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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No.: 1-8467
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BMC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0169210
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
TWO APPLETREE SQUARE, MINNEAPOLIS, MINNESOTA 55425
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (612) 851-6000
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 20, 1997, 27,425,104 shares of Common Stock of the Registrant were
outstanding. The aggregate market value of the Common Stock as of such date
(based on the closing price of the Common Stock at that date on the New York
Stock Exchange), excluding shares deemed beneficially owned by affiliates, was
approximately $753 million.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of this Annual Report on Form 10-K incorporate by reference
information (to the extent specific pages are referred to herein) from the
Registrant's Annual Report to Stockholders for the year ended December 31, 1996
(the "1996 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the Registrant's Proxy Statement for its Annual Meeting
of Stockholders to be held May 8, 1997.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
BMC Industries, Inc. is a Minnesota corporation with its executive offices
located at Two Appletree Square, Suite 400, Minneapolis, Minnesota 55425;
telephone (612) 851-6000. Unless the context otherwise indicates, the terms
"Company" or "BMC" as used herein mean BMC Industries, Inc. and its consolidated
subsidiaries.
BMC was organized in 1907 under the name Buckbee-Mears Company. Over the course
of its early history, the Company developed an expertise in photolithography and
in the chemical etching of metals. In the 1950's, BMC collaborated in the
development of chemically etched aperture masks for color cathode ray tubes.
The Company entered the optical business in 1969 with the acquisition of Vision-
Ease Lens, a manufacturer of glass multi-focal ophthalmic lenses, based in St.
Cloud, Minnesota.
The Company presently is comprised of two product groups, referred to as
Precision Imaged Products and Optical Products. Precision Imaged Products is
comprised of two units. Mask Operations, the group's principal business,
produces aperture masks ("masks"), an integral component of every color
television and computer monitor picture tube. The Company, through its Mask
Operations, is the only independent mask manufacturer located outside Asia.
Buckbee-Mears St. Paul, the second unit of Precision Imaged Products, is a
leading domestic producer of precision photo-etched parts. Optical Products,
through the Company's Vision-Ease Lens, Inc. subsidiary ("Vision-Ease"),
designs, manufactures and distributes polycarbonate, glass and hard-resin
plastic ophthalmic lenses. As of December 31, 1996, the Company had 2,211
employees.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Financial information about the Company's business segments for the three most
recent fiscal years is contained on page 36 of the 1996 Annual Report, and is
incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The Company's business is divided into two product groups: Precision Imaged
Products and Optical Products.
PRECISION IMAGED PRODUCTS
Precision Imaged Products ("PIP") is comprised of two units, Mask Operations and
Buckbee-Mears St. Paul, which design, manufacture and market precision etched
metal parts, including masks, precision electroformed components and precision
etched and filled glass products.
PRODUCTS AND MARKETING. Mask Operations is comprised of manufacturing
operations in Cortland, New York and Mullheim, Germany. Buckbee-Mears St. Paul
("BMSP") is composed of a manufacturing facility in St. Paul, Minnesota. The
Cortland and Mullheim facilities primarily manufacture masks. The St. Paul
facility manufactures precision etched metal parts, specialty printed circuits,
precision electroformed components and precision etched and filled glass
products. A continuous precision parts etching line at the Company's Mullheim
facility also supplies semi-finished precision etched parts to the St. Paul
facility. Three customers each accounted for more than 10% of PIP's 1996 total
revenues, as well as more than 10% of the Company's 1996 total revenues.
Thomson, S.A. of France (including its U.S.
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based operations) accounted for approximately 19% of the Company's 1996 total
revenues. Thomson produces televisions in North America and Europe under
various trademarks, including RCA and GE. Philips Components B.V. of the
Netherlands and Samsung of South Korea each accounted for approximately 12% of
the Company's 1996 total revenues.
Masks are photochemically etched fine screen grids found in every color
television and computer monitor picture tube. A mask is an exacting gating
devise which directs the correct electron beams to selectively activate the red,
green or blue phosphors on the inside face plate of the cathode ray tube,
producing a color image. Masks are made from cold rolled steel or invar (a
nickel alloy) and range in size from 6 inch to 40 inch diagonal dimensions. The
Company's facilities employ an automated continuous photochemical etching
process originally developed by the Company. Masks are sold directly by the
Company to color picture tube manufacturers in North America, Western and
Eastern Europe, India, and Asia. Mask Operations maintains an in-house sales
staff to sell masks directly to its customers. Net sales of masks comprised
60%, 57% and 54% of the Company's consolidated total revenues in 1996, 1995 and
1994, respectively.
In 1986, the Company added a specialized production line at the Mullheim
facility. This specialized line is designed to manufacture precision etched
components other than masks, such as semiconductor lead frames. During the
fourth quarter of 1995, production began on this line of several demanding
precision etched components for BMSP. BMSP began test production of etched
lead frames on this line in 1996. Based on successful testing, the Company made
a commitment in 1996 to invest in additional capital improvements to this line
to enable high volume production of lead frames.
In February 1994, the Company initiated construction of a new mask production
line at its Mullheim, Germany facility. The Company's efforts to develop the
technology necessary to produce computer monitor masks culminated in success
with the start up of the new production line in the fourth quarter of 1995.
During 1996, the German facility increased yields and built up to full volume
production. The new production line is dedicated exclusively to the production
of computer monitor masks.
In 1995, the Company announced its plans to add two new production lines at the
Cortland, NY facility, one for television masks and the other for computer
monitor masks. The Company began engineering and construction of this expansion
in the third quarter of 1995. The Company anticipates that the expansion will
be completed in the first half of 1997. These two new production lines, along
with the new production line in the German facility will increase total Mask
Operations' manufacturing lines to eight. The expansion is focused particularly
on the growing market for larger size television masks and computer monitor
masks.
The Company is engaged in ongoing efforts to develop the manufacturing and
technical expertise necessary to produce masks for high definition television
("HDTV"). As a result, the Company has delivered limited quantities of
prototype HDTV masks to customers engaged in HDTV research and development.
Commercial production deliveries of other large color cathode ray tube
applications ("jumbo masks"), which are manufactured from invar and steel, have
increased significantly in the last few years, including a 58% increase during
1996 over 1995, due to a corresponding increase in sales of jumbo televisions.
The Company achieved additional milestones in 1996 with the ISO 9002
certification at the Mullheim, Germany facility and ISO 9002 recertification of
the Cortland facility.
Products manufactured at BMSP include precision etched metal parts and precision
electroformed components. These products are sold by the Company, both by in-
house sales personnel and manufacturers representatives, to manufacturers of
automotive components, filtration equipment, microwave antennas,
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computers and printers, various consumer products, medical device components and
computer aided design/computer aided manufacturing ("CAD/CAM") equipment and
military and avionics electronics.
In 1993, the Company (through Mask Operations) entered into a $26 million
contract to deliver and install mask manufacturing equipment to a Chinese
customer. The Company essentially completed this contract during 1996 and the
customer has commenced commercial production.
INTELLECTUAL PROPERTY. The Company has a number of patents which are important
to the success of its PIP operations. These patents range in their expiration
dates from 1998 to 2014. The loss of any single patent would not have a
material adverse effect on the business of the Company as a whole. The Company
believes that improvement of existing products and processes and a reliance on
trade secrets and unpatented proprietary know-how are as important as patent
protection in establishing and maintaining the Company's competitive position.
At the same time, the Company continues to seek patent protection for its
products and processes on a selective basis. However, there can be no assurance
that any patents obtained will provide substantial protection or be of
commercial value. The Company requires its consultants and employees to agree
in writing to maintain the confidentiality of the Company's information and
(within certain limits) to assign to the Company any inventions, and any patent
or other intellectual property rights, relating to the Company's business.
COMPETITION. Competition with respect to the products described above is
intense, with no one competitor dominating the market. The principal methods of
competition are pricing, product quality and product availability, and the
Company competes on the basis of each of these methods.
The Company is one of only five independent mask manufacturers in the world and
the only independent mask manufacturer with production facilities outside Asia.
In addition, several color picture tube manufacturers operate captive mask
production facilities. State directed ventures operate in China. Approximately
85% of the global mask market is supplied by independent mask manufacturers.
The Company believes that it has approximately a 16% share of the total world
mask market held by independent manufacturers.
Many producers compete in the market for precision etched metal parts produced
by BMSP; there is no clear market share leader. The Company sells its precision
etched metal and electroformed parts to approximately 200 industrial users.
SUPPLIES. Each of the PIP operations has available multiple sources of raw
materials needed to manufacture its products. The Cortland operation imports
from Japan and Germany all of its steel and invar requirements necessary in the
manufacture of its products. The Mullheim operation imports a portion of its
steel and invar requirements from Japan. Importation of such steel into the
United States is subject to restrictions imposed by U.S. federal trade
legislation and regulations, but the Company does not anticipate difficulty in
obtaining this or any other raw materials. In 1992, the Company was involved in
a successful effort to exclude mask steel from products involved in a dumping
investigation by the U.S. International Trade Commission.
BACKLOG. As of December 31, 1996, the firm backlog of PIP sales orders was
$17.3 million, compared with $15.9 million as of December 31, 1995. The Company
expects that all of the December 31, 1996 backlog orders will be filled within
the current fiscal year. The Company previously reported backlog orders using a
computation which included its customers' estimated orders for masks for the
next 12 months as of December 31. These orders were based on the results of
annual price/quantity negotiations with mask customers. The Company uses the
estimated orders from price negotiations to allocate
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production capacity among its facilities. The Company also incentivizes its
customers to meet or exceed these estimates. However, since backlog orders may
be changed or cancelled by mask customers without penalty, the Company has
revised its reporting to exclude purchase orders subject to change or
cancellation and to disclose only those purchase orders that are firm and in
hand from all Mask Operations' customers. The $15.9 million in backlog reported
as of December 31, 1995 reflects this revised computation of backlog orders
previously reported as $177 million for the same period under the prior
calculation.
ENVIRONMENTAL. Chemically etching metals, which is performed by all PIP
operations, requires the Company to utilize chemical substances which must be
handled in accordance with applicable laws and regulations. The etching
processes also generate wastewater, which is treated using on-site wastewater
treatment systems, and wastes, some of which are classified as hazardous under
applicable environmental laws and regulations. The Company employs systems for
either disposing of such wastes in accordance with applicable laws or
regulations or recycling the chemicals it utilizes through the manufacturing
process. The wastes and the wastewater treatment systems are monitored by
environmental agencies to assure compliance with applicable standards.
Generation of waste does entail that the Company maintain responsibility for the
waste even after proper disposal. As of March 10, 1997, the Company is involved
in a total of seven (7) sites where environmental investigations are occurring
and final settlement has not been reached, of which five (5) relate to the PIP
division and two (2) relate to the Optical Products division. See "Optical
Products -- Environmental" for a discussion of the sites relating to the Optical
Products division.
During 1996, the Company was identified as a potentially responsible party
("PRP") at a third site at the same location for which the Environmental
Protection Agency (the "EPA") previously named the Company as a PRP. The
Company entered into de minimis settlement agreements for the previous two sites
and expects to be a de minimis party at this site. The Company believes that
these settlements were consistent with the Company's share of responsibility for
the sites. Also in 1996, the Company was released from further liability at a
site for which the State of Minnesota undertook responsibility for the cleanup
pursuant to a state cleanup program.
In addition to the above sites, the Company has been named as a defendant by
parties identified as PRP's for a site in Cortland, New York. The Company
strongly believes it has no involvement with this site and is committed to a
vigorous defense of this case. It is impossible at this time to predict the
likely outcome of this matter or the Company's exposure if this case is decided
adversely. However, it is not currently anticipated that this case, or the
Company's share of the costs of environmental remediation activities for any of
the sites discussed above will have a materially adverse effect on the financial
condition of the Company as a whole.
PIP estimates that in each of 1996 and 1995 it incurred approximately $5.1
million in expenditures (including capital expenditures) related to efforts to
comply with applicable laws and regulations regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment. In addition, it estimates that it will make approximately $2.2
million and $5.0 million in capital expenditures for environmental control
facilities during 1997 and 1998-99, respectively.
SEASONALITY. The Company's earnings from PIP are generally lower in the first
and third quarters due to maintenance shutdowns at the Company's Cortland, NY
and Mullheim, Germany facilities, and the BMSP facility during the third
quarter. Also, the seasonality of televisions and computer monitors, the end
products of masks, moderately affects the Company's annual earnings pattern.
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OPTICAL PRODUCTS
Optical Products, operating under the Vision-Ease Lens trade name, is a major
U.S. manufacturer and distributor of ophthalmic lenses, with group headquarters
located in Brooklyn Park, Minnesota. Vision-Ease includes manufacturing
operations located in Brooklyn Center and St. Cloud, Minnesota, Ft. Lauderdale,
Florida and, through a joint venture established in January 1997, Jakarta,
Indonesia. Vision-Ease also has 15 distribution centers in the U.S., Canada and
England.
PRODUCTS AND MARKETING. Ophthalmic lenses are manufactured from three principal
materials: polycarbonate ("poly"), glass and hard-resin plastic. Hard-resin
plastic lenses include both standard plastic lenses and high-index plastic
lenses. Semi-finished lenses are sold to independent wholesale optical
laboratories or retail outlets with on-site laboratories, which then finish the
lens by grinding and polishing the back side of the lens according to the
prescription provided by the optometrist or ophthalmologist. After processing,
the lens is edged and inserted into the frame by either the wholesale laboratory
or the retail optical dispenser. Factory finished lenses are also sold to
wholesale and retail laboratories. These finished lenses are ready to be edged
and inserted into the frame without laboratory surfacing.
Vision-Ease manufactures finished and semi-finished single-vision and semi-
finished multi-focal poly lenses, including progressive power multi-focal
lenses, at its Brooklyn Center facility. Progressive power multi-focal lenses
provide a gradual transition from distance to near viewing without the line or
visual "jump" generally associated with a multi-focal lens. During the third
quarter of 1996, Vision-Ease began construction of a new $10 million
polycarbonate manufacturing facility in Ramsey, Minnesota. The new facility is
expected to be completed in the third quarter of 1997 and will also be used for
centralized distribution and increased research and development activities. The
Company produces semi-finished glass multi-focal and finished and semi-finished
single-vision lenses at its St. Cloud and Indonesian joint venture facilities.
The Ft. Lauderdale facility currently manufactures semi-finished hard-resin
plastic multi-focal (including high-index) and single-vision lenses, including
plastic progressive power multi-focal lenses, and glass progressive power multi-
focal lenses. However, this facility is winding down production in anticipation
of its closing in August 1997.
In 1994, the Company entered into an OEM sourcing agreement with a low-cost
manufacturer in Southeast Asia for mid-range hard-resin plastic lenses. Under
the terms of the sourcing agreement, Vision-Ease is committed to purchase
approximately $10.7 million of lenses over a four year period. The Southeast
Asian manufacturer began significant shipments of hard-resin lenses to Vision-
Ease in late 1995. This sourcing arrangement allows Vision-Ease to focus
manufacturing capabilities on higher-margin products within this segment and to
be cost-competitive on mid-range, lower-margin products. Profitability of mid-
range hard-resin plastic lenses increased during 1996 as a result of renewed
competitiveness achieved through this sourcing arrangement and increased
purchased volumes.
Over the last three years, the Company has made increasing investments in
process and product development, particularly in poly lens development and other
higher margin products. The result has been the introduction of several new
poly products in 1994 and 1995, including VersaLite-Registered Trademark- 1.0 (a
thin and light single-vision lens) and VersaLite-Registered Trademark-
SunR(x)-Registered Trademark- (a premium glare reducing sun lens). The Company
also added several new products during 1996, including a durable, abrasion-
resistant OnGuard-Registered Trademark- coating and progressive
SunR(x)-Registered Trademark- lenses. Vision-Ease will continue to make
significant investments in lens development, lens design and coatings for all
lens materials.
Vision-Ease markets its optical products to more than 600 wholesalers and
retailers in the U.S. and to more than 60 in international markets. No single
customer of Vision-Ease accounted for more than 10% of its
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or the Company's total revenues in 1996. Vision-Ease utilizes independent sales
representatives to market its lens products, and the Company advertises in
industry publications. Vision-Ease maintains an internal sales and marketing
department to service key accounts, coordinate all sales and promotional
activities and provide customer service. In 1995, Vision-Ease acquired a
British lens distributor as a vehicle to expand its European distribution
capabilities. This acquisition contributed to a 46% increase in 1996 sales to
international markets over 1995 sales.
INTELLECTUAL PROPERTY. The Company has several patents protecting certain of
the products and manufacturing processes of its Vision-Ease operations. These
patents have expiration dates ranging from 1998 to 2012. The loss of any single
patent would not have a material adverse effect on the business of the Company
as a whole. The Company believes that improvement of existing products and
processes, the development of new lens products and a reliance on trade secrets
and unpatented proprietary know-how are as important as patent protection in
establishing and maintaining the Company's competitive position. At the same
time, the Company continues to seek patent protection for its products and
processes on a selective basis. However, there can be no assurance that any
patents obtained will provide substantial protection or be of commercial value.
The Company requires its consultants and employees to agree in writing to
maintain the confidentiality of the Company's information and (within certain
limits) to assign to the Company any inventions, and any patent or other
intellectual property rights, relating to the Company's business. The Company
also has several trademarks. Although no assurance can be given as to the
strength or scope of the Company's trademarks, Vision-Ease believes that its
trademarks have been and will be useful in developing and protecting market
recognition for its products.
COMPETITION. Competition in the ophthalmic industry with respect to all of the
products described above is intense, with approximately 70% of the U.S. lens
market supplied by Sola International Inc. and Essilor International Compagnie
Generale d' Optique. The principal methods of competition in the industry are
product offerings, pricing, product quality and customer service, particularly
with respect to turnaround time from order to shipment. The Company competes on
each of these methods. Vision-Ease continues to investigate all low-cost
manufacturing opportunities to increase its competitiveness.
SUPPLIES. Vision-Ease has available multiple sources of the raw materials
required to manufacture all of its products, with the exception of (i) the
monomer required in the production of standard hard-resin plastic lenses, which
is available domestically only through Pittsburgh Plate Glass Industries, Inc.
and Akzo Chemie America, (ii) the monomer required in the production of high-
index plastic lenses, available only from Daiso, a Japanese company, and (iii)
photochromic glass blanks used in producing photochromic glass lenses, which are
available domestically only from Corning Glass. Although the Company's
principal supplier of standard monomer is Akzo Chemie America, the products of
both domestic suppliers are qualified for use in the Company's production
process. Alternate offshore supplies of both standard monomer and photochromic
glass blanks are available in the event of any disruption of supplies from
domestic sources.
BACKLOG AND INVENTORY. Due to the importance to the ophthalmic industry of
rapid turnaround time from order to shipment, the backlog of sales orders is not
material. Due to the large number of stock-keeping units required, there is a
need to maintain a significant amount of inventory in order to satisfy rapid
response time.
ENVIRONMENTAL. As part of its lens manufacturing processes, the Company
utilizes hazardous chemical substances, which must be handled in accordance with
applicable laws and regulations. The lens manufacturing processes also generate
wastewater and wastes, some of which are classified as hazardous under
applicable environmental laws and regulations. The Company employs systems for
either disposing
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of such wastes in accordance with applicable laws and regulations, or recycling
the chemicals it utilizes through the manufacturing process. The wastes and the
wastewater treatment systems are monitored by environmental agencies to assure
compliance with applicable standards. The wastes generated by Vision-Ease
operations must be managed and disposed of properly and the Company retains
responsibility for those wastes even after proper disposal. As of March 10,
1997, the Company is involved in a total of seven (7) sites where environmental
investigations are occurring and final settlement has not been reached, of which
five (5) relate to the PIP division and two (2) relate to the Optical Products
division. See "Precision Imaged Products -- Environmental" for a discussion of
the sites relating to the PIP division.
In addition to the above sites, the Company has continued its site
investigations at its Fort Lauderdale facility. The Company submitted its test
results for the site to the state regulatory agency for approval of the scope
and completion of testing. The Company's consultant has indicated that it is
reasonably probable that some type of remediation will be required and has
provided the Company an approximate cost range for that remediation. Based on
the consultant's estimates, and in accordance with generally accepted accounting
principles, the Company has reserved for potential remediation costs. As the
source of any contamination predates the Company's ownership and operation of
this facility, the Company also intends to seek indemnification for site costs
from the former owner and operator of the site. Because the governmental bodies
have not yet identified the full extent of any remedial actions, it is still
impossible at this time to predict the likely outcome of the Fort Lauderdale
matter, as well as the additional seven sites discussed above, or the Company's
exposure if any of these cases are decided adversely.
It is not currently anticipated that the Company's share of the costs of
environmental remediation activities for any of the sites, including the range
provided by the Company's consultant for the Fort Lauderdale facility, will have
a materially adverse effect on the financial condition of the Company.
Vision-Ease estimates that in 1996 and 1995 it incurred approximately $449,000
and $635,000, respectively, in expenditures (including capital expenditures)
related to efforts to comply with applicable laws and regulations regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment. In addition, it estimates that it will make
approximately $80,000 in capital expenditures for environmental control
facilities during 1997.
SEASONALITY. The Company's earnings from Optical Products are generally lower
in the first quarter due to the seasonality of eyeglasses, the end product of
the Company's lenses.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Financial information about the Company's foreign and domestic operations and
export sales for the three most recent fiscal years is contained on page 36 of
the 1996 Annual Report, and is incorporated herein by reference.
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ITEM 2. DESCRIPTION OF PROPERTY
The locations of the Company's principal production facilities are as follows:
Approximate Square
Location Principal Use Feet of Space
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Owned:
St. Cloud, MN Optical Products 94,000
Mullheim, Germany Precision Imaged Products 170,000
Cortland, NY Precision Imaged Products 166,000
Leased:
St. Paul, MN Precision Imaged Products 112,000
Ft. Lauderdale, FL Optical Products 65,000
Brooklyn Center, MN Optical Products 49,000
Jakarta, Indonesia Optical Products 18,000
The Company leases approximately 9,500 square feet in suburban Minneapolis,
Minnesota for its corporate administrative offices. The Company leases
approximately 8,000 square feet in Brooklyn Park, Minnesota for the
administrative offices of Vision-Ease. The Company's leases in Jakarta, St.
Paul and Brooklyn Center expire in January 2000, February 1999 and March 1998,
respectively, and its lease in Ft. Lauderdale expires in August 1997. The
Company is not renewing the Ft. Lauderdale lease. The Company is moving the
hard resin plastic lens production currently conducted at the Ft. Lauderdale
facility partially to its St. Cloud facility, with the balance to be supplied
through its OEM sourcing agreement with a Southeast Asian manufacturer.
The Company's existing facilities are fully utilized. The Company began
construction of two new production lines at its Cortland facility in 1995 and
expects completion of both lines in the first half of 1997. During the third
quarter of 1996, the Company also began construction of a new polycarbonate
manufacturing, Optical Products centralized distribution and research and
development facility on property purchased by the Company in Ramsey, Minnesota.
The Company expects completion of this new facility in the third quarter of
1997.
ITEM 3. LEGAL PROCEEDINGS
With regard to certain environmental matters, See Item 1(c) "Narrative
Description of Business - "Precision Imaged Products - Environmental" and
"Optical Products - Environmental"" and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Other than as noted above, there are no material pending or threatened legal,
governmental, administrative or other proceedings to which the Company is a
party or of which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Report.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, the year first elected or
appointed as an executive officer and the offices held as of March 26, 1997 are
as follows:
Date First
Elected or
Appointed as
an Executive
Name (Age) Officer Title
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Paul B. Burke (41) August 1985 Chairman of the Board, President
and Chief Executive Officer
John L. Gburek (38) August 1995 Vice President of Corporate
Development
Michael P. Hawks (44) August 1985 Vice President of Finance and
Administration, Chief Financial
Officer and Secretary
John N. McCormick (34) May 1996 Treasurer
Jeffrey L. Wright (34) January 1996 Corporate Controller
There are no family relationships between or among any of the executive officers
of the Company. Executive officers of the Company are elected by the Board of
Directors for one-year terms, commencing with their election at the first
meeting of the Board of Directors immediately following the annual meeting of
stockholders and continuing until the next such meeting of the Board of
Directors.
