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Critical Accounting Policy (Notes) | 6 Months Ended
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Jun. 30, 2020
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates, due to the uncertainty around the magnitude and duration of the COVID-19 pandemic, as well as other factors. 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 11, "Debt", as of June 30, 2020, the Company was not in compliance with the leverage and fixed charge coverage ratio requirements 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 provided 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. See additional detail in Note 11, "Debt". On March 13, 2020, the Company amended the Forbearance Agreement and entered into the First Amendment to the Forbearance Agreement (the “First Amended Forbearance Agreement”) with the Lenders. The First Amended Forbearance Agreement provided 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 May 29, 2020, as long as the Company satisfies the conditions set forth in the First Amended Forbearance Agreement. See additional detail in Note 11, "Debt". As a result of the COVID-19 pandemic several of the Company’s major customers suspended operations during April and May 2020 due to reduced demand and the impact of government regulations and mandates. Potential new lenders required Company’s customers to resume operations before proceeding with refinancing. On May 29, 2020, the Company amended the First Amended Forbearance Agreement and entered into the Second Amendment to the Forbearance Agreement (the “Second Amended Forbearance Agreement”) with the Lenders. The Second Amended Forbearance Agreement provided 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 September 30, 2020, as long as the Company satisfies the conditions set forth in the Amended Forbearance Agreement. See additional detail in Note 11, "Debt". As a result of non-compliance with the A/R Credit Agreement, the Company’s remaining borrowings under the A/R Credit Agreement, consisting of $36,000,000 in borrowings under the revolving credit commitment and the loan commitments, were classified as a current liability in the Company’s consolidated balance sheet as of June 30, 2020. As a result, the Company’s current liabilities exceeded its current assets by $12,345,000 as of June 30, 2020. 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 has executed term sheets with new lenders to obtain financing to refinance the A/R Credit Agreement. Closing of the new financing is subject to normal closing conditions including completion of business and legal due diligence, asset appraisals, environmental reports, negotiated loan documents, and final credit committee approval. While the Company has executed term sheets, the Company will not have firm commitments until the completion of all closing conditions and therefore there can be no assurances that the Company will be able to secure additional financing. As there can be no assurance that the Company will be able to close its new financing, substantial doubt exists as to 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 implemented an operational turnaround plan starting in December of 2018 and successfully improved operational performance including improved equipment uptime, improved employee retention and reduced premium freight costs for expediting shipments to customers. Even with the negative effects of the COVID-19 pandemic reductions in sales and partial shutdown of operations, the Company’s financial results for the six months ended June 30, 2020 reflect the operational improvements implemented in 2019 as the Company returned to operational profitability. Management believes that the operational turnaround is complete and is now focused on continuous improvement and operational excellence. Management has made, or is in the process of making, the following continuous improvement actions which will further improve financial performance at its operating facilities:
• | Implemented quality management systems that provide for continual improvement, defect prevention and reduction of variation and waste in manufacturing processes
• | Improved inventory management systems to reduce stock outage events which cause downtime and labor inefficiency
• | Implemented the improved mold and waterjet fixture change procedures to reduce production equipment downtime.
