<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934. For the Quarterly Period ended March 31, 1998.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934. For the transition Period from N/A to ____.
Commission File No. 1-8467
BMC INDUSTRIES, INC.
--------------------
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0169210
--------- ----------
(State of Incorporation) (IRS Employer Identification No.)
One Meridian Crossings, Suite 850, Minneapolis, Minnesota 55423
---------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(612) 851-6000
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether 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 at least the past 90 days.
X Yes No
------- -------
BMC Industries, Inc. has outstanding 26,907,972 shares of common stock as of
May 14, 1998. There is no other class of stock outstanding.
Page 1 of 23
Exhibit Index Begins at Page 11
<PAGE>
PART I: FINANCIAL INFORMATION
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
Item 1: Financial Statements
<TABLE>
<CAPTION>
March 31 December 31
-------- -----------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,238 $ 2,383
Trade accounts receivable, net of allowances 35,893 29,824
Inventories 78,957 70,111
Deferred income taxes 6,171 5,881
Other current assets 9,173 13,595
- --------------------------------------------------------------------------------
Total Current Assets 132,432 121,794
- --------------------------------------------------------------------------------
Property, Plant and Equipment 285,666 283,070
Less Accumulated Depreciation 104,816 100,688
-------- --------
Property, Plant and Equipment, Net 180,850 182,382
-------- --------
Deferred Income Taxes 1,229 1,429
Other Assets, Net 14,110 13,802
- --------------------------------------------------------------------------------
Total Assets $328,621 $319,407
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings $ 1,222 $ 1,139
Accounts payable 23,540 25,623
Income taxes payable 3,495 2,830
Accrued expenses and other liabilities 18,826 17,288
- --------------------------------------------------------------------------------
Total Current Liabilities 47,083 46,880
- --------------------------------------------------------------------------------
Long-Term Debt 95,571 73,426
Other Liabilities 17,430 17,718
Deferred Income Taxes 2,824 2,631
Stockholders' Equity
Common stock 46,358 62,263
Retained earnings 122,099 118,693
Accumulated other comprehensive income (1,694) (1,217)
Other (1,050) (987)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 165,713 178,752
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $328,621 $319,407
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 2
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 80,084 $ 77,127
Cost of products sold 68,455 61,145
- --------------------------------------------------------------------------------
Gross margin 11,629 15,982
Selling 3,289 2,837
Administrative 1,330 1,539
- --------------------------------------------------------------------------------
Income from Operations 7,010 11,606
- --------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (1,383) (144)
Interest income 32 42
Other income (expense) (144) 262
- --------------------------------------------------------------------------------
Earnings before Income Taxes 5,515 11,766
Income Taxes 1,706 3,883
- --------------------------------------------------------------------------------
Net Earnings $ 3,809 $ 7,883
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Earnings Per Share:
Basic $ 0.14 $ 0.29
Diluted 0.14 0.28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number of Shares Included in Per Share Computation:
Basic 26,994 27,410
Diluted 27,644 28,458
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dividends Declared Per Share $ 0.015 $ 0.015
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 3
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Cash Provided by (Used in) Operating Activities
Net earnings $ 3,809 $ 7,883
Depreciation and amortization 5,002 3,283
Changes in operating assets and liabilities (10,990) 1,997
- --------------------------------------------------------------------------------
Total (2,179) 13,163
- --------------------------------------------------------------------------------
Net Cash Used in Investing Activities
Additions to property, plant and equipment (3,958) (26,321)
Business acquisitions, net of cash acquired -- (1,817)
- --------------------------------------------------------------------------------
Total (3,958) (28,138)
- --------------------------------------------------------------------------------
Net Cash Provided by Financing Activities
Increase (decrease) in short-term borrowings 114 (769)
Increase in long-term debt 22,270 16,950
Common stock issued (repurchased), net (15,905) 731
Cash dividends paid (417) (411)
Other (63) 144
- --------------------------------------------------------------------------------
Total 5,999 16,645
- --------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents (7) (45)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (145) 1,625
Cash and Cash Equivalents at Beginning of Period 2,383 2,544
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 2,238 $ 4,169
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 4
<PAGE>
BMC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
1. Financial Statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 31, 1998,
and the results of operations and the cash flows for the periods ended
March 31, 1998 and 1997. Such adjustments are of a normal recurring
nature. Certain items in the financial statements for the period ended
March 31, 1997 have been reclassified to conform to the presentation for
the period ended March 31, 1998. The results of operations for the three-
month period ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year. The balance sheet as of
December 31, 1997 is derived from the audited balance sheet as of that
date. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
2. Inventories
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Raw materials $ 28,961 $ 24,542
Work in process 21,222 15,971
Finished goods 28,774 29,598
--------- ---------
Total Inventories $ 78,957 $ 70,111
--------- ---------
--------- ---------
</TABLE>
3. Earnings Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE
(Statement No. 128). Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes the dilutive effects of stock options and any other dilutive
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. For the Company's earnings per
share calculations, the basic and diluted weighted average outstanding
shares differ only due to the dilutive impact of stock options. All
earnings per share amounts for all periods have been restated to conform to
the Statement No. 128 requirements.
