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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: February 28, 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: 1-8803
MATERIAL SCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2673173
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 EAST PRATT BOULEVARD
ELK GROVE VILLAGE, ILLINOIS 60007
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-439-8270
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
------------------- ------------------------------
registered
----------
Common Stock, $.02 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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.[_]
The aggregate market value of the voting stock of the registrant held by
shareowners (not including any voting stock owned by directors or executive
officers of the registrant (such exclusion shall not be deemed an admission that
any such person is an affiliate of the registrant)) of the registrant was
approximately $163,689,876 at April 24, 1998 (based on the closing sale price on
the New York Stock Exchange on such date, as reported by The Wall Street Journal
Midwest Edition).
At April 24, 1998, the registrant had outstanding an aggregate of 15,406,106
shares of its Common Stock.
Documents Incorporated by Reference
Portions of the following documents are incorporated herein by reference into
the indicated part of this Form 10-K:
Part of Form 10-K
Document into which incorporated
-------- -----------------------
Registrant's 1998 annual report to shareowners Parts I, II, IV
Registrant's proxy statement for the Annual Part III
Meeting of Shareowners to be held on
June 18, 1998
2
PART I
ITEM 1. BUSINESS
- ------- --------
Introduction
- ------------
Material Sciences Corporation (unless otherwise indicated by the context,
including its subsidiaries, "MSC" or the "Company") develops, manufactures, and
markets continuously processed, coated, and laminated materials. These materials
are divided into four product groups: coil coating; galvanizing; laminates and
composites; and specialty films. The Company's materials are used in motor
vehicles, building products, appliances, lighting products, office equipment,
furniture, packaging, and a wide range of other products. MSC develops
proprietary value-added materials and processes to meet specific customer and
market requirements and believes it has achieved product or technological
leadership in each of its four product groups. The Company does not fabricate
any of the materials it processes.
Customers generally benefit from the energy savings and environmental
advantages of MSC's manufacturing processes and products. In the laminates and
composites, specialty films, and hot-dipped galvanizing portion of its
galvanizing product group, the Company is primarily a manufacturer and marketer
of its own products. In the coil coating and electrogalvanizing portion of its
galvanizing product group, MSC generally acts as a "toll coater" by processing
its customers' metal for a fee, without taking ownership of the metal.
Headquartered near Chicago, the Company, through its MSC Pinole Point Steel
Inc. ("MSCPPS"), MSC Pre Finish Metals Inc. ("PFM"), MSC Walbridge Coatings Inc.
("MSCWC"), MSC Laminates and Composites Inc. ("MSCLC"), and MSC Specialty Films,
Inc. ("MSCSF") subsidiaries, operates nine manufacturing plants. MSCPPS operates
one coil coating and one galvanizing facility in Richmond, California (the coil
coating facility is marketed under PFM). PFM operates two facilities in Elk
Grove Village, Illinois, one facility in Morrisville, Pennsylvania, and one
facility in Middletown, Ohio. MSCWC, a subsidiary of PFM, operates a facility in
Walbridge, Ohio, on behalf of Walbridge Coatings, an Illinois Partnership
("Partnership"), formed among MSCWC, Inland Steel Industries, Inc. ("Inland"),
and Bethlehem Steel Corporation ("BSC"). MSCLC operates one facility in Elk
Grove Village, Illinois. MSCSF operates one facility in San Diego, California.
Additional information concerning certain transactions and events is
incorporated herein by reference to Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's annual report,
which is incorporated herein by reference.
MSC, a Delaware corporation, was founded in 1971 and has been a publicly
traded company since 1984. The principal executive offices of the Company are
located at 2200 East Pratt Boulevard, Elk Grove Village, Illinois 60007, and its
telephone number at that address is (847) 439-8270.
3
Coil Coating
- ------------
The Company believes that coil coating is the most environmentally safe and
energy-efficient method available for applying paint and other coatings to
metal. This continuous, roll-to-roll highly automated, high-speed process
applies coatings to wide coils of metal. In the process, sheet metal is unwound
from a coil, cleaned, chemically treated, coated, oven-cured, and rewound into
coils for shipment to manufacturers that fabricate the coated metal into
finished products that are sold into a variety of industrial and commercial
markets. The coatings are designed to produce both protective and decorative
finishes. Through techniques such as printing, embossing, and striping, special
finishing effects can also be created. The finished product (i.e. prepainted or
coil coated metal) is a versatile material capable of being drawn, formed, bent,
bolted, riveted, chemically bonded, and welded. The Company generally acts as a
"toll coater" by processing coils for steel mills, or their customers, without
taking ownership of the metal. The Company charges by weight or surface area
processed.
The Company's coil coated products are used by manufacturers in building
products, appliances, heating and air conditioning, fuel tanks, lighting, above-
ground swimming pools, and other products. The Company's strategy in its coil
coating business has been to produce high-volume, competitively coated products
at low cost, as well as to identify, develop, and produce specialty niche
products meeting specific customer requirements.
Coil coating technology reduces the environmental impact of painting and
reduces manufacturers' energy needs. In coil coating processes, over 95% of the
coating material is applied, in contrast with the significant waste from
"overspray" typical in post-fabrication painting. The energy required to cure
coil coated metal is substantially less than that required by other coating
methods. These savings are achieved because of high-speed material processing
and because 90% to 95% of the coatings' volatile organic compounds are recycled
back into the curing ovens and used as fuel.
Manufacturers that use prepainted materials can eliminate or significantly
reduce on-site post paint lines and the associated compliance with complex
environmental and other regulations. Prepainted materials facilitate the
adoption of just-in-time and continuous process manufacturing techniques that
can result in improvements to work in process inventory, plant utilization, and
productivity. Since prepainted metal is cleaned, treated, and painted while
flat, the result is a more uniform and higher quality finished part than can be
achieved by even the best post-fabrication painting operation. There are no
hidden areas where paint is difficult to reach and where corrosion can begin
after the product has been marketed. As a result, companies using prepainted
material generally benefit from lower manufacturing costs and improved product
quality. Use of prepainted metal may, however, require product design or
fabrication changes and more stringent handling procedures during manufacturing.
The coil coating process competes with other methods of producing coated sheet
metal, principally post-fabrication finishing methods such as spraying, dipping,
and brushing. The Company believes that coil coating accounts for approximately
10% of all the sheet metal now
4
being coated. The Company expects that, although there can be no assurance in
this regard, the market penetration of coil coated metal will increase as a
result of more stringent environmental regulation and the energy efficiency,
quality, and cost advantages provided by prepainted metal as compared to post-
fabrication painting, particularly in high-volume manufacturing operations. The
Company estimates that there are approximately 85 companies operating coil
coating lines in North America. The Company believes it is one of the largest
coil coaters, with approximately 15% of the total tons processed in the United
States in calendar 1997. Competition in the coil coating industry is heavily
influenced by geography, due to the high costs involved in transporting sheet
metal coils. Within geographic areas, coil coaters compete on the basis of
quality, price, customer service, technical support, and product development
capability.
