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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☑
QUARTERLY
REPORT PURSUANT TO
SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE
ACT
OF
1934
For the quarterly period ended September
30, 2020
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
31-1481870
(State or other jurisdiction
incorporation or organization)
(I.R.S. Employer Identification No.)
800 Manor Park Drive
,
Columbus
,
Ohio
43228-0183
(Address of principal executive office)
(Zip Code)
Registrant’s telephone number,
including area code (
614
)
870-5000
N/A
_______________________________________________________________
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities
Exchange Act of 1934
during the preceding
12
months (or for
such shorter period
that the registrant
was required to
file such
reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes
☑
No
☐
Indicate by check mark
whether the registrant has
submitted electronically every Interactive
Data File required to
be submitted
pursuant to Rule
405 of Regulation
S-T (§232.405
of this chapter)
during the preceding
12
months (or for
such shorter period
that the registrant was required to submit such files).
Yes
☑
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “accelerated filer,”
“large accelerated filer,” and “smaller reporting company,” in Rule
12b-
2 of the Exchange Act.
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.
☐
Indicate by check mark whether the registrant is a shell company as defined
in Rule
12b-2 of the Exchange Act. Yes
☐
No
☑
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Trading Symbol
Common Stock, par value $0.01
NYSE American LLC
CMT
As of
November 6,
2020, the
latest practicable
date,
8,496,655
shares of
the registrant’s
common stock
were issued,
which
includes
524,782
shares of unvested restricted common stock.
2
Table of Contents
Part I — Financial Information
Item
1. Financial Statements (Unaudited)
Consolidated Statements of Income (Loss)
3
Consolidated Statements of Comprehensive Income (Loss)
4
Consolidated Balance Sheets
5
Consolidated Statement of Stockholders’ Equity
6
Consolidated Statements of Cash Flows
8
Notes to Consolidated Financial Statements
9
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Item
3. Quantitative and Qualitative Disclosures About Market Risk
34
Item
4. Controls and Procedures
35
Part II — Other Information
Item
1. Legal Proceedings
36
Item
1A. Risk Factors
36
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
36
Item
3. Defaults Upon Senior Securities
36
Item
4. Mine Safety Disclosures
37
Item
5. Other Information
37
Item
6. Exhibits
37
Signatures
38
Index to Exhibits
39
Table of Contents
3
Item 1. Financial Statements
Part I — Financial Information
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Income (Loss)
(Unaudited)
Three months ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net sales
$
59,873,000
$
74,655,000
$
161,705,000
$
228,168,000
Cost of sales
49,035,000
68,171,000
137,192,000
210,043,000
Gross margin
10,838,000
6,484,000
24,513,000
18,125,000
Selling, general and administrative expense
6,517,000
7,041,000
17,136,000
21,431,000
Goodwill impairment
—
4,100,000
—
4,100,000
Total
expenses
6,517,000
11,141,000
17,136,000
25,531,000
Operating income (loss)
4,321,000
(4,657,000)
7,377,000
(7,406,000)
Other income and expense
Interest expense
966,000
1,113,000
3,338,000
2,878,000
Net periodic post-retirement benefit
(20,000)
(23,000)
(60,000)
(71,000)
Total
other expense
946,000
1,090,000
3,278,000
2,807,000
Income (loss) before taxes
3,375,000
(5,747,000)
4,099,000
(10,213,000)
Income tax expense (benefit)
32,000
378,000
(4,933,000)
(452,000)
Net income (loss)
$
3,343,000
$
(6,125,000)
$
9,032,000
$
(9,761,000)
Net income (loss) per common share:
Basic
$
0.39
$
(0.78)
$
1.07
$
(1.25)
Diluted
$
0.39
$
(0.78)
$
1.07
$
(1.25)
See notes to unaudited consolidated financial statements.
Table of Contents
4
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three months ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net income (loss)
$
3,343,000
$
(6,125,000)
$
9,032,000
$
(9,761,000)
Other comprehensive income (loss):
Foreign currency hedging derivatives:
Unrealized hedge gain (loss)
415,000
(254,000)
(456,000)
539,000
Income tax benefit (expense)
(88,000)
58,000
98,000
(144,000)
Interest rate swaps:
Unrealized hedge gain (loss)
172,000
(87,000)
(550,000)
(809,000)
Income tax benefit (expense)
(39,000)
20,000
125,000
184,000
Post retirement benefit plan adjustments:
Net actuarial gain
46,000
28,000
136,000
88,000
Prior service costs
(124,000)
(122,000)
(372,000)
(372,000)
Income tax benefit
17,000
20,000
50,000
60,000
Comprehensive income (loss)
$
3,742,000
$
(6,462,000)
$
8,063,000
$
(10,215,000)
See notes to unaudited consolidated financial statements.
Table of Contents
5
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30,
2020
December 31,
(Unaudited)
2019
Assets:
Current assets:
Cash and cash equivalents
$
14,809,000
$
1,856,000
Accounts receivable, net
26,306,000
32,424,000
Inventories, net
15,233,000
21,682,000
Income tax receivable
2,657,000
652,000
Prepaid expenses and other current assets
3,688,000
4,611,000
Total current assets
62,693,000
61,225,000
Right of use asset
3,506,000
4,484,000
Property, plant and equipment,
net
75,207,000
79,206,000
Goodwill
17,376,000
17,376,000
Intangibles, net
12,003,000
13,464,000
Other non-current assets
3,215,000
3,551,000
Total
Assets
$
174,000,000
$
179,306,000
Liabilities and Stockholders’ Equity:
Current liabilities:
Current portion of long-term debt
$
2,753,000
$
49,451,000
Accounts payable
17,949,000
19,910,000
Contract liabilities
2,745,000
3,698,000
Compensation and related benefits
6,450,000
5,515,000
Accrued other liabilities
7,101,000
5,260,000
Total current liabilities
36,998,000
83,834,000
Long-term debt
31,537,000
—
Other non-current liabilities
3,962,000
3,119,000
Post retirement benefits liability
7,974,000
7,927,000
Total
Liabilities
$
80,471,000
$
94,880,000
Commitments and Contingencies
—
—
Stockholders’ Equity:
Preferred stock — $0.01 par value, authorized shares — 10,000,000;
no shares outstanding at
September 30, 2020 and December 31, 2019
—
—
Common stock — $0.01 par value, authorized shares – 20,000,000;
outstanding shares: 7,971,873 at
September 30, 2020 and 7,877,945 at December 31, 2019
80,000
79,000
Paid-in capital
35,831,000
34,772,000
Accumulated other comprehensive income (loss), net of income taxes
401,000
1,370,000
Treasury stock - at cost, 3,810,929
at September 30, 2020 and 3,806,355 at December 31, 2019
(28,521,000)
(28,501,000)
Retained earnings
85,738,000
76,706,000
Total
Stockholders’ Equity
93,529,000
84,426,000
Total
Liabilities and Stockholders’ Equity
$
174,000,000
$
179,306,000
See notes to unaudited consolidated financial statements.
Table of Contents
6
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders’
Equity
(Unaudited)
For the three months ended September
30, 2019:
Common Stock
Outstanding
Accumulated
Other
Total
Paid-In
Comprehensive
Treasury
Retained
Stockholders'
Shares
Amount
Capital
Income
Stock
Earnings
Equity
Balance at June 30, 2019
7,854,736
$
79,000
$
34,074,000
$
2,001,000
$
(28,463,000)
$
88,293,000
$
95,984,000
Net loss
(6,125,000)
(6,125,000)
Change in post retirement
benefits, net of tax benefit
of $20,000
(75,000)
(75,000)
Unrealized foreign currency
hedge loss, net of tax
benefit of $58,000
(196,000)
(196,000)
Change in interest rate
swaps, net of tax benefit
of $20,000
(67,000)
(67,000)
Share-based compensation
398,000
398,000
Balance at September 30,
2019
7,854,736
$
79,000
$
34,472,000
$
1,663,000
$
(28,463,000)
$
82,168,000
$
89,919,000
For the nine months ended September
30, 2019:
Common Stock
Outstanding
Accumulated
Other
Total
Paid-In
Comprehensive
Treasury
Retained
Stockholders'
Shares
Amount
Capital
Income
Stock
Earnings
Equity
Balance at December 31,
2018
7,776,164
$
78,000
$
33,208,000
$
2,117,000
$
(28,403,000)
$
91,929,000
$
98,929,000
Net loss
(9,761,000)
(9,761,000)
Change in post retirement
benefits, net of tax
benefit of $60,000
(225,000)
(225,000)
Unrealized foreign currency
hedge gain, net of tax of
$144,000
396,000
396,000
Change in interest rate
swaps, net of tax benefit
of $184,000
(625,000)
(625,000)
Purchase of treasury stock
(7,744)
(60,000)
(60,000)
Restricted stock vested
86,316
1,000
1,000
Share-based compensation
1,264,000
1,264,000
Balance at September 30,
2019
7,854,736
$
79,000
$
34,472,000
$
1,663,000
$
(28,463,000)
$
82,168,000
$
89,919,000
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7
For the three months ended September
30, 2020:
Common Stock
Outstanding
Accumulated
Other
Total
Paid-In
Comprehensive
Treasury
Retained
Stockholders'
Shares
Amount
Capital
Income
Stock
Earnings
Equity
Balance at June 30, 2020
7,965,289
$
80,000
$
35,476,000
$
2,000
$
(28,501,000)
$
82,395,000
$
89,452,000
Net income
3,343,000
3,343,000
Change in post retirement
benefits, net of tax
benefit of $17,000
(61,000)
(61,000)
Unrealized foreign currency
hedge gain, net of tax
of $88,000
327,000
327,000
Change in interest rate
swaps, net of tax
of $39,000
133,000
133,000
Purchase of treasury stock
(4,574)
(20,000)
(20,000)
Restricted stock vested
11,158
Share-based compensation
355,000
355,000
Balance at September 30,
2020
7,971,873
$
80,000
$
35,831,000
$
401,000
$
(28,521,000)
$
85,738,000
$
93,529,000
For the nine months ended September
30, 2020:
Common Stock
Outstanding
Accumulated
Other
Total
Paid-In
Comprehensive
Treasury
Retained
Stockholders'
Shares
Amount
Capital
Income
Stock
Earnings
Equity
Balance at December 31, 2019
7,877,945
$
79,000
$
34,772,000
$
1,370,000
$
(28,501,000)
$
76,706,000
$
84,426,000
Net income
9,032,000
9,032,000
Change in post retirement
benefits, net of tax
benefit of $50,000
(186,000)
(187,000)
Unrealized foreign currency
hedge loss, net of tax
benefit of $98,000
(358,000)
(358,000)
Change in interest rate
swaps, net of tax benefit
of $125,000
(425,000)
(424,000)
Purchase of treasury stock
(4,574)
(20,000)
(20,000)
Restricted stock vested
98,502
1,000
1,000
Share-based compensation
1,059,000
1,059,000
Balance at September 30,
2020
7,971,873
$
80,000
$
35,831,000
$
401,000
$
(28,521,000)
$
85,738,000
$
93,529,000
See notes to unaudited consolidated financial statements.
