UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report: December 28, 2001
CORE MATERIALS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 001-12505 31-1481870
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(State of Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
800 Manor Park Drive, P.O. Box 28183
Columbus, Ohio 43228-0183
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(Address of Principle Executive Offices) (Zip Code)
Registrant's telephone number, including area code (614) 870-5000
-----------------------------
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(Former Name of Former Address, if Changed Since Last Report)
EXPLANATORY NOTE
This Form 8-K/A amends Item 7 of the current report on Form 8-K filed
by Core Materials Corporation ("Core Materials") on October 31, 2001, to include
financial statements that were not available at the time of the filing of the
initial report. The financial statements are required as a result of the October
16, 2001, acquisition by Core Composites Corporation, a wholly owned subsidiary
of Core Materials, of certain assets of Airshield Corporation ("Airshield").
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
Item 7(a). FINANCIAL STATEMENTS OF AIRSHIELD CORPORATION AS OF DECEMBER 31, 2000
AND 1999
Independent Auditors' Report
Board of Directors
Airshield Corporation
We have audited the accompanying balance sheets of Airshield
Corporation as of December 31, 2000, and 1999, and the related statements of
operations, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
Except as explained in the following paragraph, we conducted our audits
in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, there is
substantial doubt about the Company's ability to continue as a going concern
because the Company filed for Chapter 11 Bankruptcy protection in March 2001,
which was later converted to Chapter 7. Additionally, we are aware that the
Company is involved in business litigation as disclosed in Note 7 to the
financial statements.
The Company is a part of a controlled group. We have not audited the
financial statements of the controlled group for any period subsequent to
December 31, 1999, and therefore do not express an opinion on any such financial
statements of the controlled group for any period subsequent to that date. We
performed an audit of the consolidated entity as of December 31, 1999 and issued
a report thereon. Our report was unqualified as of that date. Our audit was
conducted for the purpose of expressing an opinion on the consolidated group as
a whole. No audit procedures were performed on intercompany transactions.
Subsequent to 1999, substantial management changes occurred within the
companies. We have been unable to determine the appropriateness of all charges
within the related entities. The Company has significant transactions within the
controlled group and related entities as discussed in Note 6. There may be
substantial unpaid liabilities within this controlled group and related entities
which would make it unable to continue operations without substantial changes to
the Company's operations. We have been unable to determine the nature, extent,
and periods to which these liabilities relate. Several of these entities have
experienced financial difficulties including bankruptcy. Had we been able to
audit the controlled group, significant adjustments to the Company's financial
statements may have resulted.
As discussed in Note 8, the Company files a joint tax return with its
parent company. The Company's parent has not completed the required federal
income tax filings for the year ended December 31, 2000, and neither the Company
nor its parent, has paid federal income taxes related to the year ended December
31, 1999. Further, the Company has not recognized any income tax expense, income
taxes payable or deferred taxes in its balance sheet as of December 31, 2000, or
in its related statements of income, retained earnings and cash flows for the
year then ended. The ultimate resolution and effect of these matters have not
been determined.
We were unable to observe the count of the Company's physical inventory
as of December 31, 2000, stated in the accompanying balance sheet at $496,893 as
of December 31, 2000. The Company's records do not permit the application of
other auditing procedures to its inventories.
In our opinion, because of the effects of the matters discussed in the
preceding paragraphs, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States of America, the financial position of Airshield Corporation as of
December 31, 2000, and 1999, or the results of its operations or its cash flows
for the years then ended.
/s/ Pattillo, Brown & Hill, L.L.P.