Galvanizing
- -----------
The galvanizing product group serves the market for corrosion-resistant steel
for motor vehicles and building and construction products. The Company reaches
these markets through MSCWC and the galvanizing line at MSCPPS.
MSCWC is a joint venture partnership which produces electrogalvanized and coil
coated steel. Electrogalvanized ("EG") steel is the primary corrosion-resistant
steel product used to manufacture automobile and light truck bodies. Significant
domestic demand for EG steel began in 1985, and the Company believes that it
will continue as automobile manufacturers respond to consumer demands for longer
warranty protection against rust and, to a lesser extent, due to increased
applications for EG steel in the appliance and other non-automotive markets.
MSC participates in the electrogalvanizing market through its 50% financial
interest in and role as operator of the Partnership. Through the Partnership,
MSC electrogalvanizes zinc and zinc-alloy coatings and applies organic coatings
onto sheet metal. There is a growing demand by the automotive industry for a
full complement of products such as zinc-nickel, zinc-nickel with a thin organic
coating, and other organic coated zinc-nickel products such as fuel tanks that
offer additional protection against corrosion. As a result, a shift from pure
zinc to differentiated materials has commenced. These newer materials are
particularly in demand by Japanese automakers in the United States-currently
among the end-use customers for the Partnership's services. The Partnership's
facility is the only facility in North America capable of meeting, in a single
pass through its line, the demand for this full complement of products.
Sales to the Partnership represented 20%, 21%, and 23% of MSC's net sales in
fiscal 1998, 1997, and 1996, respectively. MSC's net sales for
electrogalvanizing consists of various fees charged to the Partnership for
operating the facility. Such fees are the predominant financial return to MSC
from its participation in the Partnership. There are both fixed fees (for
selling, general and administrative expenses and a portion of the financing,
taxes, and insurance) and variable fees based on production volumes (for the
balance of the financing, operating expenses, and profit). The Company pays the
actual costs of operating the facility, so the overall profitability of its
participation in the Partnership depends on its skill and efficiency. The
operating expense portion of the variable fee is based on standard costs, which
may be adjusted to reflect matters beyond the Company's control, upon agreement
of the partners or informal
5
arbitration. The fees charged to BSC and Inland by the Partnership for services
fund the standard operating costs of the Partnership (including the Company's
per ton profit allowance) and, at a defined contractual production volume, all
of the Partnership's financing costs. At lesser levels of production, the
Company is obligated to fund a portion (not to exceed 50%) of the Partnership's
financing costs.
BSC and Inland are two of the major suppliers of sheet steel to the United
States automobile industry. The orders for the Partnership's toll coating
services are primarily and independently generated by BSC and Inland for their
respective customers, although the Partnership may also accept orders from
outside parties to the extent of available capacity and production schedules.
Through fiscal 1998, third party sales have not been significant. The sales and
marketing responsibilities of the Partnership are currently split between BSC
and Inland at 76% and 24%, respectively.
The term of the Partnership ends on June 30, 1998. MSC and BSC have entered
into a letter of intent with Inland for BSC, MSC, or both to acquire Inland's
interest in the Partnership. In addition, Inland has agreed to enter into a
tolling agreement with the Partnership for electrogalvanizing services through
December 31, 2001. MSC and BSC intend to extend the existing terms of the
Partnership.
Competition in the production and sale of EG steel for the automotive industry
comes from other steel companies that, either directly or through joint
ventures, produce EG steel on eight manufacturing lines in the United States,
including Inland's other facility. Limited quantities of EG steel also are
imported from foreign steel suppliers. The Company believes the Partnership's
line is well positioned to serve the current and expected end-users of EG steel.
The Company is unable to determine the effect, if any, on the market resulting
from the existence of excess capacity, the entrance of additional capacity,
improved galvanizing technology, or the substitution of other materials.
On December 15, 1997, the Company purchased certain assets and assumed certain
liabilities of a West Coast hot-dipped galvanizing and coil coating business
("Colorstrip, Inc."). Consideration for the purchase was approximately $129
million which was financed through a new bank line of credit and long-term debt.
Located in the San Francisco Bay Area, the operation consists of a 300,000 ton
capacity hot-dipped galvanizing line and a coil coating line capable of
producing 150,000 tons of prepainted metal. The two facilities operate as
MSCPPS, a subsidiary of MSC, and serve the building and construction market
across the western United States.
Hot-dipped galvanizing ("HDG") is a continuous, high-speed roll-to-roll
process for depositing zinc on steel. HDG deposits zinc onto steel by immersing
the steel strip into a molten bath of zinc (hot-dipped) making it corrosion
resistant. Zinc in the presence of a corrosive environment will sacrifice itself
to protect the steel. As such, zinc gives the maximum sacrificial protection to
steel in the greatest number of applications. Galvanized steel may be used as is
or can be painted, resulting in enhanced corrosion protection and versatility.
6
MSCPPS's products are primarily used by the building and construction market
where they are manufactured into such products as roofing, siding, doors, duct
works, lighting fixtures, and a wide variety of other structural components.
MSCPPS generally takes ownership of the metal it processes.
Coated steel continues to be a growing choice for various industrial and
commercial needs because of its economy, versatility, attractiveness, and long
life. The volatility and generally rising prices of lumber also has made coated
steel a growing alternative in the residential construction market, where
durability, strength, fire-resistance, easy maintenance, and environmental
soundness have all contributed to its growth.
Laminates and Composites
- ------------------------
Laminates and composites combine layers of steel or other metals with layers
of polymers or other materials to achieve specific properties, such as noise and
vibration reduction, thermal insulation, or high reflectivity in lighting among
others. These products consist of functionally engineered materials that are
designed to meet specific customer requirements. Products in this group largely
result from the Company's research and development efforts and the proprietary
equipment and processes designed and implemented by its engineering and
manufacturing organizations. The Company supplies its laminates and composites
to a variety of markets both in the United States and internationally. The
majority of these materials are used in the automotive, lighting, appliance, and
computer disk drive industries. The major products in this product group are
disc brake noise dampers, Polycore Composites(R), and Specular+(R).
The disc brake noise damper market developed as manufacturers moved to
asbestos-free brake linings. The increased brake noise these linings produce can
be virtually eliminated by the composite materials pioneered by the Company. The
Company believes its material is used in over 50% of the domestic disc brake
noise dampers manufactured for the original equipment market. The Company also
believes it is a significant supplier to the emerging domestic aftermarket.
Polycore Composites are multilayer composites consisting of various metals,
coatings, and other materials, typically consisting of metal outer skins
surrounding a thin viscoelastic core material. Polycore Composites are
engineered to meet a variety of needs. The Company believes it is a leader in
developing and manufacturing continuously processed coated materials that reduce
noise and create thermal barriers. The automotive industry is the largest market
for metal composites, which are being used to replace solid sheet metal parts,
including oil pans, valve covers, front engine covers, and heat shields.