Page 5
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4. Derivative Financial Instruments
In January 1997, the SEC issued new rules related to disclosures about
derivative financial instruments. The new rules, effective for all
financial statements issued for periods ending after June 15, 1997, require
accounting policy disclosures about derivative financial instruments used
by the Company. Effective for periods ending after June 15, 1998, the new
rules also require quantitative and qualitative disclosures about exposures
to market risk from derivative financial instruments.
Derivative financial instruments are used by the Company to reduce foreign
exchange and interest rate risks.
Foreign Currency Exchange Options - As of March 31, 1998, there were no
outstanding foreign currency exchange options. As of December 31, 1997,
the Company had approximately $3.6 million of outstanding foreign currency
exchange options to exchange U.S. dollars for German marks at a set
exchange rate. These foreign exchange options do not expose the Company to
financial risk as the contracts provide an option to exchange the
currencies, but do not obligate the Company to make a foreign currency
exchange. Premiums paid for foreign currency exchange options are
amortized to Other Expense over the life of the options. Upon exercise of
foreign currency exchange options, gains are included in income.
Interest Rate Swap Agreement - As of March 31, 1998, the Company had
entered into an interest rate swap agreement that allows the Company to
swap a variable interest rate for a fixed interest rate of 6.365% on $15
million of notional debt during a period ending March, 1999. The notional
amount of debt is not a measure of the Company's exposure to credit or
market risks and is not included in the condensed consolidated balance
sheet. Fixing the interest rate minimizes the Company's exposure to the
uncertainty of floating interest rates during this period. Amounts to be
paid or received under the interest rate swap agreement are accrued and
recorded as an adjustment to Interest Expense during the term of the
interest rate swap agreement.
5. Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME (Statement No. 130). Statement No. 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity. Statement No. 130 requires
foreign currency translation adjustments, which prior to adoption were
reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement No. 130.
Page 6
<PAGE>
The components of comprehensive income, net of related tax, for the three-
month periods ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net income $ 3,809 $ 7,883
Foreign currency translation adjustments (477) (3,127)
-------- --------
Comprehensive income $ 3,332 $ 4,756
-------- --------
-------- --------
</TABLE>
6. New Accounting Standards
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement requires additional
disclosure only, and as such, is not expected to change net income or
stockholders' equity as previously reported by the Company. The statement
is effective for the Company's fiscal year ended December 31, 1998.
7. Legal Matters
There are no material changes in the status of the Barth Industries legal
proceeding or any other legal proceeding or environmental matter described
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Page 7
<PAGE>
BMC INDUSTRIES, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Total revenues for the first quarter of 1998 increased by $3.0 million or 4%
from the first quarter of 1997. Revenues of the Precision Imaged Products
(PIP) group for the first quarter increased 2% due primarily to increased
sales of computer monitor masks. Computer monitor mask sales were
approximately $8.0 million in the first quarter, an increase of 145% over the
prior year quarter. Monitor mask shipments were made to additional customers
in the first quarter as the PIP group continues to diversify their monitor
mask customer base. Entertainment mask sales were down 15% from the prior
year quarter due primarily to lower invar (a nickel alloy) mask sales.
Entertainment mask sales made from invar were down 45% compared to the prior
year quarter and the Company expects the soft market for invar masks to
continue for the balance of 1998. The migration to larger sized masks
continued in the first quarter. Jumbo (30" and larger) and large (25" to
29") AK television aperture mask sales increased 11% and 18%, respectively.
The weakening of the German mark relative to the U.S. dollar had virtually no
impact on earnings but reduced sales, as compared with the prior year
quarter, by approximately $1.8 million. Net sales of the Optical Products
group increased 7%. Sales of high end products (polycarbonate, progressive,
high index and polarizing sun lenses) increased 25% over the same quarter in
the prior year.
Cost of sales was 85% of net sales for the first quarter of 1998, compared to
79% in the same period of 1997. The increased cost of sales percentage was
almost solely due to significant start-up costs incurred on the new computer
monitor mask line in Cortland, New York. The remainder of the PIP group
(including both the German mask operation and Buckbee-Mears St. Paul) as well as
the Optical Products group all achieved expanded gross margins over the prior
year quarter.
