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Critical Accounting Policy (Notes) | 9 Months Ended
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Sep. 30, 2019
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | 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. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions 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. 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 12 - Debt, as of September 30, 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"). As a result of this violation, the Company is in negotiations with the Administrative Agent to enter into a forbearance agreement to address the non-compliance and establish milestones related to restructuring or refinancing its existing debt. The Company continues to have the ability to draw on the revolving line of credit while it is negotiating a forbearance agreement with the Administrative Agent. However, though it is not anticipated, until an agreement between the Company and the Lenders under the A/R Credit Agreement is in effect, the Lenders may terminate their funding and demand repayment of all amounts outstanding under the A/R Credit Agreement. Accordingly, the Company’s remaining long-term debt under the A/R Credit Agreement, consisting of $59,037,000 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 September 30, 2019. As a result, the Company’s current liabilities exceeded its current assets by $19,739,000 as of September 30, 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. Management is pursuing the restructuring or refinancing of its existing obligations under the A/R Credit Agreement. The Company is evaluating several financing options with multiple providers 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 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 advisor to work through a potential modification of the existing A/R Credit Agreement. The Company has engaged a third party firm to appraise the Company’s assets in order to assess the financing capacity available from those assets. The Company has obtained term sheets for new financing from several potential financers. Any new financing remains subject to asset appraisals, field exams, financial projection due diligence, real estate environmental reviews, and other customary legal documentation. The Company is working to implement alternative financing or execute an amendment to the A/R Credit Agreement within a time period acceptable to its existing Lenders. While the Company is working with the existing lenders to enter into a forbearance agreement, it can not guarantee the parties will be able to reach mutually agreeable terms, or predict if the Lenders will exercise their rights and remedies under the A/R Credit Agreement beyond the term of any 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. 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 have not resulted in the level of financial improvements anticipated. Higher material usage and labor variances have impacted earnings and caused us to not meet forecasts established in the first quarter of 2019 when the Company entered into the First Amendment to the A/R Credit Agreement. Management has, or is in the process of taking, the following actions to improve financial performance at its operating facilities:
• | 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
• | Implementation of IATF certification process
• | 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. On November 15, 2019 the Company 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. Sales to Volvo amounted to approximately 17%, 22%, and 29% of total sales for 2018, 2017, and 2016, respectively and 18% of sales through the nine-months ended September 30, 2019.
• | Implemented cost saving measures and actions to align controllable spending and labor workforce to reduced sales volumes in the current truck market
Revenue Recognition: The Company recognizes 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 title and risk of ownership to the customer and is entitled to payment. In limited circumstances, the Company recognizes revenue from product sales when products are produced and the customer takes title and risk of ownership at the Company's production facility. Tooling revenue is earned from manufacturing tools, molds and assembly equipment as part of a tooling program for a customer. Given that the Company is providing a significant service of producing highly interdependent component parts of the tooling program, each tooling program consists of a single performance obligation to provide the customer the capability to produce a single product. Based on the arrangement with the customer, the Company recognizes revenue either at a point in time or over time. When the Company does not have an enforceable right to payment, the Company recognizes tooling revenue at a point in time. In such cases, the Company recognizes revenue upon customer acceptance, which is when the customer has legal title to the tools. Certain tooling programs include an enforceable right to payment. In those cases, the Company recognizes revenue over time based on the extent of progress towards completion of its performance obligation. The Company uses a cost-to-cost measure of progress for such contracts because it best depicts the transfer of value to the customer and also correlates with the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. Under the cost-to-cost measure of progress, progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. Accounts Receivable Allowances: Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company recorded an allowance for doubtful accounts of $51,000 and $25,000 at September 30, 2019 and December 31, 2018, respectively. Management also records an allowance for estimated customer chargebacks for returns, price discounts and adjustments, premium freight and expediting costs and customer production line disruption costs resulting from late deliveries. At times, customers have asserted a right to significant production line disruption charges to recover damages as a result of late delivery. The Company typically works with its customers to minimize disruption charges, validate damages and negotiate resolution. The Company records accruals for customer chargebacks when a valid charge is probable and the amount of the charge can be reasonably estimated. Should customer chargebacks fluctuate from the estimated amounts, additional allowances may be necessary. The Company reduced accounts receivable for chargebacks by $1,034,000 at September 30, 2019 and $2,344,000 at December 31, 2018. 