SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from To
------------ ------------
Commission File Number 001-12505
CORE MATERIALS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1481870
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
800 Manor Park Drive, P.O. Box 28183
Columbus, Ohio 43228-0183
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (614) 870-5000
--------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] NO [ ]
As of May 14, 2002, the latest practicable date, 9,778,680 shares of
the registrant's common shares were issued and outstanding.
PART 1 - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
CORE MATERIALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 4,678,113 $ 3,194,156
Accounts receivable (less allowance for
doubtful accounts:
March 31, 2002 - $503,000;
December 31, 2001 - $715,000) 13,913,686 11,946,137
Inventories:
Finished and work in process goods 2,497,758 1,679,745
Stores 1,961,612 2,222,250
------------ ------------
Total inventories 4,459,370 3,901,995
Deferred tax asset 1,079,995 1,079,995
Prepaid expenses and other current assets 1,763,276 1,704,262
------------ ------------
Total current assets 25,894,440 21,826,545
Property, plant and equipment 42,849,846 42,759,871
Accumulated depreciation (17,857,986) (17,398,659)
------------ ------------
Property, plant and equipment - net 24,991,860 25,361,212
Deferred tax asset - net 11,547,641 11,692,678
Mortgage-backed security investment 602,550 924,041
Goodwill 1,097,433 1,097,433
Other assets 392,372 405,356
------------ ------------
TOTAL $ 64,526,296 $ 61,307,265
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities
Current portion long-term debt $ 365,000 $ 355,000
Accounts payable 6,186,157 3,756,735
Accrued liabilities:
Compensation and related benefits 2,957,242 3,050,120
Interest 478,715 85,939
Taxes 954,346 636,934
Graduated lease payments 946,585 889,267
Professional fees 304,632 417,487
Other accrued liabilities 807,024 848,826
------------ ------------
Total current liabilities 12,999,701 10,040,308
Long-term debt 25,920,150 26,015,150
Interest rate swap 285,716 366,826
Deferred long-term gain 1,895,328 2,008,716
Postretirement benefits liability 5,262,245 5,340,164
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value,
authorized shares - 20,000,000; 97,787 97,787
Outstanding shares: March 31, 2002 and
December 31, 2001 - 9,778,680
Paid-in capital 19,251,392 19,251,392
Accumulated other comprehensive income (loss),
net of income tax effect (188,572) (242,105)
Retained earnings (deficit) (997,451) (1,570,973)
------------ ------------
Total stockholders' equity 18,163,156 17,536,101
------------ ------------
TOTAL $ 64,526,296 $ 61,307,265
============ ============
See notes to consolidated financial statements
2
CORE MATERIALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2002 2001
------------ ------------
NET SALES:
International $ 10,248,853 $ 9,986,041
Yamaha 4,133,050 5,630,788
Lear 2,273,182 326,675
Freightliner 1,740,468 --
Other 1,901,114 3,155,781
------------ ------------
Total Sales 20,296,667 19,099,285
------------ ------------
Cost of Sales 16,682,174 16,428,104
Postretirement benefits expense 255,989 253,872
------------ ------------
Total cost of sales 16,938,163 16,681,976
------------ ------------
GROSS MARGIN 3,358,504 2,417,309
------------ ------------
Selling, general and administrative
expense 1,904,271 1,967,692
Postretirement benefits expense 60,047 59,550
------------ ------------
Total selling, general and
administrative expense 1,964,318 2,027,242
INCOME BEFORE INTEREST AND TAXES 1,394,186 390,067
Interest income 35,651 96,006
Interest expense (501,161) (479,833)
------------ ------------
INCOME BEFORE INCOME TAXES 928,676 6,240
Income taxes:
Current 237,695 1,027
Deferred 117,459 1,557
------------ ------------
Total income taxes 355,154 2,584
------------ ------------
NET INCOME $ 573,522 $ 3,656
============ ============
NET INCOME PER COMMON SHARE:
Basic & diluted $ 0.06 $ 0.00
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 9,778,680 9,778,680
See notes to consolidated financial statements
3
CORE MATERIALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
COMMON STOCK ACCUMULATED
OUTSTANDING OTHER TOTAL
PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY
----------- ----------- ----------- ----------- ------------- -------------
BALANCE AT JANUARY 1, 2002 9,778,680 $ 97,787 $19,251,392 $(1,570,973) $ (242,105) $17,536,101
Net Income 573,522 573,522
Hedge accounting effect of the 53,533 53,533
interest rate swap at March 31,
2002, net of deferred income tax
expense of $27,578
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2002 9,778,680 $ 97,787 $19,251,392 (997,451) $ (188,572) $18,163,156
=========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements.