Polycore Composites are also being evaluated for use in dash panels, floor pans,
and other internal components in order to help reduce road noise. Polycore
Composites are also found in a number of other products, including lawn mower
engines, air conditioners, computer disk drive covers, and appliances, and other
uses are under evaluation.
Specular+ is a silver-sputtered film laminated to metal and then fabricated
into energy-efficient fluorescent lighting fixtures by the Company's customers.
Because pure silver offers
7
unsurpassed reflectivity and precise light control, lighting fixtures made from
Specular+ produce virtually the same amount of light with only half the bulbs of
a typical white painted fixture. The result is a significant reduction in the
cost of electricity for lighting. The high reflective lighting market has
experienced a general softness due to the lack of utility rebates to offset the
higher initial cost of these fixtures and the deregulation of electric
utilities.
The market for laminate and composite materials is competitive, both
domestically and internationally. There are competitors in each product market
served by the Company, some of which have greater resources than the Company.
The Company believes, however, that its technology, product development
capability, technical support, and customer service place it in a strong
competitive position in this market.
Specialty Films
- ---------------
The Company uses continuous, roll-to-roll sputter-deposition technology to
metallize wide rolls of flexible substrates, generally consisting of thin
polymeric films. In the sputter-deposition process, a target material is
disintegrated inside a vacuum chamber by ion bombardment into its component
atoms or molecules, which are then redeposited onto the surface of the base
material to be coated. Such base material (commonly called the substrate or
flexible web) can be polymeric film, foil, fabric, or paper.
Sputter-deposition permits the use of a wide range of target materials, singly
or in combination (including metals, metal alloys, and metal oxides), some of
which cannot be applied in any other way. This flexibility allows formation of
composites of metals, dielectrics, and semiconductors. Sputter-coated, flexible
polymeric substrates may be designed to have specific properties, including
energy reflectance, transmission, absorption, and electrical conductance. After
the sputtering process, these materials are often further enhanced with other
coatings, adhesives, and films on a coating and laminating line, resulting in a
multilayer laminate.
The Company's specialty films sales consist principally of solar control and
safety window films for use in the automotive aftermarket and in the
retrofitting of buildings. The Company sells these products through its own in-
house distribution network and independent distributors. The Company believes
there are significant growth opportunities in the building market, since there
is currently low market penetration, and industrial, commercial, and residential
building owners are becoming more familiar with the benefits of solar control
and safety window films. Solar control window films can lower energy bills year-
round by reducing heat penetration in the summer and by retaining residual
warmth in the winter. They also reject ultraviolet light, thereby eliminating
the damage it causes. In commercial environments, window film generally improves
productivity by reducing glare and heat generation. Safety films, which are
sold to the retrofit market and also to window manufacturers, offer security by
making glass shatter resistant.
8
This product group also manufactures a number of specialty industrial
products, including imaging films used in the photocopier and printing industry;
Insceptors(R), which brown and crisp foods cooked in a microwave oven; and films
used in transparent holograms for anti-counterfeit and tamper-evident products.
This group also produces the silver-sputtered, coated film used in Specular+,
although intercompany sales of such films are excluded from this group's sales.
During fiscal 1998, a subsidiary of the Company acquired designated assets of
a specialty films distribution business in Australia and the remaining 51%
interest of a joint venture in Singapore.
MSC believes that there are four major domestic companies producing
competitive specialty film materials in addition to the Company. Some of these
competitors have greater resources than the Company, including patented
technology. The Company competes on the basis of a number of factors, including
product performance and quality, completeness of product offering, new product
development capabilities, service, and price. The Company believes that it is
competitive in these areas.
International
- -------------
The Company believes that significant opportunities exist internationally,
particularly for the Company's disc brake noise damper products, Polycore
Composites, Specular+, and solar control and safety window film. As a percent of
net sales, direct export sales represented 10%, 11%, and 8% in fiscal 1998,
1997, and 1996, respectively.
The Company has certain distribution agreements and licensing and royalty
agreements with agents and companies in Europe, Latin America, and the Far East
that cover disc brake noise dampers, Polycore Composites, and lighting products.
These agreements provide the Company with opportunities for market expansion in
those geographic areas.
Approximately 39% of the specialty films' products are sold to international
markets directly or through domestic distributors. The Company believes that
international shipments will continue to grow with the expansion of its
distribution network through strategic acquisitions and as emerging markets
increasingly realize the energy saving and ultraviolet light blocking benefits
this product provides.
The Company is pursuing a variety of other business relationships, including
direct sales, distribution agreements, licensing, and other forms of partnering
to increase its international sales and expand its international presence.
Marketing and Sales
- -------------------
The Company markets its hot-dipped galvanizing, laminates and composites, and
coil coating products, services, and technologies primarily through its in-house
sales organization and also through independent distributors, agents, and
licensees. The Company focuses its sales efforts on
9
manufacturers, but also sells to steel mills and their intermediaries, metal
service centers, and metal brokers. BSC and Inland are currently the primary
marketing partners for EG steel. The Company sells its specialty films' products
primarily through its internal distribution network, as well as domestic and
international distributors. All of the Company's selling activities are
supported by technical service departments that aid the customer in the choice
of available materials and their use in the customer's manufacturing process.
The Company estimates that customers in the original equipment and aftermarket
segment of the transportation industry were the end-users for approximately 48%,
52%, and 53% of MSC's net sales in fiscal 1998, 1997, and 1996, respectively.
Due to concentration in the automobile industry, the Company believes that sales
to other individual automobile companies, including indirect sales, are
significant.
The Company is a party to a ten year tolling agreement in which MSC agrees to
provide AK Steel Corporation ("AKS") with coil coating and other ancillary
services from the Middletown, Ohio facility until June 2003. For calendar year
1997, MSC was required to provide AKS with 52% of the facility's capacity. The
balance of capacity is being marketed by the Company's sales force and shifting
production from other MSC plants that, at times, reach their capacity.
The Company's backlog of orders as of February 28, 1998, was approximately
$79.3 million, all of which is expected to be filled during the remainder of the
current fiscal year. The Company's backlog was approximately $48.5 million as of
February 28, 1997.
MSC is generally not dependent on any one source for raw materials or
purchased components essential to its business, and it is believed that such raw
materials and components will be available in adequate quantities to meet
anticipated production schedules.
MSC believes that its business, in the aggregate, is not seasonal. Certain of
its products, however, sell more heavily in some seasons than in others.
Environmental Matters
- ---------------------
The Company is subject to federal, state, and local environmental laws. As a
result of these laws, the Company has incurred, and will continue to incur in
the future, capital expenditures and operating costs and charges. The Company is
involved in two Superfund sites located in Gary and Kingsbury, Indiana. Although
the ultimate cost of the Company's share of necessary cleanup expenses is not
yet known, the Company believes that it is adequately reserved for environmental
matters given the information currently available. See Note 5 of the Notes to
the Consolidated Financial Statements entitled "Environmental and Legal
Matters," on pages 9 and 10 of the Company's annual report, which is
incorporated by reference herein. The Company cannot predict the impact of new
or changed laws or regulations.
