-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NeNIGCOOhW95UvUzGPdm4XpcoKO/V2zsnHD4Slukx/W2QGyHaP7AMiYQL+0cAZG/ oVFLx//8eqpvDrT3wQkRcA== 0000950152-01-503907.txt : 20010815 0000950152-01-503907.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950152-01-503907 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORE MATERIALS CORP CENTRAL INDEX KEY: 0001026655 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 311481870 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12505 FILM NUMBER: 1709842 BUSINESS ADDRESS: STREET 1: 800 MANOR PARK DRIVE STREET 2: P O BOX 28183 CITY: COLUMBUS STATE: OH ZIP: 43228 BUSINESS PHONE: 8006666960 MAIL ADDRESS: STREET 1: 800 MANOR PARK DR STREET 2: P O BOX 28183 CITY: COLUMBUS STATE: OH ZIP: 43228 10-Q 1 l89431ae10-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 June 30, 2001 ------------- 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 August 9, 2001, 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
JUNE 30, DECEMBER 31, 2001 2000 ----------------- -------------- (UNAUDITED) ASSETS Cash and cash equivalents $ 7,642,321 $ 2,712,412 Accounts receivable (less allowance for doubtful accounts: June 30, 2001 - $492,000; December 31, 2000 - $424,000) 14,153,499 13,221,320 Inventories: Finished and work in process goods 2,312,533 1,745,653 Stores 1,649,331 1,898,465 -------------- ------------ Total inventories 3,961,864 3,644,118 Deferred tax asset 1,245,568 1,245,568 Prepaid expenses and other current assets 700,085 2,410,112 -------------- ------------ Total current assets 27,703,337 23,233,530 Property, plant and equipment 42,404,461 41,562,272 Accumulated depreciation (16,528,612) (15,509,218) -------------- ------------ Property, plant and equipment - net 25,875,849 26,053,054 Deferred tax asset - net 11,418,957 11,430,442 Mortgage-backed security investment 1,350,545 1,610,741 Other assets 431,325 457,294 -------------- ------------ TOTAL $ 66,780,013 $ 62,785,061 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Current liabilities Current portion long-term debt $ 345,000 $ 330,000 Accounts payable 8,236,636 5,266,017 Accrued liabilities: Compensation and related benefits 1,482,189 1,636,257 Interest 899,829 77,644 Taxes 846,399 654,255 Graduated lease payments 774,633 659,998 Other accrued liabilities 1,048,318 1,068,205 -------------- ------------ Total current liabilities 13,633,004 9,692,376 Long-term debt 26,195,150 26,370,150 Interest rate swap 190,920 - Deferred long-term gain 2,235,494 2,462,271 Postretirement benefits liability 4,833,693 4,621,917 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 97,787 Outstanding shares: June 30, 2001 - 9,778,680, December 31, 2000 - 9,778,680 Paid-in capital 19,251,392 19,251,392 Accumulated other comprehensive income (loss), net of income tax effect (126,007) - Retained earnings 468,580 289,168 -------------- ------------ Total stockholders' equity 19,691,752 19,638,347 -------------- ------------ TOTAL $ 66,780,013 $ 62,785,061 ============== ============
See notes to financial statements. 2 3 CORE MATERIALS CORPORATION STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------- --------------------------------- 2001 2000 2001 2000 ---------------- -------------- -------------- --------------- NET SALES: International $ 9,507,681 $13,897,237 $19,493,722 $31,333,207 Yamaha 3,487,594 4,999,875 9,118,382 9,646,274 Lear 2,727,743 - 3,054,418 - Other 1,735,224 4,310,417 4,891,006 8,140,704 ---------------- -------------- -------------- --------------- Total Sales 17,458,242 23,207,529 36,557,528 49,120,185 ---------------- -------------- -------------- --------------- Cost of Sales 14,781,027 19,519,884 31,209,132 40,680,147 Postretirement benefits expense 267,814 280,525 521,686 564,430 ---------------- -------------- -------------- --------------- Total cost of sales 15,048,841 19,800,409 31,730,818 41,244,577 ---------------- -------------- -------------- --------------- GROSS MARGIN 2,409,401 3,407,120 4,826,710 7,875,608 ---------------- -------------- -------------- --------------- Selling, general and administrative expense 1,652,382 2,284,147 3,620,074 4,905,644 Postretirement benefits expense 58,789 57,457 118,339 111,534 ---------------- -------------- -------------- --------------- Total selling, general and administrative expense 1,711,171 2,341,604 3,738,413 5,017,178 INCOME BEFORE INTEREST AND TAXES 698,230 1,065,516 1,088,297 2,858,430 Interest income 104,008 67,703 200,014 119,652 Interest expense (502,313) (421,912) (982,146) (863,696) ---------------- -------------- -------------- --------------- INCOME BEFORE INCOME TAXES 299,925 711,307 306,165 2,114,386 Income taxes: Current 49,327 117,642 50,355 348,578 Deferred 74,841 178,494 76,398 528,574 ---------------- -------------- -------------- --------------- Total income taxes 124,168 296,136 126,753 877,152 ---------------- -------------- -------------- --------------- NET INCOME $ 175,757 $ 415,171 $ 179,412 $1,237,234 ================ ============== ============== =============== NET INCOME PER COMMON SHARE: Basic $ 0.02 $ 0.04 $ 0.02 $ 0.13 ================ ============== ============== =============== Diluted $ 0.02 $ 0.04 $ 0.02 $ 0.13 ================ ============== ============== =============== 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 9,778,680 ================ ============== ============== ===============
