ANNUAL
REPORT
20
19
CREATIVE | RELIABLE | COMPOSITES
CORE MOLDING TECHNOLOGIES, INC.
2019
CORE MOLDING TECHNOLOGIES, INC.
ANNUAL REPORT TO SHAREHOLDERS
Core Molding Technologies, Inc. is a manufacturer of sheet molding compound
(SMC) and molder of thermoset and thermoplastic products. The Company
produces high quality molded products, assemblies and SMC materials for varied
markets, including medium and heavy-duty trucks, automotive, marine, home
improvement, water management, agriculture, construction and other commercial
markets. The Company offers customers a wide range of manufacturing processes
to fit various program volume and investment requirements. These processes
include compression molding of 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 web injection molding. Core Molding Technologies
has its headquarters in Columbus, Ohio, and operates production facilities
in Columbus and Batavia, Ohio; Gaffney, South Carolina; Winona, Minnesota;
Matamoros, Mexico, Escobedo, Mexico; and Cobourg, Ontario, Canada. Core’s
common stock is traded on the NYSE American LLC under the symbol “CMT.”
SELECTED FINANCIAL HIGHLIGHTS (dollars in millions except per share numbers)
YEARS ENDED DECEMBER 31
Net Sales
Operating Income (loss)
Net Income (loss)
2019
2018
284.3
269.5
(11.5)
(3.1)
(15.2)
(4.8)
Net Income (loss) per common share: Basic
(1.94)
(0.62)
Net Income (loss) per common share: Diluted
(1.94)
(0.62)
Stockholders’ equity
84.4
98.9
2017
161.7
8.0
5.5
0.71
0.70
101.9
2016
174.9
11.5
7.4
0.97
0.97
96.8
2015
199.1
18.5
12.1
1.59
1.58
88.7
INVESTOR INFORMATION
Share Trading
Shares of Core Molding Technologies common stock are traded on the NYSE American LLC
under the symbol “CMT.”
Notice of Annual Meeting
The Company’s 2020 annual meeting will be held on June 15, 2020. The meeting will be held
at the Company’s Columbus, Ohio facility, 800 Manor Park Drive Columbus, Ohio 43228 and
will convene at 9:00 a.m.
Investor Relations
Investor inquiries, including requests to obtain copies without charge of the Company’s
annual report as filed with the Securities & Exchange Commission, should be directed to:
Core Molding Technologies, Inc.
Investor Relations
800 Manor Park Drive
Columbus, OH 43228
Website: www.coremt.com
Stockholder Inquiries
Questions such as changes of address, name changes or lost certificates should be directed
to the Company’s stock transfer agent:
American Stock Transfer & Trust Co., LLC
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
info@amstock.com
CORPORATE OFFICERS
BOARD OF DIRECTORS
David L. Duvall
President and Chief Executive Officer
Renee R. Anderson
Executive Vice President of Human Resources
Eric Palomaki
Executive Vice President of Operations
John P. Zimmer
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
James L. Simonton, Chairman
Thomas R. Cellitti
James F. Crowley
David L. Duvall
Ralph O. Hellmold
Matthew E. Jauchius
Andrew O. Smith
To Our Shareholders
The past year was a year of significant foundational improvements in the Core Molding operational systems and processes. Our
focus in 2019 was specifically to “Get the Basics Right” by investing and relentlessly driving the improvements in our daily
operational execution. We implemented a Policy Deployment Process to help focus the organization on our common goals and
highest priorities of Safety-People-Quality-Delivery-Cost (SPQDC). The results of any metric are only the score of how you
played the game and we are excited to see the results in all operational areas has improved significantly:
Safety Incident Rate reduced by 82%
People (Glassdoor Rating) improved by 95%
Quality (PPM) improved by 78%
Delivery improved by 67%
Cost (Scrap & Productivity) decreased by 47%.
The results are clearly seen in our Q1-2020 financial performance, where we have exceeded our original budget and returned
Core Molding back to historical profitability levels. Our financial performance for the first two months of 2020 is a $5.5 million
(200%) improvement in operational profit compared to the same period in 2019. More importantly, we achieved this performance
by improving the variable margin. In summary, the entire Core Molding team has done an outstanding job of completing the
turn-around of our business. I am excited to state that we have officially completed the turn-around and this is just the beginning
of Core driving to achieve the potential that Core Molding always had. We are now focused on leveraging our significantly
improved operational model through a Go To Market process that provides the highest value solutions incorporating the largest
process portfolio in the industry.
Looking Forward:
Our immediate priority is getting Core Molding, our employees, our families and our society through the COVID-19 pandemic.
We are actively engaged with supporting our customers that are designated as “essential” to the infrastructure of North America
and taking every precaution possible to keep our team members safe. I truly appreciate and I am proud of the way the Core team
has responded by meeting our critical customer’s orders and keeping trucks on the road. We are working with local hospitals and
the Ohio Manufacturers Alliance to do our part in helping to reduce the suffering caused by COVID-19. Our key business
objective during this time is to: Maintain and prepare for future growth and new opportunities when this crisis subsides.
When the country recovers from COVID-19 Core Molding will be ready for growth, with an operational foundation that has been
stabilized and focused on continuous improvement. We are strengthening and developing our Sales & Marketing function to
truly leverage our One Core Go To Market strategy. We have the opportunity to provide the highest value solutions by utilizing
the largest portfolio of composite processes in the industry.
In 2019 we created the operational foundation of our business and in 2020 our focus will be on how best can we grow our business
and provide value to the market by leveraging our wide portfolio of composite solutions. We have built a platform to provide
value to the market and our focus is to utilize this platform to aggressively grow our business.
Sincerely,
David L. Duvall
President and Chief Executive Officer
James L. Simonton
Chairman of the Board
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 001-12505
CORE MOLDING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
incorporation or organization)
31-1481870
(I.R.S. Employer Identification No.)
800 Manor Park Drive, Columbus, Ohio
(Address of principal executive office)
43228-0183
(Zip Code)
Registrant's telephone number, including area code: (614) 870-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01
Preferred Stock purchase rights, par value $0.01
Name of each exchange on which registered
NYSE American LLC
NYSE American LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller
reporting company)
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of June 30, 2019, the aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates
of the registrant was approximately $44,201,708, based upon the closing sale price of $7.47 on the NYSE American LLC on June
30, 2019, the last business day of registrant's most recently completed second fiscal quarter. As of the close of business on
March 12, 2020, the number of shares of registrant's common stock issued and outstanding was 8,221,864.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2020 definitive Proxy Statement to be filed with the Securities and Exchange Commission no later
than 120 days after the end of the registrant's fiscal year are incorporated herein by reference in Part III of this Form 10-K.
CORE MOLDING TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I
Item 1. Business
u
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosure
Part II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
3
13
24
24
26
26
27
28
29
41
42
77
77
77
78
78
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 78
78
78
79
79
80
Item 13. Certain Relationships, Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Part IV
Signatures
Exhibit 23
Exhibit 24
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABEL LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
2
PART I
ITEM 1. BUSINESS
HISTORICAL DEVELOPMENT OF BUSINESS OF CORE MOLDING TECHNOLOGIES, INC.
In 1996, RYMAC Mortgage Investment Corporation (“RYMAC”) incorporated Core Molding Technologies, Inc. (“Core Molding
Technologies” or the “Company”), formerly known as Core Materials Corporation before changing its name on August 28, 2002,
for the purpose of acquiring the Columbus Plastics unit of Navistar, Inc. (“Navistar”), formerly known as International Truck &
Engine Corporation. On December 31, 1996, RYMAC merged with and into the Company, with the Company as the surviving
entity. Immediately after the merger, the Company acquired substantially all the assets and liabilities of the Columbus Plastics
unit from Navistar in return for a secured note, which has been repaid, and 4,264,000 shares of newly issued common stock of
the Company. On July 18, 2007, the Company entered into a stock repurchase agreement with Navistar, pursuant to which the
Company repurchased 3,600,000 shares of the Company’s common stock, from Navistar. On August 16, 2013, Navistar sold its
remaining 664,000 shares of common stock in a series of open market sales.
In 1998, the Company opened a second compression molding plant located in Gaffney, South Carolina as part of the Company’s
growth strategy to expand its customer base. This facility provided the Company with additional capacity and a strategic location
to serve both current and prospective customers.
In October 2001, the Company incorporated Core Composites Corporation as a wholly owned subsidiary under the laws of the
State of Delaware. This entity was established for the purpose of holding and establishing operations for Airshield Corporation’s
assets, which the Company acquired on October 16, 2001 (the “Airshield Asset Acquisition”) as part of the Company’s diversified
growth strategy. Airshield Corporation was a privately held manufacturer and marketer of fiberglass reinforced plastic parts
primarily for the truck industry. The Company purchased substantially all of the assets of Airshield Corporation through the
United States Bankruptcy Court as Airshield Corporation had been operating under Chapter 11 bankruptcy protection since March
2001.
In conjunction with establishment of operations for the assets acquired in the Airshield Asset Acquisition, the Company
established a Mexican subsidiary and leased a production facility in Mexico. In October 2001, the Company (5% owner) and
Core Composites Corporation (95% owner) incorporated Corecomposites de Mexico, S. de R.L. de C.V. (“Corecomposites”) in
Matamoros, Mexico. Corecomposites was organized to operate under a maquiladora program whereby substantially all products
produced are exported back to Core Composites Corporation which sells such products to United States based external customers.
In June of 2009, the Company completed construction and took occupancy of a new production facility in Matamoros, Mexico
that replaced its leased facility.
In August 2005, the Company formed Core Composites Cincinnati, LLC, ("Core Composites Cincinnati") a Delaware limited
liability company and wholly owned subsidiary of the Company. This entity was formed for the purpose of establishing operations
and holding assets acquired from the Cincinnati Fiberglass Division of Diversified Glass Inc., which the Company acquired in
August, 2005. The Cincinnati Fiberglass Division of Diversified Glass, Inc. was a privately held manufacturer and distributor of
fiberglass reinforced plastic components supplied primarily to the heavy-duty truck market. As a result of this acquisition, the
Company leases a manufacturing facility in Batavia, Ohio.
In March 2015, the Company acquired substantially all of the assets of CPI Binani, Inc., a Minnesota based manufacturer and
producer of direct long fiber thermoplastic products, and a wholly owned subsidiary of Binani Industries Limited, located in
Winona, Minnesota ("CPI"). The purpose of the acquisition was to increase the Company's process capabilities and diversify the
Company's customer base.
On January 16, 2018, 1137925 B.C Ltd., subsequently renamed Horizon Plastics International Inc., a wholly owned subsidiary
of the Company, entered into an Asset Purchase Agreement (the "Agreement") with Horizon Plastics International Inc.,1541689
Ontario Inc., 2551024 Ontario Inc. and Horizon Plastics de Mexico, S.A. de C.V. (collectively "Horizon Plastics"). Pursuant to
3
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 slowdown
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; safety and security conditions in Mexico and Canada; 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;
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; 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, including the
recent acquisition of Horizon Plastics; the risk that the integration of Horizon Plastics may be more difficult, time-consuming or
costly than expected; expected revenue synergies and cost savings from acquisition of Horizon Plastics may not be fully realized
within the expected timeframe; revenues following the acquisition of Horizon Plastics may be lower than expected; customer and
employee relationships and business operations may be disrupted by the acquisition of Horizon Plastics; federal, state and local
environmental laws and regulations; the availability of 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;
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 the composites market in a family of products known as “structural
composites.” Structural composites are combinations of resins and sometimes reinforcing fibers (typically glass or carbon) that
are molded to shape. Core Molding Technologies is a manufacturer of sheet molding compound ("SMC") and molder of thermoset
and thermoplastic products. The Company specializes in large-format moldings and offers a wide range of processes, including
compression molding of SMC, glass mat thermoplastics ("GMT"), bulk molding compounds ("BMC"), direct long fiber
thermoplastics ("D-LFT"), spray-up, hand-lay-up, resin transfer molding ("RTM"), structural foam and structural web injection
molding ("SIM"), and reaction injection molding ("RIM"), utilizing dicyclopentadiene technology.
4
Structural composites compete largely against metals and have the strength to function well during prolonged use. Management
believes that structural composite 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 composites are transportation (automotive and truck), agriculture, construction, marine, and
industrial applications. As of December 31, 2019, 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 composite 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 composite 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 composite product from another supplier by an original equipment
manufacturer (“OEM”); (2) obtaining new structural composite products through a selection process in which an OEM solicits
bids; (3) successful marketing of structural composite products for previously non-structural composite applications; (4)
successful marketing of structural composite products to OEMs outside of our traditional markets; (5) developing of new
materials, technology and processes to meet current or prospective customer requirements; and (6) acquiring an existing business.
The Company's efforts continue to be directed towards all six areas.
MAJOR COMPETITORS
The Company believes that it is one of the largest compounders and molders of structural composites using the SMC, spray-up,
hand-lay-up, RTM, SIM, and D-LFT 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"), 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 four major customers, Navistar, Volvo Group ("Volvo"), PACCAR Inc. ("PACCAR"), and Universal Forest
Products ("UFP"), in 2019. 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. The loss of a significant portion of
sales to one of these customers would 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.
5
UFP supplies forestry-based products to three market segments: retail, industrial, and construction. This is a highly-competitive
business, 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.
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 20%, 20% and 25% of
total sales for 2019, 2018, and 2017, respectively.
Relationship with Volvo
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 17%, 17%, and 22% of total sales for 2019, 2018, and 2017,
respectively.
Relationship with PACCAR
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 16%, 16%, and 18% of total sales for 2019, 2018, and 2017, 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 9%, 10%, and 0% of total
sales for 2019, 2018, and 2017, 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 2019. Sales to these customers amounted to approximately 38%, 37% and
35% of total sales for 2019, 2018, and 2017, respectively.
6
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
Mexico
Canada
Other
Total
2019
178,953,000 $
79,761,000
16,988,000
8,588,000
284,290,000 $
2018
181,207,000 $
74,029,000
12,494,000
1,755,000
269,485,000 $
2017
103,513,000
52,496,000
5,664,000
—
161,673,000
$
$
The following table provides information related to the location of the Company's property, plant and equipment, net, as of
December 31:
United States
Mexico
Canada
Total
2019
39,132,000 $
31,865,000
8,209,000
79,206,000 $
2018
37,778,000
34,155,000
8,724,000
80,657,000
$
$
7
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 also sells SMC to other molders.
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.
Closed Molded Products
The Company manufactures plastic products using compression molding, resin transfer molding, and injection molding. As of
December 31, 2019, the Company owned 74 molding presses in its Columbus, Ohio facility (16); Matamoros, Mexico facility
(21); Cobourg, Canada facility (19); Gaffney, South Carolina facility (10); Winona, Minnesota facility;(4) 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. This process 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
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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
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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 $20.7 million (all of which the Company shipped during the first month of
2020) and $22.7 million at December 31, 2019 and 2018, 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 2019, 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 73% and 77% for the years ended December 31, 2019 and 2018,
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, 2019. The combined approximate large press capacity utilization in these
production facilities was 83% and 91% for the years ended December 31, 2019 and 2018, respectively. The decreased utilization
mainly resulted from improved production efficiency, product mix and equipment up-time.
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, 2019. The combined approximate large
press capacity utilization in this facility was 72% and 52% for the years ended December 31, 2019 and 2018, respectively.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures totaled approximately $7.5 million, $5.8 million and $4.3 million in 2019, 2018, and 2017 respectively.
These capital expenditures primarily consisted of building and equipment improvements and additional production equipment to
manufacture parts.
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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, $1.0 million and $0.8 million in 2019, 2018, and
2017, 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.
EMPLOYEES
As of December 31, 2019, the Company employed a total of 1,821 employees, which consists of 764 employees in its United
States operations, 795 employees in its Mexico operations and 262 employees in its Canada operation. Of these 1,821 employees,
341 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 9, 2022; 635 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 10, 2021; 216 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 35 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, 2020 and an extension is currently being negotiated.
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. The Company has increased its
activity related to trademark protection in recent years, including the federal registration of the trademarks N-sulGuard®,
Featherlite®, Airilite®, FeatherliteXL®, Econolite®, Hydrilite®, and Mirilite®. 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,
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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.
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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.
Our business has concentration risks associated with significant customers.
Sales to four customers constituted approximately 62% of our 2019 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 four customers accounted for 49% of accounts receivable at December 31, 2019. 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 2019, approximately 58% 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.
We may not be able to achieve the efficiencies, savings and other benefits anticipated from our cost reduction, margin
improvement and other business optimization initiatives.
