Core Molding Technologies(CMT) - 2020 Q2 - Quarterly Report

Part I — Financial Information Item 1. Financial Statements The financial statements for Q2 2020 show a net sales decline and net loss, while the six-month period achieved net income due to a tax benefit, with improved operating cash flow despite balance sheet stress Consolidated Statements of Income (Loss) Q2 2020 net sales declined 53.5% to $37.8 million, resulting in a net loss, while the six-month period achieved net income of $5.7 million due to a tax benefit Consolidated Statements of Income (Loss) | Financial Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $37,806,000 | $81,247,000 | $101,830,000 | $153,513,000 | | Gross margin | $2,903,000 | $8,491,000 | $13,669,000 | $11,641,000 | | Operating income (loss) | $(1,206,000) | $1,267,000 | $3,055,000 | $(2,749,000) | | Net income (loss) | $(2,272,000) | $209,000 | $5,689,000 | $(3,636,000) | | Diluted EPS | $(0.29) | $0.03 | $0.67 | $(0.47) | Consolidated Balance Sheets Total assets decreased to $165.1 million as of June 30, 2020, with significant long-term debt reclassified as current, leading to negative working capital Consolidated Balance Sheets | Balance Sheet Item | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $51,529,000 | $61,225,000 | | Total Assets | $165,118,000 | $179,306,000 | | Total current liabilities | $63,874,000 | $83,834,000 | | Total Liabilities | $75,666,000 | $94,880,000 | | Total Stockholders' Equity | $89,452,000 | $84,426,000 | Consolidated Statements of Cash Flows Net cash from operations significantly increased to $18.5 million for H1 2020 due to working capital management, while investing and financing activities used cash Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $18,483,000 | $3,297,000 | | Net cash used in investing activities | $(1,644,000) | $(5,201,000) | | Net cash provided by (used in) financing activities | $(14,091,000) | $546,000 | | Net change in cash and cash equivalents | $2,748,000 | $(1,358,000) | Notes to Consolidated Financial Statements Notes highlight a going concern warning due to debt covenant violations, reliance on key customers, and a significant tax benefit from the CARES Act - The company's non-compliance with leverage and fixed charge coverage ratios under its credit agreement raises substantial doubt about its ability to continue as a going concern, operating under a forbearance agreement while seeking to refinance its debt[28][34] - The company received $1.4 million in government subsidies during the quarter, recorded as a reduction in SG&A expenses[54] - The CARES Act allowed the company to carry back net operating losses, resulting in an income tax refund of $6.155 million and a recognized income tax benefit of $5.638 million in the first quarter of 2020[97] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 53.5% Q2 2020 sales decline to market downturns and COVID-19, while highlighting improved H1 operating income and ongoing debt refinancing efforts due to covenant violations - Product sales for H1 2020 decreased 33% YoY, driven by a cyclical downturn in the truck market and COVID-19, with sales to truck customers specifically decreased by 53%[129][130] - Despite lower sales, operating income for H1 2020 was $3.1 million, a significant improvement from a loss of $2.7 million in H1 2019, attributed to improved manufacturing efficiencies, cost savings, and lower SG&A costs[129] - As of June 30, 2020, the company was not in compliance with its fixed charge coverage ratio (0.75 vs. 1.15 minimum) and leverage ratio (3.52 vs. 3.25 maximum) covenants, triggering a default[155][158] - The company entered into a Second Amended Forbearance Agreement with lenders, extending through September 30, 2020, and is actively seeking to refinance its existing debt[163] Quantitative and Qualitative Disclosures About Market Risk The company's market risks include commodity price volatility for raw materials, interest rate fluctuations on variable debt, and foreign currency exchange rate changes - The company is exposed to market risks from: (1) variable interest rates on its term loans, (2) foreign currency fluctuations (Mexican Peso and Canadian Dollar), and (3) commodity price volatility for raw materials such as resins and fiberglass[173][174] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020 - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[179] Part II — Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position or operations - The Company is not presently involved in any legal proceedings likely to have a material adverse effect on its financial condition or operations[182] Risk Factors A new risk factor addresses the significant and uncertain adverse impact of the COVID-19 pandemic on the company's business, operations, and liquidity - A new risk factor was added to disclose the adverse impact of the COVID-19 pandemic on the business, including negative effects on customer demand, manufacturing operations, and supply chains[184][185] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported[186] Exhibits This section refers to the Index to Exhibits for a list of documents filed with the report