<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------------------
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 MATERIALS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1481870
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
800 Manor Park Drive, P.O. Box 28183
Columbus, Ohio 43228-0183
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (614) 870-5000
--------------
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 [ X ] NO [ ]
As of May 12, 1999, the latest practicable date, 9,778,680 shares of
the registrant's common shares were issued and outstanding.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORE MATERIALS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,345,146 $ 3,117,085
Mortgage-backed security investment 2,158,506 2,568,977
Accounts receivable (less allowance for doubtful accounts:
March 31, 1999 - $105,000; December 31, 1998 - $105,000) 18,474,061 17,728,753
Inventories:
Finished and work in process goods 2,076,771 1,592,288
Stores 2,861,206 2,630,993
------------ ------------
Total inventories 4,937,977 4,223,281
Deferred tax asset 928,048 928,048
Prepaid expenses and other current assets 583,544 339,028
------------ ------------
Total current assets 30,427,282 28,905,172
Property, plant and equipment 37,074,859 35,834,613
Accumulated depreciation (12,245,866) (11,754,866)
------------ ------------
Property, plant and equipment - net 24,828,993 24,079,747
Deferred tax asset - net 11,603,087 12,101,257
Other assets 343,750 351,606
------------ ------------
TOTAL $ 67,203,112 $ 65,437,782
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Current portion long-term debt $ 290,000 $ 285,000
Accounts payable 8,227,943 7,360,949
Accrued liabilities:
Compensation and related benefits 2,039,094 2,492,006
Interest 388,871 725,827
Other accrued liabilities 2,738,599 2,254,655
------------ ------------
Total current liabilities 13,684,507 13,118,437
Long-term debt 26,930,150 27,005,150
Deferred long-term gain 3,255,991 3,369,380
Postretirement benefits liability 3,310,923 3,093,157
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 97,787
Outstanding shares: March 31, 1999 - 9,778,680,
December 31, 1998 - 9,778,680
Paid-in capital 19,251,392 19,251,392
Retained earnings (deficit) 672,362 (497,521)
------------ ------------
Total stockholders' equity 20,021,541 18,851,658
------------ ------------
TOTAL $ 67,203,112 $ 65,437,782
============ ============
</TABLE>
See notes to financial statements.
2
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CORE MATERIALS CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET SALES:
Navistar $ 16,239,024 $ 16,101,584
Yamaha 4,166,748 4,120,053
Other 2,025,943 367,169
------------ ------------
Total Sales 22,431,715 20,588,806
------------ ------------
Cost of Sales 17,839,175 16,146,549
Postretirement benefits expense 255,591 233,763
------------ ------------
Total cost of sales 18,094,766 16,380,312
------------ ------------
GROSS MARGIN 4,336,949 4,208,494
------------ ------------
Selling, general and administrative expense 1,988,276 1,963,664
Postretirement benefits expense 33,861 34,294
------------ ------------
Total selling, general and administrative expense 2,022,137 1,997,958
INCOME BEFORE INTEREST AND TAXES 2,314,812 2,210,536
Interest income 89,275 61,222
Interest expense (407,697) (368,744)
------------ ------------
INCOME BEFORE INCOME TAXES 1,996,390 1,903,014
Income taxes:
Current 328,337 238,020
Deferred 498,170 542,216
------------ ------------
Total income taxes 826,507 780,236
------------ ------------
NET INCOME $ 1,169,883 $ 1,122,778
============ ============
NET INCOME PER COMMON SHARE:
Basic $ 0.12 $ 0.12
============ ============
Diluted $ 0.12 $ 0.11
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 9,778,680 9,612,930
============ ============
Diluted 9,880,682 10,032,816
============ ============
</TABLE>
See notes to financial statements
3
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CORE MATERIALS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK OUTSTANDING PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 9,778,680 $ 97,787 $19,251,392 $ (497,521) $18,851,658
Net Income 1,169,883 1,169,883
----------- ----------- ----------- ------------- -----------
BALANCE AT MARCH 31, 1999 9,778,680 $ 97,787 $19,251,392 $ 672,362 $20,021,541
=========== =========== =========== ============= ===========
</TABLE>
See notes to financial statements.
