units,
Core Traditional and Horizon Plastics.
The annual impairment
tests of goodwill may
be completed through
qualitative assessments; however
the, Company may
elect
to bypass the qualitative
assessment and proceed
directly to a quantitative
impairment test for
any reporting unit in
any period.
The Company may resume the qualitative assessment for any
reporting unit in any subsequent period.
Under a qualitative and quantitative
approach, the impairment tes
t
for goodwill consists of an
assessment of whether it is
more-
likely-than-not that a
reporting unit’s fair value is
less than its
carrying amount. As
part of the qualitative
assessment, the Company
considers relevant
events and
circumstances that
affect the
fair value
or carrying
amount of
the Company.
Such events
and
circumstances could
include changes
in economic
conditions, industry
and market
conditions, cost
factors, overall
financial
performance, reporting unit
specific events and
capital markets pricing.
The Company places
more weight on
the events and
circumstances that most affect the Company's
fair value or carrying amount. These factors
are all considered by management in
reaching its conclusion about whether to perform step one of the impairment test. If the Company elects to bypass the qualitative
assessment for any
reporting unit, or
if a qualitative
assessment indicates it
is more-likely-than
-not that the
estimated carrying
value of a reporting unit exceeds its fair value, the Company proce
eds to a quantitative approach.
The company performed a qualitative analysis for the year end December 31, 2020 and determined that no impairment is needed
for the year 2020.
Due to the Company's
financial performance and continued depressed
stock price, the Company
performed a quantitative analysis
for both of its reporting units at September 30, 2019. During 2019, the Company incurred a loss of margin in its Horizon Plastics
reporting unit caused by selling price decreases that the Company
has not been able to fully offset with material cost reductions.
As a result of the quantitative
analysis, the Company concluded
that the carrying value of
Horizon Plastics was greater than
the
fair value, which resulted
in a goodwill impairment
charge of $4,100,000 at September
30, 2019 representing 19%
of the goodwill
related to the Horizon Plastics reporting unit. The company performed a
qualitative assessment at December 31, 2019, indicating
no additional goodwill impairment related to the Horizon Plastics reporting
unit.
The Company’s annual impairment assessment at December 31,
2018 consisted of a quantitative
analysis for both reporting units.
It concluded that the carrying value of Core
Traditional was greater than the fair value, which resulted
in a goodwill impairment
charge of $2,403,000, representing all the goodwill related to the Core Traditional reporting unit. The analysis of the Company’s
other reporting unit,
Horizon Plastics, indicated
no goodwill impairment
charge, based on
historical performance and
financial
projections at that time, as the excess of the estimated fair
value over the carrying value of its invested capital was approximately
23% of the book value of its net assets.
Self-Insurance
The Company is
self-insured with respec
t
to Columbus and
Batavia, Ohio; Gaffney,
South Carolina; Winona,
Minnesota;
and
Brownsville, Texas for medical, dental and vision claims and Columbus and Batavia, Ohio for
workers’ compensation claims, all
of which are subject to stop-loss insurance
thresholds. The Company is also self-insured for
dental and vision with respect to its
Cobourg, Canada location.
The Company has recorded
an estimated liability for
self-insured medical, dental and
vision claims
incurred but not reported and
worker’s compensation claims
incurred but not reported at
December 31, 2020 and December
31,
2019 of $933,000 and $1,203,000, respectively.
Post Retirement Benefits
Management records
an accrual
for post retirement
costs associated
with the health
care plan
sponsored by
the Company for
certain employees. Should
actual results differ
from the assumptions
used to determine the
reserves, additional provisions
may
be required.
In particular,
increases in
future healthcare
costs above
the assumptions
could have
an adverse
effect on
the
Company's operations. The effect
of a change in
healthcare costs is described
in
Note 12 -
Post Retirement Benefits
.
Core Molding
Technologies had
a liability for
post retirement healthcare
benefits based
on actuarially computed
estimates of
$9,109,000 at
December 31, 2020 and $9,160,000 at December 31, 2019.
Revenue Recognition
The Company historically
has recognized revenue
from two streams,
product revenue and
tooling revenue. Product
revenue is
earned from
the manufacture
and sale
of sheet
molding compound
and thermoset
and thermoplastic
products. Revenue
from
product sales is generally recognized as products are shipped, as the Company transfers control to the customer and is entitled to
payment upon
shipment. In
certain circumstances,
the Company
recognizes revenue
from product
sales when
products are
produced and the customer takes control at our production facility.
Tooling revenue is earned from
manufacturing multiple tools, molds and
assembly equipment as part of
a tooling program for a
customer. Given that the Company is
providing a significant service of
producing highly interdependent component
parts of the
tooling program,
each tooling
program consists
of a
single performance
obligation to
provide the
customer the
capability to
produce a single product. Based on the arrangement with the customer, the Company recognizes revenue either at a point in time
or over time. When the
Company does not
have an enforceable
right to payment, the
Company recognizes tooling revenue
at a
point in time. In such cases,
the Company recognizes revenue
upon customer acceptance, which
is when the customer has
legal
title to the tools.
The Company historically recognized
all tooling revenue at
a point in time,
upon customer acceptance,
before
the adoption of ASU 2014-09.
Certain tooling programs
include an enforceable
right to payment.
In those cases,
the Company recognizes
revenue over time
based on the extent of
progress towards completion o
f
its performance obligation. The
Company uses a cost-to-cost measure
of
progress for such
contracts because it
best depicts the
transfer of value
to the customer
and also correlates
with the amount
of
consideration to which the
entity expects to be
entitled in exchange for
transferring the promised goods
or services to
the customer.
Under the cost-to-cost measure of progress, progress towards completion is measured based on the ratio of costs incurred to date
to the
total estimated
costs at
completion of
the performance
obligation. Revenues
are recorded
proportionally as
costs are
incurred.
Income Taxes
The Company evaluates the
balance of deferred
tax assets that will
be realized based
on the premise that
the Company is more
likely than not to realize deferred tax benefits
through the generation of future taxable income. Management reviews
all available
evidence, both positive and
negative, to assess the
long-term earnings potential
of the Company using
a number of alternatives
to evaluate
financial results
in economic
cycles at
various industry
volume conditions.
Other factors
considered are
the
Company’s relationships with
its major customers, and any recent
customer diversification efforts. The projected
availability of
taxable income to realize
the tax benefits from the
reversal of temporary differences
before expiration of these
benefits are also
considered.
The Company evaluates
provisions and
deferred tax assets
quarterly to determine
if adjustments to
our valuation
allowance are required based on the consideration of all available
evidence.
As of December
31, 2020 the Company had
a net deferred tax asset
of $53,000 of which a
liability of $876,000 is related
to tax
positions in the
United States that is
displayed on the
balance sheet within the
other accrued liabilities portion,
an asset of
$460,000
related to tax positions in
Canada and an asset
of $469,000 related to
tax positions in Mexico.
The deferred tax liabilities
are in
other noncurrent liabilities
on the Consolidated
Balance Sheet.
During 2020,
the Company recorded
a valuation allowance
of
$1,193,000 against the
state net loss
carryforward and interest
limitation carryforward,
due to cumulative
losses in the
United
States over the
last three years
and uncertainty related
to the Company’s
ability to realize
net loss carryforwards
and other net
deferred tax assets
in the future.
The Company believes
that the deferred
tax assets associated
with the Canadian and
Mexican
tax jurisdictions are more-likely-than-not to be realizable based on estimates
of future taxable income and the Company's ability
to carryback losses.
Management recognizes
the financial
statement effects
of a
tax position
when it
is more
likely than
not the
position will
be
sustained upon examination.
COVID-19
In December 2019, COVID-19 surfaced and spread around the world resulting in business and social disruption. COVID-19 was
declared a Public Health Emergency of International Concern by the World Health Organization on January 30, 2020. The
extent
to which the
coronavirus could impact
the Company’s
business activity will
depend on future
developments, which are
highly
uncertain and cannot be
predicted. Factors include,
new information concerning
the severity of COVID
-19, rollout plan for
the
COVID-19 vaccine, and the effectiveness of a vaccine.
Recent Accounting Pronouncements
Current expected credit loss (CECL)
In June 2016, the FASB issued ASU 2016-13, “Financial
Instruments -Credit Losses,” which changes the
impairment model for
most financial assets
and certain other
instruments. For trade
and other receivables,
held-to-maturity debt securities,
loans and
other instruments, entities will
be required to use
a new forward-looking “expected loss”
model that will replace
today’s “incurred
loss” model and generally will result in
the earlier recognition of allowances for losses. For
available-for-sale debt securities with
unrealized losses,
entities will
measure credit
losses in
a manner
similar to
current practice,
except that
the losses
will b
e
recognized as an allowance. Subsequent to
issuing ASU 2016 -13, the FASB issued ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments -
Credit Losses,” for the purpose
of clarifying certain aspects of ASU 2016 -13.
ASU 2018-
19 has the
same effective date
and transition requirements
as ASU 2016
-13. In April 2019,
the FASB issued
ASU 2019 -04,
“Codification Improvements to Topic 326, Financial Instruments - Credit
Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments,
”
which is effective
with the adoption
of ASU 2016-13. In May
2019, the FASB
issued ASU 2019-
05, “Financial Instruments - Credit Losses (Topic 326),” which is
also effective with the adoption of ASU
2016-13. In November
2019, the FASB voted to delay the implementation date for certain companies, including those that qualify as a smaller reporting
company under SEC rules, until fiscal years beginning
after December 15, 2022. We will adopt
this ASU on its effective date of
January 1, 2023.
We do not
expect the adoption
of this ASU to
have a material
impact on our
consolidated financial
position,
results of operations, cash flows, or presentation thereof.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued
ASU 2019-12, Income Taxes -
Simplifying the Accounting for Income
Taxes. This guidance
is intended to
simplify various aspects
of income tax
accounting including the
elimination of certain
exceptions related
to the
approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of
deferred tax
liabilities for
outside basis
differences. The
new guidance also
simplifies aspects
of the accounting
for franchise
taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis
of goodwill. The Company adopted
the new standard effective January
1, 2020 during the third
quarter with no material impact
on our consolidated financial statements. Adoption of this guidance requires certain changes to primarily be made prospectively,
with some changes to be made retrospectively.
Facilitation of the Effects of Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on
Financial Reporting
(Topic 848). The ASU provides optional expedients and exceptions for applying GAAP
to transactions affected by reference rate
(e.g., LIBOR) reform
if certain criteria
are met, for
a limited period
of time to
ease the potential
burden in accounting
for (or
recognizing the
effects of)
reference rate
reform on
financial reporting.
The ASU is
effective as
of March
12, 2020
through
December 31, 2022.
We will evaluate
transactions or contract
modifications occurring as
a result of
reference rate reform
and
determine whether to apply the optional guidance on an ongoing basis.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Core Molding Technologies
’
primary market risk
results from
changes in
the price
of commodities
used in its
manufacturing
operations. Core
Molding Technologies
is also
exposed to
fluctuations in
interest rates
and foreign
currency fluctuations
associated with
the Mexican
Peso and
Canadian Dollar.
Core Molding
Technologies does
not hold
any material
market risk
sensitive instruments for trading purposes.
Core Molding Technologies has the
following three items that are sensitive
to market risks at December
31, 2020: (1) Term
Loans
and Revolving Loan which bear
a variable interest rate; (2)
foreign currency purchases in
which the Company purchases Mexican
Pesos or
Canadian Dollars
with United
States dollars
to meet
certain obligations
that arise
due to
operations at
the facilities
located in Mexico or Canada; and (3) raw material purchases
in which Core Molding Technologies purchases various resins and
fiberglass for use in production.
The prices and availability of
these materials are affected
by the prices of crude
oil and natural
gas as well as processing capacity versus demand.
Assuming a hypothetical 10% change in
short-term interest rates, interest paid on
the Company’s Revolving Loan and Term Loan
would impact the interest paid
by the Company, as the
interest rate on these
loans is based upon LIBOR;
however, it would not
have a material effect on earnings before taxes.