The Company believes it operates its facilities and conducts its business, in
all material respects, in accordance with all environmental laws presently
applicable to its facilities. The Company spent approximately $2.2 million in
fiscal 1998, and has budgeted approximately $4.3
10
million during fiscal 1999, for maintenance or installation of environmental
controls at the Elk Grove Village, Illinois; Walbridge, Ohio; Morrisville,
Pennsylvania; Middletown, Ohio; and San Diego and Richmond, California
facilities. See Item 3 "Legal Proceedings" below.
Research and Development
- ------------------------
Management estimates that it spent approximately $6.1 million in fiscal 1998
and $6.7 million in fiscal 1997 and 1996 for product and process development
activities.
While it considers its various patents, licenses, and trademarks to be
important, it does not believe that the loss of any individual patent, license,
or trademark would have a material adverse effect upon its business.
Employees
- ---------
At February 28, 1998, the Company had 1,269 full-time employees. Of these,
approximately 898 were engaged in manufacturing, 176 in marketing and sales, 136
in administrative and clerical positions, and 59 in process and product
development.
The employees at the San Diego, California; Walbridge, Ohio; and the MSCSF
distribution facilities are not represented by a union. Hourly manufacturing
employees at Elk Grove Village, Illinois; Morrisville, Pennsylvania; and
Middletown, Ohio are covered by separate union contracts expiring in February
2002, November 2000, and May 2002, respectively. Hourly manufacturing employees
at Richmond, California are covered by two separate union contracts expiring in
March 2000 and January 2003. The Company believes that its relations with its
employees are good.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of April 24, 1998, are as follows:
Position and
Name Age Year First Elected
---- --- ------------------
Gerald G. Nadig 52 Chairman, President and Chief Executive
Officer, MSC since January 1998; previously
President and Chief Executive Officer, MSC
since January 1997; previously President and
Chief Operating Officer, MSC since July 1991.
Thomas E. Moore 52 Executive Vice President and Chief Operating
Officer, MSC since May 1997; previously
Executive Vice President and General
Manager, MSCWC since 1993.
James J. Waclawik, Sr. 39 Vice President, Chief Financial Officer and
Secretary, MSC since October 1996;
previously Vice President and Controller,
MSC since July 1991.
Frank D. Graziano 65 Senior Vice President, Technology, MSC since
July 1991.
Anton F. Vitzthum 63 Senior Vice President, Manufacturing, MSC
since March 1994; previously Senior Vice
President, Operations, PFM since 1990.
Frank J. Lazowski, Jr. 58 Vice President, Human Resources, MSC since
July 1991.
Robert J. Mataya 55 Vice President, Business Planning and
Development, MSC since July 1991.
David J. DeNeve 29 Controller, MSC since October 1996;
previously Accounting and Tax Manager, MSC
since November 1995; previously Financial
Analyst, MSC since June 1994.
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Position and
Name Age Year First Elected
---- --- ------------------
David A. Fletcher 44 President and Chief Operating Officer, MSCSF
since September 1993; previously Vice
President, Research and Development, MSCSF
since 1989.
Ronald L. Millar 47 Group Vice President and General Manager,
MSCLC since November 1995; previously Vice
President, PFM since 1991.
Douglas M. Rose 48 President, PFM since December 1997.
Edward A. Williams 39 Group Vice President and General Manager,
MSCWC since May 1997; previously Plant
Manager, MSCWC since 1993.
Prior to joining the Company in 1994, Mr. DeNeve was on the audit staff of
Arthur Andersen LLP. Mr. Rose was Executive Vice President, Toyoda Machinery
USA, prior to joining the Company and was Senior Vice President, Toyoda
Machinery USA from 1991 until 1994. Mr. Williams was Director of Pin Mill
Products, National Steel Midwest Division, prior to joining the Company and was
Superintendent, Armco Steel Company from 1989 until 1993.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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ITEM 2. PROPERTIES
- ------- ----------
The Company owns or leases facilities with an aggregate of approximately
1,703,000 square feet of space. The Company considers all of such facilities to
be in good operating condition. In addition to the principal physical properties
used by the Company in its manufacturing operations as summarized in the table
below, the Company leases numerous sales and administrative offices pursuant to
short-term leases.
Approximate
Area in Lease Expiration
Location Square Feet (or Ownership)
-------- ----------- --------------
Elk Grove Village, Illinois 58,000 Owner
Plant No. 1
Elk Grove Village, Illinois 205,000 Owner
Plant No. 2
Elk Grove Village, Illinois 233,000 Owner
Plant No. 3
Morrisville, Pennsylvania 121,000 Owner
Middletown, Ohio 170,000 Owner
Richmond, California 276,000 Owner
Plant No. 1
Richmond, California 203,000 Owner
Plant No. 2
San Diego, California 73,000 February 2007
Walbridge, Ohio 311,000 June 2003(1)
(1) The lease is renewable, at the Company's option, for additional periods
totaling 25 years. Since April 1, 1986, this facility has been subleased to the
Partnership and the sublease is scheduled to expire on June 30, 1998. MSC and
BSC intend to extend the existing terms of the Partnership along with the
sublease (see "Galvanizing").
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ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
See Note 5 of the Notes to Consolidated Financial Statements entitled
"Environmental and Legal Matters," on pages 9 and 10 of the Company's annual
report, which is incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OWNERS
- ------- --------------------------------------------------
There were no matters submitted to the Company's security owners during the
fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
- -------
RELATED SHAREOWNER MATTERS
--------------------------
The Company's common stock, $.02 par value, is listed on the New York Stock
Exchange under the symbol "MSC." The table below sets forth, by fiscal quarter,
the high and low sales prices of the Company's common stock during its past two
fiscal years.
Fiscal Fiscal
Year Quarter High Low
---- ------- ---- ---
1998 1st 17 1/2 13 1/2
2nd 16 1/8 14 1/4
3rd 16 15/16 13 7/8
4th 14 7/16 10 5/16
Fiscal Fiscal
Year Quarter High Low
---- ------- ---- ---
1997 1st 16 7/8 14 1/2
2nd 17 1/4 15
3rd 18 15 1/8
4th 21 15 1/4
There were 1,140 owners of record of the Company's common stock at the close
of business on April 24, 1998. MSC has not paid cash dividends other than a
nominal amount in lieu of fractional shares in connection with stock dividends.
Management currently anticipates that all earnings will be retained for
development of the Company's business. If business circumstances should change,
the Board of Directors may declare and instruct the Company to pay cash
dividends.
15
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Reference is made to the information found under the caption "Selected
Financial Data" on page 1 of the Company's annual report, which is incorporated
by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Reference is made to the information found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 1 through 4 of the Company's annual report, which is incorporated by
reference herein.
