1 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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission file number 001-12505 CORE MATERIALS CORPORATION (Exact name of registrant as specified in its charter) Delaware 31-1481870 (State or other jurisdiction 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 ___ 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. [X] As of March 14, 2001, 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 $8,605,238. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Registrant's 2001 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.
2 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. - ------------------------------ (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 2
3 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 and consumer products industries, the general economy, competitive factors, the dependence on two major customers, the recent efforts of Core Materials to expand its customer base, new technologies, regulatory requirements, labor relations, the loss or inability to attract key personnel, the availability of capital and management's decisions to pursue new products or businesses which involve additional costs, risks or capital expenditures. Core Materials operates in the plastics market, specifically in 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: - heat resistance - corrosion resistance - lighter weight - lower cost - greater flexibility in product design - part consolidation for multiple piece assemblies - lower initial tooling costs for lower volume applications - high strength-to-weight ratio - 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 automotive manufacturers and to manufacturers of commercial products. In general, product growth and diversification are 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. - ---------------------------- 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. 3
4 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, Meridian Automotive Systems, Budd Plastics Division, Venture Industries, Applied Composites, and Molded Fiber Glass Companies. Core Materials believes that the Company is well positioned to compete based 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, design engineering 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. In 2000, Case Corporation and New Holland North America combined their business operations to form Case/New Holland. As a result of this combination, total sales to Case/New Holland were $8,417,000, or 10% of Core Materials' total sales revenue. Subsequent to year-end, Core Materials was notified by Case/New Holland of their intent to move production of their products to another supplier by May 2001. Core Materials expects that the loss of such sales will be mitigated, in part, by new business with Lear Corporation that will begin in 2001. 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, effective 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 118,200 class 5 through 8 trucks, including school buses, in the United States and Canada during its fiscal 2000, representing a 1% decrease from the 119,300 units delivered in 1999 and a 4% increase from the 113,900 units delivered in 1998. International's combined share of the class 5 through 8 truck market was 26.9% in 2000, 25.6% in 1999, and 29.1% in 1998. 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 61%, 68% and 79% of total sales for 2000, 1999 and 1998, respectively. RELATIONSHIP WITH YAMAHA Core Materials also assumed from International the long-standing relationship between Columbus Plastics and Yamaha. Core Materials has supplied a significant amount of the SMC products for Yamaha's personal watercraft since 1990. 4
5 Products produced for Yamaha include decks, hulls, engine hatches, bulkheads, 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 22%, 18% and 17% of total sales for 2000, 1999 and 1998, respectively. OTHER CUSTOMERS Core Materials also produces products for Volvo Trucks, North America, Mack Trucks and various other customers. In 2000, sales to these customers individually were all less than 10% of total sales. In 2001, Core Materials will begin production of automobile seat backs for Lear Corporation. Based upon planning volumes received from Lear Corporation, it is expected that sales to Lear Corporation will exceed 10% of sales in future years. 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 $17,295,000, $19,934,000 and $18,358,000 for the years ended 2000, 1999 and 1998, respectively. These export sales dollars represent approximately 21%, 22% and 24% of total sales for 2000, 1999 and 1998, 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: - Control information during various production processes; and - 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 2000, 1999 and 1998. SMC Pounds Produced Year (Millions) ---- ---------- 2000............................................. 36 1999 ............................................ 42 1998 ........................................... 34 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 11 presses ranging in size from 1,000 to 3,000 tons. 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. 5
6 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. 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. The Company also utilizes spot paint booths and batch ovens when warranted. 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. Core Materials has historically used single source, long term (2-5 years) supply contracts as a means to attain competitive pricing and an adequate supply of these raw materials. Recently, Core Materials has experienced price increases for certain of these materials, which has caused the company to reevaluate this strategy and consider alternative suppliers. Each raw material generally has supplier alternatives, which will be evaluated as the current contracts expire. Core Materials is also evaluating its supplier base for certain supplies, repair items and componentry to improve its overall purchasing position. BACKLOG Core Materials relies on production schedules provided by its customers to plan and implement production. These schedules are typically provided on a weekly basis and are considered firm typically for four weeks. 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 $5.1 million and $7.2 million at December 31, 2000 and 1999, 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 previously employed a weekend manpower crew to help minimize the necessary overtime. The need to work these extended schedules has been driven by machine capacity limitations and 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 historically been low making it difficult, at times, to recruit employees to support increasing production volumes. However, based on recent production schedules, the Company has not had difficulty in obtaining the necessary workforce to support its production needs. See further discussion of machine capacities at "Item 2 Properties" contained elsewhere in this report. CAPITAL EXPENDITURES AND RESEARCH AND DEVELOPMENT Capital expenditures totaled approximately $2.0 million, $7.4 million and $7.0 million for 2000, 1999 and 1998, respectively. Capital expenditures consist of presses and other equipment to manufacture parts as well as laboratory 6