Assuming a
hypothetical 10%
decrease in
the United
States dollar
to Mexican
Peso or
Canadian Dollar
exchange rates,
the
Company would be impacted by an increase in operating costs, which would
have an adverse effect on operating margins.
Assuming a hypothetical
10% increase in
commodity prices, Core
Molding Technologies would
be impacted by
an increase in
raw material costs, which would have an adverse effect on operating margins.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of
Core Molding Technologies, Inc. and Subsidiaries
Columbus, Ohio
Opinion on the Financial Statements
We have
audited the
accompanying consolidated
balance sheets
of Core
Molding Technologies,
Inc. and
Subsidiaries (the
"Company") as
of December
31, 2020
and 2019,
the related
consolidated statements
of operations,
comprehensive income,
stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2020, and the
related notes and
Schedule II (collectively
referred to as
the "financial statements").
In our opinion,
the financial statements
present fairly, in
all
material respects, the financial position of the Company as of December
31, 2020 and 2019, and the results of its operations and
its cash
flows for
each of
the three
years in
the period
ended December
31, 2020,
in conformity
with accounting
principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements
are the responsibility
of the Company's
management. Our responsibility
is to express
an opinion on
the Company's financial
statements based on
our audits. We
are a public
accounting firm registered
with the Public
Company
Accounting Oversight
Board (United
States) ("PCAOB")
and are required
to be
independent with
respect to
the Company
in
accordance with
the U.S.
federal securities
laws and
the applicable
rules and
regulations of
the Securities
and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require
that we plan and perform the
audit to obtain
reasonable assurance about
whether the financial
statements are
free of material
misstatement, whether due
to
error or fraud. The
Company is not required
to have, nor were
we engaged to perform,
an audit of its
internal control over financial
reporting.
As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an
opinion on the effectiveness of
the Company's internal control over financial
reporting. Accordingly,
we express no such opinion.
Our audits included performing procedures
to assess the risks of material
misstatement of the financial statements,
whether due
to error or
fraud, and performing
procedures that respond
to those risks.
Such procedures included
examining, on a
test basis,
evidence regarding the
amounts and disclosures
in the financial
statements. Our audits
also included evaluating
the accounting
principles used and
significant estimates made
by management,
as well as
evaluating the
overall presentation of
the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
Critical audit matters
are matters
arising from the
current period
audit of the
financial statements that
were communicated
or
required to be communicated to
the audit committee and that:
(1) relate to accounts or
disclosures that are material to
the financial
statements and
(2) involved
our especially
challenging, subjective,
or complex
judgments.
We determined
that there
are no
critical audit matters.
/s/ Crowe LLP
We have served as the Company's auditor since 2009.
Columbus, Ohio
March
11,
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
Years
Ended December 31,
Net sales
$
222,356,000
$
284,290,000
$
269,485,000
Total
cost of sales
187,882,000
262,784,000
242,344,000
Gross margin
34,474,000
21,506,000
27,141,000
Selling, general and administrative expense
24,084,000
28,934,000
27,838,000
Goodwill impairment
-
4,100,000
2,403,000
Total
expenses
24,084,000
33,034,000
30,241,000
Operating income (loss)
10,390,000
(11,528,000)
(3,100,000)
Other income and expense
Net periodic post-retirement benefit
(80,000)
(94,000)
(48,000)
Net interest expense
5,923,000
4,144,000
2,394,000
Total
other income and expense
5,843,000
4,050,000
2,346,000
Income (loss) before income taxes
4,547,000
(15,578,000)
(5,446,000)
Income taxes:
Current
(5,713,000)
705,000
1,048,000
Deferred
2,095,000
(1,060,000)
(1,712,000)
Total
income taxes
(3,618,000)
(355,000)
(664,000)
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Net income (loss) per common share:
Basic
$
0.98
$
(1.94)
$
(0.62)
Diluted
$
0.98
$
(1.94)
$
(0.62)
See notes to consolidated financial statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Years
Ended December 31,
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Other comprehensive income (loss):
Foreign currency hedging derivatives:
Unrealized hedge gain (loss)
(452,000)
1,202,000
(452,000)
Income tax benefit (expense)
98,000
(286,000)
87,000
Interest rate hedging derivatives:
Unrealized benefit (loss)
705,000
(641,000)
(65,000)
Income tax benefit (expense)
(160,000)
146,000
15,000
Post retirement benefit plan adjustments:
Net actuarial gain (loss)
283,000
(985,000)
1,081,000
Prior service costs
(496,000)
(496,000)
(496,000)
Income tax benefit (expense)
27,000
313,000
(123,000)
Comprehensive income (loss)
$
8,170,000
$
(15,970,000)
$
(4,735,000)
See notes to consolidated financial statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
Assets:
Current assets:
Cash and cash equivalents
$
4,131,000
$
1,856,000
Accounts receivable, net
27,584,000
32,424,000
Inventories:
Raw materials and components
11,640,000
13,041,000
Work in process
1,679,000
1,818,000
Finished goods
5,041,000
6,823,000
Total inventories, net
18,360,000
21,682,000
Contract assets
554,000
888,000
Income tax receivable
2,026,000
653,000
Prepaid expenses and other current assets
3,823,000
3,721,000
Total current assets
56,478,000
61,225,000
Right of use asset
2,754,000
4,484,000
Property, plant and equipment,
net
74,052,000
79,206,000
Deferred tax asset
929,000
2,026,000
Goodwill
17,376,000
17,376,000
Intangibles, net
11,516,000
13,464,000
Other non-current assets
2,403,000
1,525,000
Total
Assets
$
165,508,000
$
179,306,000
Liabilities and Stockholders’ Equity:
Liabilities:
Current liabilities:
Current portion of long-term debt
$
2,535,000
$
37,443,000
Current portion of revolving debt
420,000
12,008,000
Accounts payable
16,994,000
19,910,000
Taxes payable
2,613,000
331,000
Contract liabilities
1,319,000
3,698,000
Current portion of post retirement benefits liability
1,286,000
1,233,000
Accrued liabilities:
Compensation and related benefits
8,305,000
5,515,000
Other
2,523,000
4,027,000
Total current liabilities
35,995,000
83,834,000
Other non-current liabilities
2,560,000
3,119,000
Long-term debt
25,198,000
-
Post retirement benefits liability
7,823,000
7,927,000
Total
Liabilities
71,576,000
94,880,000
Commitments and Contingencies
-
-
Stockholders’ Equity:
Preferred stock - $
0.01
par value, authorized shares -
10,000,000
;
no
shares
outstanding at
December 31, 2020 and December 31, 2019
-
-
Common stock - $
0.01
par value, authorized shares -
20,000,000
; outstanding
shares:
7,980,516
at December 31, 2020 and
7,877,945
at December 31, 2019
80,000
79,000
Paid-in capital
36,127,000
34,772,000
Accumulated other comprehensive income, net of income taxes
1,375,000
1,370,000
Treasury stock - at cost,
3,810,929
shares at December 31, 2020 and
3,806,355
shares at
December 31, 2019
(28,521,000)
(28,501,000)
Retained earnings
84,871,000
76,706,000
Total
Stockholders’ Equity
93,932,000
84,426,000
Total
Liabilities and Stockholders’ Equity
$
165,508,000
$
179,306,000
See notes to consolidated financial statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders’
Equity
Accumulated
Common Stock
Other
Total
Outstanding
Paid-In
Comprehensive
Treasury
Retained
Stockholders’
Shares
Amount
Capital
Income
Stock
Earnings
Equity
Balance at January 1, 2018
7,711,277
$
77,000
$
31,465,000
$
2,070,000
$
(28,153,000)
$
97,503,000
$
102,962,000
Net loss
(4,782,000)
(4,782,000)
Cash dividends paid
(792,000)
(792,000)
Change in post retirement
benefits, net of tax of
$
123,000
462,000
462,000
Unrealized foreign
currency hedge loss, net of
tax benefit of $
87,000
(365,000)
(365,000)
Change in interest rate
swaps, net of tax benefit of
$
15,000
(50,000)
(50,000)
Purchase of treasury stock
(17,180)
(250,000)
(250,000)
Restricted stock vested
82,067
1,000
1,000
Share-based compensation
1,743,000
1,743,000
Balance at December 31,
7,776,164
$
78,000
$
33,208,000
$
2,117,000
$
(28,403,000)
$
91,929,000
$
98,929,000
Net loss
(15,223,000)
(15,223,000)
Change in post retirement
benefits, net of tax benefit
of $
313,000
(1,168,000)
(1,168,000)
Unrealized foreign
currency hedge gain, net of
tax of $
286,000
916,000
916,000
Change in interest rate
swaps, net of tax benefit of
$
146,000
(495,000)
(495,000)
Purchase of treasury stock
(16,047)
(98,000)
(98,000)
Restricted stock vested
117,828
1,000
1,000
Share-based compensation
1,564,000
1,564,000
Balance at December 31,
7,877,945
$
79,000
$
34,772,000
$
1,370,000
$
(28,501,000)
$
76,706,000
$
84,426,000
Net income
8,165,000
8,165,000
Change in post retirement
benefits, net of tax benefit
of $
27,000
(186,000)
(186,000)
Unrealized foreign
currency hedge loss net of
tax benefit of $
98,000
(354,000)
(354,000)
Change in interest rate
swaps, net of tax expense
of $
160,000
545,000
545,000
Purchase of treasury stock
(4,574)
(20,000)
(20,000)
Restricted stock vested
107,145
1,000
1,000
Share-based compensation
1,355,000
1,355,000
Balance at December 31,
7,980,516
$
80,000
$
36,127,000
$
1,375,000
$
(28,521,000)
$
84,871,000
$
93,932,000
See notes to consolidated financial statements.
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years
Ended
Cash flows from operating activities:
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Adjustments to reconcile net income (loss) to net cash (used
in)
provided by operating activities:
Depreciation and amortization
11,662,000
10,376,000
9,384,000
Deferred income taxes
1,097,000
(873,000)
(1,739,000)
Goodwill impairment
-
4,100,000
2,403,000
Mark-to-market of interest rate swap
-
67,000
159,000
Share-based compensation
1,355,000
1,564,000
1,743,000
Loss on foreign currency
237,000
33,000
5,000
Change in operating assets and liabilities, net of effects of
acquisition:
Accounts receivable
4,840,000
13,044,000
(17,945,000)
Inventories
3,322,000
4,083,000
(5,783,000)
Prepaid and other assets
(2,018,000)
2,587,000
(528,000)
Accounts payable
(3,142,000)
(4,849,000)
7,822,000
Accrued and other liabilities
2,910,000
3,420,000
3,122,000
Post retirement benefits liability
(264,000)
(1,628,000)
(389,000)
Net cash (used in) provided by operating activities
28,164,000
16,701,000
(6,528,000)
Cash flows from investing activities:
Purchase of property, plant
and equipment
(3,683,000)
(7,460,000)
(5,801,000)
Purchase of assets of Horizon Plastics
-
-
(63,005,000)
Net cash used in investing activities
(3,683,000)
(7,460,000)
(68,806,000)
Cash flows from financing activities:
Gross borrowings on revolving loans
56,793,000
194,414,000
133,848,000
Gross repayment on revolving loans
(68,381,000)
(199,782,000)
(116,473,000)
Proceeds from term loan
30,165,000
-
45,000,000
Payment of principal of term loan
(38,725,000)
(3,375,000)
(10,125,000)
Payment of deferred loan costs
(2,038,000)
(435,000)
(763,000)
Payments related to the purchase of treasury stock
(20,000)
(98,000)
(250,000)
Cash dividends paid
-
-
(792,000)
Net cash (used in) provided by financing activities
(22,206,000)
(9,276,000)
50,445,000
Net change in cash and cash equivalents
2,275,000
(35,000)
(24,889,000)
Cash and cash equivalents at beginning of year
1,856,000
1,891,000
26,780,000
Cash and cash equivalents at end of year
$
4,131,000
$
1,856,000
$
1,891,000
Cash paid for:
Interest (net of amounts capitalized)
$
3,854,000
$
3,869,000
$
2,261,000
Income taxes
$
570,000
$
1,284,000
$
1,033,000
Non Cash:
Fixed asset purchases in accounts payable
$
147,000
$
158,000
$
871,000
See notes to consolidated financial statements.
