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Table of Contents
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 March 31, 2021
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 (614870-5000
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 May 6, 2021, the latest practicable date, 8,484,477 shares of the registrant’s common stock were issued, which includes 496,677 shares of unvested restricted common stock.


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2

Table of Contents
Part I — Financial Information
Item 1. Financial Statements
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except for per share data)
(Unaudited)
Three months ended
March 31,
20212020
Net sales$72,829 $64,023 
Cost of sales60,111 53,257 
Gross margin12,718 10,766 
Selling, general and administrative expense7,372 6,505 
Operating income5,346 4,261 
Other income and expense
Interest expense579 1,174 
Net periodic post-retirement benefit(40)(20)
Total other expense539 1,154 
Income before taxes4,807 3,107 
Income tax expense (benefit)1,351 (4,854)
Net income$3,456 $7,961 
Net income per common share:
Basic$0.41 $0.97 
Diluted$0.41 $0.97 
See notes to unaudited consolidated financial statements.
3

Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three months ended
March 31,
20212020
Net income$3,456 $7,961 
Other comprehensive income:
Foreign currency hedging derivatives:
Unrealized hedge loss (1,674)
Income tax benefit 360 
Interest rate swaps:
Unrealized hedge loss (783)
Income tax benefit 178 
Post retirement benefit plan adjustments:
Net actuarial gain43 45 
Prior service costs(124)(124)
Income tax benefit17 17 
Comprehensive income$3,392 $5,980 
See notes to unaudited consolidated financial statements.
4

Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except for share data)
(Unaudited)
March 31,
2021
December 31,
2020
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents$3,027 $4,131 
Accounts receivable, net40,202 27,584 
Inventories, net20,373 18,360 
Income tax receivable2,255 2,026 
Prepaid expenses and other current assets3,966 4,377 
Total current assets69,823 56,478 
Right of use asset4,346 2,754 
Property, plant and equipment, net74,000 74,052 
Goodwill17,376 17,376 
Intangibles, net11,029 11,516 
Other non-current assets3,211 3,332 
Total Assets$179,785 $165,508 
Liabilities and Stockholders’ Equity:
Current liabilities:
Current portion of long-term debt$2,938 $2,535 
Revolving debt3,001 420 
Accounts payable25,465 16,994 
Taxes payable1,041 2,613 
Contract liability2,153 1,319 
Compensation and related benefits7,300 8,305 
Accrued other liabilities4,411 3,809 
Total current liabilities46,309 35,995 
Other non-current liabilities3,893 2,560 
Long-term debt24,226 25,198 
Post retirement benefits liability7,762 7,823 
Total Liabilities82,190 71,576 
Commitments and Contingencies  
Stockholders’ Equity:
Preferred stock — $0.01 par value, authorized shares — 10,000,000; no shares outstanding at March 31, 2021 and December 31, 2020
  
Common stock — $0.01 par value, authorized shares – 20,000,000; outstanding shares 7,987,800 at March 31, 2021 and 7,980,516 at December 31, 2020
80 80 
Paid-in capital36,445 36,127 
Accumulated other comprehensive income, net of income taxes1,311 1,375 
Treasury stock - at cost, 3,810,929 at March 31, 2021 and December 31, 2020
(28,568)(28,521)
Retained earnings88,327 84,871 
Total Stockholders’ Equity97,595 93,932 
Total Liabilities and Stockholders’ Equity$179,785 $165,508 
See notes to unaudited consolidated financial statements.
5

Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
(In thousands, except for share data)
(Unaudited)
For the three months ended March 31, 2020:
Common Stock
Outstanding
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Retained
Earnings
Total
Stockholders'
Equity
SharesAmount
Balance at December 31, 20197,877,945 $79 $34,772 $1,370 $(28,501)$76,706 $84,426 
Net income7,961 7,961 
Change in post retirement benefits, net of tax benefit of $17
(62)(62)
Unrealized foreign currency hedge loss, net of tax benefit of $360
(1,314)(1,314)
Change in interest rate swaps, net of tax benefit of $178
(605)(605)
Restricted stock vested4,771 — — 
Share-based compensation316 316 
Balance at March 31, 20207,882,716 $79 $35,088 $(611)$(28,501)$84,667 $90,722 

For the three months ended March 31, 2021:
Common Stock
Outstanding
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Retained
Earnings
Total
Stockholders'
Equity
SharesAmount
Balance at December 31, 20207,980,516 $80 $36,127 $1,375 $(28,521)$84,871 $93,932 
Net income3,456 3,456 
Change in post retirement benefits, net of tax benefit of $17
(64)(64)
Purchase of treasury stock(47)(47)
Restricted stock vested7,284 — — 
Share-based compensation318 318 
Balance at March 31, 20217,987,800 $80 $36,445 $1,311 $(28,568)$88,327 $97,595 
See notes to unaudited consolidated financial statements.
6

