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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, 1997
[ ] 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 _______________________
BMC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0169210
(State or other jurisdiction of incorporation (I.R.S. Employer I.D. No.)
or organization)
ONE MERIDIAN CROSSINGS, SUITE 850, MINNEAPOLIS, MN 55423
(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, 1998, 26,887,972 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 on that date on the New York
Stock Exchange), excluding shares deemed beneficially owned by affiliates, was
approximately $555 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, 1997
(the "1997 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, 1998.
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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 One Meridian Crossings, Suite 850, Minneapolis, Minnesota 55423;
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 business segments, 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 metal parts. These
businesses are linked because they share process manufacturing technology and
one manufacturing facility. 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, 1997, the Company had 2,597 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 pages 38-39 of the 1997 Annual
Report, and is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The Company's business is divided into two business segments: 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 ("BMSP"), which design, manufacture and market
precision photo-etched metal parts, including masks, precision electroformed
components and precision photo-etched metal products.
PRODUCTS AND MARKETING. Mask Operations is comprised of manufacturing
operations in Cortland, New York and Mullheim, Germany. Computer monitor
masks produced at the Mullheim facility are inspected at a new inspection
facility in Tatabanya, Hungary. BMSP is composed of a manufacturing
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facility in St. Paul, Minnesota. The Cortland and Mullheim facilities
primarily manufacture masks. The St. Paul facility primarily manufactures
precision photo-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 photo-etched parts, including those for
use in lead frames, to the St. Paul facility. Four customers each accounted
for more than 10% of PIP's 1997 total revenues, as well as more than 10% of
the Company's 1997 total revenues. Thomson, S.A. of France (including its
U.S. based operations) accounted for approximately 20% of the Company's 1997
total revenues. Thomson produces televisions in North America and Europe
under various trademarks, including RCA and GE. Samsung of South Korea
accounted for approximately 16% of the Company's 1997 total revenues.
Philips Components B.V. of the Netherlands and Matsushita of Japan each
accounted for approximately 11% of the Company's 1997 total revenues.
Masks are photo-chemically etched fine screen grids found in every color
television and computer monitor picture tube. A mask consists of thousands
of precise, conically shaped holes designed to focus the electron beam on the
proper phosphor color stripe to produce a crisp 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, with BMC manufacturing masks ranging from 14
inch to 36 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 61%, 60% and 57% of the
Company's consolidated total revenues in 1997, 1996 and 1995, respectively.
In 1986, the Company added a specialized production line at the Mullheim
facility. This specialized line is designed to manufacture precision
photo-etched components other than masks, such as semiconductor lead frames.
During the fourth quarter of 1995, BMSP began producing several demanding
precision photo-etched components on this line. BMSP began test production
of etched lead frames on this line in 1996. Based on successful testing, the
Company invested in additional capital improvements to this line to enable
high volume production of lead frames. BMSP also installed state-of-the-art
equipment in its St. Paul facility to complete the lead frame manufacturing
process. The Company began lead frame qualification during 1997 and made
initial sales of lead frames in the fourth quarter of 1997.
In February 1994, the Company initiated construction of a new computer
monitor mask production line at its Mullheim facility. The Company's efforts
to develop the technology necessary to produce computer monitor masks
culminated in the successful start-up of the new production line in the
fourth quarter of 1995. The Mullheim facility continued to improve yields
and increase volume shipments of computer monitor masks to customers during
1997. Total sales of computer monitor masks in 1997 were over $20 million.
In 1995, the Company announced plans to add two new production lines at the
Cortland 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 completed construction
of the television mask line and the computer monitor mask line in the second
and third quarters, respectively, of 1997. Following start-up, the Company
devoted significant production time to part qualifications, including
qualification of computer monitor masks in multiple-up configurations. These
two new production lines, along with the new computer monitor mask line in
the Mullheim facility increase the total number of Mask Operations'
manufacturing lines to eight. Production on these new lines is focused on the
growing market for larger size television masks and computer monitor masks.
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In order to meet the inspection requirements for computer monitor masks
manufactured in Mullheim, Mask Operations established a dedicated, low-cost
inspection facility in Tatabanya. This facility allows the Company to
provide quick response to its Asian and European customers. The recent
expansion also required the hiring and training of a significant number of
employees at the Cortland facility. The Cortland facility nearly doubled its
number of employees in 1997, which diluted the experience level of employees
on all five Cortland production lines. These employees, however, gained
significant experience during the third and fourth quarters of 1997 and the
Company expects continued progress in 1998.
During 1997, the Company continued its efforts to enhance operations and
improve revenues and profits. The Company invested significant production
time on its computer monitor mask lines to qualification of masks in
multiple-up configurations, which increase output and profitability. The
Company was successful in qualifying a number of these parts in multiple-up
configurations in 1997. The Company is also seeking to improve operating
results through greater use of automation. Automated material handling
systems were implemented on three of Mask Operations' lines during 1997.
Three more systems installations are planned in 1998. In addition, the
Company is continuing development of automated inspection technology.
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.