Table of Contents
8
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2020
2019
Cash flows from operating activities:
Net income (loss)
$
9,032,000
$
(9,761,000)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization
8,425,000
7,700,000
Deferred income tax
517,000
(632,000)
Goodwill impairment
—
4,100,000
Share-based compensation
1,059,000
1,264,000
Losses (gains) on foreign currency translation
203,000
(22,000)
Change in operating assets and liabilities:
Accounts receivable
6,118,000
(378,000)
Inventories
6,449,000
2,352,000
Prepaid and other assets
(747,000)
1,900,000
Accounts payable
(2,053,000)
(2,505,000)
Accrued and other liabilities
2,238,000
253,000
Post retirement benefits liability
(189,000)
(298,000)
Net cash provided by operating activities
31,052,000
3,973,000
Cash flows from investing activities:
Purchase of property, plant
and equipment
(2,716,000)
(6,280,000)
Net cash used in investing activities
(2,716,000)
(6,280,000)
Cash flows from financing activities:
Gross repayments on revolving line of credit
(59,356,000)
(148,679,000)
Gross borrowings on revolving line of credit
47,349,000
152,121,000
Proceeds from term loan
175,000
—
Payment of principal on term loans
(3,391,000)
(2,532,000)
Payment of deferred loan costs
(140,000)
(434,000)
Payments related to the purchase of treasury stock
(20,000)
(60,000)
Net cash provided by (used in) financing activities
(15,383,000)
416,000
Net change in cash and cash equivalents
12,953,000
(1,891,000)
Cash and cash equivalents at beginning of period
1,856,000
1,891,000
Cash and cash equivalents at end of period
$
14,809,000
$
—
Cash paid for:
Interest
$
3,523,000
$
2,706,000
Income taxes
$
467,000
$
1,160,000
Non-cash investing activities:
Fixed asset purchases in accounts payable
$
146,000
$
429,000
See notes to unaudited consolidated financial statements.
Table of Contents
9
Core Molding Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated
financial statements have been
prepared in accordance with the
instructions to Form
10-Q and include all of the information and disclosures required by accounting principles generally accepted in
the United States
of America for
interim reporting,
which are less
than those
required for
annual reporting.
In the opinion
of management, the
accompanying unaudited
consolidated financial
statements contain
all adjustments
(all of
which are
normal and
recurring in
nature) necessary to present fairly the financial position of Core Molding Technologies, Inc. and its subsidiaries (“Core
Molding
Technologies” or the “Company”) at September
30, 2020, and the results of operations and cash flows for the nine months
ended
September
30, 2020. The Company has reclassified certain prior-year amounts to conform to the current-year's presentation. The
“Notes to
Consolidated Financial
Statements”
contained in
the Company's
Annual Report
on Form
10-K for
the year
ended
December
31, 2019, should be read in conjunction with these consolidated financial statements.
Core Molding
Technologies and
its subsidiaries
operate in
the composites
market as
one operating
segment as
a molder
of
thermoplastic and thermoset
structural products. The
Company's operating segment
consists of 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"). Core Molding Technologies has its
headquarters in
Columbus, Ohio,
and operates
seven production
facilities in
Columbus and
Batavia, Ohio;
Gaffney, South
Carolina; Winona,
Minnesota; Matamoros
and Escobedo,
Mexico; and
Cobourg, Ontario,
Canada. All production
facilities
produce structural composite products.
2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation
of financial
statements in
conformity with
accounting principles
generally accepted
in the
United States
of
America requires
management to
make estimates
and assumptions
that affect
the reported
amounts of
assets and
liabilities,
disclosures of contingent assets
and liabilities, and reported
amounts of revenues and
expenses during the
reporting period. On
an on
-going basis,
management evaluates
its estimates
and judgments.
Management bases
its estimates
and judgments
on
historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which
form the basis
for making judgments
about the carrying
value of assets
and liabilities that
are not readily
apparent from other
sources. Actual results may differ from these estimates, due
to the uncertainty around the magnitude and duration of the COVID-
19 pandemic, as well as other factors.
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. As
of September 30, 2020, the
Company was in default
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
discussed in
Note 11,
“Debt”. As a
result of
the default,
the Lenders
requested that
the
Company seek alternative financing, which caused uncertainty about the Company’s future liquidity and raised substantial doubt
about the Company’s ability to
continue as a going concern.
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10
On October
27, 2020,
the Company
entered into
a credit
agreement and
a master
security agreement
(the “Refinancing
Agreements”) with Wells Fargo Bank, National Association and FGI
Equipment Finance LLC, respectively, as discussed in Note
16, “Subsequent
Events”, and
repaid all
of its
obligations under
the A/R Credit
Agreement. Management
believes that
the
Refinancing Agreements will provide sufficient liquidity to sustain the
Company’s needs for
the next 12 months. The closing of
the Refinancing Agreements alleviated the substantial doubt about the Company’s ability to
continue as a going concern prior to
the filing date of our Form 10-Q, see Note 16, “Subsequent Events”.
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 $
130,000
and $
50,000
at September
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 $
105,000
at September
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 $
726,000
at September
30, 2020 and $
898,000
at December
31, 2019.
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11
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 $
343,000
at September
30, 2020,
and $
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. For the nine
months ended
September
30, 2020,
the Company
recognized
no
impairments on
contract assets.
For the
nine months
ended
September 30,
2020, the
Company recognized
$
5,710,000
amount of
revenue from
contract liabilities
related to
open jobs
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
September 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 nine months ended September
30, 2020 or September
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
nine months ended
September 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.
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12
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, 2020
and December
31, 2019
of $
807,000
and
$
1,203,000
respectively.
Post-retirement Benefits:
Management records an accrual
for post-retirement costs associated with
the health care plan
sponsored
by 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 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.
Core Molding
Technologies had
a liability
for post
retirement healthcare
benefits based
on
actuarially computed estimates of $
9,207,000
at September
30, 2020 and $
9,160,000
at December
31, 2019.
Government Subsidies
:
The Company
received $
25,000
and $
1,416,000
in government
subsidies during
the three
and nine
months ended
September 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,
Employee Retention
Credit under
the Cares
Act and
the Shared
Work Programs
of Ohio,
South
Carolina and Minnesota.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Current expected credit loss (CECL)
In June 2016, the FASB
issued ASU 2016-13, “Financial Instruments
-Credit Losses,” which changes
the impairment model for
most financial assets
and certain other
instruments. For trade
and other receivables,
held-to-maturity debt securities,
loans and
other instruments, entities will
be required to use
a new forward-looking “expected
loss” model that will
replace today’s “incurred
loss” model and generally will result in
the earlier recognition of allowances for losses. For
available-for-sale debt securities with
unrealized losses,
entities will
measure credit
losses in
a manner
similar to
current practice,
except that
the losses
will be
recognized as an allowance.
Subsequent to issuing ASU 2016
-13, the FASB issued
ASU 2018-19, “Codification Improvements
to Topic 326, Financial Instruments
- Credit Losses,” for
the purpose of clarifying
certain aspects of ASU 2016
-13. ASU 2018-
19 has
the same
effective date
and transition
requirements as
ASU 2016
-13. In
April 2019,
the FASB
issued ASU 2019
-04,
“Codification Improvements to Topic 326, Financial Instruments - Credit Losses,
Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments,
”
which is effective
with the adoption
of ASU 2016-13. In
May 2019, the
FASB issued ASU 2019-
05, “Financial Instruments - Credit Losses (Topic 326),” which is
also effective with the adoption of ASU
2016-13. In November
2019, the FASB voted to delay the implementation date for certain companies, including those that qualify as a smaller reporting
company under SEC rules, until fiscal years beginning
after December 15, 2022. We will adopt
this ASU on its effective date of
January 1, 2023.
We do not
expect the adoption
of this ASU to
have a material
impact on our
consolidated financial
position,
results of operations, cash flows, or presentation thereof.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued
ASU 2019-12, Income Taxes –
Simplifying the Accounting for Income
Taxes. This guidance
is intended to
simplify various aspects
of income tax
accounting including the
elimination of certain
exceptions related
to the
approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of
deferred tax
liabilities for
outside basis
differences. The
new guidance also
simplifies aspects
of the accounting
for franchise
taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis
of goodwill. The Company adopted
the new standard effective January
1, 2020 during the third
quarter with no material impact
Table of Contents
13
on our consolidated financial statements. Adoption of this guidance requires certain changes to primarily be made prospectively,
with some changes to be made retrospectively.
Facilitation of the Effects of Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on
Financial Reporting
(Topic 848). The ASU provides optional expedients and exceptions for applying GAAP
to transactions affected by reference rate
(e.g., LIBOR) reform
if certain criteria
are met, for
a limited period
of time to
ease the potential
burden in accounting
for (or
recognizing the
effects of)
reference rate
reform on
financial reporting.
The ASU is
effective as
of March
12, 2020
through
December 31, 2022.