Interest expense in the first quarter of 1998 increased $1.2 million over the
prior year quarter. This increase is primarily due to the significantly larger
debt balance as total debt at March 31, 1997 was $33.2 million compared to $96.8
million at March 31, 1998. Interest expense also increased over the prior year
due to the prior year capitalization of interest costs in connection with the
Company's expansion projects. Interest expense will continue to increase during
the remainder of 1998 due to the larger debt balance and the lower amount of
interest that qualifies for capitalization.
The provision for income taxes was 31% and 33% of pre-tax income in the first
quarter of 1998 and 1997, respectively. This decrease was primarily due to
dividends projected to be paid by the Company's German operation to the
Parent Company which reduces the Company's effective tax rate.
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
Page 8
<PAGE>
fluctuations. This exposure is generally addressed as needed through the
purchase of forward contracts and options. As of March 31, 1998, the Company
had no forward options or contracts. Exposure to foreign currency exchange
rate fluctuations also may exist with respect to intercompany payables or
receivables with the Company's foreign subsidiaries. The Company minimizes
this exposure by holding such balances at low levels.
FINANCIAL POSITION AND LIQUIDITY
The ratio of debt to equity increased to 0.6 at March 31, 1998 compared to
0.4 at December 31, 1997. Debt increased $22.2 million during the first three
months of 1998. The increased debt level was due primarily to $16.6 million
used to repurchase 1,000,000 shares of the Company's common stock. In
addition, funds were used for increased working capital needs. These uses
were partially offset by net earnings. Working capital was $85.3 million at
March 31, 1998 compared to $74.9 million at December 31, 1997. The current
ratio was 2.8 at March 31, 1998, compared to 2.6 at December 31, 1997.
Working capital increases were primarily in inventory and accounts
receivable. The increased inventory levels were due primarily to the addition
of two new production lines in Cortland, New York and an increase in the
number of part types produced by mask operations. Additional part types
require increased raw materials to support production. Work-in-process
inventory levels have also increased at mask operations as new employees are
trained on the more rigorous inspection criteria for computer monitor masks.
The increase in accounts receivable was due to a combination of the sales
increase and timing of shipments.
The Company expects to incur $35 to $40 million of capital spending during 1998.
The Company maintains a credit agreement with three domestic banks for unsecured
borrowings totaling $150 million. Additionally, the Company's German subsidiary
maintains short-term and long-term credit lines totaling approximately $19
million. These credit facilities along with cash generated from operations
should be sufficient to meet the Company's future capital and operating
requirements.
On March 24, 1998, the Company received a commitment letter from BT Alex.
Brown for an unsecured revolving credit facility totaling $275 million. The
purpose of the funds is to refinance the Company's existing debt and finance
the Orcolite acquisition discussed below. The commitment letter is subject
to customary terms and conditions.
ENVIRONMENTAL
There are no material changes in the status of the legal proceedings and
environmental matters described in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
ACQUISITION
On March 25, 1998 the Company entered into a definitive agreement to acquire
Monsanto's Orcolite ophthalmic lens manufacturing business for $100 million in
cash. The transaction has been approved by the boards of directors of both
companies and is subject to customary conditions and normal regulatory approval.
The transaction is expected to close in the second quarter of 1998. Orcolite,
headquartered in Azusa, California, is a producer of ophthalmic lenses with
estimated 1997 sales of $34 million. Orcolite produces both hard resin plastic
and polycarbonate lenses and is well regarded in the ophthalmic lens industry
for its manufacturing abilities, product innovation and customer service.
Page 9
<PAGE>
CAUTIONARY STATEMENTS
Certain statements included in this Discussion and Analysis of Financial
Condition and Results of Operations by the Company or its representatives, as
well as other communications, including 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 non-historical 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 for the year ended December 31, 1997,
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.
Page 10
<PAGE>
Part II: OTHER INFORMATION
ITEM 1. With regard to legal proceedings and certain environmental matters,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 9 and Note 7 of the "Notes to Condensed
Consolidated Financial Statements" on page 7.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Page
-------- ----
10.1 Commitment letter, dated March 24, 1998, from BT Alex.
Brown for an unsecured revolving credit facility totaling
$275 million . . . . . . . . . . . . . . . . . . . . . . . . .12
27. Financial Data Schedule (filed only in electronic format)
99.1 News Release, dated May 12, 1998, announcing the addition of
two new directors to the Board of Directors . . . . . . . . .19
99.2 News Release, dated April 22, 1998, announcing the first
quarter 1998 operating results . . . . . . . . . . . . . . . .20
(b) REPORTS ON FORM 8-K.