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation
Core Molding
Technologies and
its subsidiaries
operate in
the composites
market as
one
operating segment
as a
molder of
thermoplastic and thermoset
structural products. The
Company's operating segment
consists of
two
component reporting units,
Core Traditional and
Horizon Plastics. The
Company offers customers
a wide range
of manufacturing processes
to fit various
program volume and
investment requirements.
These processes include
compression molding
of sheet molding
compound("SMC"), bulk molding
compounds ("BMC"),
resin transfer molding
("RTM"), liquid molding
of dicyclopentadiene
("DCPD"), spray-up
and hand-lay-up,
glass mat
thermoplastics ("GMT"),
direct long-fiber
thermoplastics ("D
-LFT") and
structural foam and
structural web injection
molding ("SIM").
Core Molding Technologies
serves a wide
variety of markets,
including the medium and heavy-duty truck, marine, automotive, agriculture,
construction, and other commercial products.
2. Summary of Significant Accounting Policies
Principles of Consolidation
- The accompanying consolidated financial statements include the accounts of all subsidiaries after
elimination of all intercompany accounts, transactions, and profits.
Use of Estimates
- The preparation
of financial statements
in conformity with
accounting principles generally
accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and
liabilities, disclosures of
contingent assets and
liabilities, and reported
amounts of revenues
and expenses during
the reporting
period.
Significant estimates relate
to allowances for
doubtful accounts, inventory
reserves, self-insurance
reserves related
to
healthcare and workers compensation,
deferred taxes, post retirement
benefits, progress billings for
tooling, goodwill and long-
lived assets.
Actual results could
differ from those
estimates
, due to
the uncertainty around
the magnitude and
duration of the
COVID-19 pandemic, as well as other factors.
Revenue Recognition
- The
Company historically
has recognized
revenue from
two streams,
product revenue
and tooling
revenue. Product revenue is earned from the
manufacture and sale of sheet molding compound and
thermoset and thermoplastic
products. Revenue from
product sales is generally
recognized as products
are shipped, as the
Company transfers control
to the
customer and is
entitled to
payment upon
shipment. In certain
circumstances, the
Company recognizes
revenue from product
sales when products are produced and the customer takes control
at our production facility.
Tooling revenue is earned from
manufacturing multiple tools, molds and
assembly equipment as part of
a tooling program for a
customer. Given that the Company is
providing a significant service of
producing highly interdependent component
parts of the
tooling program,
each tooling
program consists
of a
single performance
obligation to
provide the
customer the
capability to
produce a single product. Based on the arrangement with the customer, the Company recognizes revenue either at a point in time
or over time. When the
Company does not
have an enforceable
right to payment, the
Company recognizes tooling revenue
at a
point in time. In such cases,
the Company recognizes revenue
upon customer acceptance, which
is when the customer has
legal
title to the tools.
Certain tooling programs
include an enforceable
right to payment.
In those cases,
the Company recognizes
revenue over time
based on the extent of
progress towards completion of
its performance obligation. The
Company uses a cost-to
-cost measure of
progress for such
contracts because it
best depicts the
transfer of value
to the customer
and also correlates
with the amount
of
consideration to which the
entity expects to be
entitled in exchange
for transferring the
promised goods or services
to the customer.
Under the cost-to-cost measure of progress, progress towards completion is measured based on the ratio of costs incurred to date
to the
total estimated
costs at
completion of
the performance
obligation. Revenues
are recorded
proportionally as
costs are
incurred.
Cash and Cash Equivalents
-
The Company considers all highly liquid investments
purchased with an original maturity of three
months or
less to
be cash
equivalents.
Cash is
held primarily
in three
banks in
3 separate
jurisdictions. The
Company had
$
4,131,000
cash on hand at December 31, 2020 and had $
1,856,000
cash on hand at December
31, 2019.
Accounts Receivable Allowances
-
Management maintains allowances for doubtful accounts for estimated losses resulting from
the inability
of its
customers to
make required
payments. If
the financial
condition of
the Company
’s customers
were to
deteriorate, resulting in an impairment
of their ability to make
payments, additional allowances may
be required. The Company
has determined that
a $
41,000
allowance for doubtful
accounts is needed
at December
31, 2020 and
$
50,000
at December 31,
2019.
Management also
records estimates
for customer
returns and
deductions, discounts
offered to
customers, and
for price
adjustments. Should
customer returns
and deductions, discounts,
and price adjustments
fluctuate from the
estimated amounts,
additional allowances may be required. The Company had an allowance for estimated chargebacks of $
179,000
at December 31,
2020 and $
476,000
at December
31, 2019.
There have been no material changes in the methodology of these
calculations.
Inventories
-
Inventories, which
include material,
labor and
manufacturing overhead,
are valued
at the
lower of
cost or
net
realizable value.
The inventories
are accounted
for using the
first-in, first
-out (FIFO)
method of
determining inventory
costs.
Inventory quantities
on-hand are
regularly reviewed,
and where
necessary, provisions
for excess
and obsolete
inventory are
recorded based
on historical
and anticipated
usage.
The Company
has recorded
an allowance
for slow
moving and
obsolete
inventory of $
546,000
at December 31, 2020 and $
898,000
at December
31, 2019.
Contract Assets/Liabilities
-
Contract assets and liabilities represent the net cumulative customer billings, vendor payments and
revenue recognized
for tooling
programs. For
tooling programs
where net
revenue recognized
and vendor
payments exceed
customer billings, the
Company recognizes a
contract asset. For
tooling programs where
net customer billings
exceed revenue
recognized and vendor payments, the Company recognizes a contract liability. Customer payment
terms vary by contract and can
range from progress payments
based on work performed
or one single payment
once the contract is
completed. Contract assets
are generally classified as current. During the
years ended December
31, 2020 and December
31, 2019, the Company recognized
no impairments
on contract
assets. Contract
liabilities are
also generally
classified as
current. The
Company recognized
$
6,828,000
at December 31,
2020 and $
1,240,000
at December
31, 2019,
corresponding with revenue
from contract liabilities
related to jobs outstanding as of December 31, 2019
and December 31, 2018, respectively.
Property, Plant, and Equipment
- Property, plant, and
equipment are recorded
at cost. Depreciation is
provided on a straight-
line method
over the
estimated useful
lives of
the assets.
The carrying
amount of
long-lived assets
is evaluated
annually to
determine if adjustment to the depreciation period or
to the unamortized balance is warranted.
Ranges of estimated useful lives for computing depreciation are
as follows:
Land improvements
years
Buildings and improvements
-
years
Machinery and equipment
-
years
Tools, dies and patterns
-
years
Long-Lived Assets
- Long-lived
assets consist
primarily of
property, plant
and equipment
and finite
-lived intangibles.
The
recoverability of long-lived assets is evaluated by an analysis of operating results and consideration of other significant events or
changes in the
business environment.
The Company evaluates
whether impairment exists
for long-lived assets
on the basis
of
undiscounted expected future cash flows from operations before interest.
There was
no
impairment of the Company's long-lived
assets for the years ended December
31, 2020,
2019 and 2018.
Goodwill
- The purchase consideration of acquired businesses have been allocated to the assets and liabilities
acquired based on
the estimated fair values
on the respective
acquisition dates. Based
on these values, the
excess purchase consideration
over the
fair value of
the net assets
acquired was allocated
to goodwill. The
Company accounts for
goodwill in accordance
with FASB
ASC Topic 350,
Intangibles - Goodwill
and Other.
FASB ASC Topic
350 prohibits
the amortization
of goodwill
and requires
these assets be reviewed for impairment
at each reporting unit. As
a result of the Horizon Plastics
acquisition on January
16, 2018
and the status of its integration, the Company established two reporting
units, Core Traditional and Horizon Plastics.
The annual impairment
tests of goodwill may
be completed through
qualitative assessments; however
the, Company may
elect
to bypass the qualitative
assessment and proceed
directly to a quantitative
impairment test for
any reporting unit in
any period.
The Company may resume the qualitative assessment for any
reporting unit in any subsequent period.
Under a qualitative and quantitative
approach, the impairment test
for goodwill consists of an
assessment of whether it is
more-
likely-than-not that a
reporting unit’s fair value is
less than its
carrying amount. As
part of the qualitative
assessment, the Company
considers relevant
events and
circumstances that
affect the
fair value
or carrying
amount of
the Company.
Such events
and
circumstances could
include changes
in economic
conditions, industry
and market
conditions, cost
factors, overall
financial
performance, reporting unit
specific events and
capital markets pricing.
The Company places
more weight on
the events and
circumstances that most affect the Company's
fair value or carrying amount. These factors
are all considered by management in
reaching its conclusion about whether to perform step one of the impairment test. If the Company elects to bypass the qualitative
assessment for any
reporting unit, or
if a qualitative
assessment indicates it
is more-likely-than
-not that the
estimated carrying
value of a reporting unit exceeds its fair value, the Company proceeds
to a quantitative approach.
The company performed a
qualitative analysis for the year
end December 31, 2020
and determined there was no
impairment of
the Company’s goodwill.
Due to the Company's financial performance and depressed stock price,
the Company performed a quantitative analysis for both
of its reporting units at
September
30, 2019. During 2019, the
Company incurred a loss of
margin in its Horizon Plastics
reporting
unit caused by selling price decreases that the Company
has not been able to fully offset
with material cost reductions. As
a result
of the quantitative analysis,
the Company concluded that
the carrying value of
Horizon Plastics was greater
than the fair value,
which resulted in a
goodwill impairment charge
of
$
4,100,000
at September
30, 2019 representing
%
of the goodwill related
to the Horizon
Plastics reporting
unit. The company
performed a
qualitative assessment
at December
31, 2019,
indicating no
additional goodwill impairment related to the Horizon Plastics
reporting unit.
The Company’s annual impairment assessment at December
31, 2018 consisted of
a quantitative analysis for both
reporting units.
It concluded that the carrying value of Core
Traditional was greater than the fair value, which resulted
in a goodwill impairment
charge of $
2,403,000
, representing all the goodwill related to the Core Traditional reporting unit. The analysis of the Company’s
other reporting unit,
Horizon Plastics, indicated
no goodwill impairment
charge, based on
historical performance and
financial
projections at that time, as the excess of the estimated fair
value over the carrying value of its invested capital was approximately
% of the book value of its net assets.
Income Taxes
- The Company records
deferred income taxes
for differences between
the financial reporting
basis and income
tax basis of assets and liabilities. A detailed breakout is located in
Note 11 - Income Taxes
.
Self-Insurance
- The Company is self
-insured with respect
to Columbus and Batavia,
Ohio; Gaffney, South Carolina;
Winona,
Minnesota and
Brownsville, Texas
for medical,
dental and
vision claims
and Columbus
and Batavia,
Ohio for
workers’
compensation claims, all of which are subject to stop
-loss insurance thresholds. The Company is also self-insured for dental and
vision with respect to its
Cobourg, Canada location.
The Company has recorded
an estimated liability for self
-insured medical,
dental and vision claims incurred but
not reported and worker’s compensation claims
incurred but not reported at December
31,
2020 and December
31, 2019 of $
933,000
and $
1,203,000
, respectively.
Post Retirement
Benefits
- Management
records an
accrual for
post retirement
costs associated
with the
health care
plan
sponsored by
the Company
for certain
employees. Should
actual results
differ from
the assumptions
used to
determine the
reserves, additional provisions
may be required.
In particular, increases
in future healthcare
costs above the
assumptions could
have an adverse
effect on the
Company's operations. The
effect of a
change in healthcare
costs is described
in
Note 12 -
Post
Retirement Benefits
.