Certain statements in this Form 10-K and in future filings of the Company with
the SEC and in the Company's written and oral statements made by or with the
approval of an authorized officer of the Company contain, or will contain,
various "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including assumptions concerning MSC's operations, future results, and
prospects, and the Company intends that such forward-looking statements be
subject to the safe harbors created thereby. These forward-looking statements
are based on MSC's current expectations and are subject to risk and
uncertainties which could cause actual results or events to differ materially
from those set forth or implied. Examples of forward-looking statements
include, but are not limited to, statements regarding the Company's future
financial position and results of operations and cash flows (including future
capital expenditures and anticipated debt levels and strategies for growth),
plans, and objectives. Uncertainties and factors which could cause actual
results or events to differ materially from those set forth or implied include,
but are not limited to, (i) successful development and market introduction of
anticipated new products and technologies; (ii) competitive factors and
competitor's responses to MSC's initiatives; (iii) changes in the current and
future business environment; (iv) adverse changes in government laws and
regulations applicable to the Company; (v) continuation of the favorable
environment to make acquisitions, including regulatory requirements and market
values of candidates; (vi) the stability of governments and business conditions
inside and outside the United States which may affect successful penetration of
the Company's products; (vii) the health of the automobile and durable goods
industries; (viii) environmental risks associated with the manufacturing
operations of the Company; (ix) the loss of one or more significant customers of
the Company; (x) risks associated with the termination of the Partnership in
June 1998; and (xi) increases in the price of raw and other material inputs used
by the Company that cannot be passed on to its customers. The Company does not
undertake any obligation to update or revise any forward-looking statement made
by it or on its behalf, whether as the result of new information, future events,
or otherwise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
(a) The Consolidated Statements of Income for the years ended February 28,
1998 and 1997 and February 29, 1996, Consolidated Statements of Changes in
Shareowners' Equity for the years ended February 28, 1998 and 1997, and February
29, 1996, Consolidated Balance Sheets as of February 28, 1998 and 1997,
Consolidated Statements of Cash Flows for the years ended
16
February 28, 1998 and 1997 and February 29, 1996, Notes to Consolidated
Financial Statements and the Report of Independent Public Accountants, set forth
on pages 5 through 16 of the Company's annual report, are incorporated by
reference herein.
(b) The unaudited selected quarterly financial data is set forth in Note 13 of
the Notes to Consolidated Financial Statements under the caption "Selected
Quarterly Results of Operations (Unaudited)" on page 15 of the Company's annual
report, which is incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
Reference is made to the information found under the caption "Election of
Directors" on pages 2 through 5 of the Company's proxy statement for the 1998
annual meeting of shareowners ("proxy statement"), all of which is incorporated
by reference herein, for information on the directors of the Company. Reference
is made to the information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" set forth on page 14 of the proxy statement, all of which
is incorporated herein by reference. Reference is made to Part I of this report
for information on the executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Reference is made to the information under the captions "Compensation of
Executive Officers", "Compensation and Organization Committee Report", "MSC
Performance Graph", "Employment and Other Agreements", and "Employee and Other
Plans" on pages 7 through 14 of the proxy statement, all of which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
- -------
HOLDERS AND MANAGEMENT
----------------------
Reference is made to the information under the captions "Security Ownership of
Management of the Company" and "Information with Respect to Certain Shareowners"
set forth on pages 5 and 6 of the proxy statement, all of which is incorporated
by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Reference is made to the information under the caption "Employment and Other
Agreements" set forth on page 13 of the proxy statement, all of which is
incorporated herein by reference.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- --------
REPORTS ON FORM 8-K
-------------------
(A) FINANCIAL STATEMENTS AND SCHEDULES OF THE COMPANY
I Financial Statements of the Company. Incorporated herein by reference
-----------------------------------
to pages 5 through 16 of the Company's annual report.
(i) Consolidated Statements of Income for the years ended
February 28 or 29, 1998, 1997, and 1996
(ii) Consolidated Statements of Changes in Shareowners' Equity
for the years ended February 28 or 29, 1998, 1997, and 1996
(iii) Consolidated Balance Sheets - February 28, 1998 and 1997
(iv) Consolidated Statements of Cash Flows for the years ended
February 28 or 29, 1998, 1997, and 1996
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Public Accountants
II Supplemental Schedules
----------------------
(i) Report of Independent Public Accountants with respect to
Supplemental Schedule to the Financial Statements
(ii) Schedule II - Reserve for Receivable Allowances
All other schedules have been omitted, since the required information is not
significant, is included in the financial statements or the notes thereto, or is
not applicable.
(B) REPORTS ON FORM 8-K
On December 30, 1997, the Company filed a Form 8-K regarding the acquisition
of Colorstrip, Inc. and other matters.
On February 27, 1998, the Company filed a Form 8-K/A regarding the audited
historical financial statements and proforma financial information for the
acquisition of Colorstrip, Inc.
18
(C) EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
2(a) Parent Agreement dated as of October 15, 1984, by and
among Bethlehem Steel Corporation, Inland Steel
Company, Pre Finish Metals Incorporated and Material
Sciences Corporation.(1)
2(b) Partnership Agreement dated as of August 30, 1984, by
and among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation and Pre Finish Metals
(EG) Incorporated.(1)
2(c) Amendment No. 1 to the Partnership Agreement dated as
of August 30, 1984.(2)
2(d) Amendment No. 2 to the Partnership Agreement dated as
of August 30, 1984.(2)
2(e) Operating Agreement dated as of October 15, 1984, by
and between Pre Finish Metals (EG) Incorporated and
Walbridge Coatings, An Illinois Partnership.(1)
2(f) Coating Agreement dated as of October 15, 1984, by and
between Bethlehem Steel Corporation and Walbridge
Coatings, An Illinois Partnership.(1)
2(g) Coating Agreement dated as of October 15, 1984, by and
between Inland Steel Company and Walbridge Coatings,
An Illinois Partnership.(1)
2(h) Amendments to Definitive Agreements dated as of March
31, 1986, among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre Finish Metals (EG)
Incorporated, Bethlehem Steel Corporation, Inland
Steel Company, Pre Finish Metals Incorporated and
Material Sciences Corporation.(5)
2(i) Further Amendments to Definitive Agreements dated as
of July 24, 1986, among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre Finish Metals (EG)
Incorporated, Bethlehem Steel Corporation, Inland
Steel Company, Inland Steel Industries, Inc., Pre
Finish Metals Incorporated and Material Sciences
Corporation.(3)
19
Exhibit
Number Description of Exhibit
------ ----------------------
2(j) Further Amendments to Definitive Agreements dated as
of April 23, 1992, among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre Finish Metals (EG)
Incorporated, Bethlehem Steel Corporation, Inland
Steel Company, Inland Steel Industries, Inc., Pre
Finish Metals Incorporated and Material Sciences
Corporation.(6)
2(k) Asset Purchase Agreement by and among Colorstrip,
Inc., the Registrant, and MSC Pinole Point Steel Inc.,
dated as of November 14, 1997.(12)
3(a) Registrant's Restated Certificate of
Incorporation.(11)
3(b) Certificate of Designation, Preferences and Rights of
Series B Junior Participating Preferred Stock.(7)
3(c) Registrant's By-laws, as amended.(5)
4(a) Credit Agreement, dated as of December 12, 1997, among
Registrant, Bank of America National Trust and Savings
Association, as Agent and Letter of Credit Issuing
Bank, and other financial institutions party
thereto.(12)
4(b) First Amendment dated as of April 30, 1998, among
Registrant, Bank of America National Trust and Savings
Association, as Agent and Letter of Credit Issuing
Bank, and other financial institutions party thereto.
