Core Molding Technologies, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; fourth-quarter figures are highlighted below.
Business context and reporting period
Core Molding Technologies manufactures thermoplastic and thermoset structural plastic components for truck, marine, automotive, agriculture, construction and other commercial markets. It operates seven production facilities in the United States, Mexico and Canada. The North American truck market represented 43% of product sales in 2020, down from 58% in 2019.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $222.4 million | $284.3 million |
| Gross margin | $34.5 million; 15.5% of sales | $21.5 million; 7.6% of sales |
| Operating income (loss) | $10.4 million | $(11.5) million |
| Net income (loss) | $8.2 million; $0.98 per share | $(15.2) million; $(1.94) per share |
| Cash from operating activities | $28.2 million | $16.7 million |
| Capital expenditures | $3.7 million | $7.5 million |
| Cash and cash equivalents at year-end | $4.1 million | $1.9 million |
| Working capital at year-end | $20.5 million | $(22.6) million |
Fourth-quarter 2020 sales were $60.7 million, operating income was $3.0 million and net loss was $0.9 million. In fourth-quarter 2019, sales were $56.1 million, operating loss was $4.1 million and net loss was $5.5 million.
At year-end, term-loan principal was $29.7 million and revolving borrowings were $0.4 million; $19.2 million remained available under the revolving facility. The company reported $25.2 million of long-term debt on the balance sheet, net of deferred financing costs and current maturities. Management said available cash, operating cash flow and credit availability should meet current liquidity needs.
Material changes versus the prior period
- Annual sales fell 21.8%; product sales declined 22%, principally from lower truck-market demand and COVID-19 impacts. Truck product sales declined 38%.
- Gross margin improved to 15.5% from 7.6%, primarily due to favorable product mix, improved manufacturing efficiency and cost savings, partly offset by lower fixed-cost absorption.
- Operating results improved from a loss to income, aided by lower SG&A and no goodwill impairment in 2020; 2019 included a $4.1 million Horizon Plastics goodwill impairment.
- Operating cash flow rose to $28.2 million. Financing activities included repayment of prior borrowings and refinancing in October 2020 with Wells Fargo and FGI.
- Five major customers accounted for approximately 70% of annual sales, unchanged from 2019. Sales mix shifted: UFP rose to 17% of sales from 9%, while Navistar, PACCAR and Volvo declined as shares of sales.
Outlook, commentary, risks and unusual items
- Management expected 2021 sales to increase versus 2020, citing industry projections and customer forecasts. ACT Research forecast North American heavy-duty truck production to rise approximately 41%; customers in marine and all-terrain vehicle markets also forecast higher demand.
- Management anticipated higher raw-material costs and said only a portion could be passed through to customers. February 2021 winter storms disrupted the company’s Mexico operations and regional resin and fiberglass suppliers; customer order delays and material price increases were reported, with suppliers expecting recovery during the second quarter.
- 2020 net income benefited by $5.3 million, or approximately $0.67 per share, from a tax valuation-allowance reversal and a tax benefit related to carrying losses back to years with a higher tax rate. This benefit materially affects comparability of reported net income.
- Interest expense included a $1.3 million loss on terminating interest-rate swaps and $0.6 million of one-time deferred refinancing-cost expense. The prior KeyBank debt was repaid in October 2020. The new Wells Fargo term and revolving facilities mature in 2024; the FGI loan bears fixed interest of 8.25% and matures in 2026.
- Key risks include customer and industry concentration, cyclical truck demand, COVID-19 and supply-chain disruption, raw-material cost and availability, fixed-cost exposure, labor relations, foreign operations and currency, debt covenants, and execution of new programs. The company was in compliance with its stated financial covenant at year-end.
- The company planned approximately $19.5 million of 2021 capital expenditures, including about $8.5 million to expand direct-long-fiber thermoplastic capacity in Mexico. It also planned to close its Batavia, Ohio manufacturing facility during 2021.
- No material pending legal proceedings were reported. The auditor issued an unqualified opinion and reported no critical audit matters; management concluded internal control over financial reporting was effective, and the smaller-reporting-company filing did not include an auditor attestation on those controls.
Important facts for investors to verify
- Whether the 2021 sales recovery and heavy-duty truck production forecast materialized, and how actual demand compared with forecasts.
- How much of the 2020 earnings improvement was sustainable operational improvement versus the $5.3 million tax benefit and absence of the prior-year impairment.
- Current borrowing availability, covenant headroom, debt repayment requirements and the cost of the FGI financing.
- Whether raw-material inflation, supplier disruptions and customer order delays affected margins, production or working capital after year-end.
- Whether customer concentration changed and whether key supply agreements, including Navistar’s agreement expiring in November 2021, were renewed or replaced.
- Whether the planned capital spending, Mexico capacity expansion and Batavia facility closure were completed on schedule and within budget.