Core Molding
Technologies had
a liability
for post
retirement healthcare
benefits based
on actuarially
computed estimates of $
9,109,000
at December
31, 2020 and $
9,160,000
at December
31, 2019.
Fair Value of Financial Instruments
- The Company's financial instruments consist of long-term debt, revolving loans, interest
rate swaps,
foreign currency
hedges, accounts
receivable, and
accounts payable.
The carrying
amount of
these financial
instruments approximated their fair value. Further detail is located
in
Note 14 - Fair Value of Financial Instruments.
Concentration Risks
- The Company has concentration risk related to significant amounts of sales and accounts receivable with
certain customers.
The Company had five major customers during the year end December
31, 2020,
Navistar, Volvo, PACCAR,
BRP and UFP
.
Major customers are defined as customers whose current year sales individually consist of more
than ten percent
of total sales
during any annual
or interim reporting
period in the
current year. Sales
to five major
customers comprised
%,
% and
% of total sales
in 2020, 2019 and
2018, respectively (see
Note 4 - Major
Customers
).
Concentrations of accounts
receivable balances with
five customers accounted
for
% and
% of accounts
receivable at
December
31, 2020
and 2019,
respectively.
The Company performs ongoing credit
evaluations of its customers' financial
condition.
The Company maintains
reserves for potential bad debt losses, and such bad
debt losses have been historically within the Company's expectations.
Sales
to all customers' manufacturing and
service locations in Mexico and
Canada totaled
%,
% and
% of total sales for 2020,
2019 and 2018, respectively.
As of December 31,
2020, the Company employed
a total of
1,617
employees, which consisted of
employees in its United
States operations,
employees in
its Mexican
operations and
employees in
its Canadian
operation.
Of these
1,617
employees,
employees at the Company’s Columbus, Ohio facility are covered by a collective bargaining agreement with the
International Association of Machinists
and Aerospace Workers (“IAM”),
which extends to
August 7, 2022,
employees at
the Company
’s Matamoros,
Mexico facility
are covered
by a collective
bargaining agreement
with Sindicato de
Jorneleros y
Obreros, which
extends to
January 21,
2022,
employees at
the Company's
Cobourg, Canada
facility are
covered by
a
collective bargaining agreement
with United Food
& Commercial Workers
Canada ("UFCW"), which
extends to November
1,
2021, and
employees at
the Company's
Escobedo, Mexico
facility are
covered by
a collective
bargaining agreement
with
Sindicato de
trabajadores de
la industria metalica
y del comercio
del estado
de Nuevo
Leon Presidente
Benito Juarez
Garcia
C.T.M., which
extends to
February 1,
2021. The
Company is
currently negotiating
an extension
to the
Escobedo, Mexico
collective bargaining agreement.
Earnings per
Common Share
- Basic
earnings per
common share
is computed
based on
the weighted
average number
of
common shares outstanding during the period.
Diluted earnings per common share are computed similarly but include the effect
of the assumed exercise of dilutive stock options and vesting of restricted stock under the treasury stock method. The Company's
restricted shares are
entitled to receive
dividends and voting
rights applicable to
the Company's common
stock, irrespective of
any vesting requirement. The
restricted shares are considered
a participating security and
the Company is required
to apply the
two-class method
to consider
the impact of
the restricted
shares on
the calculation
of basic
and diluted
earnings per
share. A
detailed computation of earnings per share is located in
Note 3 - Net Income (Loss) per Common Share
.
Research and
Development
- Research
and development
activities focus
on developing
new material
formulations, new
products, new
production capabilities
and processes,
and improving
existing products
and manufacturing
processes.
The
Company does not maintain
a separate research and
development organization or facility,
but uses its production
equipment, as
necessary, to
support these
efforts and
cooperates with
its customers
and its
suppliers in
research and
development efforts.
Likewise, manpower to direct and advance research and development is integrated with the existing manufacturing, engineering,
production, and quality organizations.
Research and development costs, which
are expensed as incurred,
totaled approximately
$
1,168,000
, $
1,171,000
and $
1,032,000
in 2020, 2019 and 2018.
Foreign Currency Adjustments
- The functional currency for the Mexican and Canadian operations is the United States Dollar.
All foreign
currency asset
and liability
amounts are
remeasured into
United States
Dollars at
end-of-period exchange
rates.
Income statement accounts are
translated at the weighted
monthly average rates.
Gains and losses resulting
from translation of
foreign currency financial statements into United States Dollars and
gains and losses resulting from foreign currency
transactions
are included in current
results of operations. Net
foreign currency translation and
transaction activity is included
in selling, general
and administrative expense.
This activity resulted
in an expense
of $
214,000
, $
229,000
and $
88,000
in 2020, 2019
and 2018,
respectively.
COVID-19
- In December
2019, COVID-19 surfaced
and spread around
the world resulting
in business and
social disruption.
COVID-19 was declared a Public Health
Emergency of International Concern by the World
Health Organization on January 30,
2020. The extent to
which the coronavirus
could impact the
Company’s business
activity will depend
on future developments,
which are highly
uncertain and
cannot be predicted.
Factors include, new
information concerning
the severity of
COVID-19,
rollout plan for the COVID-19 vaccine, and the effectiveness of a
vaccine.
Recent Accounting Pronouncements
Current expected credit loss (CECL)
In June 2016, the
FASB issued ASU
2016-13
, “Financial Instruments-Credit Losses,”
which changes the impairment model
for
most financial assets
and certain other
instruments. For trade
and other receivables,
held-to-maturity debt securities,
loans and
other instruments, entities will
be required to use
a new forward-looking “expected loss”
model that will replace
today’s “incurred
loss” model and generally will result in
the earlier recognition of allowances for losses. For available-for-sale
debt securities with
unrealized losses,
entities will
measure credit
losses in
a manner
similar to
current practice,
except that
the losses
will be
recognized as an allowance.
Subsequent to issuing ASU 2016
-13, the FASB issued
ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments
- Credit Losses,” for
the purpose of clarifying
certain aspects of ASU 2016
-13. ASU 2018-
19 has
the same
effective date
and transition
requirements as
ASU 2016
-13. In
April 201
9, the
FASB issued
ASU 2019
-04,
“Codification Improvements to Topic 326, Financial Instruments - Credit
Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments,
”
which is effective
with the adoption
of ASU 2016-13. In
May 2019, the
FASB issued ASU 2019-
05, “Financial Instruments
- Credit Losses (Topic
326),” which is also
effective with the adoption
of ASU 2016-13. In October
2019, the FASB voted to delay the implementation date for certain companies, including those that qualify as a smaller reporting
company under SEC
rules, until January
1, 2023, with
revised ASU’s expected
to be issued
in November 2019.
We will adopt
this ASU on its effective
date of January
1, 2023. We
do not expect the adoption of this ASU to have a material impact
on our
consolidated financial position, results of operations, cash flows, or
presentation thereof.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued
ASU
2019-12
, Income Taxes -
Simplifying the Accounting for Income
Taxes. This guidance
is intended to
simplify various aspects
of income tax
accounting including the
elimination of certain
exceptions related
to the
approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of
deferred tax
liabilities for
outside basis
differences. The
new guidance also
simplifies aspects
of the accounting
for franchise
taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis
of goodwill. The Company adopted
the new standard effective
January 1, 2020
during the third quarter with
no material impact
on our consolidated financial statements. Adoption of this guidance requires certain changes to primarily be made prospectively,
with some changes to be made retrospectively.
Facilitation of the Effects of Reference Rate Reform
In March 2020, the FASB issued ASU No.
2020-04
, Facilitation of the Effects of Reference Rate Reform on Financial Reporting
(Topic 848).
The ASU provides
optional expedients
and exceptions
for applying
GAAP to transactions
affected by
reference
rate(e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential
burden in accounting for (or
recognizing the
effects of)
reference rate
reform on
financial reporting.
The ASU is
effective as
of
March 12, 2020
through
December 31, 2022.
We will evaluate
transactions or contract
modifications occurring as
a result of
reference rate reform
and
determine whether to apply the optional guidance on an ongoing basis.
3. Net Income (Loss) per Common Share
Net income (loss) per common share
is computed based on the weighted
average number of common shares
outstanding during
the period. Diluted net income (loss) per common
share is computed similarly but includes the effect
of the assumed exercise of
dilutive stock options and restricted stock under the treasury stock
method.
The Company's restricted shares
are entitled to receive dividends
and voting rights applicable
to the Company's common
stock,
irrespective of
any vesting
requirement.
Accordingly, the
restricted shares
are considered
a participating
security and
the
Company is required to apply the two-class method to consider the impact of the restricted shares on the calculation of basic and
diluted earnings per share.
The computation of basic and diluted net income (loss) per common share
is as follows:
December 31,
Net income (loss)
$
8,165,000
$
(15,223,000)
$
(4,782,000)
Less: net income allocated to participating securities
424,000
-
-
Net income (loss) available to common shareholders
$
7,741,000
$
(15,223,000)
$
(4,782,000)
Weighted average common
shares outstanding - basic
7,936,000
7,830,000
7,750,000
Effect of dilutive securities
3,000
-
-
Weighted average common
and potentially issuable
common shares outstanding - diluted
7,939,000
7,830,000
7,750,000
Basic net income (loss) per common share
$
0.98
$
(1.94)
$
(0.62)
Diluted net income (loss) per common share
$
0.98
$
(1.94)
$
(0.62)
The computation of basic and diluted net income per participating shares
is as follows:
December 31,
Net income allocated to participating securities
$
424,000
-
-
Weighted average participating
shares outstanding - basic
434,000
300,000
216,000
Effect of dilutive securities
-
-
-
Weighted average participating
and potentially issuable
participating shares outstanding - diluted
434,000
300,000
216,000
Basic net income per participating share
$
0.98
$
-
$
-
Diluted net income per participating share
$
0.98
$
-
$
-
4. Major Customers
The Company had five major customers during the year ended December 31,
2020, Navistar, Inc. (“Navistar ”), Universal Forest
Products, Inc.
(“UFP”), PACCAR,
Inc. (“PACCAR
”), Volvo
Group North
America, LLC
(“Volvo”), and
BRP, Inc.
(“BRP”).
Major customers are
defined as customers
whose sales individually
consist of more
than ten per
cent of total
sales during any
annual or interim reporting
period in the
current year. The loss
of a significant portion
of sales to these
customers could have
a
material adverse effect on the business of the Company.
The following table presents sales revenue for the above-mentioned customers
for the years ended December
31:
Navistar product sales
$
33,656,000
$
54,798,000
$
52,347,000
Navistar tooling sales
6,569,000
2,084,000
2,806,000
Total Navistar sales
40,225,000
56,882,000
55,153,000
UFP product sales
38,530,000
25,395,000
27,906,000
UFP tooling sales
-
-
240,000
Total UFP sales
38,530,000
25,395,000
28,146,000
PACCAR product
sales
27,997,000
44,543,000
38,027,000
PACCAR tooling
sales
507,000
1,525,000
6,425,000
Total PACCAR
sales
28,504,000
46,068,000
44,452,000
Volvo
product sales
23,538,000
48,487,000
46,063,000
Volvo
tooling sales
2,186,000
262,000
97,000
Total Volvo
sales
25,724,000
48,749,000
46,160,000
BRP product sales
20,269,000
16,774,000
13,629,000
BRP tooling sales
1,662,000
4,208,000
2,169,000
Total BRP sales
21,931,000
20,982,000
15,798,000
Other product sales
66,590,000
78,990,000
78,245,000
Other tooling sales
852,000
7,224,000
1,531,000
Total other sales
67,442,000
86,214,000
79,776,000
Total product sales
210,580,000
268,987,000
256,217,000
Total tooling sales
11,776,000
15,303,000
13,268,000
Total sales
$
222,356,000
$
284,290,000
$
269,485,000
5. Foreign Operations
Primarily all of the Company's product is sold to U.S. based customers in
U.S. dollars.