Except as indicated below, there has been no change in the principal occupations
or employment of the executive officers of the Company during the past five
years.
Mr. Burke is also a director of the Company. Mr. Burke joined the Company as
Associate General Counsel in June 1983, and became Vice President, Secretary and
General Counsel in August 1985. In November 1987, he was appointed Vice
President, Fort Lauderdale Operations of the Company's Vision-Ease Lens division
and in May 1989, he was appointed President of Vision-Ease Lens. In May 1991,
Mr. Burke was elected President and Chief Operating Officer of the Company, and
in July 1991, he became President and Chief Executive Officer. Mr. Burke was
appointed Chairman of the Board in May 1995.
Mr. Gburek joined the Company in January 1993 as Vice President/General Manager
of BMSP. In August 1995, he was appointed Vice President of Corporate
Development. Prior to joining the Company, Mr. Gburek served as Director,
Manufacturing Operations, LTV Aerospace and Defense Co., a subsidiary of LTV
Corporation.
Mr. Hawks joined the Company in October 1983 as Assistant Corporate Controller
and became Corporate Controller in August 1985. In May 1993, Mr. Hawks became
Treasurer and Secretary of the Company
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and in August 1995, he became Vice President of Finance and Administration,
Chief Financial Officer and Secretary.
Mr. McCormick joined the Company in May 1996. Prior to joining the Company, he
served as Chief Financial Officer of Information Advantage, Inc. from June 1992
to May 1996 and as Chief Financial Officer/Corporate Controller of National
Designwear, Inc. from June 1990 to June 1992.
Mr. Wright joined the Company in January 1996. From February 1993 to January
1996, he served in several capacities with Employee Benefit Plans, Inc., most
recently as Vice President and Treasurer. From January 1984 to February 1993,
Mr. Wright worked in several audit and business advisory positions with Arthur
Andersen, L.L.P.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-K, as well as other communications, including other filings with
the Securities and Exchange Commission, reports to shareholders, news releases
and presentations to securities analysts or investors, contains certain forward-
looking statements made in good faith by the Company pursuant to the "Safe
Harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These statements relate to non-historical information and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in the forward-looking statements. Recipients of this
information should not place undo reliance on any such forward-looking
statements. The basis on which forward-looking statements are made and
correlating factors that might cause a different result include, but are not
limited to, the items listed below. These factors, however, should not be
considered an exhaustive list. Further, the Company does not undertake the
responsibility to update any forward looking statement that may be made from
time to time by or on behalf of the Company.
EXPANSION PROJECTS. The Company's projections contain assumptions regarding the
financial impact resulting from Mask Operations' addition of two mask
manufacturing lines at the Cortland, New York facility and their expected
completion in the first half of 1997. BMSP is expecting increased earnings from
its entry into the lead frame market. In addition, the Company's projections
contain assumptions regarding the financial impact resulting from the scheduled
completion of the new Vision-Ease facility currently under construction in
Ramsey, Minnesota. The Company believes this new, state-of-the-art facility
will allow Vision-Ease to manufacture polycarbonate eyewear lenses and
distribute Vision-Ease's entire product line of polycarbonate, hard-resin
plastic and glass lenses in a more efficient and productive environment. There
are many risk factors inherent with any expansion project that could result in
delaying the completion and, therefore, delaying the anticipated positive
financial results. The specific risk factors include, but are not limited to,
the availability of the needed supplies and construction materials, obtaining
all necessary permits and licenses, contractor and equipment delays, and the
ability to attract and assimilate a large number of new employees. The
expansion projects include other risks, such as a higher level of operating
expenses, lower production yields associated with production start-up, the
ability to penetrate existing markets, the ability to manufacture new products
to customer specifications, assumptions regarding customer demand and the
complexities associated with managing a growing organization.
ECONOMY/DEMAND. Many economic factors could adversely affect the Company's
projected results. Specifically, the Company's principal customers for masks
are television and computer monitor tube manufacturers. Changes in announced
tube capacity, overall demand for televisions and computer monitors, as well as
increased capacity by Mask Operations' competitors, could have a significant
impact on the Company's results. In addition, as new technologies, such as flat
panel displays, are created and
10
<PAGE>
introduced to the consumer market, demand for the Company's products may change.
The Company's principal customers for Optical Products are ophthalmic
laboratories and retail dispensers throughout the world. As new products are
created and introduced to the consumer market, or if consumers make a major
shift to contact lenses, demand for the Company's current optical products could
change. Changes in medical technology, such as laser surgery to correct vision
problems, could also significantly impact future results.
RAW MATERIALS. The primary component of a mask is steel. Significant changes
in the steel market, including pricing and availability, could have a material
adverse impact on the Company's financial results. The primary raw materials
used to manufacture optical products are glass blanks and polycarbonate and
plastic resins. Significant changes in these markets, including pricing and
availability, could have a material adverse impact on the Company's financial
results.
FOREIGN CURRENCY. The Company transacts business in currencies other than U.S.
dollars. The primary currencies used include German marks, Japanese yen,
British pounds, Canadian dollars and Indonesian rupiah. Although the Company
takes steps to reduce its risk, the Company is subject to the risk of adverse
fluctuations in currency exchange rates, which could result in pricing pressures
and reductions in profitability due to currency conversion or translation.
SHUTDOWN OF FT. LAUDERDALE FACILITY. Vision-Ease's lease for the Ft. Lauderdale
facility expires in August 1997 and the lease will not be renewed. The
Company's requirements for hard-resin plastic lenses will primarily be supplied
through its OEM sourcing arrangement with a Southeast Asian manufacturer. The
remainder will be produced at the Company's facility in St. Cloud, Minnesota.
Vision-Ease anticipates that the shutdown of the Ft. Lauderdale facility and the
transfer of a portion of the operations to St. Cloud will proceed smoothly. In
addition, the Company expects to achieve significant cost savings as a result of
the facility shutdown. However, the shutdown is subject to certain risks that
could adversely affect the Company, including unanticipated costs or liabilities
discovered during the shutdown process; risks associated with replacing hard-
resin plastic lens production with OEM sourcing, such as supply interruptions,
currency fluctuations and other international concerns (see below); and the
interruption, relocation and start up of hard-resin plastic lens production in
St. Cloud.
INTERNATIONAL MARKETS. Mask Operations has a manufacturing facility located in
Mullheim, Germany and is establishing a computer monitor mask inspection
facility in Tatabanya, Hungary. Vision-Ease has an OEM sourcing arrangement
with a hard-resin plastic lens manufacturer in Southeast Asia and a joint
venture in Indonesia for glass lens manufacturing. In addition, the Company has
many international customers. The Company's international operations could be
adversely affected by governmental regulations, political instability, economic
changes or instability and competitive conditions in other countries in which it
conducts business.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
"Price Range of Common Stock" on page 39 of the 1996 Annual Report is
incorporated herein by reference.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
"Historical Financial Summary" on page 22 of the 1996 Annual Report is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis" on pages 23-26 of the 1996 Annual Report
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and related notes on pages 27-37
and the Report of its Independent Auditors on page 38 of the 1996 Annual Report
are incorporated herein by reference, as is the unaudited information under the
caption "Selected Quarterly Data" on page 40.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
(a) DIRECTORS OF THE REGISTRANT
The information under the caption "Election of Directors" on pages 2-4
of the 1997 Proxy Statement is incorporated herein by reference.
(b) EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Executive Officers of the Company is included
in this report under Item 4A, "Executive Officers of the Registrant".
(c) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 14 of the 1997 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation" on pages
6-7 and "Election of Directors - Information About the Board and Its Committees"
on page 3 of the 1997 Proxy Statement is incorporated herein by reference.
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" on pages 5-6 of the 1997 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Transactions" on page 13
of the 1997 Proxy Statement is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:
The following items are incorporated herein by reference from the
pages indicated in the Registrant's 1996 Annual Report:
Consolidated Financial Statements: Page:
---------------------------------- -----
Consolidated Statements of Earnings for the Years Ended
December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . 27
Consolidated Balance Sheets as of December 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995, and 1994 . . . . . . . . . . 29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . 30
Notes to Consolidated Financial Statements. . . . . . . . . 31-37
Report of Independent Auditors. . . . . . . . . . . . . . . 38
Selected Quarterly Financial Data (unaudited) . . . . . . . 40
13
<PAGE>
2. FINANCIAL STATEMENT SCHEDULE:
The following financial statement schedule is included herein and
should be read in conjunction with the consolidated financial
statements referenced above:
Page:
-----
II - Valuation and Qualifying Accounts 17
Schedules other than the one listed above are omitted because of the
absence of the conditions under which they are required or because the
information required is included in the consolidated financial
statements or the notes thereto.
3. EXHIBITS:
Reference is made to the Exhibit Index hereinafter contained on pages
19-25 of this Form 10-K.
A copy of any of the exhibits listed or referred to herein will be
furnished at a reasonable cost to any person who was a stockholder of
the Company as of March 10, 1997, upon receipt from any such person of
a written request for any such exhibit. Such request should be sent
to Investor Relations Department, BMC Industries, Inc., Two Appletree
Square, Suite 400, Minneapolis, Minnesota 55425.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c):
a) 1984 Omnibus Stock Program, as amended effective December 19,
1989 (incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1989
(File No. 1-8467)).
b) 1995 Management Incentive Bonus Plan Summary (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 (File No. 1-8467)).
c) 1996 Management Incentive Bonus Plan Summary ( incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 1-8467)).
d) Interest Rate Supplement Program (incorporated by reference to
written description thereof on page 10 of the Company's Proxy
Statement dated March 22, 1991 (File No. 1-8467)).
e) Revised Executive Expense Policy (effective as of January 1,
1993) (incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991
(File No. 1-8467)).
14
<PAGE>
f) BMC Industries, Inc. Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988
(File No. 1-8467)).
g) First and Second Declaration of Amendment, effective March 15,
1991 and June 3, 1991, respectively, to BMC Industries, Inc.
Supplemental Executive Retirement Plan (incorporated by reference
to Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991 (File No. 1-8467)).
h) Third Declaration of Amendment, effective as of January 1, 1992,
to BMC Industries, Inc. Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 1-8467)).
i) Fourth Declaration of Amendment, effective as of June 30, 1992,
to BMC Industries, Inc. Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 1-8467)).
j) BMC Industries, Inc. Profit Sharing Plan 1994 Revision, as
amended (incorporated by reference to Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 (File No. 1-8467)).
k) First Declaration of Amendment, dated December 16, 1996, to the
BMC Industries, Inc. Profit Sharing Plan 1994 Revision (filed
herewith as Exhibit 10.11).
l) BMC Industries, Inc. Savings Plan 1994 Revision, as amended
(incorporated by reference to Exhibit 10.11 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 1-8467)).
m) First Declaration of Amendment, dated March 29, 1996, to the BMC
Industries, Inc. Savings Plan 1994 Revision (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 (File No. 1-8467)).
n) Second Declaration of Amendment, dated December 16, 1996, to the
BMC Industries, Inc. Savings Plan 1994 Revision (filed herewith
as Exhibit 10.14).
o) Restated and Amended Directors' Deferred Compensation Plan (filed
herewith as Exhibit 10.15).
p) Form of Change of Control Agreement entered into between the
Company and Messrs. Burke, Hawks, Nygaard and Wright
(incorporated by reference to Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991
(File No. 1-8467)).
15
<PAGE>
q) Change of Control Agreement entered into between the Company and
Mr. Gburek (filed herewith as Exhibit 10.39).
r) Change of Control Agreement entered into between the Company and
Mr. McCormick (filed herewith as Exhibit 10.40).
s) 1994 Stock Incentive Plan (incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 (File No. 1-8467)).
t) Amendment No. 1 to the 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 (File No. 1-8467)).
u) BMC Stock Option Exercise Loan Program, as revised December 14,
1994 (incorporated herein by reference to Exhibit 10.15 of the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 (File No. 1-8467)).
v) BMC Industries, Inc. Benefit Equalization Plan (incorporated by
reference to Exhibit 10.14 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993 (File No. 1-8467)).
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1996.
(c) EXHIBITS
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as a separate section
of this report.
16
<PAGE>
Schedule II
Valuation and Qualifying Accounts
Years Ended December 31
(in thousands)
<TABLE>
<CAPTION>
Balance Additions Charged Translation Balance
Beginning of to Costs and Adjustment End of
Year Expenses Deductions and Other Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $1,863 $388 $730 ($8) $1,513
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for merchandise
returns 773 930 857 (29) 817
- ------------------------------------------------------------------------------------------------------------------------------------
$2,636 $1,318 $1,587 ($37) $2,330
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory reserves $3,815 $3,040 $161 $255 $6,949
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $1,461 $1,206 $823 $19 $1,863
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for merchandise
returns 563 1,580 1,394 24 773
- ------------------------------------------------------------------------------------------------------------------------------------
$2,024 $2,786 $2,217 $43 $2,636
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory reserves $2,998 $1,068 $296 $45 $3,815
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts $1,493 $800 $877 $45 $1,461
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for merchandise
returns 627 974 1,068 30 563
- ------------------------------------------------------------------------------------------------------------------------------------
$2,120 $1,774 $1,945 $75 $2,024
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory reserves $3,238 $790 $1,131 $101 $2,998
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on March
26, 1997, on its behalf by the undersigned, thereunto duly authorized.
BMC INDUSTRIES, INC.
By /s/ Michael P. Hawks
-----------------------------
Michael P. Hawks
Vice President of Finance and
Administration, Chief Financial
Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below on March 26, 1997, by the following persons on behalf of
the Registrant and in the capacities indicated.
Signature Title
/s/ Paul B. Burke Chairman of the Board, President and
- ------------------------------ Chief Executive Officer (Principal
Paul B. Burke Executive Officer)
/s/ Michael P. Hawks Vice President of Finance and
- ------------------------------ Administration, Chief Financial
Michael P. Hawks Officer and Secretary (Principal
Financial Officer)
/s/ Jeffrey L. Wright Corporate Controller (Principal
- ------------------------------ Accounting Officer)
Jeffrey L. Wright
/s/ Lyle D. Altman Director
- ------------------------------
Lyle D. Altman
/s/ John W. Castro Director
- ------------------------------
John W. Castro
/s/ Joe E. Davis Director
- ------------------------------
Joe E. Davis
/s/ Harry A. Hammerly Director
- ------------------------------
Harry A. Hammerly
/s/ Richard A. Swalin Director
- ------------------------------
Richard A. Swalin
<PAGE>
BMC Industries, Inc.
Exhibit Index to Annual Report on Form 10-K
For the Year Ended December 31, 1996
Exhibit No. Exhibit Method of Filing
- ----------- ------- ----------------
3.1 Second Restated Incorporated by reference
Articles to Exhibit 3.1 to the
of Incorporation of Company's Annual Report
the Company, as on Form 10-K for the year
amended. ended December 31, 1994
(File No. 1-8467).
3.2 Amendment to the Incorporated by reference
Second Restated to Exhibit 3.2 to the
Articles of Company's Annual Report
Incorporation, dated on Form 10-K for the year
May 8, 1995. ended December 31, 1994
(File No. 1-8467).
3.3 Amendment to the Incorporated by reference
Second Restated to Exhibit 3.1 to the
Articles of Company's quarterly
Incorporation, dated report on Form 10-Q for
October 30, 1995. the quarter ended
September 30, 1995 (File
No. 1-8467).
3.4 Restated Bylaws of Incorporated by reference
the Company, as to Exhibit 3.4 to the
amended. Company's Annual Report
on Form 10-K for the year
ended December 31, 1994
(File No. 1-8467).
4.1 Specimen Form of the Incorporated by reference
Company's Common to Exhibit 4.3 to the
Stock Certificate. Company's Registration
Statement on Form S-2
(File No. 2-83809).
10.1 1984 Omnibus Stock Incorporated by reference
Program, as amended to Exhibit 10.1 to the
effective December Company's Annual Report
19, 1989. on Form 10-K for the year
ended December 31, 1989
(File No. 1-8467).
10.2 1995 Management Incorporated by reference
Incentive Bonus Plan to Exhibit 10.3 to the
Summary. Company's Annual Report
on Form 10-K for the year
ended December 31, 1994
(File No. 1-8467).
10.3 1996 Management Incorporated by reference
Incentive Bonus Plan to Exhibit 10.3 to the
Summary. Company's Annual Report
on Form 10-K for the year
ended December 31, 1995
(File No. 1-8467).
19
<PAGE>
10.4 Interest Rate Incorporated by reference
Supplement Program. to written description
thereof on page 10 of the
Company's Proxy Statement
dated March 22, 1991
(File No. 1-8467).
10.5 Revised Executive Incorporated by reference
Expense Policy to Exhibit 10.7 to the
(effective as of Company's Annual Report
January 1, 1993). on Form 10-K for the year
ended December 31, 1991
(File No. 1-8467).
10.6 BMC Industries, Inc. Incorporated by reference
Supplemental to Exhibit 10.10 to the
Executive Retirement Company's Annual Report
Plan. on Form 10-K for the year
ended December 31, 1988
(File No. 1-8467).
10.7 First and Second Incorporated by reference
Declaration of to Exhibit 10.9 to the
Amendment, effective Company's Annual Report
March 15, 1991 and on Form 10-K for the year
June 3, 1991, ended December 31, 1991
respectively, to BMC (File No. 1-8467).
Industries, Inc.
Supplemental
Executive Retirement
Plan.
10.8 Third Declaration of Incorporated by reference
Amendment, effective to Exhibit 10.9 to the
as of January 1, Company's Annual Report
1992, to BMC on Form 10-K for the year
Industries, Inc. ended December 31, 1992
Supplemental (File No. 1-8467).
Executive Retirement
Plan.
10.9 Fourth Declaration Incorporated by reference
of Amendment, to Exhibit 10.10 to the
effective as of June Company's Annual Report
30, 1992, to BMC on Form 10-K for the year
Industries, Inc. ended December 31, 1992
Supplemental (File No. 1-8467).
Executive Retirement
Plan.
10.10 BMC Industries, Inc. Incorporated by reference
Profit Sharing Plan to Exhibit 10.10 to the
1994 Revision, as Company's Annual Report
amended. on Form 10-K for the year
ended December 31, 1994
(File No. 1-8467).
10.11 First Declaration of Filed Electronically.
Amendment, dated
December 16, 1996,
to the BMC
Industries, Inc.
Profit Sharing Plan
1994 Revision.
20
<PAGE>
10.12 BMC Industries, Inc. Incorporated by reference
Savings Plan 1994 to Exhibit 10.11 to the
Revision, as Company's Annual Report
amended. on Form 10-K for the year
ended December 31, 1994
(File No. 1-8467).
10.13 First Declaration of Incorporated by reference
Amendment, dated to Exhibit 10.2 to the
March 29, 1996, to Company's Quarterly
the BMC Industries, Report on Form 10-Q for
Inc. Savings Plan the quarter ended June
1994 Revision. 30, 1996 (File No. 1-
8467).
10.14 Second Declaration Filed Electronically.
of Amendment, dated
December 16, 1996,
to the BMC
Industries, Inc.
Savings Plan 1994
Revision.
10.15 Restated and Amended Filed Electronically.
Directors' Deferred
Compensation Plan.
10.16 1994 Stock Incentive Incorporated by reference
Plan. to Exhibit 10.12 to the
Company's Annual Report
on Form 10-K for the year
ended December 31, 1993
(File No. 1-8467).
10.17 Amendment No. 1 to Incorporated by reference
the 1994 Stock to Exhibit 10.3 to the
Incentive Plan. Company's Quarterly
Report on Form 10-Q for
the quarter ended June
30, 1996 (File No. 1-
8467).
10.18 BMC Stock Option Incorporated by reference
Exercise Loan to Exhibit 10.15 to the
Program, as revised Company's Annual Report
December 14, 1994. on Form 10-K for the year
ended December 31, 1994
(File No. 1-8467).
10.19 BMC Industries, Inc. Incorporated by reference
Benefit Equalization to Exhibit 10.14 to the
Plan. Company's Annual Report
on Form 10-K for the year
ended December 31, 1993
(File No. 1-8467).
10.20 Lease Agreement, Incorporated by reference
dated November 20, to Exhibit 10.9 to the
1978, between Company's Registration
Control Data Statement on Form S-2
Corporation and the (File No. 2-79667).
Company.
21
<PAGE>
10.21 Amendment to Lease Incorporated by reference
Agreement, dated to Exhibit 10.24 to the
December 27, 1983, Company's Annual Report
between Control Data on Form 10-K for the year
Corporation and the ended December 31, 1983
Company. (File No. 1-8467).
10.22 Amendment to Lease Incorporated by reference
Agreement, dated to Exhibit 10.15 to the
April 9, 1986, Company's Annual Report
between Control Data on Form 10-K for the year
Corporation and the ended December 31, 1987
Company. (File No. 1-8467).
10.23 Amendment to Lease Incorporated by reference
Agreement, dated to Exhibit 10.14 to the
April 12, 1989, Company's Annual Report
between GMT on Form 10-K for the year
Corporation (as ended December 31, 1989
successor in (File No. 1-8467).
interest to Control
Data Corporation)
and the Company.
10.24 Amendment to Lease Incorporated by reference
Agreement, dated to Exhibit 10.15 to the
March 19, 1990, Company's Annual Report
between GMT on Form 10-K for the year
Corporation and the ended December 31, 1989
Company. (File No. 1-8467).
10.25 Amendment to Lease Incorporated by reference
Agreement, dated May to Exhibit 10.20 to the
17, 1993, between Company's Annual Report
GMT Corporation and on Form 10-K for the year
the Company. ended December 31, 1993
(File No. 1-8467).
10.26 Amendment of Lease, Incorporated by reference
dated April 6, 1994 to Exhibit 10.23 to the
by and between GMT Company's Annual Report
Corporation and the on Form 10-K for the year
Company. ended December 31, 1994
(File No. 1-8467).
10.27 Waiver of Condition Incorporated by reference
Precedent, dated to Exhibit 10.24 to the
July 29, 1994, by Company's Annual Report
and between GMT on Form 10-K for the year
Corporation and the ended December 31, 1994
Company. (File No. 1-8467).
10.28 Lease Agreement, Incorporated by reference
dated June 25, 1987, to Exhibit 10.17 to the
between ATS II Company's Annual Report
Associates Limited on Form 10-K for the year
Partnership and the ended December 31, 1987
Company. (File No. 1-8467).
10.29 Amendment to Lease Incorporated by reference
Agreement, dated to Exhibit 10.19 to the
December 4, 1992, by Company's Annual Report
and between ATS II on Form 10-K for the year
Associates Limited ended December 31, 1992
Partnership and the (File No. 1-8467).
Company.
22
<PAGE>
10.30 Amendment to Lease, Incorporated by reference
dated December 7, to Exhibit 10.27 to the
1994, by and between Company's Annual Report
ATS II Associates on Form 10-K for the year
Limited Partnership ended December 31, 1994
and the Company. (File No. 1-8467).
10.31 Amendment to Lease, Incorporated by reference
dated February 16, to Exhibit 10.28 to the
1995, by and between Company's Annual Report
ATS II Associates on Form 10-K for the year
Limited Partnership ended December 31, 1994
and the Company. (File No. 1-8467).
10.32 Lease Agreement, Incorporated by reference
dated December 8, to Exhibit 10.32 to the
1983, between ARI Company's Annual Report
Limited Partnership on Form 10-K for the year
and the Company. ended December 31, 1983
(File No. 1-8467).
10.33 Lease Amendment, Filed Electronically.
dated May 16, 1996,
between ARI Limited
Partnership and the
Company.
