1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to ------------ ------------ Commission File Number 001-12505 CORE MATERIALS CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 31-1481870 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) incorporation or organization) 800 Manor Park Drive, P.O. Box 28183 Columbus, Ohio 43228-0183 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (614) 870-5000 -------------- N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] NO [ ] As of August 7, 1998, the latest practicable date, 9,779,680 shares of the registrant's common shares were issued and outstanding.
2 PART 1 - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CORE MATERIALS CORPORATION BALANCE SHEET <TABLE> <CAPTION> JUNE 30, DECEMBER 31, 1998 1997 ---- ---- ASSETS (unaudited) <S> <C> <C> Cash $ 1,136,006 $ 100,356 Mortgage-back security investment 2,961,657 3,217,349 Accounts receivable (less allowance for doubtful accounts: June 30, 1998-$105,000; December 31, 1997-$133,000) 15,362,280 14,306,101 Inventories: Work in process 1,950,415 1,163,611 Stores 1,428,971 2,143,108 ------------ ------------ Total inventories 3,379,386 3,306,719 Deferred tax asset 455,002 455,002 Prepaid expenses and other current assets 515,528 307,059 ------------ ------------ Total current assets 23,809,859 21,692,586 Property, plant and equipment 39,998,612 34,971,001 Accumulated depreciation (11,179,719) (10,293,834) ------------ ------------ Property, plant and equipment - net 28,818,893 24,677,167 Deferred tax asset - net 10,136,245 11,170,190 Other 154,540 -- ------------ ------------ TOTAL $ 62,919,537 $ 57,539,943 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Notes payable -- Bank $ 3,819,470 $ 3,997,120 Current portion of long-term debt 270,000 -- Accounts payable 7,403,940 8,140,802 Accrued liabilities: Compensation and related benefits 2,528,677 2,066,488 Interest 48,059 1,149,061 Other accrued liabilities 1,787,313 1,776,856 ------------ ------------ Total current liabilities 15,857,459 17,130,327 Long term debt - less current portion 23,051,841 18,821,841 Deferred long-term gain 2,870,151 3,018,331 Postretirement benefits liability 2,723,265 2,474,367 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock - $0.01 par value, Authorized shares - 20,000,000; 97,797 96,133 Outstanding shares: June 30, 1998 - 9,779,680 Outstanding shares: December 31, 1997 - 9,613,281 Paid-in capital 16,226,232 16,049,861 Retained earnings (deficit) 2,092,792 (50,917) ------------ ------------ Total stockholders' equity 18,416,821 16,095,077 ------------ ------------ TOTAL $ 62,919,537 $ 57,539,943 ============ ============ </TABLE> See notes to financial statements. 2
3 CORE MATERIALS CORPORATION STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------------- ------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- <S> <C> <C> <C> <C> NET SALES: Navistar $ 15,923,784 $ 13,640,884 $ 32,025,368 $ 24,101,040 Yamaha 2,670,900 2,792,501 6,790,953 8,002,345 Other 555,072 225,865 922,241 928,900 ------------ ------------ ------------ ------------ Total Sales 19,149,756 16,659,250 39,738,562 33,032,285 ------------ ------------ ------------ ------------ Cost of Sales 14,765,815 12,724,752 30,912,364 25,425,654 Postretirement benefits expense 252,455 193,605 486,218 429,128 ------------ ------------ ------------ ------------ Total cost of sales 15,018,270 12,918,357 31,398,582 25,854,782 ------------ ------------ ------------ ------------ GROSS MARGIN 4,131,486 3,740,893 8,339,980 7,177,503 ------------ ------------ ------------ ------------ Selling, general and administrative expense 1,986,248 1,822,765 3,949,594 3,617,212 Postretirement benefits expense 36,029 54,339 70,323 124,661 ------------ ------------ ------------ ------------ Total selling, general and 2,022,277 1,877,104 4,019,917 3,741,873 administrative expense Other expense -- (23,233) (318) (23,233) ------------ ------------ ------------ ------------ INCOME BEFORE INTEREST AND TAXES 2,109,209 1,840,556 4,319,745 3,412,397 Interest income 56,292 59,150 117,514 118,267 Interest expense (435,447) (601,004) (804,191) (1,207,705) ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 1,730,054 1,298,702 3,633,068 2,322,959 Income taxes: Current 217,394 135,684 455,414 237,043 Deferred 491,729 396,783 1,033,945 715,369 ------------ ------------ ------------ ------------ Total income taxes 709,123 532,467 1,489,359 952,412 ------------ ------------ ------------ ------------ NET INCOME $ 1,020,931 $ 766,235 $ 2,143,709 $ 1,370,547 ============ ============ ============ ============ NET INCOME PER COMMON SHARE: Basic $ 0.11 $ 0.08 $ 0.22 $ 0.14 ============ ============ ============ ============ Diluted $ 0.10 $ 0.08 $ 0.21 $ 0.14 ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 9,654,230 9,565,116 9,633,581 9,529,900 ============ ============ ============ ============ Diluted 10,126,786 9,672,989 10,079,802 9,639,320 ============ ============ ============ ============ </TABLE> See notes to financial statements 3