The following table provides information
related to sales by country, based on the ship to location of customers' production
facilities, for the years ended December
31:
United States
$
136,424,000
$
178,953,000
$
181,207,000
Mexico
64,942,000
79,761,000
74,029,000
Canada
16,827,000
16,988,000
12,494,000
Other
4,163,000
8,588,000
1,755,000
Total
$
222,356,000
$
284,290,000
$
269,485,000
The following table provides information related to the location of property,
plant and equipment, net, as of December
31:
United States
$
36,698,000
$
39,132,000
Mexico
29,537,000
31,865,000
Canada
7,817,000
8,209,000
Total
$
74,052,000
$
79,206,000
6. Property, Plant, and Equipment
Property, plant, and equipment consisted of the following at December
31:
Land and land improvements
$
6,009,000
$
6,009,000
Buildings
43,545,000
43,375,000
Machinery and equipment
121,382,000
118,366,000
Tools, dies, and patterns
2,195,000
1,516,000
Additions in progress
1,422,000
1,615,000
Total
174,553,000
170,881,000
Less accumulated depreciation
(100,501,000)
(91,675,000)
Property, plant and equipment,
net
$
74,052,000
$
79,206,000
Additions in progress
at December
31, 2020 and
2019 relate to
building improvements and
equipment purchases that
were not
yet completed and placed in service at year end.
At December
31, 2020, commitments for capital expenditures in progress were
$
677,000
and included $
145,000
recorded on the
balance sheet in accounts
payable.
At December
31, 2019, commitments
for
capital expenditures
in progress
were $
336,000
, and
included $
158,000
recorded on
the balance
sheet in
accounts payable.
Depreciation expense
was $
8,659,000
, $
8,187,000
and $
7,361,000
for the
years ended
December
31, 2020,
2019 and
2018,
respectively.
7. Leases
The Company has operating
leases with fixed payment
terms primarily associated with
buildings and warehouses. The
Company's
leases have
remaining lease
terms of
less than
one year
s to
four years
, some
of which
include options
to extend
the lease
for
five years
. Operating leases are included
in Right-of-use ("ROU") assets and
Other accrued liabilities
and
Other non-current
liabilities
on the Consolidated
Balance Sheets. ROU
assets represent the right
to use an underlying
asset for the lease
term and
lease liabilities represent the obligation to make lease payments arising
from the lease.
The Company used the applicable incremental
borrowing rate at implementation date to measure
lease liabilities and ROU assets.
The incremental borrowing rate used by
the Company was based on baseline rates
and adjusted by the credit spreads
commensurate with
the Company
’s secured
borrowing rate.
At each
reporting period
when there is
a new lease
initiated, the
Company will utilize
its incremental borrowing
rate to perform
lease classification
tests on
lease components and
to measure
ROU assets and lease liabilities.
The following table provides information related to the components of
lease expense as of December 31:
Operating lease cost
$
1,430,000
$
1,430,000
Total net lease cost
$
1,430,000
$
1,430,000
The following table provides
information related to other
supplemental balance sheet information
related to leases as
of December
31:
Operating lease:
Operating lease right of use assets
$
2,754,000
$
4,484,000
Total operating lease right of
use assets
$
2,754,000
$
4,484,000
Current operating lease liabilities
(A)
$
1,023,000
$
1,304,000
Noncurrent operating lease liabilities
(B)
1,670,000
3,119,000
Total operating lease liabilities
$
2,693,000
$
4,423,000
(A)
Current operating lease liability included in "Other Current Accrued Liabilities" on the Consolidated
Balance Sheet
.
(B)
Noncurrent operating lease liability included in "Other Non
-Current Liabilities" on the Consolidated Balance Sheet.
Weighted average remaining
lease term (in years):
Operating leases
3.5
4.0
Weighted average discount
rate:
Operating lease
5.9
%
4.9
%
Other information related to leases as of December 31:
Cash Paid for amounts included in the measurement of
lease liabilities
Operating cash flow from operating leases
(C)
$
1,455,000
$
1,455,000
(C)
Cash flow from operating lease included in "Prepaid and other assets"
on the Consolidated Statements of Cash Flows.
As of December
31, 2020, maturities of lease liabilities were as follows:
Operating Leases
$
1,215,000
811,000
706,000
705,000
-
Total lease payments
3,437,000
Less: imputed interest
(744,000)
Total lease obligations
2,693,000
Less: current obligations
(1,023,000)
Long-term lease obligations
$
1,670,000
As of December
31, 2019, maturities of lease liabilities were as follows:
Operating Leases
$
1,433,000
1,174,000
1,102,000
1,000,000
530,000
Total lease payments
5,239,000
Less: imputed interest
(816,000)
Total lease obligations
4,423,000
Less: current obligations
(1,304,000)
Long-term lease obligation
$
3,119,000
8. Goodwill and Intangibles
Goodwill activity for the year ended December
31, 2020 and December
31, 2019 consisted of the following:
Balance at beginning of year
$
17,376,000
$
21,476,000
Additions
-
-
Impairment
-
(4,100,000)
Balance at end of year
$
17,376,000
$
17,376,000
Intangible assets at December
31, 2020 were comprised of the following:
Definite-lived Intangible Assets
Amortization Period
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Trade Name
25 Years
$
250,000
$
(58,000)
$
192,000
Trademarks
10 Years
1,610,000
(476,000)
1,134,000
Non-competition Agreement
5 Years
1,810,000
(1,071,000)
739,000
Developed Technology
7 Years
4,420,000
(1,869,000)
2,551,000
Customer Relationships
-
Years
9,330,000
(2,430,000)
6,900,000
Total
$
17,420,000
$
(5,904,000)
$
11,516,000
Intangible assets at December
31, 2019 were comprised of the following:
Definite-lived Intangible Assets
Amortization Period
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Trade Name
25 Years
$
250,000
$
(48,000)
$
202,000
Trademarks
10 Years
1,610,000
(315,000)
1,295,000
Non-competition Agreement
5 Years
1,810,000
(709,000)
1,101,000
Developed Technology
7 Years
4,420,000
(1,237,000)
3,183,000
Customer Relationships
-
Years
9,330,000
(1,647,000)
7,683,000
Total
$
17,420,000
$
(3,956,000)
$
13,464,000
The Company incurred
$
1,948,000
, $
1,949,000
and $
1,869,000
amortization expense for
the years ended
December
31, 2020,
2019, and 2018, respectively.
As of December
31, 2020, future intangible amortization was follows:
Amortization Expense
$
1,949,000
1,949,000
1,602,000
1,587,000
951,000
2026 and thereafter
3,478,000
Total intangibles as of December
31, 2020
$
11,516,000
9. Debt
Long-term debt consists of the following at:
December 31,
December 31,
Wells Fargo
term loans payable
$
16,390,000
$
-
FGI term loans payable
13,148,000
-
Leaf Capital term loan payable
152,000
-
KeyBank term loans payable
-
38,250,000
KeyBank revolving loan
-
12,008,000
Total
29,690,000
50,258,000
Less: deferred loan costs
(1,957,000)
(807,000)
Less: current portion
(2,535,000)
(49,451,000)
Long-term debt
$
25,198,000
$
-
Term Loans
Wells Fargo Term Loans
On October 27, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National
Association, as administrative agent, lead arranger and book runner, and the lenders party thereto (the “Lenders”). Pursuant to
the terms of the Credit Agreement, the Lenders made available to the Company secured term loans (the “WF Term Loans”) in
the maximum aggregate principal amount of $18,500,000 ($16,790,000 of which was advanced to the Company on October 28,
2020).
The proceeds
from the
WF Term Loans
were used
to pay
off the
Company’s existing
outstanding indebtedness
with
KeyBank National Association, and to pay certain fees and expenses associated with the financing.
At the option of the Company, the WF Term Loans bears interest at a per annum rate equal to LIBOR plus a margin of 300 basis
points or base rate plus a margin of 200 basis points. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per
annum published LIBOR rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater
of (a) 1.0% per annum, (b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis or (d) prime rate. The weighted
average interest rate was 3.77% as of December 31, 2020.
The WF Term Loans are to be repaid in monthly installments of $200,000 plus interest, with the remaining outstanding balance
due on November 30, 2024, subject to certain optional and mandatory repayment terms. The Company’s obligations under the
WF Term Loans are unconditionally guaranteed by each of the Company’s U.S. and Canadian subsidiaries, with such obligations
of the Company and such subsidiaries being secured by a lien on substantially all of their U.S. and Canadian assets.
The WF Term Loans contains reporting, indebtedness, and financial covenants.
The Company is in compliance with its covenants
as of December 31, 2020.
Voluntary prepayments of amounts outstanding under the WF Term Loans are permitted at any time without premium or penalty.
To the extent applicable, LIBOR breakage fees may be charged in connection with any prepayment.
FGI Equipment Finance LLC Term Loan
On October 20, 2020, the Company entered into a Master Security Agreement and a Promissory Note, among FGI Equipment
Finance LLC, (“FGI”) the Company as debtor, and each of Core Composites Corporation, a subsidiary of the Company organized
in Delaware, and CC HPM, S. de R.L. de C.V., a subsidiary of the Company organized in Mexico, as guarantors, a term loan in
the principal amount of $13,200,000 (the “FGI Term Loan”).
On October 27, 2020, FGI advanced to
the Company $
12,000,000
which proceeds were used to pay off the Company’s existing
outstanding indebtedness with KeyBank National Association, and
to pay certain
fees and expenses
associated with the
transactions, and $
1,200,000
which proceeds were used
to fund a
security
deposit to be held
by FGI.
Interest on the FGI Term Loan is a fixed rate of 8.25% and is payable monthly.
The Company notes
that the security deposit of $
1,200,000
is located in prepaid expenses and other current assets on the balance sheet.
Following the advance of funds by FGI, the FGI Term Loans are to be repaid in monthly principal and interest installments of
$117,000 for the first 12 months, $246,000 for the subsequent 59 months and $1,446,000 due on October 31, 2026, subject to
certain optional and mandatory repayment terms.
The Company’s
obligations under the Master Security
Agreement are secured
by certain machinery and equipment of the guarantors located in Mexico, and real property of Core composites de Mexico, S. de
R.L. de C.V., also a subsidiary of the Company organized in Mexico,
located in Matamoros, Mexico.
The Company may prepay in full or in part (but not less than the amount equal to 20% of the original principal amount of the
loan) outstanding amounts before they are due on any scheduled Payment Date upon at least thirty (30) days’ prior written notice.
The Company will pay a “Prepayment Fee” in an amount equal to an additional sum equal to the following percentage of the
principal amount to be prepaid for prepayments occurring in the indicated period: four percent (4.0%) (for prepayments occurring
prior to the first anniversary of the Loan); three percent (3.0%) (for prepayments occurring on and thereafter and prior to the
second anniversary of the Loan); two percent (2.0%) (for prepayments occurring on and thereafter and prior to the third
anniversary of the Loan ); and one percent (1.0%) (for prepayments occurring any time thereafter).
Leaf Capital Funding
On April 24, 2020 the Company entered into a finance agreement with Leaf Capital Funding of $175,000 for equipment. The
parties agreed to a fixed interest rate of 5.5% and a term of 60 months.
The amount
outstanding at
December 31,
2020 was
$
152,000
of which, $
120,000
was classified as long-term debt.
Revolving Loans
Wells Fargo Revolving Loan
On October 27, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National
Association, as administrative agent, lead arranger and book runner, and the lenders party thereto (the “Lenders”). Pursuant to
the terms of the Credit Agreement, the Lenders made available to the Company a revolving loan commitment (the “WF Revolving
Loan”) of $25,000,000 ($8,745,000 of which was advanced to the Company on October 28, 2020).
The proceeds from
the WF
Revolving Loan were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and
to pay certain fees and expenses associated with the financing.
The Credit Agreement also makes available to the Company an incremental revolving commitment in the maximum amount of
$10,000,000 at the Company’s option at any time during the three (3) year period following the closing.