Table of Contents
Core Molding Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20212020
Cash flows from operating activities:
Net income$3,456 $7,961 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization3,049 2,823 
Deferred income tax 517 
Share-based compensation318 316 
Losses (gains) on foreign currency translation235 (74)
Change in operating assets and liabilities:
Accounts receivable(12,618)4,389 
Inventories(2,013)2,050 
Prepaid and other assets303 (4,882)
Accounts payable8,283 (7,444)
Accrued and other liabilities(1,385)(184)
Post retirement benefits liability(140)(93)
Net cash provided (used in) by operating activities(512)5,379 
Cash flows from investing activities:
Purchase of property, plant and equipment(2,436)(456)
Net cash used in investing activities(2,436)(456)
Cash flows from financing activities:
Gross repayments on revolving line of credit(5,915)(38,814)
Gross borrowings on revolving line of credit8,496 34,582 
Payments related to the purchase of treasury stock(47) 
Payment of deferred loan costs(2) 
Payment of principal on term loans(688)(1,125)
Net cash provided by (used in) financing activities1,844 (5,357)
Net change in cash and cash equivalents(1,104)(434)
Cash and cash equivalents at beginning of period4,131 1,856 
Cash and cash equivalents at end of period$3,027 $1,422 
Cash paid for:
Interest$467 $1,088 
Income taxes$2,560 $185 
Non-cash investing activities:
Fixed asset purchases in accounts payable$99 $184 
See notes to unaudited consolidated financial statements.
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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 March 31, 2021, and the results of operations and cash flows for the three months ended March 31, 2021. The “Notes to Consolidated Financial Statements” contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, 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 one reporting unit, Core Technologies. 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"), resin transfer molding ("RTM"), liquid molding of dicyclopentadiene ("DCPD"), spray-up and hand-lay-up, 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
Principles of Consolidation: 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.
Use of 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.
Revenue Recognition: The Company recognizes revenue from two streams, product revenue and tooling revenue. Product revenue is earned from the manufacture and sale of thermoplastic and thermoset structural 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 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
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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 $51,000 and $41,000 at March 31, 2021 and December 31, 2020, 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 $402,000 at March 31, 2021 and $179,000 at December 31, 2020.
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 $451,000 at March 31, 2021 and $546,000 at December 31, 2020.
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 $549,000 at March 31, 2021, and $554,000 at December 31, 2020. Contract assets are generally classified as current within prepaid expenses and other current assets on the Consolidated Balance Sheets. For the three months ended March 31, 2021, the Company recognized no impairments on contract assets. For the three months ended March 31, 2021, the Company recognized $2,710,000 amount of revenue from contract liabilities related to open jobs outstanding as of December 31, 2020.
Income Taxes: 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 11, "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, 2020.
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 three months ended March 31, 2021 or March 31, 2020.
Goodwill: The purchase consideration of acquired businesses have been allocated to the assets and liabilities acquired based on the estimated fair values on the respective acquisition dates. Based on these values, the excess purchase consideration over the fair value of the net assets acquired was allocated to goodwill. The Company accounts for goodwill in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other. FASB ASC Topic 350 prohibits the amortization of goodwill and requires these assets be reviewed for impairment.
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 period. The Company may resume the qualitative assessment in any subsequent period.
Under a qualitative and quantitative approach, the impairment test for goodwill consists of an assessment of whether it is more-likely-than-not that the fair value is less than its carrying amount. As part of the qualitative assessment, the Company considers relevant events and circumstances that affect the fair value or carrying amount of the Company. Such events and circumstances could include changes in economic conditions, industry and market conditions, cost factors, overall financial performance, and
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capital markets pricing. The Company places more weight on the events and circumstances that most affect the Company's fair value or carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform step one of the impairment test. If the Company elects to bypass the qualitative assessment, or if a qualitative assessment indicates it is more-likely-than-not that the estimated carrying value exceeds its fair value, the Company proceeds to a quantitative approach.
There were no indicators of impairment for the three months ended March 31, 2021. The company also performed a qualitative analysis for the year end December 31, 2020 and determined that no impairment is needed for the year 2020.
Self-Insurance: The Company is self-insured with respect to Columbus and Batavia, Ohio; Gaffney, South Carolina; Winona, Minnesota; and Brownsville, Texas for medical, dental and vision claims and Columbus and Batavia, Ohio for workers’ compensation claims, all of which are subject to stop-loss insurance thresholds. The Company is also self-insured for dental and vision with respect to its Cobourg, Canada location. The Company has recorded an estimated liability for self-insured medical, dental and vision claims incurred but not reported and worker’s compensation claims incurred but not reported at March 31, 2021 and December 31, 2020 of $763,000 and $933,000, respectively.
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 in the Consolidated Statement of Stockholders' Equity and then subsequently recognized in the Consolidated Statement of Operations 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".
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 12, "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, 2020. Core Molding Technologies had a liability for post retirement healthcare benefits based on actuarial computed estimates of $9,048,000 at March 31, 2021 and $9,109,000 at December 31, 2020.
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.
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.
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4. NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed similarly but includes the effect of the assumed exercise of dilutive stock options and restricted stock under the treasury stock method.
The Company's restricted shares are entitled to receive dividends and voting rights applicable to the Company's common stock, irrespective of any vesting requirement. Accordingly, the restricted shares are considered a participating security and the Company is required to apply the two-class method to consider the impact of the restricted shares on the calculation of basic and diluted earnings per share.
The computation of basic and diluted net income per common share (in thousands, except for per share data) is as follows:
Three months ended
March 31,
20212020
Net income$3,456 $7,961 
Less: net income allocated to participating securities204 321 
Net income available to common shareholders$3,252 $7,640 
Weighted average common shares outstanding — basic7,985,000 7,882,000 
Effect of dilutive securities7,000  
Weighted average common and potentially issuable common shares outstanding — diluted7,992,000 7,882,000 
Basic net income per common share$0.41 $0.97 
Diluted net income per common share$0.41 $0.97 

