Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A7Fd0q+shEnEfFvw85YXF48HeQ3deYaxCsTi8Eg26lmBaV70a/Xj2TBAe/FVPyyE od7QHbqd/bIIJ012sPJYIg== 0001193125-08-003673.txt : 20080109 0001193125-08-003673.hdr.sgml : 20080109 20080109131032 ACCESSION NUMBER: 0001193125-08-003673 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20071130 FILED AS OF DATE: 20080109 DATE AS OF CHANGE: 20080109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATERIAL SCIENCES CORP CENTRAL INDEX KEY: 0000755003 STANDARD INDUSTRIAL CLASSIFICATION: COATING, ENGRAVING & ALLIED SERVICES [3470] IRS NUMBER: 952673173 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08803 FILM NUMBER: 08520049 BUSINESS ADDRESS: STREET 1: 2300 E PRATT BLVD CITY: ELK GROVE VILLAGE STATE: IL ZIP: 60007 BUSINESS PHONE: 8474398270 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

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, 2007

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 incorporation or organization)		(IRS employer identification number)


2200 East Pratt Boulevard Elk Grove Village, Illinois		60007
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (847) 439-2210

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 whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of January 4, 2008, there were 14,271,242 outstanding shares of common stock, $.02 par value.

MATERIAL SCIENCES CORPORATION

FORM 10-Q

For the Quarter Ended November 30, 2007

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

(a)	Financial statements of Material Sciences Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

Material Sciences Corporation and Subsidiaries


	Three Months Ended November 30,						Nine Months Ended November 30,
(In thousands, except per share data)	2007			2006			2007			2006
Net Sales	$	65,074		$	60,653		$	181,905		$	203,730
Cost of Sales		56,054			53,170			158,276			169,855

Gross Profit		9,020			7,483			23,629			33,875
Selling, General and Administrative Expenses		8,361			8,547			27,277			25,745
Restructuring Expenses		—			—			—			592

Income (Loss) from Operations		659			(1,064	)		(3,648	)		7,538

Other (Income) and Expense:
Interest (Income) Expense, Net		(117	)		(115	)		(307	)		(509	)
Equity in Results of Joint Venture		(132	)		(37	)		(257	)		(93	)
Other, Net		(46	)		(36	)		(123	)		(99	)

Total Other Income, Net		(295	)		(188	)		(687	)		(701	)

Income (Loss) from Continuing Operations Before Provision (Benefit) for Income Taxes		954			(876	)		(2,961	)		8,239
Provision (Benefit) for Income Taxes		271			(699	)		(1,095	)		3,442

Income (Loss) from Continuing Operations		683			(177	)		(1,866	)		4,797

Net Income (Loss)	$	683		$	(177	)	$	(1,866	)	$	4,797

Basic Net Income (Loss) Per Share	$	0.05		$	(0.01	)	$	(0.13	)	$	0.33

Diluted Net Income (Loss) Per Share	$	0.05		$	(0.01	)	$	(0.13	)	$	0.33

Weighted Average Number of Common Shares Outstanding Used for Basic Net Income (Loss) Per Share		14,251			14,525			14,419			14,641
Dilutive Shares		—			—			—			26

Weighted Average Number of Common Shares Outstanding Plus Dilutive Shares		14,251			14,525			14,419			14,667

Outstanding Common Stock Options Having No Dilutive Effect		170			227			170			227

The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Balance Sheets (Unaudited)

Material Sciences Corporation and Subsidiaries


(In thousands)	November 30, 2007			February 28, 2007
Assets:
Current Assets:
Cash and Cash Equivalents	$	3,921		$	11,667
Short Term Investment		6,000			—
Receivables, Less Reserves of $3,558 and $4,020, Respectively		37,610			48,121
Income Taxes Receivable		3,082			1,665
Prepaid Expenses		1,160			1,168
Inventories		42,778			42,174
Deferred Income Taxes		4,524			2,204
Assets Held For Sale		3,921			—

Total Current Assets		102,996			106,999

Property, Plant and Equipment		211,550			245,570
Accumulated Depreciation and Amortization		(143,855	)		(170,666	)

Net Property, Plant and Equipment		67,695			74,904

Other Assets:
Investment in Joint Venture		3,059			2,363
Goodwill		1,319			1,319
Deferred Income Taxes		2,080			1,592
Other		228			192

Total Other Assets		6,686			5,466

Total Assets	$	177,377		$	187,369

Liabilities:
Current Liabilities:
Accounts Payable	$	31,455		$	39,251
Accrued Payroll Related Expenses		4,738			5,414
Accrued Expenses		10,060			7,114
Current Liabilities of Discontinued Operation - Pinole Point Steel		45			66

Total Current Liabilities		46,298			51,845

Long-Term Liabilities:
Other		8,278			9,191

Total Long-Term Liabilities		8,278			9,191

Commitments and Contingencies

Shareowners’ Equity:
Preferred Stock		—			—
Common Stock		381			381
Additional Paid-In Capital		79,399			79,171
Treasury Stock at Cost		(52,055	)		(48,757	)
Retained Earnings		92,296			94,255
Accumulated Other Comprehensive Income		2,780			1,283

Total Shareowners’ Equity		122,801			126,333

Total Liabilities and Shareowners’ Equity	$	177,377		$	187,369

The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flow (Unaudited)

Material Sciences Corporation and Subsidiaries


	Nine Months Ended November 30,
(In thousands)	2007			2006
Cash Flows From:
Operating Activities:
Net Income (Loss)	$	(1,866	)	$	4,797
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Depreciation and Amortization		8,759			8,040
Provision for Deferred Income Taxes		(556	)		485
Compensatory Effect of Stock Plans		88			202
Loss on Disposal of Asset		33			50
Other, Net		(257	)		(93	)
Changes in Assets and Liabilities:
Receivables		10,802			(3,705	)
Income Taxes Receivable		(1,704	)		860
Prepaid Expenses		18			(653	)
Inventories		(330	)		(15,360	)
Accounts Payable		(8,025	)		14,085
Accrued Expenses		55			(196	)
Other, Net		(836	)		(337	)

Net Cash Provided by Continuing Operations		6,181			8,175
Net Cash Provided by (Used in) Discontinued Operations		(21	)		(614	)

Net Cash Provided by Operating Activities		6,160			7,561

Investing Activities:
Capital Expenditures		(4,804	)		(10,579	)
Purchases of Short-term investment		(66,325	)
Proceeds from Short-term investment sold		60,325

Net Cash Used in Investing Activities		(10,804	)		(10,579	)

Financing Activities:
Purchases of Treasury Stock		(3,298	)		(2,229	)
Issuance of Common Stock		140			317

Net Cash Used in Financing Activities		(3,158	)		(1,912	)

Effect of Exchange Rate Changes on Cash		56			(21	)

Net Decrease in Cash		(7,746	)		(4,951	)
Cash and Cash Equivalents at Beginning of Period		11,667			13,600

Cash and Cash Equivalents at End of Period	$	3,921		$	8,649

Non-Cash Transactions:
Capital Expenditures in Accounts Payable at End of Period	$	564		$	(892	)

Supplemental Cash Flow Disclosures:
Interest Paid	$	113		$	99
Income Taxes Paid (Refunded), net	$	1,104		$	2,107

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MATERIAL SCIENCES CORPORATION and SUBSIDIARIES

(in thousands except share data)

The data as of November 30, 2007 and for the three and nine months ended November 30, 2007 and 2006 has not been audited by our independent registered public accounting firm. In the opinion of Material Sciences Corporation (the “Company” or “MSC”), the data reflects 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 11, 2007 for the fiscal year ended February 28, 2007.

(1)

Joint Venture. In November 2000, a subsidiary of MSC formed a joint venture with Tekno S.A. (“Tekno”) for the manufacture and sale of Quiet Steel^® and disc brake noise damper material for the South American market. The Company includes its portion of the joint venture’s results in the Condensed Consolidated Statements of Operations under Equity in Results of Joint Venture. The Equity in Results of Joint Venture was income of $132 and $257 for the three and nine months ended November 30, 2007, respectively, compared with $37 and $93 for the same periods in 2006.

(2)	Preferred Stock. Preferred Stock, $1.00 Par Value; 10,000,000 Shares Authorized; 1,000,000 Designated Series B Junior Participating Preferred; None Issued.

(3)	Common Stock. Common Stock, $.02 Par Value; 40,000,000 Shares Authorized; 19,040,293 Shares Issued and 14,271,242 Shares Outstanding as of November 30, 2007 and 19,030,907 Shares Issued and 14,615,259 Shares Outstanding as of February 28, 2007.

(4)

Treasury Stock. In February 2006, the Company’s Board of Directors authorized the repurchase of up to one million shares of common stock. The shares may be repurchased from time-to-time on the open market, subject to market conditions, existing financial covenants associated with the Company’s credit facility and other factors, generally funded with internally generated cash. During the fiscal year ended February 28, 2007, the Company repurchased 227,000 shares of common stock on the open market at a total cost of $2.2 million. In the first two quarters of Fiscal 2008, the Company repurchased 254,694 shares on the open market at a total cost of $2.4 million. On July 12, 2007 the Company entered into a written trading plan under Rule 10b5-1 of the Exchange Act as part of the existing share repurchase program. As of October 19, 2007, the maximum dollar value of shares permitted to be purchased pursuant to the 10b5-1 plan had been purchased. Including the shares purchased pursuant to the 10b5-1 plan, the Company repurchased 98,709 shares on the open market during the fiscal quarter ended November 30, 2007 at a total cost of $0.9 million. Of the one million share repurchase authorized in February 2006, 580,403 shares have been repurchased at a total cost of $5.5 million and 419,597 shares remain to be purchased.

On January 7, 2008, our Board of Directors authorized the repurchase of up to one million shares of common stock, or approximately 7% of the shares outstanding at that time. The shares may be repurchased from time-to-time on the open market, subject to market conditions, existing financial covenants associated with the Company’s credit facility and other factors, generally funded with internally generated cash. This authorization is in addition to the 419,597 shares remaining to be purchased under the February 2006 authorization. The Company had not repurchased any shares under this new authorization as of the date of the filing of this Form 10-Q.


	Shares	Cost of Shares Purchased (in thousands)		Average Price per Share
Treasury Stock as of February 28, 2007	4,415,648	$	48,757	$	11.04
Repurchases During the Nine Months Ended November 30, 2007	353,403		3,298		9.33

Treasury Stock as of November 30, 2007	4,769,051	$	52,055	$	10.92

(5)	Short-Term Investments

The company accounts for its short-term investments in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company’s short-term investments consist of available for sale debt securities. These available for sale securities consist of auction rate securities which are invested in highly rated Nuveen Closed-End funds and are recorded at cost, which approximates fair market value due to their variable interest rates, which typically reset every 7 days. These auction rate securities do not have maturity dates. Despite the long term nature of their stated contractual maturities, the Company generally has the ability to liquidate these securities in 7 days. Management’s intent is to hold these securities as liquid assets convertible to cash for applicable operational needs as they may arise.

As of November 30, 2007 and February 28, 2007 the Company held short-term investments of $6.0 million and nil, respectively, which are auction rate securities. All income generated from these short-term investments is classified as dividend income.

(6)	Comprehensive Income (in thousands).