In [2019] we began implementing a turnaround plan to optimize and improve our performance and enhance our competitive
position by reducing cost, increasing efficiencies and enhancing our business. Initiatives currently in process or implemented [in
the past several years] include the implementing new operational systems focused on improved quality performance, labor
productivity, scrap and overhead spend reductions. The successful implementation of these and other operational improvements
as part of our turnaround plan present significant organizational design and other challenges. We may not achieve targeted benefits
or achieve them within our expected timetable. Unexpected delays, increased costs, adverse effects on our internal control
environment, inability to retain and motivate employees, or other challenges arising from these initiatives could adversely affect
our ability to realize the anticipated savings or other intended benefits of these activities. Additionally, the scope of these
operational stabilization efforts require a substantial amount of management and operational resources to implement it effectively.
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These and related demands on our resources may divert the Company’s attention from our ongoing business operations, which
could also impact our competitive position as well as have a material adverse effect on our business, results of operations or
financial conditions.
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 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.
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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, 2019, unions at our Columbus, Ohio, Matamoros and Escobedo, Mexico, and Cobourg Canada facilities
represented approximately 67% 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 and Escobedo, Mexico, and Cobourg, Canada union contracts extend
through August 7, 2022, January 10, 2021, February 1, 2020 and November 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.
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.
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
15
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.
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.
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 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.
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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.
Our insurance coverage may be inadequate to protect against the potential hazards incident to our business.
We maintain property, business interruption, stop loss for healthcare and workers' compensation, director and officer, product
liability, and casualty insurance coverage, but such insurance may not provide adequate coverage against potential claims,
including losses resulting from war risks, terrorist acts, or product liability claims relating to products we manufacture. Consistent
with market conditions in the insurance industry, premiums and deductibles for some of our insurance policies have been
increasing and may continue to increase in the future. In some instances, some types of insurance may become available only
for reduced amounts of coverage, if at all. In addition, there can be no assurance that our insurers would not challenge coverage
for certain claims. If we were to incur a significant liability for which we were not fully insured or that our insurers disputed, it
could have a material adverse effect on our financial position.
Our business will be adversely impacted if the coronavirus outbreak spreads widely or otherwise impacts our
manufacturing and supply chain or demand for our products
The extent that the coronavirus outbreak will spread widely and its impact on our results will depend on future developments,
which are highly uncertain and unpredictable. Our facilities and suppliers could be directly impacted by actions taken to contain
the virus. In addition, our facilities are dependent upon raw materials produced by others, and to the extent that our suppliers are
impacted by the virus it likely will reduce the availability, or result in delays, of raw materials to us, which in turn could interrupt
our ability to produce and sell completed products. Recently there have been circumstances of freight channels being interrupted
and increases in the freight prices, which also could impact our business. These and other unforeseen consequences associated
with the virus could have a material adverse effect on our business, financial condition and results of operations.
In addition to Horizon Plastics in 2018, 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, including the acquisition of Horizon Plastics, 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 leased facilities and 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
17
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.
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 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.
18
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.
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 from our existing lenders 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.
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 and Mexico and, beginning in 2018, 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) difficulties in repatriating earnings held abroad in a tax efficient manner.
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.
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.
19
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.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause
our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business
information and that of our customers, suppliers, and business partners, and personally identifiable information of our employees,
in our data centers and on our networks. The secure maintenance of this information is critical to our operations. Despite our
security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to
employee error, malfeasance, or other disruptions. Any such breach could compromise our networks and the information stored
there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result
in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties,
disruption of our operations, damage to our reputation, and cause a loss of confidence in our products, which could adversely
affect our business, revenues, and competitive position.
Our manufacturing capacity, labor force, and operations may not be appropriate for future levels of demand and may
materially adversely affect our gross margins and operating results.
When market demand increases, we must have available manufacturing capacity and must increase our labor force to meet
increases in customer demand. We have continued to experience a significant ramp up in overall demand in the heavy-duty truck
market, along with the launch of several new programs. Given the current high demand levels, the Company has experienced
asset capacity constraints and difficulty hiring, training and retaining labor in a tightening labor market, which has resulted in
increased manufacturing inefficiencies and the inability to consistently meet customer delivery and quality requirements,
including for several of the Company’s major customers. Additional expenses that we realized in 2019 and 2018 as a result of
these inefficiencies include increased hiring, training, wages, overtime, non-local third party contract labor, including travel and
local lodging, scrap, rework, expedited premium shipping, returns, customer charges and repairs and maintenance.
If we continue to experience manufacturing inefficiencies, we may continue to incur additional expenses as described above and
may reduce demand through the possible temporary or permanent move of business (which may include major customers’
business) to other manufacturers, which would adversely affect our gross margins and operating results.
Ongoing 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. Given the high demand levels in 2019 and 2018, we have
experienced difficulty hiring, training, and retaining labor in a tightening labor market, which has resulted in increased
manufacturing inefficiencies and the inability to consistently meet customer delivery and quality requirements, including for
several of the Company’s major customers. Recent difficulties in securing skilled labor have resulted in increased hiring and
20
training costs, increased overtime to meet demand, increased wage rates to attract and retain operators, the use of non-local third
party contract labor, and higher scrap and rework costs due to inexperienced workers. Continuation of such difficulties in
securing labor could result in increased cost, an inability to satisfy customer demands, and an inability to maintain or increase
production rates which would adversely affect our business.
In the event we engage in any restructuring of our manufacturing operations to address operational efficiencies, such
actions may be disruptive to our business and may not result in anticipated cost savings.
Management continuously evaluates our facilities and operations in an effort to make our business more efficient. During 2019
and 2018, we have continued to experience asset capacity constraints and difficulty hiring, training, and retaining labor in a
tightening labor market, which has resulted in increased manufacturing inefficiencies and the inability to consistently meet
customer delivery and quality requirements, including for several of the Company’s major customers. As management continues
to evaluate our facilities and operations in an effort to make our business more efficient, as well as whether to move certain
customers’ business in order to minimize production constraints, we may incur additional costs, asset impairments, and
restructuring charges in connection with changes to operations, that to the extent incurred in the future could adversely affect our
future earnings and cash flows. Such actions may be disruptive to our business. Furthermore, we may not realize the cost savings
that we expect to realize as a result of such actions.
We have incurred impairment charges that eliminated the carrying value of our goodwill associated with Core Traditional
and partially eliminated Horizon Plastics goodwill business reporting units in the past; in the future we may be required
to incur additional impairment charges 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. As part of the Company’s annual impairment assessment at December 31, 2018, we
concluded that the carrying value of the goodwill associated with our traditional business reporting unit was greater than fair
value, which resulted in a goodwill impairment charge of $2,403,000, representing all of the goodwill related to our traditional
business reporting unit. 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. See Note 2 - Summary of Significant
Accounting Policies and Note 9 - Goodwill and Intangibles, within the notes to our accompanying consolidated financial
statements for further discussion regarding goodwill impairment. The Company will continue to evaluate the HPI reporting unit
goodwill on an annual basis as required by ASC Topic 350. If operating earnings consistently 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 failure to comply with our debt covenants or the terms of the Forbearance Agreement under which we are presently
operating could have a material adverse effect on our business, financial condition, or results of operations.
The Company’s amended and restated credit agreement dated January 16, 2018, as amended from time to time (the “A/R Credit
Agreement”), with KeyBank National Association as the administrative agent (the "Administrative Agent") and various other
financial institutions thereto as lenders (the "Lenders"), contains certain covenants. As of September 30, 2019 the Company was
in breach of its fixed charge covenant under the A/R Credit Agreement and on November 22, 2019 entered into a forbearance
agreement with the Lenders, as subsequently amended (as amended, the “Forbearance Agreement”). A breach of any of the
21
milestones established in the Forbearance Agreement could result in a default under our A/R Credit Agreement. Based on current
financial projections, the Company does not believe that it will be compliant with the financial covenants beyond the negotiated
Forbearance Period and therefore is pursuing the restructuring or refinancing of its existing obligations under the Amended A/R
Credit Agreement If we were unable to effectively restructure or finance our existing obligations, default under the Forbearance
Agreement could result in the acceleration of the total due related to the A/R Credit Agreement. If a default of the Forbearance
Agreement were to occur, we may not be able to pay our debts or borrow sufficient funds to refinance them. Any of these events,
if they occur, could materially adversely affect our results of operations, financial condition, and cash flows.
We have substantial debt under out A/R Credit Agreement and may incur substantial additional debt, which could
adversely affect our financial health, reduce our profitability, limit our ability to obtain financing in the future and pursue
certain business opportunities and reduce the value of your investment.
As of December 31, 2019, we had an aggregate principal amount of $49.5 million of outstanding debt. In fiscal year 2019, we
incurred $4.1 million of interest expense, net of the impact of interest rate swaps, related to this debt.
The amount of our debt or such other obligations could have important consequences for holders of our common stock, including,
but not limited to: a substantial portion of our cash flow from operations must be dedicated to the payment of principal and
interest on our indebtedness, thereby reducing the funds available to us for other purposes; our ability to obtain additional
financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and
other purposes may be impaired in the future; we are exposed to the risk of increased interest rates because a portion of our
borrowings is at variable rates of interest; we may be at a competitive disadvantage compared to our competitors with less debt
or with comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic
downturns; our ability to refinance indebtedness may be limited or the associated costs may increase; our ability to engage in
acquisitions without raising additional equity or obtaining additional debt financing may be impaired in the future; it may be
more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on and acceleration of such
indebtedness; we may be more vulnerable to general adverse economic and industry conditions; and our flexibility to adjust to
changing market conditions and our ability to withstand competitive pressures could be limited, or we may be prevented from
making capital investments that are necessary or important to our operations in general, growth strategy and efforts to improve
operating margins of our business units.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay
capital expenditures, sell assets, seek to obtain additional equity capital or refinance our debt. We cannot make assurances that
we will be able to refinance our debt on terms acceptable to us, or at all. In the future, our cash flow and capital resources may
not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and
may not permit us to meet our scheduled debt service obligations.
We cannot make assurances that we will be able to refinance any of our indebtedness, or obtain additional financing, particularly
because of our high levels of debt and the debt incurrence restrictions imposed by the agreements governing our debt, as well as
prevailing market conditions. We could face substantial liquidity problems and might be required to dispose of material assets or
operations to meet our debt service and other obligations. Subject to certain exceptions, our Term Loans and Revolving Loans,
which we have defined in Note 10 - Debt to our consolidated financial statements, restrict our ability to dispose of assets and how
we use the proceeds from any such dispositions. We cannot make assurances that we will be able to consummate those
dispositions, or if we do, what the timing of the dispositions will be or whether the proceeds that we realize will be adequate to
meet our debt service obligations, when due.
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
22
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.
23
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company owned four production facilities as of December 31, 2019 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:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
322,000
16,000
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:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
134,800
5,000
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:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
81,000
6,000
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:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
463,000
15,000
478,000
24
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 10 -
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. The approximate
108,000 square feet of available floor space at the Batavia, Ohio plant is comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
104,000
4,000
108,000
The Company leases a production plant in Cobourg, Canada located at 3 West Street on approximately 10 acres of land. The
current lease agreement, which includes an option to extend the lease up to 10 years, expired in June 2019. The Company is
currently negotiating an extension. The approximate 247,000 square feet of available floor space at the Cobourg, Canada plant is
comprised of the following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
241,000
6,000
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 approximate 61,000 square feet of available floor space at the Escobedo, Mexico plant is comprised of the
following:
Manufacturing/Warehouse
Office
Total
Approximate
Square Feet
59,000
2,000
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:
Warehouse/Distribution
Office
Total
Approximate
Square Feet
39,000
3,000
42,000
25
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to the conduct of its business. The Company is presently not
involved in any legal proceedings which in the opinion of management are likely to have a material adverse effect on the
Company's consolidated financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURE
None.
26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES
The Company's common stock is traded on the NYSE American LLC under the symbol “CMT”.
The table below sets forth the high and low sale prices of the Company for each full quarterly period within the two most recent
fiscal years for which such stock was traded.
Core Molding Technologies, Inc.
High
Low
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
$
2019
2019
2019
2019
2018
2018
2018
2018
6.49 $
7.58
8.50
9.00
8.60 $
15.32
18.09
22.36
2.80
5.75
6.73
6.79
6.37
6.58
13.53
16.47
The Company's common stock was held by 370 holders of record on March 12, 2020.
The Company ended the $0.05 per share quarterly dividend after the May 2018 declaration. The Company made no payments
for cash dividends during 2019 and made payments of $792,000 and $786,000 for cash dividends during 2018 and 2017,
respectively.
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, 2019:
Plan Category
Equity compensation plans approved by
stockholders
Number of Shares
to be Issued Upon
Exercise of
Outstanding
Options or
Vesting
Weighted
Average
Exercise Price
of Outstanding
Options
Number of
Shares
Remaining
Available for
Future Issuance
566,031
$
9.62
744,697
There were 8,303 stock repurchases during the three months ended December 31, 2019. All stock was purchased to satisfy tax
withholding obligation upon vesting of restricted stock awards.
27
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.
(In thousands, except per share data)
2019
Years Ended December 31,
2017
2016
2018
2015
Operating Data:
Product sales
Tooling sales
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Earnings (Loss) Per Share Data:
Net income (loss) per common share:
Basic
Diluted
Balance Sheet Data:
Total assets
Working capital
Long-term debt
Stockholders' equity
Return on beginning equity
Book value per share
$ 268,987
15,303
284,290
21,506
(11,528)
(15,223)
$ 256,217
13,268
269,485
27,141
(3,100)
(4,782)
$ 148,623
13,050
161,673
24,631
7,941
5,459
$ 146,624
28,258
174,882
27,906
11,527
7,411
$ 189,103
9,965
199,068
36,252
18,498
12,050
$
$
(1.94)
(1.94)
$
$
(0.62)
(0.62)
$
$
0.71
0.70
$
$
0.97
0.97
$
$
1.59
1.58
$ 179,306
(22,609)
—
84,426
$ 201,198
40,111
55,159
98,929
$ 138,578
40,369
3,750
101,893
$ 133,455
38,590
6,750
96,766
$ 139,803
31,534
9,750
88,733
(15)%
(5)%
6%
8 %
16%
$
10.72
$
12.72
$
13.21
$
12.67
$
11.68
28
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 slowdown
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; safety and security conditions in Mexico and Canada; 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;
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; 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, including the
recent acquisition of Horizon Plastics; the risk that the integration of Horizon Plastics may be more difficult, time-consuming or
costly than expected; expected revenue synergies and cost savings from acquisition of Horizon Plastics may not be fully realized
within the expected timeframe; revenues following the acquisition of Horizon Plastics may be lower than expected; customer and
employee relationships and business operations may be disrupted by the acquisition of Horizon Plastics; federal, state and local
environmental laws and regulations; the availability of 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;
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 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. Product sales to
medium and heavy-duty truck markets accounted for 58% of the Company's sales for the year ended December 31, 2019 and
56% and 68% for the years ended December 31, 2018 and 2017, respectively. The demand for Core Molding Technologies’
29
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 58% and 56% of
the Company’s product revenue for the years ended December 31, 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 2019 Overview
Core Molding Technologies recorded a net loss in 2019 of $15,223,000, or $(1.94) per basic and diluted share, compared with a
net loss of $4,782,000, or $(0.62) per basic and diluted share in 2018. Product sales in 2019 increased 5% from 2018, and
operating income declined 272%. Higher demand from our truck and marine customers were the primary drivers of the sales
increase, while the decrease in operating income was largely due to increased manufacturing inefficiencies at several of the
Company's facilities, a higher goodwill impairment charge, and higher operating and SG&A costs.
30
In the second half of 2018, the Company started experiencing manufacturing inefficiencies as a result of the significant production
demand in the heavy-duty truck market. Given the high demand levels, the Company experienced difficulty hiring, training and
retaining labor in a tightening labor market at several manufacturing facilities. This, coupled with asset capacity and reliability
constraints, resulted in increased manufacturing inefficiencies and the inability to consistently meet customers' delivery and
quality requirements, including for several of the Company's major customers. During the fourth quarter of 2018, the Company
hired a new CEO who began to implement a turnaround plan to improve customer delivery and quality performance and reduce
manufacturing inefficiencies. The turnaround plan included additional spending to improve equipment and labor stability.