10.34 Lease Amendment, Filed Electronically.
dated January 31,
1997, between ARI
Limited Partnership
and the Company.
10.35 Lease, dated January Incorporated by reference
26, 1994, by and to Exhibit 10.24 to the
between 7100 Company's Annual Report
Northland Circle and on Form 10-K for the year
the Company. ended December 31, 1993
(File No. 1-8467).
10.36 Amendment to Lease, Filed Electronically.
effective January 1,
1997, between Welsh
Companies, Inc., as
Agent for Praedium
Lake Realty, LLC,
and the Company.
10.37 Second Amendment to Incorporated by reference
Lease, dated October to Exhibit 10.31 to the
14, 1994, by and Company's Annual Report
between Lutheran on Form 10-K for the year
Brotherhood and the ended December 31, 1994
Company. (File No. 1-8467).
10.38 Form of Change of Incorporated by reference
Control Agreement to Exhibit 10.31 to the
entered into between Company's Annual Report
the Company and on Form 10-K for the year
Messrs. Burke, Hawks ended December 31, 1991
Nygaard and Wright. (File No. 1-8467).
23
<PAGE>
10.39 Change of Control Filed Electronically.
Agreement entered
into between the
Company and Mr.
Gburek.
10.40 Change of Control Filed Electronically.
Agreement entered
into between the
Company and Mr.
McCormick.
10.41 Credit Agreement, Incorporated by reference
dated September 30, to Exhibit 10.33 to the
1994, by and between Company's Annual Report
The First National on Form 10-K for the year
Bank of Chicago and ended December 31, 1994
the Company. (File No. 1-8467).
10.42 Credit Agreement, Incorporated by reference
dated September 30, to Exhibit 10.34 to the
1994, by and between Company's Annual Report
Norwest Bank on Form 10-K for the year
Minnesota, National ended December 31, 1994
Association and the (File No. 1-8467).
Company.
10.43 Credit Agreement, Incorporated by reference
dated September 30, to Exhibit 10.35 to the
1994, by and between Company's Annual Report
NBD Bank, N.A. and on Form 10-K for the year
the Company. ended December 31, 1994
(File No. 1-8467).
10.44 Credit Agreement Incorporated by reference
among BMC to Exhibit 10.1 to the
Industries, Inc., Company's Quarterly
Norwest Bank, Report on Form 10-Q for
Minnesota, National the quarter ended June
Association, and 30, 1996 (File No. 1-
various banks. 8467).
10.45 Engineering, Incorporated by reference
Procurement and to Exhibit 10.1 to the
Construction Company's Quarterly
Agreement between Report on Form 10-Q for
Buckbee-Mears the quarter ended March
Cortland, a Unit of 31, 1996 (File No. 1-
BMC Industries, Inc. 8467).
and Fluor Daniel,
Inc.
10.46 Product Incorporated by reference
Manufacturing and to Exhibit 10.36 to the
Sales Agreement, Company's Annual Report
dated October 17, on Form 10-K for the year
1994, between ended December 31, 1994
Polycore Optical, (File No. 1-8467).
PTE. Ltd. and
Vision-Ease, a unit
of the Company,
without exhibits.
11.1 Computation of Net Filed electronically.
Earnings Per Share
24
<PAGE>
13.1 Portions of the Filed electronically.
Company's 1996
Annual Report to
Stockholders
incorporated herein
by reference in this
Annual Report on
Form 10-K.
21.1 Subsidiaries of the Filed electronically.
Registrant.
23.1 Consent of Ernst & Filed electronically.
Young LLP,
Independent
Auditors.
27.1 Financial Data Filed electronically.
Schedule
99.1 Press Release, dated Filed electronically.
December 6, 1996,
announcing quarterly
dividend.
99.2 Press Release, dated Filed electronically.
January 14, 1997,
announcing
establishment of an
Indonesian joint
venture.
99.3 Press Release, dated Filed electronically.
January 28, 1997,
announcing 1996
earnings.
99.4 Press Release, dated Filed electronically.
March 6, 1997,
announcing entrance
into etched lead
frame market.
99.5 Press Release, dated Filed electronically.
March 7, 1997,
announcing quarterly
dividend.
99.6 Press Release, dated Filed electronically.
March 17, 1997,
announcing the
establishment of a
Hungarian mask
inspection facility.
25
<PAGE>
BMC INDUSTRIES, INC. PROFIT SHARING PLAN
1994 REVISION
FIRST DECLARATION OF AMENDMENT
Pursuant to the retained power of amendment contained in Section 11.2 of the
instrument entitled "BMC Industries, Inc. Profit Sharing Plan--1994
Revision," the undersigned hereby amends said instrument in the following
manner:
1. Subsection 5.2(B) thereof is amended to read as follows:
"(B) A Participant may direct a change in the manner in which future
contributions to his or her Accounts will be invested among the
investment funds maintained pursuant to Section 5.1. The direction
must be made in accordance with and is subject to Plan Rules and
will be effective as of the first day of the calendar quarter that
begins at least 30 days (or such shorter period as the Plan Rules
may allow) after the date on which the Administrator receives the
direction from the Participant."
2. Section 5.3 thereof is amended to read as follows:
"5.3 TRANSFER AMONG INVESTMENT FUNDS. (A) A Participant may direct the
transfer of his or her Accounts among the investment funds maintained
pursuant to Section 5.1. The direction must be made in accordance with
and is subject to Plan Rules and will be effective on or as soon as
administratively practicable after the first day of the calendar
quarter that begins at least 30 days (or such shorter period as the Plan
Rules allow) after the date on which the Administrator receives the
direction from the Participant. Plan Rules will include procedures
pursuant to which Participants are provided with the opportunity to
obtain written confirmation of investment directions made pursuant to
this section.
(B) Plan Rules may impose uniform limitations and restrictions
applicable to transfers into and out of specific investment funds."
3. Subsection 12.10(A) thereof is amended to read as follows:
"12.10 COMPENSATION. (A) The "Compensation" of a Participant from a
Participating Employer for any Plan Year is, for non-sales personnel,
the Participant's annual base salary paid by the Participating Employer,
including shift premium, increased by amounts paid to the Participant
for time in excess of straight time but disregarding the portion of such
amounts, if any, representing a premium over straight time rates, and
for sales personnel, the greater of (1) the Participant's annual base
salary paid by the Participating Employer, or (2) the lesser of (a) the
Participant's annual base salary plus commissions
<PAGE>
paid by the Participating Employer or (b) Sixty Thousand Dollars;
provided, that in no event will (1) severance pay of any kind or nature,
(2) payments made pursuant to BMC Industries, Inc. Long-Term Incentive
Plan or (3) amounts attributable to the exercise of a stock option be
taken into account as Compensation."
4. Section 12.33 thereof is amended to read as follows:
"12.33 TRUST. The "Trust" is that created by the Company, for
purposes of implementing benefits under the Plan and may, as amended
from time to time, be referred to as the "BMC Industries, Inc. Profit
Sharing Trust."
5. Section 12.35 thereof is amended to read as follows:
"12.35 VALUATION DATE. A "Valuation Date" is the last day of each
calendar quarter and such interim dates as the Administrator may from
time to time specify pursuant to Section 4.2(B)."
The amendments set forth in items 1 and 3 above are effective January 1,
1997. The amendment set forth at item 2 above is effective January 1, 1997
with respect to all Account balances, including the Account balances of
Participants who terminated employment prior to that date and Beneficiaries
of Participants who died prior to that date. The amendment set forth at item
4 above is effective October 1, 1996. The amendment set forth at item 5
above is effective January 1, 1996 with respect to all Account balances,
including the Account balances of Participants who terminated employment
prior to that date and Beneficiaries of Participants who died prior to that
date.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed
by its duly authorized officers this 16th day of December, 1996.
BMC INDUSTRIES, INC.
Attest: /s/ Michael P. Hawks By: /s/ Christine A. Wolff
---------------------------- --------------------------------
Secretary Director of Compensation of Benefits
<PAGE>
BMC INDUSTRIES, INC. SAVINGS PLAN
1994 REVISION
SECOND DECLARATION OF AMENDMENT
Pursuant to the retained power of amendment contained in Section 11.2 of the
instrument entitled "BMC Industries, Inc. Savings Plan--1994 Revision," the
undersigned hereby amends said instrument in the following manner:
1. Section 5.1(B) thereof is amended to read as follows:
"(B) The BMC Common Stock Fund will be invested in shares of Company
Stock except for such amounts of cash as the Trustee determines to be
necessary to satisfy short-term liquidity requirements and cash held
pending acquisition of shares of Company Stock. Shares of Company Stock
held in the BMC Common Stock Fund will be voted or, in connection with a
public or private tender or exchange offer, tendered and sold or exchanged
by the Trustee in its discretion."
2. Section 6.3 thereof is amended to read as follows:
"6.3 WITHDRAWALS FROM AFTER-TAX CONTRIBUTION ACCOUNT, EMPLOYEE BASIC
CONTRIBUTION ACCOUNT AND ROLLOVER ACCOUNT. (A) Subject to the provisions
of Section 6.4, a Participant who is an Employee may withdraw first from
his or her After-Tax Contribution Account and second from his or her
Employee Basic Contribution Account, an amount not in excess of the portion
of such Accounts consisting of his or her contributions to such Accounts.
If a Participant makes a withdrawal from his or her After-Tax Contribution
Account or his or her Employee Basic Contribution Account, he or she will
not be permitted to make any additional After-Tax Contributions for a
period of six months after the date of such withdrawal.
(B) A Participant's After-Tax Contribution Account and Employee Basic
Contribution Account balances will be treated as a separate contract under
the Plan for purposes of Code section 72(d) and such balances will be
separately accounted for in accordance with Treasury Regulations. Insofar
as the Plan permitted Participants to effect in-service withdrawals from
their After-Tax Contribution Accounts and Employee Basic Contribution
Accounts on May 5, 1986, notwithstanding Subsection (A) all withdrawals
from such Accounts pursuant to this section will be deemed to be made first
from such Participant's investment in the contract as of December 31, 1986
to the extent thereof and, second, from the aforementioned separate
section 72(d) contract.
<PAGE>
(C) Subject to the provisions of Section 6.4, not more than once each
Plan Year a Participant who is an Employee may withdraw all or any portion
of the balance of his or her Rollover Account."
3. Section 6.5 thereof is amended to read as follows:
"6.5 NO WITHDRAWALS FROM OTHER ACCOUNTS. Except as provided in Section 8.1
in connection with a Participant who attains age 70-1/2 prior to his or her
termination of employment, in no case may a Participant make a withdrawal
from his or her Matching Contribution Account or Employer Contribution
Account while he or she is an Employee."
4. Subsection 12.13 (A) thereof is amended to read as follows:
"12.13 COMPENSATION. (A) The 'Compensation' of a Participant from a
Participating Employer for any Plan Year is the sum of all remuneration
paid to the Participant by the Participating Employer for the portion of a
Plan Year in which he or she is an Active Participant that is reportable in
the 'wages, tips, other compensation' box of Internal Revenue Form W-2,
excluding the portion of such amount attributable to (1) payments made
pursuant to BMC Industries, Inc. Long-Term Incentive Plan, (2) the exercise
of a stock option, or (3) imputed income of the Participant with respect to
such portion of the Plan Year, increased by amounts that are deferred under
Section 3.1 as Pre-Tax Contributions and amounts by which a Participant's
wages or salary from the Participating Employer for such portion of the
Plan Year is reduced under a Code section 125 cafeteria plan."
The amendment set forth at item 1 above is effective as of October 1, 1996. The
amendments set forth at items 2, 3 and 4 above are effective as of January 1,
1997.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
its duly authorized officers this 16th day of December, 1996.
BMC INDUSTRIES, INC.
Attest: /s/ Michael P. Hawks By: /s/ Christine A. Wolff
--------------------------- ------------------------------------
Secretary Director of Compensation of Benefits
<PAGE>
BMC INDUSTRIES, INC.
RESTATED AND AMENDED
DIRECTORS DEFERRED COMPENSATION PLAN
1. ELIGIBILITY
Each member of the Board of Directors of BMC Industries, Inc. (the "Company")
entitled to receive compensation from the Company for services performed in such
capacity (an "Eligible Director") may elect to participate in this Restated and
Amended Deferred Compensation Plan (the "Plan") and defer his or her receipt of
such compensation pursuant to the provisions set forth herein.
2. ELECTION TO PARTICIPATE IN PLAN
A. Each Eligible Director may at any time elect, by delivery of written
notice to the Secretary of the Company, to participate in the Plan (a
"Participating Director") and commence deferral of receipt of his/her (i)
annual retainer fees and Board and Committee meeting attendance fees, or
(ii) annual retainer fees only, (as he/she may designate in the said
notice), earned with respect to service as a Company Director performed
after the date such election notice is received by the Company. Director
compensation so deferred under the Plan shall be retained by the Company,
but the amounts thereof shall be credited to the account of the
Participating Director as provided in Section 3 below. A Participating
Director, effective as of the first day of any calendar quarter, may
revoke, reinstate after revocation, or alter the designation of his/her
retainer and/or meeting fees subject to, his/her deferral election, by
delivery of written notice thereof to the Secretary of the Company on or
before such effective date; provided, however, first, that any such
revocation, reinstatement or redesignation shall apply only to compensation
earned with respect to services as a Company Director performed on or after
such effective date; second, that in the case of a deferral election
revocation or a redisignation to eliminate meeting fees from being subject
to deferral, all compensation amounts deferred and credited to the
Participating Director's account with respect to services performed prior
to the effective date thereof shall continue to be subject to the deferral
election in effect when such compensation amounts were earned, and third,
that if a Participating Director revokes his/her deferral election and
stops deferring compensation under the Plan, he/she shall not be permitted
to reinstate such deferral election prior to one year after the effective
date of such revocation.
B. Participating Director compensation deferred hereunder shall remain
the property of the Company, and Participating Directors shall not acquire
any property interest in any assets or funds of the Company and shall be
entitled to only deferred payments from the general accounts of the Company
in the
<PAGE>
amounts and at the times determined pursuant to the Plan. No right
to receive payments under the Plan may be assigned or transferred by a
Participating Director to any other person, organization or entity, except
that payments may be made to his/her beneficiary pursuant to the terms of
Section 6. To the extent any Participating Director, or his/her
beneficiary, acquires a right to receive payments under the Plan, such
right shall be no greater than the right and interest of any unsecured
general creditor of the Company.
C. Each Participating Director shall file with the Secretary of the
Company, at the time of his initial election to participate in the Plan, an
irrevocable election to receive his/her payments under the Plan pursuant to
one of the methods of distribution described in Section 5. Subject to the
provisions of Sections 6 and 7, such method of distribution shall apply to
all Director compensation deferred and credited to his/her account after
such initial election, and after any reinstated election following
revocation of a deferral election.
3. DEFERRED COMPENSATION ACCOUNT
The amounts of each Participating Director's compensation deferred under the
Plan shall be credited to a separate bookkeeping account maintained by the
Company in the name of such Participating Director (the "Account"), and earnings
on amounts credited to the Account shall also be credited thereto, in the
manner, at the times and in the amounts as determined pursuant to the
"Investment Performance" Account crediting method or the "Interest Income"
Account crediting method described below. Each Participating Director shall
designate, in his/her notice of deferral election, which Account crediting
method shall be applicable to the compensation deferred pursuant to such
election notice. Compensation deferred pursuant to reinstatement of a
previously revoked deferral election shall be credited to the Account pursuant
to the crediting method designated in the deferral reinstatement notice.
(a) INVESTMENT PERFORMANCE METHOD - A subaccount within the Account (the
"Investment Performance Subaccount") shall be credited with units
representing whole and fractional shares of up to three mutual funds chosen
by the Director from a variety of equity and bond fund options, equivalent
in value to the Participating Director's deferred compensation, determined
as follows:
(1) The amount of all Director retainer fees earned with respect to
each calendar quarter (which shall be assumed to be equal to twenty-
five percent of the total annual retainer fee of the Participating
Director for the fiscal year of the Company in which such quarter
falls) shall be converted to shares of up to three mutual funds by
dividing such quarterly fees amount by the net asset value of the
funds' shares as calculated by each fund for the first day of such
calendar quarter, or if no such net asset value is calculated for such
day, the net asset value for the next immediately preceding day for
which a calculation is available, ("Market
-2-
<PAGE>
Price"). Promptly following the end of such calendar quarter, units
equal to such resulting number of shares shall be credited to the
Investment Performance Subaccount effective retroactively to the first
day of such quarter.
(2) The amount of each fee earned with respect to Directors' Board
and Committee meetings conducted during each calendar quarter shall be
converted to shares of up to three mutual funds by dividing such fee
amount by the Market Price of the shares for the date of the
respective meeting (or if no Market Price is calculated for such
meeting date, the Market Price for the next immediately preceding date
for which a calculation is available). Promptly following the end of
such calendar quarter, units equal to the resulting number of shares
for each fee earned during the quarter shall be credited to the
Investment Performance Subaccount, effective retroactively to the date
on which the related meeting was conducted.
(3) The amount of each dividend paid during each calendar quarter
with respect to the number of fund shares equal to the units credited
to the Investment Performance Subaccounts as of the record date
related to such dividend, shall be converted to shares of such funds
by dividing such dividend amount by the Market Price of the shares for
the payment date of such dividend (or if no Market Price is quoted for
such payment date, the Market Price for the immediately preceding
dates on which a quote is available). Promptly following the end of
such calendar quarter, units equal to the aggregate number of shares
resulting from all dividends paid during the entire quarter shall be
credited to the Investment Performance Subaccount, effective as of the
first day following the end of such quarter.
(4) If any change is made in the terms or provisions of the fund(s)
shares though merger, recapitalization or otherwise, or if the total
number of outstanding shares is increased by a stock split or dividend
or decreased by a combination of shares, the Company shall make
appropriate adjustment as to the number and type of units credited to
the Account in order to maintain the value of the Investment
Performance Subaccount.
(b) INTEREST INCOME METHOD - A subaccount within the Account (the
"Interest Income Subaccount") shall be credited with dollar amounts
determined as follows:
(1) The amount of all Director retainer fees earned with respect to
each calendar quarter (which shall be assumed to be equal to twenty-
five percent of the total annual retainer fee of the Participating
Director for the fiscal year of the Company in which such quarter
falls) shall be credited to
-3-
<PAGE>
the Interest Income Subaccount promptly following the end of such
quarter, effective retroactively to the first day of such quarter.
(2) The amount of each fee earned with respect to Directors' Board
and Committee meetings conducted during each calendar quarter shall be
credited to the Interest Income Subaccount promptly following the end
of such quarter, effective retroactively to the date on which the
related meeting was conducted.
(3) An amount equal to interest on amounts credited to the Account
shall be computed on the Interest Income Subaccount beginning balance
for the full term of each calendar quarter, and on additional amounts
credited to the Account during such quarter for the period from the
date of such credit to the end of the quarter, at a per annum interest
rate equal to the effective cost of borrowing under the Company's
revolving credit agreement in effect during the calendar quarter, and
shall be credited to the Interest Income Subaccount promptly following
the end of such calendar quarter.
4. TERMINATION OF COMPENSATION DEFERRAL
Any participating Director who ceases to be a member of the Board of Directors
of the Company, shall -
(a) have all units then credited to his/her Investment Performance
Subaccount converted to a dollar amount by multiplying the number of such
units by the Market Price on the date of his/her termination as a Director,
and such dollar amount shall be credited as of such date to his/her
Interest Income Subaccount; and
(b) have rights hereunder only to receive payment of his/her deferred
compensation credited to his/her Account in the manner as provided in
Sections 5, 6 and 7 below.
5. DISTRIBUTION OF DEFERRED COMPENSATION
The amounts of a Participating Director's compensation deferred under the Plan
and credited to his/her Account shall be paid to him/her in a single lump sum or
in from two to ten annual installments (as determined by the Participating
Director and designated in his/her initial deferral election notice) made or
commencing on the fifteenth business day of the calendar quarter next following
the date on which he/she ceases to be a member of the Board of Directors of the
Company. Each payment of deferred compensation which has been credited to
his/her Interest Income Subaccount shall be determined by dividing the
Subaccount dollar balance on the date of such payment by a fraction the
numerator of which is one and the denominator of which is the difference
-4-
<PAGE>
between (i) the total number of payments to be made and (ii) the number of such
payments that then have been made previously.
6. DEATH OF A PARTICIPATING DIRECTOR
Upon the death of a Participating Director who has not received full
distribution of the amounts credited to his/her Account, a dollar amount equal
to the remaining balance thereof (with the value of the Investment Performance
Subaccount balance determined in the same manner as provided in Section 5) shall
be paid to his/her beneficiary on the second business day of the calendar year
immediately following the year in which he/she died. Each Participating
Director shall designate his/her beneficiary in his/her initial deferral
election form, and may thereafter, by written notice delivered to the Secretary
of the Company prior to his/her death, revoke and change such beneficiary
designation. If no such designation is in effect, or a designated beneficiary
shall predecease the Participating Director, the beneficiary shall be deemed to
be the Participating Director's estate.
7. DISABILITY OF A PARTICIPATING DIRECTOR
If a Participating Director, who has not received full distribution of the
amounts credited to his/her Account, becomes permanently disabled, a dollar
amount equal to the remaining balance credited to his/her Account (with the
value of the Investment Performance Subaccount balance determined in the same
manner as provided in Section 5) shall be distributed to him/her on the
fifteenth business day of the calendar quarter next following the date on which
the Company determines such disability to have occurred.
8. PLAN ADMINISTRATION
The Plan shall be administered by the Secretary of the Company in conjunction
with the Department of Human Resources, who shall have full power and authority
to interpret the provisions and supervise the implementation of the Plan and to
take such actions in connection therewith as it deems advisable. All decisions
of the Secretary of the Company shall be final.
9. AMENDMENT AND TERMINATION OF THE PLAN
The Plan may be amended from time to time, or terminated at any time, by
resolution of the Board of Directors of the Company, but no such amendment or
termination shall cause or permit Director compensation amounts deferred and
credited to Accounts prior to such amendment or termination, to not be paid in
the amounts and manner, and at the times, Participating Directors are entitled
with respect thereto under the Plan prior to such amendment or termination.
-5-
<PAGE>
10. EFFECTIVE DATE OF PLAN
The Plan shall be effective with respect to any compensation payable to a
participating Director for services as such following January 1, 1997.
-6-
<PAGE>
LEASE AMENDMENT AGREEMENT
THIS AMENDMENT made to that certain December 8, 1983 Lease Agreement wherein
ARI, Ltd. (a Florida Limited partnership) is Lessor, and BMC Industries, Inc. (a
Minnesota corporation) is Lessee, for the lease of the certain Demised Premises
located 3301 S. W. 9th Avenue., Ft. Lauderdale, FL as outlined in said lease
which is incorporated herein by reference.
WHEREAS, the parties entered into said Lease Agreement on December 8, 1983, and
subsequently litigated certain lease provisions. A Final Judgement was entered
in 1995. Thereafter and pursuant to said Final Judgement, on November 29, 1995,
Lessee terminated said lease effective November 30, 1996 and now wishes to amend
said lease period and add an additional three months ending on February 28,
1997.
WHEREAS, Lessor is appealing said Final Judgement and, if successful Lessor
believes that Lessee may be bound until December 31, 1998 on said lease. It is
however, unlikely that the Court of Appeals will render an opinion resolving
these issues in the near future.
NOW, THEREFORE, as a temporary measure without waiving any of the parties
positions on any of these appeal issues and for one dollar and other good and
valuable consideration and in consideration of the mutual covenants contained
herein, the parties agree as follows:
Lessor hereby agrees that Lessee may remain on said Premises for an
additional three months to February 28, 1997.
The aggregate base and additional rent under Section 4 of the Lease from
November 30, 1996 through February 28, 1997 shall be $28,154 per month plus
sales tax.