	Three Months Ended November 30,					Nine Months Ended November 30,
	2007		2006			2007			2006
Net Income (Loss)	$	683	$	(177	)	$	(1,866	)	$	4,797
Other Comprehensive Income (Loss):
Pension/Postretirement SFAS 158 Adjustments, Net of Benefit for Income Taxes of $18, $0, $68 and $0, Respectively		30		—			109			—
Foreign Currency Translation Adjustments		876		205			1,388			568

Comprehensive Income	$	1,589	$	28		$	(369	)	$	5,365

(7)

Indebtedness. The Company has a $30.0 million committed line of credit (“Line”) that had been scheduled to expire on October 11, 2007. On July 24, 2007, the Company signed an amendment to the Line extending the expiration date to April 11, 2008. No other modifications were made to the original agreement. There were no borrowings outstanding under the Line as of November 30, 2007 or February 28, 2007. Borrowing capacity reserved for the Company’s outstanding letters of credit was $1.9 million, and the amount remaining available to be reserved for borrowing was $28.1 million as of November 30, 2007. At the Company’s option, interest is at the bank’s prime rate (7.5% as of November 30, 2007 and February 28, 2007) or at LIBOR plus a margin based on the ratio of funded debt to EBITDA (as defined in the agreement). The financial covenants include a fixed charge coverage ratio of not less than 1.25 to 1.0; a maximum leverage ratio of 3.0 to 1.0; and minimum net worth of $80.0 million plus 50% of positive consolidated net income ending on or after May 31, 2004, or $88.0 million on November 30, 2007. As of November 30, 2007, the Company was in compliance with all debt covenants. Under the Line, there are restrictions on the Company’s use of its cash and cash equivalents related to repurchase of stock, dividends and acquisitions. The Line is secured by specific personal property (including receivables, inventory and property, plant and equipment) of the Company.

(8)	Inventory. Inventories consist of the following (in thousands):


	November 30, 2007		February 28, 2007
Raw Materials	$	17,466	$	17,896
Finished Goods		25,312		24,278

Total Inventories	$	42,778	$	42,174

(9)

Significant Customers. Due to the concentration in the automotive industry, the Company believes that sales to individual automotive customers are significant. The following table shows sales to the Company’s significant customers as a percentage of consolidated net sales for the three and nine months ended November 30, 2007 and 2006.


	% of Consolidated Net Sales for the Three Months Ended November 30,				% of Consolidated Net Sales for the Nine Months Ended November 30,
Customer	2007		2006		2007		2006
Ford	25	%	17	%	26	%	18	%
General Motors	14	%	17	%	14	%	14	%
DaimlerChrysler	12	%	11	%	11	%	13	%
Mitsui Steel	10	%	12	%	11	%	10	%

The following table shows gross accounts receivable from the Company’s significant customers as a percentage of total consolidated gross accounts receivable as of November 30, 2007 and February 28, 2007.


	% of Consolidated Gross Accounts Receivable
Customer	November 30, 2007		February 28, 2007
Ford	22	%	45	%
General Motors	17	%	11	%
DaimlerChrysler	13	%	10	%
Mitsui Steel	6	%	1	%

As noted in the Company’s annual report on Form 10-K for the fiscal year ended February 28, 2007, the Company settled offsetting accounts receivable and accounts payable balances for Ford of $20.4 million during the first quarter of fiscal 2008.

MSC’s domestic and foreign net sales are presented in the table below (in thousands). Of such foreign sales, no one country comprised greater than 10% of consolidated net sales for any period presented.


	Three Months Ended November 30,				Nine Months Ended November 30,
Net Sales	2007		2006		2007		2006
Domestic	$	62,323	$	58,478	$	174,843	$	195,835
Foreign		2,751		2,175		7,062		7,895

Total	$	65,074	$	60,653	$	181,905	$	203,730

(10)	Goodwill. Goodwill is subject to at least an annual assessment of impairment by applying a fair-value based test. The Company performs its annual impairment test on the last day of the fiscal year.

Apart from $1.3 million of goodwill, the Company had no other identified intangible assets recorded on the Condensed Consolidated Balance Sheets. There was no change in the carrying amount of goodwill for the three and nine months ended November 30, 2007.

(11)	Interest (Income) Expense, Net. The table presented below analyzes the components of Interest (income) expense, net (in thousands). In the third quarter ended November 30, 2007, the Company began investing in short-term auction rate preferred securities which produced dividend income.


	Three Months Ended November 30,						Nine Months Ended November 30,
Interest (Income) Expense, Net:	2007			2006			2007			2006
Interest Expense	$	25		$	24		$	103		$	75
Dividend Income		(66	)					(66	)
Interest Income		(76	)		(139	)		(344	)		(584	)

Interest (Income) Expense, Net	$	(117	)	$	(115	)	$	(307	)	$	(509	)

(12)

Restructuring. The production employees at the Company’s Morrisville, Pennsylvania facility previously worked under a union contract which expired in March 2006. The Company implemented new terms and conditions of employment for employees upon the contract’s expiration and offered a voluntary severance package. Thirty one employees accepted the voluntary severance package. In April 2006 the Company commenced hiring employees to replace those who elected the severance package. All employees at the Morrisville facility were working under the terms and conditions of employment implemented by the Company upon the union contract’s application in March 2006 until a new collective bargaining agreement (“New Agreement”) was ratified in August 2007, effective April 3, 2006. The New Agreement will expire on April 8, 2011. The Company recorded $0.6 million in severance and related expenses during the six months ended August 31, 2006 related to this employee restructuring. This entire restructuring reserve of $0.6 million was paid during fiscal 2007.

(13)

Income Taxes. On March 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” The change in net assets recorded as a result of applying this pronouncement is considered a change in accounting principle with the cumulative effect of the change treated as an adjustment to the opening balance of retained earnings. The cumulative effect of implementing FIN 48 was an increase of $1.7 million in reserves for uncertain tax positions with a corresponding increase of $1.6 million in deferred tax assets and a decrease of $0.1 million in the beginning balance of retained earnings.

As of March 1, 2007, the date of adoption of FIN 48, the Company had $3.3 million of unrecognized tax benefits, of which $1.6 million would affect the effective income tax rate if recognized. Any prospective adjustments to the reserve for income taxes will be recorded as an increase or decrease to the provision for income taxes. The impact on the effective tax rate will reflect the change in unrecognized tax benefits and related changes in certain deferred tax assets.

The Company classifies interest expense and any penalties related to income tax uncertainties as a component of income tax expense. The gross amount of interest accrued as of March 1, 2007 was $0.2 million. No penalties were accrued as of March 1, 2007. The total interest expense related to tax uncertainties recognized in the Condensed Consolidated Statements of Operations for the three and nine months ended November 30, 2007, was $24 and $69 respectively.

The Company does not anticipate that the total amount of unrecognized tax benefits will significantly change during the next 12 months. The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include the U.S., the state jurisdictions of Illinois, Michigan, Ohio and Pennsylvania, and Germany. The audit of the Company by the Internal Revenue Service for fiscal year 2004 was completed as of November 30, 2007. The Company is open to examination by the Internal Revenue Service for fiscal years 2005 through 2007. The Company is under audit by the state of Illinois for fiscal years 2004 through 2006 and is open to examination for fiscal year 2007. The Company is in discussions regarding a final determination letter for the Michigan audit for fiscal years 2003 through 2005 and is open to examination for fiscal years 2006 and 2007. The Company is open to examination in Ohio for fiscal years 2003 through 2007, and in Pennsylvania for fiscal years 2004 through 2007. The audit of the Company by the German tax authorities for calendar year 2000 through fiscal year 2004 was completed as of November 30, 2007. The resolution of the U.S. and German tax audits did not materially impact the Company’s results of operations, financial position or cash flow. The Company does not expect the resolution of the Illinois audit will materially impact the results of operations, financial position or cash flow.

On July 12, 2007, the new Michigan Business Tax Act was signed into law with an effective date of January 1, 2008, as the replacement for the Michigan Single Business Tax. Under FASB Statement No. 109, “Accounting for Income Taxes”, the Company is required to include the effect of a change in tax law on a deferred tax liability or asset in the reporting period of the law’s enactment. Consequently, the Company recorded a deferred tax liability in the amount of $0.1 million in the second quarter of fiscal 2008 to include the effect of the Michigan tax law change in the reporting period that includes July 12, 2007. On September 30, 2007, Michigan H.B. 5104 was signed into law amending the Michigan Business Tax to provide for a deduction beginning in the 2015 tax year to offset the financial statement expense associated with establishing deferred tax liabilities, as passed in July 2007. In accordance with FASB Statement No. 109, “Accounting for Income Taxes”, the Company is required to include the effect of a change in tax law on a deferred tax liability or asset in the reporting period of the law’s enactment. Therefore, the Company recorded a deferred tax asset in the third quarter of fiscal 2008 in the amount of $0.1 million as required by the September 2007 law change.

As a result of new German tax legislation effective January 1, 2008, the Company’s effective income tax rate in Germany is reduced from 35.98% to 26.33%. The new German tax rate applies to fiscal year 2008. The impact of the German tax rate reduction has been included in the calculation of the current income tax provision, the deferred tax assets and the tax reserve for Germany. The deferred tax asset has been reduced by $0.8 million, the valuation allowance has been reduced by $0.7 million, and the reserve has been reduced by $0.1 million. The calculations include the adjustment for foreign translation changes. The impact of the German tax rate change on the tax provision was not material.

MSC’s effective income tax provision (benefit) rate for continuing operations was a provision of 28.4% and a benefit of 37.0% for the three and nine months ended November 30, 2007, respectively, compared to a benefit of 79.8% and a provision of 41.8% in the same periods last year. The prior year effective tax rate included the impact of the Company’s review of deferred tax balances and the audit of fiscal years 2002 and 2003 by the Internal Revenue Service, resulting in adjustments of $0.3 million and $56, respectively. The current year effective tax rate includes the effect of the research and development tax credit in the amount of $0.3 million.

(14)

Retirement and Savings Plans. The Company has one defined contribution retirement plan qualifying under the Internal Revenue Code Section 401(k), the Material Sciences Savings & Investment Plan (the “SIP”). All employees of MSC can elect to participate in the SIP. MSC had a non-contributory defined pension plan that covered a majority of its employees. This plan was frozen on June 30, 2006 and the plan assets were merged into the SIP as of January 1, 2007. The Company makes an annual contribution into the SIP at varying rates by location for employees who were covered under the defined pension plan in prior years.

MSC also has non-contributory defined benefit pension plans and other postretirement plans for certain of its employees. In the fourth quarter of fiscal 2007, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 99, 106 and 123(R)” (“SFAS 158”). SFAS 158 requires that an employer that sponsors one or more single-employer defined benefit plans recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status and recognize changes in the funded status of a defined postretirement plan in the year the changes occur, and that those changes be recorded in the employer’s comprehensive income, net of tax, as a separate component of stockholder’s equity. The following table provides the components of net periodic benefit cost for the Company’s defined benefit plans and other postretirement plans.


(in 000’s)	Pension Benefits						Other Benefits
	Three Months Ended November 30,
	2007			2006			2007			2006
Service Cost	$	—		$	—		$	26		$	23
Interest Cost		199			202			34			35
Expected Return on Plan Assets		(155	)		(152	)		(2	)		(1	)
Amortization of Net Loss		43			48			5			9
Amortization of Prior Service Cost		—			13			—			—

Total Net Periodic Benefit Cost	$	87		$	111		$	63		$	66


(in 000’s)	Pension Benefits						Other Benefits
	Nine Months Ended November 30,
	2007			2006			2007			2006
Service Cost	$	—		$	35		$	78		$	68
Interest Cost		607			606			101			105
Expected Return on Plan Assets		(470	)		(455	)		(4	)		(3	)
Amortization of Net Loss		138			143			15			28
Amortization of Prior Service Cost		24			50			—			—
Curtailment Charges		—			215			—			—

Total Net Periodic Benefit Cost	$	299		$	594		$	190		$	198

MSC previously disclosed in its financial statements for the year ended February 28, 2007, that it expected to contribute $1.1 million toward its qualified and nonqualified defined benefit pension plans and $0.1 million toward its postretirement benefit plans other than pension plans in fiscal 2008. As of November 30, 2007, $0.8 million of contributions/payments have been made toward the pension plans and $0.4 million of net contributions/payments have been made to the other postretirement plans.