Management believes that during 2019 the operational benefits of the turnaround plan are being realized as customer delivery
and quality levels have begun to improve. While management believes these improvements have been successful as an operational
matter and were the primary focus of the turnaround plan, operational efficiency improvements at the plants have not yet resulted
in anticipated levels of financial improvements.
The Company's financial performance had started to reflect the benefits of the turnaround improvements during the third quarter
of 2019, however sales volumes from products were 19% lower in the fourth quarter, as compared to the third quarter, which had
an adverse effect on operating income in the fourth quarter.
As part of the turnaround plan, management has implemented customer price increases where margin on product is not meeting
the Company’s profitability model, and are evaluating relationships with major customers to assess ongoing profitability of those
relationships. The Company previously announced that on November 15, 2019 it had provided notice to the Volvo Group
(“Volvo”) of the Company’s intention to terminate its agreement with Volvo, with such termination to become effective twelve
months from the date of notice, absent the parties reaching mutually agreeable terms upon which to continue their relationship.
In March 2020, the Company and Volvo mutually agreed to new terms to continue to supply Volvo and the Company revoked its
termination notice. Sales to Volvo amounted to approximately 17%, 17%, and 22% of total sales for 2019, 2018, and 2017,
respectively.
Looking forward, the Company anticipates that 2020 product sales levels will decrease as compared to 2019, due to lower demand
from heavy duty truck customers. Heavy duty truck customers as well as industry analysts are forecasting a decrease in Class 8
truck sales of approximately 34% in 2020 compared to 2019. Management continues to aggressively implement the Company's
turnaround plan to improve operational inefficiencies and financial performance while still managing and reacting to the softening
truck production forecasts.
2019 Compared to 2018
Net sales for 2019 totaled $284,290,000, which was an increase from the $269,485,000 reported for 2018. Included in total sales
were tooling project sales of $15,303,000 for 2019 and $13,268,000 for 2018. Tooling project sales result primarily from customer
approval and acceptance of molds and assembly equipment specific to their products as well as other non-production services.
These sales are sporadic in nature and fluctuate in regard to scope and related revenue on a period-to-period basis. Total product
sales for 2019, excluding tooling project sales, totaled $268,987,000, representing a 5% increase from the $256,217,000 reported
for 2018. The increase in product sales is primarily the result of increased sales to our truck and marine customers of $11,707,000
and $3,144,000, respectively.
Gross margin was approximately 7.6% of sales in 2019 and 10.1% in 2018. The gross margin decrease, as a percent of sales, was
due to unfavorable product mix and production inefficiencies of 4.2%. These reductions were offset by net changes in selling
price and material costs of 1.3% and favorable changes in customer chargebacks of 0.4%.
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.
31
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 a 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.
2018 Compared to 2017
Net sales for 2018 totaled $269,485,000, which was an increase from the $161,673,000 reported for 2017. Included in total sales
were tooling project sales of $13,268,000 for 2018 and $13,050,000 for 2017. 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 2018, excluding tooling project sales, totaled $256,217,000, representing a 72% increase from the
$148,623,000 reported for 2017. The increase in product sales is primarily the result of new sales from the acquisition of Horizon
Plastics totaling $62,603,000 and higher demand from truck customers of $44,991,000.
Gross margin was approximately 10.1% of sales in 2018 and 15.2% in 2017. The gross margin decrease, as a percent of sales,
was due to unfavorable product mix and production inefficiencies of 8.1%, net changes in selling price and material costs of 1.1%
and unfavorable sales returns of 0.6%, offset by higher leverage of fixed costs of 2.5% and favorable impact of 2.0% from the
Horizon Plastic acquisition.
Selling, general and administrative expense (“SG&A”) totaled $27,838,000 in 2018, compared to $16,690,000 in 2017. The
increase in SG&A expense primarily resulted from additional ongoing SG&A costs of $3,681,000 related to Horizon Plastics,
higher professional and outside services of $2,292,000, higher intangible amortization of $1,819,000, higher labor and benefit
costs of $994,000, one-time severance costs of $858,000 and one-time acquisition fees of $693,000.
Goodwill impairment totaled $2,403,000 in 2018, based on the Company's annual goodwill impairment assessment for the Core
Traditional reporting unit. See Note 2 - Summary of Significant Accounting Policies, for further details.
Net interest expense totaled $2,394,000 for the year ended December 31, 2018, compared to net interest expense of $245,000 for
the year ended December 31, 2017. The increase in interest expense was primarily due to a higher average outstanding debt
balance in 2018.
Income tax expense was approximately 12% of total income before income taxes in 2018 and 30% in 2017. The change in
effective income tax rate primary relates to the net effect of taxable losses in a lower statutory rate tax jurisdictions being offset
by taxable income in higher statutory rate tax jurisdictions.
Net loss for 2018 was $4,782,000 or $(0.62) per basic and diluted share, compared with net income of $5,459,000 or $0.71 per
basic and $0.70 per diluted share for 2017.
32
Comprehensive loss totaled $4,735,000 in 2018, compared to comprehensive income of $4,953,000 in 2017. The decrease was
primarily related to lower net income of $10,241,000 and a change in hedging derivatives of $418,000 offset by a change in net
actuarial adjustments of $971,000 for other post-retirement benefit obligations. In 2018, the Company recorded a net actuarial
gain of $910,000 compared to an actuarial loss of $417,000 in 2017. The 2018 gain and the 2017 loss were primarily due to a
change 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, 2019, the Company had outstanding foreign exchange contracts with notional amounts
totaling $15,358,000, compared to $27,588,000 outstanding as of December 31, 2018. As of December 31, 2019, the Company
also had outstanding interest rate swaps with notional amounts totaling $29,750,000, compared to $32,375,000 outstanding as of
December 31, 2018.
Cash provided by operating activities totaled $16,701,000 for the year ended December 31, 2019. Net loss of $15,223,000
negatively impacted operating cash flows. Non-cash deductions of depreciation and amortization, and goodwill impairment
charge included in net loss amounted to $10,376,000 and $4,100,000, respectively. Decreases in working capital resulted in cash
provided by operating activities of $18,285,000. Changes in working capital primarily related to decreases in accounts receivable
and inventory, due to a decreases in sales volume and reduction in certain customer payment terms.
Cash used in investing activities totaled $7,460,000 for the year ended December 31, 2019, 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 $9,000,000 during 2020 on property, plant and equipment purchases for all of the
Company's operations. The Company anticipates using cash from operations and its revolving line of credit to finance this capital
investment. At December 31, 2019, purchase commitments for capital expenditures in progress were approximately $336,000.
Cash used in financing activities totaled $9,276,000 for the year ended December 31, 2019. Cash activity primarily consisted of
net repayments of revolving loans of $5,368,000, net scheduled repayments of principal on outstanding term loans of $3,375,000,
and payment of deferred loan costs of $435,000.
At December 31, 2019, the Company had $1,856,000 of cash on hand and an available revolving line of credit of $15,992,000.
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.
Debt and Credit Facilities
On January 16, 2018, the Company entered into an Amended and Restated Credit Agreement (the "A/R Credit Agreement") with
KeyBank National Association as administrative agent (the "Administrative Agent") and various financial institutions party
thereto as lenders (the "Lenders"). Pursuant to the terms of the A/R Credit Agreement (i) the Company may borrow revolving
loans in the aggregate principal amount of up to $40,000,000 (the “U.S. Revolving Loans”) from the Lenders and term loans in
the aggregate principal amount of up to $32,000,000 from the Lenders, (ii) the Company's wholly-owned subsidiary, Horizon
Plastics International, Inc., (the "Subsidiary") may borrow revolving loans in an aggregate principal amount of up to
$10,000,000 from the Lenders (which revolving loans shall reduce the availability of the U.S. Revolving Loans to the Company
on a dollar-for-dollar basis) and term loans in an aggregate principal amount of up to $13,000,000 from the Lenders, (iii) the
Company obtained a Letter of Credit Commitment of $250,000, of which $160,000 has been issued and (iv) the Company repaid
the outstanding term loan balance of $6,750,000. The A/R Credit Agreement is secured by a guarantee of each U.S. and Canadian
subsidiary of the Company, and by a lien on substantially all of the present and future assets of the Company and its U.S. and
33
Canadian subsidiaries, except that only 65% of the stock issued by Corecomposites de Mexico, S. de R.L. de C.V. has been
pledged.
Concurrent with the closing of the A/R Credit Agreement the Company borrowed the $32,000,000 term loan and $2,000,000 from
the U.S. Revolving loan and the Subsidiary borrowed the $13,000,000 term loan and $2,500,000 from revolving loans to provide
$49,500,000 of funding for the acquisition of Horizon Plastics.
On March 14, 2019, the Company entered into the first amendment (“First Amendment”) to the A/R Credit Agreement with the
Lenders. Pursuant to the terms of the First Amendment, the Company and Lenders agreed to modify certain terms of the A/R
Credit Agreement. These modifications included (1) implementation of an availability block on the U.S. Revolving Loans
reducing availability from $40,000,000 to $32,500,000, (2) modification to the definition of EBITDA to add back certain one-
time expenses, (3) waiver of non-compliance with the leverage covenant as of December 31, 2018 and modification of the
leverage ratio definition and covenant to eliminate testing of the leverage ratio until December 31, 2019, (4) waiver of non-
compliance with the fixed charge covenant as of December 31, 2018 and modification of the fixed charge coverage ratio definition
and covenant requirement, (5) implementation of a capital expenditure spend limit of $7,500,000 during the first six months of
2019 and $12,500,000 for the full year 2019, (6) an increase of the applicable interest margin spread for existing term and
revolving loans, and (7) an increase in the commitment fees on any unused U.S. Revolving Loans.
On November 22, 2019, the Company entered into a forbearance agreement (the "Forbearance Agreement") with the Lenders.
Pursuant to the Forbearance Agreement, the Borrowers and the Lenders acknowledged and confirmed that an event of default
occurred under the A/R Credit Agreement resulting from the Borrowers failure to maintain the required Fixed Charge Coverage
Ratio (as defined in the A/R Credit Agreement”) for the fiscal quarter ended September 30, 2019. The Forbearance Agreement
provides that the Administrative Agent and Lenders shall forbear from the exercise of rights and remedies pursuant to the Loan
Documents described in the A/R Credit Agreement through March 13, 2020, as long as the Company satisfies the conditions set
forth in the Forbearance Agreement, including, (i) the Borrowers shall remain current on all loan payments during the forbearance
period, (ii) on or before December 6, 2019, the Administrative Agent and Lenders shall each receive a copy of a report of Huron
Consulting Group containing findings and observations in respect of the businesses and operations of the Company and the
Borrowers shall deliver a strategic alternative assessment in respect of the Borrowers’ operations and financing, (iii) on or before
December 15, 2019, the Administrative Agent and Lenders shall each receive a copy of appraisals of machinery and equipment
and inventory appraisals, and the Borrowers shall have determined and proposed a new capital structure to the Administrative
Agent and Lenders, (iv) on or before February 14, 2020, the Borrowers shall have obtained a definitive, written commitment
from involved parties and/or lenders providing the basis for implementation of a new capital structure, and (v) on or before March
13, 2020, the Borrowers shall have closed on a new capital structure, acceptable to the Administrative Agents and Lenders. The
Forbearance Agreement also implemented a new availability block with respect to the U.S. Revolving Loans portion of the A/R
Credit Agreement, reducing availability from $32,500,000 to $28,000,000 and increasing the applicable margin for existing term
and revolving loans, as well as increasing the commitment fees on any unused U.S. Revolving Loans.
On March 13, 2020, the Company entered into an Amendment to the Forbearance Agreement (the “Amended Forbearance
Agreement”) with the Lenders. Pursuant to the terms of the Amended Forbearance Agreement, the Company and Lenders agreed
to modify certain terms of the A/R Credit Agreement and Forbearance Agreement and extend the Forbearance Agreement through
May 29, 2020. The modifications include (1) a reduction in the U.S. Revolving Loan to $25,000,000 with an availability block
of $5,000,000 which can be borrowed with the unanimous approval of the lenders, (2) a change of interest rate to LIBOR plus
650 basis points for all outstanding loans, (3) forbear compliance with the leverage covenant and fixed charge covenant through
May 29, 2020, and (4) implementation of a capital expenditure spend limit of $3,500,0000 from the effective date of the Amended
Forbearance Agreement through May 29, 2020.
The Amended Forbearance Agreement provides that the Administrative Agent and Lenders shall forbear from the exercise of
rights and remedies pursuant to the Loan Documents described in the Credit Agreement through May 29, 2020, as long as the
Company satisfies the conditions set forth in the Amended Forbearance Agreement, including, (i) on or before March 31, 2020,
the borrowers shall have obtained an executed term sheet from involved parties and/or lenders providing the basis for
implementation of a new capital structure and defined due diligence parameters, (ii) on or before May 15, 2020 the Borrowers
34
shall have obtained an executed definitive, written commitment from the New Lenders to enter into a definitive agreement to
effect the refinancing, and (iii) on or before May 29, 2020, the borrowers shall have closed on a new capital structure.
As a result of the Amended Forbearance Agreement not extending beyond a year, the Company’s remaining long-term debt under
the A/R Credit Agreement, consisting of $49,451,000 in borrowings under the revolving credit commitment and the loan
commitments, was classified as a current liability in the Company’s consolidated balance sheet as of December 31, 2019. As a
result, the Company’s current liabilities exceeded its current assets by $22,609,000 as of December 31, 2019. If the Lenders were
to call the loans or demand repayment of all existing borrowings, this could result in the Company being unable to meet its
working capital obligations.
Bank Covenants
The Company is required to meet certain financial covenants included in the A/R Credit Agreement with respect to leverage
ratios, fixed charge ratios and capital expenditures. As of September 30, 2019, the Company was in default with its fixed charge
coverage ratios associated with the loans made under the A/R Credit Agreement as described above. As a result of this default
the Company and the Administrative Agent on behalf of the Lenders entered into a Forbearance Agreement to address the non-
compliance and establish milestones for the Company related to restructuring of its existing debt. Effective March 13, 2020, the
Company entered into an Amended Forbearance Agreement to modify existing and establish new milestones.
The Company is required to meet certain financial covenants included in the A/R Credit Agreement with respect to leverage
ratios and fixed charge ratios and capital expenditures, as well as other customary affirmative and negative covenants. As of
September 30, 2019, the Company was not in compliance with its financial covenants. The following table presents the
financial covenants specified in our A/R Credit Agreement, as modified by the First Amendment, and the actual covenant
calculations as of December 31, 2019:
Fixed Charge Coverage Ratio (A)
Leverage Ratio
Financial
Covenants
Minimum 1.00
3.25 or Lower
Actual Covenants as
of December 31,
2019
0.59
9.18
(A) The terms of the A/R Credit Agreement that the fixed charge coverage ratio will be maintained at a minimum of 1.00
and 1.10 on each of December 31, 2019 and March 31, 2020, and from June 30, 2020 and thereafter set at a minimum
of 1.15.
The Amended A/R Credit Agreement also provides a capital expenditure limit covenant, whereby capital expenditures as defined
in the Amended A/R Credit Agreement are limited to an aggregate of $12,500,000 for the twelve months ended December 31,
2019. As of December 31, 2019 capital expenditures for 2019 have amounted to $7,460,000.
Based on current financial projections, the Company does not believe that it will be compliant with the financial covenants
beyond the negotiated forbearance period and therefore is pursuing the restructuring or refinancing of its existing obligations
under the A/R Credit Agreement.
The Company has engaged Huron Transactional Advisor's to facilitate a full marketing process for refinancing the A/R Credit
Agreement. Management and Huron are evaluating term sheets submitted by potential lending sources. The Company is
considering financing options including an asset backed lending facility using the Company’s accounts receivable and inventories
as security, term loans secured with the Company’s real estate and machinery and equipment, sale and leaseback of Company
owned real estate and potential equity financing. Any new financing remains subject to asset appraisals, field exams, financial
projection due diligence, real estate environmental reviews, and other customary legal documentation.
35
Shelf Registration
On November 14, 2017 the Company filed a universal shelf Registration Statement on Form S-3 (the “Registration Statement”)
with the SEC in accordance with the Securities Act of 1933, as amended, which became effective on November 20, 2017. 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, 2019:
Long-term debt(C)
Interest(A)(C)
Operating lease
obligations
Contractual
commitments for
capital expenditures(B)
Post retirement benefits
Total
2020
$ 49,451,000 $
2,740,000
2021
2022
2023
2024 and
after
Total
— $
—
— $
—
— $
—
— $ 49,451,000
2,740,000
—
1,433,000
1,174,000
1,102,000
1,000,000
530,000
5,239,000
336,000
—
—
—
—
336,000
1,233,000
9,160,000
$ 55,193,000 $ 1,644,000 $ 1,599,000 $ 1,519,000 $ 6,971,000 $ 66,926,000
6,441,000
519,000
470,000
497,000
(A) Variable interest rates were as of December 31, 2019.
