10-Q 1 l84656ae10-q.txt CORE MATERIALS CORPORATION FORM 10-Q 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. 2 PART 1 - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CORE MATERIALS CORPORATION BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2000 1999 ---------------- ------------- (UNAUDITED) 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 ================ =============
See notes to financial statements. 2 3 CORE MATERIALS CORPORATION STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------ 2000 1999 2000 1999 ----------- ----------- ----------- ----------- 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 =========== =========== =========== ============
See notes to financial statements 3 4 CORE MATERIALS CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
TOTAL COMMON STOCK OUTSTANDING PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ----------------- ---------------- ---------------- --------------- ----------------- 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 ========= ========= ============= ============= ==============
See notes to financial statements. 4 5 CORE MATERIALS CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 2000 1999 ----------- ---------- 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 =========== ==========
See notes to financial statements. 5 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 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 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 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 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 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 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 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 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 15 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 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)
15 16
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- 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
(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