Lessee agrees to cooperate with Lessor in Lessor's efforts to bring the
cooling of the adjoining office building up to satisfactory standards at
Lessor's sole cost (except as modified by the next sentence herein, in
which event it shall be at Lessee expense) so long as Lessee's own air-
conditioning is not adversely affected. However, if there has been any
modification of the chiller unit and/or air flow ducting by Lessee since
the inception of the Lease, Lessee shall return such portion of the chiller
and/or air flow back to their original state before modification at
Lessee's expense.
This amendment is without prejudice to and is not intended as a waiver of
any rights asserted by any party in the presently outstanding appeal. In
the event any of the determinations made by the Court of Appeal contradicts
or invalidates any of the provisions of this agreement, the lease or the
Final Judgement, the decision of the Court of Appeal shall control.
All other terms and conditions of this lease except where specifically modifed
by this Addendum shall continue in full force and effect.
AGREED:
LESSOR: LESSEE:
ARI, LTD. BMC INDUSTRIES, INC.
- --------- ---------------------
By: /s/ G. O. Cline By: /s/ Enrique Bekerman
--------------------------- -----------------------------
Mr. Enrique Beckerman
Vice-President Operations
Dated: 5/16/96 Dated: 5/16/96
------------------------- ----------------------
WITNESSES: WITNESSES:
/s/ Carrie Fadden /s/ Fran M. Rizzo
----------------- -------------------------
/s/ Brenda Bimittella
-------------------------
<PAGE>
ARI, LTD. 3299 S. W. 9th Avenue
P.O. Box 22748
Ft. Lauderdale, FL 33335-2748
Fax: (954) 760 99 44
Tel: (954) 764 06 04
Mr. Enrique Bekerman January 31, 1997
Vice-President, Operations
BMC Industries, Inc.
3301 S.W. 9th Avenue
Ft. Lauderdale, FL 33316 Re: Lease Amendment
Dear Enrique,
We hereby agree with your request that the lease amendment agreement be extended
through August 31, 1997. All other terms and conditions shall remain the same.
Please sign below acknowledging this new extension agreement.
Thank you.
Sincerely,
ARI LIMITED PARTNERSHIP BMC INDUSTRIES, INC.
/s/ Roberta Glaser By: /s/ Enrique M. Bekerman
- ---------------------------- -------------------------------
Roberta Glaser Date: 1/31/97
Real Estate Investment Manager -------------------------------
<PAGE>
AGREEMENT TO AMEND AND EXTEND LEASE # 2
TO LEASE DATED JANUARY 26. 1994, BY AND BETWEEN
WELSH COMPANIES, INC.. AS AGENT FOR PRAEDIUM LAKE REALTY, LLC
AS LANDLORD AND BMC INDUSTRIES. INC.. A MINNESOTA CORPORATION,
AS TENANT
THIS AMENDMENT TO LEASE, entered into and made as of the day of 23rd day of
January, 1997, by and between Welsh Companies, Inc., as agent for Praedium Lake
Realty, LLC, as Landlord and BMC Industries, Inc., as Tenant.
WITNESSETH :
WHEREAS, Landlord and Tenant have heretofore entered into a certain lease,
dated JANUARY 26, 1994 (the "Lease"), of a certain space at SUITE 312. 7100
NORTHLAND CIRCLE, MINNEAPOLIS, MINNESOTA (the "Leased Premises"), upon terms and
conditions described in said Lease; and
WHERE, Landlord and tenant desire to amend said Lease as described below:
NOW THEREFORE, in consideration of the rents reserved and of the covenants
and agreements herein set forth, it is agreed that the Lease be hereby amended
from and after January 1, 1997.
1. The term of the Lease is hereby extended for a period of twenty-one
(21) months and 16 days commencing on the last day of the initial term
of the Lease and expiring on the last day of December, 2000.
2. The existing Leased Premises shall be increased from 6,038 square feet
by 2,003 square feet (Suite 310) for a total of 8,041 square feet of
net rentable area shown highlighted on the attached Exhibit A of Lease
Amendment #2.
3. The Tenant's proportionate share of operating expenses shall be
increased from 6,038 square feet to 8,041 square feet in accordance
with the increase in square footage of the Leased Premises from and
after January 1, 1997.
4. Base rent for Suite 310 (2,003 square feet) shall be $1,627.44 per
month, from and after January 1, 1997, through the term of this
Lease extension, December 31, 2000. The base rent for the original
Leased Premises shall increase from $4,360.00 per month to $4,905.88
per month from March 14, 1999, through the term of this Lease
extension December 31, 2000.
5. Tenant Improvements: Landlord shall construct improvements at
Landlord's sole cost per Exhibit B of Lease Amendment #2 attached
hereto. Any additional improvements or modifications will be the
Tenant's obligation and expense. Improvement allowances for Suite 310
are certified to be comparable to existing finishes in existing Suite
312.
<PAGE>
6. In addition to the terms and conditions of Section 8, Personal
Property Risk of the Lease dated January 26, 1994, Tenant agrees to
the following changes in policy protection and agrees to purchase, in
advance, and to carry in full force and effect, adequate insurance
with a carrier acceptable to Landlord including at a minimum the
following insurance:
a. "All Risk" fire and casualty insurance, including endorsements
for extended coverage, vandalism and malicious mischief, and
water damage covering the full replacement value of all of
Tenant's fixtures and personal property owned by Tenant that
Tenant has a right to remove from the Leased Premises at the
termination of the Lease.
b. Liability Insurance covering all acts of Tenant, within the
Leased Premises and the Building in a total combined single
limit coverage amount of not less than $1,000,000 for
personal injury, death and property damage.
c. Such insurance policies shall, unless Landlord shall
otherwise agree, include a waiver of subrogation
endorsement.
7. In the event the Premises becomes available and ready for occupancy
prior to the Commencement Date, Landlord may elect to permit Tenant to
take occupancy of all or part of the Premises prior to such date. In
such event, it is agreed that such occupancy by Tenant shall be upon
all of the terms and conditions here of except that base rent and
operating expenses shall not be charged prior to January 1, 1997 for
the expansion space of Suite 310.
Except as is hereinabove set forth, all terms, provisions, and covenants of
the Lease shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first above written.
TENANT:
BMC Industries, Inc.
(A Minnesota Corporation)
By: /s/ Michael P. Hawks
-----------------------------------------
Its: VP Finance and Administration, CFO
-----------------------------------------
LANDLORD:
Welsh Companies, Inc., as agent for Praedium
Lake Realty, LLC
By: /s/ Edward B. Chapman
-----------------------------------------
Edward B. Chapman
Its: Vice President
-----------------------------------------
<PAGE>
March 15, 1996
Mr. John L. Gburek
3787 Blackhawk Ridge Place
Eagan, MN 55122
Dear John:
BMC Industries, Inc. considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the
best interests of the Company and its stockholders. In this connection, the
Company recognizes that, as is the case with many publicly held corporations,
the possibility of a Change in Control may arise and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders.
Accordingly, the Board has determined that appropriate steps should be
taken to minimize the risk that Company management will depart prior to a
Change in Control, thereby leaving the Company without adequate management
personnel during such a critical period, and to reinforce and encourage the
continued attention and dedication of members of the Company's management to
their assigned duties without distraction in circumstances arising from the
possibility of a Change in Control. In particular, the Board believes it
important, should BMC Industries, Inc., or its stockholders receive a
proposal for transfer of control, that you be able to continue your
management responsibilities and assess and advise the Board whether such
proposal would be in the best interests of BMC Industries, Inc. and its
stockholders and to take other action regarding such proposal as the Board
might determine to be appropriate, without being influenced by the
uncertainties of your own personal situation.
The Board recognizes that continuance of your position with the Company
involves a substantial commitment to the Company in terms of your personal
life and professional career and the possibility of foregoing present and
future career opportunities, for which the Company receives substantial
benefits. Therefore, to induce you to remain in the employ of the Company,
this Agreement, which has been approved by the Board, sets forth the benefits
which the Company agrees will be provided to you in the event your employment
with the Company is terminated in connection with a Change in Control under
the circumstances described below.
1. DEFINITIONS. The following terms will have the meaning set forth
below unless the context clearly requires otherwise. Terms defined elsewhere
in this Agreement will have the same meaning throughout this Agreement.
<PAGE>
(a) "AGREEMENT" means this letter agreement as amended, extended or
renewed from time to time in accordance with its terms.
(b) "BOARD" means the board of directors of the Parent Corporation duly
qualified and acting at the time in question.
(c) "CAUSE" means: (i) the willful and continued failure by you to
perform substantially your duties with the Company after a demand for
substantial performance is delivered to you by the President and Chief
Executive Officer which specifically identifies the manner in which such
person believes that you have not substantially performed your duties; or
(ii) your conviction (including a plea of nolo contendere) of willfully
engaging in illegal conduct constituting a felony or gross misdemeanor under
federal or state law which is materially and demonstrably injurious to the
Company. For purposes of this definition, no act, or failure to act, on your
part will be considered "willful" unless done, or omitted to be done, by you
in bad faith and without reasonable belief that your action or omission was
in, or not opposed to, the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board (or a committee thereof) or based upon the advice of
counsel for the Company will be conclusively presumed to be done, or omitted
to be done, by you in good faith and in the best interests of the Company.
It is also expressly understood that your attention to matters not directly
related to the business of the Company will not provide a basis for
termination for Cause so long as the Board did not expressly disapprove in
writing of your engagement in such activities either before or within a
reasonable period of time after the Board knew or could reasonably have known
that you engaged in those activities. Notwithstanding the foregoing, you
will not be deemed to have been terminated for Cause unless and until there
has been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of the conduct set forth above in
clauses (i) or (ii) of this definition and specifying the particulars thereof
in detail.
(d) "CHANGE IN CONTROL" means any of the following: (i) the sale,
lease, exchange, or other transfer of all or substantially all of the assets
of the Parent Corporation, in one transaction or in a series of related
transactions, to any Person; (ii) the approval by the stockholders of the
Parent Corporation of any plan or proposal for the liquidation or dissolution
of the Parent Corporation; (iii) any Person is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of fifty percent (50%) or more of the combined voting power of
the Parent Corporation's outstanding securities ordinarily having the right
to vote at elections of directors; (iv) individuals who constitute the Board
on the date of this Agreement (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date of this Agreement whose election, or
nomination for election, by the Parent Corporation's stockholders, was
approved by a vote of at least a majority of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Parent Corporation in which such person is named as a
nominee for director, without objection to such nomination) will, for
purposes of this clause (iv), be deemed to be a member of the Incumbent
Board; or (v) a change in control of a nature that is determined by
independent legal counsel to the Company to be required to be reported
(assuming such event has not been "previously reported") in response to Item
1(a) of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to section 13 or 15(d) of the Exchange Act, whether or not the
Parent Corporation is then subject to such reporting requirement.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMPANY" means the Parent Corporation, any Subsidiary and any
Successor.
<PAGE>
(g) "CONFIDENTIAL INFORMATION" means information which is proprietary
to the Company or proprietary to others and entrusted to the Company, whether
or not trade secrets. It includes information relating to business plans and
to business as conducted or anticipated to be conducted, and to past or
current or anticipated products or services. It also includes, without
limitation, information concerning research, development, purchasing,
accounting, marketing and selling. All information which you have a
reasonable basis to consider confidential is Confidential Information,
whether or not originated by you and without regard to the manner in which
you obtain access to that and any other proprietary information.
(h) "DATE OF TERMINATION" following a Change in Control (or prior to a
Change in Control if your termination was either a condition of the Change in
Control or was at the request or insistence of any Person (other than the
Company) related to the Change in Control) means: (i) if your employment is
to be terminated by the Company for Cause or by you for Good Reason, the date
specified in the Notice of Termination; (ii) if your employment is to be
terminated by the Company for any reason other than Cause, Disability, death
or Retirement, the date specified in the Notice of Termination, which in no
event may be a date earlier than sixty (60) calendar days after the date on
which a Notice of Termination is given, unless an earlier date has been
expressly agreed to by you in writing either in advance of, or after,
receiving such Notice of Termination; or (iii) if your employment is
terminated by reason of death or Retirement, the date of death or Retirement,
respectively. In the case of termination by the Company of your employment
for Cause, if you have not previously expressly agreed in writing to the
termination, then within thirty (30) calendar days after receipt by you of
the Notice of Termination with respect thereto, you may notify the Company
that a dispute exists concerning the termination, in which event the Date of
Termination will be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 12 of
this Agreement. During the period beginning on the date you or the Company,
as the case may be, receive Notice of Termination and ending on the Date of
Termination, the Company will continue to pay you your full compensation and
benefits and cause your continued participation in all Plans, in effect
immediately prior to the time the Notice of Termination is given and until
the dispute is resolved in accordance with Section 11 of this Agreement.
(i) "DISABILITY" means a disability as defined in the Company's
long-term disability plan as in effect immediately prior to the Change in
Control or, in the absence of such a plan, means permanent and total
disability as defined in section 22(e)(3) of the Code.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "GOOD REASON" means:
(i) an adverse change in your status or position(s) as an executive
of the Company as in effect immediately prior to the Change in Control,
including, without limitation, any adverse change in you status or
position(s) as a result of a material diminution in your duties or
responsibilities (other than, if applicable, any such change directly
attributable to the fact that the Company is no longer publicly owned) or
the assignment to you of any duties or responsibilities which, in your
reasonable judgement, are inconsistent with such status of position(s), or
any removal of you from or any failure to reappoint or reelect you to such
position(s) (except in connection with the termination of your employment
for Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason);
(ii) a reduction by the Company in your rate of total compensation
(including, without limitation, salary and bonuses), or an adverse change
in the form of timing of the payment thereof, as in effect immediately
prior to the Change in Control;
<PAGE>
(iii) the failure by the Company to continue in effect any Plan in
which you (and/or your family or dependents) are participating at any time
during the ninety (90)-calendar-day period immediately preceding the Change
in Control (or Plans providing you (and/or your family or dependents) with
at least substantially similar benefits) other than as a result of the
normal expiration of any such Plan in accordance with its terms as in
effect immediately prior to the ninety (90)-calendar-day period immediately
preceding the time of the Change in Control, or the taking of any action,
or the failure to act, by the Company which would adversely affect your
(and/or your family's or dependent's) continued participation in any of
such Plans on at least as favorable a basis to you (and/or your family or
dependents) as is the case on the date of the Change in Control or which
would materially reduce your (and/or your family's or dependent's) benefits
in the future under any of such Plans or deprive you (and/or your family or
dependents) of any material benefit enjoyed by you (and/or your family or
dependents) at the time of the Change in Control;
(iv) the Company's requiring you to be based anywhere other than where
your office is located immediately prior to the Change in Control, except
for required travel on the Company's business, and then only to the extent
substantially consistent with the business travel obligations which you
undertook on behalf of the Company during the ninety (90)-calendar-day
period immediately preceding the Change in Control (without regard to
travel related to or in anticipation of the Change in Control);
(v) the failure by the Company to obtain from any Successor the
assent to this Agreement contemplated by Section 5 of this Agreement;
(vi) any purported termination by the Company of your employment which
is not properly effected pursuant to a Notice of Termination and pursuant
to any other requirements of this Agreement, and for purposes of this
Agreement, no such purported termination will be effective; or
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the
business of the Company which, at any time prior to the Change in Control,
you were not expressly prohibited in writing by the Board from attending to
or engaging in.
Notwithstanding anything in the foregoing to the contrary, your
termination of employment with the Company for any reason other than death,
Disability or Retirement within the thirty (30) day period beginning on the
one hundred eighty first (181st) calendar day following a Change in Control
and ending on the two hundred tenth (210th) calendar day following a Change
in Control will be conclusively deemed to be for Good Reason.
(l) "MONTHLY BASE COMPENSATION" means your monthly base cash salary
from the Company attributable to services rendered as an employee of the
Company at the rate in effect immediately prior to the Change in Control,
determined without regard to the amount of contributions made by the Company
with respect to you under any qualified cash or deferred arrangement or
cafeteria plan that is not then includable in your income by operation of
section 402(a)(8) or section 125 of the Code and without regard to amounts
deferred, whether voluntarily or involuntarily and whether vested or
nonvested, pursuant to any Plan.
(m) "NOTICE OF TERMINATION" means a written notice which indicates the
specific termination provision in this Agreement pursuant to which the notice
is given. Any purported termination by the Company or by you following a
Change in Control (or prior to a Change in
<PAGE>
Control if your termination was either a condition of the Change in Control
or was at the request or insistence of any Person (other than the Company)
related to the Change in Control) must be communicated by written Notice of
Termination.
(n) "PARENT CORPORATION" means BMC Industries, Inc. and any Successor.
(o) "PERSON" means and includes any individual, corporation,
partnership, group, association or other "person," as such term is used in
section 14(d) of the Exchange Act, other than the Parent Corporation, a
wholly-owned subsidiary of the Parent Corporation or any employee benefit
plan(s) sponsored by the Parent Corporation or a wholly-owned subsidiary of
the Parent Corporation.
(p) "PLAN" means any compensation plan (such as a stock option,
restricted stock plan or other equity-based plan), or any employee benefit
plan (such as a thrift, pension, profit sharing, medical, dental, disability,
accident, life insurance, relocation, salary continuation, expense
reimbursements, vacation, fringe benefits, office and support staff plan or
policy) or any other plan, program, policy or agreement of the Company
intended to benefit employees (and/or their families or dependents)
generally, management employees (and/or their families or dependents) as a
group or you (and/or your family or dependents) in particular.
(q) "RETIREMENT" means termination of your employment with the Company
on or after the day on which you attain the age of sixty-five (65).
(r) "SUBSIDIARY" means any corporation at least a majority of whose
securities having ordinary voting power for the election of directors is at
the time owned by the Company and/or one (1) or more Subsidiaries or any
operating division of the Company.
(s) "SUCCESSOR" means any Person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), the
Parent Corporation's business directly, by merger, consolidation or other
form of business combination, or indirectly, by purchase of the Parent
Corporation's voting securities, all or substantially all of its assets or
otherwise.
2. BENEFITS UPON A CHANGE IN CONTROL TERMINATION. If your employment
with the Company is terminated for any reason other than death, Cause,
Disability or Retirement, or if you terminate your employment with the
Company for Good Reason either: (a) within the two hundred ten (210)
calendar-day-period immediately following a Change in Control; or (b) prior
to a Change in Control if your termination was either a condition of the
Change in Control or was at the request or insistence of a Person (other than
the Company) related to the Change in Control, then:
(i) CASH PAYMENT. Within five (5) business days following the Date
of Termination, the Company will make a lump-sum cash payment to you in an
amount equal to the product of (A) your Monthly Base Compensation
multiplied by (B) twelve (12).
(ii) LIMITATION ON PAYMENTS AND BENEFITS. Notwithstanding anything in
this Agreement to the contrary, if any of the payments to be made in
connection with this Agreement, together with any other payments or
benefits which you have the right to receive from the Company or any
corporation which is a member of an "affiliated group" (as defined in
section 1504(a) of the Code without regard to section 1504(b) of the Code)
of which the Company is a member, constitute an "excess parachute payment"
(as defined in section 280G(b) of the Code), the payments to be made in
connection with this Agreement shall be reduced to the extent necessary to
prevent any portion of such payments or benefits from becoming subject to
the excise tax imposed under section 4999 of the Code; provided, that
<PAGE>
such reduction shall be made only if the aggregate amount of the payments
after such reduction exceeds the difference between (A) the amount of such
payments absent such reduction minus (B) the aggregate amount of the excise
tax imposed under section 4999 of the Code attributable to any such excess
parachute payments arising in connection with such Change in Control. The
determination as to whether any such decrease in the payments to be made in
connection with this Agreement is necessary must be made in good faith by
legal counsel or a certified public accountant selected by you and
reasonably acceptable to the Company, and such determination will be
conclusive and binding upon you and the Company. In the event that a
reduction is necessary, you will have the right to designate the particular
payments or benefits that are to be reduced or eliminated so that no
portion of the payments or benefits to be made or provided to you in
connection with this Agreement will be excess parachute payments subject to
the excise tax under Code section 4999. The Company will pay or reimburse
you on demand for the reasonable fees, costs and expenses of the counsel or
accountant selected to make the determinations under this clause (ii).
For purposes of this Section 2, your employment with the Company will be deemed
to have been terminated on the date on which the Company or you, as the case may
be, receives Notice of Termination notwithstanding that your Date of Termination
occurs following the expiration of the two hundred ten (210) calendar-day-period
referenced in clause (a).
3. INDEMNIFICATION. Following a Change in Control, the Company will
indemnify and advance expenses to you to the full extent permitted by law and
the Company's articles of incorporation and bylaws for damages, costs and
expenses (including, without limitation, judgements, fines, penalties,
settlements and reasonable fees and expenses of your counsel) incurred in
connection with all matters, events and transactions relating to your service to
or status with the Company and any other corporation, employee benefit plan or
other entity with whom you served at the request of the Company.
4. CONFIDENTIALITY. You will not use, other than in connection with your
employment with the Company, or disclose any Confidential Information to any
person not employed by the Company or not authorized by the Company to receive
such Confidential Information, without the prior written consent of the Company;
and you will use reasonable and prudent care to safeguard and protect and
prevent the unauthorized disclosure of Confidential Information. Nothing in
this Agreement will prevent you from using, disclosing or authorizing the
disclosure of any Confidential Information: (a) which is or hereafter becomes
part of the public domain or otherwise becomes generally available to the public
through no fault of yours; (b) to the extent and upon the terms and conditions
that the Company may have previously made the Confidential Information available
to certain persons; or (c) to the extent that you are required to disclose such
Confidential Information by law or judicial or administrative process.
5. SUCCESSORS. The Company will seek to have any Successor, by agreement
in form and substance satisfactory to you, assent to the fulfillment by the
Company of the Company's obligations under this Agreement. Failure of the
Company to obtain such assent at least three (3) business days prior to the time
a Person becomes a Successor (or where the Company does not have at least three
(3) business days' advance notice that a Person may become a Successor, within
one (1) business day after having notice that such Person may become or has
become a Successor) will constitute Good Reason for termination by you of your
employment.
6. FEES AND EXPENSES. The Company, upon demand, will pay or reimburse
you for all reasonable legal fees, court costs, experts' fees and related costs
and expenses incurred by you in
<PAGE>
connection with any actual, threatened or contemplated litigation or legal,
administrative, arbitration or other proceeding relating to this Agreement to
which you are or reasonably expect to become a party, whether or not
initiated by you, including, without limitation: (a) all such fees and
expenses, if any, incurred in contesting or disputing any such termination;
or (b) your seeking to obtain or enforce any right or benefit provided by
this Agreement; provided, however, you will be required to repay (without
interest) any such amounts to the Company to the extent that a court issues a
final and non-appealable order setting forth the determination that the
position taken by you was frivolous or advanced by you in bad faith.
7. BINDING AGREEMENT. This Agreement inures to the benefit of, and is
enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
die after you become entitled to, but before you receive, any amounts payable to
you under this Agreement, all such amounts, unless otherwise provided in this
Agreement, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, it there be no such designee, to your
estate.
8. NO MITIGATION. Except as expressly provided in clause (ii) of Section
2 of this Agreement, you will not be required to mitigate the amount of any
payments the Company becomes obligated to make to you in connection with this
Agreement by seeking other employment or otherwise and the payments to be made
to you in connection with this Agreement may not be reduced, offset or subject
to recovery by the Company by any payments or benefits you may receive from
other employment or otherwise.
9. NO SETOFF. Except as provided in Section 10 of this Agreement, the
Company will have no right to setoff payments owed to you under this Agreement
against amounts owed or claimed to be owed by you to the Company under this
Agreement or otherwise.
10. TAXES. All payments to be made to you in connection with this
Agreement will be subject to required withholding of federal, state and local
income, excise and employment-related taxes which withholding shall be
consistent with the determination described in clause (iii) of Section 2 of this
Agreement.
11. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be in
writing and will be deemed to have been duly given when personally delivered or
when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company must be directed to the attention of the President and Chief Executive
Officer), or to such other address as either party may have furnished to the
other in writing in accordance with these provisions, except that notice of
change of address will be effective only upon receipt.
12. DISPUTES. Any dispute, controversy or claim for damages arising under
or in connection with the Agreement shall be settled exclusively by arbitration
in Minneapolis, Minnesota by three (3) arbitrators in accordance with the rules
of the American Arbitration Association then in effect. Judgement may by
entered on the arbitrators' award in any court having jurisdiction. The Company
will be entitled to seek an injunction or restraining order in a court of
competent jurisdiction (within or without the State of Minnesota) to enforce the
provisions of Section 4 of this Agreement.
13. JURISDICTION. Except as specifically provided otherwise in the
Agreement, the parties agree that any action or proceeding arising under or in
connection with this Agreement must be
<PAGE>
brought in a court of competent jurisdiction in the State of Minnesota, and
hereby consent to the exclusive jurisdiction of said courts for this purpose
and agree not to assert that such courts are an inconvenient forum.
14. RELATED AGREEMENTS. To the extent that any provision of any other
Plan or agreement between the Company and you limits, qualifies or is
inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while such other Plan or agreement remains in force, the provision of
this Agreement will control and such provision of such other Plan or agreement
will be deemed to have been superseded, and to be of no force or effect, as if
such other agreement had been formally amended to the extent necessary to
accomplish such purpose. Nothing in this Agreement prevents or limits your
continuing or future participation in any Plan provided by the Company and for
which you may qualify, and nothing in this Agreement limits or otherwise affects
the rights you may have under any Plans or other agreements with the Company.
Amounts which are vested benefits or which you are otherwise entitled to receive
under any Plan or other agreement with the Company at or subsequent to the Date
of Termination will be payable in accordance with such Plan or other agreement.
15. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is
intended to provide you with any right to continue in the employ of the Company
for any period of specific duration or interfere with or otherwise restrict in
any way your rights or the rights of the Company, which rights are hereby
expressly reserved by each, to terminate your employment at any time for any
reason or no reason whatsoever, with or without cause.
16. CHANGE OF SUBSIDIARY STATUS. In the event that, prior to a Change in
Control: (a) a Subsidiary is sold, merged, transferred or in any other manner
or for any other reason ceases to be a Subsidiary; (b) your primary employment
duties are with the Subsidiary at the time of the occurrence of such event; and
(c) you do not, in conjunction therewith, transfer employment directly to the
Company or another Subsidiary, then this Agreement will become null and void.
17. SURVIVAL. The respective obligations of, and benefits afforded to,
the Company and you which by their express terms or clear intent survive
termination of your employment with the Company or termination of this
Agreement, as the case may be, including, without limitation, the provisions of
Sections 2, 3, 4, 5, 6, 9, 10, 11 and 12 of this Agreement, will survive
termination of your employment with the Company or termination of this
Agreement, as the case may be, and will remain in full force and effect
according to their terms.
18. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the President and Chief Executive Officer.
No waiver by any party to this Agreement at any time of any breach by another
party to this Agreement of, or of compliance with, any condition or provision
of this Agreement to be performed by such party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter to this Agreement have
been made by any party which are not expressly set forth in this Agreement.
This Agreement and the legal relations among the parties as to all matters,
including, without limitation, matters of validity, interpretation,
construction, performance and remedies, will be governed by and construed
exclusively in accordance with the internal laws of the State of Minnesota
(without regard to the conflict of laws provisions of the State of Minnesota
or of any other jurisdiction), except to the extent that the provisions of
the corporate law of Minnesota may apply to the internal affairs of
<PAGE>
the Company. Headings are for purposes of convenience only and do not
constitute a part of this Agreement. The parties to this Agreement agree to
perform, or cause to be performed, such further acts and deeds and to execute
and deliver, or cause to be executed and delivered, such additional or
supplemental documents or instruments as may be reasonably required by the
other party to carry into effect the intent and purpose of this Agreement.
The invalidity or unenforceability of all or any part of any provision of
this Agreement will not affect the validity or enforceability of the
remainder of such provision or of any other provision of this Agreement,
which will remain in full force and effect. This Agreement may be executed
in several counterparts, each of which will be deemed to be an original, but
all of which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of
this letter which will then constitute our agreement on this subject.
Sincerely,
By: /s/ Paul B. Burke
--------------------------
Paul B. Burke
Chairman, President & CEO
Agreed to this 26th day of
April, 1996.
/s/ John L. Gburek
--------------------------
John L. Gburek
<PAGE>
December 16, 1996
John N. McCormick
516 Aldrich Avenue S.
Minneapolis, MN 55419
Dear John:
BMC Industries, Inc. considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the
best interests of the Company and its stockholders. In this connection, the
Company recognizes that, as is the case with many publicly held corporations,
the possibility of a Change in Control may arise and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders.
Accordingly, the Board has determined that appropriate steps should be
taken to minimize the risk that Company management will depart prior to a
Change in Control, thereby leaving the Company without adequate management
personnel during such a critical period, and to reinforce and encourage the
continued attention and dedication of members of the Company's management to
their assigned duties without distraction in circumstances arising from the
possibility of a Change in Control. In particular, the Board believes it
important, should BMC Industries, Inc., or its stockholders receive a
proposal for transfer of control, that you be able to continue your
management responsibilities and assess and advise the Board whether such
proposal would be in the best interests of BMC Industries, Inc. and its
stockholders and to take other action regarding such proposal as the Board
might determine to be appropriate, without being influenced by the
uncertainties of your own personal situation.
The Board recognizes that continuance of your position with the Company
involves a substantial commitment to the Company in terms of your personal
life and professional career and the possibility of foregoing present and
future career opportunities, for which the Company receives substantial
benefits. Therefore, to induce you to remain in the employ of the Company,
this Agreement, which has been approved by the Board, sets forth the benefits
which the Company agrees will be provided to you in the event your employment
with the Company is terminated in connection with a Change in Control under
the circumstances described below.
1. DEFINITIONS. The following terms will have the meaning set forth
below unless the context clearly requires otherwise. Terms defined elsewhere
in this Agreement will have the same meaning throughout this Agreement.
<PAGE>
(a) "AGREEMENT" means this letter agreement as amended, extended or
renewed from time to time in accordance with its terms.
(b) "BOARD" means the board of directors of the Parent Corporation duly
qualified and acting at the time in question.
(c) "CAUSE" means: (i) the willful and continued failure by you to
perform substantially your duties with the Company after a demand for
substantial performance is delivered to you by the President and Chief
Executive Officer which specifically identifies the manner in which such
person believes that you have not substantially performed your duties; or
(ii) your conviction (including a plea of nolo contendere) of willfully
engaging in illegal conduct constituting a felony or gross misdemeanor under
federal or state law which is materially and demonstrably injurious to the
Company. For purposes of this definition, no act, or failure to act, on your
part will be considered "willful" unless done, or omitted to be done, by you
in bad faith and without reasonable belief that your action or omission was
in, or not opposed to, the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board (or a committee thereof) or based upon the advice of
counsel for the Company will be conclusively presumed to be done, or omitted
to be done, by you in good faith and in the best interests of the Company.
It is also expressly understood that your attention to matters not directly
related to the business of the Company will not provide a basis for
termination for Cause so long as the Board did not expressly disapprove in
writing of your engagement in such activities either before or within a
reasonable period of time after the Board knew or could reasonably have known
that you engaged in those activities. Notwithstanding the foregoing, you
will not be deemed to have been terminated for Cause unless and until there
has been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of the conduct set forth above in
clauses (i) or (ii) of this definition and specifying the particulars thereof
in detail.
(d) "CHANGE IN CONTROL" means any of the following: (i) the sale,
lease, exchange, or other transfer of all or substantially all of the assets
of the Parent Corporation, in one transaction or in a series of related
transactions, to any Person; (ii) the approval by the stockholders of the
Parent Corporation of any plan or proposal for the liquidation or dissolution
of the Parent Corporation; (iii) any Person is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of fifty percent (50%) or more of the combined voting power of
the Parent Corporation's outstanding securities ordinarily having the right
to vote at elections of directors; (iv) individuals who constitute the Board
on the date of this Agreement (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date of this Agreement whose election, or
nomination for election, by the Parent Corporation's stockholders, was
approved by a vote of at least a majority of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Parent Corporation in which such person is named as a
nominee for director, without objection to such nomination) will, for
purposes of this clause (iv), be deemed to be a member of the Incumbent
Board; or (v) a change in control of a nature that is determined by
independent legal counsel to the Company to be required to be reported
(assuming such event has not been "previously reported") in response to Item
1(a) of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to section 13 or 15(d) of the Exchange Act, whether or not the
Parent Corporation is then subject to such reporting requirement.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMPANY" means the Parent Corporation, any Subsidiary and any
Successor.
<PAGE>
(g) "CONFIDENTIAL INFORMATION" means information which is proprietary
to the Company or proprietary to others and entrusted to the Company, whether
or not trade secrets. It includes information relating to business plans and
to business as conducted or anticipated to be conducted, and to past or
current or anticipated products or services. It also includes, without
limitation, information concerning research, development, purchasing,
accounting, marketing and selling. All information which you have a
reasonable basis to consider confidential is Confidential Information,
whether or not originated by you and without regard to the manner in which
you obtain access to that and any other proprietary information.
(h) "DATE OF TERMINATION" following a Change in Control (or prior to a
Change in Control if your termination was either a condition of the Change in
Control or was at the request or insistence of any Person (other than the
Company) related to the Change in Control) means: (i) if your employment is
to be terminated by the Company for Cause or by you for Good Reason, the date
specified in the Notice of Termination; (ii) if your employment is to be
terminated by the Company for any reason other than Cause, Disability, death
or Retirement, the date specified in the Notice of Termination, which in no
event may be a date earlier than sixty (60) calendar days after the date on
which a Notice of Termination is given, unless an earlier date has been
expressly agreed to by you in writing either in advance of, or after,
receiving such Notice of Termination; or (iii) if your employment is
terminated by reason of death or Retirement, the date of death or Retirement,
respectively. In the case of termination by the Company of your employment
for Cause, if you have not previously expressly agreed in writing to the
termination, then within thirty (30) calendar days after receipt by you of
the Notice of Termination with respect thereto, you may notify the Company
that a dispute exists concerning the termination, in which event the Date of
Termination will be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 12 of
this Agreement. During the period beginning on the date you or the Company,
as the case may be, receive Notice of Termination and ending on the Date of
Termination, the Company will continue to pay you your full compensation and
benefits and cause your continued participation in all Plans, in effect
immediately prior to the time the Notice of Termination is given and until
the dispute is resolved in accordance with Section 12 of this Agreement.
(i) "DISABILITY" means a disability as defined in the Company's
long-term disability plan as in effect immediately prior to the Change in
Control or, in the absence of such a plan, means permanent and total
disability as defined in section 22(e)(3) of the Code.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "GOOD REASON" means:
(i) an adverse change in your status or position(s) as an executive
of the Company as in effect immediately prior to the Change in Control,
including, without limitation, any adverse change in you status or
position(s) as a result of a material diminution in your duties or
responsibilities (other than, if applicable, any such change directly
attributable to the fact that the Company is no longer publicly owned) or
the assignment to you of any duties or responsibilities which, in your
reasonable judgement, are inconsistent with such status of position(s), or
any removal of you from or any failure to reappoint or reelect you to such
position(s) (except in connection with the termination of your employment
for Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason);
(ii) a reduction by the Company in your rate of total compensation
(including, without limitation, salary and bonuses), or an adverse change
in the form of timing of the payment thereof, as in effect immediately
prior to the Change in Control;
<PAGE>
(iii) the failure by the Company to continue in effect any Plan in
which you (and/or your family or dependents) are participating at any time
during the ninety (90)-calendar-day period immediately preceding the Change
in Control (or Plans providing you (and/or your family or dependents) with
at least substantially similar benefits) other than as a result of the
normal expiration of any such Plan in accordance with its terms as in
effect immediately prior to the ninety (90)-calendar-day period immediately
preceding the time of the Change in Control, or the taking of any action,
or the failure to act, by the Company which would adversely affect your
(and/or your family's or dependent's) continued participation in any of
such Plans on at least as favorable a basis to you (and/or your family or
dependents) as is the case on the date of the Change in Control or which
would materially reduce your (and/or your family's or dependent's) benefits
in the future under any of such Plans or deprive you (and/or your family or
dependents) of any material benefit enjoyed by you (and/or your family or
dependents) at the time of the Change in Control;
(iv) the Company's requiring you to be based anywhere other than where
your office is located immediately prior to the Change in Control, except
for required travel on the Company's business, and then only to the extent
substantially consistent with the business travel obligations which you
undertook on behalf of the Company during the ninety (90)-calendar-day
period immediately preceding the Change in Control (without regard to
travel related to or in anticipation of the Change in Control);
(v) the failure by the Company to obtain from any Successor the
assent to this Agreement contemplated by Section 5 of this Agreement;
(vi) any purported termination by the Company of your employment which
is not properly effected pursuant to a Notice of Termination and pursuant
to any other requirements of this Agreement, and for purposes of this
Agreement, no such purported termination will be effective; or
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the
business of the Company which, at any time prior to the Change in Control,
you were not expressly prohibited in writing by the Board from attending to
or engaging in.
Notwithstanding anything in the foregoing to the contrary, your
termination of employment with the Company for any reason other than death,
Disability or Retirement within the thirty (30) day period beginning on the
one hundred eighty first (181st) calendar day following a Change in Control
and ending on the two hundred tenth (210th) calendar day following a Change
in Control will be conclusively deemed to be for Good Reason.
(l) "MONTHLY BASE COMPENSATION" means your monthly base cash salary
from the Company attributable to services rendered as an employee of the
Company at the rate in effect immediately prior to the Change in Control,
determined without regard to the amount of contributions made by the Company
with respect to you under any qualified cash or deferred arrangement or
cafeteria plan that is not then includable in your income by operation of
section 402(a)(8) or section 125 of the Code and without regard to amounts
deferred, whether voluntarily or involuntarily and whether vested or
nonvested, pursuant to any Plan.
(m) "NOTICE OF TERMINATION" means a written notice which indicates the
specific termination provision in this Agreement pursuant to which the notice
is given. Any purported termination by the Company or by you following a
Change in Control (or prior to a Change in Control if your termination was
either a condition of the Change in Control or was at the request or
<PAGE>
insistence of any Person (other than the Company) related to the Change in
Control) must be communicated by written Notice of Termination.
(n) "PARENT CORPORATION" means BMC Industries, Inc. and any Successor.
(o) "PERSON" means and includes any individual, corporation,
partnership, group, association or other "person," as such term is used in
section 14(d) of the Exchange Act, other than the Parent Corporation, a
wholly-owned subsidiary of the Parent Corporation or any employee benefit
plan(s) sponsored by the Parent Corporation or a wholly-owned subsidiary of
the Parent Corporation.
(p) "PLAN" means any compensation plan (such as a stock option,
restricted stock plan or other equity-based plan), or any employee benefit
plan (such as a thrift, pension, profit sharing, medical, dental, disability,
accident, life insurance, relocation, salary continuation, expense
reimbursements, vacation, fringe benefits, office and support staff plan or
policy) or any other plan, program, policy or agreement of the Company
intended to benefit employees (and/or their families or dependents)
generally, management employees (and/or their families or dependents) as a
group or you (and/or your family or dependents) in particular.
(q) "RETIREMENT" means termination of your employment with the Company
on or after the day on which you attain the age of sixty-five (65).
(r) "SUBSIDIARY" means any corporation at least a majority of whose
securities having ordinary voting power for the election of directors is at
the time owned by the Company and/or one (1) or more Subsidiaries or any
operating division of the Company.
(s) "SUCCESSOR" means any Person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), the
Parent Corporation's business directly, by merger, consolidation or other
form of business combination, or indirectly, by purchase of the Parent
Corporation's voting securities, all or substantially all of its assets or
otherwise.
2. BENEFITS UPON A CHANGE IN CONTROL TERMINATION. If your employment
with the Company is terminated for any reason other than death, Cause,
Disability or Retirement, or if you terminate your employment with the
Company for Good Reason either: (a) within the two hundred ten (210)
calendar-day-period immediately following a Change in Control; or (b) prior
to a Change in Control if your termination was either a condition of the
Change in Control or was at the request or insistence of a Person (other than
the Company) related to the Change in Control, then:
(i) PERIODIC CASH PAYMENTS. On or before the fifth calendar day of
each of the twelve (12) calendar months following the month during which
the Date of Termination occurs, the Company will make a cash payment to you
in an amount equal to your Monthly Base Compensation. If you die or attain
age sixty-five (65) before the end of this twelve (12) month period, such
payments will end as of and including the month during which you die or
attain age sixty-five (65). If you obtain employment at any time during
such twelve (12) month period, any "base salary" that you receive during
any given month within such period as a result of such employment will be
offset against the Company's corresponding monthly payment obligation under
this clause (i). You have no obligation, however, to mitigate damages by
seeking or accepting alternative employment during such twelve (12) month
period. For purposes of applying the foregoing, the term "base salary" is
defined as cash compensation paid at intervals no less frequent than
monthly which is not incentive based and is not paid in lieu of benefits.
<PAGE>
(ii) LIMITATION ON PAYMENTS AND BENEFITS. Notwithstanding anything in
this Agreement to the contrary, if any of the payments to be made in
connection with this Agreement, together with any other payments or
benefits which you have the right to receive from the Company or any
corporation which is a member of an "affiliated group" (as defined in
section 1504(a) of the Code without regard to section 1504(b) of the Code)
of which the Company is a member, constitute an "excess parachute payment"
(as defined in section 280G(b) of the Code), the payments to be made in
connection with this Agreement shall be reduced to the extent necessary to
prevent any portion of such payments or benefits from becoming subject to
the excise tax imposed under section 4999 of the Code; provided, that such
reduction shall be made only if the aggregate amount of the payments after
such reduction exceeds the difference between (A) the amount of such
payments absent such reduction minus (B) the aggregate amount of the excise
tax imposed under section 4999 of the Code attributable to any such excess
parachute payments arising in connection with such Change in Control. The
determination as to whether any such decrease in the payments to be made in
connection with this Agreement is necessary must be made in good faith by
legal counsel or a certified public accountant selected by you and
reasonably acceptable to the Company, and such determination will be
conclusive and binding upon you and the Company. In the event that a
reduction is necessary, you will have the right to designate the particular
payments or benefits that are to be reduced or eliminated so that no
portion of the payments or benefits to be made or provided to you in
connection with this Agreement will be excess parachute payments subject to
the excise tax under Code section 4999. The Company will pay or reimburse
you on demand for the reasonable fees, costs and expenses of the counsel or
accountant selected to make the determinations under this clause (ii).
For purposes of this Section 2, your employment with the Company will be
deemed to have been terminated on the date on which the Company or you, as
the case may be, receives Notice of Termination notwithstanding that your
Date of Termination occurs following the expiration of the two hundred ten
(210) calendar-day-period referenced in clause (a).
3. INDEMNIFICATION. Following a Change in Control, the Company will
indemnify and advance expenses to you to the full extent permitted by law and
the Company's articles of incorporation and bylaws for damages, costs and
expenses (including, without limitation, judgements, fines, penalties,
settlements and reasonable fees and expenses of your counsel) incurred in
connection with all matters, events and transactions relating to your service
to or status with the Company and any other corporation, employee benefit
plan or other entity with whom you served at the request of the Company.
4. CONFIDENTIALITY. You will not use, other than in connection with
your employment with the Company, or disclose any Confidential Information to
any person not employed by the Company or not authorized by the Company to
receive such Confidential Information, without the prior written consent of
the Company; and you will use reasonable and prudent care to safeguard and
protect and prevent the unauthorized disclosure of Confidential Information.
Nothing in this Agreement will prevent you from using, disclosing or
authorizing the disclosure of any Confidential Information: (a) which is or
hereafter becomes part of the public domain or otherwise becomes generally
available to the public through no fault of yours; (b) to the extent and upon
the terms and conditions that the Company may have previously made the
Confidential Information available to certain persons; or (c) to the extent
that you are required to disclose such Confidential Information by law or
judicial or administrative process.
5. SUCCESSORS. The Company will seek to have any Successor, by
agreement in form and substance satisfactory to you, assent to the
fulfillment by the Company of the Company's obligations under this Agreement.
Failure of the Company to obtain such assent at least three (3)
<PAGE>
business days prior to the time a Person becomes a Successor (or where the
Company does not have at least three (3) business days' advance notice that a
Person may become a Successor, within one (1) business day after having
notice that such Person may become or has become a Successor) will constitute
Good Reason for termination by you of your employment.
6. FEES AND EXPENSES. The Company, upon demand, will pay or reimburse
you for all reasonable legal fees, court costs, experts' fees and related
costs and expenses incurred by you in connection with any actual, threatened
or contemplated litigation or legal, administrative, arbitration or other
proceeding relating to this Agreement to which you are or reasonably expect
to become a party, whether or not initiated by you, including, without
limitation: (a) all such fees and expenses, if any, incurred in contesting or
disputing any such termination; or (b) your seeking to obtain or enforce any
right or benefit provided by this Agreement; provided, however, you will be
required to repay (without interest) any such amounts to the Company to the
extent that a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you
in bad faith.
7. BINDING AGREEMENT. This Agreement inures to the benefit of, and is
enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
you die after you become entitled to, but before you receive, any amounts
payable to you under this Agreement, all such amounts, unless otherwise
provided in this Agreement, will be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or, it there be no such
designee, to your estate.
8. NO MITIGATION. Except as expressly provided in clause (i) of
Section 2 of this Agreement, you will not be required to mitigate the amount
of any payments the Company becomes obligated to make to you in connection
with this Agreement by seeking other employment or otherwise and the payments
to be made to you in connection with this Agreement may not be reduced,
offset or subject to recovery by the Company by any payments or benefits you
may receive from other employment or otherwise.
9. NO SETOFF. Except as provided in Section 10 of this Agreement, the
Company will have no right to setoff payments owed to you under this
Agreement against amounts owed or claimed to be owed by you to the Company
under this Agreement or otherwise.
10. TAXES. All payments to be made to you in connection with this
Agreement will be subject to required withholding of federal, state and local
income, excise and employment-related taxes which withholding shall be
consistent with the determination described in clause (ii) of Section 2 of
this Agreement.
11. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in, or required under, this Agreement must be in
writing and will be deemed to have been duly given when personally delivered
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each party's respective address
set forth on the first page of this Agreement (provided that all notices to
the Company must be directed to the attention of the President and Chief
Executive Officer), or to such other address as either party may have
furnished to the other in writing in accordance with these provisions, except
that notice of change of address will be effective only upon receipt.
12. DISPUTES. Any dispute, controversy or claim for damages arising
under or in connection with the Agreement shall be settled exclusively by
arbitration in Minneapolis, Minnesota by three (3) arbitrators in accordance
with the rules of the American Arbitration Association then in effect.
Judgement may by entered on the arbitrators' award in any court having
jurisdiction. The
<PAGE>
Company will be entitled to seek an injunction or restraining order in a
court of competent jurisdiction (within or without the State of Minnesota) to
enforce the provisions of Section 4 of this Agreement.
13. JURISDICTION. Except as specifically provided otherwise in the
Agreement, the parties agree that any action or proceeding arising under or
in connection with this Agreement must be brought in a court of competent
jurisdiction in the State of Minnesota, and hereby consent to the exclusive
jurisdiction of said courts for this purpose and agree not to assert that
such courts are an inconvenient forum.