The borrowing availability under the line of credit is the lesser of (a) the loan commitment of $25,000,000 or (b) the sum of 90%
of eligible investment grade accounts receivable, 85% of non-investment grade eligible accounts receivable and 65% of eligible
inventory.
At the option of the Company, the WF Revolving Loan bears interest at a per annum rate equal to LIBOR plus a margin of 200
to 250 basis points or base rate plus a margin of 100 to 150 basis points, with the margin rate being based on the excess availability
amount under the line of credit. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR
rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater of (a) 1.0% per annum,
(b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis and (d) prime rate. The weighted average interest rate was
4.75% as of December 31, 2020.
The WF Revolving Loan commitment terminates, and all outstanding borrowings thereunder must be repaid, by November 30,
2024.
The Company
has available
$
19,223,000
of available
rate revolving
loans of
which
$
420,000
is outstanding
as
of
December
31, 2020.
The WF Revolving Loan contains the same covenants as the WF Term Loans.
Wells Fargo Bank will issue up to $
2,000,000
of Letters of Credit in accordance with the terms of the Credit
Agreement upon the
Company’s request. As of December 31, 2020, the Company
had one Letter of Credit outstanding for $
160,000
.
In conjunction with the October debt refinancing, the Company incurred
debt origination fees of $
1,730,000
related to the Wells
Fargo financing,
which is
being amortized
over the
life of
the Credit
Agreement,
which expires
on November
30, 2024.
In
addition, the Company incurred
debt origination fees of $
308,000
related to the FGI Term Loan,
which is being amortized over
the life of
the FGI Term
Loan, which expires
on October 31,
2026.
The aggregate unamortized
deferred financing fees
as of
December 31, 2020 totaled $
1,957,000
.
Annual maturities of long-term debt are as follows:
$
3,019,000
4,428,000
4,601,000
11,585,000
2025 and thereafter
6,057,000
Total
$
29,690,000
KeyBank Loan
On December 31, 2019, the
Company had a term
loan and revolving loan balance
of $
38,250,000
and $
12,008,000
with KeyBank
National Association, respectively. The Company’s term loan and revolving loan had variable interest rates of
6.30
% and
6.04
%,
respectively at December
31, 2019. On
November 22, 2019
the Company entered
into a forbearance
agreement with KeyBank
and on
October 27,
2020 the
Company fully
repaid all
outstanding amounts.
As a
result of
the forbearance
agreement not
extending beyond a year, the Company’s remaining long-term debt balance was classified as a current liability in the Company’s
consolidated balance sheet as of December 31, 2019.
Interest Rate Swaps
The Company
entered into
two
interest rate
swap agreements
that became
effective January
18, 2018,
one
of which
was
designated as a cash flow
hedge for $
25,000,000
and the other designated as
a cash flow hedge for
$
10,000,000
to the Company’s
subsidiary. Under these agreements, the
Company paid a fixed rate
of
2.49
%
to the counterparty and
received a
30 day LIBOR
for
both cash flow
hedges. Concurrent
with the closing
of the
KeyBank credit agreement
, the
Company settled
both outstanding
interest rate swaps, which
resulted in a loss
and cash outflow of
$
1,253,000
. These results were categorized
as
interest expense
and operating activities in the Statement
of Operations and Statement of
Cash Flow, respectively. Due to the
settlement, the fair
value of the interest rate swaps was $0
at
December
31, 2020 compared to a liability of $
706,000
at December 31, 2019.
Bank Covenants
The Company is
required to meet
certain financial
covenants included in
the Credit Agreement with
respect to fixed
coverage
charge ratio.
The following
table presents
the financial
covenants specified
in the
Credit Agreement and
the actual
covenant
calculations as of December 31, 2020:
Financial Covenants
Actual Covenants as of
December 31, 2020
Fixed Charge Coverage Ratio
Minimum 1.10
2.6
10.
Stock Based Compensation
The Company has a Long-Term Equity Incentive Plan (the “2006 Plan”), as approved by the Company’s stockholders in May
2006. The 2006 Plan allows for grants to directors and employees of non-qualified stock options, incentive stock options, stock
appreciation rights, restricted stock, performance shares, performance units and other incentive awards (“Stock Awards”) up to
an aggregate of 3,000,000 awards, each representing a right to buy a share of Core Molding Technologies common stock. Stock
Awards can be granted under the 2006 Plan through the earlier of December 31, 2025, or the date the maximum number of
available awards under the 2006 Plan have been granted.
The number of shares
remaining available for future issuance
is
514,823
.
Restricted stock granted under the 2006 Plan vest over three years or upon the date of the participants' sixty-fifth birthday, death,
disability or change in control.
Core Molding Technologies follows
the provisions of
FASB ASC 718 requi
ring that compensation
cost relating to
share-based
payment transactions be
recognized in the
financial statements. The
cost is measured
at the grant
date, based on
the calculated
fair value of the award, and is
recognized as an expense over the employee's requisite
service period (generally the vesting period
of the equity award).
Restricted Stock
The Company grants shares of
its common stock to certain
directors, officers, and key employees
in the form of unvested
stock
(“Restricted Stock”). These
awards are recorded
at the market value
of Core Molding Technologies
’
common stock on the
date
of issuance and amortized ratably as compensation expense over
the applicable vesting period.
The following summarizes the status of Restricted Stock and changes duri
ng the years ended December
31:
Number
of
Shares
Wtd. Avg.
Grant Date
Fair Value
Number
of
Shares
Wtd. Avg.
Grant Date
Fair Value
Number
of
Shares
Wtd. Avg.
Grant Date
Fair Value
Unvested - beginning of year
343,919
$
9.37
349,885
$
10.62
141,095
$
16.79
Granted
292,886
4.70
135,268
7.65
315,429
11.32
Vested
(107,145)
10.21
(117,828)
13.81
(82,067)
16.57
Forfeited
(21,825)
9.86
(23,406)
15.02
(24,572)
16.91
Unvested - end of year
507,835
$
6.35
343,919
$
9.37
349,885
$
10.62
At December
31, 2020 and 2019,
there was $
1,614,000
and $
1,923,000
, respectively, of
total unrecognized compensation expense
related to restricted stock granted
under the 2006 Plan. That cost is
expected to be recognized over
the weighted-average period
of
1.9
years. Total compensation expense related to
restricted stock grants for the
years ended December
31, 2020,
2019 and 2018
was $
1,254,000
, $
1,369,000
, and $
1,774,000
, respectively, and is recorded as selling, general and administrative expense.
Tax deficiencies in connection with payment of taxes upon the
vesting of restricted stock previously issued to employees
for the
years ended December
31, 2020, 2019 and 2018 were a tax deficiency of $
97,000
, $
98,000
, and $
110,000
, respectively.
During 2020, 2019 and
2018, employees surrendered
4,574
,
16,047
and
17,180
shares, respectfully, of the Company's
common
stock to satisfy income tax withholding obligations in connection with
the vesting of restricted stock.
Stock Appreciation Rights
As part of the Company's 2019 annual grant, Stock Appreciation Rights (SARs) were granted with a grant price of $10. These
awards have a contractual term of five years and vest ratably over a period of three years or immediately vest if the recipient is
over 65 years of age. These awards are valued using the Black-Scholes option pricing model.
A summary of the Company's stock appreciation rights activity for the years ended December
31, 2020 and 2019 is as follows:
Number
of
Shares
Wtd. Avg.
Grant Date
Fair Value
Number
of
Shares
Wtd. Avg.
Grant Date
Fair Value
Outstanding - beginning of year
222,112
$
2.57
-
$
-
Granted
-
-
226,021
2.57
Vested
-
-
-
-
Forfeited
(41,187)
2.57
(3,909)
2.57
Outstanding - end of year
180,925
$
2.57
222,112
$
2.57
Exercisable - end of year
73,888
$
2.57
29,028
$
2.57
The average
remaining contractual
term for
SARs outstanding
at December
31, 2020
is
3.3
years, with
$
114,000
aggregate
intrinsic value. At
December
31, 2020 and 2019, there was $
179,000
and $
386,000
, respectively, of total unrecognized
compensation expense, net of
estimated forfeitures, related
to SARs. That cost
is expected to be
recognized over the weighted-
average period of
1.3
years.
Total compensation cost related to SARs for the
twelve months ended December
31, 2020 and 2019 was $
101,000
and $
185,000
,
respectively, all of which was recorded to selling, general and
administrative expense.
11. Income Taxes
Components of the provision for income taxes are as follows:
Current:
Federal
$
(8,378,000)
$
-
$
11,000
Foreign
2,660,000
685,000
1,023,000
State and local
5,000
20,000
14,000
(5,713,000)
705,000
1,048,000
Deferred:
Federal
955,000
738,000
(1,355,000)
Foreign
1,098,000
(1,824,000)
(289,000)
State and local
42,000
26,000
(68,000)
2,095,000
(1,060,000)
(1,712,000)
Provision (benefit) for income taxes
$
(3,618,000)
$
(355,000)
$
(664,000)
A reconciliation of
the income tax provision based
on the federal statutory income
tax rate to the Company's
income tax provision
for the years ended December
31 is as follows:
Provision at United States federal statutory rate
$
954,000
$
(3,274,000)
$
(1,145,000)
Valuation
allowance
(2,074,000)
3,267,000
-
Net operating loss carryback at
% tax rate
(3,205,000)
-
-
Effect of foreign taxes
790,000
(209,000)
213,000
Adoption of ASC 606
-
-
236,000
State and local tax expense
(372,000)
(102,000)
(54,000)
Other
289,000
(37,000)
86,000
Provision (benefit) for income taxes
$
(3,618,000)
$
(355,000)
$
(664,000)
The Company evaluates the
balance of deferred
tax assets that will
be realized based
on the premise that
the Company is more
likely than not to realize deferred tax benefits through the generation of future taxable income. Management makes assumptions,
judgments, and estimates to determine our current and
deferred tax provision and also the deferred
tax assets and liabilities. The
Company evaluates
provisions and
deferred tax
assets quarterly
to determine
if adjustments
to our
valuation allowance
are
required based on the consideration of all available evidence.
As of December
31, 2020 the Company had a net deferred tax asset of $
53,000
consisting of a liability of $
876,000
related to tax
positions in the
United States,
an asset of
$
460,000
related to tax
positions in Canada
and an asset
of $
469,000
related to tax
positions in Mexico.
The deferred
tax liabilities are
in other noncurrent
liabilities on
the Consolidated
Balance Sheet.
During
2020, the Company recorded
a valuation allowance of
$
1,193,000
against the entire state
and local net loss
carryforward and a
portion of
the interest
limitation carryforward,
due to
cumulative losses
in the
United States
over the
last three
years and
uncertainty related
to the Company
’s ability
to realize
the deferred
assets. The Company
believes that
the deferred
tax assets
associated with the Canadian and Mexican tax jurisdictions are more-likely-than-not to be realizable based on estimates
of future
taxable income.
Deferred tax assets consist of the following at December
31:
Net operating loss carryforwards
$
535,000
$
4,928,000
Interest limitation carryforwards
1,033,000
686,000
Accrued liabilities
391,000
477,000
Accounts receivable
40,000
108,000
Inventory
322,000
587,000
Property, plant, and equipment
(5,509,000)
(5,580,000)
Post retirement benefits
2,068,000
2,090,000
Goodwill and finite-lived assets, net
2,210,000
1,973,000
Other, net
156,000
24,000
Total deferred
tax asset
1,246,000
5,293,000
Valuation
allowance for deferred tax assets
(1,193,000)
(3,267,000)
Total deferred
tax asset, net
$
53,000
$
2,026,000
At December
31, 2020, the
Company had estimated
net operating loss
carryforwards in the
state and local
tax jurisdictions
of
$
25,990,000
and interest limitation carryforwards in United States federal
jurisdictions of $
4,697,000
. Both carryforwards do not
expire. At December 31, 2020, the Company had
no
net operating loss carryforwards in Canada, Mexico or United States federal
jurisdictions.