The Company filed a Form 8-K, dated April 3, 1998, reporting the
acquisition of Monsanto's Orcolite unit.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BMC INDUSTRIES, INC.
/s/ Jeffrey L. Wright
-------------------------------
Jeffrey L. Wright
Controller (Principal Accounting Officer)
Dated: May 14, 1998
Page 11
<PAGE>
March 24, 1998
BMC Industries, Inc.
2 Appletree Square, Suite 400
8011 34th Avenue South
Minneapolis, MN 55425
Attention: Jeffrey J. Hattara
Vice President of Finance & Administration,
Chief Financial Officer
Ladies and Gentlemen:
You have informed Bankers Trust Company ("BTCo") and NBD Bank ("NBD"
and together with BTCo, the "Underwriters") that you are presently considering a
transaction (the "Acquisition") in which BMC Industries, Inc., a Minnesota
corporation (the "Company"), will acquire substantially all of the assets of
Orcolite, a division of Monsanto Company (the "Orcolite Assets") and the
business related to the Orcolite Assets (the "Business"), for approximately $100
million in cash.
The Underwriters understand that the Company will require a credit
facility (the "Credit Facility") aggregating up to $275 million (the "Credit
Amount"). The Credit Amount will be used to provide funds necessary to finance
the Acquisition, to refinance certain indebtedness of the Company, to pay
certain fees and expenses incurred in connection with the Acquisition and for
general corporate and working capital purposes. We currently contemplate that
the Credit Facility would consist of a $275 million five year senior unsecured
revolving facility.
BTCo is pleased to confirm that it is willing to commit to provide on
the terms and conditions set forth herein and in Exhibit A attached hereto (the
"Term Sheet") two-thirds of the Credit Amount ($183,334,250). NBD is pleased to
confirm that it is willing to commit to provide on the terms and conditions set
forth herein and in Exhibit A attached hereto (the "Term Sheet") the remaining
one-third of the Credit Amount ($91,665,750). In connection with the Credit
Facility, BTCo shall act as administrative agent (the "Administrative Agent")
for the Credit Facility. BTCo and NBD each reserve the right, prior to or after
execution of the definitive credit documentation with respect to the Credit
Facility, to syndicate all or part of its commitments to one or more financial
institutions or other institutional "accredited investors" (as defined in
Regulation D of the Securities
Page 12
<PAGE>
Act of 1933, as amended) (collectively, the "Lenders" and each a "Lender") that
will become parties to such definitive credit documentation pursuant to a
syndication managed by BTCo.
The proposed financial terms and conditions for the Credit Facility
are based upon our review to date of certain information about the Company and
its subsidiaries provided to the Underwriters by you. If either of the
Underwriter's due diligence review of materials about the Company and its
subsidiaries discloses, or either of the Underwriter's otherwise discovers,
information not previously disclosed to such Underwriter which such Underwriter
reasonably believes has or is reasonably likely to have a material adverse
effect on the business, assets, financial condition or prospects of the Company
and its subsidiaries taken as a whole, and the transactions contemplated hereby,
the Underwriters may, in their sole discretion, suggest alternative financing
amounts or structures that ensure adequate protection for the Underwriters or
decline to provide the financing.
The Underwriters intend to commence syndication efforts promptly after
your execution of this letter, and you agree actively to assist the Underwriters
in achieving a syndication that is satisfactory to the Underwriters and you.
Such syndication will be accomplished by a variety of means, including direct
contact during the syndication between senior management and advisors of the
Company and its affiliates and the proposed syndicate members. To assist the
Underwriters in their syndication efforts, you hereby agree (i) to provide and
cause your advisors to provide the Underwriters and the other syndicate members
upon request with all information reasonably deemed necessary by the
Underwriters to complete syndication, including but not limited to financial
projections, pro forma financial statements and other information and
evaluations prepared by the Company and its affiliates and their respective
advisors, or on their behalf, relating to the transactions contemplated hereby,
(ii) to assist the Underwriters upon their reasonable request in the preparation
of an Information Memorandum to be used in connection with the syndication of
the Credit Facilities, and (iii) to otherwise assist the Underwriters in its
syndication efforts, including by making officers of the Company and its
affiliates available from time to time to attend and make presentations
regarding the business and prospects of the Company and its subsidiaries, as
appropriate, at a meeting or meetings of Lenders or prospective Lenders.