Waco, Texas
December 7, 2001
2
AIRSHIELD CORPORATION
STATEMENTS OF OPERATIONS
Year Ended December 31,
----------------------------------------
2000 1999
------------ ------------
REVENUE
Sales $ 16,437,320 $ 21,882,458
Cost of sales 15,472,004 16,890,776
------------ ------------
Gross Profit 965,316 4,991,682
EXPENSES
Selling, general and administrative costs 2,756,370 3,484,573
------------ ------------
(LOSS) INCOME FROM OPERATIONS (1,791,054) 1,507,109
------------ ------------
OTHER INCOME (EXPENSES)
Other 53,829 (368,422)
Interest expense (393,892) (268,476)
Bad debt expense - Related Parties (1,767,298) --
------------ ------------
Total Other Income (Expenses) (2,107,361) (636,898)
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (3,898,414) 870,211
INCOME TAXES
Provision for income taxes -- (430,228)
------------ ------------
NET (LOSS) INCOME (3,898,414) 439,983
BEGINNING ACCUMULATED DEFICIT (2,001,444) (2,441,427)
------------ ------------
ENDING ACCUMULATED DEFICIT $ (5,899,858) $ (2,001,444)
============ ============
SEE AUDITORS' REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
AIRSHIELD CORPORATION
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 26,992 $ 70,456
Accounts receivable (net of allowance for
doubtful accounts of $132,425 and $165,760 in
2000 and 1999, respectively) 3,197,574 3,116,624
Inventory 496,893 785,229
Prepaid and other assets 110,318 19,161
----------- -----------
Total Current Assets 3,831,777 3,991,470
NONCURRENT ASSETS
Due from related parties, net of allowance for
doubtful accounts of $1,767,298 in 2000 and $0 in 1999 -- 998,513
Property and equipment - at cost 5,047,205 5,015,437
Less accumulated depreciation (4,606,852) (4,378,292)
----------- -----------
Total Noncurrent Assets 440,353 1,635,658
----------- -----------
Total Assets $ 4,272,130 $ 5,627,128
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,362,585 $ 1,362,636
Current maturities of long-term debt 2,516,172 1,989,339
Taxes and accrued expenses 722,273 775,993
Due to related parties 2,928,243 1,857,888
Commitments and contingencies 617,139 617,139
----------- -----------
Total Current Liabilities 9,146,412 6,602,995
SHAREHOLDERS' EQUITY
Common stock - no par value; shares issued
and outstanding, 5,100 in 2000 and 1999 5,100 5,100
Paid-in-Capital 1,020,477 1,020,477
Accumulated deficit (5,899,859) (2,001,444)
----------- -----------
Total Shareholders' Equity (4,874,282) (975,867)
----------- -----------
Total Liabilities and Shareholders' Equity $ 4,272,130 $ 5,627,128
=========== ===========
SEE AUDITORS' REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
AIRSHIELD CORPORATION
STATEMENTS OF CASH FLOWS
December 31,
----------------------------------
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net income $(3,898,415) $ 439,983
Adjustments to reconcile by operating:
Depreciation 228,560 319,317
Change in operating assets and liabilities:
Accounts receivable (80,950) (1,511,291)
Inventory 288,336 (370,915)
Due to/from RP 2,068,868 49,753
Prepaid, deposits and other (91,157) 111,406
Accounts payable 999,949 741,918
Accrued expenses (53,720) 358,880
----------- -----------
Net Cash (Used)/Provided by Operating Activities (538,529) 139,051
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (31,768) (479,001)
----------- -----------
Net Cash Used by Investing Activities (31,768) (479,001)
----------- -----------
FINANCING ACTIVITIES
Proceeds from indebtedness 526,833 348,484
----------- -----------
Net Cash Provided by Financing Activities 526,833 348,484
----------- -----------
NET DECREASE IN CASH (43,464) 8,534
CASH AT BEGINNING OF YEAR 70,456 61,922
----------- -----------
CASH AT END OF YEAR $ 26,992 $ 70,456
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest $ 393,103 $ 268,322
=========== ===========
Income taxes $ -- $ 100,456
=========== ===========
SEE AUDITORS' REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
AIRSHIELD CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Airshield Corporation ("the Company") operates in one business
segment as a manufacturer of fiberglass reinforced plastics
utilizing various open and closed molding processes. The Company
primarily sells to commercial truck manufacturers and automotive
aftermarket suppliers.
In March 2001, the Company filed for reorganization under Chapter
11 of the United States Bankruptcy Code which case was
subsequently converted to Chapter 7 liquidation in December 2001.
See note 2.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time products
are shipped.
CASH AND CASH EQUIVALENTS
For purposes of statements of cash flows, the Company considers
all highly liquid investments purchased with maturities of three
months or less to be cash equivalents.
Although the Company's cash and cash equivalents and accounts
receivable are exposed to potential credit loss, the Company does
not believe such risk to be significant. Most of the Company's
accounts receivable are from large commercial truck manufacturers,
and, as a whole, do not represent a significant credit risk.