4 CORE MATERIALS CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> TOTAL COMMON STOCK OUTSTANDING PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS 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 2,143,709 2,143,709 Amortization of deferred stock compensation 29,215 29,215 Issuance of stock under stock option plans 167,600 1,676 147,144 148,820 Other (1,201) (12) 12 ========= ======== =========== =========== =========== BALANCE AT JUNE 30, 1998 9,779,680 $ 97,797 $16,226,232 $ 2,092,792 $18,416,821 ========= ======== =========== =========== =========== </TABLE> See notes to financial statements. 4
5 CORE MATERIALS CORPORATION STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> SIX MONTHS ENDED JUNE 30 ----------------------------------- 1998 1997 --------------- -------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,143,709 $ 1,370,547 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 887,651 1,194,890 Deferred income taxes 1,033,945 715,369 Loss on disposal of assets 318 24,052 Amortization of gain on sale/leaseback transaction (148,180) Compensation expense on stock awards 29,215 21,153 Change in operating assets and liabilities: Increase in accounts receivable (1,056,179) (8,360,937) (Increase)/decrease in inventories (72,667) 701,566 (Increase)/decrease in prepaid and other assets (129,133) 319,544 (Decrease)/increase in accounts payable (736,862) 4,740,193 (Decrease)/increase in accrued and other (628,356) 1,649,368 liabilities Increase in postretirement benefits liability 248,898 421,705 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,572,359 2,797,450 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (5,029,695) (2,804,498) Payments on mortgage-backed security investment 255,692 58,735 Proceeds from sale of property and equipment -- 12,500 ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (4,774,003) (2,733,263) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line-of-credit 6,419,470 3,650,000 Payments on line-of-credit (6,597,120) (3,650,000) Payments on secured note payable (3,000,000) -- Proceeds from industrial revenue bonds 7,500,000 -- Issuance costs for industrial revenue bonds (233,876) -- Proceeds from exercise of stock options 148,820 37,500 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,237,294 37,500 ----------- ----------- NET INCREASE IN CASH 1,035,650 101,687 CASH AT BEGINNING OF PERIOD 100,356 590,212 ----------- ----------- CASH AT END OF PERIOD $ 1,136,006 $ 691,899 =========== =========== CASH PAID FOR: Interest $ 1,889,111 $ 1,205,403 =========== =========== Income Taxes $ 375,000 $ 45,000 =========== =========== </TABLE> See notes to financial statements. 5
6 CORE MATERIALS CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10Q and include all of the information and disclosures required by generally accepted accounting principles for interim reporting, which are less than those required for annual reporting. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (all of which are normal and recurring in nature) necessary to present fairly the financial position of Core Materials Corporation ("Core Materials") at June 30, 1998, and the results of its operations and its cash flows. The "Notes to Financial Statements" which are contained in the 1997 Annual Report to shareholders should be read in conjunction with these Financial Statements. Certain reclassifications have been made to prior year's amounts to conform with the classifications of such amounts for 1998. Core Materials Corporation ("Core Materials") was formed on October 8, 1996 by RYMAC Mortgage Investment Corporation ("RYMAC"), as a wholly owned subsidiary, for the purpose of acquiring substantially all of the assets and assuming certain of the liabilities of Columbus Plastics Operation ("Columbus Plastics"), an operating unit of Navistar International Transportation Corp. ("Navistar"). On December 31, 1996, RYMAC merged into its wholly owned subsidiary, Core Materials, by converting each outstanding common share of RYMAC into the right to receive one common share of Core Materials, with Core Materials as the surviving corporation and continuing registrant. Simultaneously, on December 31, 1996, Core Materials purchased substantially all of the assets and assumed certain liabilities of Columbus Plastics. Core Materials produces compression Sheet Molding Composite ("SMC") fiberglass reinforced plastic parts. Core Materials has two principal customers, Navistar and Yamaha Motor Manufacturing Corporation ("Yamaha"). 2. RESTRICTED CASH Included in cash at June 30, 1998, is $401,770 which is restricted pursuant to the terms of the Industrial Revenue Bond noted below. This restriction will be removed as Core Materials incurs qualified expenditures related to the project for which the bond was issued. 3. LONG-TERM DEBT 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. Principal is payable beginning in July, 1998. Total principal maturities by year are: 1998 - $130,000; 1999 - $285,000; 2000 - $305,000; 2001 - $330,000; 2002 - $355,000; 2003 - $390,000; and thereafter - $5,705,000. In conjunction with the IRB, in June 1998, Core Materials entered into an interest rate swap agreement with a commercial bank. This agreement effectively converts the variable rate IRB to fixed interest debt. Under this agreement, Core Materials will pay a fixed rate of 4.89% to the bank and will receive 76% of the 30 day commercial paper rate. The difference to be 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. 6