(B) Includes $158,000 recorded on the balance sheet in accounts payable at December 31, 2019.
(C) The Company has classified all of its long-term debt as current due non-compliance with its debt covenants under the
A/R Credit Agreement and subsequent entry into a Forbearance Agreement with the Lenders. The Company
anticipates restructuring its current outstanding debt by May 29, 2020.
As of December 31, 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
36
on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates
used in the preparation of its consolidated financial statements.
Accounts Receivable Allowances
Management maintains allowances for 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 $50,000 allowance for
doubtful accounts is needed at December 31, 2019 and $25,000 allowance was needed at December 31, 2018. 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 $$476,000 at December 31, 2019 and $$2,344,000 at
December 31, 2018. 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 $898,000
at December 31, 2019 and $957,000 at December 31, 2018.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment and finite-lived intangibles. The Company acquired
substantially all of the assets of Horizon Plastics on January 16, 2018, which resulted in approximately $16,770,000 of finite-
lived intangibles and $12,994,000 of property, plant and equipment, all of which were recorded at fair value. 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, 2019, 2018 and 2017.
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 macroeconomic 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
37
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.
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.
There was impairment of the Company's goodwill in 2019 and 2018 of $4,100,000 and $2,403,000, respectively. There was no
impairment of the Company's goodwill for the year ended December 2017.
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, 2019 and
December 31, 2018 of $1,203,000 and $960,000, 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 13 - Post Retirement Benefits, Core Molding
Technologies had a liability for post retirement healthcare benefits based on actuarially computed estimates of $9,160,000 at
December 31, 2019 and $8,076,000 at December 31, 2018.
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.
38
Certain tooling programs include an enforceable right to payment. In those cases, the Company recognizes revenue over time
based on the extent of progress towards completion of its performance obligation. The Company uses a cost-to-cost measure of
progress for such contracts because it best depicts the transfer of value to the customer and also correlates with the amount of
consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the
customer.
Under the cost-to-cost measure of progress, progress towards completion is measured based on the ratio of costs incurred to date
to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are
incurred.
Income Taxes
The Company evaluates the balance of deferred tax assets that will be realized based on the premise that the Company is more
likely than not to realize deferred tax benefits through the generation of future taxable income. Management 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, 2019 the Company had a deferred tax asset of $5,293,000 of which $3,267,000 is related to tax positions in
the United States, $1,555,000 related to tax positions in Canada and $471,000 related to tax positions in Mexico. During 2019,
the Company recorded a valuation allowance against all deferred tax assets in the United States, due to cumulative losses 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.
Recent Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2016-02, Leases
(Topic 842). This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose
key information about leasing arrangements. This ASU is effective for annual reporting periods beginning on or after December
15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of
an interim or annual period.
In accordance with ASU 2016-02, the Company elected not to recognize lease assets and lease liabilities for leases with a term
of twelve months or less. The ASU requires a modified retrospective transition method, or a transition method option further
described within ASU 2018-11, with the option to elect a package of practical expedients that permits the Company to: (1) not
reassess whether expired or existing contracts contain leases, (2) not reassess lease classification for existing or expired leases
and (3) not consider whether previously capitalized initial direct costs would be appropriate under the new standard. The
Company elected to apply the package of practical expedients.
The Company adopted ASU No. 2016-02 as of January 1, 2019, using the modified retrospective approach. The modified
retrospective approach provides a method for recording existing leases at adoption without restating previously reported periods.
In addition, the Company elected the practical expedients permitted under the transition guidance within the new standard, which
among other things, allowed the Company to carry forward the historical lease classification.
39
In addition, the Company elected the practical expedient to determine the lease term for existing leases. In the application of
practical expedient, the Company evaluated the buildings leased and the current financial performance of the plant associated,
which resulted in the determination that most renewal options would be reasonably certain in determining the expected lease
term.
Adoption of the new standard resulted in the recording of additional net right of use assets and lease liabilities
of $4,490,000 and $4,428,000, respectively, as of January 1, 2019. The present value of lease liabilities has been measured using
the Company’s revolving loan borrowing rates as of December 31, 2018 (one day prior to initial application). Additionally, ROU
assets for these operating leases have been measured as the initial measurement of applicable lease liabilities adjusted for any
unamortized initial prepaid/accrued rent and any ASC Topic 420 liabilities. The standard did not materially impact the Company's
consolidated statement of income (loss) or statement of cash flows.
Current expected credit loss (CECL)
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for
most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and
other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred
loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with
unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be
recognized as an allowance. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments - Credit Losses,” for the purpose of clarifying certain aspects of ASU 2016-13. ASU 2018-
19 has the same effective date and transition requirements as ASU 2016-13. In April 2019, the FASB issued ASU 2019-04,
“Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments,” which is effective with the adoption of ASU 2016-13. In May 2019, the FASB issued ASU 2019-
05, “Financial Instruments - Credit Losses (Topic 326),” which is also effective with the adoption of ASU 2016-13. In 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.
40
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, 2019: (1) Revolving
Loans and the Term Loan under the A/R Credit Agreement which bears 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. To
mitigate risk associated with foreign currency exchange, the Company from time to time will enter into forward contracts to
exchange a fixed amount of U.S. dollars for a fixed amount of Mexican Pesos or Canadian Dollars, which will be used to fund
future Mexican Peso or Canadian Dollar cash flows, see Note 15 - Fair Value of Financial Instruments.
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.
41
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
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Core Molding Technologies, Inc. and Subsidiaries (the
"Company") as of December 31, 2019 and 2018, the related consolidated statements of income (loss), comprehensive income
(loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the
related notes and Schedule II (collectively referred to as the "financial statements"). We also have audited the Company’s internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework:
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.
Explanatory Paragraph - Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company’s current liabilities exceed its current assets as of December 31,
2019 as a result of being under a forbearance agreement with its lenders and not securing alternative financing. These conditions
raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s financial statements and an opinion on the Company’s internal control over financial reporting 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
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
42
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Crowe LLP
We have served as the Company's auditor since 2009.
Columbus, Ohio
March 13, 2020
43
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Income (Loss)
Net sales
Total cost of sales
Gross margin
Selling, general and administrative expense
Goodwill impairment
Total expenses
Years Ended December 31,
2019
2018
2017
$ 284,290,000 $ 269,485,000 $ 161,673,000
262,784,000
242,344,000
137,042,000
21,506,000
27,141,000
24,631,000
28,934,000
4,100,000
33,034,000
27,838,000
2,403,000
30,241,000
16,690,000
—
16,690,000
Operating income (loss)
(11,528,000)
(3,100,000)
7,941,000
Other income and expense
Net periodic post-retirement benefit
Net interest expense
Total other income and expense
(94,000)
4,144,000
4,050,000
(48,000)
2,394,000
2,346,000
(49,000)
245,000
196,000
Income (loss) before income taxes
(15,578,000)
(5,446,000)
7,745,000
Income taxes:
Current
Deferred
Total income taxes
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
705,000
(1,060,000)
1,048,000
(1,712,000)
(355,000)
(664,000)
2,630,000
(344,000)
2,286,000
$ (15,223,000) $
(4,782,000) $
5,459,000
$
$
(1.94) $
(1.94) $
(0.62) $
(0.62) $
0.71
0.70
7,830,000
7,830,000
7,750,000
7,750,000
7,690,000
7,747,000
44
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Other Comprehensive Income (Loss)
Net income (loss)
Other comprehensive income (loss):
Foreign currency hedging derivatives:
Unrealized hedge gain (loss)
Income tax benefit (expense)
Interest rate hedging derivatives:
Unrealized hedge gain (loss)
Income tax benefit (expense)
Years Ended December 31,
2019
$
(15,223,000) $
2018
(4,782,000) $
2017
5,459,000
1,202,000
(286,000)
(452,000)
87,000
5,000
(2,000)
(641,000)
146,000
(65,000)
15,000
—
—
Post retirement benefit plan adjustments:
Net actuarial (loss) gain
Prior service costs
Income tax benefit (expense)
(985,000)
(496,000)
313,000
1,081,000
(496,000)
(123,000)
(268,000)
(496,000)
255,000
Comprehensive income (loss)
$
(15,970,000) $
(4,735,000) $
4,953,000
See notes to consolidated financial statements.
45
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets:
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories:
Raw materials and components
Work in process
Finished goods
Total inventories, net
Contract assets
Foreign sales tax receivable
Prepaid expenses and other current assets
Total current assets
Right of use asset
Property, plant and equipment, net
Deferred tax asset
Goodwill
Intangibles, net
Other non-current assets
Total Assets
Liabilities and Stockholders’ Equity:
Liabilities:
Current liabilities:
Current portion of long-term debt
Current portion of revolving debt
Accounts payable
Contract liabilities
Current portion of post retirement benefits liability
Accrued liabilities:
Compensation and related benefits
Other
Total current liabilities
Lease liability
Long-term debt
Revolving debt
Post retirement benefits liability
Total Liabilities
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock — $0.01 par value, authorized shares - 10,000,000; no shares outstanding
at December 31, 2019 and December 31, 2018
Common stock — $0.01 par value, authorized shares - 20,000,000; outstanding shares:
7,877,945 at December 31, 2019 and 7,776,164 at December 31, 2018
Paid-in capital
Accumulated other comprehensive income, net of income taxes
Treasury stock — at cost, 3,806,355 shares at December 31, 2019 and 3,790,308 shares
at December 31, 2018
Retained earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements.
46
December 31,
2019
2018
$
1,856,000 $
32,424,000
1,891,000
45,468,000
13,041,000
1,818,000
6,823,000
21,682,000
888,000
2,627,000
1,748,000
61,225,000
17,278,000
2,034,000
6,453,000
25,765,000
3,915,000
1,789,000
1,474,000
80,302,000
—
80,657,000
4,484,000
79,206,000
2,026,000
17,376,000
13,464,000
1,525,000
1,153,000
21,476,000
15,413,000
2,197,000
$ 179,306,000 $ 201,198,000
$
37,443,000 $
12,008,000
19,910,000
3,698,000
1,233,000
3,230,000
—
25,450,000
1,686,000
1,157,000
5,515,000
4,027,000
83,834,000
3,119,000
—
—
7,927,000
94,880,000
—
5,154,000
3,514,000
40,191,000
—
37,784,000
17,375,000
6,919,000
102,269,000
—
—
—
79,000
34,772,000
1,370,000
78,000
33,208,000
2,117,000
(28,501,000)
76,706,000
84,426,000
(28,403,000)
91,929,000
98,929,000
$ 179,306,000 $ 201,198,000
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
Common Stock
Outstanding
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Amount
Shares
7,635,093 $ 76,000 $ 30,134,000 $
Treasury
Stock
Retained
Earnings
Total
Stockholders
’
Equity
2,414,000 $ (27,781,000) $ 91,923,000 $ 96,766,000
5,459,000
5,459,000
(786,000)
(19,533)
95,717
1,000
1,331,000
Share-based compensation
Balance at December 31, 2017 7,711,277 $ 77,000 $ 31,465,000 $
Impact of change in accounting
policy
7,711,277 77,000 31,465,000
2,070,000
Balance at January 1, 2017
Net income
Cash dividends paid
Change in post retirement
benefits, net of tax benefit of
$255,000
Unrealized foreign currency
hedge gain, net of tax of
$2,000
Adoption of Accounting
Standards Update 2018-02
Purchase of treasury stock
Restricted stock vested
Balance at January 1, 2018
Net loss
Cash dividends paid
Change in post retirement
benefits, net of tax of
$123,000
Unrealized foreign currency
hedge (loss), net of tax
benefit of $87,000
Change in interest rate swaps,
net of tax benefit of $15,000
Purchase of treasury stock
Restricted stock vested
(17,180)
82,067
1,000
1,743,000
Share-based compensation
Balance at December 31, 2018 7,776,164 $ 78,000 $ 33,208,000 $
Net loss
Change in post retirement
benefits, net of tax benefit of
$313,000
Unrealized foreign currency
hedge gain, net of tax of
$286,000
Change in interest rate swaps,
net of tax benefit of $146,000
Purchase of treasury stock
Restricted stock vested
(16,047)
117,828
1,000
1,564,000
Share-based compensation
Balance at December 31, 2019 7,877,945 $ 79,000 $ 34,772,000 $
See notes to consolidated financial statements.
47
(786,000)
(509,000)
3,000
(509,000)
3,000
162,000
(162,000)
—
(372,000)
(372,000)
1,000
1,331,000
2,070,000 $ (28,153,000) $ 96,434,000 $ 101,893,000
1,069,000
1,069,000
(28,153,000) 97,503,000
(4,782,000)
(792,000)
102,962,000
(4,782,000)
(792,000)
462,000
(365,000)
(50,000)
462,000
(365,000)
(50,000)
(250,000)
(250,000)
1,000
1,743,000
2,117,000 $ (28,403,000) $ 91,929,000 $ 98,929,000
(15,223,000)
(15,223,000)
(1,168,000)
916,000
(495,000)
(1,168,000)
916,000
(495,000)
(98,000)
(98,000)
1,000
1,564,000
1,370,000 $ (28,501,000) $ 76,706,000 $ 84,426,000
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization
Deferred income taxes
Goodwill impairment
Mark-to-market of interest rate swap
Share-based compensation
Loss on foreign currency
Change in operating assets and liabilities, net of effects of
acquisition:
Accounts receivable
Inventories
Prepaid and other assets
Accounts payable
Accrued and other liabilities
Post retirement benefits liability
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of assets of Horizon Plastics
Net cash used in investing activities
Cash flows from financing activities:
Gross borrowings on revolving loans
Gross repayment on revolving loans
Proceeds from term loan
Payment of principal of term loan
Payment of deferred loan costs
Payments related to the purchase of treasury stock
Cash dividends paid
Net cash (used in) provided by financing activities
2019
Years Ended
2018
2017
$ (15,223,000) $
(4,782,000) $ 5,459,000
10,376,000
(873,000)
4,100,000
67,000
1,564,000
33,000
13,044,000
4,083,000
2,587,000
(4,849,000)
3,420,000
(1,628,000)
16,701,000
9,384,000
(1,739,000)
2,403,000
159,000
1,743,000
5,000
6,240,000
(597,000)
—
—
1,331,000
8,000
(17,945,000)
(5,783,000)
(528,000)
7,822,000
3,122,000
(389,000)
(6,528,000)
(295,000)
(2,547,000)
(2,934,000)
5,347,000
(4,719,000)
(381,000)
6,912,000
(7,460,000)
—
(7,460,000)
(5,801,000)
(63,005,000)
(68,806,000)
(4,259,000)
—
(4,259,000)
194,414,000
(199,782,000)
—
(3,375,000)
(435,000)
(98,000)
—
(9,276,000)
133,848,000
(116,473,000)
45,000,000
(10,125,000)
(763,000)
(250,000)
(792,000)
50,445,000
—
—
—
(3,000,000)
—
(372,000)
(786,000)
(4,158,000)
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
(35,000)
(24,889,000)
(1,505,000)
1,891,000
26,780,000
28,285,000
Cash and cash equivalents at end of year
$
1,856,000 $
1,891,000 $ 26,780,000
Cash paid for:
Interest (net of amounts capitalized)
Income taxes
Non Cash:
Fixed asset purchases in accounts payable
See notes to consolidated financial statements.
$
$
$
3,869,000 $
1,284,000 $
2,261,000 $
247,000
1,033,000 $ 2,411,000
158,000 $
871,000 $
278,000
48
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 produces and sells molded products for varied markets, including medium
and heavy-duty trucks, automobiles, marine, construction and other commercial markets. The Company offers customers a wide
range of manufacturing processes to fit various program volume and investment requirements. These processes include
compression molding of sheet molding compound ("SMC"), 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"). As of December 31, 2019, Core
Molding Technologies has its headquarters in Columbus, Ohio, and operates seven production facilities in Columbus and Batavia,
Ohio; Gaffney, South Carolina; Winona, Minnesota; Matamoros and Escobedo, Mexico; and Cobourg, Ontario, Canada. All
produce structural composite 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.