4
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CORE MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,169,883 $ 1,122,778
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 498,856 438,442
Deferred income taxes 498,170 542,216
Loss on disposal of assets -- 318
Amortization of gain on sale/leaseback transaction (113,389) (74,090)
Compensation expense on stock awards -- 14,967
Change in operating assets and liabilities:
Accounts receivable (745,308) (1,852,152)
Inventories (714,696) (44,169)
Prepaid and other assets (244,516) (167,764)
Accounts payable 866,994 1,295,213
Accrued and other liabilities (305,924) (831,634)
Postretirement benefits liability 217,766 195,088
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,127,836 639,213
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,240,246) (2,990,992)
Proceeds from maturities on mortgage-backed security investment 410,471 244,848
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (829,775) (2,746,144)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit -- 5,519,470
Payments on lines-of-credit (2,997,120)
Payment of principal on industrial revenue bond (70,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (70,000) 2,522,350
----------- -----------
NET INCREASE IN CASH 228,061 415,419
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,117,085 100,356
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,345,146 $ 515,775
=========== ===========
CASH PAID FOR:
Interest $ 720,315 $ 1,120,819
Income Taxes $ 240,000 $ 228,000
</TABLE>
See notes to financial statements.
5
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CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10Q and include all of the information
and disclosures required by generally accepted accounting principles for interim
reporting, which are less than those required for annual reporting. In the
opinion of management, the accompanying unaudited financial statements contain
all adjustments (all of which are normal and recurring in nature) necessary to
present fairly the financial position of Core Materials Corporation ("Core
Materials") at March 31, 1999, and the results of operations and cash flows. The
"Notes to Financial Statements" which are contained in the 1998 Annual Report to
shareholders should be read in conjunction with these Financial Statements.
Certain reclassifications have been made to prior year's amounts to conform with
the classifications of such amounts for 1999.
Core Materials Corporation ("Core Materials") was formed on October 8,
1996 by RYMAC Mortgage Investment Corporation ("RYMAC"), as a wholly owned
subsidiary, for the purpose of acquiring substantially all of the assets and
assuming certain of the liabilities of Columbus Plastics Operation ("Columbus
Plastics"), an operating unit of Navistar International Transportation Corp.
("Navistar").
On December 31, 1996, RYMAC merged into its wholly owned subsidiary,
Core Materials, by converting each outstanding common share of RYMAC into the
right to receive one common share of Core Materials, with Core Materials as the
surviving corporation and continuing registrant. Simultaneously, on December 31,
1996, Core Materials purchased substantially all of the assets and assumed
certain liabilities of Columbus Plastics.
Core Materials produces compression Sheet Molding Composite ("SMC")
fiberglass reinforced plastic parts. Core Materials has two principal customers,
Navistar and Yamaha Motor Manufacturing Corporation ("Yamaha").
2. RESTRICTED CASH
Included in cash at March 31, 1999, is $312,756 which is restricted
pursuant to the terms of the Industrial Revenue Bond which was issued in May,
1998. This restriction will be removed as Core Materials incurs qualified
expenditures related to the project for which the bond was issued.
3. COMPREHENSIVE INCOME
Core Materials adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income". Comprehensive income is a
measurement of all changes in stockholders' equity that result from transactions
and other economic events other than transactions with stockholders. Core
Materials does not have any items of comprehensive income other than net income;
therefore, total comprehensive income amounted to $1,169,883 and $1,122,778 for
the three months ended March 31, 1999 and 1998, respectively.
4. EARNINGS PER COMMON SHARE
Basic earnings per common share are computed based on the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share are computed similarly but include the effect of the exercise
of stock options under the treasury stock method. In calculating net
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income per share for the three months ended March 31, 1999, weighted average
shares increased for the computation of diluted income per share by 102,002 due
to the effect of stock options. This item had no effect on net income per share
for the three months ended March 31, 1999. In calculating net income per share
for the three months ended March 31, 1998, weighted average shares increased for
the computation of diluted income per share by 419,886, due to the effect of
stock options; as a result net income per share was reduced by $.01.