The Underwriters will not be obligated to enter into or make the
initial loan under the Credit Facility unless and until all of the following
conditions and the conditions otherwise set forth herein and in the Term Sheet
have been met:
(a) The structure and all terms of, and the documentation for, each
component of the Acquisition shall be satisfactory to the Underwriters
including, without limitation, the agreements and documentation pertaining
to the Credit Facility (the "Loan Documentation") The Loan Documentation
shall contain such covenants, terms, conditions, representations,
warranties and events of default (in addition to those referred to herein
or in the Term Sheet) as are customarily included by the Underwriters in
agreements governing transactions of the kind and subject to negotiation
between the Underwriters and the Company;
Page 13
<PAGE>
(b) The Acquisition shall have been consummated in all material
respects in accordance with the documentation therefore and all applicable
laws. All necessary material governmental and third party approvals and/or
consents in connection with the Acquisition, the transactions contemplated
by the Credit Facility and otherwise referred to herein shall have been
obtained and remain in effect;
(c) There shall not exist any judgment, order, injunction or other
restraint prohibiting or imposing materially adverse conditions upon the
Acquisition or the transactions contemplated by the Credit Facility;
(d) The results of each of the Underwriters' due diligence review,
analysis and testing of the assets, liabilities, commitments,
contingencies, results of operations and prospects of the Company and its
subsidiaries and the Orcolite Assets and Orcolite Business shall be
acceptable to the Underwriters;
(e) Financial projections and pro forma financial statements for
Borrower and its subsidiaries shall have been delivered to the Underwriters
in form satisfactory to the Underwriters and such projections and pro forma
financial statements, including any assumptions made therein, shall be
reasonable, as determined by the Underwriters in their sole discretion;
(f) Since December 31, 1997, there shall have been no (i) material
adverse change in, or event materially and adversely affecting, the assets
liabilities, business, operations or condition (financial or otherwise) of
the Company and its subsidiaries taken as a whole or (ii) material adverse
change in, or event materially and adversely affecting, the assets,
liabilities, business, operations or condition (financial or otherwise) of
the Orcolite Business which, on a pro forma basis, would have a material
adverse effect on the Company and its subsidiaries taken as a whole; and
(g) There shall have been no material adverse change after the date
hereof in the syndication market for credit facilities similar in nature to
the Credit Facility contemplated herein, and there shall not have occurred
and be continuing any material disruption of, or a material adverse change
in, the financial, banking or capital markets that would have a material
adverse effect on the syndication of the Credit Facility, in each case, as
determined by each Underwriter in its sole discretion.
The Loan Documentation shall be prepared by Winston & Strawn as
special counsel to BTCo and the Administrative Agent. The reasonable costs and
expenses of Winston & Strawn in connection with the preparation, execution and
delivery of this letter, the Loan Documentation and the transactions
contemplated hereby and thereby and all other reasonable out-of-pocket costs and
expenses of BTCo and the Administrative Agent (including, without limitation,
the costs and expenses of syndication and of outside advisors and consultants)
in connection therewith (including in connection with the transactions
contemplated by the Acquisition Agreement and the Loan Documentation) shall be
for your account, whether or not
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any portion of the Credit Facilities is made available and whether or not the
Acquisition Agreement or the Acquisition is consummated.
To induce the Underwriters to enter into this letter, the Company
hereby agrees to indemnify and hold harmless each of the Underwriters and each
director, officer, employee, agent, attorney and affiliate thereof (each an
"Indemnified Person") from and against any and all actions, suits, proceedings
(including any investigations or inquiries), claims, losses, damages,
liabilities or expenses of any kind or nature whatsoever which may be incurred
by or asserted against or involve either or both of the Underwriters or any such
indemnified person as a result of or arising out of or in any way related to or
resulting from this letter or the transactions contemplated hereby and, upon
demand, to pay and reimburse the Underwriters and each indemnified person for
any reasonable legal or other out-of-pocket expenses incurred in connection with
investigating, defending or preparing to defend any such action, suit,
proceeding (including any inquiry or investigation) or claim (whether or not the
Underwriters or any such indemnified person is a party to any action or
proceeding out of which any such expenses arise); Provided, However, the Company
shall not indemnify any indemnified person pursuant to this paragraph against
any loss, claim, damage, expense or liability resulting from the gross
negligence or willful misconduct of such indemnified person. The foregoing
provisions of this paragraph shall be in addition to any rights that an
indemnified party shall have at common law or otherwise. Neither the
Underwriters nor any indemnified person shall be responsible or liable for
consequential or punitive damages which may be alleged as a result of this
letter.
Each of the Underwriters reserves the right to employ the services of
its affiliates in providing the services contemplated by this letter and to
allocate, in whole or in part to such affiliate, certain fees payable to BTCo or
NBD in such manner as such affiliates and BTCo or NBD, as applicable, may agree
in their sole discretion. You acknowledge that each Underwriter may share with
any of its affiliates, and such affiliates may share with BTCo or NBD, as
applicable, any information relating to the matters contemplated hereby,
including the Acquisition, the Orcolite Assets, the Orcolite Business, the
Company and its subsidiaries and affiliates, including any information as to the
creditworthiness of any such entities. Each of the Underwriters agrees to treat,
and cause any such affiliate to treat, any non-public information provided to it
by you, the Company or any of your affiliates, as confidential information in
accordance with customary banking industry practices.
