<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 September 30, 2000
--------------------------
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 November 13, 2000, 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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,376,638 $ 1,128,868
Accounts receivable (less allowance for doubtful accounts:
September 30, 2000 - $344,110; December 31, 1999 - $150,000) 15,296,181 19,714,554
Inventories:
Finished and work in process goods 1,672,767 2,929,515
Stores 1,756,620 2,513,062
---------------- -------------
Total inventories 3,429,387 5,442,577
Deferred tax asset 1,069,914 1,069,914
Prepaid expenses and other current assets 594,433 184,127
---------------- -------------
Total current assets 24,766,553 27,540,040
Property, plant and equipment 42,117,485 39,667,232
Accumulated depreciation (15,163,867) (13,461,300)
---------------- -------------
Property, plant and equipment - net 26,953,618 26,205,932
Deferred tax asset - net 11,397,040 11,890,677
Mortgage-backed security investment 1,618,500 1,909,295
Other assets 658,939 436,539
---------------- -------------
TOTAL $ 65,394,650 $ 67,982,483
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Current portion long-term debt $ 325,000 $ 305,000
Accounts payable 6,380,535 11,067,668
Accrued liabilities:
Compensation and related benefits 2,229,787 1,355,288
Interest 478,472 892,477
Other accrued liabilities 2,510,806 1,923,143
---------------- -------------
Total current liabilities 11,924,600 15,543,576
Long-term debt 26,455,150 26,700,150
Deferred long-term gain 2,575,660 2,915,825
Postretirement benefits liability 4,361,056 3,899,936
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 97,787
Outstanding shares: September 30, 2000 - 9,778,680,
December 31, 1999 - 9,778,680
Paid-in capital 19,251,392 19,251,392
Retained earnings (deficit) 729,005 (426,183)
---------------- -------------
Total stockholders' equity 20,078,184 18,922,996
---------------- -------------
TOTAL $ 65,394,650 $ 67,982,483
================ =============
</TABLE>
See notes to financial statements.
2
<PAGE> 3
CORE MATERIALS CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES:
Navistar $11,282,212 $14,394,252 $42,615,419 $46,558,496
Yamaha 3,915,323 3,380,926 13,561,597 11,693,472
Other 3,087,386 3,785,744 11,228,090 9,976,823
----------- ----------- ----------- -----------
Total Sales 18,284,921 21,560,922 67,405,106 68,228,791
----------- ----------- ----------- -----------
Cost of Sales 15,427,790 19,994,713 56,107,937 58,949,069
Postretirement benefits expense 292,574 259,407 857,004 791,321
----------- ----------- ----------- -----------
Total cost of sales 15,720,364 20,254,120 56,964,941 59,740,390
----------- ----------- ----------- -----------
GROSS MARGIN 2,564,557 1,306,802 10,440,165 8,488,401
----------- ----------- ----------- -----------
Selling, general and administrative expense 2,239,331 2,347,901 7,144,975 6,492,090
Postretirement benefits expense 43,718 38,180 155,252 109,417
----------- ----------- ----------- -----------
Total selling, general and administrative expense 2,283,049 2,386,081 7,300,227 6,601,507
INCOME/(LOSS) BEFORE INTEREST AND TAXES 281,508 (1,079,279) 3,139,938 1,886,894
Interest income 99,187 54,021 218,839 215,392
Interest expense (520,703) (461,544) (1,384,399) (1,336,970)
----------- ----------- ----------- -----------
INCOME/(LOSS) BEFORE INCOME TAXES (140,008) (1,486,802) 1,974,378 765,316
Income taxes:
Current (23,026) (245,397) 325,552 124,997
Deferred (34,936) (371,191) 493,638 190,793
----------- ----------- ----------- -----------
Total income taxes (57,962) (616,588) 819,190 315,790
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ (82,046) $ (870,214) $ 1,155,188 $ 449,526
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ (0.01) $ (0.09) $ 0.12 $ 0.05
=========== =========== =========== ===========
Diluted $ (0.01) $ (0.09) $ 0.12 $ 0.05
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 9,778,680 9,778,680 9,778,680 9,778,680
=========== =========== =========== ===========
Diluted 9,778,680 9,778,680 9,778,680 9,834,242
=========== =========== =========== ============
</TABLE>
See notes to financial statements
3
<PAGE> 4
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, 2000 9,778,680 $ 97,787 $ 19,251,392 $ (426,183) $ 18,922,996
Net Income 1,155,188 1,155,188
--------- --------- ------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 2000 9,778,680 $ 97,787 $ 19,251,392 $ 729,005 $ 20,078,184
========= ========= ============= ============= ==============
</TABLE>
See notes to financial statements.