7
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PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" which involve certain risks and uncertainties. Core Materials'
actual results may differ significantly from those discussed in the
forward-looking statements. Factors that may cause such a difference include,
but are not limited to: business conditions in the plastics, transportation,
marine, agricultural, and consumer products industries, the general economy,
competitive factors, the dependence on two major customers, the recent efforts
of Core Materials to expand its customer base, new technologies, the year 2000
systems issue, regulatory requirements, labor relations, the loss or inability
to attract key personnel, start-up of the Company's South Carolina facility, the
availability of capital and management's decisions to pursue new products or
businesses which involve additional cost risks or capital expenditures.
OVERVIEW
On December 31, 1996, Core Materials acquired 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.
Core Materials manufactures high quality compression SMC fiberglass
reinforced parts. The demand for Core Materials' products is affected by
economic conditions in the United States and Canada. Core Materials'
manufacturing operations have a significant fixed cost component. Accordingly,
during periods of changing demands, the profitability of Core Materials'
operations will change proportionately more than revenues from operations.
At the time of the acquisition of Columbus Plastics, Navistar and Core
Materials entered into a Comprehensive Supply Agreement with an initial term of
five years. Under the terms of the Comprehensive Supply Agreement, Core
Materials became the primary supplier of Navistar's original equipment and
service requirements for fiberglass reinforced parts using the SMC process.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO THREE MONTHS
ENDED MARCH 31, 1998
Net sales for the three months ended March 31, 1999, totaled $22,432,000 up
9% from the $20,589,000 reported for the three months ended March 31, 1998.
Sales to Navistar totaled $16,239,000, up slightly from $16,102,000 for the
three months ended March 31, 1998. Sales to Navistar related to truck production
increased $826,000 which was offset by a decrease in sales for service parts of
$689,000. The decrease in sales of service parts is due to sales in the prior
year being higher than normal due to a backlog of orders from 1997. Sales to
Yamaha were also flat at $4,167,000 compared with $4,120,000 for the three
months ended March 31, 1998.
"Other" sales for the three months ended March 31, 1999, increased 452% to
$2,026,000 from $367,000 for the three months ended March 31, 1998. The increase
in sales was primarily the result of new customers during 1998 and 1999,
including: New Holland North America, Inc. - $492,000; Case Corporation -
$491,000; Outboard Marine Corporation - $388,000; Volvo Trucks North America,
Inc. - $208,000; and Caradon Doors and Windows, Peachtree Division - $132,000.
8
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Gross margin was 19% of sales for the three months ended March 31, 1999
compared with 20% for the three months ended March 31, 1998. The decreased gross
margin as a percent of sales from the prior year is primarily due to higher
fixed overhead costs associated with operating the Gaffney manufacturing
facility, which was not open for the full quarter in the prior year. Also
impacting the gross margin was production inefficiencies associated with ramping
up production for existing customers and the start up of new products.
Selling, general and administrative expenses totaled $2,022,000 and
remained relatively flat as compared to $1,998,000 for the three months ended
March 31, 1998.
Interest income for the three months ended March 31, 1999 totaled $89,000
increasing from the $61,000 in the prior year as a result of interest earned on
excess cash. Interest expense totaled $408,000 increasing from $369,000 in the
prior year. This increase is primarily the result of a reduction in capitalized
interest. During the first quarter of 1998, interest expense was being
capitalized related to the construction of the Gaffney, South Carolina
manufacturing facility which was completed in that quarter.
Income taxes for the three months ended March 31, 1999 are estimated to be
approximately 41% of total earnings before taxes. Actual tax payments will be
substantially lower than the recorded expenses as Core Materials has substantial
federal tax loss carryforwards. These loss carryforwards, recorded as a deferred
tax asset, were partially offset by a valuation reserve at December 31, 1996 as
a part of the purchase accounting adjustments. As the tax loss carryforwards are
utilized to offset federal income tax payments, Core Materials reduces the
deferred tax asset as opposed to recording a reduction in income tax expense.