7 equipment, storage equipment, computers and office furniture and fixtures. The 1998 amount also includes the completion of the acquisition and construction of the Gaffney, South Carolina plant, which was started in 1997. 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 organization or 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 $250,000 in 2000 and $200,000 in 1999 and 1998. 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 painting 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 2001. In the near term, the amount of capital expenditures on environmental compliance is expected not to be significant. EMPLOYEES As of December 31, 2000, Core Materials employed a total of 477 employees. Of these 477 employees, 278 are covered by a collective bargaining agreement with the International Association of Machinists and Aerospace Workers ("IAM"), which extends to August 4, 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 its customers. Core Materials' customers typically shut down their operations on an annual basis for a period of several weeks during Core Materials' third quarter. As a result, demand for Core Materials' SMC products drops significantly during the third quarter. Similarly, 7
8 demand for medium and heavy-duty trucks, personal watercraft, and automotive products fluctuate on a cyclical and seasonal basis, causing a corresponding fluctuation for demand of Core Materials' SMC products. 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 41%, 62%, and 83% in the fourth quarter of 2000, 1999, and 1998, respectively. Capacity increased in 1998 as a result of the opening of the new facility in South Carolina. Capacity also increased in 1999 and 2000 with the installation of additional presses at the Gaffney, South Carolina plant; however, this capacity could not be utilized due to the downturn in demand from Core Materials' customers in the second half of 2000. 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 ----------- Manufacturing/Warehouse..................... 307,447 Office ................................... 16,149 ------------- 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 ----------- Manufacturing/Warehouse...................... 105,700 Office .................................... 5,200 ------------- 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. 8
9 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, 2000. 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 ---- --- CORE MATERIALS CORPORATION - -------------------------- First Quarter 2000 2.50 1.44 Second Quarter 2000 2.25 1.13 Third Quarter 2000 2.75 1.75 Fourth Quarter 2000 2.00 0.50 First Quarter 1999 3.88 2.88 Second Quarter 1999 3.81 2.63 Third Quarter 1999 3.31 1.69 Fourth Quarter 1999 2.88 1.44 The Company's common stock was held by 589 holders of record on March 14, 2001. Core Materials made no payments of cash dividends during 2000 and 1999. 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. 9
10 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. <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 (1) -------------------------- ----------- -------- ---------- ---------- ------------- <S> <C> <C> <C> <C> <C> Net sales $83,545 $90,604 $77,719 $ 64,940 $ 52,467 Gross margin 11,915 10,863 15,488 14,089 5,439 Income before interest 2,862 1,720 7,659 6,654 547 and taxes Net income 715 71 3,652 2,723 N/A Net income per common share: .07 .01 .38 .29 N/A Basic .07 .01 .37 .28 N/A Diluted Total assets 62,785 67,982 65,328 57,540 47,729 (2) Long term debt 26,370 26,700 27,005 18,822 27,885 (2) Stockholders' equity 19,638 18,923 18,852 16,095 16,176 --------------- </TABLE> (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. 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". 10
11 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, the availability of capital and management's decisions to pursue new products or businesses which involve additional costs, risks or capital expenditures. OVERVIEW 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 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 83% 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 2000 COMPARED WITH 1999 Net sales for 2000 totaled $83,545,000, down approximately 8% from the $90,604,000 reported for 1999. Sales to International totaled $51,379,000, a 17% decrease from the 1999 amount of $61,867,000. The primary reason for the decrease was lower demand from International resulting from an industry wide general decline in truck orders. Sales to Yamaha increased in 2000 by 13% to $18,039,000 compared with $15,929,000 in 1999. The increase in sales to Yamaha is primarily due to an overall increase in demand from Yamaha for Core Materials' product. Sales to other customers increased approximately 10% to $14,127,000 from $12,808,000 in 1999. This increase was primarily the result of increased sales to Case/New Holland of $2,951,000 as a result of increased volumes and new products, and new business with Mack Trucks, which totaled $497,000 in 2000. Subsequent to year-end, Core Materials was notified by Case/New Holland of their intent to move production of their products to another supplier by May 2001. These increases were partially offset by a decrease in sales to Volvo Trucks North America, Inc. of $1,513,000 due to declining truck volumes, and a decrease in sales to Caradon Doors and Windows, Peachtree Division of $454,000 due to the ending of this business relationship. Gross Margin was 14% of sales in 2000 compared to 12% of sales in 1999. The increase in gross margin was primarily due to decreased production costs resulting from improved labor utilization, operational improvements and improved operating supplies control. Additionally, 1999 included higher repair and maintenance costs due to two major machine breakdowns and costs associated with the start up of several new customer products. These events did not occur to this degree in 2000. Selling, general and administrative expenses totaled $9,053,000 in 2000, which was slightly less than the $9,143,000 incurred in 1999. The year 2000 saw a reorganization and strengthening of the salary workforce. Even with the changes, labor costs stayed relatively flat to 1999 levels, increasing less than $100,000. In 1999, $800,000 in outside service and professional fee expenses was incurred for non-recurring items. The Company did see a reduction of $561,000 in this area in 2000, with the difference being mainly attributable to recruiting fees and contract employee costs for the 11