4
<PAGE> 5
CORE MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,155,188 $ 449,526
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,774,775 1,496,567
Deferred income taxes 493,638 190,793
Loss/(gain) on disposal/acquisition of assets (14,588) 14,995
Amortization of gain on sale/leaseback transactions (340,166) (340,166)
Change in operating assets and liabilities:
Accounts receivable 4,418,373 (4,417,893)
Inventories 2,013,190 (3,750,821)
Prepaid and other assets (410,306) (247,545)
Accounts payable (4,687,133) 6,756,058
Accrued and other liabilities 1,048,156 (1,002,535)
Postretirement benefits liability 461,120 458,352
----------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,912,247 (392,669)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,730,272) (4,978,064)
Proceeds from maturities on mortgage-backed security investment 290,795 652,260
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (2,439,477) (4,325,804)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under line-of-credit - 2,150,000
Payment of principal on industrial revenue bond (225,000) (210,000)
----------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (225,000) 1,940,000
NET INCREASE (DECREASE) IN CASH 3,247,770 (2,778,473)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,128,868 3,117,085
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,376,638 $ 338,612
=========== ==========
Cash paid for:
Interest (net of amounts capitalized) $ 1,727,285 $1,501,024
=========== ==========
Income taxes $ (84,666) $ 610,000
=========== ==========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
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 September 30, 2000, and the results of operations and cash flows.
The "Notes to Financial Statements", which are contained in the 1999 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 to the classifications of such amounts for 2000.
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 liabilities of
Columbus Plastics Operation ("Columbus Plastics"), an operating unit of Navistar
International Transportation Corporation (now known as International Truck and
Engine Corporation, "International").
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 operates principally in one business segment as a
compounder and compression molder of Sheet Molding Composites ("SMC") fiberglass
reinforced plastics. Core Materials produces and sells both SMC compound and
molded products for varied markets including the automotive and trucking
industries, recreational vehicles and commercial and industrial products.
2. RESTRICTED CASH
Included in cash at December 31, 1999, was $322,811, which was
restricted pursuant to the terms of the Industrial Revenue Bond, which was
issued in May 1998. On September 18, 2000, the restriction was removed and the
$335,854 of cash in the restricted account became available for general uses of
Core Materials.
3. 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 income per
share for the three and nine months ended September 30, 2000, stock options had
no effect on the weighted average shares for the computation of diluted income
per share and consequently basic and diluted net income per share were the same.
In calculating net income per share for the three and nine months ended
September 30, 1999, stock options had no effect on the weighted average shares
for the computation of diluted income per share for the third quarter; however,
weighted average shares increased by 55,562 for the nine months ended September
30, 1999, due to the effect of stock options which had no effect on net income
per share.
6
<PAGE> 7
4. COMMITMENTS AND CONTINGENCIES
At September 30, 2000, Core Materials had remaining outstanding
commitments for the purchase of a compression molding press for $137,540.
7
<PAGE> 8
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,
recreation 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, regulatory
requirements, labor relations, the loss or inability to attract key personnel,
the availability of capital and management's decisions to pursue new products or
businesses which involve additional costs, risks or capital expenditures.
OVERVIEW
On December 31, 1996, Core Materials acquired substantially all of the
assets and assumed certain liabilities of Columbus Plastics, a wholly owned
operating unit of International'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 may change proportionately more than revenues from operations.