INVENTORY
Inventory is stated at the lower of cost or net realizable value.
Cost is generally determined on the first-in, first-out basis.
6
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is
calculated using the straight-line or accelerated method over
estimated useful lives of the related assets.
Estimated
Useful Lives
----------------
Vehicles 3 - 10 years
Molds and dies 1 - 10 years
Office and plant equipment 3 - 7 years
NEW ACCOUNTING PRONOUNCEMENTS
Effective June 30, 2000, for companies that have not adopted
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
for derivative financial instruments and hedging activities, the
company must adopt SFAS No.138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," (an amendment of SFAS
No. 133). The Company has not yet completed its analysis of this
standard and therefore has not determined its effect on the
Company's financial statements.
2. BANKRUPTCY FILING/GOING CONCERN
In March 2001, the Company filed a petition for relief under Chapter 11
of the federal bankruptcy laws in the United States Bankruptcy Court
for the Southern District of Texas. Under Chapter 11, certain claims
against the Debtor in existence prior to the filing are stayed while
the Debtor continues business operations as Debtor-in-possession while
it works out its plan of reorganization.
After evaluating various reorganization plans, the Company agreed to
sell substantially all its assets to Core Materials Corporation ("Core
Materials"). The sale order which was entered by the Bankruptcy Court
on October 15, 2001 provided for sale of the assets free and clear from
all liens, claims and encumbrances with the proceeds of the sale of
$1,794,000 to be used to pay secured and unsecured claims of the
Company. Core Materials assumed no liabilities of the Company. The sale
was completed on October 16, 2001. In December 2001, the Company filed
a petition to convert its case to Chapter 7 liquidation. The Bankruptcy
Court entered an order in December 2001 converting such case. Under the
provisions of Chapter 7, the Bankruptcy Court will appoint a trustee
who will liquidate the Company after which time the Company will cease
to exist.
In light of the bankruptcy filings, particularly the conversion of the
case to Chapter 7 liquidation and the sale of assets discussed above,
there is significant doubt that the Company will continue as a going
concern. The financial statements included herein do not reflect all
the adjustments that might result from the outcome of this uncertainty
and do not reflect the liquidation value of the Company.
7
3. INVENTORY
As of December 31, 2000 and 1999, inventory consisted of the following:
2000 1999
----------- -----------
Raw materials $ 324,412 $ 570,225
Work-in-progress 105,324 27,645
Finished goods 67,157 187,359
----------- -----------
Total $ 496,893 $ 785,229
=========== ===========
4. PROPERTY AND EQUIPMENT
As of December 31, 2000 and 1999, property and equipment consisted of
the following:
2000 1999
----------- -----------
Vehicles $ 261,694 $ 261,694
Molds and dies 1,626,401 1,626,401
Office equipment 494,085 490,633
Plant equipment 2,665,025 2,636,709
----------- -----------
Total Property and Equipment 5,047,205 5,015,437
Less - accumulated depreciation (4,606,852) (4,378,292)
----------- -----------
Property and Equipment - Net $ 440,353 $ 637,145
=========== ===========
8
5. DEBT
As of December 31, 2000 and 1999, debt consisted of the following:
2000 1999
----------- -----------
Revolving bank line of credit with
Comerica Bank for $2,000,000, interest
rate set at prime plus 2.0% (10% at
December 31, 2000), secured by all assets
of the Company and due March 2001 $ 1,953,150 $ 1,271,623
Unsecured note payable to C.I.O.S., a
charitable trust, interest rate at 10%
and is due on demand 152,907 252,159
Note payable to Nissan, interest rate at
8.75%, matures in March 2001, and is
secured by a forklift 3,464 4,932
Unsecured note payable to Surety Finance,
interest rate at 8.45%, matures in June
2000 -- 23,215
Note payable to Associates Commercial
Corp., interest rate at 7.91%, matures in
August 2002, and is secured by forklift 4,881 9,319
Note payable to Associates Commercial
Corp., interest rate at 8.90%, matures in
August 2002, and is secured by forklift 4,926 8,065
Note payable to Associates Commercial
Corp., interest rate at 8.75%, matures in
November 2002, and is secured by
forklift 7,999 11,886
Note payable to Green Tree Vendor
Services Corporation, interest rate at
13.22%, matures in June 2002, and is
secured by computers 24,717 41,309
Note payable to Tip-O-Tex Chevrolet,
Inc., interest rate at 9.14%, matures in
July 2002, and is secured by an
automobile 26,489 29,192
Note payable to a related party
foundation due on demand with an interest
rate of 13%, secured by majority
shareholder 337,639 337,639
----------- -----------
Total Debt $ 2,516,172 $ 1,989,339
=========== ===========
All debt was classified as current as a result of the Company's
subsequent bankruptcy filings (see note 2).