The computation of basic and diluted net income per participating shares is as follows (in thousands, except for per share data):
Three months ended
March 31,
20212020
Net income allocated to participating securities$204 $321 
Weighted average participating shares outstanding — basic500,000 338,000 
Effect of dilutive securities  
Weighted average common and potentially issuable common shares outstanding — diluted500,000 338,000 
Basic net income per participating share$0.41 $0.97 
Diluted net income per participating share$0.41 $0.97 



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5. MAJOR CUSTOMERS
The Company had five major customers during the three months ended March 31, 2021, Universal Forest Products, Inc. (“UFP”), Navistar, Inc. (“Navistar”), Volvo Group North America, LLC (“Volvo”), PACCAR, Inc. (“PACCAR”), 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 could 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 months ended March 31, 2021 and 2020 (in thousands):
Three months ended
March 31,
20212020
UFP product sales$10,657 $8,987 
UFP tooling sales  
Total UFP sales
10,657 8,987 
Navistar product sales9,937 10,667 
Navistar tooling sales306 98 
Total Navistar sales
10,243 10,765 
Volvo product sales10,125 7,573 
Volvo tooling sales20 1,525 
Total Volvo sales
10,145 9,098 
PACCAR product sales9,354 7,949 
PACCAR tooling sales329 207 
Total PACCAR sales
9,683 8,156 
BRP product sales8,568 7,247 
BRP tooling sales115 220 
Total BRP sales
8,683 7,467 
Other product sales20,492 19,507 
Other tooling sales2,926 43 
Total other sales
23,418 19,550 
Total product sales69,133 61,930 
Total tooling sales3,696 2,093 
Total sales
$72,829 $64,023 


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6. INVENTORY
Inventories, net consisted of the following (in thousands):
March 31, 2021December 31, 2020
Raw materials
$13,576 $11,640 
Work in process
1,808 1,679 
Finished goods
4,989 5,041 
Total
$20,373 $18,360 
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 (in thousands):
Three Months Ended
March 31,
20212020
Operating lease cost$368 $357 
Total net lease cost$368 $357 
Other supplemental balance sheet information related to leases was as follows (in thousands):
March 31, 2021December 31, 2020
Operating leases:
Operating lease right of use assets$4,346 $2,754 
Total operating lease right of use assets$4,346 $2,754 
Current operating lease liabilities(A)
$1,289 $1,023 
Noncurrent operating lease liabilities(B)
3,017 1,670 
Total operating lease liabilities$4,306 $2,693 
(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.
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The following table presents certain information related to lease terms and discount rates for leases as of March 31, 2021 and December 31, 2020:
March 31, 2021December 31, 2020
Weighted average remaining lease term (in years):
Operating leases4.23.5
Weighted average discount rate:
Operating leases5.5 %5.9 %
Other information related to leases were as follows (in thousands) :
Three Months Ended
March 31,
20212020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases(C)
$368 $357 
(C)Cash flow from operating lease included in prepaid and other assets on the Consolidated Statements of Cash Flows.
As of March 31, 2021, maturities of lease liabilities were as follows (in thousands):
Operating Leases
2021 (remainder of year)$1,130 
20221,157 
20231,058 
20241,063 
2025628 
Total lease payments5,036 
Less: imputed interest(730)
Total lease obligations4,306 
Less: current obligations1,289 
Long-term lease obligations$3,017 
As of December 31, 2020, maturities of lease liabilities were as follows (in thousands):
Operating Leases
2021$1,215 
2022811 
2023706 
2024705 
2025 
Total lease payments3,437 
Less: imputed interest(744)
Total lease obligations2,693 
Less: current obligations(1,023)
Long-term lease obligations$1,670 