Effective June 30, 2006, the Company froze the defined benefit pension plan at its Morrisville, Pennsylvania plant. In conjunction with this action, which was announced during the first quarter of fiscal 2007, the Company recorded $0.2 million in pension expenses related to the curtailment of this plan during the quarter ended May 31, 2006.

(15)

Equity and Compensation Plans. Effective March 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, restricted stock and restricted stock units based on estimated fair values at date of grant. SFAS 123(R) supersedes the Company’s previous “disclosure only” provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, and Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.”

The Company has one active equity award plan, the Material Sciences Corporation 1992 Omnibus Awards Plan for Key Employees (“1992 Plan”). There are 3,262,500 shares authorized under the 1992 Plan to provide stock options, restricted stock

and other equity awards under various programs. Non-qualified stock options generally vest over three years from the date of grant and expire between five and ten years from the date of grant. Restricted stock awards generally vest over three to five years from the date of grant. Restricted stock awards have been issued with restrictions based upon time, Company earnings performance or a combination thereof.

The Company also has one inactive equity award plan, the Material Sciences Corporation 2001 Compensation Plan for Non-Employee Directors (“2001 Directors Plan”). The 2001 Directors Plan expired on February 29, 2004, and no additional grants will be made under the plan. There were 29,865 stock options outstanding and exercisable under this plan as of November 30, 2007.

The Company recorded $19 and $54 of compensation expense, net of applicable taxes, in its Condensed Consolidated Statement of Operations for the three and nine months ended November 30, 2007 for stock options that were granted in June 2006. The Company recorded $54 and $123 of compensation expense net of applicable taxes, under SFAS 123 (R) in the three and nine months ended November 30, 2006, respectively.

At the Company’s annual stockholders’ meeting in June 2007, the Company’s stockholders approved the Company’s 2007 Equity Incentive Plan, an annual and long-term incentive plan tied directly to the financial and strategic performance of MSC over preset performance periods as determined by the compensation committee of the Company’s Board of Directors. This incentive plan is designed to allow for the grant of both annual and long-term incentive awards, both in cash and in equity.

Stock Option Activity

The Company granted 150,000 stock options during the quarter ended August 31, 2006. The Black-Scholes weighted average value per option granted was $2.73. As previously noted, the Company recorded compensation expense related to this grant of $19 and $54 net of related taxes, during the three and nine months ended November 30, 2007. There were no options granted, and 11,375 options were forfeited, during the first nine months of fiscal 2008. As of November 30, 2007, there was $0.2 million of total unrecognized pretax compensation expense related to unvested stock option grants which is expected to be recognized ratably over a period ending May 31, 2009.

The Company continues to use the Black-Scholes option pricing model and straight-line amortization of compensation expense over the requisite service period of the grant. The Company will reconsider use of this pricing model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants in future periods have characteristics that cannot be reasonably estimated using this model.

(16)	Segments. MSC operates in one business segment based on management’s view of its business for purposes of evaluating performance and making operating decisions. MSC focuses on providing material-based solutions for acoustical and coated

applications. The acoustical material-based solutions include multilayer composites consisting of metals, polymeric coatings and other materials used to manage noise and vibration. The coated material-based solutions include coil coated and electrogalvanized protective and decorative coatings applied to coils of metal in a continuous, high-speed, roll-to-roll process. These solutions are designed to meet specific customer requirements for the automotive, building and construction, electronics, heating, ventilation and air conditioning, lighting and appliance markets. The Company utilizes a significant level of shared assets and personnel across each of its product categories and it is common for a single customer to purchase products from several different product categories.


	For the three months ended November 30,						For the nine months ended November 30,
	2007			2006			2007			2006
Net Sales ($ in millions)	$		%	$		%	$		%	$		%
Acoustical	$	32.0	49	$	29.9	49	$	89.2	49	$	100.9	50
Coated		33.1	51		30.8	51		92.7	51		102.8	50

Total	$	65.1	100	$	60.7	100	$	181.9	100	$	203.7	100

(17)

New Accounting Pronouncements. Effective March 1, 2007, the Company adopted FIN 48 which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. The impact of the adoption of this pronouncement is discussed in Note 13 in this Form 10-Q.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurement. SFAS 157 does not require any new fair value measurements, but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 157, but does not expect the adoption of this pronouncement will have a material impact on its results of operations, financial position or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option). Unrealized gains and losses on items for which the fair value option has been elected are to be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 159, but does not expect the adoption of this pronouncement will have a material impact on its results of operations, financial position or cash flows.

On December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). SFAS 141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:

(1)

Acquisition costs will be generally expensed as incurred;

(2)

Noncontrolling interests (formerly known as “minority interests” — see Statement 160 discussion below) will be valued at fair value at the acquisition date;

(3)

Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;

(4)

In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;

(5)

Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

(6)

Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

SFAS 141R also includes new disclosure requirements. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact of SFAS No.141R, as the Company will be required to comply with the requirements of this statement for any acquisitions subsequent to March 1, 2009.

On December 4, 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements”—An Amendment of ARB No. 51. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is currently evaluating the impact of SFAS No. 160 on its results of operations, financial position or cash flows.

(18)

Commitments and Contingencies. MSC is a party to various legal proceedings in connection with the remediation of certain environmental matters. The most significant proceeding relates to the Company’s involvement in a Superfund site in Gary, Indiana. MSC has been named as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) for the surface, soil and ground water contamination at this site.

The United States District Court for the Northern District of Indiana has entered a Consent Decree between the government and certain PRPs on the scope of the remediation work at the Gary site. The Company receives periodic updates on the projected costs of the remediation work from the environmental consultant employed by certain PRPs (including the Company) to manage the remediation project. The estimated range of the Company’s remaining liability for this site is $0.5 million to $0.6 million. Remediation work is ongoing and MSC maintains a letter of credit for approximately $1.2 million to secure its obligation to pay its currently estimated share of the remediation expenses at this site.

In November 2003, MSC, along with many other companies, was named as a PRP by the United States Environmental Protection Agency (“USEPA”) under CERCLA at the Lake Calumet Cluster Site in Chicago, Illinois for allegedly sending certain waste from its Elk Grove Village facility to the site. The Illinois EPA (“ILEPA”) has assumed the role of lead agency for the site and will conduct soil grading work, capping and a cost analysis at the site with funds made available by the state. No lawsuits have been filed against any of the PRPs, but it is likely that the USEPA will pursue reimbursement of its past costs. On October 25, 2007, the ILEPA hosted a status update meeting regarding the ongoing work at the Lake Calumet site. IlEPA counsel advised that the ILEPA would be sending a letter at some time in the future to all PRP’s to ask them to reimburse ILEPA for its costs to remediate conditions at the site. Given these facts, the Company increased its environmental reserves for this site by $0.2 million.

In May 2002, the Company sold substantially all of the assets of its Pinole Point Steel business. In December 2004, the purchaser of the facility received a letter from the California Regional Water Quality Control Board requesting an investigation of the contamination of the soil and groundwater at the facility. Depending on the results of the investigation, remediation efforts may be required. The Company believes that the contamination occurred prior to its acquisition of the Pinole Point Steel facility in 1997, and that the sellers of the facility in the 1997 transaction are responsible for the funding of any necessary remediation. In the event that the sellers fail to fund the remediation, the Company may be required to do so. The Company is unable to estimate its potential liability, if any, in this matter due to the limited information provided to-date.

The Company’s environmental reserves, based on management’s best estimate, were approximately $1.0 million as of November 30, 2007 and $0.9 million as of February 28, 2007. The Company does not believe the outcome of its environmental proceedings will have a material adverse effect on the Company’s results of operation, financial position or cash flows, given the reserves recorded as of November 30, 2007 and, where applicable, taking into account contributions from other PRPs. There are, however, a number of uncertainties, including without limitation, the costs of site cleanup, the discretionary authority of federal and state regulatory authorities in bringing enforcement actions and other factors, which affect the Company’s range of exposure. MSC believes its range of exposure for all known environmental exposures, based on allocations of liability among PRPs and the most recent estimate of remedial work and other information available, is $1.0 million to $1.4 million.

The Company also is a party to various legal actions and customer disputes arising in the ordinary course of its business. These legal actions and customer disputes cover a broad variety of claims spanning the Company’s entire business. The Company

believes that the resolution of these legal actions and customer disputes will not, individually or in the aggregate, have a material adverse effect on the Company’s results of operation, financial position or cash flows.

During the fiscal quarter ended May 31, 2007, the Company entered into an agreement to purchase an additional $3.3 million of certain raw materials ratably over a 22-month period ending in June 2009. During the quarter ended August 31, 2007, the Company entered into an agreement to purchase certain amounts of natural gas at a fixed price ending in February 2008.

(19)	Assets Held for Sale

The Company closed its coil coating facility in Middletown, Ohio in July 2004, and recorded a related pre-tax impairment charge of $8.0 million in the fourth quarter of fiscal 2004. Management has been considering various options regarding the disposition of this facility and related equipment including restarting production, selling, leasing, or re-opening in a new location. During the quarter ended November 30, 2007, management committed to a plan to sell this facility and related equipment. The Company has initiated an active plan to sell these assets as soon as practical. An impairment charge of $0.1 million has been recorded in Sales, General and Administrative Expenses to reduce the carrying value of these assets to their fair value less cost to sell of $3.9 million as of November 30, 2007.

MATERIAL SCIENCES CORPORATION and SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto, included in Item 1 of this Form 10-Q, and the audited Consolidated Financial Statements and notes thereto and the MD&A included in the Company’s Annual Report on Form 10-K for the year ended February 28, 2007 filed on May 11, 2007 (“Form 10-K”), as well as the Company’s other filings with the Securities and Exchange Commission.

Executive Summary

Material Sciences Corporation (“MSC”, “we”, “our” or “us”) focuses on providing material-based solutions for acoustical and coated applications. Our acoustical material-based solutions include multilayer composites consisting of metals, polymeric coatings and other materials used to manage noise and vibration (Quiet Steel^®) in such products as automotive body panel laminate parts, brake dampers, engine parts and computer disk drives. Our coated material-based solutions include coil coated and electrogalvanized (“EG”) protective and decorative coatings applied to coils of metal in a continuous, high-speed, roll-to-roll process for such products as automotive fuel tanks, building products, appliances and lighting fixtures. These solutions are designed to meet specific customer requirements for the automotive, building and construction, electronics, heating, ventilation and air conditioning (“HVAC”), appliance, swimming pool and lighting markets. We utilize a significant level of shared assets and management across each of our product categories. It is common for a single customer to purchase products from several different product categories.

As discussed in more detail in our Form 10-K, the general state of the principal industries in which we operate presents the following risks: uncertainty in the North American automobile industry, weakness in the U.S. housing industry, pricing and availability of materials, overcapacity and shifts in the supply models. The three largest North American automobile manufacturers continue to represent three of our four largest customers and their production cuts that were effective for the second half of calendar 2006 have continued in calendar 2007. The continued deterioration of their market share continues to negatively impact our revenues and profits in fiscal 2008. Weakness in the U.S. housing market has resulted in a decrease in revenues and profits in that portion of our coated business. In addition, the pricing of materials continues to increase, including the cost of steel, zinc and nickel, as well as the cost of petroleum-based products. Excess capacity in the domestic coil coating market continues to result in extreme competition in pricing, terms of sale and facility utilization. As discussed in more detail below under “Results of Operations”, we lost a majority of our disk drive business in the third quarter of fiscal 2007 which has negatively impacted revenues and profits in our acoustical business.

As a result of the increased sales efforts we have undertaken to increase our global market share, we made our first sale of acoustical product to a customer in China in the second quarter of fiscal 2008. Additionally, during August 2007 we shipped equipment to Hae Won Steel (“Hae Won”) for the production of Quiet Steel^® and other decorative laminate products in Korea, received related fees of $0.2 million in the third quarter of fiscal 2008, and we experienced our first Japanese automotive manufacturer sales in the second quarter of fiscal 2008.