The Company's borrowing capacity under the line of credit is based on
the lesser of $2,000,000 or 85% or eligible accounts receivable as
defined in the loan agreement. The line of credit provides for an
origination fee of $26,250, a facility fee of 1% of the total credit
and a monthly service fee of .50% of the average daily balance
outstanding on the loan. As a result of the Company's bankruptcy filing
in March 2001,
9
subsequent borrowings under the loan were restricted and the interest
rate was increased to the maximum rate allowable by law.
6. RELATED PARTY TRANSACTIONS
The Company has entered various transactions with companies either
owned or affiliated with the principal shareholder of the Company or
the principal shareholder's brother. These transactions include shelter
arrangements whereby the related parties manufacture and supply
principally all of the Company's finished products from a facility in
Mexico.
The terms of the agreements include the following:
The Company will pay a monthly shelter fee of $83,411 to a
related party. As an integral part of the agreement, the
related party will furnish 304,000 square feet in a related
party facility, the Maquila Facility, located in Matamoras,
Tamulipas, Mexico for the manufacture of the Company's goods
and finished products. The agreement, which was entered
January 1, 1999, had a three-year original term and
automatically renews for successive three-year terms. Either
party may terminate the agreement by giving a 180-day written
notice of the intent to terminate.
The Company will also pay a related party entity for all costs
incurred on its behalf including manufacturing-related utility
and tax costs, production and general administrative personnel
costs, factory overhead, occupancy expenses and other general
and administrative expenses related to the production of the
Company's products.
The Company shares certain administrative and operating costs with its
parent, the reasonableness of charges for these services has not been
determined. Additionally, the Company files a consolidated tax return
with its parent. As discussed in Note 8 below, the Company's parent has
not completed the required federal income tax filings for the year
ended December 31, 2000, and neither the Company nor its parent, has
paid federal income taxes related to the year ended December 31, 1999.
Further, the Company has not recognized any income tax expense, income
taxes payable or deferred taxes in its balance sheet as of December 31,
2000, or in its related statements of income, retained earnings and
cash flows for the year then ended. The ultimate resolution and effect
of these matters have not been determined. The Company has also made
and received various advances and loans from several of the related
parties. As a result of the Company's bankruptcy filings and subsequent
sale of substantially all the assets of the Company, the related party
receivables were deemed uncollectible and were fully reserved at
December 31, 2000.
7. COMMITMENTS AND CONTINGENCIES
The Company previously entered into a licensing agreement whereby it
paid an individual a royalty in order to retain an exclusive license on
a patent. During 1991, the Company terminated this agreement. The
licensor has claimed that the Company has infringed on the related
patent and has filed suit for payment related to the infringement and
for past royalties. A liability of $606,982 has been accrued at
December 31, 2000 and 1999, in connection with the above.
The Company has also accrued a liability of $10,157 at December 31,
2000 and 2001, for its estimated obligations for product warranties.
10
8. INCOME TAXES
The Company determines tax expense and deferred tax information in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
The components of the Company's provision for income taxes in 2000 and
1999, are as follows:
2000 1999
----------- -----------
Current $ -- $ 295,872
Deferred -- 134,356
----------- -----------
Total Tax Provision $ -- $ 430,228
=========== ===========
At December 31, 2000 and 1999, the components of the Company's deferred
tax balances were as follows:
2000 1999
----------- -----------
Deferred Tax Assets:
Accounts receivable, principally due to $ 45,024 $ 56,358
allowance for doubtful accounts
Accrued expenses, principally due to
accruals for commitments and contingencies 209,827 209,827
Operating loss carryforwards 2,005,952 680,491
Deferred Tax Liabilities:
Plant, equipment and intangibles,
principally due to differences in
depreciation (34,000) (34,000)
----------- -----------
Net deferred tax asset 2,226,803 912,676
Less valuation allowance (2,226,803) (912,676)
----------- -----------
Net Deferred Taxes $ -- $ --
=========== ===========
The Company files a consolidated tax return with its parent. The
Company's parent has not completed the required federal income tax
filings for the year ended December 31, 2000, and neither the Company
nor its parent, has paid federal income taxes related to the year ended
December 31, 1999. Further, the Company has not recognized any income
tax expense, income taxes payable or deferred taxes in its balance
sheet as of December 31, 2000, or in its related statements of income,
retained earnings and cash flows for the year then ended. The ultimate
resolution and effect of these matters have not been determined.