4
CORE MATERIALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 573,522 $ 3,656
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 506,416 536,095
Deferred income taxes 117,459 1,557
Loss on disposal of assets -- 31,359
Amortization of gain on sale/leaseback
transactions (113,388) (113,388)
Change in operating assets and liabilities:
Accounts receivable (1,967,549) (976,525)
Inventories (557,375) (222,889)
Prepaid and other assets (59,014) 1,288,567
Accounts payable 2,429,422 2,638,790
Accrued and other liabilities 519,971 1,077,160
Postretirement benefits liability (77,919) 253,115
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,371,545 4,517,497
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (124,079) (572,509)
Proceeds from sale of property and equipment -- 19,800
Proceeds from maturities on mortgage-backed
security investment 321,491 6,672
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 197,412 (546,037)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of principal on industrial revenue bond (85,000) (80,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (85,000) (80,000)
NET INCREASE IN CASH 1,483,957 3,891,460
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,194,156 2,712,412
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,678,113 $ 6,603,872
=========== ===========
Cash paid for:
Interest (net of amounts capitalized) $ 85,592 $ 59,332
=========== ===========
Income taxes (refund) $ (15,905) $ (39,544)
=========== ===========
See notes to consolidated financial statements.
5
CORE MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRESENTATION
The accompanying unaudited consolidated 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 consolidated 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 and its subsidiaries ("Core
Materials") at March 31, 2002, and the results of its operations and cash flows.
The "Consolidated Notes to Financial Statements", which are contained in the
2001 Annual Report to Shareholders, should be read in conjunction with these
Consolidated Financial Statements. Certain reclassifications have been made to
prior year's amounts to conform to the classifications of such amounts for 2002.
Core Materials Corporation and its subsidiaries operate in the plastics
market in a family of products known as "reinforced plastics". Reinforced
plastics are combinations of resins and reinforcing fibers (typically glass or
carbon) that are molded to shape. The Columbus, Ohio and Gaffney, South Carolina
facilities produce reinforced plastics by compression molding sheet molding
compound (SMC) in a closed mold process. The Matamoros, Mexico facility produces
reinforced plastic products by spray-up and hand-lay-up open mold processes and
vacuum assisted resin infused (VRIM) closed mold process.
2. EARNINGS PER COMMON SHARE
Basic earnings per common share is computed based on the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share is 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 months ended March 31, 2002, and March 31, 2001, 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.
6
3. 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
MARCH 31,
-------------------
2002 2001
-------- --------
Net income $573,522 $ 3,656
Hedge accounting effect of interest rate 53,533 (81,290)
swap, net of tax effect of $27,578 and
$41,877, respectively
-------- --------
Comprehensive income (loss) $627,055 $(77,634)
======== ========
4. ACQUISITION OF AIRSHIELD CORPORATION ASSETS
On October 16, 2001, Core Materials Corporation purchased substantially
all of the assets, consisting primarily of inventory, accounts receivable and
manufacturing equipment, of Airshield Corporation, a privately held manufacturer
of fiberglass reinforced plastic parts for the truck and automotive-aftermarket
industries. Airshield is based in Brownsville, Texas, with manufacturing
operations in Matamoros, Mexico. Airshield had been operating under Chapter 11
bankruptcy protection since March 2001. Core Materials Corporation has continued
operations from Airshield's former manufacturing facility in Matamoros, Mexico.
The following (unaudited) pro forma consolidated results of operations
have been prepared as if the acquisition of substantially all of the assets of
Airshield Corporation had occurred at the beginning of 2001.
Quarter Ended
March 31, 2001
--------------
Net sales $ 22,885,276
============
Net income (loss) $ (410,139)
============
Net income (loss) per share-
basic and diluted $ (0.04)
============
The pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of that time,
nor is it intended to be a projection of future results. The effects of the
acquisition have been included in the consolidated statement of income since the
acquisition date.
5. NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations". This statement improves the transparency of the accounting and
reporting for business combinations by requiring that all business combinations
be accounted for under a single method - the purchase method. This Statement is
effective for all business combinations initiated after June 30, 2001. The
acquisition of substantially all of the assets of Airshield Corporation was
accounted for under SFAS No. 141.
Effective January 1, 2002, the Company adopted SFAS 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. Due to the
7
adoption of SFAS No. 142, the Company does not amortize goodwill. The total net
book value of goodwill at March 31, 2002 was $1,097,433, and there was no
goodwill recorded at March 31, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The adoption of this
statement, as of January 1, 2002, did not have an impact on the Company's
consolidated financial statements.
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 commercial product industries, the general economy, competitive
factors, the dependence on four 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, the start up of new operations in Mexico and
management's decisions to pursue new products or businesses which involve
additional costs, risks or capital expenditures.