• | Conducted value add/value engineer projects with customers to remove waste from the operating process and reduce cost
• | Implementation of focused problem solving to improve quality and reduce scrap costs
• | Implemented cost saving measures and actions to align controllable spending and labor workforce to reduced sales volumes in the current market as a result of the COVID-19 pandemic
• | Implemented technical training programs specific to the Company’s products and processes
• | Improved free cash flow through improved terms with customers and vendors
• | Utilized the Kaizen techniques, process mapping and multi-functional problem solving teams to improve operational performance and reduce waste
The Company’s improved operational performance and free cash flows has resulted in a reduction of borrowings under the A/R Credit Agreement for the six months ended June 30, 2020 of $14,258,000. The Company has a tax receivable of $5,688,000 as of June 30, 2020, due to tax law changes made by the Coronavirus Aid Relief and Economic Security Act (the "CARES Act") which will allow the Company to carryback tax net operating losses. (See Note 12, "Income Taxes") The Company has completed the required filing with the Internal Revenue Service to claim the tax refund and expects to receive the payment prior to September 30, 2020. The funds from the utilization of the net operating losses will provide additional financial resources for the Company to operate the business and refinance its existing debt. 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 control to the customer and is entitled to payment upon shipment. In certain circumstances, the Company recognizes revenue from product sales when products are produced and the customer takes control at our production facility. Tooling revenue is earned from manufacturing multiple tools, molds and assembly equipment as part of a tooling program for a customer. Given that the Company is providing a significant service of producing highly interdependent component parts of the tooling program, each tooling program consists of a single performance obligation to provide the customer the capability to produce a single product. Based on the arrangement with the customer, the Company recognizes revenue either at a point in time or over time. When the Company does not have an enforceable right to payment, the Company recognizes tooling revenue at a point in time. In such cases, the Company recognizes revenue upon customer acceptance, which is when the customer has legal title to the tools. Certain tooling programs include an enforceable right to payment. In those cases, the Company recognizes revenue over time based on the extent of progress towards completion of its performance obligation. The Company uses a cost-to-cost measure of progress for such contracts because it best depicts the transfer of value to the customer and also correlates with the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. Under the cost-to-cost measure of progress, progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. 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 $109,000 and $50,000 at June 30, 2020 and December 31, 2019, 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 $148,000 at June 30, 2020 and $476,000 at December 31, 2019. 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 $823,000 at June 30, 2020 and $898,000 at December 31, 2019. Contract Assets/Liabilities: Contract assets and liabilities represent the net cumulative customer billings, vendor payments and revenue recognized for tooling programs. For tooling programs where net revenue recognized and vendor payments exceed customer billings, the Company recognizes a contract asset. For tooling programs where net customer billings exceed revenue recognized and vendor payments, the Company recognizes a contract liability. Customer payment terms vary by contract and can range from progress payments based on work performed or one single payment once the contract is completed. The Company has recorded contract assets of $61,000 as of June 30, 2020and $888,000 at December 31, 2019. Contract assets are generally classified as current within prepaid expenses and other current assets on the Consolidated Balance Sheets. During the six months ended June 30, 2020, the Company recognized no impairments on contract assets. For the six months ended June 30, 2020, the Company recognized $729,000 amount of revenue from contract liabilities outstanding as of December 31, 2019. Income Taxes: The Company’s Consolidated Balance Sheets include a net non-current deferred tax asset of $2,026,000 for the Canadian and Mexican tax jurisdictions and a net non-current deferred tax liability of $517,000 for the U.S. tax jurisdiction at June 30, 2020. 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. For more information, refer to Note 12, "Income Taxes", of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. 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 (Loss) in the Consolidated Statement of Stockholders' Equity and then subsequently recognized in the Consolidated Statement of Income (Loss) when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge, if any, is recognized in income. For additional information on derivative instruments, see Note 14, "Fair Value of Financial Instruments". 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 six months ended June 30, 2020 or June 30, 2019. 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. 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. There were no indicators of impairment for the six months ended June 30, 2020 that would trigger additional analysis; however, should the Company experience a prolonged suspension of operations due to COVID-19, the Company may incur goodwill and intangible impairment charges in the future. Self-Insurance: The Company is self-insured with respect to its 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, vision and worker’s compensation claims incurred but not reported at June 30, 2020 and December 31, 2019 of $901,000 and $1,203,000, respectively. Post-retirement benefits: The Company 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", of the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The Company had a liability for post retirement healthcare benefits based on actuarially computed estimates of $9,187,000 at June 30, 2020 and $9,160,000 at December 31, 2019. Government subsidies: The Company received $1,391,000 in government subsidies during the three and six months ended June 30, 2020. The Company accounted for government subsidies in accordance with International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance. The Company recorded the assistance in selling, general and administrative expenses and determined that there is reasonable assurance all conditions attached to the assistance were met and the grants would be received. The government subsidies consisted of the Canadian Emergency Wage Subsidy and the Shared Work Programs of Ohio, South Carolina and Minnesota.

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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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