12 reorganization of the salary workforce. In 2000, the company also experienced higher benefit costs mainly due to an increase in employee health insurance costs and higher travel expenses due to the start up of new products. Interest expense totaled $1,970,000 for 2000 increasing from $1,850,000 in 1999. The increase in interest expense from 1999 was the result of an increase in interest cost on the Secured Note payable to International resulting from the note payable balance increasing in April 1999 and due to a $139,000 decrease in interest capitalized on capital projects due to lower capital expenditures. These amounts were partially offset by a reduction in interest costs related to the revolving line of credit as no borrowings were necessary on the line in 2000. Income tax expense for 2000 was approximately 42% 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 Materials reduces the deferred tax asset as opposed to recording a reduction in income tax expense. Actual cash taxes for 2000 are estimated to be approximately $231,000. Net income for 2000 was $715,000 or $.07 per basic and diluted share, representing an increase of $644,000 over the 1999 net income of $71,000 or $.01 per basic and diluted share. The company has approximately $18.4 million of operating tax loss carryforwards that are available to offset income taxes on future earnings. These tax loss carryforwards do not begin to expire until the year 2007. If the benefit of Core Materials' operating tax loss carryforwards were recorded as a reduction in income tax expense, which is reflective of the actual cash treatment, net income for the year 2000 would increase by $285,000, or $.03 per basic and diluted share, to a total of $1,000,000, or $.10 per basic and diluted share. The comparable 1999 net income would increase by $69,000, or $.01 per basic and diluted share, to a total of $140,000, or $.01 per basic and diluted share. 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 12
13 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 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 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. If the benefit of Core Materials' operating tax loss carryforwards were recorded as a reduction in income tax expense, which is reflective of the actual cash treatment, net income for the year 1999 would increase by $69,000, or $.01 per basic and diluted share, to a total of $140,000, or $.01 per basic and diluted share. The comparable 1998 net income would increase by $1,596,000, or $.16 per basic and diluted share, to a total of $4,177,000, or $.43 per basic share and $.42 per diluted share. LIQUIDITY AND CAPITAL RESOURCES Core Materials' primary cash requirements are for operating expenses and capital expenditures. These cash requirements have historically been met through a combination of cash flow from operations, equipment leasing, issuance of Industrial Revenue Bonds and bank lines of credit. Cash provided by operations in 2000 totaled $3,568,000. Net income contributed $715,000 with depreciation and amortization adding another $2,121,000. A decrease in accounts receivable contributed $6,493,000; this decrease was primarily the result of collecting on past due invoices and the lower sales volumes in the fourth quarter of 2000. Also adding positive cash flow was the reduction of inventory levels by $1,798,000. In addition, accrued and other liabilities added $647,000 in positive cash flow, which was primarily due to increases in employee benefit accruals that will be paid in the future. Decreasing the operating cash flow was a decrease in accounts payable of $5,802,000, which was primarily due to timing effects. Also decreasing cash flow was an increase in prepaid and other assets of $2,226,000 primarily due to proceeds receivable from a December 2000 leasing transaction, for which proceeds were not received until January 2001, and due to payment in December of insurance coverage for the year 2001. Investing activities reduced cash flows by $1,679,000 in 2000. Capital expenditures totaled $1,978,000, which were primarily related to the acquisition of machinery and equipment. Offsetting these expenditures were proceeds from maturities on the Company's mortgage-backed security investment of $299,000. At December 31, 2000, commitments for capital expenditures totaled $618,000. Financing activities reduced cash flows by $305,000 for the principal repayment on the Industrial Revenue Bond, which was issued in 1998 13
14 At December 31, 2000, Core Materials had cash on hand of $2,712,000 and an available line of credit of $7,500,000. As of December 31, 2000, 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, 2000 and has subsequently renegotiated the bank covenants. Based upon the renegotiated covenants and current financial projections, Core Materials expects to be in compliance with its bank covenants for fiscal year 2001. Core Materials has operated in compliance with the projections for the months of January and February 2001 and management expects Core Materials to meet the projections for the remainder of 2001. 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, 2000 and 1999 includes a deferred tax asset of $12,676,000 and $12,960,000, net of a valuation allowance of $2,160,000 in 2000 and 1999. 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, 2000, primarily includes the tax benefits associated with cumulative net operating and capital tax losses of approximately $18,425,000 and $4,100,000, respectively, temporary differences between the book and tax basis of Core Materials' property and equipment of approximately $11,656,000 and temporary differences relating to post-retirement and pension benefits of $6,118,000. The valuation allowance at December 31, 2000, assumes that it is more likely than not that approximately $2,200,000 of the cumulative net operating losses and all of the cumulative capital tax losses will not be realized before their expiration date. Realization of the net deferred tax asset related to the net operating loss carryforwards (net of valuation allowance) is dependent on the generation of approximately $16,100,000 of future taxable income through 2011. Taxable income for 2000 and 1999 was approximately $1,915,000 and $200,000, 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 $12,676,000. 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. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated in a cash- 14