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8. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment, net consisted of the following for the periods specified (in thousands):
March 31, 2021December 31, 2020
Property, plant and equipment$176,942 $174,553 
Accumulated depreciation(102,942)(100,501)
Property, plant and equipment — net$74,000 $74,052 
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 March 31, 2021 and 2020 was $2,482,000 and $2,269,000, respectively. Amounts invested in capital additions in progress were $2,543,000 and $1,422,000 at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, purchase commitments for capital expenditures in progress were $5,041,000 and $677,000, respectively.
9. GOODWILL AND INTANGIBLES
Goodwill activity for the three months ended March 31, 2021 consisted of the following (in thousands):
Balance at December 31, 2020$17,376 
Additions 
Impairment 
Balance at March 31, 2021$17,376 
Intangibles, net at March 31, 2021 were comprised of the following (in thousands):
Definite-lived Intangible AssetsAmortization PeriodGross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Trade name25 Years$250 $(60)$190 
Trademarks10 Years1,610 (516)1,094 
Non-competition agreement5 Years1,810 (1,161)649 
Developed technology7 Years4,420 (2,025)2,395 
Customer relationships
10-12 Years
9,330 (2,629)6,701 
Total$17,420 $(6,391)$11,029 
Intangibles, net at December 31, 2020 were comprised of the following (in thousands):
Definite-lived Intangible AssetsAmortization PeriodGross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Trade name25 Years$250 $(58)$192 
Trademarks10 Years1,610 (476)1,134 
Non-competition agreement5 Years1,810 (1,071)739 
Developed technology7 Years4,420 (1,869)2,551 
Customer relationships
10-12 Years
9,330 (2,430)6,900 
Total$17,420 $(5,904)$11,516 
The aggregate intangible asset amortization expense was $487,000 for the three months ended March 31, 2021 and 2020.
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10. POST RETIREMENT BENEFITS
The components of expense for the Company’s post-retirement benefit plans are as follows (in thousands):
Three months ended
March 31,
20212020
Pension expense:
Multi-employer plan
$189 $246 
Defined contribution plan
302 293 
Total pension expense491 539 
Health and life insurance:
Interest cost
41 59 
Amortization of prior service costs
(124)(124)
Amortization of net loss
43 45 
Net periodic benefit cost(40)(20)
Total post retirement benefits expense$451 $519 
The Company made payments of $201,000 to pension plans and $101,000 for post-retirement healthcare and life insurance during the three months ended March 31, 2021. For the remainder of 2021, the Company expects to make approximately $1,599,000 of pension plan payments, of which $774,000 was accrued at March 31, 2021. The Company also expects to make approximately $1,185,000 of post-retirement healthcare and life insurance payments for the remainder of 2021, all of which were accrued at March 31, 2021.
11. DEBT
Debt consists of the following (in thousands):
March 31,
2021
December 31,
2020
Wells Fargo term loans payable$15,791 $16,390 
FGI term loans payable13,069 13,148 
Leaf Capital term loan payable144 152 
Total29,00429,690
Less deferred loan costs(1,840)(1,957)
Less current portion(2,938)(2,535)
Long-term debt$24,226 $25,198 
Term Loans

Wells Fargo Term Loans
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 term loans (the “WF Term Loans”) in the maximum aggregate principal amount of $18,500,000 ($16,790,000 of which was advanced to the Company on October 28, 2020). The proceeds from the WF Term Loans were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and to pay certain fees and expenses associated with the financing.

At the option of the Company, the WF Term Loans bears interest at a per annum rate equal to LIBOR plus a margin of 300 basis points or base rate plus a margin of 200 basis points. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater of (a) 1.0% per annum, (b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis or (d) prime rate. The weighted average interest rate was 3.77% as of March 31, 2021.

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The WF Term Loans are to be repaid in monthly installments of $200,000 plus interest, with the remaining outstanding balance due on November 30, 2024, subject to certain optional and mandatory repayment terms. The Company’s obligations under the WF Term 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.

The WF Term Loans contains reporting, indebtedness, and financial covenants. The Company is in compliance with its covenants as of March 31, 2021.

Voluntary prepayments of amounts outstanding under the WF Term Loans are permitted at any time without premium or penalty. To the extent applicable, LIBOR breakage fees may be charged in connection with any prepayment.

FGI Equipment Finance LLC Term Loan
On October 20, 2020, the Company entered into a Master Security Agreement and a Promissory Note, among FGI Equipment Finance LLC, (“FGI”) the Company as debtor, and each of Core Composites Corporation, a subsidiary of the Company organized in Delaware, and CC HPM, S. de R.L. de C.V., a subsidiary of the Company organized in Mexico, as guarantors, the principal amount of $13,200,000 (the “FGI Term Loan”). On October 27, 2020, FGI advanced to the Company $12,000,000 which proceeds were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and to pay certain fees and expenses associated with the transactions, and $1,200,000 which proceeds were used to fund a security deposit to be held by FGI. Interest on the FGI Term Loan is a fixed rate of 8.25% and is payable monthly. The security deposit of $1,200,000 is located in prepaid expenses and other current assets on the Consolidated Balance Sheets.

Following the advance of funds by FGI, the FGI Term Loan is to be repaid in monthly principal and interest installments of $117,000 for the first 12 months, $246,000 for the subsequent 59 months and $1,446,000 due on October 31, 2026, subject to certain optional and mandatory repayment terms. The Company’s obligations under the Master Security Agreement are secured by certain machinery and equipment of the guarantors located in Mexico, and real property of Core Composites de Mexico, S. de R.L. de C.V.,a subsidiary of the Company organized in Mexico, located in Matamoros, Mexico.

