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Critical Accounting Policies and Estimates (Policies)
 9 Months Ended
Sep. 30, 2020
Critical Accounting Policies and Estimates  
Revenue Recognition
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.
Contract Assets/Liabilities
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.
Accounts Receivable Allowances
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.
Inventories
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.
Income Taxes
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:
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:
 
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
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.
Self Insurance
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
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
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.