The Company achieved additional milestones in 1997 with the ISO 9002
re-certification at both the Mullheim and Cortland facilities.
Products manufactured at BMSP include precision photo-etched metal parts and
precision electroformed components. The Company sells these components both
by in-house sales personnel and manufacturers representatives for use in the
electrical, automotive, filtration, health care and semiconductor industries.
BMSP's products currently include switch contacts, ignition components,
medical device components, reusable filtration devices, precision sorting
sieves and etched lead frames.
During 1997, BMSP began implementing a strategy for growth through joint
research and product development with large end-product manufacturers. The
Company was successful in reaching co-development agreements with several
leading suppliers to the automotive, healthcare and other industries.
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.
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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, with BMC among the largest at an estimated 19% market
share (32% television/4% monitor).
Many producers compete in the market for precision photo-etched metal parts
produced by BMSP; there is no clear market share leader. The Company sells
its precision photo-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 facility imports
from Japan and Germany all of its steel and invar requirements necessary in
the manufacture of its products. The Mullheim facility obtains a majority of
its steel and invar requirements from Germany, but obtains a portion of its
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.
BACKLOG. As of December 31, 1997, the firm backlog of PIP sales orders was
$22.4 million, compared with $17.3 million as of December 31, 1996. The
Company expects that all of the December 31, 1997 backlog orders will be
filled within the current fiscal year.
ENVIRONMENTAL. The chemical etching of 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 and wastes, some of which are classified
as hazardous under applicable environmental laws and regulations. The
wastewater is treated using on-site wastewater treatment systems. The Company
employs systems for either disposing of 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 ensure compliance with applicable
standards. Generation of waste requires that the Company maintain
responsibility for the waste even after proper disposal. As of March 10,
1998, the Company is involved in a total of five (5) sites where
environmental investigations are occurring and final settlement has not been
reached, of which three (3) 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 1997, the Company settled its liability for a site which the
Environmental Protection Agency (the "EPA") previously identified the Company
as a potentially responsible party ("PRP"). The Company executed a de
micromis settlement agreement for its liability at another site in February
1998. The Company's liability at both of these sites was nominal.
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
believes it is not responsible for contamination at 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, however,
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 or results of operations
of the Company.
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PIP estimates that in 1997 and 1996 it incurred approximately $5.8 million and
$5.1 million, 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 $7.8 million and $10.8 million in capital expenditures for
environmental control facilities during 1998 and 1999, respectively.
SEASONALITY. The Company's revenues and earnings from PIP are generally
lower in the first and third quarters due to maintenance shutdowns at the
Company's Cortland and Mullheim 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.
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, Ramsey and St. Cloud,
Minnesota and 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 inside surface 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. Finished
single-vision 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 addition
multi-focal lenses, at its Brooklyn Center and Ramsey facilities.
Progressive addition 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 1997,
Vision-Ease completed construction of a new $10 million polycarbonate
manufacturing facility in Ramsey, Minnesota. The new facility will also be
used for centralized distribution and increased research and development
activities. In order to ensure minimal interruption of polycarbonate
manufacturing the transfer of manufacturing from the Brooklyn Center facility
to the Ramsey facility has been implemented in stages, which should be
completed during the second quarter of 1998. 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 Jakarta
facility is operated through a majority-owned joint venture and provides an
alternative, low cost source for glass lenses.
In 1997, the Company closed its Ft. Lauderdale, Florida facility, at which
Vision-Ease manufactured semi-finished hard-resin plastic multi-focal and
single-vision lenses. A portion of hard-resin plastic lens manufacturing has
been transferred to the St. Cloud facility. The remainder of the Company's
requirements for hard-resin plastic lenses will be supplied through the
Company's original equipment manufacturer supply agreement with a low cost
Southeast Asian manufacturer. The Company entered into this supply agreement
in 1994 and, in 1997, Vision-Ease extended the agreement until June 2000.
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Vision-Ease has commitments to buy approximately $21.5 million of lenses
under this agreement from January 1998 through June 2000. 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.
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 products in 1995 and 1996, including VersaLite-Registered
Trademark- 1.0 (a thin and light single-vision lens); VersaLite-Registered
Trademark- SunRx-Registered Trademark- (a premium glare reducing sun lens); a
durable, abrasion-resistant OnGuard-Registered Trademark- coating; and
progressive SunRx-Registered Trademark- lenses. In 1997, Vision-Ease
enhanced the VersaLite-Registered Trademark- product line with the
introduction of several line expansions to better satisfy customer demand.
Vision-Ease also introduced a premium line of poly lenses bearing the
Tegra-Registered Trademark- trade name. Tegra-Registered Trademark- lenses
have an advanced aspheric design, super hard scratch resistant coating and
other distinctive features. In addition, Vision-Ease made substantial
progress in a new lamination system for the fabrication of finished
polycarbonate multi-focal 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 750 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 the Company's
total revenues in 1997, but one customer, Precision LensCrafters, accounted
for approximately 10% of Vision-Ease's total revenues in 1997. Precision
LensCrafters operates retail chain outlets throughout the United States and
is headquartered in Cincinnati, Ohio. During 1997, Vision-Ease completely
reorganized its sales and marketing forces for the first time in two decades.
