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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended . . . . . . . . . . . December 31, 1999
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Manor Park Drive, P.O. Box 28183, Columbus, Ohio 43228 - 0183
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 870-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 22, 2000, 9,778,680 shares of Core Materials Corporation
common stock were outstanding, and the aggregate market value of the voting and
non-voting common equity held by non-affiliates was $15,279,188.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Registrant's 2000 definitive Proxy Statement to be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
registrant's fiscal year are incorporated herein by reference in PART III of
this Form 10-K.
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PART I
ITEM 1. BUSINESS.
On October 8, 1996, RYMAC Mortgage Investment Corporation ("RYMAC")
incorporated Core Materials Corporation ("Core Materials" or the "Company") as a
wholly-owned subsidiary under the laws of the State of Delaware. RYMAC
subsequently merged with and into Core Materials on December 31, 1996. The
discussion in Part I, Item 1 of this Form 10-K provides an overview of the
historical business of RYMAC, RYMAC's decision to incorporate Core Materials,
and the current business of Core Materials as the surviving corporation of the
merger with RYMAC.
HISTORICAL BUSINESS OF RYMAC AND INCORPORATION OF CORE MATERIALS
RYMAC was incorporated in the State of Maryland on July 1, 1988. From
1988 until 1994, RYMAC was primarily engaged in making investments in mortgage
derivative securities and, to a lesser extent, mortgage related investments, all
of which were secured by single-family residential mortgage loans. RYMAC also
generated revenues from other sources, such as interest earnings on certain
investments and sales of certain investments.
Earnings difficulties and an altered mortgage securities market that
emerged between 1992 and 1994 caused RYMAC's Board of Directors in mid-1994 to
determine that it would not pursue its historical line of business and would
investigate alternative opportunities to maximize stockholder value.(1) In this
regard, RYMAC's Board of Directors focused its efforts on finding and evaluating
acquisition candidates.
On September 12, 1996, RYMAC entered into an Asset Purchase Agreement
(the "Asset Purchase Agreement") with Navistar International Transportation
Corp. (now known as International Truck and Engine Corporation,
"International"), a manufacturer of school buses, medium and heavy-duty trucks
and mid-range diesel engines. The Asset Purchase Agreement provided for the
acquisition of International's Columbus Plastics operating unit. Columbus
Plastics produced fiberglass and plastic component parts for International's
medium and heavy-duty trucks, and for other third party customers, primarily
Yamaha Motor Manufacturing Corporation ("Yamaha").
The Asset Purchase Agreement conditioned International's obligation to
sell Columbus Plastics on the reincorporation of RYMAC in the State of Delaware.
In order to effect the reincorporation, RYMAC incorporated Core Materials as a
wholly-owned subsidiary, under the laws of the State of Delaware, on October 8,
1996. RYMAC subsequently merged with and into Core Materials on December 31,
1996. Core Materials was the surviving corporation in the merger with each
outstanding share of RYMAC common stock being converted into the right to
receive one share of Core Materials' common stock.
Immediately following the merger on December 31, 1996, Core Materials
acquired substantially all of the assets and liabilities of Columbus Plastics,
pursuant to the terms of the Asset Purchase Agreement. As consideration,
International received a secured note (the "Secured Note") in an original
principal amount of $25,504,000 subject to adjustment. International also
received 4,264,000 shares of newly issued common stock of Core Materials.2
Following the acquisition, Core Materials assumed operation of the business
previously conducted by Columbus Plastics.
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1 RYMAC had maintained a portfolio of assets from its historical business,
selectively selling assets to generate liquidity as market conditions were
appropriate. At the acquisition, Core Materials maintained ownership of one
mortgage-backed security originally purchased by RYMAC.
2 The principal amount of the Secured Note and the number of shares of common
stock received by International were subject to adjustment pursuant to the
terms of the Asset Purchase Agreement. Effective December 31, 1996, the
amount of the Secured Note was increased to $29,514,000 in order to reflect
an increase in the "net tangible assets" of Columbus Plastics as of the
December 31, 1996 acquisition date. In 1997, as a result of a review of the
closing balance sheet and all purchase price adjustments, the Secured Note
amount was reduced by $1,629,000 to reflect an amendment to the closing
balance sheet as of the acquisition date. In addition, International was to
receive consideration in the form of an increase in the principal amount of
the Secured Note if Core Materials achieved earnings results above specified
levels during the period 1997 through 1999. This consideration was to be
accounted for by an increase in the amount of the Secured Note, and a
reduction in the amount of Core Materials' retained earnings. Based on Core
Materials' earnings for the years ended December 31, 1998 and 1997, the
Secured Note was increased by $4,098,000 and $2,937,000 respectively. Core
Materials' earnings for the year ended 1999 did not result in any further
increase in the Secured Note. See Notes 4 and 8 of the "Notes to Financial
Statements" in Part II, Item 8 of this Form 10-K.
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Based upon the terms of the acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
Core Materials, however, is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax reporting
purposes. Consistent with reverse acquisition accounting treatment, Core
Materials has carried forward the historical basis of the acquired assets and
assumed liabilities of Columbus Plastics and has revalued the basis of Core
Materials' net assets to fair value at December 31, 1996.
BUSINESS OF CORE MATERIALS
Certain statements under this caption of this Annual Report on Form
10-K 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, agricultural and consumer products industries, the
general economy, competitive factors, the dependence on two major customers, the
recent efforts of Core Materials to expand its customer base, new technologies,
regulatory requirements, labor relations, the loss or inability to attract key
personnel, ramp up of the Company's South Carolina facility, the availability of
capital and management's decisions to pursue new products or businesses which
involve additional cost risks or capital expenditures.
Core Materials operates principally in one business segment, the
production of high quality compression Sheet Molding Composite ("SMC")
fiberglass reinforced plastic products. SMC plastics are part of a larger family
of materials collectively known as "reinforced plastics." Reinforced plastics
are combinations of resins and reinforcing fibers formed through high or low
pressure fabrication techniques.
Reinforced plastics compete largely against metals and have the
strength to function well during prolonged use. Management believes that
reinforced plastic components offer many advantages over metals, including:
o heat resistance
o corrosion resistance
o lighter weight
o lower cost
o greater flexibility in product design
o part consolidation for multiple piece assemblies
o lower initial tooling costs for lower volume applications
o high strength-to-weight ratio
o dent-resistance in comparison to steel or aluminum.
The largest markets for reinforced plastics are transportation
(automotive and truck), recreational vehicles, commercial products and
industrial applications. Core Materials' two major customers are International
and Yamaha, which are supplied proprietary SMC products for medium and
heavy-duty trucks and personal watercraft, respectively. Core Materials also
supplies SMC products to other truck manufacturers, to agricultural equipment
manufacturers and to manufacturers of commercial products. In general, product
growth and diversification is achieved in several different ways: (1) resourcing
of existing SMC product from another supplier by an original equipment
manufacturer ("OEM"); (2) obtaining new SMC products through a selection process
in which an OEM solicits bids; and (3) successful marketing of SMC products for
previously non-SMC applications. Core Materials' efforts are currently directed
towards all three areas.
MAJOR COMPETITORS
Core Materials believes that it is one of the five largest compounders
and molders of SMC product in the United States. Core Materials faces
competition from a number of other molders including, most significantly,
Cambridge Industries, Inc., Budd Plastics Division, Venture Industries, Applied
Composites, and Molded Fiber Glass Companies. Core Materials believes that past
consolidation within the SMC industry has better positioned the Company to
compete based
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primarily on manufacturing capability, product quality, cost and delivery.
However, the industry remains highly competitive and some of Core Materials'
competitors have greater financial resources, research and development
facilities and manufacturing and marketing capabilities.
MAJOR CUSTOMERS
Core Materials currently has two major customers, International and
Yamaha. The loss of a significant portion of sales to International or Yamaha
would have a material adverse effect on the business of Core Materials.
RELATIONSHIP WITH INTERNATIONAL
As a result of its acquisition of Columbus Plastics from International,
Core Materials assumed the long-standing relationship between Columbus Plastics'
and International's truck manufacturing operations. As a condition to the
acquisition, International and Core Materials entered into a Comprehensive
Supply Agreement, pursuant to which Core Materials became the primary supplier
of International's original equipment and service requirements for fiberglass
reinforced parts, using the SMC process through December 31, 2001.
International manufactures and markets medium and heavy-duty trucks,
including school buses, mid-range diesel engines and service parts in North
America and in certain export markets. International delivered 119,300 class 5
through 8 trucks, including school buses, in the United States and Canada during
its fiscal 1999, representing a 5% increase from the 113,900 units delivered in
1998 and a 21.2% increase from the 98,400 units delivered in 1997.
International's combined share of the class 5 through 8 truck market was 25.6%
in 1999, 29.1% in 1998 and 28.3% in 1997.
Core Materials makes products for International's Chatham (Canada)
assembly plant, its Springfield, Ohio assembly and body plants, its Garland,
Texas facility and its Escobedo, Mexico facility. Core Materials works closely
on new product development with International's engineering and research
personnel at International's Fort Wayne, Indiana Technical Center. Some of the
products sold to International include hoods, air deflectors, air fairings,
fenders, splash panels, engine covers and other components.
The North American truck market in which International competes is
highly competitive and the demand for trucks is subject to considerable
volatility as it moves in response to cycles in the overall business environment
and is particularly sensitive to the industrial sector, which generates a
significant portion of the freight tonnage hauled. Truck demand also depends on
general economic conditions, among other factors. Sales to International
amounted to approximately 68%, 79% and 77% of total sales for 1999, 1998 and
1997, respectively.
Through December 31, 1997, Core Materials also received support from
International in the form of accounting, payroll, and human resources management
functions under a Transitional Services Agreement with International dated
December 31, 1996. Such support also continued, to a lessor degree, for the
first three months of 1998 after which time such support ceased. See Note 9 of
"Notes to Financial Statements" in Part II, Item 8 of this Form 10-K.
RELATIONSHIP WITH YAMAHA
Core Materials also assumed from International the long-standing
relationship between Columbus Plastics and Yamaha. Core Materials supplies a
significant amount of the SMC products for Yamaha's personal watercraft.
The addition of Yamaha's personal watercraft component business in 1990
represented Columbus Plastics' first major business undertaking outside of
production for International. Products produced for Yamaha include decks, hulls,
engine hatches, bulk heads, and reinforcements. Core Materials has worked
closely with Yamaha over the years to improve the surface quality of Yamaha
products and to identify new process control techniques and improved materials.
Demand for products from Yamaha is related to the level of general economic
activity and specifically to the cyclical and seasonal nature of the personal
watercraft industry among other factors.
Sales to Yamaha amounted to approximately 18%, 17% and 21% of total
sales for 1999, 1998 and 1997, respectively.
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OTHER CUSTOMERS
Since its acquisition of Columbus Plastics from International, Core
Materials has focused significant efforts on expanding its customer base. During
1998, Core Materials added new customers including: Caradon Doors and Windows,
Peachtree Division; Case Corporation; Deere & Company; and New Holland, North
America, Inc. In 1999, Core Materials added Volvo Trucks, North America. The
customers added in 1999 and 1998 accounted for 13% and 2% of total sales for
1999 and 1998, respectively.
EXPORT SALES
Core Materials provides products to International's manufacturing and
service locations in Canada and Mexico. Export sales, including sales to Canada,
were approximately $19,934,000, $18,358,000 and $13,197,000 for the years ended
1999, 1998 and 1997, respectively. These export sales dollars represent
approximately 22%, 24% and 20% of total sales for 1999, 1998 and 1997,
respectively.