15 flow hedge, changes in the fair value of the derivative will be recorded in other comprehensive income (OCI) and will be recognized in the income statement when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings. At January 1, 2001, the Company recorded the fair value of its swap of $159,000 as a long term liability and $95,000 (net of income tax effect of $64,000) to other comprehensive income. 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 four items that are sensitive to a change in interest rates: (1) Long term debt consisting of an Industrial Revenue Bond ("IRB") with a balance at December 31, 2000, of $6,780,000. Interest is variable and is computed weekly. The average interest rate charged for 2000 was 4.4% 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, 2000 of $19,920,000 at a fixed interest rate of 8%; (3) 7% mortgage-backed security which matures in November 2025. Such security is recorded at cost and is considered held to maturity as Core Materials has the intent and ability to hold such security to maturity; and (4) Revolving line of credit which bears interest at LIBOR plus three and one-half percent or prime plus one-half percent as elected by Core Materials through March 31, 2001. Effective April 1, 2001 until maturity, the rate is LIBOR plus three and one-quarter percent or prime plus one-quarter percent. Assuming a hypothetical 20% change in short-term interest rates in both 2000 and 1999, interest expense would not change significantly, as the interest rate swap agreement would generally offset the impact. 15
16 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, 2000 and 1999, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and the financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and the financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Core Materials Corporation as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 Columbus, Ohio March 29, 2001 16
17 CORE MATERIALS CORPORATION STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, 2000 1999 1998 ------------- ------------- --------------- <S> <C> <C> <C> NET SALES: International $ 51,379,348 $ 61,867,135 $ 61,471,172 Yamaha 18,039,427 15,929,190 12,927,328 Other 14,126,584 12,807,943 3,320,644 ------------- ------------- --------------- TOTAL SALES 83,545,359 90,604,268 77,719,144 Cost of sales 70,481,198 78,542,103 61,258,735 Postretirement benefits expense 1,148,822 1,198,709 972,452 ------------- ------------- --------------- TOTAL COST OF SALES 71,630,020 79,740,812 62,231,187 ------------- ------------- --------------- GROSS MARGIN 11,915,339 10,863,456 15,487,957 ------------- ------------- --------------- Selling, general and administrative expense 8,854,633 8,992,917 7,696,315 Postretirement benefits expense 198,857 150,113 132,218 ------------- ------------- --------------- TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 9,053,490 9,143,030 7,828,533 ------------- ------------- --------------- INCOME BEFORE INTEREST AND TAXES 2,861,849 1,720,426 7,659,424 Interest income 339,512 258,620 254,920 Interest expense (1,970,378) (1,850,068) (1,681,472) ------------- ------------- --------------- INCOME BEFORE INCOME TAXES 1,230,983 128,978 6,232,872 Income taxes: Current (benefit) 231,051 (11,074) 985,280 Deferred 284,581 68,714 1,595,887 ------------- ------------- --------------- TOTAL INCOME TAXES 515,632 57,640 2,581,167 ------------- ------------- --------------- NET INCOME $ 715,351 $ 71,338 3,651,705 ============= ============== =============== NET INCOME PER COMMON SHARE: BASIC $ 0.07 $ 0.01 $ 0.38 ============= ============== =============== DILUTED $ 0.07 $ 0.01 $ 0.37 ============= ============== =============== WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 9,778,680 9,778,680 9,706,412 ============= ============== =============== DILUTED 9,778,680 9,820,352 9,975,360 ============= ============== =============== </TABLE> See notes to financial statements. 17
18 CORE MATERIALS CORPORATION BALANCE SHEETS <TABLE> <CAPTION> DECEMBER 31, 2000 1999 ---------------- ---------------- <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 2,712,412 $ 1,128,868 Accounts receivable (less allowance for doubtful accounts: 2000 - $424,000 and 1999 - $431,000) 13,221,320 19,714,554 Inventories: Finished and work in process goods 1,745,653 2,929,515 Stores 1,898,465 2,513,062 ---------------- ---------------- Total inventories 3,644,118 5,442,577 Deferred tax asset 1,245,568 1,069,914 Prepaid expenses and other current assets 2,410,112 184,127 ---------------- ---------------- Total current assets 23,233,530 27,540,040 Property, plant and equipment 41,562,272 39,667,232 Accumulated depreciation (15,509,218) (13,461,300) ---------------- ---------------- Property, plant and equipment - net 26,053,054 26,205,932 Deferred tax asset - net 11,430,442 11,890,677 Mortgage-backed security investment 1,610,741 1,909,295 Other assets 457,294 436,539 ---------------- ---------------- TOTAL $ 62,785,061 $ 67,982,483 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Current liabilities: Current portion long-term debt $ 330,000 $ 305,000 Accounts payable 5,266,017 11,067,668 Accrued liabilities: Compensation and related benefits 1,636,257 1,355,288 Interest 77,644 892,477 Taxes 654,255 151,900 Graduated lease payments 659,998 430,729 Other accrued liabilities 1,068,205 1,340,514 ---------------- ---------------- Total current liabilities 9,692,376 15,543,576 Long-term debt 26,370,150 26,700,150 Deferred long-term gain 2,462,271 2,915,825 Postretirement benefits liability 4,621,917 3,899,936 STOCKHOLDERS' EQUITY: Common stock - $0.01 par value, authorized shares - 20,000,000; Outstanding shares: 2000 and 1999 - 9,778,680 97,787 97,787 Paid-in capital 19,251,392 19,251,392 Retained earnings (deficit) 289,168 (426,183) ---------------- ---------------- Total stockholders' equity 19,638,347 18,922,996 ---------------- ---------------- TOTAL $ 62,785,061 $ 67,982,483 ================ ================ </TABLE> See notes to financial statements. 18
19 CORE MATERIALS CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> COMMON STOCK RETAINED TOTAL OUTSTANDING PAID-IN EARNINGS STOCKHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) EQUITY -------- -------- --------- --------- ------------- <S> <C> <C> <C> <C> <C> BALANCE AT JANUARY 1, 1998 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 ----------- ---------- -------------- ------------ -------------- Net Income 715,351 715,351 ----------- ---------- -------------- ------------ -------------- BALANCE AT DECEMBER 31, 2000 9,778,680 $ 97,787 $ 19,251,392 $ 289,168 $ 19,638,347 =========== ========== ============== ============ ============== </TABLE> See notes to financial statements. 19