Vision-Ease organized its sales force on the basis of key accounts and market
segments. Vision-Ease's independent sales representatives were transitioned
to the internal sales organization. Vision-Ease also added new personnel to
the sales and marketing team and expanded its marketing department and
expenditures, particularly in connection with the introduction of the
Tegra-Registered Trademark- product line.
In 1995, Vision-Ease acquired a British lens distributor as a vehicle to
expand its European distribution capabilities. This acquisition has
continued to contribute to increased European 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
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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 from several Japanese
companies, 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 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, 1998, the Company is
involved in a total of five (5) sites where environmental investigations are
occurring and final settlement has not been reached, of which three (3)
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 former Ft. 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 its best estimate of
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 Ft. Lauderdale matter, as well as the
additional five sites discussed above, or the Company's exposure if any of
these cases are decided adversely. It is not currently anticipated, however,
that the Company's share of the costs of environmental remediation activities
for any of the sites will have a materially adverse effect on the financial
condition or results of operations of the Company.
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Vision-Ease estimates that in 1997 and 1996 it incurred approximately
$175,000 and $449,000, 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 $193,000 in capital expenditures
for environmental control facilities during 1998.
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 39
of the 1997 Annual Report, and is incorporated herein by reference.
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, and in certain
circumstances, have caused 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.
START-UP/RAMP-UP OF EXPANSION PROJECTS. The Company's projections contain
assumptions regarding the financial impact resulting from continued
improvement in yields and sales from Mask Operations' two new mask
manufacturing lines at the Cortland, New York facility and the new computer
monitor mask line in Mullheim, Germany. BMSP is expecting increased earnings
from its entry into the lead frame market and from successful implementation
of co-development agreements with large end product manufacturers. In
addition, the Company's projections contain assumptions regarding the
financial impact resulting from the transfer of polycarbonate manufacturing
to the new Vision-Ease facility 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 start-up that could result in delayed or lower than anticipated
positive financial results, including lower production yields, the ability to
manufacture new products to customer specifications, the ability to qualify
masks in multiple-up configurations and the ability of new employees to move
quickly up the learning curve. The expansion projects include other risks,
such as a higher level of operating expenses, the ability to penetrate
existing markets, success of new products, such as Tegra-Registered
Trademark-, assumptions regarding customer demand and the complexities
associated with managing a growing organization.
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ECONOMY/DEMAND. Many economic factors could adversely affect the Company's
projected results. 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. The computer monitor market is continually
changing as new technology emerges and the average price of computer systems
continues to fall. This trend has a significant impact on the computer
monitor mask market due to both price pressure and the need to continually
qualify new masks as customer specifications change. Mask Operations'
ability to meet these changing market demands in a timely fashion could
adversely affect the Company's financial results. In addition, as new
technologies such as liquid crystal, plasma and other flat panel displays are
created and 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 increased use of 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 the German mark, Japanese
yen, British pound, Canadian dollar, Hungarian forint and Indonesian rupiah.
The Company's primary competitors in the mask market are located in Japan.
Changes in the currency exchange rates between the U.S. dollar and the German
mark compared to the Japanese yen affect Mask Operations' pricing
competitiveness. 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.
INTERNATIONAL MARKETS. Mask Operations has a manufacturing facility located
in Mullheim, Germany and has established a computer monitor mask inspection
facility in Tatabanya, Hungary. Vision-Ease has an original equipment supply
agreement 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.
9
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The locations of the Company's principal production facilities are as follows:
<TABLE>
<CAPTION>
Approximate Square
Location Principal Use Feet of Space
- -------- -------------- ------------------
<S> <C> <C>
Owned:
Ramsey, MN Optical Products 150,000
St. Cloud, MN Optical Products 94,000
Mullheim, Germany Precision Imaged Products 170,000
Cortland, NY Precision Imaged Products 363,000
Tatabanya, Hungary Precision Imaged Products 51,000
Leased:
St. Paul, MN Precision Imaged Products 131,000
Brooklyn Center, MN Optical Products 43,000
Jakarta, Indonesia Optical Products 20,000
</TABLE>
The Company leases approximately 11,100 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.
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.
10
<PAGE>
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 24, 1998 are
as follows:
Date First
Elected or
Appointed as
an Executive
Name (Age) Officer Title
- ---------- -------------- -----
Paul B. Burke (42) August 1985 Chairman of the
Board, President and Chief
Executive Officer
Jon A. Dobson (31) December 1997 General Counsel and Secretary
William A. Guernsey (46) November 1997 Senior Vice President,
Corporate Development
Jeffrey J. Hattara (41) January 1998 Vice President,
Finance and Administration and
Chief Financial Officer
Jeffrey L. Wright (35) 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, Ft. 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. Dobson joined the Company in April 1995 as Director of Legal Services.