PRODUCTS
SMC
Core Materials incorporates a sophisticated computer program that
assists in the compounding of various complex SMC formulations tailored to
customer needs. The system provides for the following:
o Control information during various production processes; and
o Data for statistical batch controls.
Core Materials has the capacity to manufacture approximately 53 million
pounds of SMC sheet material annually. The capacity increased in 1999 as a
result of mix system upgrades and minor process improvements. The following
table shows production of SMC for 1999, 1998 and 1997.
SMC Pounds
Produced
Year (Millions)
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1999........................................................... 42
1998 .......................................................... 34
1997 .......................................................... 28
MOLDING
Core Materials currently owns or leases 17 presses in its Columbus,
Ohio plant ranging in size from 500 to 4,500 tons. In the first quarter of 1998,
Core Materials opened a second plant located in Gaffney, South Carolina, which
has 10 presses ranging in size from 1,000 to 3,000 tons. Core Materials also has
ordered a 2,500 ton press which will be installed in the Gaffney, South Carolina
plant later in 2000.
Large platen, high tonnage presses (greater than 2,000 tons) provide
the ability to compression mold very large configured SMC parts. Core Materials
believes that it possesses a significant portion of the large platen, high
tonnage molding capacity in the industry.
To enhance the surface quality and paint finish of products, Core
Materials uses both in-mold coating and vacuum molding processes. In-mold
coating is a manufacturing process performed by injecting a liquid over the
molded part surface and then applying pressure at elevated temperatures during
an extended molding cycle. The liquid coating serves to fill and/or bridge
surface porosity as well as provide a barrier against solvent penetration during
subsequent top-coating operations. Likewise, vacuum molding is the removal of
air during the molding cycle for the purpose of reducing the amount of surface
porosity. Core Materials believes that it is among the industry leaders in
in-mold coating and vacuum molding applications, based on the size and
complexity of parts molded.
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ASSEMBLY, MACHINING AND PAINT
Core Materials has demonstrated manufacturing flexibility that accepts
a range of low volume, hand assembly and machining work to high volume, highly
automated assembly and machining systems. Robotics are used extensively for
material handling, machining and adhesive applications. In addition to
conventional machining methods, water-jet cutting technology is also used where
appropriate. Two automated guided vehicles are used to transfer high volume
product from the assembly area to the prime paint operation. The prime paint
operation uses an overhead conveyor to transfer product through two paint booths
and bake ovens.
RAW MATERIALS
The principal raw materials used in the compounding of SMC are
polyester resins, fiberglass rovings and filler. Other significant raw materials
include adhesives for assembly of molded components and in-mold coating and
prime paint for preparation of cosmetic surfaces. Each raw material generally
has supplier alternatives. However, Core Materials typically uses single-source,
long-term (2 to 5 years) supply contracts. Core Materials believes the use of
supply contracts assists the Company in attaining competitive pricing and an
adequate supply of these raw materials. However, Core Materials has recently
experienced price increases for fiberglass rovings as a result of market
conditions indicating a strong demand for these products in relation to supply.
If Core Materials demand were to significantly increase, along with an increase
in industry demand, supply issues on fiberglass rovings could potentially limit
Core Materials' ability to increase production and/or result in higher raw
material costs.
BACKLOG
Core Materials relies on production schedules provided by its customers
to plan and implement production. These schedules are typically provided on a
monthly basis and are considered firm for the current period. Customers can
update these schedules daily for changes in demand that allow them to run their
inventories on a "just-in-time" basis. The ordered backlog was approximately
$7.2 million and $6.7 million at December 31, 1999 and 1998, respectively, all
of which Core Materials expects to ship within a year.
CAPACITY CONSTRAINTS
Core Materials has been required to work, from time to time, a seven
day/three shift schedule to meet its customers' production requirements. Core
Materials has also employed a weekend manpower crew to help minimize the
necessary overtime. See further discussion regarding production capacity at
"Item 2 Properties" contained elsewhere in this document. The need to work these
extended schedules has been driven by machine capacity limitations and, most
recently, by a shortage of labor at the Company's Columbus, Ohio facility.
Unemployment rates in the areas from which this facility recruits its labor
force has been generally low making it difficult to recruit employees and adding
to employee turnover. The continuation of this labor shortage could result in
higher labor costs and limit Core Materials' ability to meet customer production
schedules.
CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT
Capital expenditures totaled approximately $7.4 million, $7.0 million
and $10.3 million for 1999, 1998 and 1997, respectively. Capital expenditures
consist of presses and other equipment to manufacture parts as well as
laboratory equipment, storage equipment, computers and office furniture and
fixtures. The 1998 and 1997 amounts also include the acquisition and
construction of the Gaffney, South Carolina plant.
Product development is a continuous process at Core Materials. Research
and development activities focus on developing new SMC formulations and
improving existing products and manufacturing processes.
Core Materials does not maintain a separate research and development
facility but uses its production equipment (compounding machines, molding
presses, and primer system), as necessary, to support these efforts and
cooperates with its customers and its suppliers in its research and development
efforts. Likewise, manpower to direct and advance research and development is
integrated with the existing manufacturing, engineering, production, and quality
organizations. Management of Core Materials has estimated that internal costs
related to research and development activities approximate $200,000 per year.
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ENVIRONMENTAL COMPLIANCE
Core Materials' manufacturing operations are subject to federal, state
and local environmental laws and regulations which impose limitations on the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of hazardous waste. Core Materials' policy is to
conduct its business with due regard for the preservation and protection of the
environment. Core Materials' environmental waste management involves the daily
auditing of all satellite hazardous waste accumulation points, weekly audits of
all hazardous waste activities and biennial audits of every authorized
treatment, storage and disposal facility. Core Materials' environmental staff
also trains each new employee on waste management and other environmental issues
as part of an initial orientation process, and annually thereafter.
Core Materials has submitted the information necessary for the granting
of a Title V permit, as required under the Clean Air Act, which is still
pending. In 1989, Columbus Plastics installed a Regenerative Thermal Oxidizer
("REECO"). The purpose of the REECO system is to destroy volatile organic
compounds from the SMC manufacturing operation and the coating operation. Both
operations have strict federal and state emission limits. The REECO system
allows Core Materials to meet these limits by consistently achieving about 95%
destruction efficiency. Core Materials believes that it is in compliance with
the Resource Conservation and Recovery Act of 1976 ("RCRA") and the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"). Compliance with these environmental laws and regulations has not
had, nor is it currently expected to have, a material effect on the Company's
operations, competitive position or capital expenditures through fiscal year
2000. The amount of capital expenditures currently expected to be spent on
environmental compliance is not significant.
EMPLOYEES
As of December 31, 1999, Core Materials employed a total of 661
employees, 417 of whom are covered by a collective bargaining agreement with the
International Association of Machinists and Aerospace Workers ("IAM") which
extends to August 1, 2001.
PATENTS, TRADE NAMES AND TRADEMARKS
Core Materials will evaluate, apply for and maintain patents, trade
names and trademarks where it believes that such patents, trade names and
trademarks are reasonably required to protect its rights in its products. Core
Materials does not believe that any single patent, trade name or trademark or
related group of such rights is materially important to its business or its
ability to compete.
SEASONALITY
Core Materials' business is affected annually by the production
schedules of International and Yamaha. International and Yamaha typically shut
down their operations on an annual basis for a period of several weeks during
Core Materials' third quarter. As a result, demand by International and Yamaha
for Core Materials' SMC products drops significantly during the third quarter.
Similarly, demand for medium and heavy-duty trucks, Yamaha's personal
watercraft, and agricultural products fluctuate on a cyclical and seasonal
basis, causing a corresponding fluctuation for demand of Core Materials' SMC
products.
YEAR 2000 MATTERS
Issues related to the year 2000 systems issues are addressed in Part
II, Item 7, "Management Discussion and Analysis of Financial Condition and
Results of Operations" contained elsewhere in this document.
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ITEM 2. PROPERTIES.
Core Materials owns two plants that are situated, respectively, in
Columbus, Ohio and in Gaffney, South Carolina. Core Materials believes that,
through productive use, these facilities have adequate production capacity to
meet current production volume. The approximate capacity utilization for the
molding of production products in the Core Materials' facilities was 70%, 83%,
and 108% in December 1999, 1998, and 1997, respectively. Capacity increased in
1998 as a result of the opening of the new facility in South Carolina. Capacity
increased in 1999 with the addition of 3 presses at the Gaffney, South Carolina
plant. Capacity utilization is measured on the basis of a six day, three-shifts
per day operation.
The Columbus, Ohio plant is located at 800 Manor Park Drive on
approximately 28.2 acres of land. The approximate 323,596 square feet of
available floor space at the Columbus, Ohio plant is comprised of the following:
Approximate
Square Feet
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Manufacturing/Warehouse............................................. 307,447
Office.............................................................. 16,149
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323,596
Core Materials acquired the property at 800 Manor Park Drive as a
result of the Asset Purchase Agreement with International.
The Gaffney, South Carolina plant is located at 24 Commerce Drive,
Meadow Creek Industrial Park on approximately 20.7 acres of land. The
approximate 110,900 square feet of available floor space at the Gaffney, South
Carolina plant is comprised of the following:
Approximate
Square Feet
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Manufacturing/Warehouse............................................. 105,700
Office ........................................................... 5,200
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110,900
The plant, which can be expanded in the future, began molding and
assembly operations in early 1998.
Both the Columbus, Ohio and Gaffney, South Carolina properties are
subject to liens and security interests as a result of the properties being
pledged by Core Materials as collateral for its debt as described in Note 4 of
the "Notes to Financial Statements" in Part II, Item 8 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS.
Core Materials is not currently a party, nor is any of its property
subject, to any material pending legal proceedings, other than ordinary, routine
litigation incidental to the business, nor are any such proceedings known by
Core Materials to be contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Core Materials submitted no matters to a vote of its security holders
during the fourth quarter of its fiscal year ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the American Stock Exchange
under the symbol "CME".
The table below sets forth the high and low sale prices of Core
Materials for each full quarterly period within the two most recent fiscal years
for which such stock was traded, as reported on the American Stock Exchange
Composite Tape.
High Low
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CORE MATERIALS CORPORATION
First Quarter 1999 3 7/8 2 7/8
Second Quarter 1999 3 13/16 2 5/8
Third Quarter 1999 3 5/16 1 11/16
Fourth Quarter 1999 2 7/8 1 7/16
First Quarter 1998 6 3/8 3 1/4
Second Quarter 1998 7 4 1/8
Third Quarter 1998 4 7/8 2 9/16
Fourth Quarter 1998 3 5/8 1 3/4
The Company's common stock was held by 622 holders of record on March
22, 2000.
Core Materials made no payments of cash dividends during 1999 and 1998.
Core Materials currently expects that its earnings will be retained to finance
the growth and development of its business and does not anticipate paying
dividends on its common stock in the foreseeable future.
Moreover, Core Materials has agreed to prohibitions on its ability to
pay dividends as a result of restrictive covenants contained in the Secured Note
due International. Such prohibitions apply so long as Core Materials owes any
amounts under the Secured Note to International. The prohibitions are discussed
further in Note 4 of the "Notes to Financial Statements" in Part II, Item 8 of
this Form 10-K.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the audited
financial statements of Core Materials and Columbus Plastics. The capital
structure of Core Materials differs significantly from the capital structure of
Columbus Plastics prior to its acquisition by Core Materials. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements and related notes included elsewhere in this Annual Report on Form
10-K.