During the third quarter of fiscal 2008, management committed to a plan to sell assets of $3.9 million related to the Middleton Ohio facility and related equipment that had been idled in July 2004.

10-Q.

Results of Operations

A summary of our consolidated financial performance is as follows:


($ in 000’s)	Three Months Ended November 30,								Nine Months Ended November 30,
($ in 000’s)	2007			2006			% Fav(Unfav) Variance		2007			2006			% Fav(Unfav) Variance
Net Sales	$	65,074		$	60,653		7.3	%	$	181,905		$	203,730		(10.7	)%

Gross Profit	$	9,020		$	7,483		20.5	%	$	23,629		$	33,875		(30.2	)%
% of Net Sales		13.9	%		12.3	%				13.0	%		16.6	%

Selling, General and Administrative	$	8,361		$	8,547		2.2	%	$	27,277		$	25,745		(6.0	)%
% of Net Sales		12.8	%		14.1	%				15.0	%		12.6	%

Sales


($ in 000’s)	Net Sales for the Three Months Ended November 30,
Application	2007		2006		$ Variance			% Variance
Acoustical	$	32,008	$	29,861	$	2,147		7.2	%
Coated		33,066		30,792		2,274		7.4	%

Total	$	65,074	$	60,653	$	4,421		7.3	%


($ in 000’s)	Net Sales for the Nine Months Ended November 30,
Application	2007		2006		$ Variance			% Variance
Acoustical	$	89,254	$	100,907	$	(11,653	)	(11.5	)%
Coated		92,651		102,823		(10,172	)	(9.9	)%

Total	$	181,905	$	203,730	$	(21,825	)	(10.7	)%

Sales of acoustical materials, of $32.0 million and $89.3 million for the three and nine months ended November 30, 2007, increased 7.2% and decreased 11.5%, respectively, from $29.9 million and $100.9 million in the same periods last year. Body panel laminate sales for the third quarter of fiscal 2008 increased 10.3% from $17.4 million to $19.2 million in the same quarter last year due to a specific vehicle launch at one of our customers, and for the nine months ended November 30, 2007 decreased 13.2% from $56.5

million in the same period last year to $49.0 million, primarily due to the continued softness of the North American auto industry. The significant decrease in automobile production by the U.S. automakers has reduced the demand for body panel laminate. We expect this slowdown in the U.S. auto market will continue throughout calendar 2008. Sales in the brake market for the three and nine months ended November 30, 2007 were $6.8 million and $20.6 million, respectively, down 20.0% and 22.0%, respectively, from $8.5 million and $26.4 million in the same periods last year, primarily due to softness in the auto industry and an overall reduction in the quantity of inventory carried by our customers. Growth in our European brake market of approximately $0.9 million and $1.8 million or 59.5% and 40.8% for the three and nine months ended November 30, 2007, respectively, helped to partially offset weakness in the U.S. auto industry. We also lost a majority of our disk drive business in the third quarter of fiscal 2007 because our largest customer in this sector changed its disk drive design methodology and decreased its orders. Disk drive sales of $0.1 million and $0.3 million for the three and nine months ended November 30, 2007 decreased 66.7% and 89.3%, respectively, from $0.3 million and $2.8 million in the same periods last year, primarily due to this lost business. We continue to actively seek new markets, both in the United States and abroad, for our acoustical products. We believe our Application Research Center in Michigan and our Application Development Center in Europe will provide the opportunity to showcase the value that these products can provide to our customers.

Sales of coated materials, which are primarily in the automotive and building industries, of $33.1 million and $92.7 million for the three and nine months ended November 30, 2007, respectively, increased 7.4% and decreased 9.8 %, respectively, from $30.8 million and $102.8 million in the same periods last year. Gas tank sales for the three months ended November 30, 2007 increased 28.4%, from $8.8 million to $11.3 million compared with the same period last year due to the addition of a new program at one of our customers and a one-time sales opportunity to fill a customer shortage, and increased 5.1% from $31.3 million to $32.9 million for the nine months ended November 30, 2007 compared with the same period last year. Sales of appliance products increased 2.9% from $7.0 million to $7.2 million for the three months ended November 30, 2007 due to the additional program of a customer and decreased 6.8% from $23.5 million to $21.9 million for the nine months ended November 30, 2007, compared with the same respective periods last year. Sales of building products for the three and nine months ended November 30, 2007 increased 6.6% and decreased 8.4%, respectively, from $7.6 million to $8.1 million, and from $20.3 million to $18.6 million, respectively, compared with the three and nine months ending November 30, 2006, as the quarter benefited from a customer’s new service center opening and the related initial stocking of its inventory, even while the overall weakness in the United States housing market continues to negatively impact our sales for the year.

Gross Profit

Our gross profit for the three and nine months ended November 30, 2007 was $9.0 million, 13.9% of net sales, and $23.6 million, 13.0% of net sales, respectively, compared with $7.5 million, 12.3% of net sales, and $33.9 million, 16.6% of net sales, in the same periods of fiscal 2007. The $1.5 million increase in gross profit in the third quarter of fiscal 2008 was primarily due to a $4.4 million increase in sales volume from the prior year quarter. Gross profit increased over the comparable prior year quarter by $1.2 million due to increases in product sales, a $0.7 million increase in scrap sales, and $0.2 million in fees from an operating agreement with Hae Won with respect to operations in South Korea, partially offset by $0.6 million increase in costs related to quality issues. The $10.3 million decrease in gross profit for the nine months ended November 30, 2007 was primarily due to a $21.8 million decrease in sales

volume from the prior year. Gross profit for the nine month period decreased from the prior year by $9.6 million due to decreases in product sales, $0.4 million due to decreased scrap sales, $1.0 million increased fixed overhead costs related to increased health costs and depreciation, partially offset by $0.2 million in fees from an operating agreement with Hae Won and $0.5 million due to the net impact of certain other factors.

Selling, General and Administrative Expenses

SG&A expenses for the three months ended November 30, 2007 were $8.4 million, or 12.8% of net sales, compared with $8.5 million, or 14.1% of net sales, in the same period last year. SG&A expenses for the nine months ended November 30, 2007 were $27.3 million, or 15.0% of net sales, compared with $25.7 million, or 12.6% of net sales, in the same period last year. SG&A expenses in the third quarter of fiscal 2008 were lower by $0.1 million compared with last year, as lower professional fees of $0.4 million were partially offset by higher compensation cost of $0.3 million. For the nine-month period ended November 30, 2007, the increase of $1.5 million is primarily due to higher salaries and wages of $0.5 million, increased depreciation costs of $0.8 million, and higher product development expenses of $0.4 million. The increase in salaries and wages is primarily due to annual salary increases which took effect in March. The increased depreciation is primarily due to depreciation on the Application Research Center, the majority of which was placed in service in June and November of calendar 2006. The increased product development expenses and travel costs are a direct result of the increased sales efforts we have undertaken to expand our product base and increase our global market share.

Restructuring

The production employees at the Company’s Morrisville, Pennsylvania facility previously worked under a union contract which expired in March 2006. The Company implemented new terms and conditions of employment for employees upon the contract’s expiration and offered a voluntary severance package. Thirty one employees accepted the voluntary severance package. In April 2006 the Company commenced hiring employees to replace those who elected the severance package. All employees at the Morrisville facility were working under the terms and conditions of employment implemented by the Company upon the union contract’s application in March 2006 until a new collective bargaining agreement (“New Agreement”) was ratified in August 2007, effective April 3, 2006. The New Agreement will expire on April 8, 2011. The Company recorded $0.6 million in severance and related expenses during the six months ended August 31, 2006 related to this employee restructuring. This entire restructuring reserve of $0.6 million was paid during fiscal 2007

Total Other Income, Net

Total other income, net for the three and nine months ended November 30, 2007 was $0.3 million and $0.7 million, respectively, compared with $0.2 million and $0.7 million in the same periods of fiscal 2007. The increase in the three month period is primarily due to higher income recorded related to the Tekno joint venture, and the nine month period is flat compared with last year due mainly to $0.1 million of interest income on an account receivable recovery in the second quarter of fiscal 2007 that did not repeat in fiscal 2008.

Income Taxes

On March 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” The change in net assets recorded as a result of applying this pronouncement is considered a change in accounting principle with the cumulative effect of the change treated as an adjustment to the opening balance of retained earnings. The cumulative effect of implementing FIN 48 was an increase of $1.7 million in reserves for uncertain tax positions with a corresponding increase of $1.6 million in deferred tax assets and a decrease of $0.1 million in the beginning balance of retained earnings.

As of March 1, 2007, the date of adoption of FIN 48, we had $3.3 million of unrecognized tax benefits, of which $1.6 million would affect the effective income tax rate if recognized. Any prospective adjustments to our reserve for income taxes will be recorded as an increase or decrease to our provision for income taxes. The impact on our effective tax rate will reflect the change in unrecognized tax benefits and related changes in certain deferred tax assets.

year to offset the financial statement expense associated with establishing deferred tax liabilities, as passed in July 2007. In accordance with FASB Statement No. 109, “Accounting for Income Taxes”, the Company is required to include the effect of a change in tax law on a deferred tax liability or asset in the reporting period of the law’s enactment. Therefore, the Company recorded a reduction to the deferred tax liability that was established in the second quarter to include the effect of the September 2007 law change. In addition, Michigan H.B. 5408 was signed on December 1, 2007, which imposes a surcharge on the new Michigan Business Tax which takes effect on January 1, 2008. The Company has considered the impact of this surcharge and the above law changes in the current state tax computation and on the deferred tax assets.

MSC’s effective income tax provision (benefit) rate for continuing operations was a provision of 28.4% and a benefit of 37.0% for the three and nine months ended November 30, 2007, respectively, compared to a benefit of 79.8% and a provision of 41.8% in the same periods last year. The prior year effective tax rate included the impact of the Company’s review of deferred tax balances and the audit of fiscal years 2002 and 2003 by the Internal Revenue Service. The current year effective tax rate includes the effect of the research and development tax credit. The Company reversed a portion of the German valuation allowance in the first, second and third quarters of fiscal 2008 as a result of income generated by its German subsidiary. This income allowed the Company to utilize a portion of its German net operating losses in the first, second and third quarters of fiscal 2008.

Liquidity and Capital Resources

We have historically financed our operations with funds generated from operating activities, borrowings under credit facilities and long-term debt instruments and sales of various assets. We believe that our cash on hand, cash generated from operations and cash available under our credit facility will be sufficient to fund our operations and meet our working capital needs.

During the first nine months of fiscal 2008, we generated $6.2 million of cash from operating activities compared to $7.6 million during the first nine months of last fiscal year. The decrease from fiscal 2007 was primarily due to the net loss incurred during fiscal 2008, partially offset by relative reductions in working capital. As we disclosed in our 10-K, we settled $20.4 million of accounts receivable and accounts payable for Ford during the first quarter of fiscal 2008.

In the first nine months of fiscal 2008, we invested $4.8 million in capital improvement projects, compared to $10.6 million in the same period last year. The decrease was primarily attributable to the construction costs of finishing the Application Research Center in Michigan during the first and second fiscal quarters of last year. During the third quarter of fiscal 2008, we made a net investment of $6.0 million in short-term auction rate preferred fund as we are getting a substantial rate improvement between 100 and 120 basis points for investing in this fund.