We will evaluate
transactions or contract
modifications occurring as
a result of
reference rate reform
and
determine whether to apply the optional guidance on an ongoing basis.
4. NET INCOME (LOSS) PER COMMON SHARE
The following table
sets forth the
computation of basic
and diluted earnings
per share using
the two-class method
for amounts
attributable to the Company's
common shares. The Company
uses the two-class method
to calculate basic and
diluted earnings
per share as a result of outstanding participating securities in the form of
restricted stock awards.
Three months ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net income (loss)
$
3,343,000
$
(6,125,000)
$
9,032,000
$
(9,761,000)
Less: net income allocated to participating securities
206,000
—
558,000
—
Net income (loss) available to common shareholders
$
3,137,000
$
(6,125,000)
$
8,474,000
$
(9,761,000)
Weighted average common
shares outstanding — basic
7,969,000
7,851,000
7,922,000
7,804,000
Effect of dilutive securities
—
—
—
—
Weighted average common
and potentially issuable
common shares outstanding — diluted
7,969,000
7,851,000
7,922,000
7,804,000
Basic net income (loss) per common share
$
0.39
$
(0.78)
$
1.07
$
(1.25)
Diluted net income (loss) per common share
$
0.39
$
(0.78)
$
1.07
$
(1.25)
Table of Contents
14
5. MAJOR CUSTOMERS
The Company
had five
major customers
during the
nine months
ended September
30, 2020,
Universal Forest
Products, Inc.
(“UFP”), Navistar, Inc. (“Navistar
”), PACCAR, Inc. (“PACCAR”), Volvo
Group North America, LLC (“Volvo”), and BRP,
Inc.
(“BRP”). Major customers are defined
as customers whose sales individually
consist of more than
ten percent of total
sales during
any annual or interim reporting period in the
current year. The loss of a
significant portion of sales to these customers
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 three and
nine months ended
September
30, 2020 and 2019:
Three months ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
UFP product sales
$
12,188,000
$
6,751,000
$
30,659,000
$
22,076,000
UFP tooling sales
—
—
—
—
Total UFP sales
12,188,000
6,751,000
30,659,000
22,076,000
Navistar product sales
8,065,000
15,115,000
25,231,000
46,411,000
Navistar tooling sales
5,198,000
145,000
6,384,000
927,000
Total Navistar sales
13,263,000
15,260,000
31,615,000
47,338,000
PACCAR product
sales
8,268,000
11,532,000
19,383,000
35,779,000
PACCAR tooling
sales
179,000
165,000
386,000
1,325,000
Total PACCAR
sales
8,447,000
11,697,000
19,769,000
37,104,000
Volvo
product sales
4,907,000
11,117,000
14,647,000
40,213,000
Volvo
tooling sales
38,000
61,000
2,186,000
200,000
Total Volvo
sales
4,945,000
11,178,000
16,833,000
40,413,000
BRP product sales
4,240,000
3,116,000
13,693,000
11,287,000
BRP tooling sales
175,000
2,502,000
508,000
3,358,000
Total BRP sales
4,415,000
5,618,000
14,201,000
14,645,000
Other product sales
16,572,000
19,880,000
48,406,000
58,637,000
Other tooling sales
43,000
4,271,000
222,000
7,955,000
Total other sales
16,615,000
24,151,000
48,628,000
66,592,000
Total product sales
54,240,000
67,511,000
152,019,000
214,403,000
Total tooling sales
5,633,000
7,144,000
9,686,000
13,765,000
Total sales
$
59,873,000
$
74,655,000
$
161,705,000
$
228,168,000
6. INVENTORY
Inventories, net consisted of the following:
September 30, 2020
December 31, 2019
Raw materials
$
9,871,000
$
13,041,000
Work in process
1,536,000
1,818,000
Finished goods
3,826,000
6,823,000
Total
$
15,233,000
$
21,682,000
Table of Contents
15
Inventory quantities
on-hand are
regularly reviewed,
and where
necessary, provisions
for excess
and obsolete
inventory are
recorded based on historical and anticipated usage.
7. LEASES
The Company has operating leases
with fixed payment terms for
certain buildings and warehouses.
The Company's leases have
remaining lease
terms of
less than
one year
to
four years
, some
of which
include options
to extend
the lease
for
five years
.
Operating leases
are included
in operating
lease right
-of-use ("ROU")
assets, accrued
other liabilities
and other
non-current
liabilities in the
Consolidated Balance Sheets.
ROU assets represent
our right to
use an underlying asset
for the lease
term and
lease liabilities represent our obligation to make lease payments arising
from the lease.
The Company used the applicable incremental
borrowing rate at implementation date to
measure lease liabilities and ROU
assets.
The incremental borrowing rate used by
the Company was based on baseline rates
and adjusted by the credit spreads
commensurate with
the Company
’s secured
borrowing rate.
At each reporting
period when
there is
a new lease
initiated, the
Company will utilize
its incremental borrowing
rate to perform
lease classification
tests on
lease components and
to measure
ROU assets and lease liabilities.
The components of lease expense were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Operating lease cost
$
357,000
$
358,000
$
1,072,000
$
1,073,000
Total net lease cost
$
357,000
$
358,000
$
1,072,000
$
1,073,000
Other supplemental balance sheet information related to leases was as
follows:
September 30, 2020
December 31, 2019
Operating leases:
Operating lease right of use assets
$
3,506,000
$
4,484,000
Total operating lease right of
use assets
$
3,506,000
$
4,484,000
Current operating lease liabilities
(A)
$
843,000
$
1,304,000
Noncurrent operating lease liabilities
(B)
2,602,000
3,119,000
Total operating lease liabilities
$
3,445,000
$
4,423,000
Weighted average remaining
lease term (in years):
Operating leases
3.5
4.0
Weighted average discount
rate:
Operating leases
5.0
%
4.9
%
Table of Contents
16
(A)
Current operating lease liabilities are included in
accrued other liabilities
on the Consolidated Balance Sheets.
(B)
Noncurrent operating
lease liabilities
are included
in
other non-current liabilities
on the
Consolidated Balance
Sheets.
Other information related to leases were as follows:
Nine Months Ended
September 30,
2020
2019
Cash paid for amounts included in the measurement
of lease liabilities
Operating cash flows from operating leases
(C)
$
1,072,000
$
1,073,000
(C)
Cash flow from operating lease included in prepaid and other assets
on the Consolidated Statements of Cash Flows.
As of September
30, 2020, maturities of lease liabilities were as follows:
Operating Leases
2020 (remainder of year)
$
358,000
2021
1,174,000
2022
1,102,000
2023
1,000,000
2024
530,000
Total lease payments
4,164,000
Less: imputed interest
(719,000)
Total lease obligations
3,445,000
Less: current obligations
(843,000)
Long-term lease obligations
$
2,602,000
As of December
31, 2019, maturities of lease liabilities were as follows:
Operating Leases
2020
$
1,433,000
2021
1,174,000
2022
1,102,000
2023
1,000,000
2024
530,000
Total lease payments
5,239,000
Less: imputed interest
(816,000)
Total lease obligations
4,423,000
Less: current obligations
(1,304,000)
Long-term lease obligations
$
3,119,000
Table of Contents
17
8. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment, net consisted of the following for
the periods specified:
September 30, 2020
December 31, 2019
Property, plant and equipment
$
173,644,000
$
170,881,000
Accumulated depreciation
(98,437,000)
(91,675,000)
Property, plant and equipment
— net
$
75,207,000
$
79,206,000
Property, plant, and equipment are recorded at cost, unless
obtained through acquisition, then assets are recorded at estimated fair
value at the date
of acquisition. Depreciation is
provided on a straight
-line method over the
estimated useful lives of
the assets.
The carrying amount of long-lived assets is evaluated
annually to determine if an adjustment to
the depreciation period or to the
unamortized balance
is warranted. Depreciation
expense for
the three
months ended
September 30,
2020 and
2019 was
$2,273,000 and
$1,977,000, respectively. Depreciation
expense for the
nine months ended
September 30,
2020 and 2019
was
$6,764,000 and $5,115,000,
respectively. Amounts invested in capital
additions in progress were
$1,858,000 and $1,615,000
at
September 30, 2020
and December 31,
2019, respectively. At
September 30, 2020
and December 31,
2019, purchase
commitments for capital expenditures in progress were $338,000
and $336,000, respectively.
9. GOODWILL AND INTANGIBLES
Goodwill activity for the nine months ended September
30, 2020 consisted of the following:
Balance at December 31, 2019
$
17,376,000
Additions
—
Impairment
—
Balance at September 30, 2020
$
17,376,000
Intangibles, net at September
30, 2020 were comprised of the following:
Definite-lived Intangible Assets
Amortization Period
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Trade name
25 Years
$
250,000
$
(56,000)
$
194,000
Trademarks
10 Years
1,610,000
(435,000)
1,175,000
Non-competition agreement
5 Years
1,810,000
(981,000)
829,000
Developed technology
7 Years
4,420,000
(1,709,000)
2,711,000
Customer relationships
10-12 Years
9,330,000
(2,236,000)
7,094,000
Total
$
17,420,000
$
(5,417,000)
$
12,003,000
The aggregate intangible
asset amortization expense
was $487,000 for
the three months
ended September 30,
2020 and 2019.
The aggregate intangible asset amortization expense was $1,461,000
for the nine months ended September 30, 2020 and 2019.