TWO MONTHS
YEARS ENDED DECEMBER 31, ENDED YEAR ENDED
(IN THOUSANDS, DECEMBER 31, OCTOBER 31,
EXCEPT PER SHARE DATA) 1999 1998 1997 1996 (1) 1995 (1) 1995 (1)
- --------------------------- --------- ---------- ---------- ------------ ------------- ------------
Net sales $90,604 $77,719 $ 64,940 $ 52,467 $ 8,855 $ 59,505
Gross margin 10,863 15,488 14,089 5,439 1,329 10,366
Income before interest and taxes 1,720 7,659 6,654 547 544 4,790
Net income 71 3,652 2,723 N/A N/A N/A
Net income per common share:
Basic .01 .38 .29 N/A N/A N/A
Diluted .01 .37 .28 N/A N/A N/A
Total assets 67,982 65,328 57,540 47,729 (2) 33,305 32,591
Long term debt 26,700 27,005 18,822 27,885 (2) N/A N/A
International's equity N/A N/A N/A N/A 24,206 20,140
Stockholders' equity 18,923 18,852 16,095 16,176 N/A N/A
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(1) Prior to January 1, 1997, Columbus Plastics provided International's
truck assembly operations with SMC products at standard cost and
production for International accounted for greater than 60% of Columbus
Plastics' output in all periods represented. The remainder was sold to
unrelated third party customers at negotiated prices. Net Income and
Net Income Per Share information has been omitted because Columbus
Plastics was not a separate stand alone division or subsidiary of
International and generally was not accounted for separately prior to
the Acquisition. In addition, International's systems and procedures
did not provide sufficient information to develop a reasonable cost
allocation of income taxes, corporate debt and interest expense.
(2) The December 31, 1996 Secured Note to International was reduced by
$1,629,000 to reflect an amendment to the closing balance sheet as of
the acquisition date. See notes 4 and 8 of the "Notes to Financial
Statements".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain statements under this caption of this Annual Report on Form
10-K constitute "forward-looking statements" which involve certain risks and
uncertainties. Core Materials' actual results may differ significantly from
those discussed in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to: business conditions in the plastics,
transportation, recreation and consumer products industries, the general
economy, competitive factors, the dependence on two major customers, the recent
efforts of Core Materials to expand its customer base, new technologies,
regulatory requirements, labor relations, the loss or inability to attract key
personnel, ramp up of the Company's South Carolina facility, the availability of
capital and management's decisions to pursue new products or businesses which
involve additional cost risks or capital expenditures.
OVERVIEW
On December 31, 1996, Core Materials acquired 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. Based on the terms of the acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
However, Core Materials is the continuing legal entity.
Core Materials is a compounder and compression molder of sheet molding
composites (SMC) fiberglass reinforced plastic products. Core Materials produces
and sells, both SMC compound and molded products for varied markets, including
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the automotive and trucking industries, recreational vehicles and commercial and
industrial products. Core Materials has two major customers, International and
Yamaha which account for approximately 85% of the Company's sales. The demand
for Core Materials' products is affected by the volume of purchases from its
customers, whose orders are primarily 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.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
Net sales for 1999 totaled $90,604,000, up 17% from the $77,719,000
reported for 1998. Sales to International remained steady at $61,867,000
compared to $61,471,000 in 1998. Sales to Yamaha increased in 1999 by 23% to
$15,929,000 compared with $12,927,000 in 1998. The increase in sales to Yamaha
is primarily due to additional product added in 1999 and an overall increase in
demand from Yamaha for Core Materials' product.
Sales to other customers increased 286% to $12,808,000 from $3,321,000
in 1998. These additional sales were primarily the result of sales to new
customers added in 1998 and 1999 including: New Holland North America -
$4,506,000; Volvo Trucks North America, Inc. - $3,607,000; and Caradon Doors and
Window, Peachtree Division - $1,571,000.
Gross margin was 12% of sales in 1999 compared with 20% for 1998. The
decline in gross margin as a percent of sales was primarily due to higher
production costs at both Core Materials' Columbus, Ohio and Gaffney, South
Carolina facilities. In Columbus, Core Materials experienced a shortage of plant
labor, due to low unemployment in the Columbus area, necessitating excessive
overtime. Additionally, Core Materials incurred higher levels of scrap and labor
inefficiencies as a result of the learning curve experienced by a higher than
normal level of new hires. The hiring of such new employees was necessitated by
increased turnover, caused by the labor shortage and increased production for
support of certain customer's inventory bank builds to allow for tooling
refurbishment. The Columbus facility also experienced higher repair and
maintenance downtime costs caused by two major machine breakdowns. The
maintenance downtime also resulted in lost production which exacerbated the
overtime costs in order to catch up with customer delivery expectations. In
Gaffney, Core Materials experienced higher usage of raw materials, increased
scrap, labor inefficiencies and higher usage of supplies. The increased costs in
Gaffney were primarily associated with the start up of new customer products and
the general ramp up of production at this facility. A significant portion of the
new business noted above was produced in Gaffney.
Selling, general and administrative expenses totaled $9,143,000 in
1999, up $1,314,000, or 17% from $7,829,000 in 1998. Approximately $800,000 of
the increase related to non-recurring items, including costs associated with the
evaluation of additional facility locations, products and processes, the
write-off of costs associated with a potential acquisition that Core Materials
decided not to pursue, and severance obligations and recruiting costs related to
a reorganization of Core Materials' management and salaried workforce. The
remaining increase of $514,000, which represents an increase of approximately 7%
over prior year, was primarily due to increased costs associated with obtaining
additional personnel, increased travel associated with new customers, increased
insurance costs, increased real estate and property taxes and other costs
related to higher sales and an increased customer base.
Interest expense for 1999 totaled $1,850,000 increasing from the
$1,681,000 incurred in 1998. The increase in interest expense from 1998 was
primarily the result of a full year effect of the interest costs on the
$7,500,000 of Industrial Revenue Bond borrowings incurred in May 1998 which were
used to finance Core Materials' facility in Gaffney, South Carolina. In
addition, an increase in interest costs on the Secured Note payable to
International added to interest expense. See Note 4 of "Notes to Financial
Statements". The increase in interest on the Secured Note was largely offset by
a reduction in interest expense incurred on Core Materials' line of credit.
Income tax expense for 1999 was approximately 45% 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, partially offset by a
valuation allowance at December 31, 1996 as a part of the purchase accounting
adjustments. As the tax loss carryforwards are utilized to offset federal income
tax payments, Core
11
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Materials reduces the deferred tax asset as opposed to recording a reduction in
income tax expense. Actual cash taxes for 1999 are estimated to be a benefit of
approximately $(11,000).
Net income for 1999 was $71,000 or $.01 per basic and $.01 per diluted
share, representing a decrease of $3,581,000 or 98% over the 1998 net income of
$3,652,000 or $.38 per basic and $.37 per diluted share. The decrease over
1998's amounts was primarily the result of the production inefficiencies and the
increases in SG&A expense referred to above. Core Materials has approximately
$20,754,000 of operating tax loss carryforwards that do not begin to expire
until the year 2007. The utilization of operating tax loss carryforwards and
other timing differences for 1999 resulted in an increase in cash flow of
approximately $69,000 since the Company's estimated income tax payments were
reduced. The comparable 1998 reduction in income tax payments was $1,596,000.
1998 COMPARED WITH 1997
Net sales for 1998 totaled $77,719,000, up 20% from the $64,940,000
reported for 1997. Sales to International increased 23% to $61,471,000 from
$50,011,000 in 1997. The increase in sales to International was primarily the
result of International's increased production of medium and heavy-duty trucks.
Sales to Yamaha decreased in 1998 by 4% to $12,927,000 compared with $13,416,000
in 1997. The slight decrease in sales to Yamaha was primarily due to the
maturing of the personal watercraft industry.
Sales to other customers increased 119% to $3,321,000 from $1,514,000
in 1997. These additional sales were primarily the result of sales to new
customers added in 1998 including: Case Corporation - $906,000; Outboard Marine
Corporation - $804,000; and Caradon Doors and Window, Peachtree Division -
$141,000.
Gross margin was 20% of sales in 1998 compared with 22% for 1997. The
decline in gross margin as a percent of sales was primarily the result of
unfavorable material usage variances, increased overtime costs, increased usage
of production process supplies, changes in product mix, and startup costs at the
Gaffney, South Carolina facility. Also impacting gross margin was the effect of
increased lease expenses associated with a sale-leaseback transaction. As noted
in Note 4 of the "Notes to Financial Statements", Core Materials sold various
items of production equipment and leased the items back under operating lease
agreements. The proceeds of the sale were primarily used to pay down long term
debt. As a result of these transactions, Core Materials has recorded higher
costs of sales, due to the lease payments exceeding the related depreciation for
the sales-leaseback equipment, offset by lower interest costs reflected below.
Selling, general and administrative expenses totaled $7,829,000 in
1998, increasing 5% from $7,435,000 in 1997. The increase over the 1997 amounts
was primarily due to the addition of a second plant in Gaffney, South Carolina.
This second plant provides additional capacity to support the production
requirements of current customers and opportunity for growth. The Gaffney plant
began molding and assembly operations in early 1998.
Interest expense for 1998 totaled $1,681,000, decreasing from the
$2,232,000 incurred in 1997. The decrease in interest expense from 1997 was
primarily the result of a reduction in interest costs on the Secured Note
payable to International due to paydowns of principal on the note. See Note 4 of
"Notes to Financial Statements." The decrease in interest expense was partially
offset by increased interest costs due to the $7,500,000 of Industrial Revenue
Bond borrowings used to finance Core Materials' new facility in Gaffney, South
Carolina.
Income tax expense for 1998 was approximately 41.4% of total earnings
before taxes. Actual tax payments were substantially lower than the recorded
expenses as Core Materials has substantial federal tax loss carryforwards. These
loss carryforwards were recorded as a deferred tax asset, partially offset by a
valuation allowance at December 31, 1996 as a part of the purchase accounting
adjustments. 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. Actual cash payments for 1998 were
estimated to be approximately $985,000, which reflected federal alternative
minimum, state and local taxes.
Net income for 1998 was $3,652,000 or $.38 per basic and $.37 per
diluted share, an increase of $929,000 or 34% over the 1997 net income of
$2,723,000 or $.29 per basic and $.28 per diluted share. The 1998 increase over
1997's amounts was primarily the result of increased sales as discussed above.
Core Materials had approximately $21,206,000 of operating tax loss carryforwards
that did not begin to expire until the year 2007. The utilization of operating
tax loss
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carryforwards and other timing differences for 1998 resulted in an increase in
cash flow of approximately $1,596,000 since the Company's estimated income tax
payments were reduced. The comparable 1997 net income would have increased by
$1,455,000.
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 in 1999 totaled $1,646,000. Net income
contributed $71,000 with depreciation and amortization adding another
$1,899,000. An increase in accounts payable contributed $3,707,000; this
increase was primarily the result of increased purchases of material to support
increased sales, capital spending and timing effects. Decreasing the operating
cash flow was an increase in accounts receivable of $2,096,000 primarily caused
by higher sales and slower collections and an increase in inventories of
$1,219,000, which was primarily the result of higher production levels. Also
decreasing cash flow was a decrease in accrued and other liabilities of
$1,191,000 primarily caused by the lack of a profit-sharing liability in 1999.
Investing activities reduced cash flows by $3,349,000 in 1999. Capital
expenditures totaled $7,385,000 which were primarily related to the acquisition
of machinery and equipment. Offsetting these expenditures were proceeds from the
sale and leaseback of certain machinery and equipment of $3,376,000 and proceeds
of maturities on the Company's mortgage-backed security investment of $660,000.