Except as described above, the provisions of the immediately preceding
three paragraphs shall survive any termination of this letter.
You hereby represent and covenant that (i) all information which has
been or is hereafter made available to the Underwriters or the other Lenders by
you or any of your representatives in connection with the transactions
contemplated hereby (the "Information") is and will be complete and correct in
all material respects and does not and will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements contained therein not materially misleading (it being understood by
the
Page 15
<PAGE>
Underwriters that any representations by you as to any information relating
to Seller and its subsidiaries is made to your best knowledge and is based
solely on publicly available information) and (ii) all financial projections
concerning the Company and its subsidiaries and Seller and its subsidiaries
that have or are hereafter made available to the Underwriters or the other
Lenders by you in connection with the transactions contemplated hereby (the
"Projections") have been or will be prepared in good faith based upon
reasonable assumptions. You agree to supplement the Information and the
Projections from time to time until the closing date of the Acquisition so
that the representation and warranty in the preceding sentence is true and
correct on such closing date. You acknowledge that in arranging and
syndicating the Credit Facility, the Underwriters will be using and relying
on the Information and Projections without independent verification thereof.
In issuing this commitment and undertaking, as the case may be, the
Underwriters are relying on the accuracy of the information furnished by you
or on your behalf.
Each of the Underwriters' obligations hereunder shall terminate on the
first to occur of (x) May 15, 1998 unless a definitive agreement providing for
the Acquisition has been entered into by the Company (and/or its respective
Affiliates) and Monsanto Company (with such agreement being herein called the
"Acquisition Agreement"), (y) on June 1, 1998, unless the Acquisition has been
consummated and the initial borrowing date under the Credit Facility (the
"Closing Date") shall have occurred or (z) at any time prior to June 1, 1998 if
the Acquisition Agreement, or your rights to consummate the Acquisition
thereunder, terminates.
If you are in agreement with the foregoing, please sign and return to
BTCo a copy of this letter, together with an executed copy of the letter
agreement dated the date hereof providing for certain fees and expenses payable
to BTCo (the "BTCo Fee Letter") and return to NBD a copy of this letter,
together with an executed copy of the letter agreement dated the date hereof
providing for certain fees and expenses payable to NBD (the "NBD Fee Letter").
This offer shall terminate at 4:00 p.m., New York time, on March 31, 1998 unless
a signed copy of this letter, together with a signed copy of the BTCo Fee
Letter, has been delivered to BTCo and a signed copy of this letter, together
with a signed copy of the NBD Fee Letter, has been delivered to NBD (including
by way of facsimile transmission) by such time. If this letter is not accepted
by you as provided in the immediately preceding sentence, you are to immediately
return this letter (and any copies hereof) to the undersigned. After such
acceptance, this letter and its contents shall not be disclosed by you except in
furtherance of, and to other proposed participants in, the transactions
contemplated by such letter and, in any event, this letter shall not be
disclosed publicly (unless required by law) without the prior written consent of
the Underwriters, except that, following your acceptance of this letter, you may
make public disclosure of the existence and amount of each of the Underwriters'
commitment, you may file a copy of this letter in any public record in which it
is required by law to be filed and you may make such other public disclosures of
the terms and conditions hereof as you are required by law, in the opinion of
your counsel, to make. The BTCo Fee Letter and the contents thereof, shall not
be disclosed by you without the prior written consent of BTCo. The NBD Fee
Letter and the contents thereof, shall not be disclosed by you without the prior
written consent of NBD.
Page 16
<PAGE>
This letter may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
shall be an original, but all of which when taken together shall constitute one
agreement. This letter, together with the BTCo Fee Letter and the NBD Fee
Letter embodies the entire agreement and understanding between you and the
Underwriters with respect to the Credit Facility and supersedes all prior
agreements and understandings relating to the subject matter hereof. You
acknowledge, however, that BTCo and NBD and/or any of their affiliates may be
providing other services and/or other financing to you in connection with the
Acquisition and that this letter relates only to the Credit Facility, with all
such other services and financing to be agreed upon pursuant to other
documentation. This letter may only be amended in writing.
Page 17
<PAGE>
THIS LETTER WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAWS AND ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR CONTEMPLATED BY THIS LETTER IS HEREBY WAIVED. YOU
HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK
STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE
RELATED TO THIS LETTER OR ANY MATTERS CONTEMPLATED HEREBY.