20 CORE MATERIALS CORPORATION STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, 2000 1999 1998 -------------- ------------- ------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 715,351 $ 71,338 $ 3,651,705 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,121,221 1,899,395 1,525,308 Deferred income taxes 284,581 68,714 1,595,887 Loss on disposal of assets (11,376) 14,995 17,900 Amortization of gain on sale/leaseback transactions (453,555) (453,555) (338,114) Compensation expense on stock awards 54,365 Change in operating assets and liabilities: Accounts receivable 6,493,234 (2,095,979) (3,441,870) Inventories 1,798,459 (1,219,296) (916,562) Prepaid expenses and other assets (2,225,985) 38,545 (220,720) Accounts payable (5,801,650) 3,706,719 (433,454) Accrued and other liabilities (74,549) (1,191,402) 14,764 Postretirement benefits liability 721,981 806,779 618,790 ------------ ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 3,567,712 1,646,253 2,127,999 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,977,722) (7,384,864) (6,958,388) Proceeds from sale/leaseback transactions 3,375,712 6,829,431 Proceeds from maturities on mortgage-backed security investment 298,554 659,682 648,372 Proceeds from sale of property, plant and equipment 7,000 ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,679,168) (3,349,470) 526,415 CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line-of-credit 7,250,000 6,919,470 Payments on line-of-credit (7,250,000) (10,916,590) Payments of principal on secured note payable (3,000,000) Proceeds from issuance of industrial revenue bond 7,500,000 Payment of principal on industrial revenue bond (305,000) (285,000) (130,000) Issuance costs for industrial revenue bond (159,385) Proceeds from exercise of stock options 148,820 ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (305,000) (285,000) 362,315 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,583,544 (1,988,217) 3,016,729 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,128,868 3,117,085 100,356 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,712,412 $ 1,128,868 $ 3,117,085 ============ ============ ============ Cash paid for: Interest (net of amounts capitalized) $ 2,690,141 $ 1,579,549 $ 2,039,713 ============ ============ ============ Income taxes (refund) $ (84,666) $ 610,000 $ 823,200 ============ ============ ============ Supplemental disclosure of non-cash financing activities: Increase in Secured Note payable to International $ 4,098,309 ============ Increase in paid-in capital for reversal of NOL valuation allowance $ 3,000,000 ============ Sale leaseback receivable $ 1,584,000 =========== </TABLE> See notes to financial statements. 20
21 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS 1. BUSINESS FORMATION AND NATURE OF OPERATIONS Core Materials Corporation ("Core Materials") was formed in 1996 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"). International owns 4,264,000 shares of Core Materials' common stock, which represents approximately 44% of the outstanding shares of common stock. Core Materials operates 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures 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 and title transfers. 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 that 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 Depreciation expense was $2,094,000, $1,868,000 and $1,510,000 for 2000, 1999, and 1998. In 2000, 1999 and 1998, approximately $50,000, $72,000 and $189,000 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, 2000 and 1999 of $438,000 and $375,000, respectively. 21
22 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 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 these financial instruments approximated their fair value. The fair value of the Company's interest rate swap at December 31, 2000, was a liability of $159,000. CONCENTRATION OF CREDIT RISK - Core Materials has significant transactions with two customers, International and Yamaha Motor Manufacturing Corporation, which comprised 83%, 86% and 96% of total sales in 2000, 1999 and 1998 and 70% and 77% of the accounts receivable balances at December 31, 2000 and 1999. In 2000, sales to Case/New Holland were $8,417,000 or 10% of Core Materials sales revenue. Subsequent to year-end, Core Material was notified by Case/New Holland of their intent to move production of their products to another supplier by May 2001. 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. Export sales, including sales to Canada, for products provided to International's manufacturing and service locations totaled 21%, 22% and 24% of total sales for 2000, 1999 and 1998, respectively. 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 are computed similarly but include the effect of the assumed exercise of dilutive stock options under the treasury stock method. RESTRICTED CASH - Included in cash at December 31, 1999, was $322,811, which was restricted pursuant to the terms of the Industrial Revenue Bond (see note 4), which was issued in May 1998. In 2000, the restriction was removed and the $335,854 of cash in the restricted account became available for general uses of Core Materials. RECLASSIFICATIONS - Reclassifications have been made to prior years' amounts to conform with the classifications of such amounts for 2000. RESEARCH AND DEVELOPMENT - Research and Development costs, which are expensed as incurred, totaled approximately $250,000 in 2000 and $200,000 in 1999 and 1998. NEW ACCOUNTING PRONOUNCEMENTS - Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, will be required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated in a cash-flow hedge, changes in the fair value of the derivative will be recorded in other comprehensive income (OCI) and will be recognized in the income statement when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value will be recognized in earnings. At January 1, 2001, the Company recorded the fair value of its swap of $159,000 as a long term liability and $95,000 (net of income tax effect of $64,000) to other comprehensive income. 22