Financing activities reduced cash flows by $285,000. Core Materials
borrowed $7,250,000 on the line of credit in order to temporarily fund
operations and capital expenditures; all of the borrowed funds were repaid by
year-end 1999. Principal repayment on the Industrial Revenue Bond which was
issued in 1998 also required a cash outflow of $285,000.
At December 31, 1999, Core Materials had cash on hand of $1,129,000, of
which $323,000 is restricted, and an available line of credit of $7,500,000. As
of December 31, 1999, Core Materials was in violation of all three of its
financial debt covenants for the Line of Credit and letter of credit securing
the industrial revenue bond and certain equipment leases. The covenants relate
to maintaining certain financial ratios. Core Materials has received waivers for
the covenants as of December 31, 1999 and a written commitment from the bank to
waive these covenants each quarter through the quarter ended September 30, 2000
if Core Materials operates in compliance with financial projections for fiscal
year 2000 and does not experience any material adverse change to its financial
condition. Core Materials has operated in compliance with the projections for
the months of January and February 2000 and management expects Core Materials to
meet the projections for the remainder of 2000. However, if performance should
fall below these projections or if a material adverse change in the financial
position of the Company should occur, Core Materials' liquidity and ability to
obtain further financing to fund future operating and capital requirements could
be negatively impacted.
INCOME TAXES
The balance sheet at December 31, 1999 and 1998 includes a deferred tax
asset of $12,960,000 and $13,029,000, respectively, net of a valuation
allowances of $2,160,000 in 1999 and of $3,787,000 in 1998. The decrease in the
valuation allowance and a corresponding decrease in the deferred tax asset of
$1,627,000 was due to the expiration of certain capital loss carryforwards in
1999. The valuation allowance was reduced from $6,787,000 in 1997 to $3,787,000
in 1998 based upon an extensive review of future taxable income. This reduction
was recorded as an increase in Paid in Capital in the equity section (see Note
7). The deferred tax asset is net of a valuation allowance since it is more
likely than not that a portion of the deferred tax asset may not be realized in
the future.
The deferred tax asset at December 31, 1999 primarily includes the tax
benefits associated with cumulative net operating and capital tax losses of
approximately $20,754,000 and $4,100,000, respectively, temporary differences
between the book and tax basis of Core Materials' property and equipment of
approximately $9,200,000 and temporary differences relating to post-retirement
and pension benefits of $3,600,000. The valuation allowance at December 31, 1999
assumes that it is more likely than not that approximately $2,200,000 of the
cumulative net operating losses and
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all of the cumulative capital tax losses will not be realized before their
expiration date. Realization of the net deferred tax asset is dependent on the
generation of approximately $32,000,000 of future taxable income from 2000
through 2009. Taxable income for 1999 and 1998 was approximately $200,000 and
$7,600,000, respectively.
Extensive analysis is performed to determine the amount of the deferred
tax asset. Such analysis is based upon the premise that Core Materials is and
will continue as a going concern and that it is more likely than not that
deferred tax benefits will be realized through the generation of future taxable
income. Management reviews all available evidence, both positive and negative,
to assess the long-term earnings potential of Core Materials using a number of
alternatives to evaluate financial results in economic cycles at various
industry volume conditions. Other factors considered are the Company's
long-standing relationship with its two largest customers (International and
Yamaha) and Core Materials' recent customer diversification efforts. The
projected availability of taxable income to realize the tax benefits from net
operating loss carryforwards and the reversal of temporary differences before
expiration of these benefits are also considered. Management believes that, with
the combination of available tax planning strategies, the maintenance of its
relationships with Yamaha and International and International's maintenance of
significant market share, earnings are achievable in order to realize the net
deferred tax asset of $12,960,000.
INFLATION
Inflation generally affects Core Materials by increasing the cost of
labor, equipment and raw materials. Management believes that, because rates of
inflation have been moderate during the periods presented, inflation has not had
a significant impact on our results of operations.
YEAR 2000 READINESS STATEMENT
Core Materials utilized internal and external sources to make the
required modifications to both computer systems and internal operations related
apparatus. In addition, Core Materials worked with its suppliers and customers
to aid in their becoming Y2K compliant. As of the date of this filing, Core
Materials has not experienced any material Y2K problems with its software,
hardware and manufacturing of its products or with the operation of its business
in general. In addition, Core Materials has not experienced any material
problems with any of its customers or suppliers. Core Materials will continue to
monitor its systems as unique dates within the year are encountered (such as the
first quarterly financial close).
The total cost of the Year 2000 project was approximately $672,000 and
was funded through operating cash flows in 1997, 1998 and 1999. Of the total
project cost, approximately $402,000 was for the purchase and installation of
new software/hardware which was capitalized. The remaining $270,000, which was
expensed as incurred, did not have a material effect on the results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
In September 1999, the Emerging Issues Task Force reached consensus on
Issue 99-5 (EITF 99-5) which pertains to pre-production costs incurred by
original equipment manufacturer (OEM) suppliers related to the design and
development of the parts they will supply to OEMs and costs to design and build
molds, dies and other tools which will be used in manufacturing the parts.
Companies must determine whether pre-production costs meet the criteria in EITF
99-5 to be capitalized or should be expensed as incurred. The EITF is effective
for design and development costs incurred after December 31, 1999. Core
Materials has determined that the impact of this statement on its current
pre-production costs is not material.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," to establish accounting and reporting
requirements for derivative instruments. This standard requires recognition of
all derivative instruments in the statement of financial position as either
assets or liabilities, measured at fair value. This statement additionally
requires changes in the fair value of derivatives to be recorded each period in
current earnings or comprehensive income depending on the intended use of the
derivatives. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the effective date of SFAS 133", which amends SFAS by
14
15
deferring for one year the effective date of SFAS 133, to those fiscal years
beginning after June 15, 2000. Core Materials is currently assessing the impact
of this statement on its results of operations and financial position and plans
to implement statement No. 133, January 1, 2001.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Core Materials' primary market risk results from fluctuations in
interest rates. Core Materials is also exposed to changes in the price of
commodities used in its manufacturing operations. The Company does not hold any
material market risk sensitive instruments for trading purposes.
Core Materials has the following three items that are sensitive to a
change in interest rates: (1) Long term debt consisting of an Industrial Revenue
Bond ("IRB") with a balance at December 31, 1999 of $7,085,000. Interest is
variable and is computed weekly. The average interest rate charged for 1999 was
3.5% and the maximum interest rate that may be charged at any time over the life
of the IRB is 10%. In order to minimize the effect of the interest rate
fluctuation, Core Materials has entered an interest 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 December 31, 1999 of $19,920,000 at a fixed interest rate of 8%; and (3)
7% mortgage-backed security which matures in November 2025. Such security is
recorded at cost and is considered held to maturity as Core Materials has the
intent and ability to hold such security to maturity.
Assuming a hypothetical 20% change in short-term interest rates in both
1999 and 1998, interest expense would not change significantly, as the interest
rate swap agreement would generally offset the impact.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
Core Materials Corporation
Columbus, Ohio
We have audited the accompanying balance sheets of Core Materials
Corporation (the "Company") as of December 31, 1999 and 1998, and the related
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Core Materials Corporation as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
- --------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 14, 2000
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CORE MATERIALS CORPORATION
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
NET SALES:
International $ 61,867,135 $ 61,471,172 $ 50,010,566
Yamaha 15,929,190 12,927,328 13,415,548
Other 12,807,943 3,320,644 1,513,844
------------ ------------ ------------
TOTAL SALES 90,604,268 77,719,144 64,939,958
Cost of sales 78,542,103 61,258,735 50,090,742
Postretirement benefits expense 1,198,709 972,452 760,410
------------ ------------ ------------
TOTAL COST OF SALES 79,740,812 62,231,187 50,851,152
------------ ------------ ------------
GROSS MARGIN 10,863,456 15,487,957 14,088,806
------------ ------------ ------------
Selling, general and administrative expense 8,992,917 7,696,315 7,320,351
Postretirement benefits expense 150,113 132,218 114,429
------------ ------------ ------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 9,143,030 7,828,533 7,434,780
------------ ------------ ------------
INCOME BEFORE INTEREST AND TAXES 1,720,426 7,659,424 6,654,026
Interest income 258,620 254,920 233,873
Interest expense (1,850,068) (1,681,472) (2,231,575)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 128,978 6,232,872 4,656,324
Income taxes:
Current (benefit) (11,074) 985,280 478,035
Deferred 68,714 1,595,887 1,454,808
------------ ------------ ------------
TOTAL INCOME TAXES 57,640 2,581,167 1,932,843
------------ ------------ ------------
NET INCOME $ 71,338 $ 3,651,705 $ 2,723,481
============ ============ ============
NET INCOME PER COMMON SHARE:
BASIC $ 0.01 $ 0.38 $ 0.29
============ ============ ============
DILUTED $ 0.01 $ 0.37 $ 0.28
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 9,778,680 9,706,412 9,555,774
============ ============ ============
DILUTED 9,820,352 9,975,360 9,713,020
============ ============ ============
See notes to financial statements.
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CORE MATERIALS CORPORATION
BALANCE SHEETS
DECEMBER 31,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,128,868 $ 3,117,085
Accounts receivable (less allowance for doubtful accounts:
1999 - $431,000 and 1998 - $215,000) 19,714,554 17,618,575
Inventories:
Finished and work in process goods 2,929,515 1,592,288
Stores 2,513,062 2,630,993
------------ ------------
Total inventories 5,442,577 4,223,281
Deferred tax asset 1,069,914 928,048
Prepaid expenses and other current assets 184,127 339,028
------------ ------------
Total current assets 27,540,040 26,226,017
Property, plant and equipment 39,667,232 35,834,613
Accumulated depreciation (13,461,300) (11,754,866)
------------ ------------
Property, plant and equipment - net 26,205,932 24,079,747
Deferred tax asset - net 11,890,677 12,101,257
Mortgage-backed security investment 1,909,295 2,568,977
Other assets 436,539 351,606
------------ ------------
TOTAL $ 67,982,483 $ 65,327,604
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion long-term debt $ 305,000 $ 285,000
Accounts payable 11,067,668 7,360,949
Accrued liabilities:
Compensation and related benefits 1,355,288 2,492,006
Interest 892,477 725,827
Other accrued liabilities 1,923,143 2,144,477
------------ ------------
Total current liabilities 15,543,576 13,008,259
Long-term debt 26,700,150 27,005,150
Deferred long-term gain 2,915,825 3,369,380
Postretirement benefits liability 3,899,936 3,093,157
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value, authorized shares - 20,000,000;
Outstanding shares: 1999 - 9,778,680; 1998 - 9,778,680 97,787 97,787
Paid-in capital 19,251,392 19,251,392
Retained earnings (deficit) (426,183) (497,521)
------------ ------------
Total stockholders' equity 18,922,996 18,851,658
------------ ------------
TOTAL $ 67,982,483 $ 65,327,604
============ ============
See notes to financial statements.
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CORE MATERIALS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED TOTAL
COMMON STOCK OUTSTANDING PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ------- --------- ------
BALANCE AT JANUARY 1, 1997 9,474,600 $ 94,746 $15,918,193 $ 162,933 $16,175,872
Net Income 2,723,481 2,723,481
Issuance of restricted stock to employees 41,000 410 117,415 117,825
Unearned deferred stock compensation (117,825) (117,825)
Amortization of deferred stock compensation 50,555 50,555
Issuance of stock under stock option plan 100,000 1,000 81,500 82,500
Increase in Secured Note to International
(note 4) (2,937,331) (2,937,331)
Other (2,319) (23) 23
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 9,613,281 96,133 16,049,861 (50,917) 16,095,077
=========== =========== =========== =========== ===========
Net Income 3,651,705 3,651,705
Change in Valuation allowance (note 7) 3,000,000 3,000,000
Amortization of deferred stock compensation 54,365 54,365
Issuance of stock under stock option plan 167,600 1,676 147,144 148,820
Increase in Secured Note to International
(note 4) (4,098,309) (4,098,309)
Other (2,201) (22) 22
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 9,778,680 97,787 19,251,392 (497,521) 18,851,658
=========== =========== =========== =========== ===========
Net Income 71,338 71,338
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 9,778,680 $ 97,787 $19,251,392 $ (426,183) $18,922,996
=========== =========== =========== =========== ===========
See notes to financial statements.