7 As security for the for the IRB, Core Materials obtained a letter of credit in the amount of $7,726,028, from a commercial bank. 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 is secured by a lien and security interest in all of Core Materials' business assets. The letter of credit expires in April, 2003. 4. COMPREHENSIVE INCOME Core Materials adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". Comprehensive income is a measurement of all changes in stockholders' equity that result from transactions and other economic events other than transactions with stockholders. Core Materials does not have any items of comprehensive income other than net income; therefore, total comprehensive income amounted to $1,020,931 and $766,235 for the three months ended June 30, 1998 and 1997, respectively; total comprehensive income amounted to $2,143,709 and $1,370,547 for the six months ended June 30, 1998 and 1997, respectively. 5. NEW ACCOUNTING STANDARDS In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises standards for disclosures about pension and other postretirement benefit plans which will require adoption no later than December 31, 1998. This standard expands or modifies disclosure and, accordingly, will have no impact on Core Materials' reported financial position, results of operations and cash flows. 6. EARNINGS PER COMMON SHARE Core Materials presents earnings per common share in accordance with SFAS No. 128, "Earnings per Share." Under SFAS No. 128, basic earnings per common share are computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed similarly but include the effect of the exercise of stock options under the treasury stock method. In calculating net income per share for the three and six months ended June 30, 1998, weighted average shares increased for the computation of diluted income per share by 472,556 and 446,221 shares, respectively, due to the effect of stock options; this effect reduced net income per share by $0.01 and $0.01 for the three and six months ended June 30, 1998, respectively. In calculating net income per share for the three and six months ended June 30, 1997, weighted average shares increased for the computation of diluted income per share by 107,873 and 109,420, respectively, due to the effect of stock options, which had no appreciable effect on net income per share. 7
8 PART I - FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements under this caption, constitute "forward-looking statements" which involve certain risks and uncertainties. Core Materials' actual results may differ significantly from those discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to: business conditions in the plastics, transportation, recreation and consumer products industries, the general economy, competitive factors, the dependence on two major customers, new technologies, the year 2000 systems issue, start-up of the Company's South Carolina facility, regulatory requirements, labor relations, the loss or inability to attract key personnel, construction delays, the availability of capital and management's decisions to pursue new products or businesses which involve additional cost risks or capital expenditures. OVERVIEW On December 31, 1996, Core Materials acquired all of the assets and assumed certain liabilities of Columbus Plastics, a wholly owned operating unit of Navistar's truck manufacturing division since its formation in late 1980. Based on the terms of the acquisition, the transaction for financial reporting and accounting purposes has been accounted for as a reverse acquisition whereby Columbus Plastics is deemed to have acquired Core Materials. However, Core Materials is the continuing legal entity. Core Materials manufactures high quality compression SMC fiberglass reinforced parts. Core Materials has two major customers, Navistar and Yamaha. The demand for Core Materials' products is affected by the volume of purchases from these two 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 will change proportionately more than revenues from operations. At the time of the acquisition of Columbus Plastics, Navistar and Core Materials entered into a Comprehensive Supply Agreement with an initial term of five years. Under the terms of the Comprehensive Supply Agreement, Navistar agreed to purchase from Core Materials, and Core Materials agreed to sell to Navistar at negotiated prices, which approximate fair value, all of Navistar's original equipment and service requirements for fiberglass reinforced parts using the SMC process for components then being manufactured by Core Materials and detailed in the Comprehensive Supply Agreement. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 Net sales for the three months ended June 30, 1998, totaled $19,150,000 up 15% from the $16,659,000 reported for the three months ended June 30, 1997. Sales to Navistar increased 17% to $15,924,000 from $13,641,000 for the three months ended June 30, 1997. The increase in sales to Navistar was the result of an increase in Navistar's sales of medium and heavy trucks. Sales to Yamaha decreased for the three months ended June 30, 1998 by 4% to $2,671,000 compared with $2,793,000 for the three months ended June 30, 1997. The minimal decrease in sales to Yamaha is primarily due to Yamaha's production slowdown as a result of the maturing of the personal watercraft market. 8
9 "Other" sales for the three months ended June 30, 1998, increased 146% to $555,000 from $226,000 for the three months ended June 30, 1997. The increase in other sales was primarily the result of sales to a new customer, Case Corporation, a leading manufacturer of agricultural equipment; in May 1998, Core Materials began manufacturing SMC tractor roof assemblies for Case Corporation's Racine, Wisconsin facility. Gross Margin was 21.6% of sales for the three months ended June 30, 1998 compared with 22.5% for the three months ended June 30, 1997. This decline in margins is primarily the result of changes in product mix and increased usage of production process supplies. Also impacting gross margin was the effect of increased lease expenses associated with the December 1997 sale leaseback transaction. As previously noted, Core Materials sold various items of production equipment and leased the items back under an operating lease agreement. The proceeds of this sale were used to pay down long term debt. As a result of this transaction, Core Materials has recorded higher costs of sales, due to the classification of the operating leases, offset by lower interest costs reflected below. Selling, general and administrative expenses ("SG&A") totaled $2,022,000 for the three months ended June 30, 1998 increasing from $1,877,000 for the three months ended June 30, 1997. The increase over the 1997 amounts is primarily due to the addition of a second plant in Gaffney, South Carolina. This second plant provides additional capacity to support the production requirements of current customers and opportunity for growth. The Gaffney plant began molding and assembly operations in early 1998. Interest income for the three months ended June 30, 1998 totaled $56,000 decreasing slightly from the $59,000 for the three months ended June 30, 1997. Interest expense totaled $435,000 for the three months ended June 30, 1998 decreasing from $601,000 for the three months ended June 30, 1997. The decrease in interest expense from 1997 is primarily the result of a reduction in interest costs on the Secured Note payable to Navistar due to the $12,000,000 of proceeds from the sale-leaseback transaction, noted above, being used to pay down this debt. This decrease was partially offset by increased interest costs on borrowings used to finance Core Materials' new facility in Gaffney, South Carolina. Income taxes for the three months ended June 30, 1998 are estimated to be approximately 41% of total earnings before taxes. Actual tax payments will be lower than the recorded expenses as Core Materials has substantial federal tax loss carryforwards. These loss carryforwards were recorded as a deferred tax asset, partially offset by a valuation reserve at December 31, 1996 as a part of the purchase accounting adjustments. As the tax loss carryforwards are utilized to offset federal income tax payments, Core Materials reduces the deferred tax asset as opposed to recording a reduction in income tax expense. Actual cash payments related to the three months ended June 30, 1998 are estimated to be approximately $217,000 which reflects federal alternative minimum, state and local taxes. Net income for the three months ended June 30, 1998 was $1,021,000 or $.11 per basic and $.10 per diluted share, an increase of $255,000 or 33% over the net income for the three months ended June 30, 1997 of $766,000 or $.08 per basic and diluted share. The increase in net income was primarily the result of increased sales as detailed above. SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Net sales for the six months ended June 30, 1998, totaled $39,739,000 up 20% from the $33,032,000 reported for the six months ended June 30, 1997. Sales to Navistar increased 33% to $32,025,000 from $24,101,000 for the six months ended June 30, 1997. The increase in sales to Navistar was the result of an increase in Navistar's sales of medium and heavy trucks. Sales to Yamaha decreased for the six months ended June 30, 1998 by 15% to $6,791,000 compared with $8,002,000 for the six months ended June 30, 1997. The decrease in sales to Yamaha is primarily due to Yamaha's production slowdown as a result of the maturing of the personal watercraft market. "Other" sales for the six months ended June 30, 1998, decreased 1% to $922,000 from $929,000 for the six months ended June 30, 1997. The reduction in sales was primarily the result of reduced sales to General Motors for electric car components and a reduction in the sales of sheet molding composite to SMC molding companies; these reductions were almost totally offset by increased sales to Case Corporation. 9