Intangibles, net at December
31, 2019 were comprised of the following:
Table of Contents
18
Definite-lived Intangible Assets
Amortization Period
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Trade name
25 Years
$
250,000
$
(48,000)
$
202,000
Trademarks
10 Years
1,610,000
(315,000)
1,295,000
Non-competition agreement
5 Years
1,810,000
(709,000)
1,101,000
Developed technology
7 Years
4,420,000
(1,237,000)
3,183,000
Customer relationships
10-12 Years
9,330,000
(1,647,000)
7,683,000
Total
$
17,420,000
$
(3,956,000)
$
13,464,000
10. POST RETIREMENT BENEFITS
The components of expense for the Company’s post-retirement
benefit plans for the three and nine months ended September
30,
2020 and 2019 are as follows:
Three months ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Pension expense:
Multi-employer plan
$
157,000
$
270,000
$
549,000
$
732,000
Defined contribution plan
258,000
364,000
766,000
950,000
Total pension expense
415,000
634,000
1,315,000
1,682,000
Health and life insurance:
Interest cost
59,000
72,000
177,000
216,000
Amortization of prior service costs
(124,000)
(125,000)
(372,000)
(375,000)
Amortization of net loss
45,000
30,000
135,000
88,000
Net periodic benefit cost
(20,000)
(23,000)
(60,000)
(71,000)
Total post retirement benefits
expense
$
395,000
$
611,000
$
1,255,000
$
1,611,000
The Company made
payments of $1,518,000
to pension plans
and $131,000
for post-retirement healthcare
and life insurance
during the nine
months ended
September 30,
2020. For the
remainder of 2020,
the Company expects
to make approximately
$276,000 of pension plan payments,
of which $98,000 was accrued
at September 30, 2020. The Company
also expects to make
approximately $1,102,000 of post-retirement healthcare and life insurance payments
for the remainder of 2020, all of
which were
accrued at September 30, 2020.
Table of Contents
19
11. DEBT
Debt consists of the following:
September 30,
December 31,
2020
2019
Term loans, interest at a variable
rate (8.0% at September 30, 2020 and 6.30% at
December 31, 2019) with monthly payments of interest and quarterly
payments of
principal through January 2023
$
34,875,000
$
38,250,000
Revolving loans, interest at a variable rate
(8.0% at September 30, 2020 and 6.04% at
December 31, 2019)
—
12,008,000
Term loan, interest at a
fixed rate (5.5% at September 30, 2020) with monthly payments
of interest and principal through April 2025
160,000
—
Total
35,035,000
50,258,000
Less deferred loan costs
(745,000)
(807,000)
Less current portion
(2,753,000)
(49,451,000)
Long-term debt
$
31,537,000
$
—
Credit Agreement
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 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 “
US 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 US
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.
Interest is payable monthly at one month LIBOR
plus a
basis point margin of 700 basis points with a LIBOR floor of 100
basis points.
During 2019, the Company 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).
On November 22,
2019, the Company and
the Lenders entered
into a forbearance agreement
(the
"Forbearance Agreement"), which
was amended twice,
first on March
13, 2020
(the "Amended Forbearance
Agreement") and
then on May 29, 2020 (the “Second Amended Forbearance Agreement”).
The Second Amended Forbearance Agreement
provided that the Company and the Lenders agreed to modify certain terms of the
Amended Forbearance
Agreement and
extend the
Forbearance Agreement
through September
30, 2020.
The modifications
include (1) that the Company will maintain liquidity of not less than $5,000,000, to be measured twice monthly, on every second
and fourth Friday of each month
during the forbearance period, (2)
the Company shall maintain minimum year-to-date
earnings
before income
tax, depreciation
and amortization
(“YTD-EBITDA”) of
not less
than $5,000,000,
measured upon delivery
of
Company’s July
2020 financial statements
and also upon delivery
of Company’s
August 2020 financial
statements, with YTD-
Table of Contents
20
EBITDA determined based on
consolidated EBITDA,
(3) a change
of interest rate
to LIBOR rate
plus 700 basis
points with a
LIBOR floor of
100 basis points,
(4) on or
before July 15,
2020 the Borrowers
shall have obtained
executed term sheets
from
involved parties and/or lenders, (5) on or before September 30, 2020, the Borrowers shall have closed on a new capital structure,
(6) forbearing compliance with the leverage covenant
and fixed charge covenant through September
30, 2020, and (7)
implementation of a capital expenditure spend limit of $3,000,000
for the nine months ended September 30, 2020.
The Company has unblocked
maximum availability of
$20,000,000 of variable
rate revolving loans of
which $0 is outstanding
as of September 30, 2020.
On April 24, 2020
the Company entered
into a finance
agreement with Leaf
Capital Funding of
$175,000 for equipment.
The
parties agreed
to a fixed
interest rate
of 5.5%
and a term
of 60
months. The amount
outstanding at
September 30,
2020 was
$160,000 of which, $127,000 was classified as long term debt.
On October 27, 2020, the Company entered into
the Refinancing Agreements, as defined in
Note 2, “Critical Accounting Policies
and Estimates
”, and repaid
all of its
obligations under
the A/R Credit
Agreement. Management
believes that
the Refinancing
Agreements will
provide sufficient
liquidity to
sustain the
Company’s needs
for the
next 12
months. The
closing of
the
Refinancing Agreements alleviated the substantial doubt about the Company’s ability to
continue as a going concern prior to the
filing date of our Form 10
-Q, see Note 16, “Subsequent
Event”. The Company, therefore,
classified its debt between short
-term
and long-term in accordance with the A/R Credit Agreement.
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 will pay
a fixed rate
of approximately 2.49%
to the counterparty
and
receives 30
day LIBOR
for both cash
flow hedges. The
fair value of
the interest
rate swap
was a liability
of $1,255,000
and
$706,000 at
September 30,
2020 and
December 31,
2019, respectively.
On October
27, 2020,
concurrent with
the Company
entering into the Refinancing Agreements,
both interest rate swap agreement were
terminated, see Note 16, “Subsequent Events”.
12. 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
September 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. As of September
30, 2020
and December
31, 2019,
the Company had
no liability
for unrecognized
tax benefits.
The Company
does not
anticipate that
unrecognized tax benefits will significantly change within the
next twelve months.
Income tax benefit for
the nine months ended
September 30, 2020 is
estimated to be $4,933,000,
approximately 120.3% of income
before income taxes.
The effective tax
rate for 2020
reflects recording net
operating losses in
U.S. jurisdictions at
the tax rate,
34%, which will be applied when the Company carries 2020 losses back
to previous years.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in response to the
COVID-19 pandemic, and
among other things,
provides tax relief
to businesses. Tax
provisions of the
CARES Act include the
deferral of certain payroll
taxes, relief for retaining
employees, and other
provisions, including allowing
net operating losses to
be carried back five years
versus an indefinite carryforward.
The Company has filed with
the Internal Revenue Service
to carry
back net operating losses incurred in
2018 and 2019 under this new
law, resulting in an income tax
refund of $6,155,000 of which
all has been collected
as of September 30,
2020. An income tax benefit
of $5,638,000 was
realized in the first
quarter of 2020.
The income tax benefit consists of the reversal of the full valuation allowance against net deferred tax assets in the United States
for approximately $3,267,000.
The income tax
benefit also
consists of a
rate benefit of
$2,371,000 based
on the losses
being
Table of Contents
21
carried back to
years where the
Company paid tax
at 34% compared
to the valuation
of the losses
being recorded
at the 21%
current U.S. statutory tax rate.
The Company files income
tax returns in the U.S.,
Mexico, Canada and various
state jurisdictions. The Company is
not subject
to U.S. federal and
state income tax examinations
by tax authorities for
years prior to 2016,
not subject to Mexican
income tax
examinations by Mexican authorities
for years prior to
2014 and not
subject to Canadian tax
examinations by Canadian authorities
for years prior to 2018.
13. 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 and as amended in
May 2015. 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.
Restricted Stock
The Company
grants shares
of its
common stock
to certain
directors, officers,
key managers
and employees in
the form
of unvested
stock and units
(“Restricted Stock”). These
awards are recorded at
the market value
of the Company's common
stock on the
date
of issuance and
amortized ratably as
compensation expense over
the applicable vesting
period, which
is typically three
years. The
Company adjusts compensation expense for actual forfeitures, as
they occur.
The following summarizes the status of
Restricted Stock and changes during the nine
months ended September 30, 2020:
Weighted Average
Number of
Grant Date
Shares
Fair Value
Unvested balance at December 31, 2019
343,919
$
9.37
Granted
287,750
4.62
Vested
(98,502)
10.37
Forfeited
(8,385)
13.72
Unvested balance at September 30, 2020
524,782
$
6.46
At September
30, 2020
and 2019,
there was
$1,928,000 and
$2,377,000, 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 2.3 years. Total compensation
cost related to restricted stock grants
for the three months ended Septe
mber 30,
2020 and 2019 was
$319,000 and $350,000, respectively,
all of which
was recorded to selling,
general and administrative expense.
Total compensation cost related to restricted stock grants for the nine months ended September 30, 2020 and 2019 was $968,000
and $1,121,000, respectively, all of which was recorded
to selling, general and administrative expense
During the
nine months
ended September
30, 2020
and 2019,
employees surrendered
4,574 shares
and 7,744
shares of
the
Company's common stock to satisfy income tax withholding obligations
in connection with the vesting of restricted awards.
Stock Appreciation Rights
As part of the Company's 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 nine months ended September
30, 2020 is as follows:
Table of Contents
22
Weighted Average
Number of
Grant Date
Shares
Fair Value
Outstanding as of December 31, 2019
222,112
$
2.57
Granted
—
—
Exercised
—
—
Forfeited
(27,266)
2.57
Outstanding at end of the period ended September 30, 2020
194,846
$
2.57
Exercisable at end of the period ended September 30, 2020
84,300
$
2.57
The average
remaining contractual
term for
those SARs
outstanding at
September 30,
2020 is
3.6 years,
with no
aggregate
intrinsic value.
At September
30,
2020 and
2019, there
was $225
,000 and
$435,000, respectively,
of total
unrecognized
compensation expense, net of
estimated forfeitures, related to
SARs. Total compensation cost
related to SARs for
the three months
ended September 30
,
2020 and 2019
was $36,000 and
$42,000, respectively, all
of which was
recorded to selling,
general and
administrative expense. Total compensation
cost related to
SARs for the nine
months ended September 30
,
2020 and 2019 was
$91,000 and
$145,000, respectively,
all of
which was
recorded to
selling, general
and administrative
expense. That
cost is
expected to be recognized over the weighted- average period
of 1.6 years.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is
defined as the
price that would
be received to
sell an asset
or paid to
transfer a liability
in a transaction
between
market participants
as of
the measurement
date. Fair
value is
measured using
the fair
value hierarchy
and related
valuation
methodologies as
defined in
the authoritative
literature. This
guidance provides
a fair
value framework
that requires
the
categorization of assets and liabilities into three
levels based upon the assumptions (inputs)
used to price the assets or liabilities.