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CORE MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 71,338 $ 3,651,705 $ 2,723,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,899,395 1,525,308 2,074,093
Deferred income taxes 68,714 1,595,887 1,454,808
Loss on disposal of assets 14,995 17,900 26,715
Amortization of gain on sale/leaseback transactions (453,555) (338,114) (28,176)
Compensation expense on stock awards 54,365 50,555
Change in operating assets and liabilities:
Accounts receivable (2,095,979) (3,441,870) (12,278,920)
Inventories (1,219,296) (916,562) 35,980
Prepaid and other assets 38,545 (220,720) 18,163
Accounts payable 3,706,719 (433,454) 7,421,534
Accrued and other liabilities (1,191,402) 14,764 3,582,065
Postretirement benefits liability 806,779 618,790 600,877
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,646,253 2,127,999 5,681,175
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (7,384,864) (6,958,388) (10,340,851)
Proceeds from sale/leaseback transactions 3,375,712 6,829,431 12,000,000
Proceeds from maturities on mortgage-backed
security investment 659,682 648,372 77,700
Proceeds from sale of property, plant and equipment 7,000 12,500
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,349,470) 526,415 1,749,349
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit 7,250,000 6,919,470 7,647,120
Payments on line-of-credit (7,250,000) (10,916,590) (3,650,000)
Payments of principal on secured note payable (3,000,000) (12,000,000)
Proceeds from issuance of industrial revenue bond 7,500,000
Payment of principal on industrial revenue bond (285,000) (130,000)
Issuance costs for industrial revenue bond (159,385)
Proceeds from exercise of stock options 148,820 82,500
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (285,000) 362,315 (7,920,380)
------------ ------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (1,988,217) 3,016,729 (489,856)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,117,085 100,356 590,212
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,128,868 $ 3,117,085 $ 100,356
============ ============ ============
Cash paid for:
Interest (net of amounts capitalized) $ 1,579,549 $ 2,039,713 $ 1,082,514
============ ============ ============
Income taxes $ 610,000 $ 823,200 $ 122,500
============ ============ ============
Supplemental disclosure of non-cash financing activities: $ 4,098,309 $ 2,937,331
Increase in Secured Note payable to International ============ =============
Increase in paid-in capital for reversal of NOL
valuation allowance $ 3,000,000
============
Increase in post-retirement benefits liability $ 1,629,000
============
See notes to financial statements.
19
20
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS FORMATION AND NATURE OF OPERATIONS
Core Materials Corporation ("Core Materials") was formed on October 8,
1996 by RYMAC Mortgage Investment Corporation ("RYMAC"), as a wholly owned
subsidiary, for the purpose of acquiring substantially all of the assets and
assuming certain of the liabilities of Columbus Plastics Operation ("Columbus
Plastics"), an operating unit of Navistar International Transportation Corp.
(now known as International Truck and Engine Corporation, "International").
Throughout these Notes to Financial Statements, references to Columbus Plastics
refers to the operations of Core Materials prior to the acquisition.
On December 31, 1996, RYMAC merged into its wholly owned subsidiary,
Core Materials, by converting each outstanding common share of RYMAC into the
right to receive one common share of Core Materials, with Core Materials as the
surviving corporation and continuing registrant. Simultaneously, on December 31,
1996, Core Materials purchased substantially all of the assets and assumed
certain liabilities of Columbus Plastics (the "Acquisition").
Based on the terms of the Acquisition, the transaction for financial
reporting and accounting purposes has been accounted for as a reverse
acquisition whereby Columbus Plastics is deemed to have acquired Core Materials.
However, Core Materials is the continuing legal entity and registrant for both
Securities and Exchange Commission filing purposes and income tax reporting
purposes. Consistent with reverse acquisition accounting treatment Core
Materials has carried forward the historical basis of the acquired assets and
assumed liabilities of Columbus Plastics and has revalued the basis of Core
Materials' net assets to fair value at December 31, 1996.
Core Materials operates principally in one business segment as a
compounder and compression molder of sheet molding composites (SMC). Core
Materials produces and sells, both SMC compound and molded products for varied
markets, including the automotive and trucking industries, recreational vehicles
and commercial and industrial products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Cash is held primarily in one bank.
MORTGAGE-BACKED SECURITY - The security which matures in November 2025,
is considered held to maturity, and is carried at cost. Core Materials has the
intent and ability to hold this security to maturity.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out), or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
recorded at cost. Depreciation is provided on a straight line method over the
estimated useful lives of the assets. The carrying amount of long-lived assets
is evaluated annually to determine if adjustment to the depreciation period or
to the unamortized balance is warranted. Such evaluation is based principally on
the expected utilization of the long-lived assets.
Ranges of estimated useful lives for computing depreciation are as follows:
Land improvements 20 years
Building and improvements 20-40 years
Machinery and equipment 3-15 years
Tools, dies and patterns 3-5 years
20
21
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Depreciation expense was $1,868,000, $1,510,000 and $2,074,000 for
1999, 1998, and 1997, respectively.
In 1999, 1998 and 1997, approximately $72,000, $189,000 and $180,000 of
interest costs were capitalized.
SELF-INSURANCE --Core Materials is self-insured with respect to medical
and dental claims and workers' compensation claims. Core Materials has recorded
an estimated liability for self-insured medical and dental claims incurred and
worker's compensation claims incurred but not reported at December 31, 1999 and
1998 of $375,000 and $350,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Core Materials' financial
instruments consist of a mortgage backed security investment, long term debt,
accounts receivable, accrued liabilities and accounts payable. The carrying
amount of the financial instruments approximated their fair value.
CONCENTRATION OF CREDIT RISK - Core Materials has significant
transactions with two customers, International and Yamaha Motor Manufacturing
Corporation, that comprised 86%, 96% and 98% of total sales in 1999, 1998 and
1997 and 77% and 87% of the accounts receivable balances at December 31, 1999
and 1998. Core Materials performs ongoing credit evaluations of its customers'
financial condition. Core Materials maintains reserves for potential bad debt
losses, and such bad debt losses have been historically within the Core
Materials' expectations.
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 includes the
effect of the assumed exercise of dilutive stock options under the treasury
stock method.
RESTRICTED CASH - Included in cash at December 31, 1999 and December
31, 1998 is $322,811 and $309,602, respectively, which is restricted pursuant to
the terms of the Industrial Revenue Bond (see Note 4). This restriction will be
removed as Core Materials incurs and submits for reimbursement qualified
expenditures related to the project for which the bond was issued.
RECLASSIFICATIONS -Reclassifications have been made to prior years'
amounts to conform with the classifications of such amounts for 1999.
NEW ACCOUNTING PRONOUNCEMENTS - In September 1999, the Emerging Issues
Task Force reached consensus on Issue 99-5 (EITF 99-5) which pertains to
pre-production costs incurred by original equipment manufacturer (OEM) suppliers
related to the design and development of the parts they will supply to OEMs and
costs to design and build molds, dies and other tools which will be used in
manufacturing the parts. Companies must determine whether pre-production costs
meet the criteria in EITF 99-5 to be capitalized or should be expensed as
incurred. The EITF is effective for design and development costs incurred after
December 31, 1999. Core Materials has determined that the impact of this
statement on its current pre-production costs is not material.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," to establish accounting and reporting
requirements for derivative instruments. This standard requires recognition of
all derivative instruments in the statement of financial position as either
assets or liabilities, measured at fair value. This statement additionally
requires changes in the fair value of derivatives to be recorded each period in
current earnings or comprehensive income depending on the intended use of the
derivatives. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the effective date of SFAS 133", which amends SFAS by deferring
for one year the effective date of SFAS 133, to those fiscal years beginning
after June 15, 2000. Core Materials is currently assessing the impact of this
statement on its results of operations and financial position and plans to
implement statement No. 133, January 1, 2001.
21
22
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
1999 1998
------------ ------------
Land and land improvements $ 2,146,753 $ 2,136,959
Buildings 16,797,587 16,349,245
Machinery and equipment 16,879,471 15,871,858
Tools, dies and patterns 635,063 460,802
Additions in progress 3,208,358 1,015,749
------------ ------------
Total 39,667,232 35,834,613
Less accumulated depreciation (13,461,300) (11,754,866)
------------ ------------
Property, plant and equipment - net $ 26,205,932 $ 24,079,747
============ ============
Additions in progress at December 31, 1999 and 1998 primarily relates
to the purchase and installation of equipment at Core Materials' Columbus, Ohio
and Gaffney, South Carolina facilities. At December 31, 1999, commitments for
capital expenditures in progress were $1,591,000.
Core Materials has entered into various sale-leaseback arrangements
with a financial institution, whereby it sold certain equipment and leased such
back under operating lease arrangements (see Note 4).
4. DEBT AND LEASES
Long term debt consists of the following at December 31:
1999 1998
------------ ------------
Secured Note Payable due to International, interest at 8%,
payable semi-annually, principal due November 2006, secured by
a subordinated lien and security interest in all Core
Materials' assets $ 19,920,150 $ 19,920,150
Industrial Revenue Bond, interest adjustable weekly (1999
average 3.5%), payable quarterly, principal due in variable
quarterly installments through April, 2013, secured by a bank
letter of credit with a balance of $7,299,000 as of December
31, 1999 7,085,000 7,370,000
------------ ------------
Total 27,005,150 27,290,150
Less current portion (305,000) (285,000)
------------ ------------
Long-term debt $ 26,700,150 $ 27,005,150
============ ============
22
23
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
SECURED NOTE PAYABLE
In connection with the acquisition, Core Materials was also required to
pay International future consideration in the form of an increase in the
principal amount of the Secured Note if Core Materials achieved earnings before
interest and taxes, as defined in the Asset Purchase Agreement, in excess of
established thresholds during the period of 1997 through 1999. For 1997 and
1998, Core Materials' earnings exceeded these thresholds and the Secured Note
was increased by approximately $2,937,000 and $4,098,000, respectively. No
increase was necessary for 1999 as Core Materials' earnings were below the
established threshold.
Contingent principal payments under the secured note are due as follows:
a) Within ninety (90) days after the end of each fiscal year of Core
Materials during the term of the Secured Note, Core Materials is to
pay principal in an amount equal to the amount, if any, by which
the total cash and cash equivalents of Core Materials, as of the
end of such fiscal year, exceeds $3,000,000, as long as there is no
outstanding balance on the revolving line of credit and Core
Materials is in compliance with all loan covenants; and
b) In the event Core Materials obtained, from time to time, any
refinancing loan (as defined by the terms of the Secured Note),
Core Materials is to promptly, upon obtaining such loan, pay
principal in an amount equal to the proceeds of such loan.
Total cash and cash equivalents of Core Materials as of December 31,
1998 were $3,117,085. However, International waived any principal payment on the
excess over $3,000,000 at December 31, 1998. Based upon the financial position
of Core Materials at December 31, 1999, the Secured Note is classified as
long-term on the balance sheet.