See notes to financial statements 3 4 CORE MATERIALS CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED COMMON STOCK OUTSTANDING OTHER TOTAL PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY ------------- ------------ -------------- ------------- ------------------ --------------- BALANCE AT JANUARY 1, 2001 9,778,680 $ 97,787 $ 19,251,392 $289,168 $19,638,347 To record the initial fair market $ (104,762) (104,762) value of the interest rate swap, net of deferred income tax benefit of $53,968. To record the hedge accounting effect (21,245) (21,245) of the interest rate swap at June 30, 2001, net of deferred income tax benefit of $10,945. Net Income 179,412 179,412 ------------- ------------ -------------- ------------- ------------------ --------------- BALANCE AT JUNE 30, 2001 9,778,680 $97,787 $ 19,251,392 $468,580 $ (126,007) $19,691,752 ============= ============ ============== ============= ================== ===============
See notes to financial statements. 4 5 CORE MATERIALS CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 2001 2000 ---------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 179,412 $1,237,234 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,073,081 1,179,973 Deferred income taxes 76,398 528,574 Loss on disposal of assets 33,203 26,411 Amortization of gain on sale/leaseback transactions (226,777) (226,777) Change in operating assets and liabilities: Accounts receivable (932,179) 4,547,069 Inventories (317,746) 1,391,115 Prepaid and other assets 1,710,027 (475,993) Accounts payable 2,970,618 (3,152,078) Accrued and other liabilities 955,009 993,526 Postretirement benefits liability 211,776 216,473 ---------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,732,822 6,265,527 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (922,909) (2,100,984) Proceeds from sale of property and equipment 19,800 - Proceeds from maturities on mortgage-backed security investment 260,196 284,169 ---------------- --------------- NET CASH USED IN INVESTING ACTIVITIES (642,913) (1,816,815) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of principal on industrial revenue bond (160,000) (150,000) ---------------- --------------- NET CASH USED IN FINANCING ACTIVITIES (160,000) (150,000) NET INCREASE IN CASH 4,929,909 4,298,712 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,712,412 1,128,868 ---------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,642,321 $ 5,427,580 ================ =============== Cash paid for: Interest (net of amounts capitalized) $ 116,580 $ 829,011 ================ =============== Income taxes $ 60,456 $ (84,666) ================ ===============
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 accounting principles generally accepted in the United States of America for interim reporting, which are less than those required for annual reporting. In the opinion of management, the accompanying unaudited 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 June 30, 2001, and the results of operations and cash flows. The "Notes to Financial Statements", which are contained in the 2000 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 2001. Core Materials operates in the plastics market, specifically in the production of high quality compression Sheet Molding Composite ("SMC") fiberglass reinforced plastics. Core Materials produces and sells both SMC compound and molded products for varied markets including the automotive and trucking industries and recreational vehicles. 2. 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 six months ended June 30, 2001 and 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. 3. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (FAS 133) When Core Materials Corporation enters into variable rate obligations or purchases variable rate interest bearing assets, it considers the potential effect of interest rate fluctuations on such instruments. In order to minimize the effects of interest rate fluctuations on its operations, the Company may enter into interest rate management arrangements. In conjunction with its variable rate Industrial Revenue Bond, Core Materials entered into an interest rate swap agreement, which was designated as a cash flow hedging instrument, with a commercial bank in June 1998. Under this agreement, Core Materials pays a fixed rate of 4.89% to the bank and receives 76% of the 30-day commercial paper rate. The difference paid or received varies as short-term interest rates change and is accrued and recognized as an adjustment to interest expense. The swap term matches the payment schedule on the IRB with final maturity in April 2013. While Core Materials is exposed to credit loss on its interest rate swap in the event of non-performance by the counterparty to the swap, management believes such non-performance is unlikely to occur given the financial resources of the counterparty. The effectiveness of the swap is assessed at each financial reporting date by comparing the commercial paper rate of the swap to the benchmark rate underlying the variable rate of the Industrial Revenue Bond. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, on January 1, 2001. At January 1, 2001, the Company recorded the fair value of its interest rate swap agreement of $159,000 as a long-term liability and $105,000 (net of deferred income tax benefit of $54,000) to accumulated other comprehensive income (loss). 4. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) represents net income (loss) plus the results of certain non-shareowners' equity changes not reflected in the Statement of Income. The components of comprehensive income (loss), net of tax, are as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------------ -------------------------- 2001 2000 2001 2000 -------- -------- -------- ---------- Net income $175,757 $415,171 $ 179,412 $1,237,234 Cumulative effect of change in accounting principle (SFAS No. 133) on other comprehensive income 60,045 -- (126,007) -- -------- -------- --------- ---------- Comprehensive income (loss) $235,802 $415,171 $ 53,405 $1,237,234 ======== ======== ========= ==========
6 7 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 three 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, which expires on December 31, 2001. 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. At this time, there are no plans to renew this agreement. If the agreement expires without an extension, Core Materials will supply products to International on a purchase order basis, like it operates with all of its other customers. The purchase orders typically provide volume commitments for four weeks at prices previously negotiated. Customers can update their orders on a daily basis for changes in demand that allow them to run their inventories on a "just-in-time" basis. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Net sales for the three months ended June 30, 2001, totaled $17,458,000 representing an approximate 25% decrease from the $23,208,000 reported for the three months ended June 30, 2000. Sales to International decreased to $9,508,000 from $13,897,000 for the three months ended June 30, 2000. The primary reason for the decrease was lower demand from International resulting from an industry wide general decline in truck orders. Sales to Yamaha decreased for the three months ended June 30, 2001 to $3,488,000 compared with $5,000,000 for the three months ended June 30, 2000. The decrease in Yamaha sales is primarily the result of lower demand due to the seasonal nature of the personal watercraft industry and also due to the weaker general economic conditions, which has resulted in lower sales by Yamaha to end-users. Sales to other customers for the three months ended June 30, 2001, increased 4% to $4,463,000 from $4,310,000 for the three months ended June 30, 2000. The increase was primarily due to sales to Lear Corporation. The Company began selling product to Lear in the first quarter of 2001, and sales for the three months ended June 30, 2001, were $2,728,000. The Lear products consist of SMC components that Lear assembles into seat bottoms and backs for a new sports utility/pick-up truck recently introduced by an 7 8 automotive original equipment manufacturer. The Company saw a discontinuance of its business relationship with Case/New Holland in the second quarter of 2001. Sales to Case/New Holland totaled $980,000 compared to $2,158,000 for the three months ended June 30, 2000. Also partially offsetting the gain in sales was the discontinuance of business in 2000 with Caradon Doors and Windows, Peachtree Division. For the three months ended June 30, 2000, sales to Caradon were $762,000. Sales levels were also down to Volvo Trucks North America and other various customers. Gross Margin was 13.8% of sales for the three months ended June 30, 2001, compared with 14.7% for the three months ended June 30, 2000. The decrease in gross margin as a percent of sales, from the prior year, is primarily due to fixed costs associated with excess capacity, production inefficiencies associated with reduced order flow, and new product start-ups, mostly affecting the Columbus plant. However, improved productivity and a better product mix resulted in gross margin improvement in the Gaffney plant compared to last year. Selling, general and administrative expenses ("SG&A") totaled $1,711,000 for the three months ended June 30, 2001, decreasing from $2,342,000 for the three months ended June 30, 2000. The decrease from 2000 was due to lower salary and benefit costs, primarily due to a reduction in personnel, and due to reductions in supplies, outside services, travel and other expenses resulting from cost containment activities and declining volumes. Interest expense totaled $502,000 for the three months ended June 30, 2001, increasing from $422,000 for the three months ended June 30, 2000. The increase in interest expense from 2000 is primarily due to interest expense being reduced