Level 1 provides the most reliable measure of fair value, whereas
Level 3 generally requires significant management judgment.
The three levels are defined as follows:
Level 1 -
Quoted prices in active markets for identical assets and liabilities.
Level 2 -
Quoted prices for similar
instruments in active
markets, quoted prices
for identical or similar
instruments in
markets that
are not
active and
model-derived valuations,
in which
all significant
inputs are
observable in
active markets.
Level 3 -
Significant unobservable
inputs reflecting management's
own assumptions about
the inputs used
in pricing
the asset or liability.
The Company’s financial
instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, debt,
interest
rate swaps and foreign
currency derivatives. Cash and cash
equivalents, accounts receivable and accounts payable
carrying values
as of
September 30,
2020 and
December 31,
2019 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 September 30,
2020 and December 31, 2019 due to the short term nature of the underlying variable rate LIBOR agreements. The Company had
Level 2 fair
value measurements at
September 30, 2020
and December 31,
2019 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
Table of Contents
23
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 September
30, 2020, 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 interest
rate swap 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 11, "Debt", for additional information.
Financial statements impacts
The following tables detail amounts related to our derivatives designated
as hedging instruments:
Fair Value
of Derivative Instruments
September 30, 2020
Asset Derivatives
Liability Derivatives
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Foreign exchange contracts
Prepaid expenses other current assets
$
—
Accrued other liabilities
$
4,000
Notional contract values
$
—
$
51,000
Interest rate swaps
Prepaid expenses other current assets
$
—
Accrued other liabilities
$
1,255,000
Notional swap values
$
—
$
27,125,000
December 31, 2019
Asset Derivatives
Liability Derivatives
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Foreign exchange contracts
Prepaid expenses other current assets
$
452,000
Accrued other liabilities
$
—
Notional contract values
$
15,358,000
$
—
Interest rate swaps
Prepaid expenses other current assets
$
—
Accrued other liabilities
$
706,000
Notional swap values
$
—
$
29,750,000
Table of Contents
24
The following tables
summarize the
amount of unrealized
and realized gain
(loss) recognized
in Accumulated Other
Comprehensive Income (Loss) ("AOCI") for the three months ended
September 30, 2020 and 2019:
Amount of Unrealized
Derivatives in
Gain (Loss) Recognized
Location of Gain (Loss)
Amount of Realized Gain
subtopic 815-20
in Accumulated Other
Reclassified from
(Loss) Reclassified from
Cash Flow Hedging
Comprehensive Income (Loss) on
Accumulated Other
Accumulated Other
Relationship
Derivative
Comprehensive Income (Loss)
(A)
Comprehensive Income (Loss)
2020
2019
2020
2019
Foreign exchange
contracts
$
668,000
$
(192,000)
Cost of goods sold
$
(219,000)
$
55,000
Selling, general and
administrative expense
$
(33,000)
$
8,000
Interest rate swaps
$
321,000
$
(101,000)
Interest expense
$
(149,000)
$
(14,000)
(A)
The foreign currency derivative
activity reclassified from Accumulated Other
Comprehensive Income (Loss) is
allocated
to cost of goods sold and selling, general and administrative
expense based on the percentage of foreign currency spend.
The following tables
summarize the
amount of unrealized
and realized gain
(loss) recognized
in Accumulated Other
Comprehensive Income (Loss) ("AOCI") for the nine months
ended September 30, 2020 and 2019:
Amount of Unrealized
Derivatives in
Gain (Loss) Recognized
Location of Gain (Loss)
Amount of Realized Gain
subtopic 815-20
in Accumulated Other
Reclassified from
or (Loss) Reclassified from
Cash Flow Hedging
Comprehensive Income (Loss)
on
Accumulated Other
Accumulated Other
Relationship
Derivative
Comprehensive Income (Loss)
(A)
Comprehensive Income (Loss)
2020
2019
2020
2019
Foreign exchange
contracts
$
135,000
$
649,000
Cost of goods sold
$
(525,000)
$
110,000
Selling, general and
administrative expense
$
(67,000)
$
—
Interest rate swaps
$
(206,000)
$
(823,000)
Interest expense
$
(343,000)
$
(13,000)
(A)
The foreign currency derivative
activity reclassified from Accumulated Other
Comprehensive Income (Loss) is
allocated
to cost of goods sold and selling, general and administrative
expense based on the percentage of foreign currency spend.
Table of Contents
25
15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents changes in Accumulated
Other Comprehensive Income (Loss), net of tax, for
the nine months ended
September
30, 2020 and 2019:
Accumulated
Derivative
Post Retirement
Other
Hedging
Benefit Plan
Comprehensive
2019:
Activities
Items
(A)
Income (Loss)
Balance at December 31, 2018
$
(612,000)
$
2,729,000
$
2,117,000
Other comprehensive loss before
reclassifications
(174,000)
—
(174,000)
Amounts reclassified from accumulated
other comprehensive income (loss)
(96,000)
(284,000)
(380,000)
Income tax benefit
40,000
60,000
100,000
Balance at September 30, 2019
$
(842,000)
$
2,505,000
$
1,663,000
2020:
Balance at December 31, 2019
$
(191,000)
$
1,561,000
$
1,370,000
Other comprehensive loss before
reclassifications
(71,000)
—
(71,000)
Amounts reclassified from accumulated
other comprehensive income (loss)
(935,000)
(236,000)
(1,171,000)
Income tax benefit
223,000
50,000
273,000
Balance at September 30, 2020
$
(974,000)
$
1,375,000
$
401,000
(A)
The effect of post-retirement benefit items reclassified from Accumulated Other Comprehensive Income (Loss) is included in
other income and expense on the Consolidated Statements
of Income (Loss). These Accumulated Other Comprehensive
Income
(Loss) components
are included
in the computation
of net
periodic benefit
cost (see
Note 10,
"Post Retirement
Benefits" for
additional details). The tax effect
of post-retirement benefit items
reclassified from Accumulated Other
Comprehensive Income
(Loss) is included in income tax expense on the Consolidated
Statements of Income (Loss).
16.
SUBSEQUENT EVENTS
Table of Contents
26
Credit Refinancing
On
October 27, 2020
, the Company entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National
Association, as administrative
agent, lead arranger
and book runner,
and the lenders
party thereto (the
“Lenders”). Pursuant to
the terms of the
Credit Agreement, the Lenders made
available to the Company
secured loans (the “
Wells Fargo Loans
”) in the
maximum aggregate principal
amount of $
43,500,000
, consisting of
(i) a revolving
loan commitment of
$
25,000,000
(approximately $
8,745,000
of which was
advanced to
the Company on
October 28,
2020) and (ii)
term loan commitments
of
$
18,500,000
($
16,790,000
of which was
advanced to
the Company
on October
28, 2020).
Such revolving
loan commitment
terminates, and all outstanding borrowings thereunder must be repaid, on
October 27, 2024
, and such term loans are to be repaid
in
monthly
installments with the remaining outstanding balance due on
October 27, 2024
, in each case subject to certain optional
and mandatory repayment
terms.
The Company’s
obligations under
the Credit Agreement
and the Loans
are unconditionally
guaranteed by each
of the Company’s U.S. and
Canadian subsidiaries, with such
obligations of the Company
and such subsidiaries
being secured by a lien on substantially
all of their U.S. and Canadian assets.
Interest is payable monthly and is based
on either
LIBOR Rate or
Base Rate, as
defined by the
Credit Agreement, at the
discretion of the
Company. As of October
28, 2020, the
revolving loan was based on the
Base Rate
resulting in a rate of
4.75
% and the term loan was based on the
LIBOR Rate
resulting
in a rate of
3.75
%.
In connection
with the funding of the Wells Fargo Loans, FGI Equipment Finance LLC advanced to the Company, pursuant to a
Master Security Agreement, dated as of
October 27, 2020
(the “Security Agreement”), among FGI Equipment Finance LLC, the
Company as debtor,
and each of Core
Composites Corporation and
CC HPM, S. de
R.L. de C.V.
as a guarantor,
a term loan in
the principal
amount of
$
13,200,000
(the “FGIEF
Loan”), which
loan is
secured by
certain assets
of the
Company and
the
guarantors located in Mexico.
Interest is payable
monthly
at a fixed rate of
8.25
%.
The proceeds of the Wells Fargo Loans and the FGIEF Loans were
used in part to repay all existing outstanding indebtedness
of
the Company owing
to KeyBank
National Association, and
to pay certain
fees and expenses
associated with
the transactions
contemplated by the
Credit Agreement and the
Security Agreement, and will
be used to
finance the ongoing
general corporate
needs of the Company.
Concurrent with the closing of the Credit
Agreement and the Master Security Agreement, the Company settled both
outstanding
interest rate swaps, which resulted in a loss
and cash outflow of $
1,253,000
, recorded in interest expense and operating activities,
respectively. The
Company also
recorded losses
of $
605,000
from writing
off outstanding
deferred loan
costs related
to the
Amended A/R Credit Agreement.
Facility Closure
On November 5, 2020 the Company announced it will close the manufacturing facility located in Batavia, Ohio in 2021. The
Company has begun working with customers to relocate the business into other Core locations or to third parties.
Revenue from
the facility accounts for less than
5
% of the Company's total revenues and the Company anticipates
approximately half of those
revenues will transition to other Core locations. The Company anticipates shutdown
costs to consist of severance cost, moving
and production testing and recertification costs and asset impairment
charges. Management has determined the costs related
to
the closure of the manufacturing facility located in Batavia, Ohio to
be immaterial to the Company’s
consolidated financial
statements.