We have a $30.0 million committed line of credit (“Line”) that had been scheduled to expire on October 11, 2007. On July 24, 2007, we signed an amendment to the Line extending the expiration date to April 11, 2008. No other modifications were made to the original agreement. There were no borrowings outstanding under the Line as of November 30, 2007. Borrowing capacity reserved for outstanding letters of credit was $1.9 million, and the amount remaining available to be reserved for borrowing was $28.1 million as of November 30, 2007. At our option, interest is at the bank’s prime rate (7.25% as of November 30, 2007 and 8.25% at February 28, 2007) or at LIBOR plus a margin based on the ratio of funded debt to EBITDA (as defined in the agreement). The financial covenants include a fixed charge coverage ratio of not less than 1.25 to 1.0; a maximum leverage ratio 3.0 to 1.0; and minimum net worth of $80.0 million plus 50% of positive consolidated net income ending on or after May 31, 2004, or $87.9 million on November 30, 2007. As of November 30, 2007, we were in compliance with all debt covenants. There are restrictions under the Line on our use of cash and cash equivalents related to repurchase of stock, dividends and acquisitions. The Line is secured by specific personal property, including receivables, inventory and property, plant and equipment.

In February 2006, our Board of Directors authorized the repurchase of up to one million shares of common stock. The shares may be repurchased from time-to-time on the open market, subject to market conditions, existing financial covenants associated with the Company’s credit facility and other factors, generally funded with internally generated cash. During the fiscal year ended February 28, 2007, we repurchased 227,000 shares of common stock on the open market at a total cost of $2.2 million. In the first two quarters of fiscal 2008, the Company repurchased 254,694 shares on the open market at a total cost of $2.4 million. On July 12, 2007 we entered into a written trading plan under Rule 10b5-1 of the Exchange Act as part of the existing share repurchase program. As of October 19, 2007, the maximum dollar value of shares per the 10b5-1 plan had been purchased. As a result, we repurchased 98,709 shares during the fiscal quarter ended November 30, 2007 at a total cost of $0.9 million. Of the one million share repurchase authorized in February 2006, 580,403 shares have been repurchased at a total cost of $5.5 million and 419,597 shares remain to be purchased.

10-Q.

We are party to various legal proceedings in connection with the remediation of certain environmental matters. We believe our range of exposure for all known and quantifiable environmental exposures, based on allocations of liability among potentially responsible parties, the most recent estimate of remedial work and other information available was $1.0 million to $1.4 million as of November 30, 2007. Refer to Note 18 of the Notes to the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for additional information.

Contractual Obligations

The only significant change to the contractual obligations table presented in our Form 10-K was that we made commitments in September 2007 for additional purchases of $3.3 million of certain raw materials ratably over a 22-month period ending in June 2009 and signed an agreement in July 2007 to purchase certain amounts of natural gas at a fixed price ending in February 2008.

Critical Accounting Policies

We have identified significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to our financial condition or results of operations under different conditions or using different assumptions. Our most critical accounting policies are related to the following areas: revenue recognition, allowance for doubtful accounts, inventory, long-lived assets, income taxes, environmental reserves and defined benefit retirement plans. Details regarding our use of these policies and the related estimates are described fully in our Form 10-K with the exception of the policy on our allowance for doubtful accounts which we have added below.

We provide for an allowance for uncollectible accounts using both specific and general estimates. We calculate a specific reserve for disputed accounts receivable items by assessing specific receivables that are aged and assessing the aging of the total receivable pool using both historical data and current knowledge of specific items. We calculate a general reserve for bankruptcy and insolvency by applying a fixed allowance percentage to the total receivable pool. The allowance for doubtful accounts was $0.6 million as of November 30, 2007 and $0.5 million as of February 28, 2007. A 10% increase or decrease in our estimates would result in a change in the allowance of less than $60.

In addition, we adopted FIN 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” effective March 1, 2007. The effect of the changes to our Condensed Consolidated Financial Statements is discussed in Note 13 of the Notes to the Condensed Consolidated Financial Statements and in this Item 2 above under the heading “Income Taxes”.

Cautionary Statement Concerning Forward-Looking Statements

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors and shareowners can better understand a company’s future prospects and make informed investment decisions. This Form 10-Q contains forward-looking statements, which include, without limitation, those statements regarding our anticipated results based on our plans and assumptions. We have tried, wherever possible, to identify such statements by using words such as “anticipates”, “estimates”, “expects”, “projects”, “intends”, “will”, “plans”, “believes” and words and terms of similar substance in connection with any discussion of future operating or financial performance.

Achievement of future results is subject to risks, uncertainties and assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Many factors could also cause actual results to be materially different from any future results that may be expressed or implied by the forward-looking statements contained in this Form 10-Q. These factors are discussed in detail in Part I, Item 1A, “Risk Factors” of our Form 10-K.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This discussion of potential risks and uncertainties is by no means complete but is designed to highlight important factors that may impact our financial condition or results of operations. Other sections of this Form 10-Q may include additional factors which could adversely affect our business and financial performance. Moreover, we operate in a competitive environment. New risks emerge from time to time and it is not always possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or to which any factor or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, stockholders should not place undue reliance on forward-looking statements as a prediction of actual results.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in our assessment of our sensitivity to market risk since our presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on May 11, 2007 for the fiscal year ended February 28, 2007.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. The Company periodically reviews the design and effectiveness of its disclosure controls and internal control over financial reporting. The Company makes modifications to improve the design and effectiveness of its disclosure controls and internal control over financial reporting, and may take other corrective actions, if its reviews identify a need for such modifications or actions.

There are inherent limitations to the effectiveness of any system of disclosure controls and internal control over financial reporting, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, management concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.

The required certifications of our principal executive officer and principal financial officer are included as exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures and changes in internal control over financial reporting referred to in those certifications. For a more complete understanding of the matters covered by the certifications, they should be read in conjunction with this Item 4 and Item 9 of the Company’s 2007 Annual Report on Form 10-K as filed with the SEC on May 11, 2007, as of February 28, 2007.

Changes in internal control over financial reporting. Beginning in fiscal 2006 and as disclosed in prior quarters, the Company adopted a long term strategy and began execution thereof to continuously improve internal control over financial reporting to achieve a sustainable and effective internal control structure. Information Technology (IT) systems, people and processes are all tightly interrelated and difficult to separate. Striking the optimum balance between improved processes, better trained and supervised personnel and critical IT improvements is essential for success. To this end, management is executing this long term strategy by (1) upgrading existing financial applications to replace its multiple disparate legacy computer systems with a common Enterprise Resource Planning (ERP) system and (2) realigning the responsibilities of the finance organization to optimize resources and improve internal controls over financial reporting.

The Company completed the implementation of the ERP system for certain Corporate functions in the third fiscal quarter; this completes the implementation of the common ERP system for all domestic locations. The one common ERP system continues to help the Company to standardize, simplify, automate and improve key financial reporting processes and internal controls over financial reporting. During the third fiscal quarter of 2008, the Company continued to enhance its monitoring controls by providing training and management review through a detailed level of active oversight to the financial closing process. We will continue to execute our strategy and monitor the effectiveness of our internal controls over financial reporting, and will continue to make improvements as deemed appropriate. During the quarter ended November 30, 2007, there were no other changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

MATERIAL SCIENCES CORPORATION

FORM 10-Q

For the Quarter Ended November 30, 2007

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to various legal actions arising in the ordinary course of its business. These legal actions cover a broad variety of claims spanning the Company’s entire business. The Company believes that the resolution of these legal actions will not, individually or in the aggregate, have a material adverse effect on the Company’s financial statements. See Note 18 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors

There were no significant changes to the risk factors listed in the Annual Report on Form 10-K for the fiscal year ended February 28, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

None

(b)

None

(c)

The following table shows the repurchases of common stock made by the Company during the third fiscal quarter ended November 30, 2007:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may Yet Be Purchased Under the Plans or Programs (1)
September1-30, 2007	—		—	—	518,306
October 1-31, 2007	98,709	$	9.57	98,709	419,597
November 1-30, 2007	—			—	419,597

Total	98,709	$	9.57	98,709	419,597

(1)

These shares were purchased pursuant to an open market stock repurchase program for up to an aggregate amount of one million shares of common stock, which was previously announced on February 8, 2006 and which has no set termination date. On July 12, 2007 the Company entered into a written trading plan under Rule 10b5-1 of the Exchange Act for the purchase of shares having an aggregate dollar value of $1.0 million, as part of the existing share repurchase program. As of October 19, 2007, the maximum dollar value of shares, excluding brokers’ commissions and transaction fees, had been purchased.

Item 5. Stock Repurchase Authorization

On January 7, 2008, the Board of Directors authorized the repurchase by the Corporation (which may be effected from time to time in accordance with the terms of applicable federal and state securities laws and regulations, including, without limitation, Rule 10b-18 of the Securities Exchange Act of 1934) in the open market of shares of Corporation Stock in a quantity not to exceed one million shares (in addition to the shares that have been or may be purchased pursuant to the 2006 Repurchase Program) (such repurchase, the “2008 Repurchase Program”), and including the incurring of any fees, commissions or other expenses related to such repurchases.

Item 6. Exhibits

Reference is made to the attached Index to Exhibits.

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 undersigned, thereunto duly authorized, in Elk Grove Village, State of Illinois, on the 9th day of January 2008.


MATERIAL SCIENCES CORPORATION

By:		/s/ Clifford D. Nastas
		Clifford D. Nastas
		Chief Executive Officer

By:		/s/ James M. Froisland
		James M. Froisland
		Senior Vice President, Chief Financial Officer, Chief Information Officer and Corporate Secretary

MATERIAL SCIENCES CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended November 30, 2007

Index to Exhibits


Exhibit Number		Description of Exhibit
3.2		By-laws, as amended.

31.1		Rule 13a-14(a)/ 15(d)-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/ 15(d)-14(a) Certification of Chief Financial Officer

32		Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

EX-3.2 2 dex32.htm BY-LAWS, AS AMENDED. By-laws, as amended.

Exhibit 3.2

BY-LAWS

MATERIAL SCIENCES CORPORATION

(Revised June 17, 1998)

(Revised January 4, 2006)

(Revised October 2, 2007)

ARTICLE I

Offices

SECTION 1.1 Registered Office. The registered office of the Corporation in the State of Delaware shall be located at 1209 Orange Street in the City of Wilmington County of New Castle and the name of its registered agent is The Corporation Trust Company. The registered office and/or registered agent of the Corporation may be changed from time to time by action of the Board.

SECTION 1.2 Other Offices. The Corporation may also have offices at such other places both within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

SECTION 2.1 Annual Meeting. The annual meeting of the Stockholders shall be held at 10:00 a.m. on the third Friday in June in each year (if not a legal holiday, or, if a legal holiday, then on the next succeeding business day) or at such other time or date as the Board of Directors shall determine, for the purpose of electing Directors and for the transaction of such other business as may come before the meeting. If the election of Director. shall not be held on the day hereinbefore designated for the annual meeting, or at any adjournment thereof, the Board of Directors shall cause such election to be held at a special meeting of Stockholders as soon thereafter as convenient.

SECTION 2.2 Special Meetings. Except as otherwise prescribed by statute or the Certificate of incorporation, special meetings of the Stockholders, for any purpose or purposes may be called by the Chairman of the Board, in his discretion, and shall be called by the Chairman of the Board or the Secretary at the request in writing of a majority of the directors then holding office, or at the request in writing of Stockholders owning at least the number of shares of the Corporation issued and outstanding and entitled to caste majority of the votes at such meeting. Any such written request shall state the purpose or purposes of the proposed meeting and may designate the location thereof.

SECTION 2.3 Place of Meetings. Each meeting of the Stockholders for the election of Directors shall be held at the principal office of the Corporation in Elk Grove Village, Illinois, unless the Chairman of the Board, a majority of the Directors then holding office, or Stockholders entitled to cast not less than a majority of the Votes at the meeting shall designate any other place, within or Without the State of Delaware, as the place of such meeting. Meetings of Stockholders for any other purpose may be held at such place, within or without the State of Delaware, and at such time as shall be determined pursuant to Section 2.2 and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

SECTION 2.4 Notice of Meetings. Written or printed notice stating the place and time of each annual or special meeting of the Stockholders end, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given no: less than ten days nor more than sixty days before the date of the meeting.

