Core Molding Technologies, Inc. — 2021 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. Core Molding Technologies manufactures thermoplastic and thermoset structural products for truck, power sports, building products, industrial, utilities, and other markets. It operates as one reporting segment, with facilities in the United States, Canada, and Mexico. The Batavia, Ohio facility closure was completed in Q4 2021.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $307.5 million | $222.4 million |
| Gross margin | $41.3 million; 13.4% of sales | $34.5 million; 15.5% of sales |
| Operating income | $11.1 million | $10.4 million |
| Net income | $4.7 million; $0.55 per diluted share | $8.2 million; $0.98 per diluted share |
| Cash provided by operating activities | $12.5 million | $28.2 million |
| Capital expenditures | $11.6 million | $3.7 million |
- Total sales rose 38% year over year; product sales increased 35% to $284.0 million. Tooling sales were $23.5 million, versus $11.8 million in 2020.
- Sales growth reflected stronger customer demand, new program launches, and customer recovery of some raw-material cost increases. Truck product sales were $114.8 million, power sports $60.2 million, and building products $45.0 million.
- Gross margin percentage declined to 13.4%. Management attributed the pressure mainly to the net effect of selling-price changes and material costs, partly offset by improved product mix, production efficiencies, and fixed-cost leverage.
- Raw-material cost increases totaled $28.2 million; approximately $19.1 million was recovered from customers. Contractual limitations prevented full recovery.
- Operating cash flow fell to $12.5 million, including a $5.9 million working-capital cash outflow. Cash and cash equivalents were $6.1 million at year-end.
- At year-end, gross term-loan debt was $26.7 million and revolving borrowings were $4.4 million; revolving availability was $24.3 million. The company reported compliance with debt covenants. Term-loan maturities are concentrated in 2024; the revolving facility matures in November 2024.
- Current assets were $75.1 million and current liabilities $53.1 million. The balance sheet also included $25.1 million of inventory and $36.5 million of net accounts receivable.
Material changes and unusual items
- Net income declined despite higher sales and operating income, primarily reflecting higher income tax expense in 2021 versus a tax benefit in 2020. The 2020 comparison also included COVID-related government subsidies and unusual refinancing and interest-rate-swap costs.
- The company incurred $2.6 million of operating losses and closure costs related to Batavia. It reported no additional Batavia closure costs expected after completion in Q4 2021.
- Capital spending increased substantially, including $4.9 million for a direct-long-fiber-thermoplastic capacity expansion in Matamoros.
- Medium- and heavy-duty trucks accounted for 41% of product sales, down from 43% in 2020 and 58% in 2019. Five major customers represented 63% of 2021 sales and 55% of year-end receivables.
- Fourth-quarter 2021 sales were $73.2 million, operating income $1.9 million, and net income $0.4 million. Third-quarter results included an operating loss of $2.4 million and a net loss of $3.3 million.
Outlook, risks, and contingencies
- Management expected 2022 sales to increase from 2021, based on customer forecasts and new program launches. It cautioned that customer supply-chain disruptions could cause sporadic forecast reductions.
- Management expected most raw-material costs to remain elevated in 2022, while anticipating possible decreases in commodity resin prices. It reported negotiating customer surcharges in Q1 2022 and planned further price increases where feasible.
- Labor markets were tight across company locations; management expected continued pressure on wages and hiring and said it would seek customer price increases where possible.
- Key risks include customer concentration and truck-market cyclicality, raw-material and labor inflation, supply availability, customer pricing constraints, production and program-launch execution, labor relations, and foreign-exchange and geopolitical risks. Navistar’s supply agreement expired December 31, 2021; business continued on individual purchase-order terms pending a new agreement.
- The Cobourg collective bargaining agreement had expired, and the company reported negotiating an extension. Work stoppages or failure to reach agreements could disrupt operations.
- The company reported no material pending legal proceedings and no significant off-balance-sheet arrangements. Management and the auditor concluded internal control over financial reporting was effective as of year-end; the auditor reported no critical audit matters.
Important facts for investors to verify
- Whether forecast 2022 sales growth and new program launches translated into realized shipments and profitable production.
- Whether customer pricing and surcharges offset raw-material, labor, and logistics inflation, and whether gross margins recovered.
- Progress on the Navistar supply agreement and the Cobourg labor agreement, alongside exposure to the five major customers.
- Cash generation, working-capital needs, planned 2022 capital spending of approximately $14.8 million, and borrowing availability under the credit facility.
- Debt-service and covenant capacity, particularly with variable-rate borrowing and the 2024 facility maturities.