<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1994
Commission File Number l-8803
MATERIAL SCIENCES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-2673173
(State or other jurisdiction (IRS employer identification
of incorporation or organization) number)
2300 East Pratt Boulevard
Elk Grove Village, Illinois 60007
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (708) 439-8270
Indicate by check mark whether the registrant (l) 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 January 12, 1995, there were outstanding 15,131,426 shares of common
stock, $ .02 par value.
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For The Quarter Ended November 30, 1994
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- - - -----------------------------
(a) Financial statements of Material Sciences Corporation and
Subsidiaries
(b) Summarized income statement information for Walbridge Coatings,
An Illinois Partnership
-2-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
(In thousands, except per share data) 1994 1993 1994 1993
- - - --------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
NET SALES(1) $56,798 $48,282 $175,035 $137,555
Cost of Sales 40,022 37,060 127,620 105,218
------- ------- -------- --------
Gross Profit $16,776 $11,222 $ 47,415 $ 32,337
Selling, General and Administrative
Expenses 9,400 6,916 26,864 19,495
------- ------- -------- --------
Income from Operations $ 7,376 $ 4,306 $ 20,551 $ 12,842
Other (Income) and Expense:
Interest Income (169) (294) (524) (897)
Interest Expense 5 27 63 89
Equity in Results of Partnership 119 201 47 327
Other, Net (170) (90) (408) (234)
------- ------- -------- --------
Total Other (Income), Net $ (215) $ (156) $ (822) $ (715)
------- ------- -------- --------
Income Before Income Taxes $ 7,591 $ 4,462 $ 21,373 $ 13,557
Income Taxes 2,991 1,696 8,229 5,151
------- ------- -------- --------
NET INCOME $ 4,600 $ 2,766 $ 13,144 $ 8,406
======= ======= ======== ========
Net Income Per Common and Common Equivalent
Share (2) $ 0.30 $ 0.19 $ 0.86 $ 0.57
======= ======= ======== ========
Weighted Average Number of Common and
Common Equivalent Shares Outstanding (2) 15,290 14,768 15,267 14,725
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
CONSOLIDATED BALANCE SHEETS
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
November 30, February 28,
(In thousands, except share data) 1994 1994
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS: (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 7,519 $ 11,930
Receivables:
Trade, Less Reserves of $3,869 and $3,502, Respectively(3) 24,754 22,909
Current Portion of Partnership Note Receivable 877 804
Prepaid Expenses 2,543 1,242
Inventories 21,474 19,578
Prepaid Taxes 5,881 5,797
-------- --------
Total Current Assets $ 63,048 $ 62,260
-------- --------
Gross Property, Plant and Equipment $146,065 $129,054
Accumulated Depreciation and Amortization (63,378) (57,006)
-------- --------
Net Property, Plant and Equipment $ 82,687 $ 72,048
-------- --------
Other Assets:
Investment in Partnership $ 10,743 $ 9,463
Partnership Note Receivable, Less Current Portion 2,245 2,620
Intangible Assets, Net 3,246 3,231
Other 1,762 1,970
-------- --------
Total Other Assets $ 17,996 $ 17,284
-------- --------
TOTAL ASSETS $163,731 $151,592
======== ========
LIABILITIES:
Current Liabilities:
Current Portion of Long-Term Debt $ 1,882 $ 1,770
Accounts Payable 17,031 18,661
Accrued Expenses 13,527 12,803
-------- --------
Total Current Liabilities $ 32,440 $ 33,234
-------- --------
Long-Term Liabilities:
Deferred Income Taxes $ 12,177 $ 12,704
Long-Term Debt, Less Current Portion 7,733 8,853
Accrued Superfund Liability 4,309 4,479
Other 6,175 5,858
-------- --------
Total Long-Term Liabilities $ 30,394 $ 31,894
-------- --------
SHAREHOLDERS' EQUITY:
Preferred Stock(4) $ - $ -
Common Stock(5) 316 210
Additional Paid-In Capital 41,865 40,574
Treasury Stock at Cost(6) (3,382) (3,380)
Retained Earnings 62,098 49,060
-------- --------
Total Shareholders' Equity $100,897 $ 86,464
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $163,731 $151,592
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
(In thousands) 1994 1993 1994 1993
- - - ---------------------------------------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM:
OPERATING ACTIVITIES:
Net Income $ 4,600 $ 2,766 $ 13,144 $ 8,406
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 2,303 2,027 6,851 5,722