Going Concern - Under FASB ASU 2014-15, “Presentation of Financial Statements - Going Concern,” management is required
to evaluate conditions or events as related to uncertainties that raise substantial doubt about the Company’s ability to continue as
a going concern and to provide related financial disclosures, as applicable. Our consolidated financial statements have been
prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. As further discussed in Note 10 - Debt, as of December 31, 2019, the Company was not in compliance with
the fixed charge coverage ratio requirement under the Company's Amended and Restated Credit Agreement, dated January 16,
2018 (the “A/R Credit Agreement”), with KeyBank National Association as the administrative agent (the "Administrative Agent")
and various other financial institutions thereto as lenders (the "Lenders").
On November 22, 2019, the Company entered into a forbearance agreement (the "Forbearance Agreement") with the Lenders.
Pursuant to the Forbearance Agreement, the Borrowers and the Lenders acknowledged and confirmed that an event of default
occurred under the A/R Credit Agreement resulting from the Borrowers failure to maintain the required Fixed Charge Coverage
Ratio (as defined in the A/R Credit Agreement”) for the fiscal quarter ended September 30, 2019. The Forbearance Agreement
provides that the Administrative Agent and Lenders shall forbear from the exercise of rights and remedies pursuant to the Loan
Documents described in the A/R Credit Agreement through March 13, 2020, as long as the Company satisfies the conditions set
forth in the Forbearance Agreement, including, (i) the Borrowers shall remain current on all loan payments during the forbearance
period, (ii) on or before December 6, 2019, the Administrative Agent and Lenders shall each receive a copy of a report of Huron
Consulting Group containing findings and observations in respect of the businesses and operations of the Company and the
Borrowers shall deliver a strategic alternative assessment in respect of the Borrowers’ operations and financing, (iii) on or before
December 15, 2019, the Administrative Agent and Lenders shall each receive a copy of appraisals of machinery and equipment
and inventory appraisals, and the Borrowers shall have determined and proposed a new capital structure to the Administrative
Agent and Lenders, (iv) on or before February 14, 2020, the Borrowers shall have obtained a definitive, written commitment
49
from involved parties and/or lenders providing the basis for implementation of a new capital structure, and (v) on or before March
13, 2020, the Borrowers shall have closed on a new capital structure, acceptable to the Administrative Agents and Lenders. The
Forbearance Agreement also implemented a new availability block with respect to the U.S. Revolving Loans portion of the A/R
Credit Agreement, reducing availability from $32,500,000 to $28,000,000 and increasing the applicable margin for existing term
and revolving loans, as well as increasing the commitment fees on any unused U.S. Revolving Loans.
On March 13, 2020, the Company entered into the first Amendment to the Forbearance Agreement (the “Amended Forbearance
Agreement”) with the Lenders. Pursuant to the terms of the Amended Forbearance Agreement, the Company and Lenders agreed
to modify certain terms of the Forbearance Agreement and extend the Forbearance Agreement through May 29, 2020. The
modifications include (1) a reduction in the U.S. Revolving Loan to $25,000,000 with an availability block of $5,000,000 which
can be borrowed with the approval of the lenders, (2) a change of interest rate to LIBOR rate plus 650 basis points, (3) forebear
compliance with the leverage covenant and fixed charge covenant through May 29, 2020, and (4) implementation of a capital
expenditure spend limit of $3,500,000 from the effective date of the Amended Forbearance Agreement through May 29, 2020,
(5) an increase in the commitment fees on any unused U.S. Revolving Loans.
The Amended Forbearance Agreement provides that the Administrative Agent and Lenders shall forbear from the exercise of
rights and remedies pursuant to the Loan Documents described in the Credit Agreement through May 29, 2020, as long as the
Company satisfies the conditions set forth in the Amended Forbearance Agreement, including, (i) on or before March 31, 2020,
the borrowers shall have obtained an executed term sheet from involved parties and/or lenders providing the basis for
implementation of a new capital structure and defined due diligence parameters, (ii) on or before May 15, 2020 the Borrowers
shall have obtained an executed definitive, written commitment from the New Lenders to enter into a definitive agreement to
effect the refinancing, and (iii) on or before May 29, 2020, the borrowers shall have closed on a new capital structure.
As a result of the Amended Forbearance Agreement not extending beyond a year, the Company’s remaining long-term debt under
the A/R Credit Agreement, consisting of $49,451,000 in borrowings under the revolving credit commitment and the loan
commitments, was classified as a current liability in the Company’s consolidated balance sheet as of December 31, 2019. As a
result, the Company’s current liabilities exceeded its current assets by $22,609,000 as of December 31, 2019. If the Lenders were
to call the loans or demand repayment of all existing borrowings, this could result in the Company being unable to meet its
working capital obligations.
The Company is evaluating several financing options to refinance some or all of the current obligations under the A/R Credit
Agreement. The Company is considering financing options including an asset backed lending facility using the Company’s
accounts receivable and inventories as security, term loans secured with the Company’s real estate and machinery and equipment,
sale and leaseback of Company owned real estate and potential equity financing. The Company has obtained term sheets as a
result of its marketing efforts and are evaluating alternatives. Any new financing remains subject to asset appraisals, field exams,
financial projection due diligence, real estate environmental reviews, and other customary legal documentation.
While the Company has executed an Amended Forbearance Agreement with existing Lenders, it can not guarantee that all
conditions of the Amended Forbearance Agreement will be met, or predict if the Lenders will exercise their rights and remedies
under the A/R Credit Agreement beyond the term of the Amended Forbearance Agreement. Additionally, since the Company has
no firm commitments for additional financing, there can be no assurances that the Company will be able to secure additional
financing on terms that are acceptable to the Company, or at all. As there can be no assurance that the Company will be able to
successfully implement its refinancing plan, these conditions raise substantial doubt about the Company’s ability to continue as
a going concern within one year after the date the financial statements are issued. The Company's consolidated financial
statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.
Management has been executing on its turnaround plan that started in December of 2018 and has been successful in improving
equipment uptime, improving employee retention and reducing premium freight costs for expediting shipments to customers.
While management believes these improvements have been successful and were the priority of the turnaround plan, operational
efficiency improvements at the plants did not result in the level of financial improvements anticipated for 2019. Higher material
usage and labor variances have impacted earnings and caused us to not meet forecasts established in the first quarter of 2019
50
when the Company entered into the First Amendment. Management remains focused on the operational turnaround and
improving the financial performance of the Company in 2020. Management has, or is in the process of taking, the following
actions to improve financial performance at its operating facilities:
• Reorganized the Company’s leadership through the hiring of a new Chief Executive Officer, Executive Vice President
•
of Operations, and Executive Vice President of Human Resources
Improved operational management team through hiring of new plant managers at several of our plants to provide
stronger leadership
• Developed specific action plans focused on reducing material usage and improving labor productivity
•
Implemented business and financial management systems to monitor performance by plant and drive improvement
through timely identification of operational challenges
• Engaged Huron Consulting Services to evaluate the Company’s turnaround financial projections, review with
management various strategic alternatives that could result in a financing arrangement supported by projected future
performance and serve as the Company’s financial adviser to work through modification or refinancing of the existing
A/R Credit Agreement
• Engaged a third party firm to appraise the Company’s assets in order to assess the financing capacity available from
•
•
•
those assets
Implemented IATF certification process, which is a quality management system that provides for continual
improvement, defect prevention and reduction of variation and waste in manufacturing processes.
Implemented inventory management systems to reduce stock outage events which cause downtime and labor
inefficiency
Implemented customer price increases where margin on product was not meeting profitability targets, and evaluated
relationships with major customers to assess ongoing profitability of those relationships
• Reduced debt outstanding on the revolving line of credit by negotiating improved payment terms with significant
customers
• Established revised commercial terms with Volvo to allow for continued supply of product and rescinded the supply
•
termination notification communicated to Volvo in November 2019
Implemented cost saving measures and actions to align controllable spending and labor workforce to reduced sales
volumes in the current truck market
Implementation of technical training programs specific to the Company’s products and processes
Improved free cash flow through reduction of working capital
•
•
• Utilization of Kaizen techniques, process mapping and multi-functional problem solving teams to improve operational
performance and reduce waste
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 of its performance obligation. The Company uses a cost-to-cost measure of
51
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 two banks in 2 separate jurisdictions. The Company had
$1,856,000 cash on hand at December 31, 2019 and had $1,891,000 on hand at December 31, 2018.
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 $50,000 allowance for doubtful accounts is needed at December 31, 2019 and $25,000 allowance was
needed at December 31, 2018. 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
$476,000 at December 31, 2019 and $2,344,000 at December 31, 2018. 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 $898,000 at December 31, 2019 and $957,000 at December 31, 2018.
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, 2019 and December 31, 2018, the Company recognized
no impairments on contract assets. Contract liabilities are also generally classified as current. The Company recognized revenue
related to contract liabilities. of $1,240,000 at December 31, 2019 and $449,000 at December 31, 2018.
Property, Plant, and Equipment - Property, plant, and equipment are recorded at cost. Depreciation is provided on a straight-
line method over the estimated useful lives of the assets. The carrying amount of long-lived assets is evaluated annually to
determine if adjustment to the depreciation period or to the unamortized balance is warranted.
Ranges of estimated useful lives for computing depreciation are as follows:
Land improvements
20 years
Buildings and improvements
20 - 40 years
Machinery and equipment
Tools, dies and patterns
3 - 15 years
3 - 5 years
Depreciation expense was $8,187,000, $7,361,000 and $6,190,000 for the years ended December 31, 2019, 2018 and 2017,
respectively.
52
Long-Lived Assets - Long-lived assets consist primarily of property, plant and equipment and finite-lived intangibles. The
Company acquired substantially all of the assets of Horizon Plastics on January 16, 2018, which resulted in approximately
$16,770,000 of finite-lived intangibles and $12,994,000 of property, plant and equipment, all of which were recorded at fair
value. 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, 2019, 2018 and 2017.
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.
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.
There was no impairment of the Company's goodwill for the year ended December 2017.
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 12 - 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
53
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,
2019 and December 31, 2018 of $1,203,000 and $960,000, 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 13 - Post
Retirement Benefits. Core Molding Technologies had a liability for post retirement healthcare benefits based on actuarially
computed estimates of $9,160,000 at December 31, 2019 and $8,076,000 at December 31, 2018.
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 15 - 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 four major customers during 2019, Navistar, Volvo, PACCAR, 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 four major customers comprised 62%, 65% and 65% of total sales in
2019, 2018 and 2017, respectively (see Note 4 - Major Customers). Concentrations of accounts receivable balances with four
customers accounted for 49% and 64% of accounts receivable at December 31, 2019 and 2018, 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 34%, 32% and 36% of total sales for 2019, 2018 and 2017,
respectively.
As of December 31, 2019, the Company employed a total of 1,821 employees, which consisted of 764 employees in its United
States operations, 795 employees in its Mexican operations and 262 employees in its Canadian operation. Of these 1,821
employees, 341 are covered by a collective bargaining agreement with the International Association of Machinists and Aerospace
Workers (“IAM”), which extends to August 7, 2022, and 635 are covered by a collective bargaining agreement with Sindicato de
Jorneleros y Obreros, which extends to December 31, 2019. Additionally, 216 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 35 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, 2020 and an extension is currently being negotiated.
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. 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
$1,171,000, $1,032,000 and $848,000 in 2019, 2018 and 2017.
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.
54
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 a gain of $229,000, $88,000 and $30,000 in 2019, 2018 and 2017,
respectively.
Recent Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2016-02, Leases
(Topic 842). This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose
key information about leasing arrangements. This ASU is effective for annual reporting periods beginning on or after December
15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of
an interim or annual period.
In accordance with ASU 2016-02, the Company elected not to recognize lease assets and lease liabilities for leases with a term
of twelve months or less. The ASU requires a modified retrospective transition method, or a transition method option further
described within ASU 2018-11, with the option to elect a package of practical expedients that permits the Company to: (1) not
reassess whether expired or existing contracts contain leases, (2) not reassess lease classification for existing or expired leases
and (3) not consider whether previously capitalized initial direct costs would be appropriate under the new standard. The
Company elected to apply the package of practical expedients.
The Company adopted ASU No. 2016-02 as of January 1, 2019, using the modified retrospective approach. The modified
retrospective approach provides a method for recording existing leases at adoption without restating previously reported periods.
In addition, the Company elected the practical expedients permitted under the transition guidance within the new standard, which
among other things, allowed the Company to carry forward the historical lease classification.
In addition, the Company elected the practical expedient to determine the lease term for existing leases. In the application of
practical expedient, the Company evaluated the buildings leased and the current financial performance of the plant associated,
which resulted in the determination that most renewal options would be reasonably certain in determining the expected lease
term.
Adoption of the new standard resulted in the recording of additional net right of use assets and lease liabilities
of $4,490,000 and $4,428,000, respectively, as of January 1, 2019. The present value of lease liabilities has been measured using
the Company’s revolving loan borrowing rates as of December 31, 2018 (one day prior to initial application). Additionally, ROU
assets for these operating leases have been measured as the initial measurement of applicable lease liabilities adjusted for any
unamortized initial prepaid/accrued rent and any ASC Topic 420 liabilities. The standard did not materially impact the Company's
consolidated statement of income (loss) or statement of cash flows.
Current expected credit loss (CECL)
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for
most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and
other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred
loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with
unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be
recognized as an allowance. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments - Credit Losses,” for the purpose of clarifying certain aspects of ASU 2016-13. ASU 2018-
19 has the same effective date and transition requirements as ASU 2016-13. In April 2019, the FASB issued ASU 2019-04,
“Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments,” which is effective with the adoption of ASU 2016-13. In May 2019, the FASB issued ASU 2019-
05, “Financial Instruments - Credit Losses (Topic 326),” which is also effective with the adoption of ASU 2016-13. In October
2019, the FASB voted to delay the implementation date for certain companies, including those that qualify as a smaller reporting
55
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.
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 Company is currently in a net loss position and is therefore not required to present the two-class
method; however, in the event the Company is in a net income position, the two-class method must be applied by allocating all
earnings during the period to common shares and restricted shares.
The computation of basic and diluted net income (loss) per common share is as follows:
December 31,
Net income (loss)
Weighted average common shares outstanding —
basic
Effect of dilutive securities
Weighted average common and potentially issuable
common shares outstanding — diluted
2019
2018
$ (15,223,000) $ (4,782,000) $ 5,459,000
2017
7,830,000
7,750,000
—
—
7,690,000
57,000
7,830,000
7,750,000
7,747,000
Basic net income (loss) per common share
Diluted net income (loss) per common share
$
$
(1.94) $
(1.94) $
(0.62) $
(0.62) $
0.71
0.70
56
4. Major Customers
The Company had four major customers during 2019, Navistar, Volvo, PACCAR, 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. The loss of a significant portion of sales to Navistar, Volvo, PACCAR, or UFP would 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
Navistar tooling sales
Total Navistar sales
Volvo product sales
Volvo tooling sales
Total Volvo sales
PACCAR product sales
PACCAR tooling sales
Total PACCAR sales
UFP product sales
UFP tooling sales
Total UFP sales
Other product sales
Other tooling sales
Total other sales
Total product sales
Total tooling sales
Total sales
2019
2018
$ 54,798,000 $ 52,347,000 $ 39,609,000
159,000
39,768,000
2,806,000
55,153,000
2,084,000
56,882,000
2017
48,487,000
262,000
48,749,000
44,543,000
1,525,000
46,068,000
25,395,000
—
25,395,000
95,764,000
11,432,000
107,196,000
46,063,000
97,000
46,160,000
38,027,000
6,425,000
44,452,000
27,906,000
240,000
28,146,000
91,874,000
3,700,000
95,574,000
27,627,000
8,089,000
35,716,000
26,481,000
2,932,000
29,413,000
—
—
—
54,906,000
1,870,000
56,776,000
268,987,000
15,303,000
148,623,000
13,050,000
$ 284,290,000 $ 269,485,000 $ 161,673,000
256,217,000
13,268,000
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
Mexico
Canada
Other
Total
2019
178,953,000 $
79,761,000
16,988,000
8,588,000
284,290,000 $
2018
181,207,000 $
74,029,000
12,494,000
1,755,000
269,485,000 $
2017
103,513,000
52,496,000
5,664,000
—
161,673,000
$
$
57
The following table provides information related to the location of property, plant and equipment, net, as of December 31:
United States
Mexico
Canada
Total
2019
39,132,000 $
31,865,000
8,209,000
79,206,000 $
2018
37,778,000
34,155,000
8,724,000
80,657,000
$
$
6. Property, Plant, and Equipment
Property, plant, and equipment consisted of the following at December 31:
Land and land improvements
Buildings
Machinery and equipment
Tools, dies, and patterns
Additions in progress
Total
Less accumulated depreciation
Property, plant and equipment, net
2019
6,009,000 $
43,375,000
118,366,000
1,516,000
1,615,000
170,881,000
(91,675,000)
79,206,000 $
2018
6,009,000
43,042,000
108,661,000
1,419,000
5,014,000
164,145,000
(83,488,000)
80,657,000
$
$
Additions in progress at December 31, 2019 and 2018 relate to building improvements and equipment purchases that were not
yet completed and placed in service at year end. 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. At December 31, 2018, commitments for
capital expenditures in progress were $3,461,000, and included $871,000 recorded on the balance sheet in accounts payable.