In December 1997, he was appointed General Counsel and Secretary. Prior to
joining the Company, Mr. Dobson was an associate with Lindquist & Vennum
PLLP, a Minneapolis law firm, practising exclusively in corporate and
securities law.
Mr. Guernsey joined the Company in July 1992 as President, Mask Operations.
He was appointed Senior Vice President, Corporate Development in November
1997. Prior to joining the Company, Mr. Guernsey held management positions
with several manufacturing companies, most recently as Vice President and
General Manager of Allis Mineral Systems, a U.S. division of Swedish based
Svedala Industries.
Mr. Hattara joined the Company in January 1998 as Vice President, Finance and
Administration and Chief Financial Officer. From 1978 to January 1998, he
served in several positions at USG International, Inc., most recently as
Director of Finance, USG Interiors, Inc.
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.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
"Price Range of Common Stock" on page 41 of the 1997 Annual Report is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Historical Financial Summary" on page 24 of the 1997 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 25-28 of the 1997 Annual Report
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and related notes on pages 29-
39 and the Report of its Independent Auditors on page 40 of the 1997 Annual
Report are incorporated herein by reference, as is the unaudited information
under the caption "Selected Quarterly Data" on page 42.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 2-3 of
the 1998 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 16 of the 1998 Proxy Statement is incorporated
herein by reference.
12
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation" on pages
7-14 and "Election of Directors - Information About the Board and Its
Committees" on pages 3 and 4 of the 1998 Proxy Statement is incorporated
herein by reference.
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 1998 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Transactions" on page 15
of the 1998 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 1997 Annual Report:
<TABLE>
<CAPTION>
Consolidated Financial Statements: Page:
---------------------------------- -----
<S> <C>
Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1996, and 1995............................. 29
Consolidated Balance Sheets as of December 31, 1997 and 1996.. 30
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996, and 1995....................... 31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995............................. 32
Notes to Consolidated Financial Statements.................... 33-39
Report of Independent Auditors................................ 40
Selected Quarterly Financial Data (unaudited)................. 42
</TABLE>
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:
13
<PAGE>
<TABLE>
<CAPTION>
Page:
-----
<S> <C>
II - Valuation and Qualifying Accounts.................... 17
</TABLE>
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 19-30 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 13, 1998, 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., One
Meridian Crossings, Suite 850, Minneapolis, MN 55423.
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) 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)).
c) 1997 Management Incentive Bonus Plan Summary (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended March 31, 1997 (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)).
f) Revised Executive Perquisite/Flex Policy (effective as of
January 1, 1998) (filed herewith as Exhibit 10.7).
g) 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)).
14
<PAGE>
h) 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)).
i) 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)).
j) 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)).
k) 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)).
l) First Declaration of Amendment, dated December 16, 1996, to the
BMC Industries, Inc. Profit Sharing Plan 1994 Revision
(incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
(File No. 1-8467)).
m) Second Declaration of Amendment, dated May 2, 1997, to the BMC
Industries, Inc. Profit Sharing 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, 1997
(File No. 1-8467).
n) Third Declaration of Amendment, dated February 28, 1998, to the
BMC Industries, Inc. Profit Sharing Plan 1994 Revision (filed
herewith as Exhibit 10.15).
o) 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)).
p) 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)).
q) Second Declaration of Amendment, dated December 16, 1996, to
the BMC Industries, Inc. Savings Plan 1994 Revision
(incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
(File No. 1-8467)).
15
<PAGE>
r) Third Declaration of Amendment, dated February 28, 1998, to the
BMC Industries, Inc. Savings Plan 1994 Revision (filed herewith
as Exhibit 10.19).
s) Restated and Amended Directors' Deferred Compensation Plan
(incorporated by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
(File No. 1-8467)).
t) Form of Change of Control Agreement entered into between the
Company and Messrs. Burke 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)).
u) Form of Change of Control Agreement entered into between the
Company and Messrs. Dobson and Hattara (filed herewith as
Exhibit 10.47).
v) 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)).
w) 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)).
x) Amendment No. 2 to the 1994 Stock Incentive Plan (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997
(File No. 1-8467)).
y) 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)).
z) 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)).
aa) Employment Severance Agreement by and between the Company and
Jeffrey J. Hattara, dated January 26, 1998 (filed herewith as
Exhibit 10.48).
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1997.
(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>
Additions
Balance Charged to Translation Balance
Beginning Costs and Adjustment End of
of Year Expenses Deductions and Other Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
- -----------------------------------------------------------------------------------------------------------------
Allowance for $1,513 $ 321 $ 933 ($10) $ 891
doubtful accounts
- -----------------------------------------------------------------------------------------------------------------
Allowance for 817 1,559 1,088 (61) 1,227
merchandise returns
- -----------------------------------------------------------------------------------------------------------------
$2,330 $1,880 $2,021 ($71) $2,118
- -----------------------------------------------------------------------------------------------------------------
Inventory reserves $6,949 $1,049 $335 ($242) $7,421
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
</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 31, 1998, on its behalf by the undersigned, thereunto duly
authorized.
BMC INDUSTRIES, INC.