Provision for Deferred Income Taxes (367) (759) (611) (614)
Compensatory Effect of Stock Plans 162 173 485 213
Other, Net 211 602 173 1,256
------- ------- -------- --------
Operating Cash Flow Prior to Changes in
Working Capital $ 6,909 $ 4,809 $ 20,042 $ 14,983
------- ------- -------- --------
Changes in Working Capital:
Receivables 1,529 (670) (1,918) (1,998)
Income Taxes Receivable 726 (9) - 537
Prepaid Expenses 83 40 (1,301) (1,025)
Inventories (4,783) (1,847) (1,896) (4,456)
Accounts Payable 3,446 738 (1,630) 859
Accrued Expenses 1,149 1,374 724 1,414
------- ------- -------- --------
Cash Flow from Changes in Working Capital $ 2,150 $ (374) $ (6,021) $ (4,669)
------- ------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,059 $ 4,435 $ 14,021 $ 10,314
------- ------- -------- --------
INVESTING ACTIVITIES:
Capital Expenditures, Net (7,595) (3,823) (17,306) (10,370)
Investment in Acquired Facility - - - (12,300)
Investment in Partnership (738) (406) (1,327) (772)
Distribution from Partnership - - 375 374
Other Long-Term Assets 7 (246) 29 ( 2,047)
------- ------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES $(8,326) $(4,475) $(18,229) $(25,115)
------- ------- -------- --------
FINANCING ACTIVITIES:
Proceeds of Debt 38 42 112 108
Payments to Settle Debt (407) (333) (1,120) (1,095)
Sale of Common Stock, Net of Repurchase 399 450 805 856
------- ------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES $ 30 $ 159 $ (203) $ (131)
------- ------- -------- --------
NET INCREASE (DECREASE) IN CASH $ 763 $ 119 $ (4,411) $(14,932)
Cash and Cash Equivalents at Beginning of
Period 6,756 8,460 11,930 23,511
------- ------- -------- --------
Cash and Cash Equivalents at End of Period $ 7,519 $ 8,579 $ 7,519 $ 8,579
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MATERIAL SCIENCES CORPORATION
The data for the three and nine months ended November 30, 1994 and 1993 have not
been examined by independent public accountants but, in the opinion of the
Company, reflect all adjustments (consisting of only normal, recurring
adjustments) necessary for a fair presentation of the information at those dates
and for those periods. The financial information contained in this report
should be read in conjunction with the Company's 1994 Annual Report to
Shareholders and Annual Report on Form 10-K. Certain prior year amounts have
been reclassified to conform with the fiscal 1995 presentation.
(1) During the nine month periods ending November 30, 1994 and 1993, the Company
derived approximately 20.7% and 24.7%, respectively, of its net sales from
fees billed to the Partnership by a subsidiary of the Company for operating
the Walbridge, Ohio facility.
(2) On June 16, 1994 the Board of Directors of the Company declared a stock
dividend of one-half share per share of the Company's Common Stock, which
was paid on July 28, 1994 to shareholders of record at the close of
business on June 30, 1994. All share and per share data has been restated
to retroactively reflect this stock dividend.
(3) Includes trade receivables due from the Partnership of $796 at November 30,
1994 and $1,166 at February 28, 1994.
(4) Preferred Stock, $1.00 Par Value; 10,000,000 Shares Authorized, 7,500,000
Designated Series A Junior Participating Preferred; None Issued.
(5) Common Stock, $.02 Par Value; 20,000,000 Shares Authorized; 15,816,474
Shares Issued and 15,127,826 Shares Outstanding at November 30, 1994 and
15,697,732 Shares Issued and 15,009,084 Shares Outstanding at February 28,
1994.
(6) Treasury Stock at Cost; 688,648 Shares at November 30 and February 28, 1994.
-6-
<PAGE>
SUMMARIZED INCOME STATEMENT INFORMATION (UNAUDITED)
Walbridge Coatings, An Illinois Partnership
Three Months Ended Nine Months Ended
November 30, November 30,
(In thousands) 1994 1993 1994 1993
- - - ------------------------------------------------------------------------------
Net Revenues $14,494 $14,054 $45,208 $42,718
Gross Profit $ 910 $ 949 $ 3,208 $ 3,154
Income from Operations $ 305 $ 394 $ 1,422 $ 1,500
Net Loss $ (238) $ (335) $ (355) $ (788)
NOTE: The Net Loss shown above does not directly correlate to the Equity
in results of Partnership shown in the Company's Statements of Income
due to certain contractual allocation requirements of the Partnership.
The Company's primary financial benefit from participation in the
Partnership is in the form of revenues from operating the Walbridge,
Ohio facility. These revenues are included in the Company's net sales.