The Company may prepay in full or in part (but not less than the amount equal to 20% of the original principal amount of the loan) outstanding amounts before they are due on any scheduled Payment Date upon at least thirty (30) days’ prior written notice. The Company will pay a “Prepayment Fee” in an amount equal to an additional sum equal to the following percentage of the principal amount to be prepaid for prepayments occurring in the indicated period: four percent (4.0%) (for prepayments occurring prior to the first anniversary of the FGI Term Loan); three percent (3.0%) (for prepayments occurring on the first anniversary of the FGI Term Loan until the second anniversary of the FGI Term Loan); two percent (2.0%) (for prepayments occurring on and after the second anniversary of the FGI Term Loan and prior to the third anniversary of the Loan ); and one percent (1.0%) (for prepayments occurring any time thereafter).

Leaf Capital Funding
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.

Revolving Loans

Wells Fargo Revolving Loan
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 a revolving loan commitment (the “WF Revolving Loan”) of $25,000,000 ($8,745,000 of which was advanced to the Company on October 28, 2020). The proceeds from the WF Revolving Loan were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and to pay certain fees and expenses associated with the financing.

The Credit Agreement also makes available to the Company an incremental revolving commitment in the maximum amount of $10,000,000 at the Company’s option at any time during the three-year period following the closing.

The borrowing availability under the WF Revolving Loan is the lesser of (a) the loan commitment of $25,000,000 or (b) the sum of 90% of eligible investment grade accounts receivable, 85% of non-investment grade eligible accounts receivable and 65% of eligible inventory.

At the option of the Company, the WF Revolving Loan bears interest at a per annum rate equal to LIBOR plus a margin of 200 to 250 basis points or base rate plus a margin of 100 to 150 basis points, with the margin rate being based on the excess
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availability amount under the line of credit. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater of (a) 1.0% per annum, (b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis and (d) prime rate. The weighted average interest rate was 3.25% as of December 31, 2020.

The WF Revolving Loan commitment terminates, and all outstanding borrowings thereunder must be repaid, by November 30, 2024. The Company has $24,278,000 of available rate revolving loans of which $3,001,000 is outstanding as of March 31, 2021.

The WF Revolving Loan contains the same covenants as the WF Term Loans.

Wells Fargo Bank will issue up to $2,000,000 of Letters of Credit in accordance with the terms of the Credit Agreement upon the Company’s request. As of March 31, 2021, the Company had one Letter of Credit outstanding for $160,000.


KeyBank Loan

On March 31, 2020, the Company had a term loan and revolving loan balance of $37,125,000 and $7,776,000 with KeyBank National Association, respectively. The Company’s term loan and revolving loan had variable interest rates of 7.50% and 6.62%, respectively at March 31, 2020.

Bank Covenants
The Company is required to meet certain financial covenants included in the Credit Agreement with respect to fixed coverage charge ratio. As of March 31, 2021, the Company was in compliance with its financial covenants associated with the loans made under the Credit Agreement as described above.

12. INCOME TAXES
The Company’s Consolidated Balance Sheets include a net non-current deferred tax asset of $663,000 for the Canadian and Mexican tax jurisdictions and a net non-current deferred tax liability of $883,000 for the U.S. tax jurisdiction at March 31, 2021. The non-current deferred tax asset is classified in other non-current assets and non-current deferred tax liabilities are in other non-current liabilities. 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 March 31, 2021 and December 31, 2020, 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 expense for the three months ended March 31, 2021 is estimated to be $1,351,000, approximately 28.1% of income before income taxes. Income tax benefit for the three months ended March 31, 2020 was estimated to be $4,854,000, approximately 156% of income before income taxes.
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. 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 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 2017, not subject to Mexican income tax examinations by Mexican authorities for years prior to 2015 and not subject to Canadian tax examinations by Canadian authorities for years prior to 2018.

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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 three months ended March 31, 2021:
Number of
Shares
Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2020507,835 $6.25 
Granted  
Vested(11,158)3.38 
Forfeited  
Unvested balance at March 31, 2021496,677 $6.00 
At March 31, 2021 and 2020, there was $1,325,000 and $1,292,000, 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 1.9 years. Total compensation cost related to restricted stock grants for the three months ended March 31, 2021 and 2020 was $289,000 and $292,000, respectively, all of which was recorded to selling, general and administrative expense.
During the three months ended March 31, 2021, employees surrendered 3,874 shares of the Company's common stock to satisfy income tax withholding obligations in connection with the vesting of restricted awards. No shares were surrendered for the three months ended March 31, 2020.
Stock Appreciation Rights
As part of the Company's 2020 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 three months ended March 31, 2021 is as follows:
Number of
Shares
Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020180,925 $2.57 
Granted  
Exercised  
Forfeited  
Outstanding at end of the period ended March 31, 2021180,925 $2.57 
Exercisable at end of the period ended March 31, 202173,888 $2.57 
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The average remaining contractual term for those SARs outstanding at March 31, 2021 is 3.1 years, with aggregate intrinsic value of $313,000. At March 31, 2021 and 2020, there was $149,000 and $292,000, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to SARs. Total compensation cost related to SARs for the three months ended March 31, 2021 and 2020 was $30,000 and $24,000, 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 1.1 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 March 31, 2021 and December 31, 2020 approximate fair value due to the short-term maturities of these financial instruments. The carrying amounts of WF Term Loan and WF Revolving Loan approximate fair value as of March 31, 2021 and December 31, 2020 due to the short term nature of the underlying variable rate LIBOR agreements. The FGI Term Loan approximate fair value as of March 31, 2021 and December 31, 2020 due to immaterial movement in interest rates since the Company entered into the Promissory Note on October 20, 2020.
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 March 31, 2021 and 2020 (in thousands):
Derivatives in
subtopic 815-20
Cash Flow Hedging
Relationship
Amount of Unrealized
Gain (Loss) Recognized
in Accumulated Other
Comprehensive Income (Loss) on
Derivative
Location of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Income (Loss)(A)
Amount of Realized Gain
(Loss) Reclassified from
Accumulated Other
Comprehensive Income (Loss)
2021202020212020
Foreign exchange
contracts
$ $(1,745)Cost of goods sold$ $(58)
Selling, general and administrative expense$ $(13)
Interest rate swaps$ $(833)Interest expense$ $(50)
(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.