By /s/ Jeffrey J. Hattara
--------------------------------------------
Jeffrey J. Hattara
Vice President of Finance and
Administration and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 31, 1998, 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 Executive Officer)
Paul B. Burke
/s/ Jeffrey J. Hattara Vice President of Finance and Administration
- -------------------------- and Chief Financial Officer (Principal Financial
Jeffrey J. Hattara 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
18
<PAGE>
BMC Industries, Inc.
Exhibit Index to Annual Report on Form 10-K
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Exhibit No. Exhibit Method of Filing
- ----------- ------------------------
<S> <C> <C>
3.1 Second Restated Incorporated by reference to
Articles Exhibit 3.1 to the Company's
of Incorporation of Annual Report on Form 10-K for
the Company, as the year ended December 31,
amended. 1994 (File No. 1-8467).
3.2 Amendment to the Incorporated by reference to
Second Restated Exhibit 3.2 to the Company's
Articles of Annual Report on Form 10-K for
Incorporation, dated the year ended December 31,
May 8, 1995. 1994 (File No. 1-8467).
3.3 Amendment to the Incorporated by reference to
Second Restated Exhibit 3.1 to the Company's
Articles of quarterly report on Form 10-Q
Incorporation, dated for the quarter ended
October 30, 1995. September 30, 1995
(File No. 1-8467).
3.4 Restated Bylaws of the Incorporated by reference to
Company, as amended. Exhibit 3.4 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1994 (File No. 1-8467).
3.5 Amendment to the Filed Electronically herewith.
Restated Bylaws of the
Company.
4.1 Specimen Form of the Incorporated by reference to
Company's Common Stock Exhibit 4.3 to the Company's
Certificate. Registration Statement on Form
S-2 (File No. 2-83809).
10.1 1984 Omnibus Stock Incorporated by reference to
Program, as amended Exhibit 10.1 to the Company's
effective December 19, Annual Report on Form 10-K for
1989. the year ended December 31,
1989 (File No. 1-8467).
19
<PAGE>
10.2 1995 Management Incorporated by reference to
Incentive Bonus Plan Exhibit 10.3 to the Company's
Summary. Annual Report on Form 10-K for
the year ended December 31,
1994 (File No. 1-8467).
10.3 1996 Management Incorporated by reference to
Incentive Bonus Plan Exhibit 10.3 to the Company's
Summary. Annual Report on Form 10-K for
the year ended December 31,
1995 (File No. 1-8467).
10.4 1997 Management Incorporated by reference to
Incentive Bonus Plan Exhibit 10.1 to the Company's
Summary. Quarterly Report on Form 10-Q
for the quarter ended March
31, 1997 (File No. 1-8467).
10.5 Interest Rate Incorporated by reference to
Supplement Program. written description thereof on
page 10 of the Company's Proxy
Statement dated March 22, 1991
(File No. 1-8467).
10.6 Revised Executive Incorporated by reference to
Expense Policy Exhibit 10.7 to the Company's
(effective as of Annual Report on Form 10-K for
January 1, 1993). the year ended December 31,
1991 (File No. 1-8467).
10.7 Revised Executive Filed Electronically herewith.
Perquisite/Flex Policy
(effective as of
January 1, 1998).
10.8 BMC Industries, Inc. Incorporated by reference to
Supplemental Executive Exhibit 10.10 to the Company's
Retirement Plan. Annual Report on Form 10-K for
the year ended December 31,
1988 (File No. 1-8467).
20
<PAGE>
10.9 First and Second Incorporated by reference to
Declaration of Exhibit 10.9 to the Company's
Amendment, effective Annual Report on Form 10-K for
March 15, 1991 and the year ended December 31,
June 3, 1991, 1991 (File No. 1-8467).
respectively, to BMC
Industries, Inc.
Supplemental Executive
Retirement Plan.
10.10 Third Declaration of Incorporated by reference to
Amendment, effective Exhibit 10.9 to the Company's
as of January 1, 1992, Annual Report on Form 10-K for
to BMC Industries, the year ended December 31,
Inc. Supplemental 1992 (File No. 1-8467).
Executive Retirement
Plan.
10.11 Fourth Declaration of Incorporated by reference to
Amendment, effective Exhibit 10.10 to the Company's
as of June 30, 1992, Annual Report on Form 10-K for
to BMC Industries, the year ended December 31,
Inc. Supplemental 1992 (File No. 1-8467).
Executive Retirement
Plan.
10.12 BMC Industries, Inc. Incorporated by reference to
Profit Sharing Plan Exhibit 10.10 to the Company's
1994 Revision, as Annual Report on Form 10-K for
amended. the year ended December 31,
1994 (File No. 1-8467).
10.13 First Declaration of Incorporated by reference to
Amendment, dated Exhibit 10.11 to the Company's
December 16, 1996, to Annual Report on Form 10-K for
the BMC Industries, the year ended December 31,
Inc. Profit Sharing 1996 (File No. 1-8467).
Plan 1994 Revision.