When a meeting is adjourned to another time or place, no notice of the adjourned meeting other than an announcement at the meeting need be given unless the adjournment is for more than thirty days or a new record date is fixed for the adjourned meeting after such adjournment.

SECTION 2.5 Meeting of all Stockholders. If all of the Stockholders of the Corporation entitled to vote shall meet at any time and place, either within or without the state of Delaware, and consent to the holding of a meeting, such meeting shall be valid without call or notice and any corporate action may be taken at such meeting.

SECTION 2.6 Stockholder List. At least ten days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each such Stockholder and the number of shares registered in the name of each such Stockholder, shall be prepared by the officer who has charge of the stock ledger of the Corporation. Such list shall be open to examination of any Stockholder of the Corporation during ordinary business hours, for any purpose germane to the meeting, for a period of at least ten days prior to the meeting, at the office of the Corporation in Elk Grove Village, Illinois, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and subject to the inspection by any Stockholder who may be present.

SECTION 2.7 Quorum. The holders of capital stock of the Corporation having a majority of the voting power thereof, present in person or represented by proxy, shall be requisite for, and shall constitute, a quorum at all meetings of the Stockholders of the Corporation for the transaction of business, except as otherwise provided by Delaware law, the Certificate of Incorporation or

these By-laws. If, however, such quorum shall not be present or represented at any meeting of the Stockholders, the Stockholders entitled to vote thereat present in person or represented by proxy shall have power to adjourn the meeting from time to time until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

SECTION 2.8 Proxies. At every meeting of the Stockholders, each Stockholder having the right to vote thereat shall be entitled to vote in person or by proxy. Such proxy shall be appointed by an instrument in writing subscribed by such Stockholder and bearing a date not more than three years prior to such meeting, unless such proxy provides for a longer period; and it shall be filed with the Secretary of the Corporation before, or at the time of 1 the meeting.

SECTION 2.9 Voting. Unless the Certificate of Incorporation provides otherwise, at every meeting of Stockholders, each Stockholder shall be entitled to one vote for each share of stock of the Corporation entitled to vote thereat and registered in the name of such Stockholder on the books of the Corporation on the pertinent record date. When a quorum is present at any meeting of the Stockholders the vote of the holders of capital stock of the Corporation having a majority of the voting power thereof, represented at such meeting in person or by proxy, shall decide any question brought before such meeting, unless the question is one upon which, by provision of Delaware law, the Certificate of Incorporation or these By-Laws, a different vote is required, in which case such provision shall govern and control the decision of such question. If the Certificate of Incorporation provides for more or less than one vote for any share on any matter, every reference in these By-Laws to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock.

SECTION 2.10 Voting of Certain Shares. Shares standing in the name of another corporation, domestic or foreign, and entitled to vote may be voted by such officer, agent, or proxy as the by-laws of such corporation may prescribe or, in the absence of such provision, as the board of directors of such corporation may determine. Shares standing in the name of a deceased person a minor or an incompetent and entitled to vote may be voted by such person’s administrator, executor, guardian or Conservator, as the case may be, either in person or by proxy. Shares standing in the name of a trustee, receiver or pledgee and entitled to vote may be voted by such trustee, receiver or pledgee either in person or by proxy as provided by Delaware law.

SECTION 2.11 Cumulative Voting. Subject to provisions of the next sentence, at all elections of directors of the Corporation, each Stockholder shall be entitled to cumulate his votes and to give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are entitled, or to distribute his votes on the same principle among as many candidates as he shall think fit. No Stockholder shall be entitled to cumulate his votes unless the name of the

candidate or candidates for whom such votes would be cast has been placed in nomination prior to the voting and any Stock-holder has given notice at the meeting prior to the voting of such Stockholder’s intention to cumulate his votes. The candidates receiving the highest number of votes up to the number of directors to be elected shall be elected.

SECTION 2.12 Action Without Meeting Prohibited. As provided in the Certificate of Incorporation, no action required to or which may, be taken at an annual or special meeting of Stockholders of the Corporation may be taken without a meeting, and the power of the Stockholders of the Corporation to act by written consent, whether pursuant to Section 228 of the General Corporation Law of the State of Delaware or otherwise, is specifically denied.

SECTION 2.13 Treasury Stock. Shares of its own stock belonging to the Corporation or to another corporation if a majority of the shares entitled to vote in the election of directors of such other corporation is held by this Corporation, shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares for the purpose of determining whether a quorum is present. Nothing in this section shall be construed to limit the right of this Corporation to vote shares of its own stock held by it in a fiduciary capacity.

SECTION 2.14 Advance Notice of Nominations. Subject to such rights of the holders of any class or series of preferred stock as shall be prescribed in the Certificate of Incorporation or in the resolutions of the Board providing for the issuance of any such class or series, only persons who are nominated in accordance with the procedures set forth in this Section 2.14 shall be eligible for election as, and to serve as, directors. Nominations of persons for election to the Board may be made at a meeting of the Stockholders at which directors are to be elected (a) by or at the direction of the Board or (b) by any Stockholder of the Corporation entitled to vote at such meeting in the election of directors who complies with the requirements of this Section 2.14. Such nominations, other than those made by or at the direction of the Board, shall be preceded by timely advance notice in writing to the Secretary of the Corporation. To be timely, a Stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the Stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a Stockholder’s notice as described above. A Stockholder’s notice to the Secretary shall set forth (x) as to each person whom the Stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the

number of shares of each class of capital stock of the Corporation beneficially owned by such person, and (iv) the written consent of such person to having such person’s name placed in nomination at the meeting and to serve as a director if elected, and (y) as to the Stockholder giving the notice, (i) the name and address, as they appear on the Corporation’s books, of such Stockholder, and (ii) the number of shares of each class of voting stock of the Corporation which are then beneficially owned by the Stockholder. The presiding officer of the meeting of Stockholders shall determine whether the requirements of this Section 2.14 have been met with respect to any nomination or intended nomination. If the presiding officer determines that any nomination was not made in accordance with the requirements of this Section 2.14, he or she shall so declare at the meeting and the defective nomination shall be disregarded.

SECTION 2.15 Advance Notice of Stockholder Proposals. At any annual meeting of Stockholders and effective as of any Stockholder meeting subsequent to the 1998 annual Stockholder meeting, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (a) by or at the direction of the Board or (b) by any Stockholder of the Corporation who complies with the requirements of this Section 2.15 and as shall otherwise be proper subjects for Stockholder action and shall be properly introduced at the meeting. For a proposal to be properly brought before an annual meeting by a Stockholder, the Stockholder must have given timely advance notice thereof in writing to the Secretary of the Corporation. To be timely, a Stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the Stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a Stockholder’s notice as described above. A Stockholder’s notice to the Secretary shall set forth as to each matter the Stockholder proposes to bring before the annual meeting (w) a description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (x) the name and address, as they appear on the Corporation’s books, of the Stockholder proposing such business and any other Stockholders known by such Stockholder to be supporting such proposal, (y) the class and number of shares of the Corporation’s stock which are beneficially owned by the Stockholder on the date of such notice and (z) any financial interest of the Stockholder in such proposal. The presiding officer of the annual meeting shall determine whether the requirements of this Section 2.15 have been met with respect to any Stockholder proposal. If the presiding officer determines that a Stockholder proposal was not made in accordance with the terms of this Section 2.15, he or she shall so declare at the meeting and any such proposal shall not be acted upon at the meeting.

At a special meeting of Stockholders, only such business shall be acted upon as shall have been set forth in the notice relating to the meeting or as shall constitute matters incident to the conduct of the meeting as the presiding officer of the meeting shall determine to be appropriate.

ARTICLE III

Directors

SECTION 3.1 Number and election. The number of Directors which shall constitute the whole Board shall be as fixed from time to time by a resolution adopted by a majority of the Directors then in office; provided, however, that no decrease in the number of directors constituting the whole Board shall shorten the term of any incumbent Director. Directors shall be elected annually by the Stockholders as provided in Section 2.1 or in accordance with Section 3.2 of these By-Laws and each Director elected shall hold office until his successor is elected and qualified or until his death or resignation or until he shall have been removed in the manner hereinafter provided. Directors need not be residents of the State of Delaware or Stockholders of this Corporation.

SECTION 3.2 Resignations and Vacancies. Any Director may resign at any time by giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein the acceptance of such resignation shall not be necessary to make it effective. If, at any other time than the annual meeting of the Stockholders, any vacancy occurs in the Board of Directors caused by resignation, death, retirement, disqualification or removal from office of any Director or otherwise, or any new Directorship is created by an increase in the authorized number of Directors by amendment of Section 3.1 of these By-Laws, a majority of the Directors then in office, although less than a quorum, may choose a successor, or fill the newly created Directorship, and the Director so chosen shall hold office until the next annual election of Directors by the Stockholders and until his successor shall be duly elected and qualified, unless Sooner displaced.

SECTION 3.3 Removal. Any Director may be removed, with or without cause, at any meeting of the Stockholders, by the affirmative vote of the holders of capital stock of the Corporation having a majority of the voting power thereof, and the vacancy in the Board of Directors caused by such removal may be filled by the Stockholders at such meeting; provided, however, that no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.

SECTION 3.4 Management of Affairs of Corporation. The property and business of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by

Delaware law or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by Stockholders. In case the Corporation shall transact any business or enter into any contract with a Director, or with any firm of which one or more of its Directors are members, or with any trust, firm, corporation or association in which any Director is a Stockholder, director or officer or otherwise interested, the officers of the Corporation and the Directors in question shall be severally under the duty of disclosing all material facts as to their interest to the remaining Directors prior to any authorization of the transaction by the Board. In the case of continuing relationships in the normal course of business such disclosure shall be deemed effective, when once given, as to all transactions and contracts subsequently entered into.

SECTION 3.5 Dividends and Reserves. Dividends upon stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash in property, in shares of stock or otherwise in the form, and to the extent, permitted by law. The Board of Directors may set apart, out of any funds of the Corporation available for dividends, a reserve or reserves for working capital or for any other lawful purpose, and also may abolish any such reserve in the manner in which it was created.

SECTION 3.6 Regular Meetings. An annual melting; of the Board of Directors shall be held, without other notice than this By-Law, immediately after, and at the same place as, the annual meeting of the Stockholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings without other notice than such resolution.

SECTION 3.7 Special Meetings. Special meetings of the Board of Directors may be called by or at the request the Chairman of the Board, the President, any vice president, the Secretary, any assistant secretary or any two Directors, to be held at such time and place, either within or without the State of Delaware, as shall be designated by the call and specified in the notice of such meeting; and notice thereof shall be given as provided in Section 3.8 of these By-Laws.

SECTION 3.8 Notice of Special Meetings. Except as otherwise prescribed by Delaware law, written or actual oral notice of the time and place of each special meeting of the Board of Directors shall be given at least two days prior to the time of holding the meeting. Any Director may waive notice of any meeting.

SECTION 3.9 Quorum. At each meeting of the Board of Directors, the presence of not less than a majority of the total number of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by Delaware law or these By-Laws. If a quorum shall not be present at any meeting of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

SECTION 3.10 Meetings by Conference Telephone. Unless otherwise restricted by the Certificate of Incorporation, any member of the Board of Directors or of any committee designated by the Board may participate in a meeting of the Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by means of such equipment shall constitute presence in person at such meeting.

SECTION 3.11 Presumption of Assent. Unless otherwise provided by Delaware law, a Director of the Corporation who is present at a meeting of the Board of Directors at which action is taken on any corporate matter shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action.

SECTION 3.12 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee.