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15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents changes in Accumulated Other Comprehensive Income (Loss), net of tax, for the three months ended March 31, 2021 and 2020 (in thousands):
2020:Derivative
Hedging
Activities
Post Retirement
Benefit Plan
Items(A)
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2019$(191)$1,561 $1,370 
Other comprehensive loss before reclassifications
(2,578) (2,578)
Amounts reclassified from accumulated other comprehensive income (loss)
121 (79)42 
Income tax benefit
538 17 555 
Balance at March 31, 2020$(2,110)$1,499 $(611)
2021:
Balance at December 31, 2020$ $1,375 $1,375 
Other comprehensive loss before reclassifications
   
Amounts reclassified from accumulated other comprehensive income (loss)
 (81)(81)
Income tax benefit
 17 17 
Balance at March 31, 2021$ $1,311 $1,311 
(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 Operations. 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 Operations.
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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 Quarterly Report on Form 10-Q: 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; fluctuations in foreign currency exchange rates; 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; ability to accurately quote and execute manufacturing processes for new business; 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; a work stoppage or labor disruption at one of our union locations or one of our customer or supplier locations; 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 sufficient 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 charges; 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, 2020.
Description of the Company
Core Molding Technologies and its subsidiaries operate in one operating segment as a molder of thermoplastic and thermoset structural products. The Company's operating segment consists of one reporting unit, Core Molding Technologies. 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"), resin transfer molding ("RTM"), liquid molding of dicyclopentadiene ("DCPD"), spray-up and hand-lay-up, 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
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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 driven by demand from customers in many different markets with different levels of cyclicality and seasonality. The North American truck market, which is highly cyclical, accounted for 44% and 46% of the Company’s product revenue for the three months ended March 31, 2021 and 2020 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 Company gains experience with new tools and processes. Therefore, during a new program launch period, start-up costs and inefficiencies can affect operating results.

Three Months Ended March 31, 2021
Product sales for the three months ended March 31, 2021 increased 12% compared to the same period in 2020. Operating income increased from $4,261,000 to $5,346,000 for the three months ended March 31, 2021 compared to the same period a year ago. Higher demand from our heavy-duty truck, building product and consumer product customers were the primary drivers of the sales increase. The increase in operating income was largely due to improved manufacturing efficiencies and cost savings at several of the Company's facilities.
For the three months ended March 31, 2021, product sales to truck customers increased by 9% compared to the same period in 2020, as a result of a cyclical uptick in the truck market. According to ACT Research, North American heavy-duty truck production increased approximately 10% for the three months ended March 31, 2021 compared to the same period in 2020.
For the three months ended March 31, 2021, the Company recorded net income of $3,456,000 or $0.41 per basic and diluted share, compared with $7,961,000, or $0.97, per basic and diluted share for three months ended March 31, 2020. In 2020, net income 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, where the Company paid tax at 34% compared to the valuation of the losses being recorded at the 21% current United States statutory rate.
Looking forward, based on industry analysts’ projections and customer forecasts, the Company expects sales levels for 2021 to increase compared to 2020. In the Company’s largest market, North American heavy-duty truck, ACT Research is forecasting production to increase approximately 41%. In several other industries the Company serves, customers are forecasting higher demand in 2021 including in the building products, power sports, and consumer goods markets. The Company and our
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customers have experienced supply disruptions and material cost increases due to storms, port delays, supplier force majeure as well as overall heavy global demand for certain materials. Although some of the supply disruptions have started to subside, we anticipate the disruptions to continue to impact revenues through the remainder of 2021.

The Company incurred increased raw material costs in the first quarter of 2021 and anticipates higher raw material costs to continue through the remainder of 2021. For a majority of our business, the Company has the ability to pass through a portion, but not all, of the cost increases to its customers.