23 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following at December 31: <TABLE> <CAPTION> 2000 1999 ----------------- ----------------- <S> <C> <C> Land and land improvements $ 2,150,606 $ 2,146,753 Buildings 17,175,453 16,797,587 Machinery and equipment 18,187,937 16,879,471 Tools, dies and patterns 642,852 635,063 Additions in progress 3,405,424 3,208,358 ----------------- ----------------- Total 41,562,272 39,667,232 Less accumulated depreciation (15,509,218) (13,461,300) ----------------- ----------------- Property, plant and equipment - net $26,053,054 $ 26,205,932 ================= ================= </TABLE> Additions in progress at December 31, 2000 and 1999 primarily relate to the purchase and installation of equipment at Core Materials' Columbus, Ohio and Gaffney, South Carolina facilities. At December 31, 2000 and 1999, commitments for capital expenditures in progress were $618,000 and $1,591,000, respectively. 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: <TABLE> <CAPTION> 2000 1999 ---------------- ---------------- <S> <C> <C> 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 (2000 average 4.4%), payable quarterly, principal due in variable quarterly installments through April, 2013, secured by a bank letter of credit with a balance of $6,984,000 as of December 31, 2000. 6,780,000 7,085,000 ---------------- ---------------- Total 26,700,150 27,005,150 Less current portion (330,000) (305,000) ---------------- ---------------- Long-term debt $ 26,370,150 $ 26,700,150 ================ ================ </TABLE> 23
24 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) SECURED NOTE PAYABLE Under the terms of the secured note payable to International, Core Materials may be required to make payments on the principal of the note if either of the following two conditions exist: 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, 2000 were $2,712,412; therefore, no principal payment was made to International. Based upon the financial position of Core Materials at December 31, 2000, the Secured Note is classified as long-term on the balance sheet. 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, 2000, Core Materials had available a $7,500,000 variable rate bank revolving line of credit scheduled to mature on January 31, 2001. Subsequent to year end, in conjunction with the renegotiation of the bank covenants discussed below, the maturity of the line of credit was extended to May 1, 2002. The new line of credit bears interest at LIBOR plus three and one-half percent or prime plus one-half percent as elected by Core Materials through March 31, 2001. Effective April 1, 2001 until maturity, the rate is LIBOR plus three and one-quarter percent or prime plus one-quarter percent. The line of credit is secured by a first priority lien and security interest in all Core Materials' business assets. There was no outstanding balance under this facility at December 31, 2000 and 1999. As of December 31, 2000, 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, 2000 and has subsequently renegotiated the bank covenants. Based upon the renegotiated covenants and current financial projections, Core Materials expects to be in compliance with its bank covenants for fiscal year 2001. INDUSTRIAL REVENUE BOND In May 1998, Core Materials borrowed $7,500,000 through the issuance of an Industrial Revenue Bond ("IRB"). 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%. Total remaining principal maturities by year are: 2001 - $330,000; 2002 - $355,000; 2003 - $390,000; 2004 - - $420,000; 2005 - $450,000 and thereafter - $4,835,000. 24
25 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) In conjunction with the IRB, Core Materials entered into an interest rate swap agreement with a commercial bank in June 1998. Under this agreement, Core Materials pays a fixed rate of 4.89% to the bank and receives 76% of the 30-day commercial paper rate. The difference paid or received varies as short-term interest rates change and is accrued and recognized as an adjustment to interest expense. The swap term matches the payment schedule on the IRB with final maturity in April 2013. While Core Materials is exposed to credit loss on its interest rate swap in the event of non-performance by the counterparty to the swap, management believes such non-performance is unlikely to occur given the financial resources of the counterparty. As security for the IRB, Core Materials obtained a letter of credit from a commercial bank, which has a balance of $6,984,000 as of December 31, 2000. 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 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. In December 2000, Core Materials entered into a sale-leaseback arrangement with a financial institution. An SMC press was sold for its net book value of $1,584,000 and leased back under a 10-year operating lease agreement. No gain or loss resulted from this transaction. Core Materials did not receive the proceeds until January 2001, and accordingly, the $1,584,000 was recorded in other assets as a non-trade receivable. As a result of the sale-leaseback transactions, Core Materials recognized into income approximately $454,000, $454,000 and $338,000 of the deferred gains for 2000, 1999 and 1998. At December 31, 2000 and 1999, Core Materials' deferred gains from leasing transactions totaled $2,916,000 and $3,369,000, respectively. The current portion of the deferred gains was $454,000 at December 31, 2000 and 1999 and was included in accrued liabilities. Core Materials also leases certain other equipment under operating leases with original lease terms of 2 to 10 years. Total rental expense was $3,301,000, $2,776,000 and $2,462,000 for 2000, 1999 and 1998. 25
26 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) The future minimum lease payments under non-cancelable operating leases that have lease terms in excess of one year are as follows: 2001 $3,108,000 2002 3,120,000 2003 3,464,000 2004 3,546,000 2005 3,546,000 Thereafter 7,721,000 ----------- Total minimum lease payments $24,505,000 =========== 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. 26
27 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 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 originally approved by the shareholders in May 1997, and as amended in May 2000 to increase the number of shares authorized for issuance, 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 3.0 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 2000, 1999 and 1998, 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. 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 2000 net income and earnings per common share would have been $640,877 and $.07 per basic and diluted share. For 1999, pro forma net loss and loss per common share would have been $(131,363) and $(.01) per basic and diluted share. 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. 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 2000, 1999 and 1998 were $1.84, $2.21 and $3.31. 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 104% for 2000 and 80% for 1999 and 1998. The following summarizes all stock option activity for the years ended December 31: <TABLE> <CAPTION> 2000 1999 1998 --------------------------- -------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------------- ---------- ------------ ---------- ----------- ---------- <S> <C> <C> <C> <C> <C> <C> Outstanding - beginning of year 1,038,100 $ 3.19 956,800 $ 3.19 940,000 $ 2.48 Granted 432,500 2.75 122,500 3.20 432,500 4.24 Exercised (167,600) 0.89 Forfeited (337,600) 2.88 (41,200) 3.28 (248,100) 3.87 ------------- ---------- ------------ ---------- ----------- ---------- Outstanding - end of year 1,133,000 $3.11 1,038,100 $ 3.19 956,800 $ 3.19 ============= ========== ============ ========== =========== ========== Exercisable at December 31 313,350 $ 3.19 286,700 $ 3.03 154,350 $ 2.80 ============= ========== ============ ========== =========== ========== Options available for grant 1,859,400 454,300 535,600 ============= ============ =========== </TABLE> 27