10 Gross margin was 21% of sales for the six months ended June 30, 1998 compared with 21.7% for the six months ended June 30, 1997. The decreased gross margin as a percent of sales, 21.7% to 21%, is primarily due to the reasons noted above for the three months. SG&A totaled $4,020,000 for the six months ended June 30, 1998 increasing from $3,742,000 for the six months ended June 30, 1997. The increase over the 1997 amounts is primarily due to the addition of a second plant in Gaffney, South Carolina as explained above. Interest income for the six months ended June 30, 1998 totaled $118,000 as compared with the $118,000 for the six months ended June 30, 1997. Interest expense totaled $804,000 for the six months ended June 30, 1998 decreasing from $1,208,000 for the six months ended June 30, 1997. The decrease in interest expense from 1997 is the result of the reasons noted above for the three months and the effect of an increase in interest capitalized related to capital projects under construction. Income taxes for the six months ended June 30, 1998 are estimated to be approximately 41% of total earnings before taxes. Actual cash payments related to the six months ended June 30, 1998 are estimated to be approximately $455,000 which reflects federal alternative minimum, state and local taxes. Net income for the six months ended June 30, 1998 was $2,144,000 or $.22 per basic and $.21 per diluted share, an increase of $773,000 or 56% over the net income for the six months ended June 30, 1997 of $1,371,000 or $.14 per basic and diluted share. The increase in net income was primarily the result of increased sales as detailed above. LIQUIDITY AND CAPITAL RESOURCES Net working capital at June 30, 1998 increased $3,390,000 from the working capital at December 31, 1997. Accounts receivable increased by $1,056,000 and accounts payable decreased by $737,000 from the December 31, 1997 levels. The primary cause for the receivables increase is the increase in sales volume for the six months ended June 30, 1998. Accounts payable decreased as a result of a reduction in payables related to capital expenditures. The reduction in interest payable of $1,101,000 is primarily the result of interest paid to Navistar on June 30, 1998, for interest accrued through the first half of 1998 on the Secured Note payable. Property additions of $5,030,000 primarily relate to the acquisition of equipment for the Gaffney, South Carolina facility. In the fourth quarter of 1997, Core Materials entered into a comprehensive financing arrangement with a financial institution. Under this arrangement, the financial institution committed to provide Core Materials the following credit facilities: 1.) a $7,500,000 variable rate revolving line of credit; 2.) a $12,000,000 sale-leaseback arrangement on certain machinery and equipment; 3.) a letter of credit to support the issuance of an Industrial Revenue Bond, and 4.) $5,500,000 for equipment leases. In December 1997, Core Materials closed on the line of credit which is being used for working capital purposes and to temporarily fund capital expenditures related to the Company's South Carolina expansion. Also in December, the Company entered into the sale-leaseback agreement, the proceeds of which were used to pay down the Secured Note payable to Navistar. In May 1998, Core Materials borrowed $7,500,000 through the issuance of an Industrial Revenue Bond. The proceeds from this credit facility were used to pay down Core Materials' line of credit, which was being used to temporarily finance the new facility in South Carolina and to pay down the secured note payable to Navistar. The equipment leases ($5,500,000 referred to above) will also be used to provide permanent financing for Core Materials' new facility and equipment in South Carolina. Subsequent to the end of the quarter, in August of 1998, Core Materials closed on $5,300,000 of the equipment leases. 10