SECTION 3.13 Executive Committee. The Board of Directors may, by resolution passed by a majority of the number of Directors fixed by these By-Law., designate one or more Directors of the Corporation to constitute an Executive Committee, which, except to the extent otherwise provided in the resolution designating the Executive Committee and by Delaware law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it.

SECTION 3.14 Other Committees. The Board of Directors may, by resolution passed by a majority of the number of Directors fixed by these By-Laws, designate such other committees as it may from time to time determine. Each such committee shall consist of such number of Directors, shall serve for such term and shall have and may exercise, during intervals between meetings of the Board of Directors, such duties, functions and powers as the Board of Directors may from time to time prescribe.

SECTION 3.15 Alternates. The Board of Directors may from time to time designate from among the Directors alternates to serve on one or more committees as occasion may require. Whenever a quorum cannot be secured for any meeting of any committee

from among the regular members thereof and designated alternates, the member or member. of such committee present at such meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of such absent or disqualified member.

SECTION 3.16 Quorum and Manner of Acting - Committees. The presence of a majority of the designated members of any committee shall constitute a quorum for the transaction of business at any meeting of much committee, and the act of a majority of those present shall be necessary for the taking of any action thereat.

SECTION 3.17 Committee Chairmen, Books and Records. The chairman of each committee shall be selected from among the members of the committee by the Board of Directors.

Each committee shall keep a record of its acts and proceedings and all actions of each committee shall be reported to the Board of Directors at its next meeting.

Each committee shall fix its own rules of procedure not inconsistent with these By-Laws or the resolution of the Board or Directors designating such committee and shall meet at such times and places and upon such call or notice as shall be provided by such rules.

SECTION 3.18 Fees and Compensation of Directors. Directors shall not receive any stated salary for their services as such; but, by resolution of the Board of Directors, a fixed fee, with or without expenses of attendance, may be allowed for attendance at each regular or special meeting of the Board. Members of the Board may be allowed their reasonable traveling expenses when actually engaged in the business of the Corporation. Members of any committee may be allowed like fees and expenses for attending committee meetings. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.

SECTION 3.19 Reliance Upon Records. Every Director of the Corporation, and every member of any committee designated by the Board of Directors pursuant to authority conferred by Section 3.15 of these By-Laws, shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the Corporation by any of its officials, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by such committee, or in relying in good faith upon other records of the Corporation, including, without limiting the generality of the foregoing, records setting forth or relating to the value and amount of assets, liabilities and profits of the Corporation or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared or paid or with which stock of the Corporation might lawfully be purchased or redeemed.

ARTICLE IV

Notices

SECTION 4.1 Manner of Notice. Whenever under the provisions of Delaware law, the Certificate of Incorporation or these By-Laws notice is required to be given to any Stockholders Director or member of any committee designated by the Board of Directors, it shall not be construed to require personal delivery and such notice may be given in writing by depositing it, in a sealed envelope, in the United States mails, first class, postage prepaid, addressed (or by delivering it to a telegraph company, charges prepaid, for transmission) to such Stockholder, Director or member either at the address of such Stockholder, Director or member as it appears on the books of the Corporation or, in the case of much a Director or member, at his business address; and much notice shall be deemed to be given at the time when it is thus deposited in the United States mails (or delivered to the telegraph company). Such requirement for notice shall be deemed satisfied, except in the case of Stockholder meetings with respect to which written notice is mandatorily required by law, if actual notice is received orally or in writing by the person entitled thereto as far in advance of the event with respect to which notice is given as the minimum notice period required by law or these By-Laws.

SECTION 4.2 Waiver of Notice. Whenever any notice is required to be given under the provisions of Delaware law, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before, at or after the time stated therein, shall be deemed equivalent thereto. Attendance by a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders, Directors or Committee of Directors need be specified in any written waiver of notice unless so required by Delaware law, the Certificate of Incorporation or these By-Laws.

ARTICLE V

Officers

SECTION 5.1 Offices and Official Positions. The officers of the Corporation shall be a Chairman of the Board, Chief Executive Officer and/or President, one or more Vice Presidents (the rank and number thereof to be determined by the Board of Directors), a Secretary, a Chief Financial Officer and such assistant secretaries, assistant treasurers, and other officers as the Board of Directors shall determine. Any two or more offices may be held by the same person. None of the officers need be a Director or a Stockholder of the Corporation or a resident of the State of Delaware. The Board of Directors may from time to time establish and

abolish official positions within any divisions into which the business and operations of the Corporation may be divided pursuant to Section 6.1 of these By-Laws, and assign titles and duties to such positions. Those appointed to official positions within divisions may, but need not, be officers of the Corporation. The Board of Directors shall appoint officers to official positions within a division and may with or without cause remove from such a position any person appointed to it. In any event, the authority incident to an official position within a division shall be limited to acts and transactions within the scope of the business and operations of such division.

SECTION 5.2 Election and Terms of Office. The officers of the Corporation shall be elected annually by the Board of Directors at their first meeting held after each regular annual meeting of the Stockholders. If the election of officers shall not be held at such meeting of the Board, such election shall be held at a regular or special meeting of the Board of Directors as soon thereafter as may be convenient. Each officer shall hold office until his successor is elected and qualified or until his death or resignation or until he shall have been removed in the manner hereinafter provided.

SECTION 5.3 Removal and Resignation. Any officer may be removed, either with or without cause, by a majority of the Directors then in office at any regular or special meeting of the Board; but such removal shall be without prejudice to the contract rights, if any, of such person so removed. Any officer may resign at any time by giving written notice to the Board of Directors, to the President or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 5.4 Vacancies. A vacancy in any office because of death, resignation, removal, or any other cause may be filled for the unexpired portion of the term by the Board of Directors.

SECTION 5.5 Chairman of the Board. The Board of Directors may, in its discretion, elect a Chairman of the Board, who, unless otherwise determined by the Board of Directors, shall preside at all meetings of the Board of Directors at which he is present and shall exercise and perform any other powers and duties assigned to him by the Board of Directors or prescribed by the By-Laws.

SECTION 5.6 Chief Executive Officer and President.

(a) Chief Executive Officer. The Chief Executive Officer shall have the powers and perform the duties incident to that position. Subject to the powers of the Board of Directors and the Chairman of the Board, the Chief Executive Officer shall be in the general and active charge of the entire business and affairs of the Corporation, and shall be its chief policy making officer. The chief executive officer shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or

provided in these By-Laws. The Chief Executive Officer is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Whenever the office of President is vacant or the President is unable to serve, by reason of sickness, absence or otherwise, the Chief Executive Officer shall perform all the duties and responsibilities and exercise all the powers of the President. In the absence of the Chairman of the Board, or if there be none, the Chief Executive Officer shall preside as chairman at all meetings of the Stockholders and at all meetings of the Board of Directors.

(b) President. Subject to any supervisory powers, if any, that may be given by the Board of Directors or the By-Laws to the Chairman of the Board and Chief Executive Officer, if there be such an officer, the President shall be the Corporation’s general manager and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business, affairs and officers and employees of the Corporation. He shall have the general powers and duties of management usually vested in the office of President of a Corporation; shall have any other powers and duties that are prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the By-Laws; and shall be primarily responsible for carrying out all orders and resolutions of the Board of Directors.

SECTION 5.7 Vice Presidents. In the absence or disability of the chief executive officer, the vice-presidents in order of their rank as fixed by the Board of Director., or, if not ranked the vice president designated by the Board of Directors, or if there has been no such designation the vice president designated by the chief executive officer shall perform all the duties of the chief executive officer and when so acting, shall have all the powers of, and be subject to all the restrictions on, the chief executive officer. Each vice president shall have any of the powers and perform any other duties that from time to time may be prescribed for him by the Board of Director. or the By-laws or the chief executive officer.

SECTION 5.8 Secretary. The Secretary shall keep or cause to be kept a book of minutes of all meetings and actions by written consent of all directors, Stockholders and committees of the Board of Directors. The minutes of each meeting shall state the time and place that it was held and such other information as shall be necessary to determine whether the meeting was held in accordance with law and these By-Laws and the actions taken thereat. The Secretary shall keep or cause to be kept at the Corporation’s principal executive office, or at the office of its transfer agent or registrar a record of the Stockholders of the Corporation giving the names and addresses of all Stockholders and the number and class of shares held by each. The Secretary shall give, or cause to be given, notice of all meetings of Stockholders, directors and committees required to be given under these By-Laws or by law, shall keep or cause the keeping of the corporate seal in safe custody and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or the By-laws or the chief executive officer If the Secretary refused or fails to give notice of any meeting lawfully called, any other officer of the Corporation may give notice of such meeting.

SECTION 5.9 Chief Financial Officer. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account. The Chief Financial Officer shall cause all money and other valuables in the name and to the credit of the Corporation to be deposited at the depositories designated by the Board of Directors or any person authorized by the Board of Directors to designate such depositories. He shall render to the chief executive officer and Board of Directors, when either of them request it, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation; and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or the By-Laws or the chief executive officer.

SECTION 5.10 Assistant Treasurers and Assistant Secretaries. The assistant treasurers and assistant secretaries shall perform all functions and duties which the Secretary or Chief Financial Officer, as the case may be, may assign or delegate; but such assignment or delegation shall riot relieve the principal officer from the responsibilities and liabilities of his office. In addition, an assistant secretary or an assistant treasurer, as thereto authorized by the Board of Directors, may sign with the Chairman of the Board, the President, or a vice president, certificates for shares of the Corporation, the issuance of which shall have been duly authorized by resolution of the Board of Directors; arid the assistant secretaries arid assistant treasurers shall, in general, perform such duties as shall be assigned to them by the Secretary or the Chief Financial Officer, respectively, or by the Chairman of the Board, the President or by the Board of Directors. The assistant treasurers shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums, and with such surety or sureties, as the Board of Directors shall determine.

SECTION 5.11 Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors or by such officer as it shall designate for such purpose or as it shall otherwise direct. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that he is also a Director of the Corporation.

ARTICLE VI

Divisions

SECTION 6.1 Divisions of the Corporation. The Board of Directors shall have the power to create and establish such operating divisions of the Corporation as it may from time to time deem advisable.

SECTION 6.2 Official positions Within a Division. The President may appoint individuals, whether or riot they are officers of the Corporation, to, and may, with or without cause, remove them from, official positions established within a division, but riot filled by the Board of Directors.

ARTICLE VII

Contracts Loans, Checks and Deposits

SECTION 7.1 Contracts and Other Instruments. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute arid deliver any instrument in the name of and on behalf of the Corporation, or of any division thereof, and such authority may be general or confined to specific instances.

SECTION 7.2 Loans. No loans shall be contracted on behalf of the Corporation, or any division thereof, and no evidence of indebtedness shall be issued in the name of the Corporation, or any division thereof, unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

SECTION 7.3 Checks Drafts, etc. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, or any division thereof, shall be signed by such officer or officers agent or agents of the Corporation, and in such manner, as shall from time to time be authorized by the Board of Directors.

SECTION 7.4 Deposits. All funds of the Corporation, or any division thereof, riot otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select.

ARTICLE VIII

Certificates of Stock and Their Transfer

SECTION 8.1 Certificates of Stock. Shares of the capital stock of the Corporation may, but shall not be required to, be issued in certificated form. If such stock is certificated, the certificates of stock of the Corporation shall be in such form as may be determined by the Board of Directors, shall be numbered and shall be entered in the books of the Corporation as they are issued. Certificates of stock issued to a stockholder shall exhibit the holder’s name and number of shares and shall be signed by the Chairman of the Board, the President or a vice president and by the Chief Financial Officer or an assistant treasurer or the Secretary or an assistant secretary. If any stock certificate is signed (i) by a transfer agent or an assistant transfer agent, or (ii) by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any officer of the Corporation may be facsimile. In case any such

officer whose facsimile signature has thus been used on any such certificate shall cease to be such officer, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation, such certificate may nevertheless be delivered by the Corporation, as though the person whose facsimile signature has been used thereon had not ceased to be such officer. All certificates properly surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued to evidence transferred shares until the former certificate for at least a like number of shares shall have been surrendered and canceled and the Corporation reimbursed for any applicable taxes on the transfer, except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefore upon such terms, and with such indemnity, if any, to the Corporation, as the Board of Directors may prescribe specifically or in general terms or by delegation to a transfer agent for the Corporation. Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of holders of certificates representing shares of stock of the same class and same series shall be identical.