Table of Contents
27
Part I — Financial Information
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
This Management's
Discussion and
Analysis of
Financial Condition
and Results
of Operations
contains forward-looking
statements within
the meaning of the federal securities
laws. As a general matter,
forward-looking statements are
those focused
upon future plans,
objectives or
performance as
opposed to
historical items
and include
statements of
anticipated events
or trends and expectations and beliefs
relating to
matters not
historical in
nature. Such
forward-looking statements
involve known
and unknown risks and are
subject to uncertainties and factors
relating to Core
Molding Technologies' operations and business
environment, all
of which are difficult
to predict and
many of which
are beyond Core Molding
Technologies' control. Words
such as
“may,” “will,” “could,” “would,” “should,” “anticipate,” “predict,”
“potential,” “continue,” “expect,” “intend,”
“plans,” “projects,”
“believes,” “estimates,” “encouraged,” “confident” and similar expressions are used to identify these
forward-looking statements.
These uncertainties and factors
could cause Core Molding
Technologies' actual results to
differ
materially from those matters expressed
in or implied by such forward-looking
statements.
Core Molding
Technologies believes
that the
following factors,
among others,
could affect
its future
performance and
cause actual
results to
differ materially from
those expressed
or implied by
forward-looking statements
made in this
report: business
conditions
in the plastics, transportation, marine and
commercial product
industries (including changes in demand for truck production);
federal and state regulations (including engine emission regulations); general economic, social, regulatory (including foreign
trade policy) and
political environments in the
countries in which
Core Molding Technologies operates;
the adverse impact
of coronavirus (COVID-19) global pandemic on our
business, results
of operations, financial position,
liquidity or cash
flow, as
well as
impact on customers
and supply chains;
safety and security
conditions in Mexico
and Canada; 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; labor
availability; the
loss or
inability of
Core Molding
Technologies to
attract and retain
key personnel;
the Company's
ability to successfully
identify, evaluate and
manage potential acquisitions
and to benefit
from and properly
integrate any completed
acquisitions; federal, state and local environmental laws and regulations; the availability of capital;
the ability
of Core Molding
Technologies to provide on-time
delivery to customers,
which may require additional
shipping
expenses to
ensure on-time delivery
or otherwise
result in
late fees
and other
customer char
ges; risk
of cancellation
or
rescheduling of orders; management’s decision
to pursue new products or businesses which involve additional costs, risks or
capital expenditures;
inadequate insurance coverage
to protect against potential
hazards; equipment and
machinery failure;
product liability and
warranty claims;
and other
risks identified from
time to
time in
Core Molding
Technologies’ other
public documents on
file with the
Securities and Exchange
Commission, including those described in Item 1A of the Annual
Report on Form 10-K for the year
ended December 31, 2019.
Table of Contents
28
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. The
demand for Core
Molding Technologies’ products
is affected by economic conditions in the United States, Mexico, and Canada. Core
Molding
Technologies’ manufacturing
operations have
a significant fixed
cost component.
Accordingly, during periods
of changing
demand, the
profitability of Core
Molding Technologies’ operations may change
proportionately more
than revenues from
operations.
In 1996, Core
Molding Technologies
acquired substantially all
of the assets
and assumed certain liabilities
of Columbus Plastics,
a wholly owned operating unit of Navistar’s truck manufacturing division since its formation in late 1980. Columbus Plastics,
located in Columbus, Ohio, was a compounder and compression molder
of SMC. In 1998, Core Molding Technologies began
operations at its second
facility in Gaffney,
South Carolina, and in
2001, Core Molding Technologies
added a production facility
in Matamoros, Mexico
by acquiring
certain assets
of Airshield Corporation.
As a
result of
this acquisition,
Core Molding
Technologies expanded its fiberglass molding capabilities to include the spray up, hand-lay-up open mold processes and RTM
closed molding. In
2005, Core Molding
Technologies acquired certain
assets of the
Cincinnati Fiberglass Division
of Diversified
Glass, Inc.,
a Batavia,
Ohio-based, privately
held manufacturer
and distributor
of fiberglass
reinforced plastic
components supplied
primarily to
the heavy-duty
truck market.
In 2009,
the Company
completed construction
of a
new production
facility in
Matamoros,
Mexico that replaced its
leased facility. In
March 2015, the Company
acquired substantially all
of the assets of
CPI Binani, Inc.,
a wholly owned
subsidiary of Binani
Industries Limited, located in
Winona, Minnesota ("CPI"),
which expanded the
Company's
process capabilities to include D-LFT and diversified the customer base. In January 2018, the
Company acquired substantially
all the
assets of
Horizon Plastics,
which has
manufacturing operations
in Cobourg,
Ontario and
Escobedo, Mexico.
This
acquisition expanded
the Company's customer base, geographic
footprint, and process capabilities to
include structural foam
and structural web molding.
Business Overview
General
The Company’s business
and operating results are
directly affected by
changes in overall
customer demand, operational costs
and
performance and leverage of our fixed cost
and selling, general and administrative ("SG&A") infrastructure.
Product sales fluctuate in
response to several
factors including many
that are beyond
the Company’s control,
such as general
economic conditions, interest
rates, government regulations,
consumer spending, labor
availability, and
our customers’ production
rates and inventory
levels. Product sales consist
of demand from
customers in many
different markets with different
levels of
cyclicality and seasonality. Product sales from the Company's largest market, the North American
truck market, which is highly
cyclical, accounted for
42% and 60%
of the Company’s product
revenue for the
nine months ended
September 30, 2020
and
2019, 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
Table of Contents
29
Company gains experience
with new tools
and processes. Therefore,
during a new
program launch period,
start-up costs and
inefficiencies can affect
operating results.
Nine Months Ended September
30, 2020
Product sales for the
nine months ended September
30, 2020 decreased 29%
compared to the same
period in 2019. Operating
income increased from a loss of $7,406,000 to income of $7,
377,000 for the nine months ended September 30, 2020
compared
to the same period
a year ago. Lower demand
from our customers
as a result
of a cyclical
downturn in the
truck market and
the negative
effect of
COVID-19 on most
customer demand were
the primary drivers
of the sales
decrease. The increase
in
operating income was largely due
to improved manufacturing efficiencies
and cost savings
at several of
the Company's facilities.
The Company also incurred lower operating and SG&A cost
s.
For the nine months
ended September 30, 2020,
product sales to truck
customers decreased by 45%
compared to the same
period
in 2019, as
a result of a
cyclical downturn in
the truck market and
demand deterioration related to
COVID-19. According
to ACT
Research, North
American heavy-duty truck production
decreased approximately 47%
for the nine months
ended September 30,
2020 compared to the same period in 2019.
For the nine months ended September
30, 2020, the Company recorded net income of
$9,032 ,000 or
$1.07 per basic and diluted
share, compared
with net loss of $9,761,000,
or ($1.25) per
basic and diluted share
for the nine months
ended September 30,
2019. Net income in
2020 was favorably impacted
by $5,638,000, or $0.69
per share, as a result of
a tax valuation allowance
reversal and a tax rate benefit
due to tax law changes that
allow the Company to carryback net operating losses to
offset taxable
income in 2013 through
2015 and the tax rate change of 21% to 34%
.
Looking forward, the Company anticipates lower product sales for 2020 when compared to 2019, due to the negative impact of
customer shutdowns
as a
result of
COVID-19 and
lower demand
from truck
customers. Based
on customer
forecasts, the
Company anticipates product sales demand to be down slightly for the three months ended December 31, 2020 when compared
to the same period ended December 31, 2019
Results of Operations
Three Months Ended September
30, 2020, as Compared to Three Months Ended September
30, 2019
Net sales for the three months ended September 30, 2020
and 2019 totaled $59,873,000 and $74,655,000, respectively. Included
in net sales were
tooling project sales of
$5,663,000 and $7,144,000
for the three months ended
September 30, 2020 and
2019,
respectively. These sales are sporadic
in nature and fluctuate in
regard to scope and
related revenue on a period
-to-period basis.
Product sales, excluding
tooling project sales,
for the three
months ended September
30, 2020
were $54,240,000 compared
to
$67,511,000 for the same period in 2019. This decrease
in sales is
primarily the result
of lower demand
from truck and marine
customers partially
offset by higher
demand from customers
in the construction
and all-terrain
vehicle market.
Gross margin was
approximately 18.1
%
of sales for
the three months
ended September 30,
2020, compared with
8.7% for the
three months ended September 30, 2019.
The gross margin percentage increase was due to a favorable net change in product mix
and productivity efficiency of 11.9%, offset by an increase in
sales return of 2.0% and lower leverage of fixed costs of 1.0%.
Selling, general and
administrative expense (“SG&A”) was
$6,517,000 for the three
months ended September 30,
2020, compared
to $7,041,000
for the
three months
ended September
30, 2019.
Decreased SG&A
expenses resulted
primarily from
lower
professional and outside service expenses of $272,000 and
travel expenses of $157,000.
The Company incurred a goodwill impairment of
$4,100,000 associated with its Horizon Plastics
reporting unit during the three
months ended September 30, 2019.
The Company incurred lower profit margins
in its Horizon Plastics reporting unit
caused by
selling price decreases that the Company had not been able to
fully offset with material cost reductions.
Table of Contents
30
Interest expense totaled
$966,000 for the
three months ended
September 30, 2020,
compared to interest expense
of $1,113,000
for the three
months ended September
30, 2019. The decrease
in interest expense was
due to a
lower average outstanding
debt
balance, offset by higher interest rates during the three months ended September 30, 2020, when compared to the same period
in
2019.
Income tax expense for
the three months ended
September 30, 2020 was
1.0% of income
before income taxes,
and income tax
for the three months ended September 30,
2019 was 6.6% of loss before income taxes. The Company’s effective tax rates reflect
the effects of taxable
income and
taxable losses being generated in tax jurisdictions with different tax rates.
The effective tax rate
for 2020 reflects recording net
operating losses in US jurisdictions
at the tax rate which
will be applied when
the Company carries
2020 losses back to previous tax years.
The Company recorded net income for the three months ended September 30,
2020 of $3,343,000 or $0.39 per basic and diluted
share, compared with
a net loss of
$6,125,000, or $0.78
per basic and
diluted share, for
the three months ended
September 30,
2019.