At December
31, 2020
and 2019
the Company
had
no
liability for
unrecognized tax
benefits under
guidance relating
to tax
uncertainties. The Company does
not anticipate that the
unrecognized tax benefits will
significantly change within the next
twelve
months.
The Company
files income
tax returns
in the
United States,
Mexico, Canada
and various
state and
local jurisdictions.
The
Company is not subject
to United States federal and
state income tax examinations
by tax authorities for
the years before 2017,
not subject to
Mexican income tax
examinations by Mexican
authorities for the
years before 2015
and not subject to
Canadian
income tax examinations by Canadian authorities for the years
before 2018.
12.
Post Retirement Benefits
The Company provides post retirement
benefits to certain of its
United States and Canadian employees,
including contributions
to
a multi-employer defined benefit pension plan, health care and life insurance benefits
, and contributions
to several defined
retirement contribution plans.
The Company contributes
to a
multi-employer defined benefit pension plan
for its employees
represented by the
International
Association of Machinists and Aerospace Workers
("IAM") at the Company’s
Columbus, Ohio production facility
.
The Company
does not
administer this
plan and
contributions are
determined in
accordance with
provisions of
the collective
bargaining
agreement.
The risks
of participating
in this
multi-employer plan
are different
from a single
-employer plan
in the
following
aspects:
•
Assets contributed to the multi-employer
plan by one employer
may be used to provide
benefits to employees of other
participating employers.
•
If a participating
employer stops
contributing to
the plan, the
unfunded obligations
of the
plan may be
borne by
the
remaining participating employers.
•
If the Company chooses to stop
participating in its multi-employer plan,
the Company may be required
to pay the plan
an amount based on the underfunded status of the plan, referred
to as a withdrawal liability.
The Company’s
participation in the
multi-employer defined
benefit pension plan
for the years
ended
December 31, 2020
and
2019 is outlined
in the table
below.
The most recent
Pension Protection
Act ("PPA")
zone status is
for the plan
’s year
-end at
December 31, 2020
. The zone status is based
on information the Company
received from the plan
and is certified by
the plan’s
actuary. Among other factors,
plans in the
red zone are
generally
less than 65% funded
, plans in
the yellow zone
are less than
80% funded, and plans
in the green zone are
at least 80% funded.
The “FIP/RP Status Pending/Implemented
”
column indicates
whether a financial improvement plan ("FIP") or a rehabilitation
plan ("RP") is either pending or has been implemented.
Expiration
FIP/RP
Date of
Pension Protection
Status
Contributions of the
Collective
EIN/Pension
Act Zone Status
Pending/
Company
Surcharge
Bargaining
Pension Fund
Plan Number
Implemented
Imposed
Agreement
IAM National Pension Fund /
National Pension Plan
(A)
51-6031295
-
as of 12/31/19
as of 12/31/18
Implemented
$
676,000
$
971,000
Yes
8/7/2022
Total Contributions:
$
676,000
$
971,000
(A)
The plan re-certified its zone status after using the amortization provisions of the Code.
The Company's contributions to
the plan
did not
represent more than 5% of total contributions to the plan as indicated in the plan's most recently available
annual report
for the plan
year ended December
31, 2019.
Under the terms of the collective-bargaining agreement, the
Company is required to make contributions to the plan for each hour worked up to a maximum of 40 hours per person, per
week at $1.55 per hour from August 10, 2019 through August 6, 2022. The Company is paying a surcharge of $2.40.
Prior to
the acquisition
of Columbus
Plastics, certain
of the
Company's employees
were participants,
or were
eligible to
participate, in
Navistar's post retirement health and life insurance benefit plan
.
This plan provides
healthcare and life insurance
benefits
for certain employees
upon their retirement,
along with their
spouses and certain
dependents and requires
cost sharing
between the Company, Navistar and the participants, in the form of premiums, co-payments, and
deductibles.
The Company and
Navistar share the cost of benefits for
these employees, using a formula that allocates
the cost based upon the respective portion
of time that
the employee
was an active
service participant
after the acquisition
of Columbus
Plastics to
the period
of active
service prior to the acquisition of Columbus Plastics.
The Company also
sponsors a post
retirement health and
life insurance benefit
plan for certain
union retirees of
its
Columbus,
Ohio production facility
.
In August 2010, as part of a new collective-bargaining agreement, the post retirement health and life
insurance benefits for all current and future represented employees who were not retired were eliminated in exchange for a one-
time cash payment. Individuals who retired prior to August 2010 remain eligible for post retirement health and life insurance
benefits.
The elimination of
post retirement health
and life insurance
benefits described above
resulted in a
reduction of the
Company’s
post retirement benefits
liability of approximately
$
10,282,000
in 2010. This reduction
in post retirement
benefits liability was
treated as a negative plan
amendment and is being amortized
as a reduction to net
periodic benefit cost over
approximately twenty
years, the actuarial
life expectancy of
the remaining participants
in the plan
at the time
of the amendment.
This negative plan
amendment resulted in net periodic benefit cost reductions of approximately $
496,000
in 2020, 2019 and 2018, and will result in
net periodic benefit cost reductions of approximately $
496,000
in 2021 and each year thereafter during the amortization period.
The funded status
of the Company's
post retirement health
and life insurance
benefits plan as
of December
31, 2020 and
and reconciliation with the amounts recognized in the consolidated
balance sheets are provided below:
Post Retirement Benefits
Change in benefit obligation:
Benefit obligation at January 1
$
9,160,000
$
8,076,000
Interest cost
237,000
285,000
Unrecognized loss (gain)
(102,000)
1,099,000
Benefits paid, net
(186,000)
(300,000)
Benefit obligation at December 31
$
9,109,000
$
9,160,000
Plan Assets
-
-
Amounts recorded in accumulated other comprehensive
income:
Prior service credit
$
(5,114,000)
$
(5,610,000)
Net loss
3,351,000
3,634,000
Total
$
(1,763,000)
$
(1,976,000)
Weighted-average
assumptions as of December 31:
Discount rate used to determine benefit obligation and net periodic
benefit cost
2.0
%
2.9
%
The components of expense for all of the Company's post retirement
benefit plans for the years ended December
31:
Pension expense:
Multi-employer plan
$
676,000
$
971,000
$
760,000
Defined contribution plans
1,173,000
1,258,000
1,059,000
Total pension expense
1,849,000
2,229,000
1,819,000
Health and life insurance:
Interest cost
235,000
285,000
277,000
Amortization of prior service costs
(496,000)
(496,000)
(496,000)
Amortization of net loss
181,000
117,000
171,000
Net periodic benefit cost
(80,000)
(94,000)
(48,000)
Total
post retirement benefits expense
$
1,769,000
$
2,135,000
$
1,771,000
The Company accounts for post retirement benefits under FASB ASC 715, which
requires the recognition of the funded status of
a defined benefit pension or post retirement plan in
the consolidated balance sheets.
For the year ended December
31, 2020, the
Company recognized
a net actuarial
gain of $
102,000
which is comprised
of differences between
actual and expected
benefit
payments, expenses and balance sheet accruals resulting
in a gain of $
1,047,000
, offset by an actuarial loss of $
945,000
. For the
year ended December
31, 2019, the Company
recognized a net actuarial
loss of $
1,099,000
, which is comprised
of an actuarial
loss of
$
1,956,000
, offset
by differences
between actual
and expected
benefit payments,
expenses and
balance sheet
accrual
resulting in a gain
of $
857,000
. The net actuarial
gain and loss for
the years ended
December 31, 2020
and 2019, respectively,
were recorded in
accumulated other comprehensive income
.
Amounts
not yet recognized
as a component
of net periodic
benefit costs at
December
31, 2020 and
2019 were a
net credit of
$
1,763,000
and $
1,976,000
, respectively.
The amount in accumulated other comprehensive income expected to be recognized as
components of
net periodic
post retirement
cost during
2021 consists
of a
prior service
credit of
$
496,000
and a
net loss
of
$
173,000
.
In addition, 2021
interest expense related
to post retirement
healthcare is expected
to be $
161,000
, for a
total post
retirement healthcare net gain of approximately
$
162,000
in 2021.
The Company expects benefits paid in
2021 to be consistent
with estimated future benefit payments as shown in the table below.
The weighted average rate
of increase in the
per capita cost of
covered health care benefits
is projected to
be
5.1
%.
The rate is
projected to decrease gradually to medical pre age 65 of
5.0
%, medical post age 65 of
4.25
% and drugs - all ages of
5.0
% by the
year
and remain at that level thereafter.
The comparable assumptions for the prior year were
6.0
% and
5.0
%, respectively.
The effect of changing the health care cost trend rate by one
-percentage point for each future year is as follows:
1- Percentage
Point Increase
1-Percentage
Point Decrease
Effect on total of service and interest cost components
$
34,000
$
(29,000)
Effect on post retirement benefit obligation
$
1,081,000
$
(924,000)
The estimated future benefit payments of the health care plan for the next
ten years are as follows:
Postretirement
Health Care
Benefits Plan
$
1,286,000
459,000
500,000
473,000
471,000
2026 - 2030
2,265,000
13.
Commitments and Contingencies
From time to
time, the Company
is involved in
litigation incidental to
the conduct of
its business.
However, the Company
is
presently not involved in any legal proceedings
which in the opinion of management are
likely to have a material adverse
effect
on the Company's consolidated financial position or results of operations.
14. Fair Value of Financial Instruments
Fair value is
defined as the
price that would
be received to
sell an asset
or paid to
transfer a liability
in a transaction
between
market participants
as of
the measurement
date. Fair
value is
measured using
the fair
value hierarchy
and related
valuation
methodologies as
defined in
the authoritative
literature. This
guidance provides
a fair
value framework
that requires
the
categorization of assets and liabilities into three
levels based upon the assumptions (inputs)
used to price the assets or liabilities.
Level 1 provides the most reliable measure of fair value, whereas
Level 3 generally requires significant management judgment.
The three levels are defined as follows:
Level 1 -
Quoted prices in active markets for identical assets and liabilities.
Level 2 -
Quoted prices for similar
instruments in active
markets, quoted prices
for identical or similar
instruments in
markets that
are not
active and
model-derived valuations,
in which
all significant
inputs are
observable in
active markets.
Level 3 -
Significant unobservable
inputs reflecting management's
own assumptions about
the inputs used
in pricing
the asset or liability.
The Company’s financial instruments historically consisted of
cash and cash equivalents, accounts receivable, accounts payable,
debt, interest rate swaps and foreign
currency derivatives. Cash and
cash equivalents, accounts receivable
and accounts payable
carrying values as of December 31, 2020 and December
31, 2019 approximate fair value due to the
short-term maturities of these
financial instruments.
As of
December 31,
2020, the
carrying amounts
of the
WF Term
Loans and
WF Revolving
Loan
approximate fair
value due
to the
short-term nature
of the
underlying variable
rate LIBOR
agreements. The
FGI Term Loan
approximate fair value
as of December
31, 2020, due
to the immaterial
movement in interest
rates since the
Company entered
into the
Promissory Note
on of
October 20,
2020. The
carrying amounts
of long
-term debt
and the
revolving line
of credit
approximate fair value as of December 31, 2019 due to the short-term nature of the underlying variable rate LIBOR
agreements.
The Company had
Level 2 fair
value measurements at
December 31,
2019 relating to
the Company’s
interest rate swaps
and
foreign currency derivatives.
Derivative and hedging activities
Foreign currency derivatives
The Company conducts business in foreign countries and pays certain
expenses in foreign currencies; therefore, the Company is
exposed to foreign currency
exchange risk between the
U.S. Dollar and foreign
currencies, which could
impact the Company
’s
operating income and cash flows. To mitigate risk associated with foreign currency exchange, the Company entered into forward
contracts to exchange
a fixed amount
of U.S. Dollars
for a fixed
amount of foreign
currency, which
were used to
fund future
reign currency cash flows. At
inception, all forward contracts were formally documented as cash flow
hedges and were measured
at fair value each reporting period.