11 Management believes that internally generated funds from operations, along with the current and future financings discussed above, will be sufficient to fund anticipated capital requirements. YEAR 2000 MATTERS Core Materials has identified all significant applications that will require modification to ensure Year 2000 compliance. Internal and external resources are being used to make the required modifications and test Year 2000 compliance. The Company plans to complete the modifications and testing process of all significant applications by August 1999, which is prior to any anticipated impact on its operating systems. The date on which Core Materials believes it will complete the Year 2000 modifications is based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. In addition, Core Materials will communicate with others with whom it does significant business to determine its Year 2000 compliance readiness and the extent to which the Company is vulnerable to any third-party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse affect on the Company. MANAGEMENT'S OUTLOOK The Company has continued to focus significant efforts on obtaining new business for both its Ohio and South Carolina operations. In May 1998, Core Materials announced a business relationship with Case Corporation for the manufacture of tractor roof assemblies. In July 1998, this relationship was expanded with the addition of combine roof assemblies which will go into production late in the third quarter of 1998. Also in July 1998, Core Materials established a new relationship with John Deere. Core Materials will produce hood assemblies for a new tractor model scheduled to enter production in mid 1999. The addition of Case Corporation and John Deere, along with the previously announced addition of residential door products for Caradon Doors and Windows Inc's, Peachtree division, continue to support Core Material's objective of obtaining new customers and diversifying its product base. PART I - FINANCIAL INFORMATION ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable 11
12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of the Stockholders of Core Materials Corporation held on May 28, 1998 the following issues were voted upon with the indicated results: <TABLE> <CAPTION> A. ELECTION OF DIRECTORS: SHARES VOTED FOR SHARES WITHHELD <S> <C> <C> James F. Crowley 8,922,223 74,683 Ralph O. Hellmold 8,928,123 68,783 Thomas M. Hough 8,928,123 68,783 Malcolm M. Prine 8,928,123 68,783 James L. Simonton 8,928,123 68,783 </TABLE> The above elected directors constitute the full acting Board of Directors for Core Materials Corporation; all terms expire at the 1999 annual meeting of stockholders of the Company. B. RATIFICATION OF DELOITTE AND TOUCHE, LLP AS AUDITORS FOR THE YEAR ENDING DECEMBER 31, 1998: SHARES VOTED FOR SHARES AGAINST SHARES ABSTAINING 8,944,565 31,350 20,991 C. WITH RESPECT TO APPROVAL OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN: SHARES VOTED FOR SHARES AGAINST SHARES ABSTAINING 8,638,717 302,613 55,576 ITEM 5. OTHER INFORMATION As discussed in the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders, any qualified stockholder of the Company who intends to submit a proposal to the Company at the 1999 Annual Meeting of Stockholders (the "1999 Annual Meeting") must submit such proposal to the Company not later than December 28, 1998 to be considered for inclusion in the Company's Proxy Statement and form of Proxy (the "Proxy Materials") relating to that meeting. If a stockholder intends to present a proposal at the 1999 Annual Meeting of Stockholders, but has not sought the inclusion of such proposal in the Company's Proxy Materials, such proposal must be received by the Company prior to March 13, 1999 or the Company's management proxies for the 1999 Annual Meeting will be entitled to use their discretionary voting authority should such proposal then be raised, without any discussion of the matter in the Company's Proxy Materials. 12
13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: See Index to Exhibits REPORTS ON FORM 8-K: None 13
14 SIGNATURES Pursuant to the requirements of the Securities Exchange of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORE MATERIALS CORPORATION Date: August 14,1998 By: /s/ KENNETH M. SCHMELL -------------- ------------------------------ Kenneth M. Schmell Executive Vice President and Chief Operating Officer Date: August 14, 1998 By: /s/ KEVIN L. BARNETT --------------- ------------------------------- Kevin L. Barnett Vice President, Secretary, Treasurer and Chief Financial Officer 14
15 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- <S> <C> <C> 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 amendments through November 6, 4(c) to Registration 1996 [for purposes of compliance Statement on Form with Securities and Exchange S-8 (Registration Commission filing requirements only] No. 333-29203) 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 Exhibit amendments through November 6, 4(c) to Registration 1996 [for purposes of compliance Statement on Form with Securities and Exchange S-8 (Registration Commission filing requirements only] No. 333-29203) </TABLE> 15
16 <TABLE> <S> <C> <C> 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) Loan Agreement Filed herein 10(a)(2) Reimbursement Agreement Filed herein 10(a)(3) Core Materials Corporation Incorporated by Employee Stock Purchase Plan reference from Exhibit 4(e) from Registration Statement on Form S-8 (Registration No. 333-60909) 11 Computation of Net Income per Share Exhibit 11 omitted because required information is included in Notes to Financial Statement 27 Financial Data Schedule Filed herein </TABLE> 16