SECTION 8.2 Lost. Stolen or Destroyed Certificates. The Board of Directors, in individual cases, or by general resolution or by delegation to the transfer agent, may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates, or his legal representative to advertise the same in such manner as it shall require and or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Nothing in this Section 8.2 shall require the Corporation to issue a new certificate if the Corporation has determined that such shares shall be uncertificated.

SECTION 8.3 Transfers of Stock. The capital stock held of record shall be transferable only on the transfer books of the Corporation, subject to these By-Laws (including the provisions of Article IX of these By-Laws, if applicable), and any restrictions on transfer applicable to the shares being transferred thereby of which the Corporation shall have notice, by the owner in person, or by attorney or legal representative, written evidence of whose authority shall be filed with the Corporation. No transfer of shares of capital stock shall be valid until such transfer has been entered on the books of the Corporation by an entry showing from and to whom transferred and, (i) if the stock is certificated, the transfer shall not be valid until the surrender of the certificate, duly endorsed or accompanied by proper evidence of succession, assignation or transfer, and cancellation of the certificate representing the same or (ii) if the stock is uncertificated, the transfer shall not be valid unless accompanied by a duly executed stock transfer power or other proper transfer instructions from the registered owner of such uncertificated shares.

SECTION 8.4 Restrictions on Transfer. Any Stockholder may enter into an agreement with other Stockholders or with the Corporation providing for reasonable limitation or restriction on the right of such Stockholder to transfer shares of capital stock of the corporation held by him. Any such limitation or restriction on the transfer of shares of this Corporation may be set forth on certificates, if any, representing shares of capital stock or notice thereof may be otherwise given to the Corporation or the transfer agent, in which case the Corporation or the transfer agent shall not be required to transfer such shares upon the books of the Corporation without receipt of satisfactory evidence of compliance with the terms of such limitation or restriction.

SECTION 8.5 Fixing Record Date. The Board of Directors may fix in advance a date not exceeding Sixty days, nor less than ten days, preceding the date of any meeting of Stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining any consent, as a record date for the determination of the Stockholders entitled to notice of. and to vote at, any such meeting, or adjournment thereof or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such Stockholders and only such Stockholders as shall be Stockholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid.

SECTION 8.6 Stockholders of Record. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock as the holder in fact thereof and accordingly, shall riot be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE IX

Restrictions on Transfer of Common Stock Series

Issued Pursuant to Corporation’s Stock Purchase Plan

SECTION 9.1 Applicability. The provisions of this Article IX shall apply to shares of each series of Common Stock (including, without limitation, shares of the Corporation’s Series B Common Stock) issued by the Corporation to persons pursuant to its Stock Purchase Plan as heretofore and hereafter amended (hereinafter in this Article IX, such shares are referred to as the “Series Common Stock”); provided, however, that the provisions arid restrictions of this Article IX shall riot apply to any shares of Common Stock into which the shares of Series Common Stock may have been converted pursuant to the terms of such Series Common Stock.

SECTION 9.2 Consent to Transfer. No holder of Series Common Stock shall transfer, assign, pledge, encumber or otherwise dispose of any shares of Series Common Stock without the prior written approval of the Corporation. Such approval, however, shall not be required with respect to any of the following transactions:

(i) gratuitous transfer of any or all of the Series Common Stock to the members of the holder’s immediate family (i.e., spouse or children) or to a trust established for the benefit of one or more such family members;

(ii) transfer of any or all of the Series Common Stock to the heirs or legatees of the holder by will or the laws of intestate succession;

(iii) pledge of Series Common Stock with the Corporation as security for the payment of the purchase price; or

(iv) conversion of Series Common Stock into shares of Common Stock of the Corporation in accordance with the provisions of the Certificate of Determination of Preferences relating to such Series Common Stock.

Any individual to whom Series Common Stock is transferred by means of a transaction specified in (i) or (ii) above and any individual to whom Series Common Stock is transferred with the prior written approval of the Corporation shall be bound by all the terms and provisions of these By-Laws applicable to Series Common Stock, and no such transferee of Series Common Stock shall be entered on the records of the Corporation as a holder of Series Common Stock unless such transferee files with the Corporation a written acknowledgment of the applicability of these By-Laws to his-Series Common Stock.

SECTION 9.3 Right of First Refusal. In the event any holder of Series Common Stock desires to accept a bone fide third-party offer to purchase any or all of the Series Common Stock held by him (such shares to be hereafter called the “Target Shares”),

the holder shall promptly i) deliver to the Secretary of the Corporation written notice of the offer and the basic terms and conditions thereof, including the proposed purchase price, and (ii) provide satisfactory proof that the disposition of the Target Shares to the third-party offer or would not be in contravention of applicable federal and state securities laws.

SECTION 9.4 Exercise of Right. The Corporation shall, for a period of thirty (30) days following receipt of the notice of intended disposition, have the right to purchase any or all of the Target Shares upon substantially the same terms and conditions specified in such notice. However, should the third party offer involve other than cash consideration for the Target Shares, then the Board of Directors shall have the authority to make a good faith determination of the fair market value of the offered consideration and may effect the purchase of the Target Shares by making a cash payment equal to the value of the offered consideration as determined by the Board of Directors. The Corporation’s repurchase right shall be exercisable by written notice delivered to the holder of the Target Shares prior to the expiration of the thirty (30) day exercise period. If such right is exercised, the Corporation shall effect its purchase of the Target Shares, including payment of the purchase price, not more than thirty (30) days thereafter; and at such time the holder of the Target Shares shall deliver to the Corporation (i) if the Target Shares are certificated, the certificates representing the Target Shares to be purchased, each such certificate to be properly endorsed for transfer., or (ii) if the Target Shares are uncertificated, such other stock transfer power or other proper transfer instructions from the registered owner of such uncertificated Target Shares.

SECTION 9.5 Non-Exercise of Right. In the event written notice of exercise of the purchase right is riot given to the holder of the Target Shares within 30 days following the date of the Corporation’s receipt of the notice of intended disposition, the holder shall, for a period of 30 days thereafter have the right to sell or otherwise dispose of the Target Shares upon terms and conditions (including the purchase price) no more favorable to the third party purchaser than those specified in the notice of intended disposition given to the Corporation; provided, however, that the holder must first obtain the Corporation’s written approval of the sale or disposition in accordance with Section 9.2 above and effect such sale or disposition in compliance with applicable federal and state securities laws and riot in contravention of any contractual restrictions to which the holder is bound. The third party purchaser shall acquire the Target Shares subject to the terms and provisions of these By-Laws applicable to Series Common Stock and shall not make any subsequent disposition of the Target Shares without complying with such terms arid provisions. The third party purchaser shall riot be entered on the records of the Corporation as a holder of the Target Shares unless such individual files with the Corporation a written acknowledgment of the applicability of these By-Laws to his Series Common Stock. In the event the holder does riot sell or otherwise dispose of the Target Shares within the specified 30-day period, the Corporation’s right of first refusal shall continue to be applicable to any subsequent disposition of the Target Shares by the holder.

SECTION 9.6 Assignment. The Corporation may assign its purchase rights under these By-Laws to any person or entity selected by the Board of Directors.

SECTION 9.7 Legend. All certificates, if any, representing shares of Series Common Stock shall be endorsed with the following legend:

“The shares represented by this certificate are subject to certain restrictions on transfer and repurchase rights in favor of the Corporation. Such repurchase rights and transfer restrictions are set forth in the Corporation’s By-Laws, and a copy of the applicable provisions of the By-Laws may be obtained upon written request to the Secretary of the Corporation.”

SECTION 9.8 Notices. Any notice required in connection with the exercise of the Corporation’s right of first refusal or in connection with the disposition of any Series common Stock shall be given in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail, registered or certified, postage prepaid and addressed to the Party entitled to such notice at the address of record.

SECTION 9.9 Contractual Restrictions. The restriction on the transferability of the Series Common Stock imposed by these By-Laws shall not preclude the Corporation from imposing additional restrictions on transferability as a condition for the issuance of one or more shares of Series Common Stock.

ARTICLE X

Indemnification

SECTION 10.1 General. Each person who at any time is or shall have been a Director, officer, employee or agent of this Corporation, or is or shall have been serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and the heirs, executors arid administrators of any such person shall be indemnified by this Corporation in accordance with arid to the full extent permitted by the Delaware General corporation Law as in effect from time to time.

If authorized by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person to the full extent permitted by the Delaware General Corporation Law as in effect at the time of the adoption of this By-Law or as amended from time to time.

ARTICLE XI

General Provisions

SECTION 11.1 Fiscal Year. The fiscal year of the Corporation shall begin on the first day of March of each year and end on the last day of February of the next succeeding calendar year.

SECTION 11.2 Seal. The corporate seal shall have inscribed thereon the name of the Corporation, and the words “CORPORATE SEAL” and “DELAWARE;” and it shall otherwise be in the form approved by the Board of Directors. Such seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or otherwise reproduced.

ARTICLE XII

Amendments

SECTION 12.1 In General. Any provision of these By-laws may be altered, amended or repealed from time to time by the affirmative vote of the holders of capital stock of the Corporation, having a majority of the voting power thereof, present in person or represented by proxy at any annual meeting of Stockholders at which a quorum is present, or at any special meeting of Stockholders at which a quorum is present, if notice of the proposed alteration, amendment or repeal be contained in the notice of such special meeting. or by the affirmative vote of a majority of the Directors then qualified and acting at any regular or special meeting of the Board; provided, however, that the Stockholders may provide specifically for limitations on the power of Directors to amend particular By-Laws and, in such event, the Directors’ power of amendment shall be so limited; and further provided that no reduction in the number of Directors shall have the effect of removing any Director prior to the expiration of his term of office.

EX-31.1 3 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

Exhibit 31.1

Rule 13a-14(a)/ 15(d)-14(a) Certification of Chief Executive Officer

I, Clifford D. Nastas, Chief Executive Officer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Material Sciences Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

January 9, 2008

/s/ Clifford D. Nastas

Clifford D. Nastas

Chief Executive Officer

EX-31.2 4 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

Exhibit 31.2

Rule 13a-14(a)/ 15(d)-14(a) Certification of Chief Financial Officer

I, James M. Froisland, Senior Vice President, Chief Financial Officer, Chief Information Officer and Corporate Secretary, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Material Sciences Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

January 9, 2008

/s/ James M. Froisland

James M. Froisland

Senior Vice President, Chief Financial Officer, Chief Information Officer and Corporate Secretary

EX-32 5 dex321.htm SECTION 906 CEO AND CFO CERTIFICATION Section 906 CEO and CFO Certification

Exhibit 32

SECTION 1350 CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

In connection with the Quarterly Report of Material Sciences Corporation (the “Company”) on Form 10-Q for the fiscal quarter ended November 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clifford D. Nastas, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


January 9, 2008

By:		/s/ Clifford D. Nastas
		Clifford D. Nastas
		Chief Executive Officer

In connection with the Report, I, James M. Froisland, Senior Vice President, Chief Financial Officer, Chief Information Officer and Corporate Secretary of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


January 9, 2008

By:		/s/ James M. Froisland
		James M. Froisland
		Senior Vice President, Chief Financial Officer, Chief Information Officer and Corporate Secretary

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