OVERVIEW
Core Materials is a compounder of sheet molding composite ("SMC") and
molder of fiberglass reinforced plastics. The Company produces high quality
fiberglass reinforced molded products and SMC materials for varied markets,
including medium and heavy-duty trucks, automobiles, personal watercraft and
other commercial products. The demand for Core Materials' products is affected
by economic conditions in the United States, Canada and Mexico. 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.
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. Columbus Plastics was a compounder and compression
molder of SMC. In October 2001, Core Materials acquired certain assets of
Airshield Corporation. As a result of this acquisition, Core Materials expanded
its fiberglass molding capabilities to include the spray up, hand-lay-up and
vacuum assisted resin infusion molding processes. The acquisition was accounted
for under the purchase accounting method and accordingly the effects of the
acquisition are included in the results of operations and financial condition of
Core Materials from the date of the acquisition and forward.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002, AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 2001
Net sales for the three months ended March 31, 2002, totaled
$20,297,000 representing an approximate 6% increase from the $19,099,000
reported for the three months ended March 31, 2001. Sales to International
increased to $10,249,000 from $9,986,000 for the three months ended March 31,
2001. The reason for the increase was due to additional business with
International that was obtained as a result of the October 2001 acquisition,
noted above. Sales to Yamaha decreased for the three months ended March 31,
2002, by approximately 27% to $4,133,000 compared with $5,631,000 for the three
months ended March 31, 2001. The decrease in sales to Yamaha was primarily due
to the negative impact general economic conditions have had on the demand for
personal watercraft. Sales to Lear increased to $2,273,000 for the three months
ended March 31, 2002, from $327,000 for the same period a year ago primarily due
to the first quarter of 2001 being the ramp up of production for the Lear
product. Additionally, sales to Freightliner totaled $1,740,000 for the three
months ended March 31, 2002. Core Materials began selling product to
Freightliner in the fourth quarter of 2001 as a result of the October 2001
acquisition, noted above.
Sales to other customers for the three months ended March 31, 2002,
decreased approximately 40% to $1,901,000 from $3,156,000 for the three months
ended March 31, 2001. The decrease in sales was primarily the result of Core
Materials discontinuing its business relationship with Case/New Holland in 2001.
For the three months ending March 31, 2001, sales to Case/New Holland amounted
to $2,190,000. Offsetting a portion of the decreases were sales of $938,000 to
other various customers brought on from the acquisition noted above.
9
Gross Margin was approximately 16.5% of sales for the three months
ended March 31, 2002, compared with 12.7% for the three months ended March 31,
2001. The increase in gross margin, as a percent of sales from the prior year,
was due to a combination of many factors including improved labor utilization,
improved manufacturing processes leading to a reduction of scrap costs, and
reduced energy costs at the Company's Columbus, Ohio and Gaffney, South Carolina
facilities. Gross margin from the newly established operation resulting from the
acquisition noted above was generally in line with the Company's historical
business. During the quarter, gross margin for this operation was favorably
impacted by temporary customer price concessions. These price concessions
expired in April 2002; however, the Company expects the gross margin for this
operation to stay in line with its other operations due to continuing efforts
to improve manufacturing processes and reduce manufacturing costs.
Selling, general and administrative expenses ("SG&A") totaled
$1,964,000 for the three months ended March 31, 2002, decreasing from $2,027,000
for the three months ended March 31, 2001. Downsizing of the workforce and cost
saving programs implemented in the Columbus, Ohio and Gaffney, South Carolina
facilities were offset by the addition of the Mexican operation.
Interest expense totaled $501,000 for the three months ended March 31,
2002, increasing from $480,000 for the three months ended March 31, 2001. The
increase in interest expense from 2001 was primarily due to interest expense
being reduced in 2001 by a higher amount of capitalized interest associated with
assets being constructed. Interest rates experienced by the Company with respect
to the industrial revenue bond were favorable; however, due to the interest rate
swap the Company entered into, the interest rate is essentially fixed for this
debt instrument.
Income taxes for the three months ended March 31, 2002, are estimated
to be approximately 38% 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 March 31, 2002, are estimated to be
approximately $238,000, which reflects federal alternative minimum, state and
local taxes.
Net income for the three months ended March 31, 2002, was $574,000, or
$.06 per basic and diluted share, representing an increase of $570,000 over the
net income for the three months ended March 31, 2001, of $4,000, or $.00 per
basic and diluted share.
LIQUIDITY AND CAPITAL RESOURCES
Core Materials' primary cash requirements are for operating expenses
and capital expenditures. These cash requirements have historically been met
through a combination of cash flow from operations, equipment leasing, issuance
of Industrial Revenue Bonds and bank lines of credit.