Very truly yours,
BANKERS TRUST COMPANY
By: /s/ Virginia M. Sermier
Name: Virginia M. Sermier
Title: Managing Director
NBD BANK
By: /s/ Carolann M. Morykwas
Name: Carolann M. Morykwas
Title: Authorized Agent
Accepted and Agreed to
this 24th day of March, 1998
BMC INDUSTRIES, INC.
By: /s/ Jeffrey J. Hattara
Name: Jeffrey J. Hattara
Title: Vice President, Finance and Administration,
Chief Financial Officer
Page 18
<PAGE>
Contact: Jeffrey J. Hattara (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC INDUSTRIES ADDS TWO DIRECTORS TO ITS BOARD
May 12, 1998 --Minneapolis, Minnesota - BMC Industries, Inc. ("BMC") today
announced the addition of H. Ted Davis and James Ramich to its Board of
Directors, effective May 8, 1998.
Dr. Davis has over 35 years of experience in education and research and
consulting in the areas of chemical engineering, science and technology. Dr.
Davis serves as Dean of the Institute of Technology and is the Regents'
Professor, Department of Chemical Engineering and Materials Science, at the
University of Minnesota. For 15 years Dr. Davis also served as Head of the
Department of Chemical Engineering, which has been rated the top chemical
engineering department in the country. In addition to holding a Ph.D. in
chemical physics from the University of Chicago, Dr. Davis has received numerous
honors and awards for his work in these areas.
Mr. Ramich has had a distinguished career with Corning Incorporated for 25
years, most recently as Executive Vice President, Corning Communications. He
served in a number of other senior management and operating positions at
Corning, including President, Corning Japan, Executive Vice President,
Information Display Group and Vice President of Corporate Development. Mr.
Ramich also served in several manufacturing, sales and marketing positions. Mr.
Ramich holds an M.B.A. from Columbia University.
Paul B. Burke, BMC's Chairman, President and Chief Executive Officer, stated,
"We are delighted that Ted Davis and Jim Ramich have agreed to serve on BMC's
Board of Directors. Ted brings a tremendous amount of knowledge in chemical
engineering and technology that will be instrumental in developing and enhancing
our processes and products. Jim offers vast experience in business management,
corporate development and operations in multinational operations and in the
display industry. BMC will benefit greatly from Jim's ability to apply this
experience to BMC's existing and future business operations."
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 glass, plastic and polycarbonate eyewear
lenses. BMC's common stock is traded on the New York Stock Exchange under the
symbol BMC.
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Page 19
<PAGE>
CONTACT: Jeffrey J. Hattara (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC REPORTS FIRST QUARTER 1998 EARNINGS
April 22, 1998 -- Minneapolis, MN -- BMC Industries, Inc. today reported first
quarter 1998 net earnings of $3,809,000 or $0.14 diluted earnings per share,
compared to $7,883,000 or $0.28 diluted earnings per share in the first quarter
1997. Total first quarter revenues increased 4% from $77,127,000 in 1997 to
$80,084,000 in 1998.
Paul B. Burke, BMC's Chairman and Chief Executive Officer stated "All of our
operations enjoyed significant profitability increases over 1997 except for our
Cortland, New York mask operating facility. As anticipated, the Cortland
facility incurred significant continuing start-up expenses in the first quarter
on its new production lines, particularly the high resolution monitor line,
which more than offset our gains everywhere else. I am pleased to report,
however, that the Cortland operation made significant progress in both
increasing and stabilizing yields on these lines and in qualifying new parts.
As also previously disclosed, we expect start-up activity and yield ramp up on
the high resolution line in Cortland to linger into the second quarter."
First quarter sales for the Precision Imaged Products operation (including
both the Mask Operations and Buckbee-Mears St. Paul) were slightly ahead of
first quarter 1997 sales. Computer monitor mask sales were approximately $8
million in the first quarter, an increase of 145% over the prior year
quarter. More importantly, production level computer monitor mask shipments
were made to additional customers in the first quarter, as the Mask Group
continues to diversify its monitor mask customer base. Entertainment mask
sales were down 7% (adjusted for currency translation) from the prior year
quarter due primarily to lower invar sales. Invar sales were down 45%
compared to the prior year quarter, and we expect the soft market for invar
entertainment masks to continue for the balance of the year. The migration
to larger sized masks continued in the first quarter. Jumbo (30" and larger)
and large (25" to 29") masks made of AK steel increased 11% and 18%,
respectively, over the prior year quarter. The strength of the U.S. dollar
verses the German mark had less than a $100,000 impact on earnings but
reduced sales, as compared to the prior year quarter, by approximately $1.8
million. Buckbee-Mears St. Paul
-more-
Page 20
<PAGE>
(BMSP) achieved excellent financial results, posting a 21% revenue gain over
the prior year quarter and record profitability. BMSP is continuing to find
high demand for precision etched and electroformed parts.