During 1997, the final purchase price adjustments were reviewed by Core
Materials and International management. As a result of this review, it was
agreed that Core Materials would assume an additional $1,629,000 of accumulated
benefits obligations relating to postretirement benefits at December 31, 1996
and reduce the Secured Note payable to International by the same amount and
amend the December 31, 1996 closing balance sheet of Columbus Plastics to
reflect the reclassification of these two long-term liabilities (see Note 8).
The provisions of the Secured Note prohibit the declaration or payment
of cash dividends, the repurchase or retirement of capital stock, as well as the
pledge of any of Core Materials' assets or revenue as a security lien to a third
party, except as approved by International, as long as the Secured Note is
outstanding.
LINE OF CREDIT
At December 31, 1999, Core Materials had available a $7,500,000
variable rate bank revolving line of credit. This facility, which matures on
November 30, 2000, is secured by a first priority lien and security interest in
all Core Materials' business assets. The line of credit bears interest at LIBOR
plus two percent or prime as elected by Core Materials. There was no outstanding
balance under this facility at December 31, 1999 and 1998.
As of December 31, 1999, Core Materials was in violation of all three
of its financial debt covenants for the Line of Credit and letter of credit
securing the industrial revenue bond and certain equipment leases. The covenants
relate to maintaining certain financial ratios. Core Materials has received
waivers for the covenants as of December 31, 1999 and a written commitment from
the bank to waive these covenants each quarter through the quarter ended
September 30, 2000 if Core Materials operates in compliance with financial
projections for fiscal year 2000 and does not experience any material adverse
change to its financial condition. Core Materials has operated in compliance
with the projections for the months of January and February 2000.
23
24
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
INDUSTRIAL REVENUE BOND
In May, 1998, Core Materials borrowed $7,500,000 through the issuance
of an Industrial Revenue Bond ("IRB"). Core Materials used $4,500,000 of the
proceeds to fund the development of the Gaffney plant and $3,000,000 to repay
principal on the Secured Note to International. The IRB bears interest at a
weekly adjustable rate and matures in April, 2013. The maximum interest rate
that may be charged at any time over the life of the IRB is 10%. Principal is
payable beginning in July, 1998. Total remaining principal maturities by year
are: 2000 - $305,000; 2001 - $330,000; 2002 - $355,000; 2003 - $390,000; 2004 -
$420,000 and thereafter - $5,285,000.
In conjunction with the IRB, in June, 1998, Core Materials entered into
an interest rate swap agreement with a commercial bank. This agreement
effectively converts the variable rate IRB to fixed interest debt. 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.
As security for the IRB, Core Materials obtained a letter of credit
from a commercial bank which has a balance of $7,299,000 as of December 31,
1999. The letter of credit can only be used to pay principal and interest on the
IRB. Any borrowings made under the letter of credit bear interest at the bank's
prime rate and are secured by a lien and security interest in all of Core
Materials' business assets. The letter of credit expires in April, 2004 but may
be extended for an additional one year period in April of each year.
LEASES
In 1997, Core Materials entered into a sale-leaseback arrangement with
a financial institution. Equipment, consisting primarily of SMC presses with a
net book value of approximately $8,619,000, was sold for $12,000,000 and leased
back under a 10-year lease operating agreement. Core Materials recorded a
deferred gain of approximately $3,381,000 on the transaction, which is being
accreted to income over the life of the lease.
In 1998, Core Materials entered into two sale-leaseback arrangements
with a financial institution. In the first arrangement, equipment consisting
primarily of SMC presses and a water jet, was sold for its net book value of
$5,279,000 and leased back under a 10-year operating lease agreement. No gain or
loss resulted from the transaction. In the second arrangement, equipment
consisting of two SMC presses, with a net book value of $742,000 were sold for
$1,550,000 and then leased back under a 7-year operating lease agreement. Core
Materials recorded a deferred gain of approximately $808,000 on the second
transaction which is being accreted to income over the life of the lease.
In December 1999, Core Materials entered into sale-leaseback
arrangements with a financial institution. An SMC press was sold for its net
book value of $1,922,000 and leased back under a 10-year operating lease
agreement. In addition, equipment consisting of two SMC presses and a dust
collection system was sold for their net book values of $1,454,000 and leased
back under a 7-year operating lease agreement. No gain or loss resulted from
these transactions.
As a result of the above sale-leaseback transactions, Core Materials
recognized into income approximately $454,000, $338,000 and $28,000 of the
deferred gains for 1999, 1998 and 1997, respectively. At December 31, 1999 and
1998, Core Materials' deferred gains on these leasing transactions totaled
$3,369,000 and $3,823,000, respectively. The current portion of the deferred
gains was $454,000 at December 31, 1999 and 1998 and was included in accrued
liabilities.
24
25
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Core Materials also leases certain other equipment under operating
leases with original lease terms of 2 to 10 years. Total rental expense was
$2,776,000, $2,462,000 and $701,000 for 1999, 1998 and 1997, respectively.
The future minimum lease payments under non-cancelable operating leases
that have lease terms in excess of one year are as follows:
2000 $ 3,073,000
2001 2,895,000
2002 2,908,000
2003 3,251,000
2004 3,334,000
Thereafter 9,993,000
-----------
Total minimum lease payments $25,454,000
===========
5. EQUITY
ANTI-TAKEOVER MEASURES
Core Materials' Certificate of Incorporation and By-laws contain
certain provisions designed to discourage specific types of transactions
involving an actual or threatened change of control of Core Materials. These
provisions, which are designed to make it more difficult to change majority
control of the Board of Directors without its consent, include the following:
Removal of Directors - This provision provides that a director
of Core Materials may be removed with or without cause only
upon the vote of the holders of at least 80% of the voting
power of the outstanding shares of capital stock entitled to
vote generally in the election of directors.
Supermajority Approval - This provision requires that a merger
and certain other transactions (as outlined in the Certificate
of Incorporation) be approved by the affirmative vote of the
holders of at least 66 2/3% of the then outstanding shares of
Core Materials' common stock. Such affirmative vote is
required not withstanding the fact that no vote may be
required, or that a lesser percentage may be specified by law.
Amendments - This provision requires that any amendment to the
provisions relating to the removal of directors be approved by
the holders of at least 80% of the then outstanding shares of
voting stock, and any amendment to provisions requiring the
approval of the holders of at least 66 2/3% of the then
outstanding shares of voting stock be approved by the holders
of at least 66 2/3% of the then outstanding shares of voting
stock.
RESTRICTIONS ON TRANSFER
Core Materials' Certificate of Incorporation also contains a provision
(the "Prohibited Transfer Provision") designed to help assure the continued
availability of Core Materials' substantial net operating loss and capital loss
carryforwards (see Note 7) by seeking to prevent an "ownership change" as
defined under current Treasury Department income tax regulations. Under the
Prohibited Transfer Provision, if a stockholder transfers or agrees to transfer
stock, the transfer will be prohibited and void to the extent that it would
cause the transferee to hold a "Prohibited Ownership Percentage" (as defined in
Core Materials' Certificate of Incorporation, but generally, means direct and
indirect ownership of 4.5% or more of the Company's common stock) or if the
transfer would result in the transferee's ownership increasing if the transferee
had held a Prohibited Ownership Percentage within the three prior years or if
the transferee's ownership percentage already exceeds the Prohibited Ownership
Percentage under applicable Federal income tax rules. The Prohibited Transfer
Provision does not prevent transfers of stock between persons who do not hold a
Prohibited Ownership Percentage.
25
26
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
RESTRICTED COMMON STOCK
In 1997, Core Materials issued, in total, 41,000 shares of common
stock, par value $0.01 per share, to 410 employees (which constituted all of its
employees at the time of grant with the exception of certain executive
employees). The Company received no consideration for the issued shares. The
shares were issued as an incentive for its employees to remain with the Company
and were subject to forfeiture to the Company if an employee left prior to
December 31, 1998. During this period, the shares could not be transferred. As
of December 31, 1998, 45 of these employees terminated service with Core
Materials and, therefore, the 4,500 shares were forfeited and retired. The
market value of the remaining shares at the dates of grant totaled $105,000
which was recognized as compensation expense of $54,000 in 1998 and $51,000 in
1997.
PREFERRED STOCK
Core Materials has authorized 10,000,000 shares of preferred stock (par
value: $0.01) of which none is issued.
6. INCENTIVE STOCK PLANS
STOCK OPTIONS
The Company has a Long Term Equity Incentive Plan (the "Plan"), as
approved by the shareholders in May 1997, that allows for grants to directors
and key employees of non-qualified stock options, incentive stock options,
director options, stock appreciation rights, restricted stock, performance
shares, performance units and other incentive awards up to an aggregate of 1.5
million awards, each representing a right to buy a share of Core Materials'
common stock. The Plan expires on the earlier of December 31, 2006, or the date
the maximum number of available awards under the plan have been granted.
During 1999, 1998 and 1997, the Company granted non-qualified stock
options and incentive stock options to directors and certain employees. The
options have vesting schedules of five or ten years from the date of grant, are
not exercisable after ten years from the date of grant, and were granted at
prices which equaled or exceeded the fair market value of Core Materials' common
stock at the date of grant.
In October, 1998, the Board of Directors of Core Materials voted to
grant a total of 125,000 incentive stock options to certain employees of Core
Materials at $3.50 per share which exceeded the fair market value of the stock
on the date of grant. These options replaced incentive stock options at prices
ranging from $3.69 to $5.13 per share that were previously granted to these
employees and were forfeited as a condition of this grant.
The Company accounts for its stock option plans in accordance with APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for all stock option plans been determined consistent with the
SFAS No. 123, "Accounting for Stock Based Compensation," the Company's pro forma
1999 net income/(loss) and earnings/(loss) per common share would have been
$(131,363) and $(.01) per basic and $(.01) diluted share, respectively. For
1998, pro forma net income and earnings per common share would have been
$3,463,018 and $.36 per basic share and $.35 per diluted share. For 1997, pro
forma net income and earnings per common share would have been $2,657,418 and
$.28 per basic share and $.27 per diluted share. The pro forma amounts are not
representative of the effects on reported net earnings or earnings per common
share for future years.
The weighted average fair value of options granted during 1999, 1998
and 1997 were $2.21, $3.31 and $1.93. The fair value of the options granted were
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: risk free interest rate of 6%, no expected dividend
yield, expected lives of 8 and 9 years and expected volatility of 80% for 1999
and 1998 and 52% for 1997.
26
27
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes all stock option activity for the years ended December
31:
1999 1998 1997
--------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------- ---------- ------------ ---------- ----------- ----------
Outstanding - beginning of year 956,800 $ 3.19 940,000 $ 2.48 260,000 $ 0.81
Granted 122,500 3.20 432,500 4.24 796,000 2.82
Exercised (167,600) 0.89 (100,000) 0.83
Forfeited (41,200) 3.28 (248,100) 3.87 (16,000) 2.77
------------- ---------- ------------ ---------- ----------- ----------
Outstanding - end of year 1,038,100 $ 3.19 956,800 $ 3.19 940,000 $ 2.48
============= ========== ============ ========== =========== ==========
Exercisable at December 31 286,700 $ 3.03 154,350 $ 2.80 221,850 $ 1.34
============= ========== ============ ========== =========== ==========
Options available for grant 454,300 535,600 720,000
============= ============ ===========
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ---------------------------------
WEIGHTED WEIGHTED AVERAGE
RANGE OF NUMBER OF AVERAGE CONTRACTUAL LIFE NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICES OPTIONS EXERCISE PRICE (YEARS) OPTIONS EXERCISE PRICE
------------ -------------- ---------------- ------------ ----------------
$2.75 620,100 $ 2.75 7.5 219,700 $ 2.75
$3.40 to $3.81 348,000 3.58 8.6 53,000 3.62
$5.13 70,000 5.13 8.4 14,000 5.13
------------ --------- ---------- ---------
1,038,100 $ 3.19 286,700 $ 3.03
============ ========= ========== =========
7. INCOME TAXES
Components of the provision (credit) for income taxes are as follows:
1999 1998 1997
----------- ----------- -----------
Current:
Federal $ (48,000) $ 76,000 $ 66,000
State and local 37,000 909,000 412,000
----------- ----------- -----------
(11,000) 985,000 478,000
Deferred :
Federal 90,000 1,817,000 1,346,000
State and local (21,000) (221,000) 109,000
----------- ----------- -----------
69,000 1,596,000 1,455,000
----------- ----------- -----------
Provision for income taxes $ 58,000 $ 2,581,000 $ 1,933,000
=========== =========== ===========
27
28
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The Federal deferred tax expense does not represent cash payment of
income taxes and was primarily generated by the utilization of net operating
loss (NOL) carry forwards and the increase of temporary differences, and will
not require future cash payments.