14. RELATED AGREEMENTS. To the extent that any provision of any other
Plan or agreement between the Company and you limits, qualifies or is
inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while such other Plan or agreement remains in force, the provision
of this Agreement will control and such provision of such other Plan or
agreement will be deemed to have been superseded, and to be of no force or
effect, as if such other agreement had been formally amended to the extent
necessary to accomplish such purpose. Nothing in this Agreement prevents or
limits your continuing or future participation in any Plan provided by the
Company and for which you may qualify, and nothing in this Agreement limits
or otherwise affects the rights you may have under any Plans or other
agreements with the Company. Amounts which are vested benefits or which you
are otherwise entitled to receive under any Plan or other agreement with the
Company at or subsequent to the Date of Termination will be payable in
accordance with such Plan or other agreement.
15. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is
intended to provide you with any right to continue in the employ of the
Company for any period of specific duration or interfere with or otherwise
restrict in any way your rights or the rights of the Company, which rights
are hereby expressly reserved by each, to terminate your employment at any
time for any reason or no reason whatsoever, with or without cause.
16. CHANGE OF SUBSIDIARY STATUS. In the event that, prior to a Change
in Control: (a) a Subsidiary is sold, merged, transferred or in any other
manner or for any other reason ceases to be a Subsidiary; (b) your primary
employment duties are with the Subsidiary at the time of the occurrence of
such event; and (c) you do not, in conjunction therewith, transfer employment
directly to the Company or another Subsidiary, then this Agreement will
become null and void.
17. SURVIVAL. The respective obligations of, and benefits afforded to,
the Company and you which by their express terms or clear intent survive
termination of your employment with the Company or termination of this
Agreement, as the case may be, including, without limitation, the provisions
of Sections 2, 3, 4, 5, 6, 9, 10, 11 and 12 of this Agreement, will survive
termination of your employment with the Company or termination of this
Agreement, as the case may be, and will remain in full force and effect
according to their terms.
18. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the President and Chief Executive Officer.
No waiver by any party to this Agreement at any time of any breach by another
party to this Agreement of, or of compliance with, any condition or provision
of this Agreement to be performed by such party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter to this Agreement have
been made by any party which are not expressly set forth in this Agreement.
This Agreement and the legal relations among the parties as to all matters,
including, without limitation, matters of validity, interpretation,
construction, performance and remedies, will be governed by and
<PAGE>
construed exclusively in accordance with the internal laws of the State of
Minnesota (without regard to the conflict of laws provisions of the State of
Minnesota or of any other jurisdiction), except to the extent that the
provisions of the corporate law of Minnesota may apply to the internal
affairs of the Company. Headings are for purposes of convenience only and do
not constitute a part of this Agreement. The parties to this Agreement agree
to perform, or cause to be performed, such further acts and deeds and to
execute and deliver, or cause to be executed and delivered, such additional
or supplemental documents or instruments as may be reasonably required by the
other party to carry into effect the intent and purpose of this Agreement.
The invalidity or unenforceability of all or any part of any provision of
this Agreement will not affect the validity or enforceability of the
remainder of such provision or of any other provision of this Agreement,
which will remain in full force and effect. This Agreement may be executed
in several counterparts, each of which will be deemed to be an original, but
all of which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of
this letter which will then constitute our agreement on this subject.
Sincerely,
By: /s/ Paul B. Burke
---------------------------
Paul B. Burke
Chairman, President & CEO
Agreed to this 20th day of
December, 1996.
/s/ John N. McCormick
-------------------------------
John N. McCormick
<PAGE>
COMPUTATION OF NET EARNINGS PER SHARE
(Dollars in thousands, except per share amounts)
Year Ended December 31
--------------------------------
1996 1995 1994
--------------------------------
PRIMARY
Earnings:
Earnings from continuing operations $ 35,101 $ 24,547 $ 15,004
Provision for loss from discontinued
operation, net of tax - - (839)
--------------------------------
Net Earnings $ 35,101 $ 24,547 $ 14,165
--------------------------------
--------------------------------
Shares of common stock and common
stock equivalents:
Weighted average shares outstanding 27,268 26,897 25,036
Dilutive effect of stock options
and warrants outstanding (1) 1,095 1,337 2,299
--------------------------------
Total 28,363 28,234 27,335
--------------------------------
--------------------------------
Earnings per share:
Earnings from continuing operations $ 1.24 $ 0.87 $ 0.55
Provision for loss from discontinued
operation, net of tax - - (0.03)
--------------------------------
Net Earnings $ 1.24 $ 0.87 $ 0.52
--------------------------------
--------------------------------
FULLY DILUTED
Earnings:
Earnings from continuing operations $ 35,101 $ 24,547 $ 15,004
Provision for loss from discontinued
operation, net of tax - - (839)
--------------------------------
Net Earnings $ 35,101 $ 24,547 $ 14,165
--------------------------------
--------------------------------
Shares of common stock and common
stock equivalents:
Weighted average shares outstanding 27,268 26,897 25,036
Dilutive effect of stock options and
warrants outstanding (2) 1,153 1,419 2,487
--------------------------------
Total 28,421 28,316 27,523
--------------------------------
--------------------------------
Earnings per share:
Earnings from continuing operations $ 1.24 $ 0.87 $ 0.55
Provision for loss from discontinued
operation, net of tax - - (0.03)
--------------------------------
Net Earnings $ 1.24 $ 0.87 $ 0.52
--------------------------------
--------------------------------
All share and per share amounts have been adjusted for two-for-one stock
splits in 1995 and 1994.
(1) Outstanding stock options and warrants based on the treasury stock method
using the average market price for the year.
(2) Outstanding stock options and warrants based on the treasury stock
method using the greater of the average market price or the ending market
price for the year.
<PAGE>
HISTORICAL FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICS AND RATIOS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales of primary products $ 279,035 $ 243,951 $ 211,293 $ 189,372 $ 179,541
Equipment and technology sales 1,452 11,404 8,675 6,059 1,289
Total revenues 280,487 255,355 219,968 195,431 180,830
Cost of sales of primary products 212,637 196,250 174,884 160,564 153,819
Cost of equipment and technology sales 370 6,345 6,140 3,264 1,465
Selling and administrative 15,033 14,137 12,188 11,706 12,037
Earnings from continuing operations before
interest, other expense and income taxes 52,447 38,623 26,756 19,897 13,509
Interest income (expense), net (280) 467 (2,369) (4,820) (6,209)
Other income (expense) 236 (146) (57) 93 448
Income taxes 17,302 14,397 9,326 4,790 709
Earnings from continuing operations before
cumulative effect of accounting changes 35,101 24,547 15,004 10,380 7,039
Provision for loss related to discontinued
operation, net of tax -- -- (839) (415) --
Cumulative effect of accounting changes -- -- -- 12,131 --
Net earnings $ 35,101 $ 24,547 $ 14,165 $ 22,096 $ 7,039
EARNINGS PER SHARE
Number of shares included
in per share computation 28,363 28,234 27,335 24,868 23,301
Earnings from continuing operations $ 1.24 $ 0.87 $ 0.55 $ 0.42 $ 0.30
Loss from discontinued operation -- -- (0.03) (0.02) --
Cumulative effect of accounting changes -- -- -- 0.49 --
Earnings per share $ 1.24 $ 0.87 $ 0.52 $ 0.89 $ 0.30
Cash dividends per share $ 0.0525 $ 0.0425 $ 0.02 $ -- $ --
Depreciation and amortization expense $ 10,171 $ 8,290 $ 8,250 $ 8,462 $ 8,480
Net cash provided by operating activities 20,786 45,261 36,680 25,931 15,173
Capital expenditures 54,662 39,196 13,537 7,870 6,751
FINANCIAL POSITION
Working capital $ 41,354 $ 32,730 $ 38,769 $ 34,517 $ 36,843
Property, plant and equipment, net 123,845 81,409 49,858 43,005 44,712
Total assets 232,969 182,332 138,686 130,312 118,942
Total debt 17,989 47 66 27,247 44,311
Stockholders' equity 144,108 108,466 81,788 58,900 37,455
STATISTICS AND RATIOS
Current ratio 1.8 1.6 2.0 1.9 2.2
Total debt to equity ratio 0.1 0.0 0.0 0.5 1.2
Earnings from continuing operations
before interest expense and income taxes, as a
percentage of total revenues 18.8% 15.1% 12.1% 10.2% 7.7%
Return on average equity(1) 27.8% 25.8% 20.1% 20.7% 20.6%
Book value per share $ 5.26 $ 4.01 $ 3.05 $ 2.59 $ 1.71
</TABLE>
THE NUMBER OF SHARES AND PER SHARE AMOUNTS HAVE BEEN ADJUSTSED FOR TWO-FOR-ONE
STOCK SPLITS IN 1995 AND 1994.
(1) CALCULATIONS EXCLUDES CUMULATIVE EFFECTS OF ACCOUNTING CHANGES IN 1993.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following discussion and analysis examines the operating results of the
Company's two business segments. As used herein, "operating profit" refers to
operating profit before corporate allocations, corporate expense and interest,
as shown in Note 10 to the Consolidated Financial Statements-Segment
Information.
PRECISION IMAGED PRODUCTS
TOTAL REVENUES AND OPERATING PROFIT
COMPARISON OF 1996 AND 1995. Total revenues of the Precision Imaged Products
group were $192.6 million for 1996, an increase of $13.4 million or 7% from
those for 1995. Net sales from primary products (which exclude equipment and
technology sales) increased by $23.4 million or 14%. The improvement was
primarily attributable to a continued sales mix shift to higher-priced color
television masks as consumers worldwide purchased larger televisions. Further,
the Company began producing computer monitor masks in Mullheim, Germany which
resulted in the Company's first sales into the computer monitor mask market. For
the year, sales of jumbo (30 inches and larger), large (25-29 inches), and invar
masks increased 58%, 14% and 18%, respectively. The increase in primary products
sales was partially offset by a $10.0 million decrease in sales from long-term
equipment and technology contracts. Sales of equipment and technology declined
because of management's strategic decision to exit this business and existing
long-term contracts were substantially completed prior to 1996.
Operating profit of the Precision Imaged Products group was $43.1 million for
1996, an increase of $8.6 million or 25% from that realized in 1995. The rate
of operating profit expressed as a percentage of net sales (before equipment and
technology sales and profits) was 22% for 1996, compared to 18% for 1995. This
improvement was primarily due to a continued shift in the Company's product mix
to higher margin products, including computer monitor masks, and improved
operating performance partially offset by start-up costs associated with the new
German computer monitor mask line. Buckbee-Mears St. Paul posted record earnings
for the year as a result of product mix and manufacturing improvements. The
improved operating profit includes a $4.0 million decrease in profits from the
reduction in long-term equipment and technology contract sales.
COMPARISON OF 1995 AND 1994. Total revenues of the Precision Imaged Products
group were $179.2 million for 1995, an increase of $33.9 million or 23% from
those for 1994. Of this increase, $2.7 million was due to an increase in sales
of long-term equipment and technology contracts. Net sales of primary products
(which exclude equipment and technology sales) increased by $31.2 million or
23%. The increase was primarily attributable to a shift in the Company's product
mix to higher-priced color television masks as consumers worldwide purchased
larger televisions and increased sales of precision photo-etched parts. For the
year, sales of jumbo (30 inches and larger), large (25-29 inches) and invar
masks increased 49%, 31% and 91%, respectively.
Operating profit of the Precision Imaged Products group was $34.5 million for
1995, an increase of $12.3 million or 55% from that realized for 1994. This
improvement included a $2.5 million increase in profits from long-term equipment
and technology contracts. The rate of operating profit as a percentage of net
sales (before equipment and technology sales and profits) was 18% for 1995,
compared to 14% in 1994. This improvement was primarily due to improved
manufacturing efficiencies and the continued shift in product mix to
higher-margin large and jumbo masks and masks manufactured from invar steel. In
addition, operating profit was favorably impacted by productivity and operating
improvements at Buckbee-Mears St. Paul.
OPTICAL PRODUCTS
TOTAL REVENUES AND OPERATING PROFIT
COMPARISON OF 1996 AND 1995. Total revenues of the Optical Products group were
$87.9 million for 1996, an increase of $11.8 million or 15% from those for 1995.
The increase was primarily due to increased sales in each major product line and
strong international sales growth. Sales of high-end products (polycarbonate,
progressive, high-index and polarizing sun lenses) increased 18% for the total
year as consumer preferences for advanced materials, designs and features
accelerated.
Operating profit of the Optical Products group was $14.4 million for 1996, an
increase of $4.7 million or 48% over 1995. The rate of operating profit
expressed as a percentage of total revenues was 16% for 1996, compared to 13%
for 1995. The increase was primarily due to increased sales of high-end products
and margin improvements attributable to the Company's Southeast Asian sourcing
program for hard-resin plastic lenses established late in 1995.
23
<PAGE>
COMPARISON OF 1995 AND 1994. Total revenues of the Optical Products group were
$76.2 million for 1995, an increase of $1.5 million or 2% from those for 1994.
The increase was due primarily to increased unit sales of polycarbonate eyewear
lenses, which resulted from an increase in size and share of that market. This
increase was largely offset by a reduction in unit sales of plastic and glass
eyewear lenses, reflecting a reduction in size, and the Company's share, of the
plastic lens market and a reduction in size of the glass lens market.
Operating profit of the Optical Products group was $9.7 million for 1995, an
increase of $1.4 million or 16% over 1994. The rate of operating profit
expressed as a percentage of total revenues was 13% for 1995, compared to 11%
for 1994. The increase was primarily due to increased sales of higher-margin
polycarbonate eyewear lenses.
SELLING EXPENSES
Selling expenses were $10.0 million, $8.6 million and $8.4 million or 3.6%, 3.5%
and 4.0% of net sales before equipment and technology sales for 1996, 1995 and
1994, respectively. The increases during the periods reflect the impact of the
increased revenues.
ADMINISTRATIVE EXPENSES
Administrative expenses were $5.0 million, $5.5 million and $3.8 million or
1.8%, 2.3% and 1.8% of net sales before equipment and technology sales for 1996,
1995 and 1994, respectively. The decline in administrative expenses from 1995 to
1996 is primarily due to a reduction in the cost of certain deferred
compensation plans which are tied to the Company's stock price. The increase in
administrative expenses from 1994 to 1995 resulted primarily from increased
costs associated with these same plans and to the costs of staffing new
positions during 1995.
INTEREST INCOME (EXPENSE), NET
Net interest income (expense) was ($0.3) million, $0.5 million and
($2.4) million for 1996, 1995 and 1994, respectively. Interest
income earned on cash balances declined in 1996 because internally generated
cash was used to fund the Company's expansion projects. Despite increases in
short-term and long-term debt levels, interest expense in 1996 was comparable
to the prior year due to the capitalization of interest costs in connection with
the Company's expansion projects. In 1995, the Company earned interest income on
cash balances and had minimal short-term and long-term debt. Interest expense in
1994 reflected interest incurred on outstanding debt which was paid off in 1994.
FOREIGN CURRENCY
Fluctuations in foreign currency exchange rates, principally the German mark
versus the U.S. dollar, may affect the Company's financial results. The
Company's German subsidiary has a large portion of its sales denominated in U.S.
dollars. As most of the German subsidiary's expenses are denominated in the
German mark, this represents the most significant element of the Company's
exposure to currency rate fluctuations. This exposure is generally addressed as
needed through the purchase of forward contracts and options. There were no
forward contracts or options outstanding at December 31, 1996.
Exposure to foreign currency exchange rate fluctuations also may exist with
respect to intercompany payables or receivables to or from the Company's German
subsidiary. The Company minimizes this exposure by holding such balances at low
levels.
In 1996, 1995 and 1994, the Company incurred minimal foreign exchange gains or
losses.
SEASONALITY
The Company's earnings are generally lower in the first and third quarters due
to maintenance shut-downs at the Company's mask production facilities.
Maintenance shutdowns also occur at the Company's lens manufacturing facilities
in the third quarter. Also, the seasonality of end products in several markets
(televisions, computer monitors and eyeglasses) affects the Company's annual
earnings pattern.
INCOME TAXES
Expressed as a percentage of earnings before income taxes, the Company's
effective tax rate was 33.0%, 37.0% and 38.3% in 1996, 1995 and 1994,
respectively. The lower rate in 1996 was due principally to a lower proportion
of the Company's total earnings being generated by the Company's German
subsidiary. In all years presented, reduction of the valuation allowance
relating to deferred tax assets also lowered the effective tax rate.
DIVIDENDS
In 1996, the Company continued the payment of cash dividends to shareholders.
Cash dividends of one and one quarter cents per share were declared in the
first, second and third quarters. The dividend was increased to one and one half
cents per share in the fourth quarter.
24
<PAGE>
ENVIRONMENTAL
Prior to 1996, the Company had been involved in a total of eight sites where
environmental investigations were still occurring and where final settlement had
not been reached. During 1996, the Company reached a de minimis settlement of
its liability at one of the sites in which the Company was named as a
potentially responsible party ("PRP") and was released from further liability at
a site for which the State of Minnesota undertook responsibility for the cleanup
pursuant to a state cleanup program. Also in 1996, the Company was identified as
a PRP at a location for which the Environmental Protection Agency ("EPA")
previously named the Company as a PRP. The Company entered into a de minimis
settlement agreement for its involvement at two prior sites at this location and
expects to be a de minimis party at this site as well. With this activity, the
total number of potential sites involving the Company where environmental
investigations are still occurring and where final settlement has not been
reached is reduced to seven.
In addition to the seven sites, the Company has continued its site
investigations at its Fort Lauderdale facility of contamination which occurred
prior to the Company's operation of the facility. During 1996, the Company
submitted its test results for the site to the state regulatory agency for
approval of the scope and completion of testing. The Company's consultant has
indicated that it is reasonably probable that some type of remediation will be
required and has provided the Company with an approximate cost range for that
remediation. Based on the consultant's estimates, and in accordance with
generally accepted accounting principles, the Company had previously established
a reserve for potential remediation costs. The Company is seeking reimbursement
of its cost and expenses from the prior owner of the site based upon contractual
indemnification provisions and Comprehensive Environmental Response Compensation
and Liability Act ("CERCLA"). Because the governmental bodies have not yet
identified the full extent of any remedial actions, it is still impossible at
this time to predict the likely outcome of the Fort Lauderdale matter, as well
as the additional seven sites discussed above, or the Company's exposure if any
of these cases are decided adversely.
In addition to the above sites, PRPs for a site in Cortland, New York have
alleged that the Company is a participant in depositing waste at that site. The
Company strongly believes it has no involvement with this site and is committed
to a vigorous defense of this case. It is impossible at this time to predict the
likely outcome of this matter, or the Company's exposure if this case is decided
adversely.
It is not currently anticipated that the Company's share of the costs of
environmental remediation activities for any of the sites discussed above,
including the range provided by the Company's consultant for the Fort
Lauderdale facility, will have a materially adverse effect on the financial
condition of the Company beyond the recorded reserves.
FINANCIAL POSITION AND LIQUIDITY
Cash and cash equivalents decreased by $13.3 million during 1996. Working
capital was $41.4 million, and the current ratio was 1.8 at December 31, 1996,
compared to $32.7 million and a current ratio of 1.6 at December 31, 1995.
Inventory balances increased $15.7 million during 1996. Precision Imaged
Products' inventory levels primarily increased due to the addition of the
computer monitor mask production line. Also, as Precision Imaged Products' sales
shifted to higher margin products which carry a higher cost, inventory levels
increased to support the sales growth. The Optical Products' inventories have
increased in preparation for future orders and to support new product
introductions and sales growth.
At December 31, 1996, the Company had $18.0 million in debt and the ratio of
total debt to total equity was 0.1. The incremental debt was incurred to support
the Company's expansion projects. At December 31, 1995, the Company had no
short-term or long-term debt, other than capitalized lease obligations.
The Company's cash flow activities in 1996 included generating $20.8 million of
cash flow from operating activities and $20.6 million from financing activities,
primarily through incremental debt. The cash generated from operating and
financing activities combined with the cash accumulated prior to 1996 was used
for property, plant and equipment additions totaling $54.7 million. The increase
in the Company's capital spending in 1996 was primarily due to $43.0 million of
capital spending relating to the two-line expansion of the Company's mask
manufacturing facility at Cortland, New York. The Cortland expansion is on
schedule for completion in the first half of 1997 which will result in
additional capital expenditures of approximately $37.0 million during the year.
The Company's primary cash flow activities in 1995 included generating $45.3
million of cash flow from operating activities, using $39.2 million of cash for
property, plant and equipment additions and using $5.2 million for acquisitions
by the Optical Products group. Expansion projects at both the Mullheim, Germany
and Cortland, New York mask manufacturing facilities accounted for $25.6 million
of the 1995 property, plant and equipment additions. Significant cash flows in
1994 included generating $36.7 million of cash from operating activities, using
$13.5 million for property, plant and equipment additions and using $22.6
million to repay long-term debt.
25
<PAGE>
The Company has a $150 million domestic unsecured credit facility consisting of
a $70 million revolving credit facility for general purposes and an $80 million
acquisition credit facility. The Company's German subsidiary maintains
short-term and long-term credit facilities totaling $16.9 million. These credit
facilities will provide the funds needed for capital spending related to the
Cortland, New York expansion and the Company's new polycarbonate facility under
construction in Ramsey, Minnesota. The acquisition credit facility will provide
funds in the event the Company encounters a strategic acquisition opportunity.
These credit facilities along with cash generated from operations should be
sufficient to meet the Company's future capital and operating requirements.
CAUTIONARY STATEMENTS
Certain statements included in this discussion of operations and financial
results by the Company or its representatives, as well as other communications,
including its filings with the Securities and Exchange Commission, reports to
shareholders, news releases and presentations to securities analysts or
investors, contain forward-looking statements made in good faith by the Company
pursuant to the "Safe Harbor" provisions of the PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. These statements relate to nonhistorical information which
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those presently anticipated or projected. The Company
wishes to caution the reader not to place undo reliance on any such
forward-looking statements. These statements are qualified by important factors
listed separately in "Item 1-Business" of the Company's Form 10-K, which in
some cases have affected and in the future could adversely affect the Company's
actual results and could cause the Company's actual financial performance to
differ materially from that expressed in any forward-looking statement. These
factors should not, however, be considered an exhaustive list. The Company does
not undertake the responsibility to update any forward-looking statement that
may be made from time to time by or on behalf of the Company.