Actual cash payments related to the three months ended March 31, 1999 are
estimated to be approximately $328,000 which reflects federal alternative
minimum, state and local taxes.
Net income for the three months ended March 31, 1999 was $1,170,000 or $.12
per basic and diluted share, an increase of $47,000 or 4% over the net income
for the three months ended March 31, 1998 of $1,123,000 or $.12 per basic and
$.11 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
Core Materials' primary cash requirements are for operating expenses
and capital expenditures. These cash requirements have historically been met
through a combination of cash flow from operations, equipment leasing, issuance
of Industrial Revenue Bonds and bank lines of credit.
Cash provided by operations for the three months ended March 31, 1999
totaled $1,128,000, resulting mainly from net income of $1,170,000. Depreciation
and amortization of $499,000 and deferred income taxes of $498,000, primarily
related to Core Materials $21,000,000 of operating tax loss carry forwards, also
contributed positively to the operating cash flow. Decreasing the operating cash
flow was an increase in accounts receivable of $745,000 primarily caused by
higher sales.
Investing activities negatively affected cash flow by $830,000 for the
three months ended March 31, 1999. Capital expenditures totaled $1,240,000
primarily related to the acquisition of machinery and equipment. Offsetting
these expenditures were proceeds from maturities on Core Materials'
mortgage-backed security investment of $410,000.
Financing activities reduced cash flow by $70,000 due to principal
repayment on the $7,500,000 Industrial Revenue Bond which was issued in 1998.
At March 31, 1999, Core Materials had cash on hand of $3,345,000 and an
available line of credit of $7,500,000. Management believes that these sources,
along with internally generated funds from operations and future bank financing,
will be sufficient to fund planned operating expenses and capital requirements.
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YEAR 2000 READINESS STATEMENT
Core Materials believes it has identified all of its significant
software and hardware applications that will require modification to ensure Year
2000 ("Y2K") compliance. Internal and external resources are being used to make
the required modifications to both computer systems and internal operations
related apparatus. In addition, Core Materials is working with its suppliers and
customers to aid in their becoming Y2K compliant. Where able, Core Materials
plans to complete the modifications by the end of July 1999. This date is
significant in that it is the next scheduled vacation plant shutdown date and
some of the modifications must be completed while the Columbus plant is not in
operation. In some cases, compliance cannot be achieved until January 1, 2000.
On this date, a resetting of the internal clocks on some electronic devices is
required. In these cases, Core Materials has tested and will test the remaining
apparatus by rolling the date before July 1999 to assure the dates will roll
without problems.
Core Materials has grouped its exposure into 6 major categories of
items: (1) Production Equipment, (2) Information Technology, (3) Facilities and
Utilities, (4) Quality Systems, (5) Suppliers and Customers, and (6) General
Business Items.
The status of each is as follows:
PRODUCTION EQUIPMENT: Production equipment concerns can be grouped into
the following areas: (1) Press Programmable Logic Units ("PLC's"), (2) Other
Non-Press Related PLC's, (3) Press Computers, (4) Press Software, (5) Robotics,
(6) Paint Control and Tracking Systems, and (7) SMC mix system software and
computer. Core Materials has contacted the manufacturers of critical production
equipment to determine Y2K compliance. In addition, Core Materials is utilizing
an independent engineering firm to assist in achieving Y2K compliance. This firm
has performed a wall-to-wall inventory of production equipment and software.
This firm has researched all items on the inventory to determine the items
represented by suppliers as compliant and has contacted outside equipment
suppliers to determine potential fixes in areas of non-compliance. Finally, this
firm will perform sample testing on both compliant and non-compliant equipment
developing repair processes where required. Core Materials, with the assistance
of the engineering firm, is working on repair procedures and contingency plans
for those items identified as non-compliant. Many of the repair procedures
provided by the equipment manufacturers cannot be implemented until January 1,
2000; however, Core Materials is currently testing the repair procedures. Core
Materials plans to replace those press computers that must be replaced to obtain
Y2K compliance. Press software has been tested and found to be capable of
functioning beyond the year 2000. The paint control and tracking system has been
replaced with software and hardware that has been represented by the
manufacturers to be Y2K compliant. The SMC mix system software and computer will
be replaced/upgraded before mid year 1999. Core Materials would be subjected to
a great deal of risk if the items above were to fail.