10.14 Second Declaration of Incorporated by reference to
Amendment, dated May Exhibit 10.2 to the Company's
2, 1997, to the BMC Quarterly Report on Form 10-Q
Industries, Inc. for the quarter ended June 30,
Profit Sharing Plan 1997 (File No. 1-8467).
1994 Revision.
21
<PAGE>
10.15 Third Declaration of Filed Electronically herewith.
Amendment, Dated
February 28, 1998, to
the BMC Industries,
Inc. Profit Sharing
Plan 1994 Revision.
10.16 BMC Industries, Inc. Incorporated by reference to
Savings Plan 1994 Exhibit 10.11 to the Company's
Revision, as amended. Annual Report on Form 10-K for
the year ended December 31,
1994 (File No. 1-8467).
10.17 First Declaration of Incorporated by reference to
Amendment, dated March Exhibit 10.2 to the Company's
29, 1996, to the BMC Quarterly Report on Form 10-Q
Industries, Inc. for the quarter ended June 30,
Savings Plan 1994 1996 (File No. 1-8467).
Revision.
10.18 Second Declaration of Incorporated by reference to
Amendment, dated Exhibit 10.14 to the Company's
December 16, 1996, to Annual Report on Form 10-K for
the BMC Industries, the year ended December 31,
Inc. Savings Plan 1994 1996 (File No. 1-8467).
Revision.
10.19 Third Declaration of Filed Electronically herewith.
Amendment, dated
February 28, 1998, to
the BMC Industries,
Inc. Savings Plan 1994
Revision.
10.20 Restated and Amended Incorporated by reference to
Directors' Deferred Exhibit 10.15 to the Company's
Compensation Plan. Annual Report on Form 10-K for
the year ended December 31,
1996 (File No. 1-8467).
10.21 1994 Stock Incentive Incorporated by reference to
Plan. Exhibit 10.12 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1993 (File No. 1-8467).
22
<PAGE>
10.22 First Declaration of Incorporated by reference to
Amendment to the BMC Exhibit 10.3 to the Company's
Industries, Inc. 1994 Quarterly Report on Form 10-Q
Stock Incentive Plan. for the quarter ended June 30,
1996 (File No. 1-8467).
10.23 Second Declaration of Incorporated by reference to
Amendment, dated Exhibit 10.2 to the Company's
August 8, 1997, to the Quarterly Report on Form 10-Q
BMC Industries, Inc. for the quarter ended
1994 Stock Incentive September 30, 1997
Plan. (File No. 1-8467).
10.24 BMC Stock Option Incorporated by reference to
Exercise Loan Program, Exhibit 10.15 to the Company's
as revised Annual Report on Form 10-K for
December 14, 1994. the year ended December 31,
1994 (File No. 1-8467).
10.25 BMC Industries, Inc. Incorporated by reference to
Benefit Equalization Exhibit 10.14 to the Company's
Plan. Annual Report on Form 10-K for
the year ended December 31,
1993 (File No. 1-8467).
10.26 Lease Agreement, dated Incorporated by reference to
November 20, 1978, Exhibit 10.9 to the Company's
between Control Data Registration Statement on Form
Corporation and the S-2 (File No. 2-79667).
Company.
10.27 Amendment to Lease Incorporated by reference to
Agreement, dated Exhibit 10.24 to the Company's
December 27, 1983, Annual Report on Form 10-K for
between Control Data the year ended December 31,
Corporation and the 1983 (File No. 1-8467).
Company.
10.28 Amendment to Lease Incorporated by reference to
Agreement, dated April Exhibit 10.15 to the Company's
9, 1986, between Annual Report on Form 10-K for
Control Data the year ended December 31,
Corporation and the 1987 (File No. 1-8467).
Company.
23
<PAGE>
10.29 Amendment to Lease Incorporated by reference to
Agreement, dated April Exhibit 10.14 to the Company's
12, 1989, between GMT Annual Report on Form 10-K for
Corporation (as the year ended December 31,
successor in interest 1989 (File No. 1-8467).
to Control Data
Corporation) and the
Company.
10.30 Amendment to Lease Incorporated by reference to
Agreement, dated March Exhibit 10.15 to the Company's
19, 1990, between GMT Annual Report on Form 10-K for
Corporation and the the year ended December 31,
Company. 1989 (File No. 1-8467).
10.31 Amendment to Lease Incorporated by reference to
Agreement, dated May Exhibit 10.20 to the Company's
17, 1993, between GMT Annual Report on Form 10-K for
Corporation and the the year ended December 31,
Company. 1993 (File No. 1-8467).
10.32 Amendment of Lease, Incorporated by reference to
dated April 6, 1994 by Exhibit 10.23 to the Company's
and between GMT Annual Report on Form 10-K for
Corporation and the the year ended December 31,
Company. 1994 (File No. 1-8467).
10.33 Waiver of Condition Incorporated by reference to
Precedent, dated July Exhibit 10.24 to the Company's
29, 1994, by and Annual Report on Form 10-K for
between GMT the year ended December 31,
Corporation and the 1994 (File No. 1-8467).
Company.