26
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994
<S> <C> <C> <C>
REVENUES
Net sales of primary products $ 279,035 $ 243,951 $ 211,293
Equipment and technology sales 1,452 11,404 8,675
Total Revenues 280,487 255,355 219,968
----------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of sales of primary products 212,637 196,250 174,884
Cost of equipment and technology sales 370 6,345 6,140
Selling 10,028 8,592 8,396
Administrative 5,005 5,545 3,792
Total Operating Costs and Expenses 228,040 216,732 193,212
Income from Operations 52,447 38,623 26,756
----------------------------------------------------------------------------------------------------
OTHER INCOME AND (EXPENSES)
Interest income 260 1,029 760
Interest expense (540) (562) (3,129)
Other income (expense) 236 (146) (57)
Earnings from Continuing Operations before Income Taxes 52,403 38,944 24,330
Income Taxes 17,302 14,397 9,326
Earnings from Continuing Operations 35,101 24,547 15,004
Provision for Loss Related to Discontinued Operation
(less applicable income tax benefit of $461) - - (839)
Net Earnings $ 35,101 $ 24,547 $ 14,165
----------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Earnings from continuing operations $ 1.24 $ 0.87 $ 0.55
Loss from discontinued operation - - (0.03)
Total $ 1.24 $ 0.87 $ 0.52
Number of Shares Included in Per Share Computation 28,363 28,234 27,335
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,544 $ 15,874
Trade accounts and notes receivable, less allowances of $2,330 and $2,636 24,979 23,003
Inventories 50,451 34,772
Deferred income taxes 5,372 3,753
Other current assets 8,354 5,964
TOTAL CURRENT ASSETS 91,700 83,366
PROPERTY, PLANT AND EQUIPMENT, NET 123,845 81,409
DEFERRED INCOME TAXES 5,797 5,362
OTHER ASSETS, NET 11,627 12,195
TOTAL ASSETS $ 232,969 $ 182,332
-----------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,355 $ 21
Accounts payable 19,434 20,408
Accrued compensation and benefits 14,919 11,957
Income taxes payable 7,657 9,308
Other current liabilities 6,981 8,942
TOTAL CURRENT LIABILITIES 50,346 50,636
LONG-TERM DEBT 16,634 26
OTHER LIABILITIES 19,421 21,628
DEFERRED INCOME TAXES 2,460 1,576
STOCKHOLDERS' EQUITY
Common stock (shares issued of 27,381 and 27,066) 56,551 52,974
Retained earnings 84,629 50,962
Cumulative translation adjustment 3,974 5,749
Other (1,046) (1,219)
TOTAL STOCKHOLDERS' EQUITY 144,108 108,466
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 232,969 $ 182,332
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Cumulative
Common Retained Translation
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Stock Earnings Adjustment Other
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
BALANCE $ 43,611 $ 13,928 $ 2,458 $ (1,097)
Net earnings - 14,165 - -
Exercise of options, 208 shares,
including tax benefit 825 - - -
Exercise of warrants, 3,862 shares 6,720 - - -
Employee loans for option exercises,
net of repayments - - - (130)
Minimum pension liability adjustment - - - (36)
Cash dividends declared-$0.02 per share - (534) - -
Translation adjustment - - 1,878 -
-----------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
BALANCE 51,156 27,559 4,336 (1,263)
Net earnings - 24,547 - -
Exercise of options, 277 shares,
including tax benefit 1,776 - - -
Restricted stock grants,
including tax benefit 42 - - -
Employee loans for option exercises,
net of repayments - - - (218)
Minimum pension liability adjustment - - - 262
Cash dividends declared-$0.0425 per share - (1,144) - -
Translation adjustment - - 1,413 -
-----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
BALANCE 52,974 50,962 5,749 (1,219)
Net earnings - 35,101 - -
Exercise of options, 315 shares,
including tax benefit 3,593 - - -
Restricted stock grants, net of forfeitures
and including tax benefit (16) - - -
Repayments of employee loans for option
exercises, net of additional loans - - - 173
Cash dividends declared-$0.0525 per share - (1,434) - -
Translation adjustment - - (1,775) -
-----------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
BALANCE $ 56,551 $ 84,629 $ 3,974 $ (1,046)
</TABLE>
COMMON STOCK: 99,000 SHARES OF VOTING COMMON STOCK
WITHOUT PAR VALUE AUTHORIZED; 27,381, 27,066, AND
26,784 SHARES ISSUED AND OUTSTANDING AT DECEMBER
31, 1996, 1995 AND 1994, RESPECTIVELY.
UNDESIGNATED STOCK: 500 SHARES AUTHORIZED; NONE
ISSUED. THE BOARD OF DIRECTORS IS AUTHORIZED TO
DESIGNATE THE NAME OF EACH CLASS OR SERIES OF THE
UNDESIGNATED SHARES AND TO SET THE TERMS THEREOF
(INCLUDING, WITHOUT LIMITATION, TERMS WITH RESPECT
TO REDEMPTION, DIVIDEND, LIQUIDATION, CONVERSION
AND VOTING RIGHTS AND PREFERENCES).
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
NET EARNINGS $ 35,101 $ 24,547 $ 14,165
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 10,171 8,290 8,250
Provisions for product returns,
uncollectible trade receivables and
inventory reserves 4,358 3,854 2,564
Deferred income taxes (460) 613 3,844
Provision for loss related to discontinued operation - - 839
Other non-cash income and expense items (1,489) 191 (433)
DECREASE (INCREASE) IN ASSETS
Trade accounts and notes receivable (3,482) 653 (2,996)
Inventories (19,599) (5,209) (1,467)
Other current assets (3,471) (626) 615
Other noncurrent assets (217) (1,013) (256)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable (785) 7,858 1,964
Income taxes payable (1,300) 1,747 2,250
Accrued expenses and other current liabilities 3,585 (951) 7,498
Other noncurrent liabilities (1,626) 5,307 (157)
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,786 45,261 36,680
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Additions to property, plant and equipment (54,662) (39,196) (13,537)
Business acquisitions, net of cash acquired - (5,167) -
Proceeds from sale of property and equipment - 28 312
NET CASH USED IN INVESTING ACTIVITIES (54,662) (44,335) (13,225)
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net increase in short-term borrowings 1,257 - -
Increase (decrease) in long-term debt and
reduction of capitalized lease obligation(1) 16,950 (19) (22,604)
Common stock issued, including tax benefit(1) 3,577 1,818 2,634
Cash dividends paid (1,361) (1,074) (267)
Employee (loans) for exercise of stock options,
net of repayments 173 (218) (130)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 20,596 507 (20,367)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (50) 114 312
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,330) 1,547 3,400
Cash and cash equivalents at beginning of year 15,874 14,327 10,927
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,544 $ 15,874 $ 14,327
</TABLE>
(1) IN 1994, IN ADDITION TO THE LONG-TERM DEBT
REPAYMENT AND COMMON STOCK ISSUANCE SHOWN ABOVE,
$4,911 OF LONG-TERM DEBT WAS REDUCED AS
CONSIDERATION FOR THE EXERCISE OF WARRANTS.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned.
REVENUE RECOGNITION--Revenue related to the majority of the Company's products
is recognized upon shipment of product to the customer. The Company accounts for
long-term equipment and technology contracts under the percentage-of-completion
method, generally measured on the attainment of specific contract milestones.
Estimated contract earnings are reviewed periodically as work progresses. In the
event such estimates indicate a loss would be incurred on the contract, the
estimated amount of such loss would be recognized in the period the estimated
loss was determined.
CASH EQUIVALENTS--consist of highly-liquid debt instruments with a maturity of
three months or less at the date of purchase.
INVENTORIES--are stated at the lower of cost or market. Cost is determined
principally on the average cost method. Provision for potentially obsolete or
slow-moving inventory is made based on management's analysis of inventory levels
and future sales forecasts.
PROPERTY, PLANT AND EQUIPMENT--are stated at cost. Depreciation is provided on
the straight-line method over estimated useful lives of 3 to 45 years for
buildings and improvements and 3 to 15 years for machinery and equipment.
Depreciation of assets included in construction in progress does not begin until
the construction is complete and the assets are placed into service.
INCOME TAXES--A deferred tax liability is recognized for temporary differences
between financial reporting and tax reporting which will result in taxable
income in future years. A deferred tax asset is recognized for temporary
differences which will result in tax deductions in future years and for net
operating loss and tax credit carryforwards. The deferred tax asset is reduced
by a valuation allowance to a net amount which the Company believes it more
likely than not will realize, based on estimates of its future earnings and the
expected timing of temporary difference reversals.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS--The Company accrues the expected
cost of providing postretirement benefits other than pensions during the years
that eligible employees render service. Earnings Per Share--Earnings per common
share is computed using the weighted average number of common and common
equivalent shares outstanding during the period. Common stock equivalents
include dilutive stock options and warrants using the treasury stock method.
EARNINGS PER SHARE--Earnings per common share is computed using the weighted
average number of common and common equivalent shares outstanding during the
period. Common stock equivalents include dilutive stock options and warrants
using the treasury stock method.
STOCK SPLITS--On October 19, 1995 and on August 15, 1994, the Company declared
two-for-one stock splits. As a result, the number of outstanding shares and
earnings per share for prior periods presented have been restated to reflect
these splits.
STOCK-BASED COMPENSATION--The Company has elected to follow Accounting
Principles Board Opinion No.25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES
(APB 25) and related interpretations in accounting for its employee stock
options. Under APB 25, because the exercise price of employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recorded. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No.123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (STATEMENT 123).
31
<PAGE>
ESTIMATES--The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION--Certain items in the 1995 and 1994 Consolidated Financial
Statements have been reclassified to conform to the 1996 presentation. These
reclassifications had no impact on net income or shareholders' equity as
previously reported.
2. INVENTORIES
The following is a summary of inventories at December 31:
1996 1995
Raw materials $ 15,461 $ 12,556
Work in process 9,807 5,772
Finished goods 25,183 16,444
Total inventories $ 50,451 $ 34,772
3. OTHER CURRENT ASSETS AND OTHER LIABILITIES
The following is a summary of other current assets at December 31:
1996 1995
Molds used to produce eyewear lenses $ 4,795 $ 3,534
Other 3,559 2,430
Total other current assets $ 8,354 $ 5,964
The following is a summary of other liabilities at December 31:
1996 1995
Accrued foreign pension cost $ 8,469 $ 8,272
Employee retirement obligations 5,099 6,612
Other 5,853 6,744
Total other liabilities $ 19,421 $ 21,628
4. PROPERTY, PLANT AND EQUIPMENT, NET
The following is a summary of property, plant and equipment, net at December 31:
1996 1995
Land and improvements $ 2,508 $ 2,575
Buildings and improvements 49,154 40,801
Machinery and equipment 110,460 89,842
Construction in progress 58,367 38,493
Total 220,489 171,711
Less accumulated depreciation
and amortization 96,644 90,302
Total property, plant and equipment, net $ 123,845 $ 81,409
5. DEBT AND WARRANT EXERCISE
DEBT--The following is a summary of long-term debt at December 31:
1996 1995
U.S. revolving credit facility $ 6,800 --
German credit facility 11,064 --
Capital lease obligation and other 125 $ 47
17,989 47
Less amounts due within one year 1,355 21
Total long-term debt $ 16,634 $ 26
During 1996, the Company signed a new credit agreement (the "Agreement") with
three domestic banks for unsecured borrowings totaling $150,000. This Agreement
consists of a $70,000 four-year revolving credit facility for general corporate
purposes and an $80,000 one-year acquisition credit facility. Borrowings under
the Agreement bear interest at the Eurodollar Rate plus 0.30% to 0.70%. The rate
spread is dependent upon the Company's ratio of debt to total capitalization. In
addition, the Company pays a facility fee on unborrowed funds at rates ranging
from 0.08% to 0.175%, depending on the Company's debt to total capitalization
ratio. Under terms of the Agreement, the Company must meet certain affirmative
covenants, including maintaining a specified total capitalization ratio,
interest coverage ratio, cash flow leverage ratio and tangible net worth. The
Company was in compliance with all covenants under the Agreement at December 31,
1996.
The Company's German subsidiary maintains short-term credit lines of $1,948 and
long-term credit lines of $14,936. The short-term credit lines are unsecured and
bear interest at either 0.75% over the DM LIBOR rate or approximately 3% over
the German Bundesbank Discount rate. The short-term credit lines may be
withdrawn at any time. The weighted average interest rate on short-term debt
outstanding at December 31, 1996 was 7.25%. There was no short-term debt
outstanding, other than capitalized lease obligations, at December 31, 1995. Of
the long-term credit line, $4,741 is secured by land and buildings with a net
book value of $12,600 at December 31, 1996. These long-term credit lines bear
interest at 0.50% to 0.75% over the DM LIBOR rate.
On December 31, 1996, the estimated fair value of the Company's debt described
above would approximate the recorded amount since the debt bears a floating
interest rate.
Annual maturities of long-term debt for the next five years are $1,355 in 1997,
$2,612 in 1998, $7,153 in 1999, $6,810 in 2000, $10 in 2001 and $49 thereafter.
There were $1,385 of outstanding letters of credit at December 31, 1996.
Interest expense paid, net of amounts capitalized of $302, $0 and $137, was $15,
$55 and $2,428 in 1996, 1995 and 1994, respectively.
WARRANT EXERCISE--In the third quarter of 1994, the Company repaid all of its
then outstanding senior, subordinated and industrial development bond debt.
Existing cash balances and proceeds from the exercise of detachable warrants to
purchase shares of the Company's common stock were used for these repayments.
These detachable warrants had been issued to purchasers of the Company's
subordinated notes. All such warrants were exercised during 1994, resulting in
the issuance by the Company of 3,862 shares of common stock at an average
exercise price of $1.74 per share.
32
<PAGE>
6. COMMITMENTS
The Company leases three manufacturing facilities, 19 sales, distribution or
administrative facilities and the Company headquarters. In addition, the Company
leases data processing and other equipment.
At December 31, 1996, the approximate future minimum rental commitments required
under non-cancelable operating leases are as follows:
1997 $ 1,748
1998 722
1999 236
2000 199
Thereafter 28
Total minimum lease payments $ 2,933
Rent expense was $2,535, $2,644 and $2,788 in 1996, 1995 and 1994, respectively.
The Company's German subsidiary has a large portion of its sales denominated in
U.S. dollars. As most of the German subsidiary's expenses are denominated in the
German mark, this represents the most significant element of the Company's
exposure to currency rate fluctuations. This exposure is generally addressed as
needed through the purchase of forward contracts and options. At December 31,
1996, there were no outstanding forward contracts or options. At December 31,
1995, the Company's German subsidiary had U.S. dollar-denominated foreign
exchange forward contracts to purchase $4,500 of German marks. The contracts had
maturities ranging from three to nine months.
At December 31, 1996, the Company had commitments of approximately $24,000
related to capital projects.
7. STOCK OPTION PLAN
The 1994 Stock Incentive Plan (the "1994 Plan") provides for the granting of
either incentive stock options or nonqualified stock options to purchase shares
of the Company's common stock and for other stock-based awards to officers,
directors and key employees responsible for the direction and management of the
Company and to non-employee consultants and independent contractors. At December
31, 1996, 3,809 shares of common stock were reserved for issuance under the 1994
Plan and for outstanding options from the 1984 Omnibus Stock Plan, which
terminated on January 10, 1994. The reserved shares included 1,689 shares
available for awards under the 1994 Plan.
Information relating to stock options during 1996 and 1995 is as follows:
Option Price
Number Per Share Total
of Shares Average Price
Shares under option
at December 31, 1994 2,358 $ 3.54 $ 8,344
Granted 295 15.39 4,538
Exercised (277) 2.24 (621)
Forfeited (13) 1.91 (25)
Shares under option
at December 31, 1995 2,363 5.18 12,236
Granted 87 26.99 2,362
Exercised (315) 2.79 (882)
Forfeited (15) 8.71 (131)
Shares under option
at December 31, 1996 2,120 $ 6.41 $ 13,585
Shares exercisable
at December 31, 1996 1,035 $ 3.04 $ 3,149
Shares exercisable
at December 31, 1995 824 $ 2.47 $ 2,033
All outstanding options were nonqualified options. No compensation expense
related to stock option grants was recorded in 1996, 1995 or 1994 as the option
exercise prices were equal to fair market value on the date of grant.
At December 31, 1996, there were 5 shares outstanding pursuant to other
stock-based awards under the 1994 Plan.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1996
and 1995:
1996 1995
Risk-free interest rate 6.210% 5.370%
Dividend yield 0.190% 0.160%
Volatility factor 0.387 0.407
Weighted average expected life 5 years 5 years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net earnings and earnings per share were as follows:
1996 1995
Net earnings - as reported $ 35,101 $ 24,547
Net earnings - pro forma 34,746 24,475
Earnings per share - as reported 1.24 0.87
Earnings per share - pro forma 1.23 0.87
Weighted average fair value of options
granted during the year 11.61 6.61
33
<PAGE>
Because the Statement provides for pro forma amounts for options granted
beginning in 1995, the pro forma expense will likely increase in future years as
the new option grants become subject to the pricing model.
STOCK OPTION EXERCISE LOAN PROGRAM--The Company maintains the Stock Option
Exercise Loan Program under which holders of exercisable stock options may
obtain interest-free and interest-bearing loans from the Company to facilitate
their exercise of stock options. Such loans are evidenced by demand promissory
notes and are secured by the shares of stock. The portion of such loans directly
related to the option exercise price is classified as a reduction of
stockholders' equity. The remainder is included in current assets.
8. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory profit sharing plan covering
substantially all of its domestic salaried employees and those domestic hourly
employees not covered by a pension plan or retirement fund described below.
Under the terms of the profit sharing plan, the Company makes an annual minimum
contribution equal to 3% of participants' wages, with the potential for an
additional discretionary contribution depending upon the Company's
profitability. Provisions of the plan include 100% vesting after five years of
continuous service and payment of benefits upon retirement, total disability,
death or termination.
The Company also maintains a 401(k) savings plan covering substantially all of
its domestic salaried employees and a majority of those domestic hourly
employees not covered by a pension plan or retirement fund described below.
Under the terms of the savings plan, the Company makes an annual minimum
contribution, which is invested in Company stock, equal to 25% of participants'
before-tax contributions up to 6% of base salary, with the potential for an
additional discretionary contribution depending upon the Company's
profitability. Provisions of the plan include vesting of the Company's
contributions at the rate of 25% per year of continuous service and payment of
benefits upon retirement, total disability, death or termination.
One domestic operation has a noncontributory defined benefit pension plan for
its hourly employees. Benefits payable under the plan are based upon various
monthly amounts for each year of credited service. The Company's funding policy
meets or exceeds the funding requirements of federal laws and regulations. The
projected benefit obligation was determined using an assumed discount rate of
7.5%. The assumed long-term rate of return on plan assets, invested primarily in
diversified portfolios comprised of debt and equity securities, was 7.0%.
In 1989, the Company adopted a supplemental defined benefit retirement plan for
corporate and operations management over 45 years of age. In 1992, the Company
curtailed benefits payable under the plan. The Company's funding policy is to
maintain plan assets approximately equal to the vested benefit obligation. The
projected benefit obligation was determined using an assumed discount rate of
7.5%. The assumed long-term rate of return on plan assets, invested primarily in
diversified portfolios comprised of debt and equity securities, was 7.0%.
In addition, the Company's German subsidiary has a noncontributory defined
benefit pension plan covering substantially all of its employees. Benefits
payable under the plan are based upon the participant's base salary prior to
retirement and years of credited service. As allowed under German law, this plan
is not funded. However, under generally accepted accounting principles, the
estimated future liability is accrued on the Consolidated Balance Sheets. The
projected benefit obligation was determined using an assumed discount rate and
an assumed rate of increase in future compensation of 7.0% and 3.0%,
respectively.
Pension costs for the above three defined benefit plans included the following
components:
YEARS ENDED DECEMBER 31 1996 1995 1994
Service cost for benefits
earned during the year $ 475 $ 434 $ 434
Interest cost on projected
benefit obligation 810 775 666
Actual return on plan assets (578) (710) (23)
Net amortization and deferral 405 572 (138)
Pension costs $ 1,112 $ 1,071 $ 939
The following is a summary of the funded status of the above three defined
benefit plans and the accrued pension costs recorded in the Company's
Consolidated Balance Sheets at December 31:
1996 1995
Actuarial present value of:
Vested benefit obligation $ (10,538) $ (9,554)
Accumulated benefit obligation $ (11,279) $ (10,375)
Projected benefit obligation $ (12,636) $ (11,559)
Plan assets at fair value 3,650 3,291
Projected benefit obligation
in excess of plan assets (8,986) (8,268)
Unrecognized net (gain) loss 68 (339)
Unrecognized prior service cost 123 135
Unrecognized transition amount 160 192
Minimum pension liability adjustment -- (137)
Accrued pension costs $ (8,635) $ (8,417)
Under a contract with its union employees, another domestic operation makes, on
behalf of each active participant, fixed weekly contributions to a retirement
fund (aggregating $150, $145 and $143 in 1996, 1995 and 1994, respectively). At
December 31, 1996, the market value of this fund's assets of $15,579 exceeded
benefit obligations of $12,594 by $2,985. Pursuant to the plan, excess funded
amounts are not available to the Company.
34
<PAGE>
The total cost of all profit sharing, savings and pension plans, domestic and
foreign, was $4,523, $4,301 and $4,605 in 1996, 1995 and 1994, respectively.
In addition to the defined benefit plans discussed above, the Company has two
defined benefit postretirement plans covering certain domestic employees. One
plan provides medical benefits and the other provides life insurance benefits.
Under the medical benefits plan, the Company provides a specific dollar amount
to retired salaried employees or their surviving spouses to purchase coverage
through the BMC Flexible Benefits Plan. The annual increase in these Company
provided amounts is limited to 5%. The life insurance plan provides term life
insurance coverage to all retired full-time hourly employees at one domestic
operation. The Company accrues the expected cost of providing benefits under
these two plans during the years that eligible employees render service. Neither
plan is funded.
The following table shows the two plans' accrued postretirement benefit
obligations at December 31:
1996 1995
Accumulated postretirement
benefit obligation $ (1,243) $ (1,159)
Unrecognized net gain (371) (362)
Accrued postretirement benefit obligation $ (1,614) $ (1,521)
The assumed discount rate used in determining the accumulated postretirement
benefit obligation was 7.5%.
9. INCOME TAXES
The provision for income taxes was based on earnings (loss) before income taxes,
as follows:
YEARS ENDED DECEMBER 31 1996 1995 1994
Domestic $ 47,397 $ 28,362 $ 18,304
Foreign 5,006 10,582 6,026
Earnings from continuing operations 52,403 38,944 24,330
Provision for loss related
to discontinued operation -- -- (1,300)
Earnings before income taxes $ 52,403 $ 38,944 $ 23,030
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994
<S> <C> <C> <C>
Current
Federal $ 13,227 $ 7,162 $ 722
State 1,931 1,661 1,246
Foreign 2,604 4,961 3,514
Deferred
Federal and state (386) 72 3,934
Foreign (74) 541 (90)
Provision for income taxes on earnings
from continuing operations 17,302 14,397 9,326
Tax benefit associated with provision for
loss related to discontinued operation -- -- (461)
Income tax expense $ 17,302 $ 14,397 $ 8,865
</TABLE>
Significant components of deferred income tax assets and liabilities were as
follows at December 31:
1996 1995
FEDERAL AND STATE NET DEFERRED INCOME TAXES
Deferred tax asset
Compensation and benefit-related accruals $ 5,555 $ 5,809
Reserves and accruals 4,043 3,963
Depreciation 3,412 3,694
Other temporary differences 2,341 3,303
Total 15,351 16,769
Deferred tax liability
Capitalized molds (1,659) (1,263)
Net deferred tax asset before valuation allowance 13,692 15,506
Valuation allowance (3,670) (6,488)
Net deferred tax asset $ 10,022 $ 9,018
FOREIGN NET DEFERRED INCOME TAXES
Deferred tax liability
Depreciation $ (3,020) $ (2,036)
Other temporary differences (3) (210)
Total (3,023) (2,246)
Deferred tax asset
Reserves and accruals 936 --
Retirement benefits 560 597
Other temporary differences 214 170
Total 1,710 767
Net deferred tax liability $ (1,313) $ (1,479)
The federal and state net deferred tax asset included a current portion of
$4,225 and $3,656 at December 31, 1996 and 1995, respectively, and a long-term
portion of $5,797 and $5,362 at December 31, 1996 and 1995, respectively. The
foreign net deferred tax liability included a current asset of $1,147 and $97 at
December 31, 1996 and 1995, respectively, and a long-term liability of $2,460
and $1,576 at December 31, 1996 and 1995, respectively.
35
<PAGE>
At December 31, 1996, net future tax deductions from the reversal of temporary
differences comprised the federal and state net deferred tax asset, which had
been reduced by a valuation allowance. This valuation allowance reduced the net
deferred tax asset to a net amount which the Company believes it more likely
than not will realize, based on the Company's estimates of its future earnings
and the expected timing of temporary difference reversals. The net change in the
total valuation allowance for the year ended December 31, 1996 was a decrease of
$2,818.
The differences between income taxes at the U.S. federal statutory tax rate and
the effective tax rate were as follows:
YEARS ENDED DECEMBER 31 1996 1995 1994
Statutory rate 35.0% 35.0% 35.0%
Differences in taxation
of foreign earnings 1.5 4.6 5.4
State income taxes,
net of federal benefit 2.6 2.5 2.6
Change in deferred
tax valuation reserve (5.4) (4.8) (4.2)
Other items (0.7) (0.3) (0.5)
Effective tax rate 33.0% 37.0% 38.3%
Differences in taxation of foreign earnings relate primarily to taxation of
foreign earnings at rates in excess of the U.S. statutory rate. Undistributed
earnings of foreign subsidiaries at December 31, 1996 were approximately
$19,800. No U.S. taxes have been provided on these undistributed earnings
because the Company expects to be able to utilize foreign tax credits to offset
any U.S. tax that would result from their distribution.