Comprehensive income totaled
$3,742,000 for the three
months ended September 30,
2020, compared to
comprehensive losses
of $6,462,000
for the same period ended September 30, 2019. The increase was primarily related to an increase in net income of
$9,468,000 and a change in unrealized foreign currency hedges of $
523,000, net of tax.
Nine Months Ended September
30, 2020, as Compared to Nine Months Ended September
30, 2019
Net sales
for the
nine months
ended September
30, 2020
and 2019
totaled $161,705,000
and $228,168,000,
respectively.
Included in total sales were tooling project sales of $9,686,000 and $13,765,000 for the nine months ended September 30, 2020
and 2019, respectively.
These sales are sporadic
in nature and fluctuate
in regard to scope
and related revenue on
a period-to-
period basis. Product sales, excluding tooling
project sales, for the nine months ended
September 30, 2020 were $152,019,000
compared to $214,403,000
for the same period
in 2019. This decrease
in sales is primarily the result of lower cyclical demand
from truck customers as well as lower demand from most all
customers as a result of COVID
-19.
Gross margin was
approximately 15
.2%
of sales for
the nine months
ended September 30,
2020, compared with
7.9% for the
nine months ended September
30, 2019. The gross
margin percentage increase
was due to favorable
net change in product
mix
and manufacturing
efficiency of 8.9%
and a favorable
net change in
selling price and
material costs of
1.1%, offset by
lower
leverage of fixed costs of 2.1% and higher sales returns of 0.9%.
Selling, gener
al and
administrative expense
(“SG&A”) was
$17,136,000 for
the nine
months ended
September 30,
2020,
compared to $21,431,000 for the
nine months ended September 30, 2019.
The decrease in SG&A
expense primarily resulted from
lower professional and outside services of $1,417,000, government subsides enacted as a result of COVID-19 of $1,416,000
and
lower travel expenses of $619,000.
The Company incurred a
goodwill impairment of $4,100,000
associated with its Horizon Plastics
reporting unit during the nine
months ended September 30, 2019.
The Company incurred lower profit margins
in its Horizon Plastics reporting unit
caused by
selling price decreases that the Company had not been able to
fully offset with material cost reductions.
Interest expense totaled $3,338,000 for
the nine months ended September 30, 2020,
compared to interest expense of $2,878,000
for the nine months ended September
30, 2019. The increase in interest expense
was due to higher interest rates
during the nine
months ended September 30, 2020, when compared to the same period
in 2019.
Income tax benefit for
the nine months ended
September 30, 2020 was
120.3% of the income before
income taxes, and income
tax
benefit for
the nine months ended September
30, 2019 was 4.4%
of the loss before income
taxes. The Company’s effective
tax
rates reflect the effects of
taxable income and
taxable losses being generated in tax jurisdictions with different tax
rates.
Table of Contents
31
The Company recorded a net income
for the nine months ended September
30, 2020 of $9,032,000, or $1.07
per basic and diluted
share, compared with
a net loss
of $9.761,000
or $1.25 per
basic and diluted
share, for the
nine months ended
September 30,
2019.
Comprehensive income totaled
$8,063,000 for the
nine months ended
September 30, 2020,
compared to
comprehensive losses
of $10,215,000
for the
same period
ended September
30, 2019.
The increase
was primarily
related to
higher net
income of
$18,793,000 and a
change in unrealized foreign
currency hedges of $753,000,
net of tax, for
the nine months ended
September
30, 2020.
Liquidity and Capital Resources
Historically, 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, increases in working capital, capital expenditures,
repayment
of long-term
debt and
business 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 September
30, 2020, the Company had
outstanding foreign
exchange contracts
with notional
amounts totaling
$51,000, compared
to $15,358,000
outstanding as
of
December 31,
2019. As of September
30, 2020,
the Company also
had outstanding interest
rate swaps with
notional amounts
totaling $27,125,000, compared to $29,750,000 outstanding as of December
31, 2019.
Cash provided
by operating
activities for
the nine
months ended
September 30,
2020 totaled
$31,052,000. Net
income of
$9,032,000 positively
impacted operating
cash flows.
Non-cash deductions
of depreciation
and amortization
included in
net
income amounted
to $8,425,000.
Changes in working
capital increased
cash provided
by operating activities
by $11,816,000,
which primarily related to changes in accounts receivable, inventory and
other accrued liabilities, offset by accounts payable.
At September 30, 2020, the Company had
$14,809,000 cash on hand, and an available
balance on the revolving line of credit
of
$20,000,000. 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.
Cash used in investing
activities for the nine
months ended September 30,
2020 was $2,716,000,
which related to purchases
of
property, plant and equipment.
The Company anticipates
spending up to $2,000,000
during the remainder of
2020 on property,
plant and equipment purchases for all of the Company's operations.
At September 30,
2020, purchase commitments
for capital expenditures
in progress were
$338,000. The Company
anticipates
using cash from operations and its available revolving line of credit
to fund capital investments.
Cash used in financing activities for
the nine months ended September 30,
2020 totaled $15,383,000, which primarily consisted
of net
revolving loan
payments of
$12,007,000 and
net scheduled
repayments of
principal on
outstanding term
loans of
$3,391,000. The Company
was able to
make the repayments
primarily due to
the cash provided
by operating activities
of the
$15,399,000 for the nine months ended of September 30,
2020.
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 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 “
US 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 US
Revolving Loans to
the Company on
a dollar-for-dollar basis) and
term
Table of Contents
32
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.
Interest is payable monthly at
one month LIBOR plus a
basis point margin of 700 basis points with a LIBOR floor of 100
basis points.
During 2019, the Company 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).
On November 22,
2019, the Company and
the Lenders entered
into a forbearance agreement
(the
"Forbearance Agreement"),
which was amended twice, first on March
13, 2020 agreement (the "Amended Forbearance
Agreement") and then on May 29, 2020 (the “Second Amended Forbearance Agreement”).
The Second Amended Forbearance Agreement
provided that the Company and the Lenders agreed to modify certain terms of the
Amended Forbearance
Agreement and
extend the
Forbearance Agreement
through September
30, 2020.
The modifications
include (1) that the Company will maintain liquidity of not less than $5,000,000, to be measured twice monthly, on every second
and fourth Friday of each month
during the forbearance period, (2)
the Company shall maintain minimum year-to-date
earnings
before income
tax, depreciation
and amortization
(“YTD-EBITDA”) of
not less
than $5,000,000,
measured upon delivery
of
Company’s July
2020 financial statements
and also upon delivery
of Company’s
August 2020 financial
statements, with YTD-
EBITDA determined based on
consolidated EBITDA,
(3) a change
of interest rate
to LIBOR rate
plus 700 basis
points with a
LIBOR floor of
100 basis points,
(4) on or
before July 15,
2020 the Borrowers
shall have obtained
executed term sheets
from
involved parties and/or lenders, (5) on or before September 30, 2020, the Borrowers shall have closed on a new capital structure,
(6) forbearing compliance with the leverage covenant
and fixed charge covenant through September
30, 2020, and (7)
implementation of a capital expenditure spend limit of $3,000,000
for the nine months ended September 30, 2020.
The Company has unblocked
maximum availability of
$20,000,000 of variable
rate revolving loans of
which $0 is outstanding
as of September 30, 2020.
On April 24, 2020
the Company entered
into a finance
agreement with Leaf
Capital Funding of
$175,000 for equipment.
The
parties agreed to a fixed interest rate of 550 basis point and a term of 60 months. The amount outstanding at September 30, 2020
was $160,000 of which, $127,000 was classified as long term debt.
On October 27, 2020, the Company entered into
the Refinancing Agreements, as defined in
Note 2, “Critical Accounting Policies
and Estimates”, and repaid
all of its obligations under
the A/R Credit Agreement. Management believes that existing
cash, cash
flow from
operating activities
and available
borrowings under
the Refinancing
Agreements will
be sufficient
to meet
the
Company’s liquidity
needs for
the next 12
months. Based on
the Company
’s forecasts,
which are based
on industry analysts’
estimates of heavy and medium-duty truck production volumes, customers' forecasts, as well as other assumptions,
management
believes that the Company will be able to maintain compliance with its financial covenants for
the next 12 months.
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.
Off-Balance Sheet Arrangements
The Company did not have any significant off-balance sheet
arrangements as of September 30, 2020 or December 31, 2019.
Table of Contents
33
The Company
did not
have or
experience any
material changes
outside the
ordinary course
of business
as to
contractual
obligations, including long-term
debt obligations, capital
lease obligations, operating
lease obligations, purchase
obligations or
other long- term
liabilities reflected on
the Company’s
balance sheet under
GAAP, as of
September 30, 2020
or December 31,
2019.
Critical Accounting Policies and Estimates
For information on
critical accounting policies
and estimates, see
Note 2, "Critical
Accounting Policies and
Estimates," to
the
consolidated financial statements included herein.
Recent Accounting Pronouncements
For information on the impact of recently
issued accounting pronouncements, see Note 3, "Recent Accounting
Pronouncements,"
to the consolidated financial statements included here
Table of Contents
34
Part I — Financial Information
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Core Molding Technologies
’
primary market risk
results from
changes in
the price
of commodities
used in its
manufacturing
operations. Core
Molding Technologies
is also
exposed to
fluctuations in
interest rates
and foreign
currency fluctuations
associated with
the Mexican
peso and
Canadian Dollar.
Core Molding
Technologies does
not hold
any material
market risk
sensitive instruments
for trading
purposes. The
Company may
use derivative
financial instruments
to hedge
exposure to
fluctuations in foreign exchange rates and interest rates.
Core Molding Technologies has the following three items
that are sensitive to market risks: (1)
Revolving Loans and Term Loans
under the Amended and Restated Credit
Agreement, some of which bear
a variable interest rate;
(2) foreign currency purchases
in which the Company purchases Mexican pesos and Canadian dollars with
United States dollars to meet certain obligations; and
(3) raw material purchases in which
Core Molding Technologies purchases various
resins, fiberglass, and metal components
for
use in production.