10.34 Amendment of Lease, Filed Electronically herewith.
dated September 25,
1997 by and between
GMT Corporation and
the Company.
10.35 Lease Agreement, dated Incorporated by reference to
June 25, 1987, between Exhibit 10.17 to the Company's
ATS II Associates Annual Report on Form 10-K for
Limited Partnership the year ended December 31,
and the Company. 1987 (File No. 1-8467).
24
<PAGE>
10.36 Amendment to Lease Incorporated by reference to
Agreement, dated Exhibit 10.19 to the Company's
December 4, 1992, by Annual Report on Form 10-K for
and between ATS II the year ended December 31,
Associates Limited 1992 (File No. 1-8467).
Partnership and the
Company.
10.37 Amendment to Lease, Incorporated by reference to
dated December 7, Exhibit 10.27 to the Company's
1994, by and between Annual Report on Form 10-K for
ATS II Associates the year ended December 31,
Limited Partnership 1994 (File No. 1-8467).
and the Company.
10.38 Amendment to Lease, Incorporated by reference to
dated February 16, Exhibit 10.28 to the Company's
1995, by and between Annual Report on Form 10-K for
ATS II Associates the year ended December 31,
Limited Partnership 1994 (File No. 1-8467).
and the Company.
10.39 Lease Agreement, dated Incorporated by reference to
December 8, 1983, Exhibit 10.32 to the Company's
between ARI Limited Annual Report on Form 10-K for
Partnership and the the year ended December 31,
Company. 1983 (File No. 1-8467).
10.40 Lease Amendment, dated Incorporated by reference to
May 16, 1996, between Exhibit 10.33 to the Company's
ARI Limited Annual Report on Form 10-K for
Partnership and the the year ended December 31,
Company. 1996 (File No. 1-8467).
10.41 Lease Amendment, dated Incorporated by reference to
January 31, 1997, Exhibit 10.34 to the Company's
between ARI Limited Annual Report on Form 10-K for
Partnership and the the year ended December 31,
Company. 1996 (File No. 1-8467).
10.42 Lease, dated January Incorporated by reference to
26, 1994, by and Exhibit 10.24 to the Company's
between 7100 Northland Annual Report on Form 10-K for
Circle and the the year ended December 31,
Company. 1993 (File No. 1-8467).
25
<PAGE>
10.43 Amendment to Lease, Incorporated by reference to
effective January 1, Exhibit 10.36 to the Company's
1997, between Welsh Annual Report on Form 10-K for
Companies, Inc., as the year ended December 31,
Agent for Praedium 1996 (File No. 1-8467).
Lake Realty, LLC, and
the Company.
10.44 Second Amendment to Incorporated by reference to
Lease, dated October Exhibit 10.31 to the Company's
14, 1994, by and Annual Report on Form 10-K for
between Lutheran the year ended December 31,
Brotherhood and the 1994 (File No. 1-8467).
Company.
10.45 Form of Change of Incorporated by reference to
Control Agreement Exhibit 10.31 to the Company's
entered into between Annual Report on Form 10-K for
the Company and the year ended December 31,
Messrs. Burke, Hawks 1991 (File No. 1-8467).
and Wright.
10.46 Change of Control Incorporated by reference to
Agreement entered into Exhibit 10.39 to the Company's
between the Company Annual Report on Form 10-K for
and Mr. Gburek. the year ended December 31,
1996 (File No. 1-8467).
10.47 Form of Change of Filed Electronically herewith.
Control Agreement
entered into between
the Company and
Messrs. Hattara and
Dobson.
10.48 Employment Severance Filed Electronically herewith.
Agreement, by and
between the Company
and Jeffrey J.
Hattara, dated January
26, 1998.
26
<PAGE>
10.49 Credit Agreement, Incorporated by reference to
dated September 30, Exhibit 10.33 to the Company's
1994, by and between Annual Report on Form 10-K for
The First National the year ended December 31,
Bank of Chicago and 1994 (File No. 1-8467).
the Company.
10.50 Credit Agreement, Incorporated by reference to
dated September 30, Exhibit 10.34 to the Company's
1994, by and between Annual Report on Form 10-K for
Norwest Bank the year ended December 31,
Minnesota, National 1994 (File No. 1-8467).
Association and the
Company.
10.51 Credit Agreement, Incorporated by reference to
dated September 30, Exhibit 10.35 to the Company's
1994, by and between Annual Report on Form 10-K for
NBD Bank, N.A. and the the year ended December 31,
Company. 1994 (File No. 1-8467).
10.52 Credit Agreement among Incorporated by reference to
BMC Industries, Inc., Exhibit 10.1 to the Company's
Norwest Bank, Quarterly Report on Form 10-Q
Minnesota, National for the quarter ended June 30,
Association, and 1996 (File No. 1-8467).
various banks.
10.53 First Amendment to Incorporated by reference to
Credit Agreement, Exhibit 10.1 to the Company's
dated June 27, 1997, Quarterly Report on Form 10-Q
by and among the for the quarter ended June 30,
Company, Norwest Bank, 1997 (File No. 1-8467).