BMC's Optical Products operation achieved sales growth of 7% over the prior
year, while profits grew 39%. The increased profitability was fueled by
exceptionally strong sales of high-end products (polycarbonate, high-index,
progressive and polarizing sun lenses) which grew 25% over the prior year
quarter. Transfer of the polycarbonate manufacturing operations to the new
production facility in Ramsey, Minnesota will be completed in the second
quarter. We expect to begin realizing the benefit of improved yields and
productivity from this new facility beginning in the second half of 1998.
The closing process for the recently announced acquisition of certain assets of
Orcolite, a division of Monsanto Company, is proceeding as planned and on
schedule.
Statements made in this press release which are not historical, including
statements regarding future performance, are forward looking statements and as
such are subject to a number of risks, including lower demand for televisions
and computer monitors, inability to penetrate the lead frame market, problems
associated with transfer of the polycarbonate operations, higher operating
expenses and lower yields associated with production start-up, foreign currency
fluctuations, successful customer part qualifications and the effect of economic
uncertainty in Asia. These and other risks and uncertainties are detailed in
the Company's Form 10-K for the year ended December 31, 1997.
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 glass, plastic and polycarbonate eyewear lenses. The common stock
of the Company is traded on the New York Stock Exchange under the symbol "BMC".
-more-
Page 21
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 80,084 $ 77,127
Cost of products sold 68,455 61,145
- --------------------------------------------------------------------------------
Gross Margin 11,629 15,982
Selling 3,289 2,837
Administrative 1,330 1,539
- --------------------------------------------------------------------------------
Income from Operations 7,010 11,606
- --------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (1,383) (144)
Interest income 32 42
Other income (expense) (144) 262
- --------------------------------------------------------------------------------
Earnings before Income Taxes 5,515 11,766
Income Taxes 1,706 3,883
- --------------------------------------------------------------------------------
Net Earnings $ 3,809 $ 7,883
- --------------------------------------------------------------------------------
Net Earnings Per Share:
Basic $ 0.14 $ 0.29
Diluted 0.14 0.28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number of Shares Included in Per Share Computation:
Basic 26,994 27,410
Diluted 27,644 28,458
- --------------------------------------------------------------------------------
</TABLE>
-more-
Page 22
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31 December 31
-------- -----------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,238 $ 2,383
Trade accounts receivable, net of allowances 35,893 29,824
Inventories 78,957 70,111
Deferred income taxes 6,171 5,881
Other current assets 9,173 13,595
- --------------------------------------------------------------------------------
Total Current Assets 132,432 121,794
- --------------------------------------------------------------------------------
Property, Plant and Equipment 285,666 283,070
Less Accumulated Depreciation 104,816 100,688
-------- --------
Property, Plant and Equipment, Net 180,850 182,382
-------- --------
Deferred Income Taxes 1,229 1,429
Other Assets, Net 14,110 13,802
- --------------------------------------------------------------------------------
Total Assets $328,621 $319,407
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings $ 1,222 $ 1,139
Accounts payable 23,540 25,623
Income taxes payable 3,495 2,830
Accrued expenses and other current liabilities 18,826 17,288
- --------------------------------------------------------------------------------
Total Current Liabilities 47,083 46,880
- --------------------------------------------------------------------------------
Long-Term Debt 95,571 73,426
Other Liabilities 17,430 17,718
Deferred Income Taxes 2,824 2,631
Stockholders' Equity
Common stock 46,358 62,263
Retained earnings 122,099 118,693
Other comprehensive income (1,694) (1,217)
Other (1,050) (987)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 165,713 178,752
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $328,621 $319,407
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
-30-
Page 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,219
<SECURITIES> 19
<RECEIVABLES> 37,889
<ALLOWANCES> 1,996
<INVENTORY> 78,957
<CURRENT-ASSETS> 132,432
<PP&E> 285,666
<DEPRECIATION> 104,816
<TOTAL-ASSETS> 328,621
<CURRENT-LIABILITIES> 47,083
<BONDS> 0
0
0
<COMMON> 46,358
<OTHER-SE> 119,355
<TOTAL-LIABILITY-AND-EQUITY> 328,621
<SALES> 79,882
<TOTAL-REVENUES> 80,084
<CGS> 68,455
<TOTAL-COSTS> 4,619
<OTHER-EXPENSES> 144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,383
<INCOME-PRETAX> 5,515
<INCOME-TAX> 1,706
<INCOME-CONTINUING> 3,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,809
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