At the time of the acquisition of Columbus Plastics, International 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 International's original equipment and
service requirements for fiberglass reinforced parts using the SMC process.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000, AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales for the three months ended September 30, 2000, totaled $18,285,000
representing an approximate 15% decrease from the $21,561,000 reported for the
three months ended September 30, 1999. Sales to International decreased to
$11,282,000 from $14,394,000 for the three months ended September 30, 1999. The
primary reason for the decrease was lower demand from International resulting
from an industry wide general decline in truck orders. Sales to Yamaha increased
for the three months ended September 30, 2000, by approximately 16% to
$3,915,000 compared with $3,381,000 for the three months ended September 30,
1999. The increase in Yamaha sales was primarily due to an overall increase in
demand from Yamaha for Core Materials' products.
Sales to other customers for the three months ended September 30, 2000,
decreased approximately 18% to $3,087,000 from $3,786,000 for the three months
ended September 30, 1999. The decrease in sales was primarily the result of Core
Materials discontinuing its business relationship with Caradon Doors and
Windows, Peachtree Division. For the three months ending September 30, 2000,
sales to Caradon were $13,000 compared to $645,000 for the three months ending
September 30, 1999. Sales increases to other customers over the three months
ended September 30, 2000, were as follows: Case Corporation - $13,000; John
Deere - $27,000; Mack Trucks - $95,000; and New Holland North America, Inc. -
$740,000. These increases were partially offset by a decrease in sales to Volvo
Trucks North America, Inc. of approximately $784,000.
8
<PAGE> 9
Gross Margin was 14.0% of sales for the three months ended September 30,
2000, compared with 6.1% for the three months ended September 30, 1999. The
increase in gross margin, as a percent of sales from the prior year, was
primarily due to decreased production costs resulting from improved labor
utilization and lower overtime costs, lower repair and maintenance expenditures,
and improved operating supplies control. Additionally, the third quarter of 1999
included a write-off of inventory associated with the annual physical inventory
and production costs associated with the start up of new products and inventory
bank builds. These events did not occur in the third quarter of 2000.
Selling, general and administrative expenses ("SG&A") totaled $2,283,000 for
the three months ended September 30, 2000, decreasing from $2,386,000 for the
three months ended September 30, 1999. The decrease from 1999 was primarily due
to the decreased level of expenditures for outside services, which took place to
support further growth initiatives. Included in these 1999 costs were
expenditures for evaluating additional facility locations, products and
processes, and personnel recruiting costs.
Interest expense totaled $521,000 for the three months ended September 30,
2000, increasing from $462,000 for the three months ended September 30, 1999.
The increase in interest expense from 1999 was primarily due to interest expense
being reduced in 1999 by a higher amount of capitalized interest associated with
assets being constructed. Interest income totaled $99,000 for the three months
ended September 30, 2000, increasing from $54,000 for the three months ended
September 30, 1999.
Income taxes/(benefit) for the three months ended September 30, 2000, are
estimated to be approximately 41% of total earnings before taxes. Actual tax
payments will be lower than the recorded expenses as Core Materials has
substantial federal tax loss carryforwards. These loss carryforwards were
recorded as a deferred tax asset. 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. Projected
future income tax payments/(benefits) related to income earned for the three
months ended September 30, 2000, are estimated to be approximately ($23,000),
which reflects federal alternative minimum, state and local taxes.
Net income/(loss) for the three months ended September 30, 2000, was
($82,000), or ($.01) per basic and ($.01) per diluted share, representing an
increase of $788,000 over the net income/(loss) for the three months ended
September 30, 1999, of ($870,000), or ($.09) per basic and ($.09) per diluted
share. The Company has approximately $20 million of operating tax loss
carryforwards that are available to offset income taxes on future earnings.
These tax loss carryforwards do not begin to expire until the year 2007. If the
benefit of Core Materials' operating tax loss carryforwards were recorded as a
reduction in income tax expense/(benefit), which is reflective of the actual
cash treatment, net income/(loss) for the three months ended September 30, 2000,
would increase by ($35,000), or $.00 per diluted share, to a total of
($117,000), or ($.01) per diluted share. The comparable 1999 net income/(loss)
would increase by ($371,000), or ($.04) per diluted share, to a total of
($1,241,000), or ($.13) per diluted share.