in 2000 by a higher amount of capitalized interest associated with assets being constructed. Interest income totaled $104,000 for the three months ended June 30, 2001, increasing from $68,000 for the three months ended June 30, 2000 due to increased funds available for investment. Income taxes for the three months ended June 30, 2001, 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 three months ended June 30, 2001, are estimated to be approximately $49,000 which reflects federal alternative minimum, state and local taxes. Net income for the three months ended June 30, 2001, was $176,000 or $.02 per basic and diluted share, a decrease of $239,000 over the net income for the three months ended June 30, 2000, of $415,000 or $.04 per basic and diluted share. The Company has approximately $18 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 the Company's 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 three months ended June 30, 2001, would have been increased by $75,000, or $.01 per diluted share, to a total of $251,000, or $.03 per diluted share. The comparable 2000 net income would have been increased by $178,000, or $.02 per diluted share, to a total of $593,000, or $.06 per diluted share. SIX MONTHS ENDED JUNE 30, 2001 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 Net sales for the six months ended June 30, 2001, totaled $36,558,000 representing an approximate 26% decrease from the $49,120,000 reported for the six months ended June 30, 2000. Sales to International decreased to $19,494,000 from $31,333,000 for the six months ended June 30, 2000. The primary reason for the decrease was lower demand from International resulting from an industry wide general decline in truck orders. Sales to Yamaha decreased slightly for the six months ended June 30, 2001 to $9,118,000 compared with $9,646,000 for the six months ended June 30, 2000. The decrease in Yamaha sales is primarily due to the general economic conditions and its impact on the personal watercraft industry as noted above. Sales to other customers for the six months ended June 30, 2001, decreased slightly to $7,945,000 from $8,141,000 for the six months ended June 30, 2000. The decrease in sales was primarily the result of the Company discontinuing its business relationships with Caradon Doors and Windows, Peachtree Division, and Case/New Holland as discussed above. Sales to Caradon totaled $1,245,000 for the six months ended June 30, 2000. Sales to Case/New Holland were $3,170,000 for the six months ended June 30, 2001, compared to $4,257,000 for the same period in 2000. Also contributing to the decrease were declines in sales to Volvo Trucks North America and other various customers. Partially offsetting these amounts was new business with Lear Corporation, which totaled $3,054,000 in sales for the six months ended June 30, 2001. 8 9 Gross margin was 13.2% of sales for the six months ended June 30, 2001, compared with 16.0% for the six months ended June 30, 2000. The decline in gross margin percentage is primarily due to the reasons noted above. Additionally, the Company experienced higher energy costs resulting from an increase in natural gas prices. SG&A totaled $3,738,000 for the six months ended June 30, 2001, decreasing from $5,017,000 for the six months ended June 30, 2000. The decrease from the 2000 amount is primarily due to the reasons noted above for the three months. Income taxes for the six months ended June 30, 2001, 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 six months ended June 30, 2001, are estimated to be approximately $50,000 which reflects federal alternative minimum, state and local taxes. Net income for the six months ended June 30, 2001, was $179,000 or $.02 per basic and diluted share, a decrease of $1,058,000 compared to the net income for the six months ended June 30, 2000, of $1,237,000 or $.13 per basic and diluted share. The Company has approximately $18 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 the Company's 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 six months ended June 30, 2001, would have been increased by $76,000, or $.01 per diluted share, to a total of $255,000, or $.03 per diluted share. The comparable 2000 net income would have been increased by $529,000, or $.05 per diluted share, to a total of $1,766,000, or $.18 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 six months ended June 30, 2001, totaled $5,733,000. Net income contributed $179,000 with depreciation and amortization adding another $1,073,000. Adding positive operating cash flows was an increase in accounts payable of $2,971,000, primarily related to timing effects. Also increasing cash flows was a decrease in prepaid and other assets of $1,710,000 due to the collection of the outstanding receivable relating to the sale-leaseback transaction, which occurred at the end of 2000. In addition, accrued and other liabilities added $955,000 in positive cash flow, which was primarily due to an increase in the accrual for interest charges on the long-term debt to International. Decreasing the operating cash flow was an increase in