As a result of the losses from operations and the subsequent bankruptcy
filings and sale of assets, it is not likely the Company will realize
any future benefits from income tax loss carry forwards or from
deferred tax assets, therefore, no benefit was recorded in 2000 for any
deferred tax loss carry forward and all other deferred items were fully
reserved.
11
9. MAJOR CUSTOMERS
The Company has significant transactions with two customers. These
customers, which are both heavy truck manufacturers, accounted for 58%
and 25% of the Company's sales in 2000 and 1999, respectively and 52%
and 12% of the accounts receivable balances at December 31,2000 and
1999. The Company evaluates its credit exposures with these customers
regularly and records bad debt reserves for any amounts deemed
un-collectible.
10. RECLASSIFICATIONS
Certain accounts have been reclassified in 1999 to compare to the 2000
presentation.
12
Item 7(b).
CORE MATERIALS CORPORATION
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On October 16, 2001, Core Composites Corporation, a wholly owned
subsidiary of Core Materials Corporation, purchased substantially all of the
assets, consisting primarily of inventory, accounts receivable and manufacturing
equipment, of Airshield Corporation pursuant to the terms of the Purchase
Agreement dated as of October 10, 2001 (the "Purchase Agreement"). The unaudited
pro forma combined financial statements have been prepared from and should be
read in conjunction with the consolidated financial statements and notes thereto
for Core Materials Corporation for the year ended December 31, 2000, included in
Core Materials' report on Form 10-K, and the financial statements of Airshield
Corporation as of December 31, 2000, which are included in this Current Report
on Form 8-K.
The pro forma combined balance sheet assumes that the acquisition took
place on September 30, 2001, and combines Core Materials' September 30, 2001,
unaudited balance sheet and Airshield's September 30, 2001, unaudited balance
sheet.
The pro forma combined statement of operations assumes that the
acquisition took place as of the beginning of the periods presented. The
combined statement of operations for the year ended December 31, 2000, combines
Core Materials' audited statement of operations for the year ended December 31,
2000, and Airshield's audited statement of operations for the year ended
December 31, 2000. The combined statement of operations for the period ending
September 30, 2001, combines Core Materials' unaudited statement of operations
for the period ending September 30, 2001, and Airshield's unaudited statement of
operations for the period ending September 30, 2001.
In management's opinion, the pro forma results of operations are not
indicative of the actual results that would have occurred had the acquisition
been consummated at the beginning of the period presented and is not intended to
be a projection of future results. Pro forma adjustments that give effect to
actions taken by management or other efficiencies expected to be realized as a
result of the transactions are not reflected in the following pro forma results
of operations. Core Materials has not completed the allocation of the purchase
price for this acquisition. Core Materials is continuing to assess the
components, including customer lists, patents and goodwill, of the net
intangible assets acquired. Additionally, the amounts of certain payroll
liabilities assumed and the transaction expenses are yet to be finalized.
Therefore, the amount of cost in excess of fair value of tangible net assets
purchased could be adjusted once these items are finalized.