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 two years to five years, some of which include options to extend the lease
for six years. Operating leases are included in operating lease right-of-use ("ROU") assets and operating lease 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 components of lease expense were as follows:
Operating lease cost
Total net lease cost
December 31, 2019
1,430,000
1,430,000
$
$
58
Other supplemental balance sheet information related to leases was as follows:
Operating lease:
Current operating lease right of use assets
Noncurrent operating lease right of use assets
Total operating lease right of use assets
Current operating lease liabilities (A)
Noncurrent operating lease liabilities
Total operating lease liabilities
$
$
$
$
Weighted average remaining lease term (in years):
Operating leases
Weighted average discount rate:
Operating lease
December 31, 2019
—
4,484,000
4,484,000
December 31, 2019
1,304,000
3,119,000
4,423,000
4.0
4.9%
(A) Current operating lease liability included in "Other Accrued Liabilities" on the Consolidated Balance Sheet.
Other information related to leases were as follows:
Cash Paid for amounts included in the measurement of lease liabilities
Operating cash flow from operating leases (B)
$
1,455,000
(B)Cash flow from operating lease included in "Prepaid and other assets" on the Consolidated Statements of Cash
Flows.
December 31, 2019
As of December 31, 2019, maturities of lease liabilities were as follows:
$
2020
2021
2022
2023
2024
Total lease payments
Less:imputed interest
Total lease obligations
Less:current obligations
Long-term lease obligations
$
Operating Leases
1,433,000
1,174,000
1,102,000
1,000,000
530,000
5,239,000
(816,000)
4,423,000
(1,304,000)
3,119,000
59
As of December 31, 2018, maturities of lease liabilities were as follows:
$
2019
2020
2021
2022
2023
2024 and Thereafter
Total minimum lease payments
$
Operating Leases
1,291,000
1,099,000
838,000
766,000
661,000
331,000
4,986,000
8. Horizon Plastics Acquisition
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 specified liabilities of
Horizon Plastics for a cash purchase of $62,457,000. The purchase price was subject to working capital adjustments resulting in
an increase in the purchase price of $548,000.
The acquisition was funded through a combination of cash on hand and borrowings under the Amended and Restated Credit
Agreement ("A/R Credit Agreement"), further described in Note 10 - Debt, entered into with KeyBank National Association as
Administrative Agent and various other financial institutions on January 16, 2018.
The purpose of the acquisition was to increase the Company's structural composite process capabilities to include structural foam
and structural web molding, expand its geographical footprint, and diversify the Company's customer base.
Consideration was allocated to assets acquired and liabilities assumed based on their fair values as of the acquisition date as
follows:
Accounts Receivable
$
Inventory
Other Current Assets
Property and Equipment
Intangibles
Goodwill
Accounts Payable
Other Current Liabilities
$
7,677,000
6,523,000
832,000
12,994,000
16,770,000
21,476,000
(3,181,000)
(86,000)
63,005,000
The purchase price included consideration for strategic benefits, including an assembled workforce, operational infrastructure
and synergistic revenue opportunities, which resulted in the recognition of goodwill. The goodwill is deductible for income tax
purposes.
The company incurred $1,289,000 and $596,000 of expense in 2018 and 2017, respectively, associated with the acquisition,
which is recorded in selling, general and administrative expense.
60
The amount allocated to intangible assets has been attributed to the following categories and will be amortized over the useful
lives of each individual asset identified on a straight-line basis as follows:
Acquired Intangible Assets
Estimated Fair Value Estimated Useful Life (Years)
Non-competition Agreement
Trademarks
Developed Technology
Customer Relationships
Total
$
$
1,810,000
1,610,000
4,420,000
8,930,000
16,770,000
5
10
7
12
Pro Forma Information
The unaudited pro forma information for the combined results of the Company has been prepared as if the 2018 acquisitions had
taken place on January 1, 2017. The unaudited pro forma information is not necessarily indicative of the results that we would
have achieved had the transactions actually taken place on January 1, 2017 and the unaudited pro forma information does not
purport to be indicative of future financial operating results.
Net revenue
Net income (loss)
Pro forma for the year ended
December 31,
2018
2017
$ 272,153,000 $ 222,015,000
8,121,000
(3,788,000 )
Net income (loss) per common share:
Basic
Diluted
(0.49 )
(0.49 )
1.06
1.05
The unaudited pro forma net income includes the following adjustments that would have been recorded had the 2018
acquisition taken place on January 1, 2017.
Pro forma for the year ended
December 31,
Depreciation expense
Amortization expense
Interest (income) expense
$
2018
55,000 $
78,000
(208,000 )
Non-recurring transaction costs
Income tax expense (benefit)
(1,289,000 )
253,000
2017
50,000
1,876,000
1,705,000
(596,000)
(880,000)
61
9. Goodwill and Intangibles
Goodwill activity for the year ended December 31, 2019 and December 31, 2018 consisted of the following:
Balance at beginning of year
Additions
Impairment
Balance at end of year
2019
21,476,000 $
—
(4,100,000)
17,376,000 $
2018
2,403,000
21,476,000
(2,403,000)
21,476,000
$
$
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 decrease in margin in its Horizon
Plastics reporting unit caused by selling price decreases that the Company has not yet 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 the Core
Traditional and Horizon Plastics 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. The analysis of the Company’s other reporting unit,
Horizon Plastics, indicated no goodwill impairment charge 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.
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
Trademarks
Non-competition Agreement
Developed Technology
Customer Relationships
Total
25 Years
10 Years
5 Years
7 Years
10-12 Years
$
$
250,000 $
1,610,000
1,810,000
4,420,000
9,330,000
17,420,000 $
(48,000) $
(315,000)
(709,000)
(1,237,000)
(1,647,000)
(3,956,000) $
202,000
1,295,000
1,101,000
3,183,000
7,683,000
13,464,000
Intangible assets at December 31, 2018 were comprised of the following:
Definite-lived Intangible Assets Amortization Period
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Trade Name
Trademarks
Non-competition Agreement
Developed Technology
Customer Relationships
Total
25 Years
10 Years
5 Years
7 Years
10-12 Years
250,000 $
1,610,000
1,810,000
4,420,000
9,330,000
17,420,000 $
(38,000) $
(154,000)
(347,000)
(605,000)
(863,000)
(2,007,000) $
212,000
1,456,000
1,463,000
3,815,000
8,467,000
15,413,000
$
$
62
The aggregate intangible asset amortization expense was $1,949,000 for the year ended December 31, 2019 and amortization
expense is expected to be same each year through the year ended December 31, 2022 and $1,587,000 for the year ended December
31, 2023. The Company incurred $1,869,000 and $50,000 amortization expense for the years ended December 31, 2018 and
2017, respectively.
As of December 31, 2019, future intangible amortization were as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total intangibles as of December 31, 2019
$
Amortization Expense
1,949,000
1,949,000
1,949,000
1,602,000
1,587,000
4,428,000
13,464,000
10. Debt
Long-term debt consists of the following at:
Term loans payable, interest at a variable rate (6.30% and 4.34% at December
31, 2019 and 2018, respectively) with monthly payments of interest and
quarterly payments of principal through January 2023.
Revolving loans, interest at a variable rate (6.04% and 4.39% at December
31, 2019 and 2018, respectively)
Total
Less deferred loan costs
Less current portion
Long-term debt
December 31,
2019
December 31,
2018
$
38,250,000
$
41,625,000
12,008,000
50,258,000
(807,000)
(49,451,000)
$
— $
17,375,000
59,000,000
(611,000)
(3,230,000)
55,159,000
Credit Agreement
On January 16, 2018, the Company entered into an Amended and Restated Credit Agreement ("A/R Credit Agreement") with
KeyBank National Association as administrative agent (the "Administrative Agent") and various financial institutions party
thereto as lenders (the "Lenders"). Pursuant to the terms of the A/R Credit Agreement (i) the Company may borrow revolving
loans in the aggregate principal amount of up to $40,000,000 (the “U.S. Revolving Loans”) from the Lenders and term loans in
the aggregate principal amount of up to $32,000,000 from the Lenders, (ii) the Company's wholly-owned subsidiary, Horizon
Plastics International, Inc., (the "Subsidiary") may borrow revolving loans in an aggregate principal amount of up to
$10,000,000 from the Lenders (which revolving loans shall reduce the availability of the U.S. Revolving Loans to the Company
on a dollar-for-dollar basis) and term loans in an aggregate principal amount of up to $13,000,000 from the Lenders, (iii) the
Company obtained a Letter of Credit Commitment of $250,000, of which $160,000 has been issued and (iv) the Company repaid
the outstanding term loan balance of $6,750,000. The A/R Credit Agreement is secured by a guarantee of each U.S. and Canadian
subsidiary of the Company, and by a lien on substantially all of the present and future assets of the Company and its U.S. and
Canadian subsidiaries, except that only 65% of the stock issued by Corecomposites de Mexico, S. de R.L. de C.V. has been
pledged.
Concurrent with the closing of the A/R Credit Agreement the Company borrowed the $32,000,000 term loan and $2,000,000 from
the U.S. Revolving loan and the Subsidiary borrowed the $13,000,000 term loan and $2,500,000 from revolving loans to provide
$49,500,000 of funding for the acquisition of Horizon Plastics.
63
On March 14, 2019, the Company entered into the first amendment (“First Amendment”) to the A/R Credit Agreement with the
Lenders. Pursuant to the terms of the First Amendment, the Company and Lenders agreed to modify certain terms of the A/R
Credit Agreement. These modifications included (1) implementation of an availability block on the U.S. Revolving Loans
reducing availability from $40,000,000 to $32,500,000, (2) modification to the definition of EBITDA to add back certain one-
time expenses, (3) waiver of non-compliance with the leverage covenant as of December 31, 2018 and modification of the
leverage ratio definition and covenant to eliminate testing of the leverage ratio until December 31, 2019, (4) waiver of non-
compliance with the fixed charge covenant as of December 31, 2018 and modification of the fixed charge coverage ratio definition
and covenant requirement, (5) implementation of a capital expenditure spend limit of $7,500,000 during the first six months of
2019 and $12,500,000 for the full year 2019, (6) an increase of the applicable interest margin spread for existing term and
revolving loans, and (7) an increase in the commitment fees on any unused U.S. Revolving Loans.
On November 22, 2019, the Company entered into a forbearance agreement (the "Forbearance Agreement") with the Lenders.
Pursuant to the Forbearance Agreement, the Borrowers and the Lenders acknowledged and confirmed that an event of default
occurred under the A/R Credit Agreement resulting from the Borrowers failure to maintain the required Fixed Charge Coverage
Ratio (as defined in the A/R Credit Agreement”) for the fiscal quarter ended September 30, 2019. The Forbearance Agreement
provides that the Administrative Agent and Lenders shall forbear from the exercise of rights and remedies pursuant to the Loan
Documents described in the A/R Credit Agreement through March 13, 2020, as long as the Company satisfies the conditions set
forth in the Forbearance Agreement, including, (i) the Borrowers shall remain current on all loan payments during the forbearance
period, (ii) on or before December 6, 2019, the Administrative Agent and Lenders shall each receive a copy of a report of Huron
Consulting Group containing findings and observations in respect of the businesses and operations of the Company and the
Borrowers shall deliver a strategic alternative assessment in respect of the Borrowers’ operations and financing, (iii) on or before
December 15, 2019, the Administrative Agent and Lenders shall each receive a copy of appraisals of machinery and equipment
and inventory appraisals, and the Borrowers shall have determined and proposed a new capital structure to the Administrative
Agent and Lenders, (iv) on or before February 14, 2020, the Borrowers shall have obtained a definitive, written commitment
from involved parties and/or lenders providing the basis for implementation of a new capital structure, and (v) on or before March
13, 2020, the Borrowers shall have closed on a new capital structure, acceptable to the Administrative Agents and Lenders. The
Forbearance Agreement also implemented a new availability block with respect to the U.S. Revolving Loans portion of the A/R
Credit Agreement, reducing availability from $32,500,000 to $28,000,000 and increasing the applicable margin for existing term
and revolving loans, as well as increasing the commitment fees on any unused U.S. Revolving Loans.
On March 13, 2020, the Company entered into the first Amendment to the Forbearance Agreement (the “Amended Forbearance
Agreement”) with the Lenders. Pursuant to the terms of the Amended Forbearance Agreement, the Company and Lenders agreed
to modify certain terms of the Forbearance Agreement and extend the Forbearance Agreement through May 29, 2020. The
modifications include (1) a reduction in the U.S. Revolving Loan to $25,000,000 with an availability block of $5,000,000 which
can be borrowed with the approval of the lenders, (2) a change of interest rate to LIBOR rate plus 650 basis points, (3) forebear
compliance with the leverage covenant and fixed charge covenant through May 29,2020, and (4) implementation of a capital
expenditure spend limit of $3,500,000 from the effective date of the Amended Forbearance Agreement through May 29, 2020.
The Amended Forbearance Agreement provides that the Administrative Agent and Lenders shall forbear from the exercise of
rights and remedies pursuant to the Loan Documents described in the Credit Agreement through May 29, 2020, as long as the
Company satisfies the conditions set forth in the Amended Forbearance Agreement, including, (i) on or before March 31, 2020,
the borrowers shall have obtained an executed term sheet from involved parties and/or lenders providing the basis for
implementation of a new capital structure and defined due diligence parameters, (ii) on or before May 15, 2020 the Borrowers
shall have obtained an executed definitive, written commitment from the New Lenders to enter into a definitive agreement to
effect the refinancing, and (iii) on or before May 29, 2020, the borrowers shall have closed on a new capital structure.
As a result of the Amended Forbearance Agreement not extending beyond a year, the Company’s remaining long-term debt under
the A/R Credit Agreement, consisting of $49,451,000 in borrowings under the revolving credit commitment and the loan
commitments, was classified as a current liability in the Company’s consolidated balance sheet as of December 31, 2019. As a
result, the Company’s current liabilities exceeded its current assets by $22,609,000 as of December 31, 2019. If the Lenders were
to call the loans or demand repayment of all existing borrowings, this could result in the Company being unable to meet its
working capital obligations.
64
Term Loans
The $45,000,000 Term Loans were used to finance the acquisition of Horizon Plastics. This commitment has fixed quarterly
principal payments payable over a five-year period. Borrowings made pursuant to these loans bear interest, payable monthly at
30 day LIBOR plus a basis point margin spread from 225 to 450 based on the Company's leverage ratio and was set at 450 basis
points as of December 31, 2019.
Revolving Loans
The Company has available $28,000,000 of variable rate revolving loans of which $12,008,000 is outstanding as
of December 31, 2019. These revolving loans are scheduled to mature in January 2023, and are classified as current on the balance
sheet. Borrowings made on the revolving loans bear interest, payable monthly at 30 day LIBOR plus a basis point margin spread
from 225 to 450 based on the Company's leverage ratio and was set at 450 basis points as of December 31, 2019.
Annual maturities of long-term debt are as follows:
2020
$
49,451,000
Interest Rate Swaps
The Company entered into two interest rate swap agreements that became effective January 18, 2018 and continue through
January 2023, one of which was designated as a cash flow hedge for $25,000,000 of the $32,000,000 term loan to the Company
mentioned above and the other designated as a cash flow hedge for $10,000,000 of the $13,000,000 term loan to the Subsidiary
mentioned above. Under these agreements, the Company pays a fixed rate of 2.49% to the counterparty and receives 30 day
LIBOR for both cash flow hedges. The fair value of the interest rate swaps was a liability of $706,000 and $65,000
at December 31, 2019 and 2018, respectively. While the Company is exposed to credit loss on its interest rate swaps in the event
of non-performance by the counter party to the swap, management believes that such non-performance is unlikely to occur given
the financial resources of the counter party.