INFORMATION TECHNOLOGY: Core Materials has used the Y2K problem as a
catalyst to perform a complete replacement of all of its operations and
financial systems. The new system was activated in the Gaffney operation in
September of 1998 and in the Columbus operation in November of 1998. Many
secondary software systems such as the fixed asset system and the maintenance
system have already been replaced. Some secondary systems, posing no risk to
Core Materials or its customers, are also being replaced and/or upgraded with
scheduled completion by the middle of the second quarter of 1999. As of April
1999, the hardware and network infrastructure has been upgraded/replaced. In
addition, the payroll systems have been replaced and are represented by the
manufacturers to be Y2K compliant.
FACILITIES AND UTILITIES: Core Materials' major utility suppliers (gas,
electric, water, telephone) have been contacted and, with the exception of
water, have provided information stating that they will be Y2K compliant before
compliance becomes an issue. The Columbus water supplier has publicly published
Y2K readiness information stating current compliance. Though contingencies do
not exist for long term systemic outages, contingencies are being developed for
the more likely scenarios of intermittent disruptions in service. If a continued
or catastrophic failure with these utility suppliers occurs, the
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continuing operations of Core Materials would be in serious jeopardy. Other
areas of lesser concern include fire and alarm, and environmental control
systems. Core Materials has received verification from the environmental control
system and HVAC system manufacturers that they are compliant. Core Materials is
pursuing documentation from the manufacturers of its fire and alarm systems to
certify Y2K compliance and/or to direct Core Materials in updating these systems
to Y2K compliance.
QUALITY SYSTEMS: The primary system used for tracking quality and
internal production documentation has been replaced and has been represented by
the manufacturers to be Y2K compliant. The only other quality items believed to
be of concern are the laboratory and testing apparatus. These apparatus are
currently being tested and contingency plans including using outside
laboratories for testing have been developed.
SUPPLIERS AND CUSTOMERS: Substantially all of Core Materials'
significant current suppliers and customers have been contacted and are
currently responding with their Y2K compliance status. Most responses have been
noncommittal as to Y2K readiness. Navistar, Core Materials' largest customer,
has provided documentation indicating that they have been working on compliance
since 1995 and that they are putting forth their "best efforts to insure that
their critical systems and processes will not affect their supply of product."
Yamaha, Core Materials' second largest customer, has not yet formally responded.
Such contact will continue to be made for all subsequently added suppliers and
customers. Alternate suppliers are being identified for those companies that
have expressed a problem with compliance and for key suppliers in general.
Additional contingencies include purchasing and stocking low cost materials as
required. Lastly, a supplier audit team has been developed and will begin
auditing suppliers the second quarter of 1999.
GENERAL BUSINESS ITEMS: General business items include items such as
banking, insurance, pension plans, and 401K programs. Core Materials has made
contact with the suppliers of these services and has received confirmation from
all that compliance is eminent.
CONTINGENCY PLAN: Core Materials recognizes that the actual outcome of
its Y2K efforts may differ from that discussed above. As a result, Core
Materials is reviewing other potential outcomes in an attempt to mitigate the
negative effects on Core Materials' ability to effectively and efficiently
function as a business. In the event that the solutions identified above are not
effective, Core Materials would employ other resources, such as underutilized
equipment, manual processes, and outside services to complete the required
tasks. It is unlikely that with such alternative resources Core Materials would
be able to deliver the full level of goods and services required by its
customers.
Worst case scenarios would include failure of most or all of the
equipment, failure of energy suppliers to deliver gas or electricity, and/or
failure of suppliers (including alternate suppliers) to provide production
materials. While Core Materials feels that the probability of these scenarios is
low, the realization of such scenarios would have a serious detrimental effect
on Core Materials' operations, liquidity and financial condition. In such a
worst case scenario, Core Materials would be heavily dependent on the ability of
the vendors/suppliers to resolve their own Y2K issues. The overall impact of
such a worst case scenario would be dependent on the length of time before the
problems are resolved.