13
PRO FORMA BALANCE SHEET
PRO FORMA
CORE MATERIALS AIRSHIELD COMBINED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2001 ADJUSTMENTS 2001
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Assets
Cash and cash equivalents $ 5,041,166 $ 11,910 $ (1,905,910) (a,b) $ 3,147,166
Accounts receivable less allowance for doubtful accounts 14,374,961 1,758,200 16,133,161
Inventories:
Finished and work in process goods 1,668,574 31,263 19,473 (c) 1,719,310
Stores 1,777,591 242,977 2,020,568
------------ ------------ ------------ ------------
Total inventories 3,446,165 274,240 19,473 3,739,878
Deferred tax asset 1,245,568 -- 1,245,568
Prepaid expenses and other current assets 932,258 21,391 (21,391) (c) 932,258
------------ ------------ ------------ ------------
Total current assets 25,040,118 2,065,741 (1,907,828) 25,198,031
Property, plant and equipment 42,579,811 5,216,713 (5,050,338) (c) 42,746,186
Accumulated depreciation (17,051,917) (4,741,594) 4,741,594 (c) (17,051,917)
------------ ------------ ------------ ------------
Property, plant and equipment - net 25,527,894 475,119 (308,744) 25,694,269
Deferred tax asset - net 11,859,323 -- 11,859,323
Mortgage-backed security investment 1,053,795 -- 1,053,795
Other assets 418,341 -- 418,341
Intangible Assets 1,188,241 (d) 1,188,241
------------ ------------ ------------ ------------
TOTAL $ 63,899,471 $ 2,540,860 $ (1,028,331) $ 65,412,000
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Current portion long-term debt $ 350,000 $ 1,883,296 $ (1,883,296) (a) $ 350,000
Accounts payable 6,546,299 2,526,969 (2,526,969) (a) 6,546,299
Accrued liabilities:
Compensation and related benefits 1,562,015 362,071 1,150,458 (a,c) 3,074,544
Interest 491,346 -- 491,346
Taxes 544,438 328,189 (328,189) (a) 544,438
Graduated lease payments 831,950 831,950
Other accrued liabilities 1,058,369 54,943 (54,943) (a) 1,058,369
Due to Related Parties 4,007,184 (4,007,184) (a) --
------------ ------------ ------------ ------------
Total current liabilities 11,384,417 9,162,642 (7,650,113) 12,896,946
Long-term debt 26,105,150 26,105,150
Interest rate swap 501,971 501,971
Deferred long-term gain 2,122,105 2,122,105
Postretirement benefits liability 5,085,154 5,085,154
COMMITMENTS AND CONTINGENCIES 0 617,139 (617,139) (a) --
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value, authorized shares - 20,000,000; 97,787 5,100 (5,100) (a) 97,787
Outstanding shares: September 30, 2001 - 9,778,680
Paid-in capital 19,251,392 1,020,477 (1,020,477) (a) 19,251,392
Accumulated other comprehensive income (loss), net of
income tax effect (331,301) (331,301)
Retained earnings (accumulated deficit) (317,204) (8,264,508) 8,264,508 (a) (317,204)
------------ ------------ ------------ ------------
Total stockholders' equity 18,700,674 (7,238,921) 7,238,921 18,700,674
------------ ------------ ------------ ------------
TOTAL $ 63,899,471 $ 2,540,860 $ (1,028,331) $ 65,412,000
============ ============ ============ ============
14
PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELEVE MONTHS ENDED DECEMBER 31, 2000
PRO FORMA
CORE MATERIALS AIRSHIELD ADJUSTMENTS COMBINED
-------------- ------------ ------------ ------------
NET SALES: $ 83,545,359 $ 16,437,320 $ 99,982,679
COST OF SALES 71,630,020 15,472,004 (70,714) (e) 87,031,310
------------ ------------ ------------ ------------
GROSS MARGIN 11,915,339 965,316 12,951,369
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 9,053,490 4,469,839 (g) 13,523,329
------------ ------------ ------------ ------------
INCOME/(LOSS) BEFORE INTEREST AND TAXES 2,861,849 (3,504,523) (571,960)
Interest income 339,512 (92,995) (e) 246,517
Interest expense (1,970,378) (393,892) 393,892 (e) (1,970,378)
------------ ------------ ------------ ------------
INCOME/(LOSS) BEFORE INCOME TAXES 1,230,983 (3,898,415) 371,611 (2,295,821)
TOTAL INCOME TAXES (BENEFITS) 515,632 (1,481,258) (f) (965,626)
------------ ------------ ------------ ------------
NET INCOME/(LOSS) $ 715,351 $ (3,898,415) $ 1,852,869 $ (1,330,195)
============ ============ ============ ============
NET INCOME/(LOSS) PER COMMON SHARE:
Basic $ 0.07 $ (0.14)
============ ============
Diluted $ 0.07 $ (0.14)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 9,778,680 9,778,680
============ ============