28 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) The following table summarizes information about stock options outstanding and exercisable as of December 31, 2000: <TABLE> <CAPTION> OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------------- ------------------------------------- WEIGHTED AVERAGE WEIGHTED CONTRACTUAL LIFE WEIGHTED AVERAGE RANGE OF NUMBER OF AVERAGE (YEARS) NUMBER OF EXERCISE PRICE EXERCISE PRICES OPTIONS EXERCISE PRICE OPTIONS --------------- ---------------- ----------------- --------------- ----------------- <S> <C> <C> <C> <C> <C> $2.75 769,000 $ 2.75 7.8 202,900 $ 2.75 $3.40 to $3.81 294,000 3.58 7.6 82,450 3.63 $5.13 70,000 5.13 7.4 28,000 5.13 --------------- ---------------- --------------- ----------------- 1,133,000 $ 3.19 313,350 $ 3.19 =============== ================ =============== ================= </TABLE> 7. INCOME TAXES Components of the provision (credit) for income taxes are as follows: <TABLE> <CAPTION> 2000 1999 1998 --------------- ---------------- --------------- <S> <C> <C> <C> Current: Federal $ 27,000 $ (48,000) $ 76,000 State and local 204,000 37,000 909,000 --------------- ---------------- --------------- 231,000 (11,000) 985,000 Deferred: Federal 351,000 90,000 1,817,000 State and local (66,000) (21,000) (221,000) --------------- ---------------- --------------- 285,000 69,000 1,596,000 --------------- ---------------- --------------- Provision for income taxes $ 516,000 $ 58,000 $ 2,581,000 =============== ================ =============== </TABLE> 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) carryforwards 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: <TABLE> <CAPTION> 2000 1999 1998 --------------- --------------- ---------------- <S> <C> <C> <C> Provision at federal statutory rate $ 419,000 $ 44,000 $ 2,119,000 State and local tax expense, net of federal benefit 91,000 10,000 454,000 Non-deductible expenses 6,000 4,000 8,000 --------------- --------------- ---------------- Provision for income taxes $ 516,000 $ 58,000 $ 2,581,000 =============== =============== ================ </TABLE> 28
29 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) Deferred tax assets (liabilities) consist of the following at December 31: <TABLE> <CAPTION> 2000 1999 ------------------ ------------------ <S> <C> <C> Current Asset: Accrued liabilities $ 933,000 $ 1,053,000 Other, net 313,000 17,000 ------------------ ------------------ Total current asset 1,246,000 1,070,000 Non-current asset: Property, plant and equipment 3,963,000 3,607,000 Net operating loss carryforwards 6,265,000 7,056,000 Capital loss carryforwards 1,381,000 1,390,000 Postretirement benefits 2,080,000 1,623,000 Other, net (99,000) 374,000 ------------------ ------------------ Total non-current asset 13,590,000 14,050,000 ------------------ ------------------ Total deferred tax asset 14,836,000 15,120,000 Less valuation allowance (2,160,000) (2,160,000) ------------------ ------------------ Total deferred tax asset - net $ 12,676,000 $ 12,960,000 ================== ================== </TABLE> At December 31, 2000, Core Materials had approximately $18.4 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 expected to expire before they are utilized. Based upon a review of future taxable income that 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. 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 the acquisition date. Core Materials' NOL carryforwards expire as follows: 2007 $2,993,000 2008 10,823,000 2009 3,614,000 2010 638,000 2011 357,000 --------------- Total $18,425,000 =============== 29
30 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 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 $188,000 at December 31, 2000 and $173,000 at December 31, 1999. 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 requires 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. 30
31 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, 2000 and 1999 and a reconciliation with the amounts recognized in the balance sheets are provided below: <TABLE> <CAPTION> POST RETIREMENT BENEFITS ---------------------------------------------------------- 2000 1999 1998 ----------------- ----------------- ---------------- CHANGE IN BENEFIT OBLIGATION <S> <C> <C> <C> Benefit obligation at beginning of year $ 4,020,000 $ 3,274,000 $2,438,000 Service cost 367,000 448,000 388,000 Interest cost 301,000 233,000 171,000 Unrecognized loss (10,000) 65,000 277,000 ----------------- --------------- ---------------- BENEFIT OBLIGATION AT END OF YEAR $ 4,678,000 $ 4,020,000 $3,274,000 ----------------- --------------- ---------------- Unfunded status $(4,678,000) $(4,020,000) $ (3,274,000) Unrecognized net loss 614,000 662,000 639,000 ----------------- --------------- ---------------- Net liability $(4,064,000) $(3,358,000) $ (2,635,000) ================= =============== ================ PLAN ASSETS -- -- -- ================= =============== ================ WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31: Discount rate 7.50% 7.50% 6.50% </TABLE> The components of expense for all of Core Materials' postretirement benefits plans are as follows: <TABLE> <CAPTION> 2000 1999 1998 ------------------ ------------------ ----------------- <S> <C> <C> <C> Pension Expense: Interest cost $ 15,000 $ 14,000 $ 12,000 Defined contribution plan contributions 296,000 288,000 196,000 Multi-employer plan contributions 331,000 322,000 328,000 ------------------ ------------------ ----------------- Total Pension Expense 642,000 624,000 536,000 ------------------ ------------------ ----------------- Health and Life Insurance: Service cost 367,000 448,000 388,000 Interest cost 301,000 233,000 171,000 Amortization of net loss 38,000 44,000 10,000 ------------------ ------------------ ----------------- Net periodic benefit cost 706,000 725,000 569,000 ------------------ ------------------ ----------------- Total postretirement benefits expense $ 1,348,000 $ 1,349,000 $ 1,105,000 ================== ================== ================= </TABLE> 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 9.6% and 5%. 31