NINE MONTHS ENDED SEPTEMBER 30, 2000, AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales for the nine months ended September 30, 2000, totaled $67,405,000
representing an approximate 1% decrease from the $68,229,000 reported for the
nine months ended September 30, 1999. Sales to International decreased to
$42,615,000 from $46,558,000 for the nine months ended September 30, 1999. The
primary reason for the decrease was lower demand from International resulting
from an industry wide general decline in truck orders. Sales to Yamaha increased
for the nine months ended September 30, 2000, by 16% to $13,562,000 compared
with $11,693,000 for the nine months ended September 30, 1999. The increase in
Yamaha sales was primarily due to an increase in demand from Yamaha for Core
Materials' products.
Sales to other customers for the nine months ended September 30, 2000,
increased approximately 12% to $11,228,000 from $9,977,000 for the nine months
ended September 30, 1999. The increase in sales was primarily the result of new
customers added during 1998 and 1999, including New Holland North America, Inc.
- $2,304,000, John Deere - $295,000 and Mack Truck - $440,000. Partially
offsetting these increases was a decrease in sales to Volvo Trucks North
America, Inc. of $1,286,000.
9
<PAGE> 10
Gross margin was 15.5% of sales for the nine months ended September 30,
2000, compared with 12.4% for the nine months ended September 30, 1999. The
improvement in the gross margin percentage was primarily due to the reasons
noted above for the three months ended September 30, 2000.
SG&A totaled $7,300,000 for the nine months ended September 30, 2000,
increasing from $6,602,000 for the nine months ended September 30, 1999. The
increase over the 1999 amount was primarily due to the increased level of the
salaried workforce related to the reorganization and strengthening of the Core
Materials' management team, which took place in the latter part of 1999 and the
first quarter of 2000. Travel expenses were also higher to support the various
growth and operational improvement programs.
Income taxes for the nine months ended September 30, 2000, are estimated to
be approximately 41% of total earnings before taxes. Actual tax payments will be
lower than the recorded expenses as Core Materials has substantial federal tax
loss carryforwards. These loss carryforwards were recorded as a deferred tax
asset. 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. Projected future income tax payments related
to income earned for the nine months ended September 30, 2000, are estimated to
be approximately $326,000 which reflects federal alternative minimum, state and
local taxes.
Net income for the nine months ended September 30, 2000, was $1,155,000, or
$.12 per basic and $.12 per diluted share, an increase of $705,000 compared to
the net income for the nine months ended September 30, 1999, of $450,000, or
$.05 per basic and $.05 per diluted share. Core Materials has approximately $20
million of operating tax loss carryforwards that are available to offset income
taxes on future earnings. These tax loss carryforwards do not begin to expire
until the year 2007. If the benefit of Core Materials' operating tax loss
carryforwards were recorded as a reduction in income tax expense, which is
reflective of the actual cash treatment, net income for the nine months ended
September 30, 2000, would increase by $494,000, or $.05 per diluted share, to a
total of $1,649,000, or $.17 per diluted share. The comparable 1999 net income
would increase by $191,000, or $.02 per diluted share, to a total of $641,000,
or $.07 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 nine months ended September 30,
2000, totaled $5,912,000. Net income contributed $1,155,000 with depreciation
and amortization adding another $1,775,000. A decrease in accounts receivable
contributed $4,418,000. This decrease was primarily the result of collecting on
past due invoices. Also adding positive cash flow was the reduction of inventory
levels by $2,013,000. In addition, accrued and other liabilities added
$1,048,000 in positive cash flow, which were primarily due to increases in
employee benefit accruals that will be paid in the future. Decreasing the
operating cash flow was a decrease in accounts payable of $4,687,000, which was
primarily due to timing effects. Also decreasing the operating cash flow was an
increase in prepaid expenses of $410,000 due to the payment of annual insurance
premiums.
Investing activities negatively affected cash flow by $2,439,000 for
the nine months ended September 30, 2000. Capital expenditures totaled
$2,730,000, which was primarily related to the acquisition of machinery and
equipment. Offsetting these expenditures were proceeds from maturities on Core
Materials' mortgage-backed security investment of $291,000.