accounts receivable of $932,000, which was primarily due to new business started with Lear Corporation. Also decreasing operating cash flows was an increase in inventory of $318,000 due to production for Lear Corporation reaching full volumes. Investing activities negatively affected cash flow by $643,000 for the six months ended June 30, 2001. Capital expenditures totaled $923,000 primarily related to the acquisition of machinery and equipment. Offsetting these expenditures were proceeds from maturities on Core Materials' mortgage-backed security investment of $260,000. Financing activities reduced cash flow by $160,000 due to principal repayments on the $7,500,000 Industrial Revenue Bond that was issued in 1998. At June 30, 2001, Core Materials had cash on hand of $7,642,000 and an available line of credit of $7,500,000. As of June 30, 2001, Core Materials was in compliance with all three of its financial debt covenants for its line of credit, its letter of credit securing the industrial revenue bond and certain equipment leases. The covenants relate to maintaining certain financial ratios. Management expects Core Materials to remain in compliance for the remainder of 2001. However, if a material adverse change in the financial 9 10 position of the Company 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 July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations," to establish accounting and reporting requirements for business combinations. Previously, the purchase method or the pooling method of accounting for business combinations was acceptable depending on certain criteria being met or not. This new standard requires the use of the purchase method of accounting for all business combinations. This statement is effective for the Company beginning June 20, 2001. The Company is currently assessing the impact of SFAS No. 141, and the Company does not anticipate this statement to have a material effect on its results of operations and its financial position. Also in July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". This statement applies to intangibles and goodwill acquired after June 30, 2001, as well as goodwill and intangibles previously acquired. Under this statement, goodwill, as well as other intangibles determined to have an infinite life, will no longer be amortized; however, these assets will be reviewed for impairment on a periodic basis. This statement is effective for the Company for the fiscal year beginning after December 15, 2001. The Company is currently assessing the impact of SFAS No. 142, and the Company does not anticipate this statement to have a material effect on its results of operations and its financial position. 10 11 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 four 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 June 30, 2001, of $6,620,000. Interest is variable and is computed weekly; the average interest rate charged for the six months ended June 30, 2001, was 3.63%, 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 June 30, 2001, of $19,920,000 at a fixed interest 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; and (4) Revolving line of credit, which bears interest at LIBOR plus three and one-quarter percent or prime plus one-quarter percent as elected by Core Materials. Assuming a hypothetical 20% change in short-term interest rates in both the six month period ended June 30, 2001 and 2000, interest expense would not change significantly, as the interest rate swap agreement would generally offset the impact. 11 12 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 At the annual meeting of the shareholders of Core Materials Corporation held May 15, 2001, the following issues were voted upon with the indicated results:
A. ELECTION OF DIRECTORS: SHARES VOTED FOR SHARES VOTED AGAINST Thomas R. Cellitti 5,829,262 107,017 James F. Crowley 5,829,262 107,017 Ralph O. Hellmold 5,829,262 107,017 Thomas M. Hough 5,829,262 107,017 Malcolm M. Prine 5,829,262 107,017 James L. Simonton 5,913,462 22,817
The above elected directors constitute the full acting Board of Directors for Core Materials Corporation; all terms expire at the 2002 annual meeting of stockholders of the Company. B. RATIFICATION OF DELOITTE AND TOUCHE, LLP AS AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2001: SHARES VOTED FOR SHARES AGAINST SHARES ABSTAINING 5,920,652 9,014 6,613 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 12 13 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: AUGUST 14, 2001 By: /s/ James L. Simonton ---------------------------- James L. Simonton President, Chief Executive Officer and Director Date: AUGUST 14, 2001 By: /s/ Kevin L. Barnett ---------------------------- Kevin L. Barnett Vice President, Treasurer, Secretary, and Chief Financial Officer 13 14 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, 19961 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)
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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
(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. 15 -----END PRIVACY-ENHANCED MESSAGE-----