32 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) The effect of changing the health care cost trend rate by one-percentage point for each future year is as follows: <TABLE> <CAPTION> 1- PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE --------------------- --------------------- <S> <C> <C> Effect on total of service and interest cost components $150,680 $(117,125) Effect on postretirement benefit obligation 617,159 (523,351) </TABLE> 9. RELATED PARTIES 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, 2000, 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. Sales to International were $51,379,000 in 2000, $61,867,000 in 1999 and $61,471,000 in 1998, of which $6,353,000 and $10,709,000 had not been received as of December 31, 2000 and 1999 and were included in accounts receivable. Receivables as of December 31, 2000 and 1999 also include an additional $764,000 and $1,518,000, respectively, for tooling costs owed by International. Accounts payable included $151,000 and $535,000, respectively as of December 31, 2000 and 1999 for product returns, returnable container deposits, material purchases from International and rework charges. Core Materials expensed $1,611,000 in 2000, $1,516,000 in 1999 and $1,340,000 in 1998, for interest expense on the Secured Note. There was no outstanding liability at December 31, 2000. At December 31, 1999, $815,000 had not been paid and was included in accrued liabilities. 10. LABOR CONCENTRATION At December 31, 2000, Core Materials employed a total of 477 employees, 278 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 4, 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, 2000 and 1999. <TABLE> <CAPTION> 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL YEAR ----------- ----------- ----------- ----------- ---------- <S> <C> <C> <C> <C> <C> 2000: Net sales $25,912,656 $23,207,529 $ 18,284,921 $ 16,140,253 $83,545,359 Gross margin 4,468,488 3,407,120 2,564,557 1,475,174 11,915,339 Income (loss) before interest and taxes 1,792,914 1,065,516 281,508 (278,089) 2,861,849 Net income (loss) 822,063 415,171 (82,046) (439,837) 715,351 Net income (loss) per common share: Basic $.08 $.04 $(.01) $(.04) $.07 Diluted $.08 $.04 $(.01) $(.04) $.07 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 before interest and taxes 2,314,812 651,361 (1,079,279) (166,468) 1,720,426 Net income 1,169,883 149,857 (870,214) (378,188) 71,338 Net income per common share: Basic $.12 $.02 $(.09) $(.04) $.01 Diluted $.12 $.02 $(.09) $(.04) $.01 No cash dividends were paid during 2000 and 1999. </TABLE> ****** 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 15, 2001, 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 15, 2001, 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 15, 2001, 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 15, 2001, 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, 2000, 1999 and 1998 Balance Sheets as of December 31, 2000 and 1999 Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 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, 2000. 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 30, 2001 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: <TABLE> <CAPTION> <S> <C> <C> /s/ James L. Simonton President, Chief Executive Officer March 30, 2001 - --------------------------------------------- and Director James L. Simonton /s/ Kevin L. Barnett Vice President, Secretary, Treasurer and March 30, 2001 - --------------------------------------------- Chief Financial Officer Kevin L. Barnett * Director March 30, 2001 - --------------------------------------------- James F. Crowley * Director March 30, 2001 - --------------------------------------------- Ralph O. Hellmold * Director March 30, 2001 - --------------------------------------------- Thomas M. Hough * Director March 30, 2001 - --------------------------------------------- Malcolm M. Prine * Director March 30, 2001 - --------------------------------------------- Thomas R. Cellitti *By Kevin L. Barnett Attorney-In-Fact March 30, 2001 ------------------------------------ Kevin L. Barnett </TABLE> 36
37 CORE MATERIALS CORPORATION SCHEDULE II Valuation and qualifying accounts and reserves for the years ended December 31, 2000, 1999 and 1998. Reserves deducted from asset to which it applies - allowance for doubtful accounts. <TABLE> <CAPTION> Additions -------------------------------- Balance at Charged to Charged to Beginning Costs & Other Deductions Balance At of Year Expenses Accounts (A) End of Year --------------- ------------- --------------- --------------- --------------- <S> <C> <C> <C> <C> <C> Year Ended December 31, 2000 $ 431,000 $ 91,000 $ 98,000 $ 424,000 Year Ended December 31, 1999 $ 215,000 $ 216,000 $ 431,000 Year Ended December 31, 1998 $ 240,000 $ 25,000 $ 215,000 </TABLE> (A) Amount represents uncollectable accounts written off. 37
38 INDEX TO EXHIBITS <TABLE> <CAPTION> Exhibit No. Description Location - ----------- ----------- -------- <S> <C> <C> 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) </TABLE> 38
39 <TABLE> <CAPTION> Exhibit No. Description Location - ----------- ----------- -------- <S> <C> <C> 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 </TABLE> 39
40 <TABLE> <CAPTION> Exhibit No. Description Location - ----------- ----------- -------- <S> <C> <C> 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 Incorporated by Promissory Note, dated April 20, 1999 reference to Exhibit to Navistar International Transportation 10(a)(4) to Annual Corp. Report on Form 10-K for the year-ended December 31, 1998 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(e)(1) Amendment, dated March 29, 2001, to Filed Herein the Loan Agreement dated December 3, 1997, by and between Core Materials Corporation and Key Bank National Association </TABLE> 40
41 <TABLE> <CAPTION> Exhibit No. Description Location - ----------- ----------- -------- <S> <C> <C> 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(f)(1) Amendment, dated March 26, 2001, Filed Herein to Master Equipment Lease Agreement(2) by and between KeyCorp Leasing, a division of Key Corporate Capital, Inc. and Core Materials Corporation 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 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(h)(1) Amendment, dated March 29, 2001, Filed Herein to Reimbursement Agreement, dated April 1, 1998, by and between Core Materials Corporation and Key Bank National Association 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 </TABLE> 41
42 <TABLE> <CAPTION> Exhibit No. Description Location - ----------- ----------- -------- <S> <C> <C> 10(m) 2000-2001 Informal Cash File Herein Profit Sharing Plan(3) 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) Compensation Agreement with Filed Herein Malcolm M. Prine(3) 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 Deloitte & Touche LLP Filed Herein 24 Powers of Attorney Filed Herein </TABLE> (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