Results of Operations

Three Months Ended March 31, 2021, as Compared to Three Months Ended March 31, 2020
Net sales for the three months ended March 31, 2021 and 2020 totaled $72,829,000 and $64,023,000, respectively. Included in net sales were tooling project sales of $3,696,000 and $2,093,000 for the three months ended March 31, 2021 and 2020, 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 March 31, 2021 were $69,133,000 compared to $61,930,000 for the same period in 2020. This increase in sales is primarily the result of higher demand from the heavy-duty truck, building product and consumer product markets. New business that the Company launched in the second quarter of 2020 in our power sports market also contributed to the increase in sales in the first quarter of 2021.
Gross margin was approximately 17.5% of sales for the three months ended March 31, 2021, compared with 16.8% for the three months ended March 31, 2020. The gross margin percentage increase was due to favorable product mix and production efficiencies of 4.4%, offset by net unfavorable changes in selling prices and materials cost of 3.7%.
Selling, general and administrative expense (“SG&A”) was $7,372,000 for the three months ended March 31. 2021, compared to $6,505,000 for the three months ended March 31, 2020. Increased SG&A expenses resulted primarily from higher labor and benefits costs of $474,000. The Company also received government subsidies from Canada in the three months ended March 31, 2020 of $143,000.
Interest expense totaled $579,000 for the three months ended March 31, 2021 compared to interest expense of $1,174,000 for the three months ended March 31, 2020. The decrease in interest expense was due to a lower average outstanding debt balance, and lower interest rates during the three months ended March 31, 2021, when compared to the same period in 2020. Interest expense for the three months ended March 30, 2020 includes $225,000 of forbearance fees resulting from an amendment of the Company’s credit agreement.
Income tax expense for the three months ended March 31, 2021 was 28% of income before income taxes, and income tax benefit for the three months ended March 31, 2020 was 156% of income 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 a net valuation allowance change of $2,433,000 and a rate benefit of $3,205,000 based on losses being carried back to years where the Company paid tax at 34% compared to the valuation of the losses being recorded at 21% current U.S. statutory tax rate.
The Company recorded net income for the three months ended March 31, 2021 of $3,456,000 or $0.41 per basic and diluted share, compared with $7,961,000, or $0.97 per basic and diluted share, for the three months ended March 31, 2020. In 2020, net income 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, where the Company paid tax at 34% compared to the valuation of the losses being recorded at the 21% current United States statutory rate.
Comprehensive income totaled $3,392,000 for the three months ended March 31, 2021, compared to $5,980,000 for the same period ended March 31, 2020. The decrease was primarily related to the decrease in net income of $4,505,000, offset by increases related to the foreign currency derivatives, net of tax of $1,314,000 and interest rate swaps, net of tax of $605,000.

Liquidity and Capital Resources
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, capital expenditures, repayments of debt, and 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. The Company had no outstanding foreign exchange contracts nor interest rate swaps as of March 31, 2021.
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Cash used in operating activities for the three months ended March 31, 2021 totaled $512,000. Net income of $3,456,000 positively impacted operating cash flows. Non-cash deductions of depreciation and amortization included in net income amounted to $3,049,000. Changes in working capital increased cash used in operating activities by $7,570,000. The decrease in working capital was primarily related to changes in accounts receivable and inventory, offset by change in accounts payable.
Cash used in investing activities for the three months ended March 31, 2021 was $2,436,000, which related to purchases of property, plant and equipment. The Company anticipates spending up to $17,064,000 during the remainder of 2021 on property, plant and equipment purchases for all of the Company's operations, including approximately $3,900,000 to expand the Company’s DLFT capacity in Matamoros, Mexico. At March 31, 2021, purchase commitments for capital expenditures in progress were $5,041,000. The Company anticipates using cash from operations and its available revolving line of credit to fund capital investments.
Cash provided by financing activities for the three months ended March 31, 2021 totaled $1,844,000, which primarily consisted of net revolving loan borrowings of $2,581,000 and net scheduled repayments of principal on outstanding term loans of $688,000.
At March 31, 2021, the Company had $3,027,000 cash on hand, and an available balance on the revolving line of credit of $21,277,000.
The Company is required to meet certain financial covenants included in the Credit Agreement with respect to fixed coverage charge ratio. As of March 31, 2021, the Company was in compliance with its financial covenants associated with the loans made under the Credit Agreement as described above.

Management regularly evaluates the Company’s ability to effectively meet its debt covenants. 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. Management believes that existing cash, cash flow from operating activities and available borrowings under the Credit Agreement will be sufficient to meet the Company’s liquidity needs 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.
Term Loans

Wells Fargo Term Loans
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 term loans (the “WF Term Loans”) in the maximum aggregate principal amount of $18,500,000 ($16,790,000 of which was advanced to the Company on October 28, 2020). The proceeds from the WF Term Loans were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and to pay certain fees and expenses associated with the financing.

At the option of the Company, the WF Term Loans bears interest at a per annum rate equal to LIBOR plus a margin of 300 basis points or base rate plus a margin of 200 basis points. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater of (a) 1.0% per annum, (b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis or (d) prime rate. The weighted average interest rate was 3.77% as of March 31, 2021.

The WF Term Loans are to be repaid in monthly installments of $200,000 plus interest, with the remaining outstanding balance due on November 30, 2024, subject to certain optional and mandatory repayment terms. The Company’s obligations under the WF Term 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.

The WF Term Loans contains reporting, indebtedness, and financial covenants. The Company is in compliance with its covenants as of March 31, 2021.