Financing activities reduced cash flow by $225,000 due to principal
repayments on the $7,500,000 Industrial Revenue Bond that was issued in 1998.
During the second quarter of 2000, Core Materials announced new
business relationships with Mack Trucks, Inc. and Lear Corporation to supply
them sheet molding composite (SMC) products. Management expects that any
additional capital items required for these new business relationships will be
funded through the normal operations and funding sources of the business.
At September 30, 2000, Core Materials had cash on hand of $4,377,000
and an available line of credit of $7,500,000. As of September 30, 2000, Core
Materials was in violation of all three of its financial debt covenants for its
line of credit, its letter of credit securing the Industrial Revenue Bond and
certain
10
<PAGE> 11
equipment leases. The covenants relate to maintaining certain financial
ratios. On March 14, 2000, Core Materials received a written commitment from the
bank to waive these covenants each quarter through the quarter ended September
30, 2000, if Core Materials operates in compliance with financial projections
for fiscal year 2000 and does not experience any material adverse change to its
financial condition. Core Materials has operated in compliance with the
financial projections for the nine months ended September 30, 2000, and the bank
has waived the covenants for this period. Management expects Core Materials to
meet the projections for the remainder of 2000. However, if performance should
fall below these projections or if a material adverse change in the financial
position of Core Materials should occur, Core Materials' liquidity and ability
to obtain further financing to fund future operating and capital requirements
could be negatively impacted.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," to establish accounting and reporting requirements for
derivative instruments. This standard requires recognition of all derivative
instruments in the statement of financial position as either assets or
liabilities, measured at fair value. This statement additionally requires
changes in the fair value of derivatives to be recorded each period in current
earnings or comprehensive income depending on the intended use of the
derivatives. This statement is effective for Core Materials beginning January 1,
2001. Core Materials is in the process of assessing the impact of SFAS No. 133.
Based upon the preliminary results of this assessment, Core Materials
anticipates that the adoption of this statement will not have a material effect
on its results of operations or its financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which effectively summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. In March 2000, the SEC issued SAB No. 101A to provide
additional time for implementation of SAB No. 101, and in June 2000, the SEC
issued SAB No. 101B, which defers the implementation of SAB No. 101 until the
fourth quarter of fiscal years beginning after December 15, 1999 (the fourth
quarter of the Company's fiscal 2001). Management has not yet completed its
analysis of this SAB as to its impact on the Company's consolidated financial
statements and disclosures.
11
<PAGE> 12
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. The Company does not hold any
material market risk sensitive instruments for trading purposes.
Core Materials has the following three items that are sensitive to a
change in interest rates: (1) Long-term debt consisting of an Industrial Revenue
Bond ("IRB") with a balance at September 30, 2000, of $6,860,000. Interest is
variable and is computed weekly; the average interest rate charged for the nine
months ended September 30, 2000, was 4.5%, and the maximum interest rate that
may be charged at any time over the life of the IRB is 10%. In order to minimize
the effect of the interest rate fluctuation, Core Materials has entered into an
interest rate swap arrangement under which Core Materials pays a fixed rate of
4.89% to a bank and receives 76% of the 30 day commercial paper rate; (2)
Long-term Secured Note Payable with a balance as of September 30, 2000, of
$19,920,000 that bears interest at a fixed annual rate of 8%; (3) 7%
mortgage-backed security which matures in November 2025. Such security is
recorded at cost and 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 in both
the nine month period ended September 30, 2000 and 1999, interest expense would
not change significantly, as the interest rate swap agreement would generally
offset the impact.
12
<PAGE> 13
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 submission of matters to a vote of security holders
occurred for the three months ended September 30, 2000.
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
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act 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: November 13, 2000 By: /s/ James L. Simonton
----------------- --------------------------------------
James L. Simonton
President, Chief Executive Officer and
Director
Date: November 13, 2000 By: /s/ Kevin L. Barnett
----------------- --------------------------------------
Kevin L. Barnett
Vice President, Treasurer, Secretary, and
Chief Financial Officer
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <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>
15
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <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.
16