Income taxes paid were $17,039, $10,333 and $2,967 in 1996, 1995 and 1994,
respectively.
10. SEGMENT INFORMATION
The Company manufactures and sells a variety of products in two business
segments. Precision Imaged Products manufactures principally aperture masks,
photochemically etched fine mesh grids used in the manufacture of color
television tubes and computer monitors. Net sales of aperture masks comprised
60%, 57% and 54% of the Company's consolidated total revenues in 1996, 1995 and
1994, respectively. Optical Products manufactures and distributes ophthalmic
lenses.
The following is a summary of certain financial information relating to the two
industry segments served:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994
<S> <C> <C> <C>
TOTAL REVENUES BY SEGMENT
Precision Imaged Products(1) $ 192,552 $ 179,199 $ 145,301
Optical Products 87,935 76,156 74,667
TOTAL REVENUES $ 280,487 $ 255,355 $ 219,968
OPERATING PROFIT BY SEGMENT
Precision Imaged Products(1)
Before corporate allocation $ 43,087 $ 34,475 $ 22,219
Less corporate allocation(2) (2,416) (2,131) (1,714)
TOTAL 40,671 32,344 20,505
Optical Products
Before corporate allocation 14,365 9,693 8,329
Less corporate allocation(2) (1,104) (905) (880)
TOTAL 13,261 8,788 7,449
TOTAL OPERATING PROFIT 53,932 41,132 27,954
Corporate expense (1,485) (2,509) (1,198)
Interest income (expense), net (280) 467 (2,369)
Other income (expense) 236 (146) (57)
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES $ 52,403 $ 38,944 $ 24,330
IDENTIFIABLE ASSETS BY SEGMENT
Precision Imaged Products $ 158,276 $ 106,685 $ 71,505
Optical Products 58,617 46,094 38,583
TOTAL IDENTIFIABLE ASSETS 216,893 152,779 110,088
Corporate and other assets 16,076 29,553 28,598
TOTAL ASSETS $ 232,969 $ 182,332 $ 138,686
DEPRECIATION AND AMORTIZATION BY SEGMENT
Precision Imaged Products $ 7,391 $ 5,689 $ 5,724
Optical Products 2,536 2,436 1,806
Corporate and other 244 165 720
TOTAL DEPRECIATION
AND AMORTIZATION $ 10,171 $ 8,290 $ 8,250
CAPITAL EXPENDITURES BY SEGMENT
Precision Imaged Products $ 49,672 $ 35,316 $ 10,511
Optical Products 4,750 3,637 2,586
Corporate and other 240 243 440
TOTAL CAPITAL EXPENDITURES $ 54,662 $ 39,196 $ 13,537
</TABLE>
(1) Total revenues included $1,452, $11,404 and $8,675 from equipment and
technology sales in 1996, 1995 and 1994, respectively, while operating
profit included $1,082, $5,059 and $2,535 from such sales in 1996, 1995 and
1994, respectively.
(2) Corporate allocations include administrative expenses incurred at the
corporate headquarters which provide benefit to the operating divisions.
Total revenues by segment are primarily from unaffiliated customers.
The following is a summary of the Company's operations in different geographic
areas:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994
<S> <C> <C> <C>
TOTAL REVENUES FROM UNAFFILIATED
CUSTOMERS
United States $ 187,430 $ 176,173 $ 159,075
Germany 85,667 76,220 57,771
Other 7,390 2,962 3,122
TOTAL $ 280,487 $ 255,355 $ 219,968
TRANSFERS BETWEEN GEOGRAPHIC AREAS
United States $ 5,810 $ 3,143 $ 765
Germany 2,893 16,228 558
Eliminations (8,703) (19,371) (1,323)
NET EARNINGS
United States $ 32,625 $ 19,467 $ 11,563
Germany 2,084 5,016 2,716
Other 392 64 (114)
TOTAL $ 35,101 $ 24,547 $ 14,165
IDENTIFIABLE ASSETS
United States $ 175,636 $ 136,692 $ 110,588
Germany 62,016 50,677 29,770
Other 2,642 1,093 973
Eliminations (7,325) (6,130) (2,645)
TOTAL $ 232,969 $ 182,332 $ 138,686
</TABLE>
Transfers between geographic areas are accounted for principally at estimated
market value. Net sales to unaffiliated foreign customers from domestic
operations (export sales) in 1996, 1995 and 1994 were $43,492, $40,566 and
$31,337 or 16%, 16% and 14%, respectively, of total revenues. Precision Imaged
Products had sales to one customer of $52,899, $60,738 and $45,171, to another
customer of $33,435, $22,202 and $13,724 and to a third customer of $32,417,
$31,975 and $21,647 in 1996, 1995 and 1994, respectively.
36
<PAGE>
11. CONCENTRATIONS OF CREDIT RISK
Approximately 75% of the trade accounts and notes receivable before allowances
("receivables") of Precision Imaged Products at December 31, 1996 were
represented by four customers. Approximately 37% of the receivables of Optical
Products at December 31, 1996 were represented by 20 customers. These 24
customers represented approximately 58% of the Company's
consolidated receivables at December 31, 1996, with two customers of Precision
Imaged Products representing approximately 20% and 14%, respectively, of
consolidated receivables.
Mask Operations' customer base consists of the largest television and computer
monitor manufacturers in the world. Accordingly, Mask Operations generally does
not require collateral and its trade receivables are unsecured. Optical
Products' customer base consists of a wide range of eyewear retailers and
optical laboratories. Optical Products performs detailed credit evaluations of
customers and establishes credit limits as required. Collateral or other
security for accounts receivable is obtained as needed for Optical Products'
customers.
12. PROVISION FOR LOSS RELATED TO DISCONTINUED OPERATION
During 1994, the Company made a provision for environmental remediation costs
and related expenses of $1,300, less applicable income taxes of $461, pertaining
to property previously utilized by one of its discontinued operations.
13. LEGAL MATTERS
In January 1995, a U.S. District Court in Miami, Florida, awarded the Company a
$5.1 million judgment against Barth Industries ("Barth") of Cleveland, Ohio and
its parent, Nesco Holdings, Inc. ("Nesco"). The judgment relates to an agreement
under which Barth and Nesco were to help automate the plastic lens production
plant in Fort Lauderdale, Florida. The Company has not recorded any income
relating to this judgment because Barth and Nesco filed an appeal. The appeal
has been argued before the U.S. Court of Appeals for the Eleventh Circuit and
the Company is awaiting the Court's decision.
37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
BMC INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of BMC Industries,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of earnings, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BMC Industries,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
January 28, 1997
38
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the New York Stock Exchange under the
ticker symbol "BMC". The table below sets forth the high and low reported sales
prices of BMC stock by quarter for the years 1996, 1995 and 1994. All per share
amounts have been adjusted for two-for-one stock splits in 1995 and 1994. At
March 1, 1997 there were approximately 978 stockholders of record.
<TABLE>
<CAPTION>
Dividends Price
Per Share High Low
<S> <C> <C> <C>
1994 First Quarter $ -- $ 6 19/32 $ 4 7/8
Second Quarter -- 7 3/16 5 1/4
Third Quarter .0100 7 5/16 6 5/8
Fourth Quarter .0100 8 3/8 6 9/16
1995 First Quarter $ .0100 $ 9 1/8 $ 7 11/16
Second Quarter .0100 12 9/16 8 1/4
Third Quarter .0100 19 15/16 12 3/16
Fourth Quarter .0125 23 5/8 15 1/8
1996 First Quarter $ .0125 $ 25 1/8 $ 19 3/4
Second Quarter .0125 32 3/8 21
Third Quarter .0125 31 3/8 24 3/4
Fourth Quarter .0150 31 1/2 26 5/8
</TABLE>
39
<PAGE>
SELECTED QUARTERLY DATA
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
1995(1)
Total revenues $ 61,334 $ 69,647 $ 59,203 $ 65,171 $ 255,355
Gross profit 11,077 15,126 11,060 15,497 52,760
Net earnings 4,694 7,477 4,548 7,828 24,547
Earnings per share 0.17 0.26 0.16 0.28 0.87
Common and common equivalent shares 28,029 28,233 28,369 28,304 28,234
1996(2)
Total revenues $ 68,301 $ 68,174 $ 68,158 $ 75,854 $ 280,487
Gross profit 13,040 18,483 14,318 21,639 67,480
Net earnings 6,183 9,842 7,157 11,919 35,101
Earnings per share 0.22 0.35 0.25 0.42 1.24
Common and common equivalent shares 28,278 28,369 28,390 28,416 28,363
</TABLE>
THE NUMBER OF SHARES AND PER SHARE AMOUNTS HAVE BEEN ADJUSTED FOR A TWO-FOR-ONE
STOCK SPLIT IN OCTOBER 1995.
(1) TOTAL REVENUES FOR 1995 INCLUDED $3,581, $5,621, $1,014 AND $1,188 IN THE
FIRST, SECOND, THIRD AND FOURTH QUARTERS, RESPECTIVELY, FROM EQUIPMENT AND
TECHNOLOGY SALES. NET EARNINGS FOR 1995 INCLUDED GAINS OF $972, $1,146,
$354 AND $573 IN THE FIRST, SECOND, THIRD AND FOURTH QUARTERS,
RESPECTIVELY, FROM EQUIPMENT AND TECHNOLOGY SALES.
(2) TOTAL REVENUES FOR 1996 INCLUDED $192, $661 AND $599 IN THE FIRST, SECOND
AND FOURTH QUARTERS, RESPECTIVELY, FROM EQUIPMENT AND TECHNOLOGY SALES. NET
EARNINGS FOR 1996 INCLUDED GAINS OF $21, $297, $10 AND $357 IN THE FIRST,
SECOND, THIRD AND FOURTH QUARTERS, RESPECTIVELY, FROM EQUIPMENT AND
TECHNOLOGY SALES.
40
<PAGE>
Exhibit 21.1
SUBSIDIARIES
OF
BMC INDUSTRIES, INC.
1. Buckbee-Mears Europe GmbH
2. BMC Industries Foreign Sales Corporation
3. Buckbee-Mears Hungary
4. Vision-Ease Lens, Inc.
5. Vision-Ease Europe Limited
6. Vision-Ease Canada, Ltd.
7. P. T. Vision-Ease Asia, joint venture with P.T. Astron Lensindo Nusa
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of BMC Industries, Inc. of our report dated January 28, 1997, included
in the 1996 Annual Report to Stockholders of BMC Industries, Inc.
Our audits also included the financial statement schedule of BMC Industries,
Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8, No. 33-2613, No. 33-32389 and No. 33-60937) pertaining
to the BMC Industries, Inc. 1984 Omnibus Stock Program and in the
Registration Statement (Form S-8 No. 33-55089) pertaining to the BMC
Industries, Inc. 1994 Stock Incentive Plan and the related Prospectuses of
our report dated January 28, 1997, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included
in this Annual Report (Form 10-K) of BMC Industries, Inc.
Minneapolis, Minnesota
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,468
<SECURITIES> 76
<RECEIVABLES> 27,309
<ALLOWANCES> 2,330
<INVENTORY> 50,451
<CURRENT-ASSETS> 91,700
<PP&E> 220,489
<DEPRECIATION> 96,644
<TOTAL-ASSETS> 232,969
<CURRENT-LIABILITIES> 50,346
<BONDS> 0
0
0
<COMMON> 56,551
<OTHER-SE> 87,557
<TOTAL-LIABILITY-AND-EQUITY> 232,969
<SALES> 279,827
<TOTAL-REVENUES> 280,487
<CGS> 213,007
<TOTAL-COSTS> 228,040
<OTHER-EXPENSES> (236)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 540
<INCOME-PRETAX> 52,403
<INCOME-TAX> 17,302
<INCOME-CONTINUING> 35,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,101
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
<PAGE>
Contact: Michael P. Hawks (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES QUARTERLY DIVIDEND
December 6, 1996--Minneapolis, Minnesota--BMC Industries, Inc. today
announced that its Board of Directors has approved an increase in its
quarterly cash dividend from $.0125 cents per share to $.0150 cents per
share, a 20% increase.
Shareholders of record as of December 18, 1996 will receive a dividend of
$.0150 for each share owned on that date, to be paid on January 2, 1997.
Paul B. Burke, BMC's Chairman and Chief Executive Officer, stated that
"The Board's decision to increase the quarterly dividend is directly
attributable to the strong earnings growth which continues to be exhibited
by the Company's businesses."
BMC Industries, Inc. is one of the world's largest manufacturers of
aperture masks for color picture tubes used in televisions and computer
monitors. The Company is also a leading producer of polycarbonate, glass
and plastic eyewear lenses. BMC's common stock is traded on the New York
Stock Exchange under the symbol BMC.
<PAGE>
Exhibit 99.2
CONTACT: Michael P. Hawks (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC INDUSTRIES, INC.
ANNOUNCES THE ESTABLISHMENT OF
AN INDONESIAN JOINT VENTURE
January 14,1997 -- Minneapolis, MN -- BMC Industries, Inc. today announced
the establishment of a joint venture company in Jakarta, Indonesia, which
will operate under the name of P.T. Vision-Ease Asia. BMC's wholly-owned
subsidiary, Vision-Ease Lens, Inc., will own 75% of the joint venture's
outstanding shares and P.T. Astron Lensindo Nusa ("Astron"), an Indonesian
company, will own the remaining 25%. The joint venture will manufacture
glass ophthalmic lenses and supply these lenses to both Vision-Ease and
Astron.
Paul B. Burke, BMC's Chairman and Chief Executive Officer, stated that "The
formation of P.T. Vision-Ease Asia is another step in our plan to make
Vision-Ease into a world- class supplier of ophthalmic products throughout
the world. We believe this low-cost alternative for glass lens production
will further enhance our competitiveness in the glass marketplace, where we
already enjoy a significant share position."
BMC Industries, Inc. is one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors.
Through Vision-Ease, the Company is also a leading producer of polycarbonate,
glass and plastic eyewear lenses. The common stock of the Company is traded
on the New York Stock Exchange under the symbol "BMC".
<PAGE>
CONTACT: Michael P. Hawks (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC REPORTS RECORD 1996 EARNINGS
January 28, 1997 -- Minneapolis, MN -- BMC Industries, Inc. today reported
record fourth quarter 1996 net earnings of $11,919,000 or $.42 per share, up
52% from earnings of $7,828,000 or $.28 per share in the year-earlier period.
Fourth quarter revenues for primary products (excluding equipment and
technology sales) increased 18% over the prior year quarter.
For the year ended December 31, 1996, BMC reported record net earnings of
$35,101,000 or $1.24 per share, an increase of 43% from $24,547,000 or $.87
per share in 1995. Revenues from primary products rose 14% in 1996 to
$279,035,000 from $243,951,000 in 1995.
Paul B. Burke, BMC's chairman and chief executive officer stated "I am very
pleased to report BMC's record fourth quarter and total year 1996 results.
In addition, the fourth quarter also marked the twenty-third consecutive
quarter of increased net earnings over the year-earlier period, excluding
income from the sale of equipment and technology and other non-recurring
items. This achievement is a tribute to all BMC employees as every one of
our operations contributed meaningfully to our record results not only in the
fourth quarter, but all year long."
The Company's Precision Imaged Products operation (including both the Mask
Operations and Buckbee-Mears St. Paul) posted record fourth quarter results.
Excluding sales of equipment and technology contracts, fourth quarter
Precision Imaged Products sales increased 17% over the fourth quarter of
1995. In addition, the profitability of Precision Imaged Products, excluding
equipment and technology earnings, increased 38% when compared to the
year-earlier quarter. The profitability of the Mask Operations increased due
to the continued sales mix shift to higher margin products, including high
resolution computer monitor masks, and improved operating performance. In
the fourth quarter, sales of jumbo (30" and larger), large (25" to 29") and
invar aperture masks increased 73%, 8% and 1%, respectively, over fourth
quarter 1995 sales. Fourth quarter sales of invar aperture masks were strong,
but are compared to a 1995 fourth quarter which was up 134% over the fourth
quarter of 1994. In addition, fourth quarter sales included over $4 million
of high resolution computer monitor mask sales, which contributed to the
fourth quarter earnings growth. For the total year, sales of jumbo, large
and invar aperture masks increased 58%, 14% and 18%, respectively.
Buckbee-Mears St. Paul posted record fourth quarter earnings as a result of
product mix and manufacturing improvements.
-more-
<PAGE>
BMC's Optical Products operation also posted record fourth quarter results.
Fourth quarter profits increased 110% over the year-earlier period, while
sales increased 19%. Sales growth occurred in each major product line and
international sales growth continued to be particularly strong. Sales of
high-end products (polycarbonate, progressive, high index and polarizing
sunglass lenses) increased 23% over the year-earlier quarter and increased
18% for the total year. Fourth quarter profitability gains resulted from
increased sales of high-end products and margin improvements attributable to
the Company's Far East sourcing program for cast resin lenses. In addition,
results for the prior-year quarter included a provision to move the domestic
cast resin operation to a lower cost facility.
BMC is one of the world's largest manufacturers of aperture masks for color
television picture tubes and computer monitors. The Company is also a
leading producer of polycarbonate, glass and plastic eyewear lenses. The
common stock of the Company is traded on the New York Stock Exchange under
the symbol "BMC".
-more-
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31 December 31
---------------------- -----------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------
Revenues
Net sales of primary products $75,255 $63,983 $279,035 $243,951
Equipment and technology sales 599 1,188 1,452 11,404
- -------------------------------------------------------------------------------
Total Revenues 75,854 65,171 280,487 255,355
- -------------------------------------------------------------------------------
Operating Costs and Expenses
Cost of sales of primary
products 54,215 49,463 212,637 196,250
Cost of equipment and
technology sales -- 211 370 6,345
Selling 2,577 2,034 10,028 8,592
Administrative 1,280 1,308 5,005 5,545
- -------------------------------------------------------------------------------
Total Operating Costs
and Expenses 58,072 53,016 228,040 216,732
- -------------------------------------------------------------------------------
Income from Operations 17,782 12,155 52,447 38,623
- -------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (104) (354) (540) (562)
Interest income 50 425 260 1,029
Other income (expense) 116 6 236 (146)
- -------------------------------------------------------------------------------
Earnings before Income Taxes 17,844 12,232 52,403 38,944
Income Taxes 5,925 4,404 17,302 14,397
- -------------------------------------------------------------------------------
Net Earnings $11,919 $ 7,828 $ 35,101 $ 24,547
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Earnings Per Share $ 0.42 $ 0.28 $ 1.24 $ 0.87
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Number of Shares Included 28,416 28,304 28,363 28,234
in Per Share Computation
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-more-
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
DECEMBER 31 December 31
----------- -----------
ASSETS 1996 1995
- -------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 2,544 $ 15,874
Trade accounts and notes
receivable, net of allowances 24,979 23,003
Inventories 50,451 34,772
Deferred income taxes 5,372 3,753
Other current assets 8,354 5,964
- -------------------------------------------------------------------------------
Total Current Assets 91,700 83,366
- -------------------------------------------------------------------------------
Property, Plant and Equipment 220,489 171,711
Less Accumulated Depreciation 96,644 90,302
--------------- ---------------
Property, Plant and Equipment, Net 123,845 81,409
--------------- ---------------
Deferred Income Taxes 5,797 5,362
Other Assets, Net 11,627 12,195
- -------------------------------------------------------------------------------
Total Assets $ 232,969 $ 182,332
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings $ 1,355 $ 21
Accounts payable 19,434 20,408
Income taxes payable 7,657 9,308
Accrued expenses and other current
liabilities 21,900 20,899
- -------------------------------------------------------------------------------
Total Current Liabilities 50,346 50,636
- -------------------------------------------------------------------------------
Long-Term Debt 16,634 26
Other Liabilities 19,421 21,628
Deferred Income Taxes 2,460 1,576
Stockholders' Equity
Common stock 56,551 52,974
Retained earnings 84,629 50,962
Cumulative translation adjustment 3,974 5,749
Other (1,046) (1,219)
- -------------------------------------------------------------------------------
Total Stockholders' Equity 144,108 108,466
- -------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 232,969 $ 182,332
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-more-
<PAGE>
CONTACT: Michael P. Hawks (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES ENTRANCE INTO ETCHED LEAD FRAME MARKET
March 6, 1997 -- Minneapolis, MN -- BMC Industries, Inc. today announced that
its Board of Directors has approved a multi-million dollar capital investment
plan which will allow Buckbee-Mears St. Paul ("BMSP") to enter the high
volume etched lead frame market. Etched lead frames are packaging devices
for the semiconductor industry. In 1996 BMSP proved their ability to
manufacture etched lead frames utilizing its unique, continuous process
etching line. The approved capital investment will enable BMSP to move to
high volume production of etched lead frames, including equipment necessary
to support secondary operations unique to lead frame manufacturing. BMSP
expects to begin volume production of etched lead frames during the second
half of 1997.
Paul B. Burke, BMC's Chairman and Chief Executive Officer, stated "The
Company's decision to enter the lead frame business represents an excellent
opportunity for BMSP to leverage its core strength in precision photoetching.
The worldwide market for etched lead frames is valued in excess of $750
million and is predominantly supplied by the same companies with whom we
compete in the television and computer monitor aperture mask business. We
believe that BMC's demonstrated strengths in high volume precision
photoetching will enable BMSP to become a strong competitor in this
marketplace."
BMC Industries, Inc. is one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors.
Through Vision-Ease, the Company is also a leading producer of polycarbonate,
glass and plastic eyewear lenses. The common stock of the Company is traded
on the New York Stock Exchange under the symbol "BMC".
-30-
<PAGE>
Exhibit 99.5
Contact: Michael P. Hawks (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES QUARTERLY DIVIDEND
March 7, 1997--Minneapolis, Minnesota--BMC Industries, Inc. today
announced that its Board of Directors has approved a continuation of its
quarterly cash dividend of $.015 cents per share.
Shareholders of record as of March 19, 1997 will receive a dividend of
$.015 for each share owned on that date, to be paid on April 2, 1997.
BMC Industries, Inc. is one of the world's largest manufacturers of
aperture masks for color picture tubes used in televisions and computer
monitors. The Company is also a leading producer of polycarbonate, glass
and plastic eyewear lenses. BMC's common stock is traded on the New York
Stock Exchange under the symbol BMC.
-30-
<PAGE>
CONTACT: Michael P. Hawks (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES ESTABLISHMENT
OF HUNGARIAN APERTURE MASK INSPECTION FACILITY
March 17, 1997- Minneapolis, MN -- BMC Industries, Inc. today announced the
establishment of a subsidiary in Hungary which will operate a low-cost
aperture mask inspection facility under the name Buckbee-Mears Hungary.
Buckbee-Mears Hungary has purchased an existing facility in Tatabanya,
Hungary for its operations. Buckbee-Mears Hungary will inspect high
resolution computer monitor masks manufactured at the Company's Mullheim,
Germany facility. The Company anticipates that the Hungarian facility will
begin inspecting masks during the third quarter of 1997.
Paul B. Burke, BMC's Chairman and Chief Executive Officer stated that, "BMC's
decision to establish a Hungarian subsidiary was driven by the desire to
lower inspection costs while maintaining the highest quality standards."
BMC Industries, Inc. is one of the world's largest manufacturers of aperture
masks for color picture tubes used in televisions and computer monitors.
Through Vision-Ease, the Company is also a leading producer of polycarbonate,
glass and plastic eyewear lenses. The common stock of the Company is traded
on the New York Stock Exchange under the symbol "BMC".
-30-