Voluntary prepayments of amounts outstanding under the WF Term Loans are permitted at any time without premium or penalty. To the extent applicable, LIBOR breakage fees may be charged in connection with any prepayment.

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FGI Equipment Finance LLC Term Loan
On October 20, 2020, the Company entered into a Master Security Agreement and a Promissory Note, among FGI Equipment Finance LLC, (“FGI”) the Company as debtor, and each of Core Composites Corporation, a subsidiary of the Company organized in Delaware, and CC HPM, S. de R.L. de C.V., a subsidiary of the Company organized in Mexico, as guarantors, the principal amount of $13,200,000 (the “FGI Term Loan”). On October 27, 2020, FGI advanced to the Company $12,000,000 which proceeds were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and to pay certain fees and expenses associated with the transactions, and $1,200,000 which proceeds were used to fund a security deposit to be held by FGI. Interest on the FGI Term Loan is a fixed rate of 8.25% and is payable monthly. The security deposit of $1,200,000 is located in prepaid expenses and other current assets on the Consolidated Balance Sheets.

Following the advance of funds by FGI, the FGI Term Loan is to be repaid in monthly principal and interest installments of $117,000 for the first 12 months, $246,000 for the subsequent 59 months and $1,446,000 due on October 31, 2026, subject to certain optional and mandatory repayment terms. The Company’s obligations under the Master Security Agreement are secured by certain machinery and equipment of the guarantors located in Mexico, and real property of Core Composites de Mexico, S. de R.L. de C.V.,a subsidiary of the Company organized in Mexico, located in Matamoros, Mexico.

The Company may prepay in full or in part (but not less than the amount equal to 20% of the original principal amount of the loan) outstanding amounts before they are due on any scheduled Payment Date upon at least thirty (30) days’ prior written notice. The Company will pay a “Prepayment Fee” in an amount equal to an additional sum equal to the following percentage of the principal amount to be prepaid for prepayments occurring in the indicated period: four percent (4.0%) (for prepayments occurring prior to the first anniversary of the FGI Term Loan); three percent (3.0%) (for prepayments occurring on the first anniversary of the FGI Term Loan until the second anniversary of the FGI Term Loan); two percent (2.0%) (for prepayments occurring on and after the second anniversary of the FGI Term Loan and prior to the third anniversary of the Loan ); and one percent (1.0%) (for prepayments occurring any time thereafter).

Leaf Capital Funding
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.

Revolving Loans

Wells Fargo Revolving Loan
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 a revolving loan commitment (the “WF Revolving Loan”) of $25,000,000 ($8,745,000 of which was advanced to the Company on October 28, 2020). The proceeds from the WF Revolving Loan were used to pay off the Company’s existing outstanding indebtedness with KeyBank National Association, and to pay certain fees and expenses associated with the financing.

The Credit Agreement also makes available to the Company an incremental revolving commitment in the maximum amount of $10,000,000 at the Company’s option at any time during the three-year period following the closing.

The borrowing availability under the WF Revolving Loan is the lesser of (a) the loan commitment of $25,000,000 or (b) the sum of 90% of eligible investment grade accounts receivable, 85% of non-investment grade eligible accounts receivable and 65% of eligible inventory.

At the option of the Company, the WF Revolving Loan bears interest at a per annum rate equal to LIBOR plus a margin of 200 to 250 basis points or base rate plus a margin of 100 to 150 basis points, with the margin rate being based on the excess availability amount under the line of credit. LIBOR rate means the greater of (a) 0.75% per annum and (b) the per annum published LIBOR rate for interest periods of one, three or six months as chosen by the Company. Base rate is the greater of (a) 1.0% per annum, (b) the Federal Funds Rate plus 0.5%, (c) LIBOR Rate plus 100 basis and (d) prime rate. The weighted average interest rate was 3.25% as of December 31, 2020.

The WF Revolving Loan commitment terminates, and all outstanding borrowings thereunder must be repaid, by November 30, 2024. The Company has $24,278,000 of available rate revolving loans of which $3,001,000 is outstanding as of March 31, 2021.

The WF Revolving Loan contains the same covenants as the WF Term Loans.

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Wells Fargo Bank will issue up to $2,000,000 of Letters of Credit in accordance with the terms of the Credit Agreement upon the Company’s request. As of March 31, 2021, the Company had one Letter of Credit outstanding for $160,000.



KeyBank Loan

On March 31, 2020, the Company had a term loan and revolving loan balance of $37,125,000 and $7,776,000 with KeyBank National Association, respectively. The Company’s term loan and revolving loan had variable interest rates of 7.50% and 6.62%, respectively at March 31, 2020.

Bank Covenants
The Company is required to meet certain financial covenants included in the Credit Agreement with respect to fixed coverage charge ratio. As of March 31, 2021, the Company was in compliance with its financial covenants associated with the loans made under the Credit Agreement as described above.
Off-Balance Sheet Arrangements
The Company did not have any significant off-balance sheet arrangements as of March 31, 2021 or December 31, 2020.
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 March 31, 2021 or December 31, 2020.
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
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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 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 hyp