- 7 -
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For The Quarter Ended November 30, 1994
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Material Sciences Corporation ("MSC" or "Company") operates in one business
segment comprised of the following four product groups: laminates and
composites, metallizing and coating, coil coating, and electrogalvanizing.
RESULTS OF OPERATIONS
NET SALES
Net sales in the third quarter of fiscal 1995 increased 17.6% over the third
quarter of fiscal 1994. Sales of laminates and composites grew 19.2%;
metallizing and coating 18.4%; coil coating 24.2%; and electrogalvanizing 3.1%.
For the first nine months of fiscal 1995, net sales grew by 27.2% compared to
the same period in the prior fiscal year. Sales of laminates and composites
grew 23.4%; metallizing and coating 29.6%; coil coating 41.3% and
electrogalvanizing 6.8%. Included in the above are coil coating sales from the
June 30, 1993 acquisition of the coil coating facility from Armco Steel
Company, L.P. in Middletown, Ohio. The fourth quarter of fiscal 1995 will be
affected by a 52-day shutdown of MSC's coil coating operation in Middletown,
Ohio for upgrading and expansion of that facility.
LAMINATES AND COMPOSITES
Laminates and composites sales during the third quarter grew by 19.2% over the
same period of fiscal 1994. This increase was primarily the result of higher
sales of Polycore Composites(R) and Specular+(R), due, in part, to new product
applications and market expansion activities. For the nine month period ended
November 30, 1994, laminates and composites sales were 23.4% higher than the
same period last fiscal year primarily due to higher sales of Polycore
Composites, Specular+, and disk brake noise damper material.
METALLIZING AND COATING
Sales of metallizing and coating products increased 18.4% in the third quarter
of fiscal 1995 as compared to the same period in fiscal 1994. The increase is
due primarily to higher solar control window and safety film sales in both the
U.S. and export markets. For the first nine months of fiscal 1995, sales of
metallizing and coating products increased 29.6%. This was fueled by increased
demand for solar control window film and safety film as well as by productivity
and quality improvements.
-8-
<PAGE>
COIL COATING
Coil coating sales were up 24.2% over the previous year's third quarter.
Growth in sales was wide-spread, with the biggest sales advances coming from
the heating and air conditioning, truck trailer, swimming pool, and fuel tank
markets. On a year-to-date basis, coil coating sales were 41.3% higher than
the first nine months of the prior fiscal year. Sales increases across all
major markets were led by strong growth in the fuel tank, heating and air
conditioning, truck trailer, and lighting markets. A portion of this sales
increase is attributable to MSC's June, 1993 acquisition of the Middletown coil
coating facility. Comparable period-to-period sales in the product group were
up over 20% from the first nine months of the prior fiscal year.
ELECTROGALVANIZING
MSC participates in the electrogalvanizing market through Walbridge Coatings
(the "Partnership"), a partnership among subsidiaries of MSC, Bethlehem Steel
Corporation ("Bethlehem") and Inland Steel Industries, Inc. ("Inland"). MSC's
net sales for electrogalvanizing consist of various fees charged to the
Partnership for operating the facility. Bethlehem and Inland are primarily
responsible for the marketing activities of the Partnership.
In the third quarter of fiscal 1995, MSC's electrogalvanizing sales increased
by 3.1% while volume decreased by 3.0%. For the first nine months of fiscal
1995, sales and volume increased by 6.8% and 1.9%, respectively from the same
time frame in the prior fiscal year. To meet the demand for high quality
electrogalvanized steel, the Walbridge operation installed an additional
electroplating cell during a seven-day shutdown in October, raising Walbridge's
capacity by about 5%. Although the shutdown affected third quarter shipments,
revenues were higher due to the continuing shift to more value-added materials
combining both electrogalvanizing and coil coating technology.
On June 30, 1992, Inland assigned 50% of its interests in, and responsibilities
to, the Partnership to Bethlehem. The transfer increased the Partnership's
reliance upon Bethlehem for production orders, payment of fees, and financing
obligations. During the third quarter of fiscal 1994, Inland decided to reduce
its line time requirements to no greater than five percent going forward.
During the first quarter of fiscal 1995, Inland increased its utilization to
its full contractual 25% of available line time. Since then, Inland has
utilized only 17% of available line time rather than its full 25%. Bethlehem
and other customers utilized this additional available line time. Inland is
reviewing its future involvement in the Partnership and therefore, there is no
assurance that Inland will continue to utilize its full 25% of available line
time on a long-term basis. The Company believes that any short-term disruption
in volume that might be caused by a reduction in Inland's line time
requirements could be replaced by additional volume from Bethlehem and other
customers.