A reconciliation of the income tax provision based on the federal
statutory income tax rate of 34% to the Company's income tax provision for the
year ended December 31 is as follows:
1999 1998 1997
---------- ---------- ----------
Provision at federal statutory rate $ 44,000 $2,119,000 $1,583,000
State and local tax expense, net of federal benefit 10,000 454,000 339,000
Non-deductible expenses 4,000 8,000 11,000
---------- ---------- ----------
Provision for income taxes $ 58,000 $2,581,000 $1,933,000
========== ========== ==========
Deferred tax assets (liabilities) consist of the following at December
31:
1999 1998
------------ ------------
Current Asset:
Accrued liabilities $ 1,053,000 $ 895,000
Other, net 17,000 33,000
------------ ------------
Total current asset 1,070,000 928,000
Non-current asset (liability):
Property, plant and equipment 3,607,000 4,045,000
Net operating loss carryforwards 7,056,000 7,210,000
Capital loss carryforwards 1,390,000 3,017,000
Postretirement benefits 1,623,000 1,297,000
Other, net 374,000 319,000
------------ ------------
Total non-current asset 14,050,000 15,888,000
------------ ------------
Total deferred tax asset 15,120,000 16,816,000
Less valuation allowance (2,160,000) (3,787,000)
------------ ------------
Total deferred tax asset - net $ 12,960,000 $ 13,029,000
============ ============
At December 31, 1999, Core Materials had approximately $20.8 million of
NOL carryforwards available to offset future taxable income. A valuation
allowance has been provided for those NOL carryforwards and temporary
differences, which are estimated to expire before they are utilized. A full
allowance has been provided against the approximately $4.1 million (to expire in
2001) of capital loss carryforwards, because the capital loss carryforwards are
estimated to expire before they are utilized. Based upon an extensive review of
future taxable income which was completed during the fourth quarter of 1998, the
deferred tax valuation allowance was reduced by $3.0 million at December 31,
1998. This reduction was recorded as an increase in Paid in Capital, in the
equity section. Recording the reduction in the valuation allowance as an
increase in Paid in Capital was due to the fact that the original valuation
allowance was recorded as a reduction to Paid in Capital at December 31, 1996,
date of inception, due to reverse acquisition accounting treatment.
28
29
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Core Materials' NOL carryforwards expire as follows:
2007 $ 5,322,000
2008 10,823,000
2009 3,614,000
2010 638,000
2011 357,000
---------------
Total $20,754,000
===============
8. POSTRETIREMENT BENEFITS
Core Materials provides postretirement benefits to substantially all of
its employees. Costs associated with postretirement benefits include pension
expense, postretirement health care and life insurance expense and expense
related to contributions to two 401(k) defined contribution plans. In addition,
Core Materials also participates in a multi-employer defined benefit plan for
its union represented employees. All of Core Materials' union employees are
covered under a multi-employer defined benefit pension plan administered under a
collective bargaining agreement. This plan is not administered by Core Materials
and contributions are determined in accordance with provisions in the negotiated
labor contract. Prior to the Acquisition, Core Materials' employees were
participants in various International sponsored pension and postretirement
plans.
The International pension plan for non-represented employees was
non-contributory and both benefits and years of service were frozen as of the
date of the Acquisition. In connection with the Acquisition, International
retained responsibility for the vested benefits as of December 31, 1996 and Core
Materials agreed to reimburse International for early retirement subsidies for
certain employees. The accumulated benefit obligation, which equals the
projected benefit obligation and net liability is $173,000 at December 31, 1999
and $159,000 at December 31, 1998, respectively.
The postretirement health and life insurance plan provides healthcare
and life insurance for certain employees upon their retirement, along with their
spouses and certain dependents and calls for cost sharing between Core
Materials, International and the participants in the form of premiums,
co-payments and deductibles. Core Materials and International share the cost of
benefits for certain employees, pursuant to the Asset Purchase Agreement, using
a formula that allocates the cost based upon the respective portion of time that
the employee was an active service participant after the Acquisition to the
period of active service prior to the Acquisition.
During 1997, Core Materials and International management reviewed all
purchase price adjustments, including the initial allocation of the Columbus
Plastics' December 31, 1996 accumulated postretirement benefit obligation for
the health and life insurance plan.
As a result of this review, Core Materials and International agreed
that Core Materials would assume an additional $1,629,000 of accumulated benefit
obligations as of December 31, 1996 and International would amend the December
31, 1996 closing balance sheet of Columbus Plastics to reflect this increase in
benefit obligation resulting in an equal reduction in the Core Materials'
Secured Note to International.
29
30
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The funded status of the Company's postretirement health and life insurance
benefits plan as of December 31, 1999 and 1998 and a reconciliation with the
amounts recognized in the balance sheets are provided below:
POST RETIREMENT BENEFITS
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 3,274,000 $ 2,438,000 $ 1,629,000
Service cost 448,000 388,000 307,000
Interest cost 233,000 171,000 130,000
Unrecognized loss 65,000 277,000 372,000
----------- ----------- -----------
BENEFIT OBLIGATION AT END OF YEAR $ 4,020,000 $ 3,274,000 $ 2,438 000
----------- ----------- -----------
Unfunded status $(4,020,000) $(3,274,000) $(2,438,000)
Unrecognized net loss 662,000 639,000 372,000
----------- ----------- -----------
Net liability $(3,358,000) $(2,635,000) $(2,066,000)
=========== =========== ===========
PLAN ASSETS -- -- --
=========== =========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount rate 7.50% 6.50% 8.00%
30
31
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The components of expense for all of Core Materials' postretirement
benefits plans are as follows:
1999 1998 1997
---------- ---------- ----------
Pension Expense:
Interest cost $ 14,000 $ 12,000 $ 10,000
Defined contribution plan
contributions 288,000 196,000 161,000
Multi-employer plan
contributions 322,000 328,000 267,000
---------- ---------- ----------
Total Pension Expense 624,000 536,000 438,000
---------- ---------- ----------
Health and Life Insurance:
Service cost 448,000 388,000 307,000
Interest cost 233,000 171,000 130,000
Amortization of net loss 44,000 10,000 --
---------- ---------- ----------
Net periodic benefit cost 725,000 569,000 437,000
---------- ---------- ----------
Total postretirement benefits
expense $1,349,000 $1,105,000 $ 875,000
========== ========== ==========
The weighted average rate of increase in the per capita cost of covered
health care benefits is projected to be 9.6%. The rate is projected to decrease
gradually to 5% by the year 2005 and remain at that level thereafter. The
comparable assumptions for the prior year were 7% and 5%.
The effect of changing the health care cost trend rate by one-
percentage point for each future year is as follows:
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
Effect on total of service and interest cost components $ 154,000 $ (120,000)
Effect on postretirement benefit obligation $ 503,000 $ (426,000)
31
32
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
9. RELATED PARTIES
On December 31, 1996, Core Materials acquired substantially all of the
assets and assumed certain liabilities of Columbus Plastics from Navistar for
4,264,000 shares of Core Materials common stock, representing approximately 45%
of the total number of shares of Core Materials' common stock then issued and
outstanding.
In connection with the acquisition, Core Materials and International
entered into a Supply Agreement and a Transitional Services Agreement (the
"Services Agreement"). Under the terms of the Supply Agreement, for a rolling
five year period commencing December 31, 1996, International agreed to purchase
from Core Materials, and Core Materials agreed to sell to International at
negotiated prices, which approximate fair value, all of International's original
equipment and service requirements for Fiberglass Reinforced Parts using the
Sheet Molding Composite process as they then existed or as they may be improved
or modified. As of December 31, 1999, the contract has not been extended beyond
its original five year period. No minimum quantities of annual production of
products or minimum purchase quantities are set forth or implied in the Supply
Agreement, and no penalties will be imposed on International for volumes of
products actually ordered by International below those quantities forecasted.
Under the terms of the Services Agreement, International provided
certain accounting, computer services, and office support services to Core
Materials and procured insurance on Core Materials' behalf through March 1998.
Core Materials expensed $13,000 and $183,000 for these services in 1998 and
1997, respectively. Sales to International were $61,867,000 in 1999, $61,471,000
in 1998 and $50,011,000, in 1997, of which $10,709,000 and $10,960,000 had not
been received as of December 31, 1999 and 1998 and was included in accounts
receivable. Receivables as of December 31, 1999 and 1998 also include an
additional $1,518,000 and $2,024,000, respectively, for tooling costs owed by
International. Accounts payable included $535,000 and $498,000, respectively as
of December 31, 1999 and 1998 for product returns, returnable container
deposits, material purchases from International and rework charges. Core
Materials expensed $1,516,000 in 1999, $1,340,000 in 1998 and $2,322,000 in
1997, for interest expense on the Secured Note of which $815,000 and $647,000
had not been paid as of December 31, 1999 and 1998 and was included in accrued
liabilities.
10. LABOR CONCENTRATION
At December 31, 1998, Core Materials employed a total of 661 employees,
417 of whom, at its Columbus, Ohio facility, are covered by a collective
bargaining agreement with the International Association of Machinists and
Aerospace Workers ("IAM") which extends to August 1, 2001.
32
33
CORE MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 1999 and 1998.
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL YEAR
----------- ----------- ----------- ----------- ----------
1999:
Net sales $22,431,715 $24,236,154 $ 21,560,922 $22,375,477 $90,604,268
Gross margin 4,336,949 2,844,650 1,306,802 2,375,055 10,863,456
Income (loss) before interest and taxes 2,314,812 651,361 (1,079,279) (166,468) 1,720,426
Net income (loss) 1,169,883 149,857 (870,214) (378,188) 71,338
Net income (loss) per common share:
Basic $.12 $.02 $(.09) $(.04) $.01
Diluted $.12 $.02 $(.09) $(.04) $.01
1998:
Net sales $20,588,806 $19,149,756 $17,134,725 $20,845,857 $77,719,144
Gross margin 4,208,494 4,131,486 2,904,097 4,243,880 15,487,957
Income before interest and taxes 2,210,536 2,109,209 1,138,384 2,201,295 7,659,424
Net income 1,122,778 1,020,931 445,600 1,062,396 3,651,705
Net income per common share:
Basic $.12 $.11 $.05 $.11 $.38 (1)
Diluted $.11 $.10 $.05 $.11 $.37
(1) Sum of the quarters do not add up to total year due to rounding.
No cash dividends were paid during 1999 and 1998.