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 $836,000 at September 30, 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. The Company has recorded contract assets of $1,061,000 at September 30, 2019, and $3,915,000 at December 31, 2018. The Company records contract assets in prepaid expenses and other current assets on the Consolidated Balance Sheet. During the nine months ended September 30, 2019, the Company recognized no impairments on contract assets. The Company has recorded contract liabilities of $1,344,000 at September 30, 2019 and $1,686,000 at December 31, 2018. The Company records contract liabilities in accrued other liabilities on the Consolidated Balance Sheet. For the nine months ended September 30, 2019, the Company did not recognize a material amount of revenue to settle contract liabilities. Income Taxes: The Company evaluates the balance of deferred tax assets that will be realized based on the premise that the Company is more likely than not to realize deferred tax benefits through the generation of future taxable income. Management makes assumptions, judgments, and estimates to determine our current and deferred tax provision and also the deferred tax assets and liabilities. The Company evaluates provisions and deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available evidence. As of September 30, 2019 the Company had a gross deferred tax asset of $3,689,000 of which $1,904,000 is related to tax positions in the United States and $1,395,000 related to tax positions in Canada and $390,000 related to tax positions in Mexico. At September 30 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 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. Derivative Instruments: Derivative instruments are utilized to manage exposure to fluctuations in foreign currency exchange rates and interest rates on long term debt obligations. All derivative instruments are formally documented as cash flow hedges and are recorded at fair value at each reporting period. Gains and losses related to currency forward contracts and interest rate swaps are deferred and recorded as a component of Accumulated Other Comprehensive Income in the Consolidated Statement of Stockholders' Equity and then subsequently recognized on the Consolidated Statement of Income when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge, if any, is recognized in income immediately. For additional information on derivative instruments, see Note 15. Long-Lived Assets: Long-lived assets consist primarily of property, plant and equipment and definite-lived intangibles. The recoverability of long-lived assets is evaluated by an analysis of operating results and consideration of other significant events or changes in the business environment. The Company evaluates whether impairment exists for property, plant and equipment on the basis of undiscounted expected future cash flows from operations before interest. There was no impairment of the Company's long-lived assets for the nine months ended September 30, 2019 or September 30, 2018. Goodwill and Other Intangibles: The Company evaluates goodwill annually on December 31 to determine whether impairment exists, or at interim periods if an indicator of possible impairment exists. 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. The Company’s annual impairment assessment at December 31, 2018 consisted of a quantitative analysis for both its 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, 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 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 at December 31, 2018. 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. Self-Insurance: The Company is self-insured with respect to its Columbus and Batavia, Ohio, Gaffney, South Carolina, Winona, Minnesota and Brownsville, Texas medical, dental and vision claims and Columbus and Batavia, Ohio 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, vision and worker’s compensation claims incurred but not reported at September 30, 2019 and December 31, 2018 of $1,096,000 and $960,000, respectively. Post-retirement Benefits: Management records an accrual for post-retirement costs associated with the health care plan sponsored by Core Molding Technologies. Should actual results differ from the assumptions used to determine the reserves, additional provisions may be required. In particular, increases in future healthcare costs above the assumptions could have an adverse effect on Core Molding Technologies’ operations. The effect of a change in healthcare costs is described in Note 12 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. Core Molding Technologies had a liability for post retirement healthcare benefits based on actuarially computed estimates of $8,063,000 at September 30, 2019 and $8,076,000 at December 31, 2018.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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