4(c) Note Agreement dated as of February 15, 1997, by and
among the Registrant and the purchasers described on
Schedule I attached thereto.(10)
4(d) Note Agreement dated as of February 15, 1998, by and
among the Registrant and the purchasers described on
Schedule I attached thereto.
4(e) First Amendment to Note Agreement dated as of January
23, 1998 among the Registrant, Principal Mutual Life
Insurance Company, Great-West Life & Annuity Insurance
Company, The Great-West Life Assurance Company,
Nationwide Life Insurance Company, Nationwide Life and
Annuity Insurance Company, and West Coast Life
Insurance Company.
20
Exhibit
Number Description of Exhibit
------ ----------------------
4(f) Second Amendment to Note Agreement dated as of
February 27, 1998 among the Registrant, Principal
Mutual Life Insurance Company, Great-West Life &
Annuity Insurance Company, The Great-West Life
Assurance Company, Nationwide Life Insurance Company,
Nationwide Life and Annuity Insurance Company, and
West Coast Life Insurance Company.
4(g) Option Agreement dated as of February 26, 1998,
between the Registrant and Stern Stewart & Co.
4(h) Rights Agreement dated as of June 20, 1996, between
Material Sciences Corporation and Chase Mellon
Shareholder Services, L.L.C. as Rights Agent.(7)
There are omitted certain instruments with respect to
long-term debt, the total amount of securities
authorized under each of which does not exceed 10% of
the total assets of the registrant and its
subsidiaries on a consolidated basis. A copy of each
such instrument will be furnished to the Commission
upon request.
10(a) Material Sciences Corporation Stock Purchase Plan. (1)
10(b) Material Sciences Corporation Supplemental Pension
Plan.(1)
10(c) Material Sciences Corporation Employee Stock Purchase
Plan.(5)
10(d) Material Sciences Corporation 1985 Stock Option Plan
for Key Employees.(5)
10(e) Material Sciences Corporation 1985 Stock Option Plan
for Directors.(5)
10(f) Material Sciences Corporation 1992 Omnibus Stock
Awards Plan for Key Employees.(8)
10(g) Employment Agreement effective February 27, 1991,
between Material Sciences Corporation and G. Robert
Evans.(5)
10(h) Material Sciences Corporation 1991 Stock Option Plan
for Directors.(5)
21
Exhibit
Number Description of Exhibit
------ ----------------------
10(i) Material Sciences Corporation Directors Deferred
Compensation Plan.(5)
10(j) Material Sciences Corporation 1996 Stock Option Plan
for Non-Employee Directors.(9)
10(k) Deferred Compensation Plan of Material Sciences
Corporation and Certain Participating Subsidiaries.(5)
10(l) Lease and Agreement dated as of December 1, 1980,
between Line 6 Corp. and Pre Finish Metals
Incorporated, relating to Walbridge, Ohio facility.(1)
10(m) First Amendment to Lease and Agreement dated as of May
30, 1986, between Corporate Property Associates and
Corporate Property Associates 2 and Pre Finish Metals
Incorporated.(3)
10(n) Sublease dated as of May 30, 1986, between Pre Finish
Metals Incorporated and Walbridge Coatings, An
Illinois Partnership.(3)
10(o) Lease Guaranty dated as of May 30, 1986, from Material
Sciences Corporation to Corporate Property Associates
and Corporate Property Associates 2.(3)
10(p) Note Purchase Agreement dated as of May 30, 1986,
between Material Sciences Corporation and
Creditanstalt-Bankverein (New York Branch).(3)
10(q) Agreement dated as of May 30, 1986, between Material
Sciences Corporation and Corporate Property Associates
and Corporate Property Associates 2.(3)
10(r) Term Loan Agreement dated as of July 23, 1986, among
Walbridge Coatings, An Illinois Partnership,
Creditanstalt-Bankverein (New York Branch) and The
Toledo Trust Company, including the related guaranties
by Material Sciences Corporation and Pre Finish Metals
Incorporated.(3)
10(s) Amendment No. 1 to Term Loan Agreement dated as of
March 31, 1987, among Walbridge Coatings, An Illinois
Partnership, Creditanstalt-Bankverein (New York
Branch) and The Toledo Trust Company.(3)
22
Exhibit
Number Description of Exhibit
------ ----------------------
10(t) Amended and Restated Credit Facility Agreement dated
as of July 23, 1986, between Walbridge Coatings, An
Illinois Partnership, and Creditanstalt-Bankverein,
including the related guaranties by Material Sciences
Corporation and Pre Finish Metals Incorporated.(3)
10(u) Amendment and Consent Agreement dated as of April 23,
1992, among Walbridge Coatings, An Illinois
Partnership, Bethlehem Steel Corporation, EGL Steel,
Inc., Inland Steel Industries, Inc., Inland Steel
Company, Inland Steel Electrogalvanizing Corporation,
Material Sciences Corporation, Pre Finish Metals
Incorporated, Pre Finish Metals (EG) Incorporated, and
Creditanstalt-Bankverein, amending the Term Loan
Agreement dated as of July 23, 1986, as amended on
March 31, 1987, and amending the Amended and Restated
Credit Facility Agreement dated as of July 23, 1986,
including the related guaranties by Material Sciences
Corporation and Pre Finish Metals Incorporated.(6)
10(v) Form of Standstill Agreement dated as of January 29,
1986, among Material Sciences Corporation, Richard L.
Burns and Joyce Burns.(5)
10(w) Form of Indemnification Agreement between Material
Sciences Corporation and each of its officers and
directors.(6)
10(x) Severance Benefits Agreement, dated October 22, 1996
between Material Sciences Corporation and James J.
Waclawik, Sr.(10)
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.(13)
23
_______________
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 2-93414), which was declared effective
on November 27, 1984.
(2) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-00828), which was filed on October
11, 1985.
(3) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 28, 1989 (File No. 1-
8803).
(4) Incorporated by reference to the Registrant's Form 10-Q Quarterly
Report for the Quarter Ended August 31, 1994 (File No. 1-8803).
(5) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 28, 1991 (File No. 1-
8803).
(6) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 29, 1992 (File No. 1-
8803).
(7) Incorporated by reference to the Registrant's Form 8-A filed on June
25, 1996 (File No. 1-8803).
(8) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (Registration No. 333-15679) which was filed on November
6, 1996.
(9) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (Registration No. 333-15677) which was filed on November
6, 1996.
(10) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 28, 1997 (File No. 1-
8803).
(11) Incorporated by reference to the Registrant's Form 10-Q Quarterly
Report for the Quarter Ended August 31, 1997 (File No. 1-8803).