Other less severe, but more likely scenarios are being reviewed. On a
priority and risk basis, contingency plans are being developed and tested. These
contingency plans include the steps necessary to protect and continue
operations, the key events to trigger implementation and the person or persons
responsible for execution of the plan.
COSTS OF Y2K: The total cost of the Year 2000 project is estimated at
$828,000 and is being funded through operating cash flows. Of the total project
cost, approximately $524,000 is attributed to new software/hardware which will
be capitalized. The remaining $304,000, which will be expensed as incurred, is
not expected to have a material effect on the results of operations. To date,
Core Materials has incurred approximately $618,000 of costs associated with this
project of which $371,000 was capitalized, relating to the purchase of new
hardware and software and $247,000 of which has been expensed.
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The costs of the project and the date on which Core Materials believes
it will complete the Year 2000 modification are based on management's best
estimates. These estimates were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors; however, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, the
assurances of outside companies, and similar uncertainties.
In addition, Core Materials has been and will continue to communicate
with others with whom it does significant business to determine their Year 2000
issues; however, there can be no guarantee that the systems of other companies
on which Core Materials' systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible with
the Core Materials' systems, would not have a material adverse affect on Core
Materials.
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PART I - FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Core Materials' primary market risk results from fluctuations in
interest rates. Core Materials is also exposed to changes in the price of
commodities used in its manufacturing operations. However, commodity price risk
related to Core Materials' current commodities is not material as price changes
in commodities are usually passed along to the final customer. Core Materials
does not hold any material market risk sensitive instruments for trading
purposes.
Core Materials has the following three items that are market rate
sensitive for interest rates. First, Core Materials has long-term debt
consisting of an Industrial Revenue Bond with a balance at March 31, 1999 of
$7,300,000. Interest is variable and is computed weekly; the average interest
rate charged for the three months ended March 31, 1999 was 3.0%; the maximum
interest rate that may be charged at any time over the life of the Industrial
Revenue Bond is 10%. In order to minimize the effect of the interest rate
fluctuation, Core Materials has entered into an interest rate swap agreement.
Under this agreement, Core Materials pays a fixed rate of 4.89% to a bank and
receives 76% of the 30 day commercial paper rate. Core Materials also has a
long-term Secured Note with a balance as of March 31, 1999 of $19,920,000 at a
fixed interest rate of 8%. Finally, Core Materials has a 7% mortgage-backed
security investment, which matures in November 2025, and such security is
recorded at cost. The security is considered held to maturity as Core Materials
has the intent and ability to hold such security to maturity.
Assuming a hypothetical 20% change in short-term interest rates,
interest expense would not change significantly, as the interest rate swap
agreement would generally offset the impact.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for vote during
the three months ended March 31, 1999.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
See Index to Exhibits
REPORTS ON FORM 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORE MATERIALS CORPORATION
Date: May 14, 1999 By:/s/ Kenneth M. Schmell
------------ ---------------------------------
Kenneth M. Schmell
Executive Vice President and
Chief Operating Officer
Date: May 14, 1999 By:/s/ Kevin L. Barnett
------------ ---------------------------------
Kevin L. Barnett
Vice President, Treasurer,
Secretary, and
Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<C> <S> <C>
2(a)(1) Asset Purchase Agreement Incorporated by reference to
Dated as of September 12, 1996, Exhibit 2-A to Registration
as amended October 31, 1996, Statement on Form S-4