Bank Covenants
The Company is required to meet certain financial covenants included in the A/R Credit Agreement with respect to leverage
ratios, fixed charge ratios and capital expenditures. As of December 31, 2019, the Company was in default with its fixed charge
coverage and leverage ratio covenants associated with the loans made under the A/R Credit Agreement as described above. As a
result of this default the Company and the Administrative Agent on behalf of the Lenders entered into a Forbearance Agreement
to address the non-compliance and establish milestones for the Company related to restructuring of its existing debt. Effective
March 13, 2020, the Company entered into an Amended Forbearance Agreement to modify existing and establish new milestones.
Management is pursuing the restructuring or refinancing of its existing obligations under the A/R Credit Agreement. The
Company has engaged Huron Transactional Advisor's to facilitate a full marketing processes for refinancing the A/R Credit
Agreement. Management and Huron are evaluating term sheets submitted by potential lending sources. The Company is
considering financing options including an asset backed lending facility using the Company’s accounts receivable and inventories
as security, term loans secured with the Company’s real estate and machinery and equipment, sale and leaseback of Company
owned real estate and potential equity financing. Any new financing remains subject to asset appraisals, field exams, financial
projection due diligence, real estate environmental reviews, and other customary legal documentation.
11. 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 744,697.
65
Restricted stock granted under the 2006 Plan typically require the individuals receiving the grants to maintain certain common
stock ownership thresholds and 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 requiring 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 during the years ended December 31:
2019
2018
2017
Unvested - beginning of year
Granted
Vested
Forfeited
Unvested - end of year
Number
of
Shares
349,885 $
135,268
(117,828)
(23,406)
343,919 $
Wtd. Avg.
Grant Date
Fair Value
10.62
7.65
13.81
15.02
9.37
Number
of
Shares
141,095 $
315,429
(82,067)
(24,572)
349,885 $
Wtd. Avg.
Grant Date
Fair Value
16.79
11.32
16.57
16.91
10.62
Number
of
Shares
158,261 $
84,643
(95,717)
(6,092)
141,095 $
Wtd. Avg.
Grant Date
Fair Value
14.55
19.17
15.25
17.93
16.79
At December 31, 2019 and 2018, there was $1,923,000 and $2,598,000, 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 1.8 years. Total compensation expense related to restricted stock grants for the years ended December 31, 2019, 2018 and 2017
was $1,379,000, $1,774,000 and $1,331,000, respectively, and is recorded as selling, general and administrative expense.
During 2017, the Company adopted Accounting Standards Update 2016-09, Compensation - Stock Compensation. The new
standard provided for changes to accounting for stock compensation, including excess tax benefits and tax deficiencies related to
share based payment awards to be recognized in income tax expense in the reporting period in which they occurred. Tax benefits
and tax deficiencies before this update were recorded as an increase or decrease in additional paid in capital. Tax benefits and
deficiencies for the years ended December 31, 2019, 2018 and 2017 were a deficiency of $110,000, a deficiency of $33,000 and
a benefit of $126,000, respectively.
During 2019, 2018 and 2017, employees surrendered 16,047, 17,180 and 19,533 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 year ended December 31, 2019 is as follows:
66
Outstanding as of December 31, 2018
Granted
Exercised
Forfeited
Outstanding at the period ended December 31, 2019
Exercisable at the period ended December 31, 2019
Number of
Shares
Weighted Average
Grant Date
Fair Value
— $
226,021
—
(3,909)
222,112 $
29,028 $
—
2.57
—
2.57
2.57
2.57
The average remaining contractual term for those SARs outstanding at December 31, 2019 is 4.3 years, with no aggregate intrinsic
value. At December 31, 2019 and 2018, there was $386,000 and $0, 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 2.3
years.
Total compensation cost related to SARs for the twelve months ended December 31, 2019 and 2018 was $185,000 and $0,
respectively, all of which was recorded to selling, general and administrative expense.
12. Income Taxes
Components of the provision for income taxes are as follows:
2019
2018
2017
Current:
Federal - US
Foreign
State and local
Deferred:
Federal
Foreign
State and local
$
— $
11,000 $
685,000
20,000
705,000
1,023,000
14,000
1,048,000
738,000
(1,824,000)
26,000
(1,355,000)
(289,000)
(68,000)
(1,060,000)
(1,712,000)
Provision (benefit) for income taxes
$
(355,000) $
(664,000) $
1,993,000
613,000
24,000
2,630,000
(407,000)
52,000
11,000
(344,000)
2,286,000
67
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 US federal statutory rate
Adjustments for US tax law changes
Valuation allowance
Effect of foreign taxes
Adoption of ASC 606
State and local tax expense
Other
Provision (benefit) for income taxes
2019
2018
$
(3,274,000) $
(1,145,000) $
—
3,267,000
(209,000)
—
(102,000)
(37,000)
(355,000) $
—
—
213,000
236,000
(54,000)
86,000
(664,000)
$
2017
2,634,000
(185,000)
—
(58,000)
—
35,000
(140,000)
2,286,000
The Tax Cuts and Jobs Act (“the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate income
tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that
were previously tax deferred, created new taxes on certain foreign sourced earnings, provided for acceleration of business asset
expensing, and reduced the amount of executive pay that may qualify as a tax deduction, among other changes. FASB ASC 740
required the recognition of the effects of tax law changes in 2017.
During 2017, the Company recorded a net benefit charge related to the re-measurement of the deferred tax balance of $484,000.
Additionally, the Company recorded a provisional charge related to the transition tax, net of estimated foreign tax credits, of
$299,000.
The Company records excess tax benefits and tax deficiencies related to share based payment awards in income tax expense in
the reporting period in which they occurred. Tax benefits and deficiencies for the years ended December 31, 2019, 2018 and
2017 were a deficiency of $110,000 and $33,000 and a benefit of $126,000, respectively.
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, 2019 the Company had a deferred tax asset of $5,293,000 of which $3,267,000 is related to tax positions in
the United States, $1,555,000 related to tax positions in Canada and $471,000 related to tax positions in Mexico. During 2019,
the Company recorded a valuation allowance against all deferred tax assets in the United States, due to cumulative losses 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.
68
Deferred tax assets consist of the following at December 31:
Current asset (liability):
Net operating loss carryforwards
$
Interest limitation carryforwards
Accrued liabilities
Accounts receivable
Inventory
Other, net
Total current asset
2019
2018
4,928,000 $
686,000
477,000
108,000
587,000
(190,000)
6,596,000
456,000
394,000
568,000
521,000
525,000
(446,000)
2,018,000
Non-current asset (liability):
Property, plant, and equipment
Post retirement benefits
Goodwill and finite-lived assets, net
Other, net
Total non-current liability
(5,580,000)
2,090,000
1,973,000
214,000
(1,303,000)
Valuation allowance for deferred tax assets
Total deferred tax asset (liability), net
(3,267,000) $
2,026,000 $
$
(3,941,000)
1,848,000
994,000
234,000
(865,000)
—
1,153,000
At December 31, 2019, the Company had estimated net operating loss carryforwards and interest limitation carryforwards in the
U.S. federal jurisdiction of $17,994,000 and $3,120,000, respectively. Both carryforwards do not expire. At December 31, 2019,
the Company had estimated net operating loss carryforwards in Canada of $5,772,000, of which $2,116,000 can be carried back
to prior years. The remaining $3,656,000 expire in the year 2039.
At December 31, 2019 and 2018 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 U.S. federal jurisdiction, Mexico, Canada and various state and local jurisdictions.
The Company is not subject to U.S. federal and state income tax examinations by tax authorities for the years before 2016, not
subject to Mexican income tax examinations by Mexican authorities for the years before 2014 and not subject to Canadian income
tax examinations by Canadian authorities for the years before 2018.
13. 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.
69
•
•
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, 2019 and
2018 is outlined in the table below. The most recent Pension Protection Act ("PPA") zone status available in 2019 and 2018 is
for the plan’s year-end at December 31, 2018, and December 31, 2017, respectively. 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.
Pension Fund
EIN/Pension
Plan Number
IAM National Pension Fund /
National Pension Plan (A)
51-6031295 - 002
Pension Protection
Act Zone Status
2019
2018
Red
as of
12/31/18
Green
as of
12/31/17
FIP/RP
Status
Pending/
Implemented
Contributions of the
Company
2019
2018
Surcharge
Imposed
Expiration
Date of
Collective
Bargaining
Agreement
Implemented $971,000 $760,000
Yes
8/7/2022
Total Contributions: $971,000 $760,000
(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, 2018. 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.
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 2019, 2018 and 2017, and will result in
net periodic benefit cost reductions of approximately $496,000 in 2020 and each year thereafter during the amortization period.
70
The funded status of the Company's post retirement health and life insurance benefits plan as of December 31, 2019 and 2018
and reconciliation with the amounts recognized in the consolidated balance sheets are provided below:
Change in benefit obligation:
Benefit obligation at January 1
Interest cost
Unrecognized loss (gain)
Benefits paid, net
Benefit obligation at December 31
Plan Assets
Amounts recorded in accumulated other comprehensive
income:
Prior service credit
Net loss
Total
Weighted-average assumptions as of December 31:
Discount rate used to determine benefit obligation and net
periodic benefit cost
Post Retirement Benefits
2019
2018
$
8,076,000
285,000
1,099,000
(300,000)
9,160,000
$
9,050,000
277,000
(910,000)
(341,000)
8,076,000
—
—
(5,610,000) $
3,634,000
(1,976,000) $
(6,106,000)
2,652,000
(3,454,000)
2.9%
4.0%
$
$
$
$
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
Defined contribution plans
Total pension expense
Health and life insurance:
Interest cost
Amortization of prior service costs
Amortization of net loss
Net periodic benefit cost
Total post retirement benefits expense
2019
2018
2017
$
971,000 $
760,000 $
1,258,000
2,229,000
1,059,000
1,819,000
647,000
752,000
1,399,000
285,000
(496,000)
117,000
(94,000)
2,135,000 $
277,000
(496,000)
171,000
(48,000)
1,771,000 $
298,000
(496,000)
149,000
(49,000)
1,350,000
$
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, 2019, the
Company recognized a net actuarial loss of $1,099,000 and for the year ended December 31, 2018 recognized a net actuarial gain
of $910,000, both of which were recorded in accumulated other comprehensive income.
Amounts not yet recognized as a component of net periodic benefit costs at December 31, 2019 and 2018 were a net credit of
$1,976,000 and $3,454,000, respectively. The amount in accumulated other comprehensive income expected to be recognized
as components of net periodic post retirement cost during 2020 consists of a prior service credit of $496,000 and a net loss of
$181,000. In addition, 2020 interest expense related to post retirement healthcare is expected to be $237,000, for a total post
retirement healthcare net gain of approximately $78,000 in 2020. The Company expects benefits paid in 2020 to be consistent
with estimated future benefit payments as shown in the table below.
71
The weighted average rate of increase in the per capita cost of covered health care benefits is projected to be 6.0%. The rate is
projected to decrease gradually to 5.0% by the year 2025 and remain at that level thereafter. The comparable assumptions for
the prior year were 6.2% 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:
Effect on total of service and interest cost components
Effect on post retirement benefit obligation
$
$
1- Percentage
Point Increase
1-Percentage
Point Decrease
39,000 $
1,169,000 $
(33,000 )
(997,000 )
The estimated future benefit payments of the health care plan for the next ten years are as follows:
Year
$
2020
2021
2022
2023
2024
2025 - 2029
Postretirement
Health Care
Benefits Plan
1,233,000
470,000
497,000
519,000
496,000
2,438,000
14. 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.
15. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in a transaction between
market participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation
methodologies as defined in the authoritative literature. This guidance provides a fair value framework that requires the
categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities.
Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.
The three levels are defined as follows:
Level 1 - Quoted prices in active markets for identical assets and liabilities.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active and model-derived valuations, in which all significant inputs are observable in
active markets.
Level 3 - Significant unobservable inputs reflecting management's own assumptions about the inputs used in pricing
the asset or liability.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt, interest
rate swaps and foreign currency derivatives. Cash and cash equivalents, accounts receivable and accounts payable carrying values
as of December 31, 2019 and December 31, 2018 approximate fair value due to the short-term maturities of these financial
instruments. The carrying amounts of long-term debt and the revolving line of credit approximate fair value as of December 31,
72
2019 and December 31, 2018 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 and December 31, 2018 relating to the Company’s interest rate swaps
and foreign currency derivatives.
Derivative and hedging activities
Foreign currency derivatives
The Company conducted business in foreign countries and paid certain expenses in foreign currencies; therefore, the Company
was 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 will be used to
fund future foreign currency cash flows. At inception, all forward contracts are formally documented as cash flow hedges and
are 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 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, 2019, the Company had no ineffective portion related to the cash flow hedges.
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 pays 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. See Note 10 - 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
Notional contract values
Interest rate swaps
Other non-current assets
Notional swap values
$
452,000
15,358,000
$
—
—
Accrued liabilities other $
—
—
Other non-current
liabilities
706,000
$ 29,750,000
As of December 31, 2019, the Company had foreign exchange contracts related to the Mexican Peso and the Candian Dollar with
exchange rates ranging from 19.53 to 20.58 and 1.32, respectively
73
The following tables detail amounts related to our derivatives designated as hedging instruments as of December 31, 2018:
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
Notional contract values
Interest rate swaps
Other non-current assets
Notional swap values
—
—
—
—
Accrued liabilities other $
750,000
$ 27,588,000
Other non-current
liabilities
65,000
$
$ 32,375,000
As of December 31, 2018, the Company had foreign exchange contracts related to the Mexican Peso and the Canadian Dollar
with exchange rates ranging from 19.52 to 20.47 and 1.28 to 1.33, 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, 2019, 2018 and 2017:
Derivatives in
subtopic 815-20
Cash Flow
Hedging
Relationship
Amount of Unrealized Gain or
(Loss) Recognized in Accumulated
other Comprehensive Income on
Derivative
2019
2018
2017
Location of Gain or
(Loss) Reclassified
from Accumulated
Other Comprehensive
Income(A)
Amount of Realized Gain or (Loss)
Reclassified from Accumulated
Other Comprehensive Income
2019
2018
2017
Foreign exchange
contracts
$1,499,000 $(385,000) $517,000
Cost of goods sold
$272,000
$68,000
$445,000
Selling, general and
administrative expense
$25,000
$—
$67,000
Interest rate swaps
$(708,000) $(223,000)
$—
Interest Expense
$(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.
Non-recurring fair value measurements
See Note 8- Horizon Plastics Acquisition, for non-recurring fair value measurements for the year ended December 31, 2018.
16. 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, 2019 and 2018:
74
2018:
Balance at January 1, 2018
Other comprehensive income before
reclassifications
Amounts reclassified from accumulated other
comprehensive income
Income tax (expense) benefit
Balance at December 31, 2018
$
(612,000) $
Hedging
Derivative
Activities
Post
Retirement
Benefit Plan
Items(A)
Total
$
(197,000) $
2,267,000 $
2,070,000
(608,000)
910,000
302,000
91,000
102,000
(325,000)
(234,000)
(123,000)
2,729,000 $
(21,000)
2,117,000
2019:
Balance at January 1, 2019
Other comprehensive income before
reclassifications
Amounts reclassified from accumulated other
comprehensive income
Income tax (expense) benefit
$
(612,000) $
2,729,000 $
2,117,000
791,000
(1,102,000)
(311,000)
(230,000)
(140,000)
(379,000)
313,000
1,561,000 $
(609,000)
173,000
1,370,000
Balance at December 31, 2019
$
(191,000) $
(A) The effect of post-retirement benefit items reclassified from Accumulated Other Comprehensive Income is included in
total cost of sales on the Consolidated Statements of Income. These Accumulated Other Comprehensive Income
components are included in the computation of net periodic benefit cost (see Note 13 - 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 Income.
75
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2019, 2018 and
2017.