(12) Incorporated by reference to the Registrant's Form 8-K filed on
December 30, 1997 (File No. 1-8803).
(13) Appears only in the electronic filing of this report with the
Securities and Exchange Commission.
24
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.
MATERIAL SCIENCES CORPORATION
By: /s/ Gerald G. Nadig
--------------------------------------
Gerald G. Nadig
Chairman, President and Chief Executive Officer
Date: May 22, 1998
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons in the capacities indicated on May 22,
1998.
Signature Title
--------- -----
/s/ Gerald G. Nadig Chairman, President and Chief Executive Officer and Director
- --------------------------------
Gerald G. Nadig (Principal Executive Officer)
/s/ James J. Waclawik, Sr. Vice President, Chief Financial Officer and Secretary
- --------------------------------
James J. Waclawik, Sr. (Principal Financial Officer)
/s/ David J. DeNeve Controller
- --------------------------------
David J. DeNeve (Principal Accounting Officer)
/s/ Jerome B. Cohen Director
- --------------------------------
Jerome B. Cohen
/s/ Roxanne J. Decyk Director
- --------------------------------
Roxanne J. Decyk
/s/ Eugene W. Emmerich Director
- --------------------------------
Eugene W. Emmerich
/s/ G. Robert Evans Director
- --------------------------------
G. Robert Evans
/s/ E. F. Heizer, Jr. Director
- --------------------------------
E. F. Heizer, Jr.
/s/ Irwin P. Pochter Director
- --------------------------------
Irwin P. Pochter
/s/ Howard B. Witt Director
- --------------------------------
Howard B. Witt
25
EXHIBIT INDEX
MATERIAL SCIENCES CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- -------
REPORTS ON FORM 8-K
-------------------
(A) FINANCIAL STATEMENTS AND SCHEDULES OF THE COMPANY
I Financial Statements of the Company. Incorporated herein by
-----------------------------------
reference to pages 5 through 16 of the Company's annual report.
(i) Consolidated Statements of Income for the years ended
February 28 or 29, 1998, 1997, and 1996
(ii) Consolidated Statements of Changes in Shareowners' Equity
for the years ended February 28 or 29, 1998, 1997 and 1996
(iii) Consolidated Balance Sheets -February 28, 1998 and 1997
(iv) Consolidated Statements of Cash Flows for the years ended
February 28 or 29, 1998, 1997, and 1996
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Public Accountants
II Supplemental Schedules
----------------------
(i) Report of Independent Public Accountants with respect to
Supplemental Schedule to the Financial Statements
(ii) Schedule II - Reserve for Receivable
All other schedules have been omitted, since the required information is not
significant, is included in the financial statements or the notes thereto, or is
not applicable.
26
MATERIAL SCIENCES CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
2(a) Parent Agreement dated as of October 15, 1984, by and
among Bethlehem Steel Corporation, Inland Steel
Company, Pre Finish Metals Incorporated and Material
Sciences Corporation.(1)
2(b) Partnership Agreement dated as of August 30, 1984, by
and among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation and Pre Finish Metals
(EG) Incorporated.(1)
2(c) Amendment No. 1 to the Partnership Agreement dated as
of August 30, 1984.(2)
2(d) Amendment No. 2 to the Partnership Agreement dated as
of August 30, 1984.(2)
2(e) Operating Agreement dated as of October 15, 1984, by
and between Pre Finish Metals (EG) Incorporated and
Walbridge Coatings, An Illinois Partnership.(1)
2(f) Coating Agreement dated as of October 15, 1984, by and
between Bethlehem Steel Corporation and Walbridge
Coatings, An Illinois Partnership.(1)
2(g) Coating Agreement dated as of October 15, 1984, by and
between Inland Steel Company and Walbridge Coatings,
An Illinois Partnership.(1)
2(h) Amendments to Definitive Agreements dated as of March
31, 1986, among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre Finish Metals (EG)
Incorporated, Bethlehem Steel Corporation, Inland
Steel Company, Pre Finish Metals Incorporated and
Material Sciences Corporation.(5)
27
Exhibit
Number Description of Exhibit
------ ----------------------
2(i) Further Amendments to Definitive Agreements dated as
of July 24, 1986, among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre Finish Metals (EG)
Incorporated, Bethlehem Steel Corporation, Inland
Steel Company, Inland Steel Industries, Inc., Pre
Finish Metals Incorporated and Material Sciences
Corporation.(3)
2(j) Further Amendments to Definitive Agreements dated as
of April 23, 1992, among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre Finish Metals (EG)
Incorporated, Bethlehem Steel Corporation, Inland
Steel Company, Inland Steel Industries, Inc., Pre
Finish Metals Incorporated and Material Sciences
Corporation.(6)
2(k) Asset Purchase Agreement by and among Colorstrip,
Inc., the Registrant, and MSC Pinole Point Steel Inc.,
dated as of November 14, 1997.(12)
3(a) Registrant's Restated Certificate of
Incorporation.(11)
3(b) Certificate of Designation, Preferences and Rights of
Series B Junior Participating Preferred Stock.(7)
3(c) Registrant's By-laws, as amended.(5)
4(a) Credit Agreement, dated as of December 12, 1997, among
Registrant, Bank of America National Trust and Savings
Association, as Agent and Letter of Credit Issuing
Bank, and other financial institutions party
thereto.(12)
4(b) First Amendment dated as of April 30, 1998, among
Registrant, Bank of America National Trust and Savings
Association, as Agent and Letter of Credit Issuing
Bank, and other financial institutions party thereto.
4(c) Note Agreement dated as of February 15, 1997, by and
among the Registrant and the purchasers described on
Schedule I attached thereto.(10)
4(d) Note Agreement dated as of February 15, 1998, by and
among the Registrant and the purchasers described on
Schedule I attached thereto.
28
Exhibit
Number Description of Exhibit
------ ----------------------
4(e) First Amendment to Note Agreement dated as of January
23, 1998 among the Registrant, Principal Mutual Life
Insurance Company, Great-West Life & Annuity Insurance
Company, The Great-West Life Assurance Company,
Nationwide Life Insurance Company, Nationwide Life and
Annuity Insurance Company, and West Coast Life
Insurance Company.
4(f) Second Amendment to Note Agreement dated as of
February 27, 1998 among the Registrant, Principal
Mutual Life Insurance Company, Great-West Life &
Annuity Insurance Company, The Great-West Life
Assurance Company, Nationwide Life Insurance Company,
Nationwide Life and Annuity Insurance Company, and
West Coast Life Insurance Company.
4(g) Option Agreement dated as of February 26, 1998,
between the Registrant and Stern Stewart & Co.
4(h) Rights Agreement dated as of June 20, 1996, between
Material Sciences Corporation and Chase Mellon
Shareholder Services, L.L.C. as Rights Agent.(7)
There are omitted certain instruments with respect to
long-term debt, the total amount of securities
authorized under each of which does not exceed 10% of
the total assets of the registrant and its
subsidiaries on a consolidated basis. A copy of each
such instrument will be furnished to the Commission
upon request.