Diluted 9,778,680 9,778,680
============ ============
15
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
PRO FORMA
CORE MATERIALS AIRSHIELD CORP ADJUSTMENTS COMBINED
-------------- -------------- ------------- ------------
Net Sales: $ 51,040,147 $ 11,357,974 $ 62,398,121
COST OF SALES 45,244,172 10,836,197 (81,196) (e) 55,999,173
------------ ------------ ------------ ------------
GROSS MARGIN 5,795,975 521,777 6,398,948
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 5,607,454 2,661,273 (g) 8,268,727
------------ ------------ ------------ ------------
INCOME/(LOSS) BEFORE INTEREST AND TAXES 188,521 (2,139,496) (1,869,779)
Interest income 263,614 765 (46,505) (e) 217,874
Interest expense (1,486,901) (225,917) 225,917 (e) (1,486,901)
------------ ------------ ------------ ------------
INCOME/(LOSS) BEFORE INCOME TAXES (1,034,766) (2,364,648) 260,608 (3,138,806)
TOTAL INCOME TAXES (BENEFITS) (428,394) (862,656) (f) (1,291,050)
------------ ------------ ------------ ------------
NET INCOME/(LOSS) $ (606,372) $ (2,364,648) $ 1,123,264 $ (1,847,756)
============ ============ ============ ============
NET INCOME/(LOSS) PER COMMON SHARE:
Basic $ (0.06) $ (0.19)
============ ============
Diluted $ (0.06) $ (0.19)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 9,778,680 9,778,680
============ ============
Diluted 9,778,680 9,778,680
============ ============
16
CORE MATERIALS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following adjustments give pro forma effect to the transaction:
(a) Adjustment to reflect Airshield assets not acquired and
Airshield liabilities not assumed by Core Materials
Corporation as a part of the acquisition.
(b) Adjustment to reflect the cash used to fund the acquisition.
(c) Adjustment to reflect the assets acquired and certain payroll
liabilities assumed at their estimated fair value.
(d) Adjustment to reflect the excess of acquisition cost over the
estimated fair value of the net assets acquired. The purchase
price and preliminary purchase price allocation are summarized
as follows:
Purchase price (including acquisition related costs of $100,000) $1,894,000
Estimated fair value of assets and liabilities acquired:
Accounts receivable 1,758,200
Inventories 293,713
Property and equipment 166,375
Payroll related liabilities (1,512,529)
-------------
Total $705,759
Cost in excess of fair value of net assets acquired $1,188,241
=============
(e) Adjustment to reflect the net effect of: 1) adjusting
depreciation expense to be based on the fair value of the
property and equipment acquired 2) adjusting cost of goods for
the effect of recording the inventory acquired at its fair
value 3) eliminating the interest expense reflected on
Airshield's statement of operations for borrowings which were
not assumed by Core Materials and 4) elimination of interest
income reflected on Core Materials statement of operations to
reflect the use of cash to purchase the net assets of
Airshield.
(f) Adjustment to reflect Core Materials estimated effective tax
rate of 42 % for 12/31/00 and 41% for 9/30/01.
(g) Adjustment to record the amortization of the cost is excess of
fair value of tangible net assets acquired by Core Materials
as part of the acquisition has not been recorded as Core
Materials has not completed its assessment of the components
of the intangible assets acquired. To the extent amounts are
subsequently allocated to items such as customer lists and
patents, a resulting amortization would be recorded based on
the appropriate estimated life of these assets. In accordance
with Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" any amount of the
intangible asset allocated to goodwill would not be amortized
but instead the related asset would be regularly evaluated for
impairment.
17
Item 7(c). Exhibits
23.1 CONSENT OF PATILLO, BROWN AND HILL, WITH RESPECT TO THE FINANCIAL
STATEMENTS OF AIRSHIELD CORPORATION
18
23.2 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 hereunto duly authorized.
Core Materials Corporation
-------------------------------------------
(Registrant)
Date 12/28/01 By /s/ Kevin L. Barnett
------------------- ------------------------------------------
(Signature)
Kevin L. Barnett
Vice President, Secretary, Treasurer
and Chief Financial Officer
19