between Navistar International Transportation (Registration No. 333-15809)
Corporation and RYMAC Mortgage Investment
Corporation(1)
2(a)(2) Second Amendment to Asset Purchase Incorporated by reference to
Agreement dated December 16, 1996(1) Exhibit 2.1.1 to Annual
Report on Form 10-K for the
year-ended December 31, 1996
2(b)(1) Agreement and Plan of Merger dated as of Incorporated by reference to
November 1, 1996, between Core Materials Exhibit 2-B to Registration
Corporation and RYMAC Mortgage Investment Statement on Form S-4
Corporation (Registration No. 333-15809)
2(b)(2) First Amendment to Agreement and Plan Incorporated by Reference to
of Merger dated as of December 27, 1996 Exhibit 2(b)(2) to Annual
Between Core Materials Corporation and RYMAC Report on Form 10-K for the
Mortgage Investment Corporation year ended December 31, 1997
3(a)(1) Certificate of Incorporation of Incorporated by reference to
Core Materials Corporation Exhibit 4(a) to Registration
as filed with the Secretary of State Statement on Form S-8
of Delaware on October 8, 1996 (Registration No. 333-29203)
3(a)(2) Certificate of Amendment of Incorporated by reference to
Certificate of Incorporation Exhibit 4(b) to Registration
of Core Materials Corporation Statement on Form S-8
as filed with the Secretary of State (Registration No. 333-29203)
of Delaware on November 6, 1996
3(a)(3) Certificate of Incorporation of Core Incorporated by reference to
Materials Corporation, reflecting Exhibit 4(c) to Registration
amendments through November 6, Statement on Form S-8
1996 [for purposes of compliance (Registration No. 333-29203)
with Securities and Exchange
Commission filing requirements only]
3(b) By-Laws of Core Materials Corporation Incorporated by reference to
Exhibit 3-C to Registration
Statement on Form S-4
(Registration No. 333-15809)
4(a)(1) Certificate of Incorporation of Core Materials Incorporated by reference to
Corporation as filed with the Secretary of State Exhibit 4(a) to Registration
of Delaware on October 8, 1996 Statement on Form S-8
(Registration No. 333-29203)
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<C> <S> <C>
4(a)(2) Certificate of Amendment of Certificate Incorporated by reference to
of Incorporation of Core Materials Exhibit 4(b) to Registration
Corporation as filed with the Secretary of Statement on Form S-8
State of Delaware on November 6, 1996 (Registration No. 333-29203)
4(a)(3) Certificate of Incorporation of Core Materials Incorporated by reference to
Corporation, reflecting amendments through Exhibit 4(c) to Registration
November 6, 1996 [for purposes of compliance Statement on Form S-8
with Securities and Exchange Commission (Registration No. 333-29203)
filing requirements only]
4(b) By-Laws of Core Materials Corporation Incorporated by reference to
Exhibit 3-C to Registration
Statement on Form S-4
(Registration No. 333-15809)
11 Computation of Net Income per Share Exhibit 11 omitted because
the required information is
included in Notes to
Financial Statement
27 Financial Data Schedule Filed herein
</TABLE>
(1) The Asset Purchase Agreement, as filed with the Securities and Exchange
Commission at Exhibit 2-A to Registration Statement on Form S-4 (Registration
No. 333-15809), omits the exhibits (including, the Buyer Note, Special Warranty
Deed, Supply Agreement, Registration Rights Agreement and Transition Services
Agreement, identified in the Asset Purchase Agreement) and schedules (including,
those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase
Agreement. Core Materials Corporation will provide any omitted exhibit or
schedule to the Securities and Exchange Commission upon request.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF INCOME FOR THE PERIOD ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,345,146
<SECURITIES> 2,158,506
<RECEIVABLES> 18,474,061
<ALLOWANCES> 105,000
<INVENTORY> 4,937,977
<CURRENT-ASSETS> 30,427,282
<PP&E> 37,074,859
<DEPRECIATION> 12,245,866
<TOTAL-ASSETS> 67,203,112
<CURRENT-LIABILITIES> 13,684,507
<BONDS> 26,930,150
0
0
<COMMON> 97,787
<OTHER-SE> 19,923,754
<TOTAL-LIABILITY-AND-EQUITY> 67,203,112
<SALES> 22,431,715
<TOTAL-REVENUES> 22,431,715
<CGS> 18,094,766
<TOTAL-COSTS> 18,094,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 407,697
<INCOME-PRETAX> 1,996,390
<INCOME-TAX> 826,507
<INCOME-CONTINUING> 1,169,883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,169,883
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