10(a) Material Sciences Corporation Stock Purchase Plan. (1)
10(b) Material Sciences Corporation Supplemental Pension
Plan.(1)
10(c) Material Sciences Corporation Employee Stock Purchase
Plan.(5)
10(d) Material Sciences Corporation 1985 Stock Option Plan
for Key Employees.(5)
10(e) Material Sciences Corporation 1985 Stock Option Plan
for Directors.(5)
29
Exhibit
Number Description of Exhibit
------ ----------------------
10(f) Material Sciences Corporation 1992 Omnibus Stock Awards
Plan for Key Employees.(8)
10(g) Employment Agreement effective February 27, 1991, between
Material Sciences Corporation and G. Robert Evans.(5)
10(h) Material Sciences Corporation 1991 Stock Option Plan for
Directors.(5)
10(i) Material Sciences Corporation Directors Deferred
Compensation Plan.(5)
10(j) Material Sciences Corporation 1996 Stock Option Plan for
Non-Employee Directors.(9)
10(k) Deferred Compensation Plan of Material Sciences
Corporation and Certain Participating Subsidiaries.(5)
10(l) Lease and Agreement dated as of December 1, 1980, between
Line 6 Corp. and Pre Finish Metals Incorporated, relating
to Walbridge, Ohio facility.(1)
10(m) First Amendment to Lease and Agreement dated as of May
30, 1986, between Corporate Property Associates and
Corporate Property Associates 2 and Pre Finish Metals
Incorporated.(3)
10(n) Sublease dated as of May 30, 1986, between Pre Finish
Metals Incorporated and Walbridge Coatings, An Illinois
Partnership.(3)
10(o) Lease Guaranty dated as of May 30, 1986, from Material
Sciences Corporation to Corporate Property Associates and
Corporate Property Associates 2.(3)
10(p) Note Purchase Agreement dated as of May 30, 1986, between
Material Sciences Corporation and Creditanstalt-
Bankverein (New York Branch).(3)
10(q) Agreement dated as of May 30, 1986, between Material
Sciences Corporation and Corporate Property Associates
and Corporate Property Associates 2.(3)
30
Exhibit
Number Description of Exhibit
------ ----------------------
10(r) Term Loan Agreement dated as of July 23, 1986, among
Walbridge Coatings, An Illinois Partnership,
Creditanstalt-Bankverein (New York Branch) and The Toledo
Trust Company, including the related guaranties by
Material Sciences Corporation and Pre Finish Metals
Incorporated.(3)
10(s) Amendment No. 1 to Term Loan Agreement dated as of March
31, 1987, among Walbridge Coatings, An Illinois
Partnership, Creditanstalt-Bankverein (New York Branch)
and The Toledo Trust Company.(3)
10(t) Amended and Restated Credit Facility Agreement dated as
of July 23, 1986, between Walbridge Coatings, An Illinois
Partnership, and Creditanstalt-Bankverein, including the
related guaranties by Material Sciences Corporation and
Pre Finish Metals Incorporated.(3)
10(u) Amendment and Consent Agreement dated as of April 23,
1992, among Walbridge Coatings, An Illinois Partnership,
Bethlehem Steel Corporation, EGL Steel, Inc., Inland
Steel Industries, Inc., Inland Steel Company, Inland
Steel Electrogalvanizing Corporation, Material Sciences
Corporation, Pre Finish Metals Incorporated, Pre Finish
Metals (EG) Incorporated, and Creditanstalt-Bankverein,
amending the Term Loan Agreement dated as of July 23,
1986, as amended on March 31, 1987, and amending the
Amended and Restated Credit Facility Agreement dated as
of July 23, 1986, including the related guaranties by
Material Sciences Corporation and Pre Finish Metals
Incorporated.(6)
10(v) Form of Standstill Agreement dated as of January 29,
1986, among Material Sciences Corporation, Richard L.
Burns and Joyce Burns.(5)
10(w) Form of Indemnification Agreement between Material
Sciences Corporation and each of its officers and
directors.(6)
10(x) Severance Benefits Agreement, dated October 22, 1996
between Material Sciences Corporation and James J.
Waclawik, Sr.(10)
31
Exhibit
Number Description of Exhibit
------ ----------------------
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.(13)
_________________
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 2-93414), which was declared effective
on November 27, 1984.
(2) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-00828), which was filed on October
11, 1985.
(3) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 28, 1989 (File No. 1-
8803).
(4) Incorporated by reference to the Registrant's Form 10-Q Quarterly
Report for the Quarter Ended August 31, 1994 (File No. 1-8803).
(5) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 28, 1991 (File No. 1-
8803).
(6) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 29, 1992 (File No. 1-
8803).
(7) Incorporated by reference to the Registrant's Form 8-A filed on June
25, 1996 (File No. 1-8803).
(8) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (Registration No. 333-15679) which was filed on November
6, 1996.
(9) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (Registration No. 333-15677) which was filed on November
6, 1996.
(10) Incorporated by reference to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended February 28, 1997 (File No. 1-
8803).
32
(11) Incorporated by reference to the Registrant's Form 10-Q Quarterly
Report for the Quarter Ended August 31, 1997 (File No. 1-8803).
(12) Incorporated by reference to the Registrant's Form 8-K filed on
December 30, 1997 (File No. 1-8803).
(13) Appears only in the electronic filing of this report with the
Securities and Exchange Commission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-------------------------------------
33
MATERIAL SCIENCES CORPORATION
Supplemental Schedules
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO SUPPLEMENTAL SCHEDULE
TO THE FINANCIAL STATEMENTS
To the Shareowners and Board of Directors of Material Sciences Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the Material Sciences
Corporation 1998 Annual Report to Shareowners incorporated by reference in this
Form 10-K, and have issued our report thereon dated April 15, 1998. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The supplemental financial statement
schedule is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. The supplemental
financial statement schedule has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 15, 1998
35
SCHEDULE II
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
RESERVE FOR RECEIVABLE ALLOWANCES
(in thousands)
Additions
---------------------------------------------------------------
Balance at Charged to Charged Reclassifications Deductions Balance at
beginning costs and to other and from end of
of year expense accounts Acquisitions reserve year
---------------- ------------- ------------ ----------------- -------------- --------------
1996
- --------------------
Receivable Allowances $ 3,628 $ 6,612 $ - $ 1,934 ($ 7,767) $ 4,407
================ ============= ============ ================= ============== ==============
1997
- --------------------
Receivable Allowances $ 4,407 $ 4,132 $ - $ - ($ 6,268) $ 2,271
================ ============= ============ ================= ============== ==============
1998
- --------------------
Receivable Allowances $ 2,271 $ 11,980 $ - $ 1,354 ($ 10,820) $ 4,785
================ ============= ============ ================= ============== ==============
The activity in the Receivable Allowances account includes the Company's bad
debt, claim, and scrap allowance.
36