GROSS PROFIT
MSC's gross profit margin was 29.5% in the third quarter of fiscal 1995 versus
23.2% in the previous year. For the first nine months of fiscal 1995, MSC's
gross profit margin was 27.1% compared to 23.5% last year. This improvement
was due to increasing higher value-added product mix, higher line utilization,
and improving manufacturing efficiencies.
-9-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses increased to 16.5% of sales
in the third quarter of fiscal 1995 from 14.3% of sales in the same period last
fiscal year. For the first nine months of fiscal 1995, SG&A expenses increased
to 15.3% of sales from 14.2% of sales for the same period in the prior fiscal
year. This increase is primarily due to increased expenditures for strategic
purposes such as high-growth product marketing, research and development, and
international marketing efforts, as well as some non-recurring increases in
other administrative expenses.
TOTAL OTHER (INCOME) EXPENSE, NET AND INCOME TAXES
Total other (income) expense, net was income of $.2 million in the third
quarters of both fiscal 1995 and 1994 and income of $.8 million for the first
nine months of fiscal 1995 versus income of $.7 million in the prior fiscal
year. MSC's effective income tax rate is expected to be approximately 38.5%
for fiscal 1995 versus 38.0% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of fiscal 1995, MSC's operating activities generated
$9.1 million of cash versus $4.4 million of cash during the third quarter last
year. For the first nine months of fiscal 1995, operating activities generated
$14.0 million of cash versus $10.3 million last fiscal year. The increase in
cash generation is due mainly from increased net income.
MSC's capital expenditures during the third quarter and first nine months of
fiscal 1995 were $3.8 million and $6.9 million greater than those of the same
periods of fiscal 1994. The cash flow from investment in partnership, net of
distributions, was a negative $.7 million in the third quarter of fiscal 1995
and a negative $1.0 million for the first nine months of fiscal 1995, versus a
negative $.4 million for both the third quarter and first nine months of the
prior fiscal year. Affecting the prior fiscal year's cash flows was the June
30, 1993 purchase of the Middletown coil coating facility.
MSC's long-term debt, less current portion decreased by $1.1 million to $7.7
million during the first nine months of fiscal 1995 due to normally scheduled
debt amortization. The Company maintains a $25 million unsecured line of
credit which expires August 31, 1997. There was no outstanding balance under
this line of credit at November 30, 1994 or at February 28, 1994. However, the
Company has executed letters of credit totalling $4.8 million against this line
leaving an available line of credit of $20.2 million at November 30, 1994. The
Company believes that its cash flow from operations together with available
financing and cash on hand will be sufficient to fund its working capital
needs, capital expenditure program, and debt amortization.
The Company has a capital lease obligation, which was $8.7 million as of
November 30, 1994, relating to a facility which the Company subleases to the
Partnership. In addition, throughout the term of the Partnership, the Company
is contingently responsible for 50% of the Partnership's financing
requirements, including the Company's share (approximately $6.0 million) of
$12.0 million in Partnership financing loans from third parties at
November 30, 1994.
MSC continues to participate in the implementation of settlements with the
government for clean-up of various Superfund sites. For additional
information, refer to MSC'S Form 10-K for the fiscal year ended February 28,
1994.
-10-
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For the Quarter Ended November 30, 1994
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - - -----------------------------------------
(a)(27) Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this report
is filed.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the under-
signed, thereunto duly authorized, in Elk Grove Village, State of Illinois, on
the 12th day of January, 1995.
MATERIAL SCIENCES CORPORATION
By: /s/ G. Robert Evans
------------------------------
G. Robert Evans
Chairman and Chief Executive Officer
By: /s/ William H. Vrba
-------------------------------
William H. Vrba
Senior Vice President, Chief
Financial Officer, and Secretary
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Statements of Income and Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> NOV-30-1994
<CASH> 7,519
<SECURITIES> 0
<RECEIVABLES> 28,623
<ALLOWANCES> 3,869
<INVENTORY> 21,474
<CURRENT-ASSETS> 63,048
<PP&E> 146,065
<DEPRECIATION> 63,378
<TOTAL-ASSETS> 163,731
<CURRENT-LIABILITIES> 32,440
<BONDS> 7,733
<COMMON> 316
0
0
<OTHER-SE> 100,581
<TOTAL-LIABILITY-AND-EQUITY> 163,731
<SALES> 175,035
<TOTAL-REVENUES> 175,035
<CGS> 127,620
<TOTAL-COSTS> 127,620
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 21,373
<INCOME-TAX> 8,229
<INCOME-CONTINUING> 13,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,144
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