******
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
33
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Part III, Item 10 is incorporated by
reference from Core Materials' definitive proxy statement for its annual meeting
of stockholders to be held on or about May 18, 2000, which is expected to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal
year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Part III, Item 11 is incorporated by
reference from Core Materials' definitive proxy statement for its annual meeting
of stockholders to be held on or about May 18, 2000, which is expected to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal
year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Part III, Item 12 is incorporated by
reference from Core Materials' definitive proxy statement for its annual meeting
of stockholders to be held on or about May 18, 2000, which is expected to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal
year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Part III, Item 13 is incorporated by reference
from Core Materials' definitive proxy statement for its annual meeting of
stockholders to be held on or about May 18, 2000, which is expected to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A of the
Securities Exchange Act of 1934 within 120 days after the end of the fiscal year
covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
The following financial statements are included in Part II,
Item 8 of this Form 10-K:
Independent Auditors' Report
Statements of Income for the Years Ended December 31,
1999, 1998 and 1997
Balance Sheets as of December 31, 1999 and 1998
Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997
Statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997
Notes to Financial Statements
34
35
(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed with this
Annual Report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts and
Reserves
All other schedules are omitted because of the
absence of the conditions under which they are
required.
(3) EXHIBITS
See Index to Exhibits filed with this Annual Report on Form
10K.
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K for the fourth quarter of the
Company's fiscal year ended December 31, 1999.
35
36
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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
By /s/ James L. Simonton
---------------------------------------
James L. Simonton
President and Chief Executive Officer
Date: March 28, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
/s/ James L. Simonton President, Chief Executive Officer March 28, 2000
- --------------------------------------------- and Director
James L. Simonton
/s/ Kenneth M. Schmell Executive Vice President and March 28, 2000
- --------------------------------------------- Chief Operating Officer
Kenneth M. Schmell
/s/ Kevin L. Barnett Vice President, Secretary, Treasurer and March 28, 2000
- --------------------------------------------- Chief Financial Officer
Kevin L. Barnett
* Director March 28, 2000
- ---------------------------------------------
James F. Crowley
* Director March 28, 2000
- ---------------------------------------------
Ralph O. Hellmold
* Director March 28, 2000
- ---------------------------------------------
Thomas M. Hough
* Director March 28, 2000
- ---------------------------------------------
Malcolm M. Prine
* Director March 28, 2000
- ---------------------------------------------
Thomas R. Cellitti
*By Kevin L. Barnett Attorney-In-Fact March 28, 2000
-----------------------------------------
Kevin L. Barnett
36
37
CORE MATERIALS CORPORATION
SCHEDULE II
Valuation and qualifying accounts and reserves for the years ended December 31,
1999, 1998 and 1997.
Reserves deducted from asset to which it applies - allowance for doubtful
accounts.
Additions
--------------------------------
Balance at Charged to Charged to
Beginning Costs & Other Deductions Balance At
of Year Expenses Accounts (A) End of Year
------------ ------------- ------------ ------------ -------------
Year Ended December 31, 1999 $ 215,000 $ 216,000 $ 431,000
Year Ended December 31, 1998 $ 240,000 $ 25,000 $ 215,000
Year Ended December 31, 1997 -- $ 247,000 -- $ 7,000 $ 240,000
(A) Amount represents uncollectable accounts written off.
37
38
INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
2(a)(1) Asset Purchase Agreement Incorporated by
dated as of September 12, 1996, reference to Exhibit
as amended October 31, 1996, 2-A to Registration
between Navistar and RYMAC(1) Statement on Form S-4
(Registration
No. 333-15809)
2(a)(2) Second Amendment to Asset Purchase Incorporated by
Agreement dated December 16, 1996(1) reference to 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 Incorporated by
dated as of November 1, 1996, reference to Exhibit
between Core Materials and 2-B to Registration
RYMAC Statement on Form
S-4 (Registration
No. 333-15809)
2(b)(2) First Amendment to Agreement and Incorporated by
Plan of Merger dated as of reference to Exhibit
December 27, 1996 between 2(b)(2) to Annual Report on
Core Materials and RYMAC Form 10-K for the year
ended December 31, 1997
3(a)(1) Certificate of Incorporation of Incorporated by
Core Materials Corporation reference to Exhibit
as filed with the Secretary of State 4(a) to Registration
of Delaware on October 8, 1996 Statement on Form
S-8, (Registration
No. 333-29203)
3(a)(2) Certificate of Amendment of Incorporated by
Certificate of Incorporation reference to Exhibit
of Core Materials Corporation 4(b) to Registration
as filed with the Secretary of State Statement on Form
of Delaware on November 6, 1996 S-8 (Registration
No. 333-29203)
3(a)(3) Certificate of Incorporation of Core Incorporated by
Materials Corporation, reflecting reference to Exhibit 4(c)
amendments through November 6, to Registration
1996 [for purposes of compliance Statement on Form S-8
with Securities and Exchange (Registration No.
Commission filing requirements only] 333-29203)
38
39
Exhibit No. Description Location
- ----------- ----------- --------
3(b) By-Laws of Core Materials Incorporated by
Corporation reference to Exhibit
3-C to Registration
Statement on Form
S-4 (Registration
No. 333-15809)
4(a)(1) Certificate of Incorporation of Incorporated by
Core Materials Corporation reference to Exhibit
as filed with the Secretary of State 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 Incorporated by
Certificate of Incorporation reference to Exhibit
of Core Materials Corporation 4(b) to Registration
as filed with the Secretary of State Statement on Form
of Delaware on November 6, 1996 S-8 (Registration
No. 333-29203)
4(a)(3) Certificate of Incorporation of Core Incorporated by
Materials Corporation, reflecting reference to
amendments through November 6, Exhibit 4(c) to
1996 [for purposes of compliance Registration Statement
with Securities and Exchange on Form S-8
Commission filing requirements only] (Registration
No. 333-29203)
4(b) By-Laws of Core Materials Incorporated by
Corporation reference to Exhibit
3-C to Registration
Statement on Form
S-4 (Registration
No. 333-15809)
10(a)(1) Core Materials Corporation Incorporated by
Secured Promissory Note, dated reference to Exhibit
December 31, 1996, to Navistar 10.1 to Annual Report
International Transportation Corp. on Form 10-K
for the year-ended
December 31, 1996
10(a)(2) Amendment No. 1 to Secured Incorporated by
Promissory Note, dated reference to Exhibit
December 31, 1996, to Navistar 10.1.1 to Annual
International Transportation Corp. Report on Form 10-K
for the year-ended
December 31, 1996
39
40
Exhibit No. Description Location
- ----------- ----------- --------
10(a)(3) Amendment No. 2 to Secured Incorporated by
Promissory Note, dated April 6, 1998 reference to Exhibit
to Navistar International Transportation 10(a)(3) to Annual
Corp. Report on Form 10-K
for the year-ended
December 31, 1998
10(a)(4) Amendment No. 3 to Secured Promissory Filed Herein
Note, dated April 20, 1999 to Navistar
International Transportation Corp.
10(b) Comprehensive Supply Agreement, Incorporated by
dated December 31, 1996, by and between reference to Exhibit
Navistar International Transportation 10.2 to Annual
Corp. and Core Materials Corporation Report on Form 10-K
for the year-ended
December 31, 1996
10(c) Transitional Services Agreement, dated Incorporated by
December 31, 1996, by and between reference to Exhibit
Navistar International Transportation 10.3 to Annual
Corp. and Core Materials Corporation Report on Form 10-K
for the year-ended
December 31, 1996
10(d) Registration Rights Agreement, dated Incorporated by
December 31, 1996, by and between reference to Exhibit
Navistar International Transportation 10.4 to Annual
Corp. and various other persons who Report on Form 10-K
become parties pursuant to the agreement for the year-ended
December 31, 1996
10(e) Loan Agreement, dated December 3, Incorporated by reference
1997, by and between Core Materials to Exhibit 10(e) to Annual
Corporation and Key Bank National Report on Form 10-K for
Association the year ended December 31,
1997
10(f) Master Equipment Lease Agreement(2) Incorporated by
by and between KeyCorp Leasing, reference to Exhibit 10(f)
a division of Key Corporate to Annual Report on Form
Capital, Inc. and Core Materials 10-K for the year ended
Corporation December 31, 1997
10(g) Loan Agreement, dated April 1, Incorporated by
1998, by and between South Carolina reference to Exhibit
Jobs - Economic Development Authority 10(a)(1) to Quarterly
and Core Materials Corporation Report on Form 10-Q
for the quarter ended
June 30, 1998
40
41
Exhibit No. Description Location
- ----------- ----------- --------
10(h) Reimbursement Agreement, dated Incorporated by
April 1, 1998, by and between Core reference to Exhibit
Materials Corporation and Key Bank 10(a)(2) to Quarterly
National Association Report on Form 10-Q
for the quarter ended
June 30, 1998
10(i) Core Materials Corporation Incorporated by
Employee Stock Purchase Plan reference to Exhibit
4(c) to Registration
Statement on Form S-8
(Registration No. 333-60909)
10(j) Letter Agreement Regarding Terms and Incorporated by
Conditions of Interest Rate Swap reference to Exhibit 10(j)
Agreement between KeyBank National to Annual Report on Form
Association and Core Materials Corporation 10-K for the year-ended
December 31,1998
10(k) Long Term Equity Incentive Plan(3) Incorporated by
reference to Exhibit
4(e) to Registration
Statement on Form
S-8 (Registration
No. 333-29203)
10(l) 1995 Stock Option Plan(3) Incorporated by
reference to Exhibit
10.6 to Annual
Report on Form 10-K
for the year-ended
December 31, 1996
10(m) 1999 Informal Cash Profit Sharing Plan(3) Filed Herein
10(n) Letter Agreement with Hellmold Incorporated by
Associates, Inc. dated November 1, 1995, reference to Exhibit
as amended April 10, 1996 10.8 to Annual Report
and July 18, 1996(3) on Form 10-K for the
year-ended December
31, 1996
10(o) Oral Compensation Agreement with Incorporated by
Malcolm M. Prine(3) reference to Exhibit
10.9 to Annual
Report on Form 10-K
for the year-ended
December 31, 1996
41
42
Exhibit No. Description Location
- ----------- ----------- --------
11 Computation of Net Income per Share Exhibit 11 is omitted
because the required
information is included
in the Notes to Financial
Statements in Part II,
Item 8 of this Annual
Report on Form 10-K
23 Consent of Independent Auditors Filed Herein
24 Powers of Attorney Filed Herein
27 Financial Data Schedule Filed Herein
(1)The Asset Purchase Agreement, as filed with the Securities and Exchange
Commission at Exhibit 2-A to Registration Statement on Form S-4 (Registration
No. 333-15809), omits the exhibits (including, the Buyer Note, Special Warranty
Deed, Supply Agreement, Registration Rights Agreement and Transition Services
Agreement, identified in the Asset Purchase Agreement) and schedules (including,
those identified in Sections 1, 3, 4, 5, 6, 8 and 30 of the Asset Purchase
Agreement. Core Materials Corporation will provide any omitted exhibit or
schedule to the Securities and Exchange Commission upon request.
(2)The Master Equipment Lease, incorporated by reference in the Exhibits to this
Annual Report on Form 10-K, omits certain schedules (including, addendum to the
schedules) which separately identify equipment subject to the Master Equipment
Lease and certain additional terms applicable to the lease of such equipment.
New schedules may be added under the terms of the Master Equipment Lease from
time to time and existing schedules may change. Core Materials Corporation will
provide any omitted schedule to the Securities and Exchange Commission upon
request.
(3)Indicates management contracts or compensatory plans that are required to be
filed as an exhibit to this Annual Report on Form 10-K.
42