The prices
and availability of
these materials
are affected
by the prices
of crude
oil, natural gas
and other
feedstocks, tariffs, as well as processing capacity versus demand.
Assuming a hypothetical 10%
change in short-term interest
rates, interest paid on the Term
Loan would have been impacted,
as
the interest rate on these loans is based upon LIBOR. It would
not, however, have a material effect on earnings before tax.
Assuming a
hypothetical 10%
decrease in
the United
States dollar
to Mexican
peso and
Canadian dollar
exchange rate,
the
Company would be impacted by an increase in operating costs, which would
have an adverse effect on operating margins.
Assuming a hypothetical
10% increase in
commodity prices, Core
Molding Technologies would
be impacted by
an increase in
raw material costs, which would have an adverse effect on operating margins.
Table of Contents
35
Part I — Financial Information
Item 4.
Controls and Procedures
As of the end of the period covered by this report, the Company has carried out an
evaluation, under the supervision and with the
participation of its management, including its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness
of the
design and operation
of its disclosure
controls and procedures
(as defined in Rule
13a-15(e) of the
Exchange Act). Based upon
this evaluation, the
Company’s management,
including its Chief
Executive Officer
and its Chief
Financial Officer,
concluded
that the Company
’s disclosure
controls and procedures
were (i) effective to
ensure that information
required to be
disclosed in
the Company
’s reports
filed or
submitted under
the Exchange
Act was
accumulated and
communicated to
the Company
’s
management, including its Chief
Executive Officer and Chief
Financial Officer, as appropriate
to allow timely decisions
regarding
required disclosure,
and (ii)
effective to
ensure that
information required
to be
disclosed in
the Company
’s reports
filed or
submitted under
the Exchange
Act is recorded,
processed, summarized
and reported
within the time
periods specified
in the
Securities and Exchange Commission
’s rules and
forms.There were no changes
in internal controls
over financial reporting (as
such term is defined in Exchange Act Rule
13a-15(f)) that occurred in the last
fiscal quarter that have materially affected,
or are
reasonably likely to materially affect, our internal controls over financial
reporting.
Table of Contents
36
Part II — Other Information
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.
Risk Factors
The following risk factor supplements
the “Risk Factors” section
in Part 1, Item
1A, of our Annual
Report on Form 10-K
for the
fiscal year ended
December 31,
2019 (our “Form
10-K"). The following
risk factor disclosure
should be read
in conjunction with
the other risk factors set out in our Form 10-K.
The Recent Coronavirus
(COVID-19) Outbreak Has
Adversely Impacted our Business
and Could in the
Future Have a
Material
Adverse Impact on
our Business, Results
of Operation, Financial
Condition and Liquidity,
the Nature and
Extent of Which
is Highly
Uncertain
The global outbreak of
the coronavirus (COVID-19) has
significantly increased economic,
demand and operational uncertainty.
We have global operations, customers
and suppliers, including in countries most
impacted by COVID-19. Authorities around
the world
have taken a variety
of measures to slow
the spread of COVID-19,
including travel bans
or restrictions, increased
border controls
or closures,
quarantines, shelter-in-place
orders and
business shutdowns and
such authorities
may impose
additional restrictions.
We have also taken actions
to protect our employees and
to mitigate the spread
of COVID-19, including
embracing guidelines set
by the
World Health Organization
and the
Centers for
Disease Control and
Prevention on social
distancing, good hygiene, restrictions on employee travel
and in-person meetings, and
changes to employee work
arrangements
including remote work arrangements where feasible. The actions
taken around the world
to slow the spread
of COVID-19 have
also impacted our customers
and suppliers, and
future developments could cause
further disruptions to the
Company due to the
interconnected nature of our business relationships.
The impact of
COVID-19 on the
global economy and
our customers has
negatively impacted demand for
our products and
could
continue to do
so in
the future. Its
effects could also
result in further
disruptions to our
manufacturing operations, including
higher
rates of employee
absenteeism, and supply
chain disruption, which
could continue to
negatively impact our
ability to meet
customer demand. Additionally, the potential deterioration and volatility of credit and financial markets could limit our ability
to obtain external
financing. The extent to
which COVID-19 will
impact our business, results
of operations, financial condition
or liquidity is highly uncertain and will
depend on future developments,
including the spread
and duration of
the virus, potential
actions taken by governmental authorities, and how quickly economic conditions stabilize and
recover.
Unregistered Sales of Equity Securities and Use of Proceeds
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number that
May Yet
be Purchased
Under the Plans or
Programs
July 1 to 30, 2020
3,788
4.61
—
—
August 1 to 31, 2020
—
—
—
—
September 1 to 30, 2020
—
—
—
—
Defaults Upon Senior Securities
None.
Table of Contents
37
Mine Safety Disclosures
None.
Other Information
None.
Item 6.
Exhibits
See Index to Exhibits.
Table of Contents
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CORE MOLDING TECHNOLOGIES, INC.
Date:
November
6, 2020
By:
/s/ David L. Duvall
David L. Duvall
President, Chief Executive Officer, and Director
Date:
November
6, 2020
By:
/s/ John P. Zimmer
John P. Zimmer
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
Table of Contents
39
INDEX TO EXHIBIT
Exhibit No.
Description
Location
2(a)(1)
Asset Purchase Agreement
dated as of
September
12,
1996, as amended October
31, 1996, between Navistar
and RYMAC Mortgage Investment Corporation
1
Incorporated by reference to Exhibit
2-A to
Registration Statement on Form
S-4 (Registration No.
333-15809)
2(a)(2)
Second Amendment to
Asset Purchase
Agreement
dated December
16, 1996
1
Incorporated by reference to Exhibit
2(a)(2) to Annual
Report on Form
10-K for the year-ended
December
31, 2001
2(b)(1)
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)
2(b)(2)
First Amendment
to Agreement and
Plan of
Merger
dated as of December
27, 1996 between Core Molding
Technologies, Inc. and RYMAC Mortgage Investment
Corporation
Incorporated by reference to Exhibit
2(b)(2) to Annual
Report on Form
10-K for the year ended December
31,
2002
2(c)
Asset Purchase Agreement
dated as of October
10,
2001, between
Core Molding
Technologies, Inc.
and
Airshield Corporation
Incorporated by reference to Exhibit
1 to Current
Report on Form
8-K filed October
31, 2001
2(d)
Asset Purchase
Agreement dated
as of March
20,
2015, between
Core Molding
Technologies, Inc
and
CPI Binani, Inc.
Incorporated by reference to Exhibit
2.1 to Current
Report on Form
8-K filed March
23, 2015
2(e)
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
Incorporate by reference to Exhibit 2.1 to Current
Report on Form 8-K filed January
19, 2018
3(a)(1)
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)
3(a)(2)
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)
3(a)(3)
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
3(a)(4)
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
Incorporated by reference to Exhibit
3.1 to Current
Report on Form
8-K filed July
19, 2007
3(a)(5)
Certificate of
Elimination of
Series A Junior
Participating Preferred Stock,
as filed with the
Secretary of State of the State of
Delaware on April
2,
2015.
Incorporated by reference to Exhibit
3(a)(5) to Current
Report on Form
8-K filed April
2, 2015
3(b)
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
3(b)(1)
Amendment No. 1
to the 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 December
17, 2013
4(a)(1)
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)
Table of Contents
40
Exhibit No.
Description
Location
4(a)(2)
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)
4(a)(3)
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
4(a)(4)
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
Incorporated by reference to Exhibit
3.1 to Current
Report on Form 8-K filed July
19, 2007
4(a)(5)
Certificate of
Elimination of
Series A Junior
Participating Preferred
Stock, as filed
with the
Secretary of State of
the State of Delaware
on April
2,
2015
Incorporated by reference to Exhibit
3(a)(5) to Current
Report on Form 8-K filed April
2, 2015
4 (a) (6)
Certificate of
Designation, Preferences
and Rights
of
Series B Junior
Participating Preferred
Stock, as filed
with the Secretary of State of the
State of Delaware on
April 21, 2020
Incorporated by reference to Exhibit 3.1 to Current
Report on Form 8-K filed April 22, 2020
4(a)(7)
Rights Agreement, dated
as of April 21,
2020, by and
between Core
Molding Technologies,
Inc. and
American Stock Transfer &
Trust Company, as
Rights
Agent
Incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K filed April 22, 2020
11
Computation of Net Income per Share
Exhibit
11 omitted because the required information is
Included in Notes to Financial Statement
31(a)
Section
302 Certification
by David
L. Duvall,
President, Chief Executive Officer, and Director
Filed Herein
31(b)
Section
302 Certification by
John P. Zimmer,
Vice
President, Secretary, Treasurer, and
Chief Financial
Officer
Filed Herein
32(a)
Certification of
David L.
Duvall, Chief
Executive
Officer of Core
Molding Technologies, Inc.,
dated
November
6, 2020, pursuant to 18 U.S.C.
Section
1350
Filed Herein
32(b)
Certification of
John P.
Zimmer, Chief
Financial
Officer of Core
Molding Technologies, Inc.,
dated
November
6, 2020, pursuant to 18 U.S.C.
Section
1350
Filed Herein
101.INS
XBRL Instance Document
Filed Herein
101.SCH
XBRL Taxonomy Extension Schema Document
Filed Herein
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Filed Herein
101.LAB
XBRL Taxonomy Extension Label Linkbase
Filed Herein
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Filed Herein
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Filed Herein
The Asset Purchase Agreement, as filed with the Securities and Exchange Commission as Exhibit
2-A to Registration Statement
on Form
S-4 (Registration
No.
333-15809), omits
the exhibits
(including the
Buyer Note,
Special Warranty
Deed, Supply
Agreement, Registration Rights Agreement and Transition Services Agreement identified in the
Asset Purchase Agreement) and
schedules (including
those identified
in Sections
1, 3,
4, 5,
6, 8
and 30
of the
Asset Purchase
Agreement). Core
Molding
Technologies, Inc. will provide any omitted exhibit or schedule to
the Securities and Exchange Commission upon request.