Cash provided by operations for the three months ended March 31, 2002,
totaled $1,372,000. Net income increased operating cash flows by $574,000. Also
adding positive cash flow was an increase in accounts payable of $2,429,000,
primarily related to timing effects. Additionally, depreciation and amortization
provided $506,000 in positive cash flow. Decreasing the operating cash flow was
an increase in accounts receivable of $1,968,000, which was primarily due to the
increased volume in sales in the first quarter of 2002 compared to the volume in
the fourth quarter of 2001. Also decreasing the operating cash flow was an
increase in inventory of $557,000 primarily due to the Company building ahead on
certain products due to scheduled tooling refurbishments.
Investing activities increased cash flow by $197,000 for the three
months ended March 31, 2002. Capital expenditures totaled $124,000, which was
primarily related to the acquisition of machinery and equipment. Offsetting
these expenditures were proceeds from maturities on the Company's
mortgage-backed security investment of $321,000.
Financing activities reduced cash flow by $85,000 due to principal
repayments on the $7,500,000 Industrial Revenue Bond that was issued in 1998.
At March 31, 2002, Core Materials had cash on hand of $4,678,000 and an
available line of credit of $7,500,000, which is scheduled to mature on August
1, 2002. As of March 31, 2002, Core Materials was in violation of two of its
three 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. Core Materials has received a
written commitment from the bank to waive these covenants each quarter through
the
10
quarter ended September 30, 2002, if Core Materials operates in compliance with
financial projections for fiscal year 2002 and does not experience any material
adverse change to its financial condition. Core Materials has operated in
compliance with the financial projections for the three months ended March 31,
2002, and the bank has waived the covenants for this period. Management expects
Core Materials to meet these projections for the remainder of 2002. 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
on-going basis, management evaluates its estimates and judgments, including
those related to accounts receivable, inventories, post retirement benefits, and
income taxes. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Accounts receivable allowances:
Management maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Management also records estimates for customer
returns and discounts offered to customers. Should customer returns and
discounts fluctuate from the estimated amounts, additional allowances may be
required.
Inventories:
Management identifies slow moving or obsolete inventories and estimates
appropriate loss provisions related to these inventories. Historically, these
loss provisions have not been significant. Should actual results differ from
these estimates, additional provisions may be required.
Post retirement benefits:
Management records an accrual for post retirement costs associated with
the Company sponsored health care plan. Should actual results differ from the
assumptions used to determine the reserves, additional provisions may be
required.
Income taxes:
Management records a valuation allowance to reduce its deferred tax
assets to the amount that it believes is more likely than not to be realized.
The Company has considered future taxable income in assessing the need for the
valuation allowance and recorded a valuation allowance (see Note 10 to the
consolidated financial statements for the year ended December 31, 2001, included
in the 2001 Annual Report to Shareholders). The valuation reserve will be
adjusted as the Company determines the actual amount of deferred tax assets that
will be realized.
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 five 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 March 31, 2002, of $6,365,000. Interest is
variable and is computed weekly; the average interest rate charged for the three
months ended March 31, 2002, was 1.6%, 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 March 31, 2002, 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; (4) Revolving line of
credit which bears interest at LIBOR plus three and one-quarter percent or prime
plus one-quarter percent; and (5) Foreign currency purchases in which Core
Materials purchases Mexican pesos with United States dollars to meet certain
obligations that arise due to the facility located in Mexico.
Assuming a hypothetical 20% change in short-term interest rates in both
the three month periods ended March 31, 2002, and 2001, interest expense would
not change significantly, as the interest rate swap agreement would generally
offset the impact.
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material changes in the two legal proceedings reported in Form 10-K
for the year ending December 31, 2001.
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 March 31, 2002.
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
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: May 15, 2002 By: /s/ James L. Simonton
------------ -----------------------------------------
James L. Simonton
President, Chief Executive Officer
and Director
Date: May 15, 2002 By: /s/ Kevin L. Barnett
------------ -----------------------------------------
Kevin L. Barnett
Vice President, Treasurer, Secretary, and
Chief Financial Officer
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 Agreement Incorporated by reference to
dated December 16, 1996(1) Exhibit 2(a)(2) to Annual
Report on Form 10-K for the
year-ended December 31, 2001
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 of Incorporated by reference to
Merger dated as of December 27, 1996 Exhibit 2(b)(2) to Annual
Between Core Materials Corporation and Report on Form 10-K
RYMAC Mortgage Investment Corporation for the year ended
December 31, 1997
2(c)(1) Asset Purchase Agreement dated as of October 10, Incorporated by reference to
2001, between Core Materials Corporation and Exhibit 1 to Form 8K
Airshield Corporation filed October 31, 2001
3(a)(1) Certificate of Incorporation of Core Materials Incorporated by reference to
Corporation As filed with the Secretary of Exhibit 4(a) to Registration
State of Delaware on October 8, 1996 Statement on Form S-8
(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)
15
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
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)
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.
16