2019:
Product sales
Tooling sales
$
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Net income (loss) per common share:
$
Basic (1)
$
Diluted (1)
2018:
Product sales
Tooling sales
$
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Net income (loss) per common share:
$
Basic (1)
$
Diluted (1)
2017:
Product sales
Tooling sales
Net sales
Gross margin
Operating income
Net income
Net income per common share:
Basic (1)
Diluted (1)
$
$
$
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Year
71,451,000 $
815,000
72,266,000
3,149,000
(4,017,000)
(3,845,000)
75,440,000 $ 67,511,000 $
5,807,000
81,247,000
8,491,000
1,267,000
209,000
7,144,000
74,655,000
6,484,000
(4,657,000)
(6,125,000)
54,585,000 $ 268,987,000
15,303,000
1,537,000
284,290,000
56,122,000
21,506,000
3,382,000
(11,528,000)
(4,121,000)
(15,223,000)
(5,462,000)
(0.49) $
(0.49) $
0.03 $
0.03 $
(0.78) $
(0.78) $
(0.69 ) $
(0.69 ) $
(1.94)
(1.94)
59,712,000 $
3,334,000
63,046,000
7,885,000
1,125,000
518,000
65,225,000 $ 62,305,000 $
3,376,000
68,601,000
7,897,000
1,418,000
445,000
2,371,000
64,676,000
4,862,000
(1,487,000)
(1,803,000)
68,975,000 $ 256,217,000
13,268,000
4,187,000
269,485,000
73,162,000
27,141,000
6,497,000
(4,156,000)
(3,100,000)
(4,782,000)
(3,942,000)
0.07 $
0.07 $
0.06 $
0.06 $
(0.23) $
(0.23) $
(0.51 ) $
(0.51 ) $
(0.62)
(0.62)
36,336,000 $
410,000
36,746,000
6,479,000
2,554,000
1,688,000
36,794,000 $ 37,593,000 $
10,574,000
47,368,000
7,341,000
3,173,000
2,162,000
901,000
38,494,000
5,752,000
1,394,000
855,000
37,900,000 $ 148,623,000
13,050,000
1,165,000
161,673,000
39,065,000
24,631,000
5,059,000
7,941,000
820,000
5,459,000
754,000
0.22 $
0.22 $
0.28 $
0.28 $
0.11 $
0.11 $
0.10 $
0.10 $
0.71
0.70
(1) Sum of the quarters may not sum to total year due to rounding.
76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the
design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon
this evaluation, the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, concluded
that the Company’s disclosure controls and procedures were (i) effective to ensure that information required to be disclosed in
the Company’s reports filed or submitted under the Exchange Act were accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures, and (ii) effective to ensure that information required to be disclosed in the Company’s reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive
Officer and Chief Financial Officer and effected by the Company’s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial
statements in accordance with accounting principles generally accepted in the United States of America. Because of its inherent
limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the
Company’s financial statements would be prevented or detected.
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of the Company’s internal controls over financial reporting based on the criteria established in the
2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). This evaluation included a review of the documentation of controls, evaluation of the design effectiveness of controls,
testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management
concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019.
The Company's independent registered public accounting firm, Crowe LLP, audited our internal control over financial reporting
as of December 31, 2019, as stated in their report in the section entitled "Report of Independent Registered Public Accounting
Firm" included elsewhere in this Form 10-K, which expressed an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting as of December 31, 2019.
Changes In Internal Controls
There were no changes in internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and
Rule 15d-15(f)) that occurred in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
77
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Part III, Item 10 is incorporated by reference from the Company’s definitive proxy statement
for its annual meeting of stockholders to be held on or about May 14, 2020, which is expected to be filed with the SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Part III, Item 11 is incorporated by reference from the Company’s definitive proxy statement
for its annual meeting of stockholders to be held on or about May 14, 2020, which is expected to be filed with the SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Part III, Item 12 is incorporated by reference from the Company’s definitive proxy statement
for its annual meeting of stockholders to be held on or about May 14, 2020, which is expected to be filed with the SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Part III, Item 13 is incorporated by reference from the Company’s definitive proxy statement
for its annual meeting of stockholders to be held on or about May 14, 2020, which is expected to be filed with the SEC pursuant
to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year covered by this report.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Part III, Item 14 is incorporated by reference from the Company’s definitive proxy statement
for its annual meeting of stockholders to be held on or about May 14, 2020, 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.
78
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as Part of this Report:
(1) Financial Statements
See Part II, Item 8 hereof.
(2) Financial Statement Schedules and Independent Auditor's Report
The following consolidated financial statement schedules are filed with this Annual Report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts and Reserves for the Years Ended December 31,
2019, 2018, and 2017
81
All other schedules are omitted because of the absence of the conditions under which they are required.
(3) Exhibits
See Index to Exhibits filed with this Annual Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CORE MOLDING TECHNOLOGIES, INC.
By
/s/ David L. Duvall
David L. Duvall
President and Chief Executive Officer
March 13, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
/s/ David L. Duvall
David L. Duvall
/s/ John P. Zimmer
John P. Zimmer
*
President, Chief Executive Officer, and Director
(Principal Executive Officer)
March 13, 2020
Vice President, Secretary, Treasurer, and Chief
Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
March 13, 2020
James L. Simonton
Director
March 13, 2020
*
Thomas R. Cellitti
Director
March 13, 2020
*
James F. Crowley
Director
March 13, 2020
*
Ralph O. Hellmold
Director
March 13, 2020
*
Matthew Jauchius
Director
March 13, 2020
*
Andrew O. Smith
Director
March 13, 2020
*By /s/ John P. Zimmer
John P. Zimmer
Attorney-In-Fact
March 13, 2020
80
Core Molding Technologies, Inc. and Subsidiaries
Schedule II
Consolidated valuation and qualifying accounts and reserves for the years ended December 31, 2019, 2018 and 2017.
Reserves deducted from asset to which it applies:
Allowance for Doubtful Accounts
Additions
Balance at
Beginning of
Year
(Recovered)/C
harged to
Costs &
Expenses
Charged to
Other
Accounts
Deductions (A)
Balance at End
of Year
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
$
$
$
25,000 $
— $
— $
4,000 $
25,000 $
— $
36,000 $
— $
— $
15,000 $
— $
— $
50,000
25,000
—
Customer Chargeback Allowance
Additions
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
$
$
$
(Recovered)/C
harged to
Costs &
Expenses
Balance at
Beginning of
Year
2,344,000 $
857,000 $
309,000 $
Charged to
Other
Accounts
Deductions (B)
Balance at End
of Year
1,316,000 $
2,639,000 $
981,000 $
— $
— $
— $
3,184,000 $
1,152,000 $
433,000 $
476,000
2,344,000
857,000
(A) Amount represents uncollectible accounts written off.
(B) Amount represents customer returns and deductions, discounts and price adjustments accepted.
81
Exhibit No.
2(a)(1)
2(a)(2)
2(b)(1)
2(b)(2)
2(c)
2(d)
2(e)
3(a)(1)
3(a)(2)
3(a)(3)
3(a)(4)
3(a)(5)
3(b)(1)
3(b)(2)
4(a)(1)
INDEX TO EXHIBITS
Description
Location
Asset Purchase Agreement Dated as of September 12,
1996, As amended October 31, 1996, between
Navistar and RYMAC Mortgage Investment
Corporation1
Second Amendment to Asset Purchase Agreement
dated December 16, 19961
Incorporated by reference to Exhibit 2-A to
Registration Statement on Form S-4 (Registration No.
333-15809)
Incorporated by reference to Exhibit 2(a)(2) to
Annual Report on Form 10-K for the year-ended
December 31, 2001
Agreement and Plan of Merger dated as of November
1, 1996, between Core Molding Technologies, Inc.
and RYMAC Mortgage Investment Corporation
Incorporated by reference to Exhibit 2-B to
Registration Statement on Form S-4 (Registration No.
333-15809)
First Amendment to Agreement and Plan of Merger
dated as of December 27, 1996 Between Core
Molding Technologies, Inc. and RYMAC Mortgage
Investment Corporation
Asset Purchase Agreement dated as of October 10,
2001, between Core Molding Technologies, Inc. and
Airshield Corporation
Asset Purchase Agreement dated as of March 20,
2015, between Core Molding Technologies, Inc. and
CPI Binani, Inc.
Asset Purchase Agreement dated as of January 16,
2018 between 1137952 B.C. Ltd., Horizon Plastics
International, Inc., 1541689 Ontario Inc., 2551024
Ontario Inc., Horizon Plastics de Mexico, S.A. de
C.V., and Brian Read
Incorporated by reference to Exhibit 2(b)(2) to
Annual Report on Form 10-K for the year ended
December 31, 2002
Incorporated by reference to Exhibit 1 to Form 8-K
filed October 31, 2001
Incorporated by reference to Exhibit 2.1 to Form 8-K
filed March 23, 2015
Incorporate by reference to Exhibit 2.1 to Current
Report on Form 8-K filed January 19, 2018
Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the Secretary of State
of Delaware on October 8, 1996
Incorporated by reference to Exhibit 4(a) to
Registration Statement on Form S-8 (Registration No.
333-29203)
Certificate of Amendment of Certificate of
Incorporation of Core Molding Technologies, Inc. as
filed with the Secretary of State of Delaware on
November 6, 1996
Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of State of
Delaware on August 28, 2002
Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock as filed
with the Secretary of State of Delaware on July 18,
2007
Certificate of Elimination of the Series A Junior
Participant Preferred Stock as filed with the Delaware
Sec. of State on April 2, 2015
Incorporated by reference to Exhibit 4(b) to
Registration Statement on Form S-8 (Registration No.
333-29203)
Incorporated by reference to Exhibit 3(a)(4) to
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002
Incorporated by reference to Exhibit 3.1 to Form 8-K
filed July 19, 2007
Incorporated by reference to Exhibit 3(a)(5) to
Form 8-K filed April 2, 2015
Amended and Restated By-Laws of Core Molding
Technologies, Inc.
Incorporated by reference to Exhibit 3.1 to Current
Report on Form 8-K filed January 4, 2008
Amendment No. 1 to the Amended and Restated By-
Laws of Core Molding Technologies, Inc.
Certificate of Incorporation of Core Molding
Technologies, Inc. as filed with the Secretary of State
of Delaware on October 8, 1996
Incorporated by reference to Exhibit 3.1 to Current
Report on Form 8-K filed December 17, 2013
Incorporated by reference to Exhibit 4(a) to
Registration Statement on Form S-8 (Registration
No. 333-29203)
82
Exhibit No.
4(a)(2)
4(a)(3)
4(a)(4)
4(a)(5)
10(a)
10(b)
10 (b)(1)
10 (b)(2)
10 (b)(3)
10(c)
10(d)
Description
Location
Certificate of Amendment of Certificate of Incorporation of
Core Molding Technologies, Inc. as filed with the Secretary
of State of Delaware on November 6, 1996
Incorporated by reference to Exhibit 4(b) to
Registration Statement on Form S-8
(Registration No. 333-29203)
Certificate of Amendment of Certificate of Incorporation as
filed with the Secretary of State of Delaware on August 28,
2002
Incorporated by reference to Exhibit 3(a)(4) to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002
Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock as filed with the
Secretary of State of Delaware on July 18, 2007
Certificate of Elimination of the Series A Junior Participant
Preferred Stock as filed with the Delaware Sec. of State on
April 2, 2015
Incorporated by reference to Exhibit 3.1 to Form
8-K filed July 19, 2007
Incorporated by reference to Exhibit 3(a)(5) to
Form 8-K filed April 2, 2015
Supply Agreement, dated August 4, 2014 between Core
Molding Technologies, Inc. and Core Composites
Corporation and Navistar, Inc.3
Incorporated by reference to Exhibit 10(a) to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 2014
Amended and Restated Credit Agreement, dated as of
January 16, 2018, among Core Molding Technologies, Inc.,
1137925 B.C. Ltd., the lenders named therein, KeyBank
National Association and KeyBanc Capital Markets Inc.
First Amendment to A/R Credit Agreement, dated as of
March 14, 2019, among Core Molding Technologies, Inc.,
Horizon Plastics International Inc., KeyBank National
Association and the lenders named therein.
Forbearance Agreement, dated as of November 22, 2019,
March 14, 2019, among Core Molding Technologies, Inc.,
Horizon Plastics International Inc., the lenders named
therein, KeyBank National Association and Core
Composites Corporation
First Amendment to Forbearance Agreement, dated as of
March 13, 2020, among Core Molding Technologies, Inc.,
Horizon Plastics International Inc., the lenders named
therein, KeyBank National Association and Core
Composites Corporation
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed January 19,
2018
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed March 18,
2019
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed November
27, 2019
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed March 13,
2020
Reimbursement Agreement, dated April 1, 1998, by and
between Core Molding Technologies, Inc. and KeyBank
National Association
Incorporated by reference to Exhibit 10(h) to
Annual Report on Form 10-K for the year ended
December 31, 2003
Core Molding Technologies, Inc. Employee Stock Purchase
Plan2
10(d)(1)
2002 Core Molding Technologies, Inc. Employee Stock
Purchase Plan (as amended May 17, 2006) 2
Incorporated by reference to Exhibit 4(c) to
Registration Statement on Form S-8
(Registration No. 333-60909).
Incorporated by reference to Exhibit 10.3 to
Current Report on Form 8-K dated May 23,
2006
10(e)
10(e)(1)
10(f)
10(g)
Letter Agreement Regarding Terms and Conditions of
Interest Rate Swap Agreement between KeyBank National
Association and Core Molding Technologies, Inc.
Letter Agreement Regarding Terms and Conditions of
Interest Rate Swap Agreement between KeyBank National
Association and Core Molding Technologies, Inc.
Incorporated by reference to Exhibit 10(j) to
Annual Report on Form 10-K for the year ended
December 31, 2003
Incorporated by reference to Exhibit 10(i)(1) to
Annual Report on Form 10-K for the year ended
December 31, 2008
2006 Core Molding Technologies, Inc. Long Term Equity
Incentive Plan as amended and restated effective May 12,
20172
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated May 15,
2017
Core Molding Technologies, Inc. Executive Cash Incentive
Plan2
Incorporated by reference to Exhibit A to
Definitive Proxy Statement on Schedule 14A,
dated April 8, 2016
83
10(h)
10(i)
10(j)
10(k)
10(l)
10(o)
11
21
23
24
31(a)
31(b)
32(a)
32(b)
101.INS
Exhibit No.
Description
Location
Form of Amended and Restated Executive Severance
Agreement between Core Molding Technologies, Inc. and
certain executive officers2
Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated December
29, 2008
Form of Amended and Restated Restricted Stock Agreement
between Core Molding Technologies, Inc. and certain
executive officers2
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated January 4,
2008
Form of Executive Severance Agreement between Core
Molding Technologies, Inc. and certain executive officers2
Form of Restricted Stock Agreement between Core Molding
Technologies, Inc. and certain executive officers2
Form of Award for Stock Appreciation Rights between Core
Molding Technologies, Inc. and certain executive officers
Form of Executive Employment Agreement, dated October
3, 2018, between David L. Duvall and Core Molding
Technologies, Inc.
Computation of Net Income per Share
Incorporated by reference to Exhibit 10.4 to
Current Report on Form 8-K dated May 23,
2006
Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated May 15,
2012
Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed May 20, 2019
Incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed November 16,
2018.
Exhibit 11 omitted because the required
information is Included in Notes to Financial
Statements in Part II, Item 8 of this Annual
Report on Form 10-K
List of Subsidiaries
Consent of Crowe LLP
Powers of Attorney
Section 302 Certification by David L. Duvall, President,
Chief Executive Officer, and Director
Filed Herein
Filed Herein
Filed Herein
Filed Herein
Section 302 Certification by John P. Zimmer, Vice President,
Secretary, Treasurer, and Chief Financial Officer
Filed Herein
Certification of David L. Duvall, Chief Executive Officer of
Core Molding Technologies, Inc., dated March 13, 2020,
pursuant to 18 U.S.C. Section 1350
Certification of John P. Zimmer, Chief Financial Officer of
Core Molding Technologies, Inc., dated March 13, 2020,
pursuant to 18 U.S.C. Section 1350
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Filed Herein
Filed Herein
Filed Herein
Filed Herein
Filed Herein
Filed Herein
Filed Herein
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Filed Herein
1. The Asset Purchase Agreement, as filed with the Securities and Exchange Commission at Exhibit 2-A to Registration
Statement on Form S-4 (Registration No. 333-15809), omits the exhibits (including, the Buyer Note, Special Warranty Deed,
Supply Agreement, Registration Rights Agreement and Transition Services Agreement, identified in the Asset Purchase
Agreement) and schedules (including, those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase Agreement.
Core Molding Technologies, Inc. will provide any omitted exhibit or schedule to the Securities and Exchange Commission
upon request.
84
2.
Indicates management contracts or compensatory plans that are required to be filed as an exhibit to this Annual Report on
Form 10-K.
3. Certain portions of this Exhibit have been omitted intentionally subject to a confidentiality treatment request. A complete
version of the Exhibit has been filed separately with the Securities and Exchange Commission.
85