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Material Sciences Corp. Reports Operating Results (10-Q)

January 14, 2011 | About:
10qk

10qk

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Material Sciences Corp. (MASC) filed Quarterly Report for the period ended 2010-11-30.

Material Sci Cp has a market cap of $92.4 million; its shares were traded at around $6.83 with a P/E ratio of 32.6 and P/S ratio of 0.6.

Highlight of Business Operations:

In April 2010, we sold a portion of our coil coating assets to Roll Coater, Inc. for $10 million ($9.3 million after fees). This included the coil coating machinery, related processing equipment, and corresponding customer base associated with our Plant #7 in Elk Grove Village, Illinois. Based on fiscal 2010 shipments, the associated business base included approximately $28.6 million in sales of general-line coil coated products. Year-to-date fiscal year 2011 sales of these products were approximately $7.6 million. In addition, we entered into a three-year lease agreement to store the purchased equipment. The transaction did not include the sale of any real estate by MSC. The Company recorded a gain on the sale of approximately $4.7 million (net of $0.3 million of fees) in the first quarter of fiscal 2011, which was partially offset by severance expenses of $1.1 million and inventory disposal costs of $0.2 million. As part of the transaction, MSC agreed that it would not develop, manufacture or sell general-line coil coating products in some North American markets for five years. MSC completed the wind-down of its Plant #7 operations on June 11, 2010. MSC retains the right to provide some coil coated products to specific customers. We also will continue to sell certain specialty products including, but not limited to, ElectroBrite®, ViviColor®, Quiet Steel®, Deco Steel®, rubber coated products, film laminated, and all automotive products made at the Plant #2 Elk Grove Village, Illinois and Walbridge, Ohio facilities.

Gross profit for the three months ended November 30, 2010, was $6.8 million, or 22.5% of net sales, compared with $4.3 million, or 11.0% of net sales in the same period of fiscal 2010. The $2.5 million increase in gross profit is due to several factors: 1) $1.0 million due to improved product mix that was the result of lower coil coating and higher electro-galvanized sales, 2) $1.2 million due to improvements in quality and higher secondary scrap sales and 3) $0.3 million from lower customer rebates due to lower coil coating sales compared to fiscal 2010.

SG&A expenses for the three months ended November 30, 2010, were $5.6 million compared with $6.8 million in the same period last year. SG&A expenses in the third quarter of fiscal 2011 decreased by $1.2 million due to reduced salary and headcount-related costs of $1.1 million, driven principally by the restructurings the Company took in fiscal 2010 and fiscal 2011; lower product development expenses of $0.4 million; and decreased professional fees and other general expenses of $0.7 million, offset by higher incentive expenses of $1.0 million. The higher incentive expenses were due to $0.3 million of director phantom stock expense because of the increase in our stock price and $0.7 million of management incentives for fiscal 2011 that are being recognized in the third and fourth quarters of this year.

Gross profit for the nine months ended November 30, 2010, was $22.9 million or 21.6% of net sales, compared with $9.8 million, or 9.6% of net sales in the same period of fiscal 2010. The $13.1 million increase in gross profit related to these factors: 1) $9.0 million from increased sales volume and production utilization, as well as improved product mix that was the result of lower coil coating, higher electro-galvanized and higher acoustical automotive sales 2) $3.2 million due to improvements in quality and higher secondary scrap sales and 3) $0.9 million from lower customer rebates due to lower coil coating sales compared with fiscal 2010.

SG&A expenses for the nine months ended November 30, 2010, were $15.8 million compared with $20.2 million in the same period last year. SG&A expenses in the first nine months of fiscal 2011 were $4.4 million lower than the prior year period, due to 1) a reduction in salary and headcount-related costs of $3.1 million, driven principally by fiscal 2010 and 2011 restructurings; 2) lower professional fees and other general expenses of $2.3 million; and 3) lower product development expenses of $0.6 million. These reductions were partially offset by higher incentive expenses of $1.6 million. The higher incentive expenses were due to $0.6 million of director phantom stock expense because of the increase in our stock price and $1.0 million of management incentives for fiscal 2011 that are being recognized in the third and fourth quarters of this year.

During the first nine months of fiscal 2011, we generated $8.6 million of cash from operating activities compared with $4.5 million during the first nine months of last fiscal year. The increase was primarily due to a $19.3 million increase in net income, $2.9 million of which was a non-cash gain on the sale of assets (net of asset impairment expense), and a decrease in accounts receivable. This was partially offset by lower balances in accounts payable, as well as a smaller improvement in inventory balances and lower tax refunds versus last year. Some of the improvements in working capital can be attributed to the sale of the coil coating assets in April 2010 and the corresponding reduction in sales and production activity.

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