Derivatives are formally
assessed both at
inception and at
least quarterly thereafter,
to ensure that
derivatives used in
hedging
transactions are highly effective in offsetting changes in cash flows
of the hedged item. If it is determined that
a derivative ceases
to be
a highly
effective hedge,
or if
the anticipated
transaction is
no longer
probable of
occurring, hedge
accounting is
discontinued, and
any future
mark-to-market adjustments
are recognized
in earnings.
The effective
portion of
gain or
loss is
reported in accumulated
other comprehensive income
and the ineffective
portion is reported
in earnings. The
impacts of these
contracts were
largely offset
by gains
and losses
resulting from
the impact
of changes
in exchange
rates on
transactions
denominated in the foreign currency. As of December 31, 2020, the Company had no outstanding
foreign currency derivatives.
Interest Rate Swaps
The Company
entered into
interest rate
swap contracts
to fix
the interest
rate on
an initial
aggregate amount
of
$
35,000,000
thereby reducing exposure to interest
rate changes. The Company paid
a fixed rate of
2.49
%
to the counterparty
and receives 30
day LIBOR
for both cash
flow hedges. At inception,
all interest rate
swaps were formally
documented as cash
flow hedges and are
measured at fair value
each reporting period
.
During the 2020 year,
the Company closed the
positions, see
Note 9 - Debt
, for additional information.
Financial statements impacts
The following tables detail amounts related to our derivatives designated
as hedging instruments as of December
31, 2019:
Fair Values
of Derivatives Instruments
Asset Derivatives
Liability Derivatives
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Foreign exchange contracts
Prepaid expense other
current assets
$
452,000
Accrued liabilities other
$
-
Notional contract values
$
15,358,000
$
-
Interest rate swaps
Other non-current assets
$
-
Other non-current
liabilities
$
706,000
Notional swap values
$
-
$
29,750,000
As of December
31, 2019, the
Company had foreign
exchange contracts related
to the Mexican
Peso and the
Canadian Dollar
with exchange rates ranging from
19.53
to
20.58
and
1.32
, respectively.
The following tables
summarize the amount
of unrealized /
realized gain and
loss recognized
in Accumulated Comprehensive
Income (AOCI) for the years ended December
31, 2020, 2019 and 2018:
Derivatives in
subtopic 815-20
Cash Flow
Hedging
Relationship
Amount of Unrealized Gain or
(Loss) Recognized in Accumulated
Other Comprehensive Income on
Derivative
Location of Gain or
(Loss) Reclassified
from Accumulated
Other Comprehensive
Income
(A)
Amount of Realized Gain or (Loss)
Reclassified from Accumulated
Other Comprehensive Income
Foreign exchange
contracts
$
142,000
$
1,499,000
$
(385,000)
Cost of goods sold
$
526,000
$
272,000
$
68,000
Selling, general and
administrative expense
$
68,000
$
25,000
$
-
Interest rate swaps
$
(915,000)
$
(708,000)
$
(223,000)
Interest Expense
$
(1,620,000)
$
(67,000)
$
(159,000)
(A)
The foreign currency derivative activity reclassified from
Accumulated Other Comprehensive Income is allocated to
cost of goods sold and selling, general and administrative expense based
on the percentage of Mexican Peso spend.
15. Accumulated Other Comprehensive Income
The following table presents
changes in Accumulated Other
Comprehensive Income by component, net
of tax, for the
years ended
December
31, 2020 and 2019:
Hedging
Derivative
Activities
Post
Retirement
Benefit Plan
Items
(A)
Total
2019:
Balance at January 1, 2019
$
(612,000)
$
2,729,000
$
2,117,000
Other comprehensive income before reclassifications
791,000
(1,102,000)
(311,000)
Amounts reclassified from accumulated other comprehensive
income
(230,000)
(379,000)
(609,000)
Income tax (expense) benefit
(140,000)
313,000
173,000
Balance at December 31, 2019
$
(191,000)
$
1,561,000
$
1,370,000
2020:
Balance at January 1, 2020
$
(191,000)
$
1,561,000
$
1,370,000
Other comprehensive income before reclassifications
(773,000)
102,000
(671,000)
Amounts reclassified from accumulated other comprehensive
income
1,026,000
(315,000)
711,000
Income tax (expense) benefit
(62,000)
27,000
(35,000)
Balance at December 31, 2020
$
-
$
1,375,000
$
1,375,000
(A)
The effect of
post-retirement benefit items
reclassified from Accumulated
Other Comprehensive Income
is included
in
other income
and expense
on the
Consolidated Statements
of Operations.
These Accumulated
Other Comprehensive
Income components are included
in the computation of
net periodic benefit cost
(see
Note 12 - Post
Retirement Benefits
for additional details). The tax
effect of post-retirement benefit items
reclassified from Accumulated Other
Comprehensive
Income is included in income tax expense on the Consolidated
Statements of Operations.
16.
Quarterly Results of Operations (Unaudited)
The following is
a summary of
the unaudited quarterly
results of operations
for the years ended
December
31, 2020, 2019
and
2018.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total
Year
2020:
Product sales
$
61,930,000
35,847,000
54,240,000
58,563,000
210,580,000
Tooling sales
2,093,000
1,959,000
5,633,000
2,091,000
11,776,000
Net sales
64,023,000
37,806,000
59,873,000
60,654,000
222,356,000
Gross margin
10,766,000
2,903,000
10,838,000
9,967,000
34,474,000
Operating income (loss)
4,261,000
(1,206,000)
4,321,000
3,014,000
10,390,000
Net income (loss)
7,961,000
(2,272,000)
3,343,000
(867,000)
8,165,000
Net income (loss) per common share:
Basic (1)
$
0.97
$
(0.29)
$
0.39
$
(0.10)
$
0.98
Diluted (1)
$
0.97
$
(0.29)
$
0.39
$
(0.10)
$
0.98
2019:
Product sales
$
71,451,000
$
75,440,000
$
67,511,000
$
54,585,000
$
268,987,000
Tooling sales
815,000
5,807,000
7,144,000
1,537,000
15,303,000
Net sales
72,266,000
81,247,000
74,655,000
56,122,000
284,290,000
Gross margin
3,149,000
8,491,000
6,484,000
3,382,000
21,506,000
Operating income (loss)
(4,017,000)
1,267,000
(4,657,000)
(4,121,000)
(11,528,000)
Net income (loss)
(3,845,000)
209,000
(6,125,000)
(5,462,000)
(15,223,000)
Net income (loss) per common share:
Basic (1)
$
(0.49)
$
0.03
$
(0.78)
$
(0.69)
$
(1.94)
Diluted (1)
$
(0.49)
$
0.03
$
(0.78)
$
(0.69)
$
(1.94)
2018:
Product sales
$
59,712,000
$
65,225,000
$
62,305,000
$
68,975,000
$
256,217,000
Tooling sales
3,334,000
3,376,000
2,371,000
4,187,000
13,268,000
Net sales
63,046,000
68,601,000
64,676,000
73,162,000
269,485,000
Gross margin
7,885,000
7,897,000
4,862,000
6,497,000
27,141,000
Operating income (loss)
1,125,000
1,418,000
(1,487,000)
(4,156,000)
(3,100,000)
Net income (loss)
518,000
445,000
(1,803,000)
(3,942,000)
(4,782,000)
Net income (loss) per common share:
Basic (1)
$
0.07
$
0.06
$
(0.23)
$
(0.51)
$
(0.62)
Diluted (1)
$
0.07
$
0.06
$
(0.23)
$
(0.51)
$
(0.62)
(1)
Sum of the quarters may not sum to total year due to rounding.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.
CHANGES IN
AND DISAGREEMENTS
WITH ACCOUNTANTS
ON ACCOUNTING
AND FINANCIAL
DISCLOSURE
Not Applicable.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an
evaluation, under the supervision and with the
participation of its management, including its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness
of the
design and operation
of its disclosure controls
and procedures (as
defined in Rule 13a
-15(e) of the Exchange
Act). Based upon
this evaluation, the
Company’s management,
including its Chief
Executive Officer
and its Chief
Financial Officer,
concluded
that the Company
’s disclosure
controls and procedures
were (i) effective to
ensure that information
required to be
disclosed in
the Company
’s reports
filed or
submitted under
the Exchange
Act were
accumulated and
communicated to
the Company
’s
management, including its Chief
Executive Officer and Chief
Financial Officer, as appropriate
to allow timely decisions
regarding
required disclosures,
and (ii)
effective to
ensure that
information required
to be
disclosed in
the Company
’s reports
filed or
submitted under
the Exchange
Act is recorded,
processed, summarized
and reported
within the time
periods specified
in the
Securities and Exchange Commission’s
rules and forms.
Management’s Report on Internal
Control over Financial Reporting
The Company’s management
is responsible for establishing
and maintaining adequate internal
control over financial reporting.
Internal control over
financial reporting is
a process designed
by, or under
the supervision of,
the Company’s
Chief Executive
Officer and
Chief Financial
Officer and
effected by
the Company
’s board
of directors,
management and
other personnel,
to
provide reasonable
assurance regarding
the reliability
of financial
reporting and
the preparation
of the
Company’s financial
statements in accordance with accounting
principles generally accepted in the
United States of America. Because of its inherent
limitations, internal
control over
financial reporting
is not
intended to
provide absolute
assurance that
a misstatement
of the
Company’s financial statements
would be prevented or detected.
The Company’s
management, with
the participation
of its Chief
Executive Officer
and Chief Financial
Officer, conducted
an
evaluation of the effectiveness of the Company’s internal controls over financial reporting based on the criteria established in the
2013 Internal Control
Integrated Framework
issued by the Committee
of Sponsoring Organizations of
the Treadway Commission
(COSO). This evaluation included a
review of the documentation of controls,
evaluation of the design effectiveness
of controls,
testing of
the operating
effectiveness of
controls and
a conclusion
on this evaluation.
Based on
this evaluation,
management
concluded that the Company’s
internal control over financial reporting was effective as of December
31,
2020.
This annual report
does not include an
attestation report of
the Company’s
registered public accounting
firm regarding internal
control over
financial reporting.
Management’s report
was not
subject to
attestation by
the Company
’s registered
public
accounting firm
pursuant to
rules of
the Securities
and Exchange
Commission that
permit the
Company to
provide only
management’s report in this annual
report.
Changes in Internal Controls
There were no changes in
internal control over financial
reporting (as such term
is defined in Exchange
Act Rule 13a-15(f) and
Rule 15d-15(f)) that occurred in the last
fiscal quarter that have materially affected,
or are reasonably likely to materially affect,
our internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required
by this Part III,
Item 10 is incorporated
by reference from
the Company’s
definitive proxy statement
for its annual meeting of stockholders to be held on or
about June 15, 2021, which is expected to be filed with the
SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required
by this Part
III, Item 11
is incorporated by
reference from the
Company’s definitive
proxy statement
for its annual meeting of stockholders to be held on or
about June 15, 2021, which is expected to be filed with the
SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required
by this Part III,
Item 12 is incorporated
by reference from
the Company’s
definitive proxy statement
for its annual meeting of stockholders to be held on or
about June 15, 2021, which is expected to be filed with the
SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
The information required
by this Part III,
Item 13 is incorporated
by reference from
the Company’s
definitive proxy statement
for its annual meeting of stockholders to be held on or
about June 15, 2021, which is expected to be filed with the
SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required
by this Part III,
Item 14 is incorporated
by reference from
the Company’s
definitive proxy statement
for its annual meeting of stockholders to be held on or
about June 15, 2021, which is expected to be filed with
the SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as Part of this Report:
(1) Financial Statements
See Part II, Item 8 hereof.
(2) Financial Statement Schedules and Independent Auditor's Report
The following consolidated financial statement schedules are filed with
this Annual Report on Form 10-K:
Schedule II - Valuation
and Qualifying Accounts and Reserves
for the Years Ended December
31,
2020, 2019,
and 2018
All other schedules are omitted because of the absence of the
conditions under which they are required.
(3) Exhibits
See Index to Exhibits filed with this Annual Report on Form 10-K.