Minnesota, N.A., and
various banks.
10.54 Second Amendment to Filed Electronically herewith.
Credit Agreement,
dated December 23,
1997, by and among the
Company, Norwest Bank
Minnesota, N.A., and
various banks.
27
<PAGE>
10.55 Third Amendment to Filed Electronically herewith.
Credit Agreement,
dated February 27,
1998, by and among the
Company, Norwest Bank
Minnesota, N.A., and
various banks.
10.56 Engineering, Incorporated by reference to
Procurement and Exhibit 10.1 to the Company's
Construction Agreement Quarterly Report on Form 10-Q
between Buckbee-Mears for the quarter ended March
Cortland, a Unit of 31, 1996 (File No. 1-8467).
BMC Industries, Inc.
and Fluor Daniel, Inc.
10.57 Product Manufacturing Incorporated by reference to
and Sales Agreement, Exhibit 10.36 to the Company's
dated October 17, Annual Report on Form 10-K for
1994, between Polycore the year ended December 31,
Optical, PTE. Ltd. and 1994 (File No. 1-8467).
Vision-Ease, a unit of
the Company, without
exhibits.
10.58 Amendment of the Incorporated by reference to
Product Manufacturing Exhibit 10.1 to the Company's
and Sales Agreement, Quarterly Report on Form 10-Q
dated August 11, 1997, for the quarter ended
between Polycore September 30, 1997
Optical, PTE, Ltd. and (File No. 1-8467).
Vision-Ease Lens, Inc.
10.59 Lease, dated October Incorporated by reference to
29, 1997, by and among Exhibit 10.3 to the Company's
the Company and quarterly Report on Form 10-Q
Meridian Crossings LLC for the quarter ended
(d/b/a Told September 30, 1997
Development Company). (File No. 1-8467).
28
<PAGE>
13.1 Portions of the Filed electronically herewith.
Company's 1997 Annual
Report to Stockholders
incorporated herein by
reference in this
Annual Report on Form
10-K.
21.1 Subsidiaries of the Filed electronically herewith.
Registrant.
23.1 Consent of Ernst & Filed electronically herewith.
Young LLP, Independent
Auditors.
27.1 Financial Data Filed electronically herewith.
Schedule
27.2 Financial Data Filed Electronically herewith.
Schedule
27.3 Financial Data Filed Electronically herewith.
Schedule
99.1 Press Release, dated Filed electronically herewith.
December 12, 1997,
announcing quarterly
dividend.
99.2 Press Release, dated Filed electronically herewith.
November 19, 1997,
announcing fourth
quarter earnings will
be short of analysts'
expectations.
99.3 Press Release, dated Filed electronically herewith.
January 26, 1998,
announcing 1997
earnings and Board
authorizing additional
repurchase of
1,000,000 shares
beyond 1,000,000
already repurchased.
29
<PAGE>
99.4 Press Release, dated Filed electronically herewith.
January 26, 1998,
announcing new CFO.
99.5 Press Release, dated Filed electronically herewith.
March 13, 1998,
announcing quarterly
dividend.
99.6 Press Release, dated Filed electronically herewith.
March 25, 1998,
announcing Company
to acquire Monsanto's
Orcolite unit for
$100 million.
</TABLE>
30
<PAGE>
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
BMC INDUSTRIES, INC.
FEBRUARY 20, 1998
RESOLVED, that the restated Bylaws (the "Bylaws") of BMC Industries, Inc.
(the "Company") are hereby amended by striking out Article II, Section 3,
reading as follows:
" Section 3. SPECIAL MEETINGS. Special meetings of the
stockholders may be called by the chief executive officer, the chief
financial officer, two or more directors or a stockholder or stockholders
holding ten percent or more of the voting power of all shares entitled to
to vote, except that a special meeting for the purpose of considering any
action to directly or indirectly facilitate or effect a business
combination, including any action to change or otherwise affect the
composition of the board of directors for that purpose, must be called by
25 percent or more of the voting power of all shares entitled to vote.
Special meetings shall be held on the date and at the time and place fixed
by the chief executive officer or the Board, or in Hennepin County,
Minnesota at the place fixed by a stockholder or stockholders lawfully
calling a meeting. The business to be transacted at a special meeting
shall be limited to the purposes stated in the notice of the meeting."
And substituting therefore the following:
" Section 3. SPECIAL MEETINGS. Special meetings of the
stockholders may be called by the chief executive officer, the chief
financial officer, two or more directors or a stockholder or
stockholders holding ten percent or more of the voting power of all
shares entitled to vote, except that a special meeting for the purpose
of considering any action to directly or indirectly facilitate or effect
a business combination, including any action to change or otherwise
affect the composition of the Board for that purpose, must be called by
25 percent or more of the voting power of all shares entitled to vote.
A stockholder or stockholders holding the voting power to lawfully call
a meeting, may demand a special meeting of shareholders by written
notice of demand given to the chief executive officer or chief financial
officer and containing the purpose of the meeting. Within 30 days after
receipt of the demand by one of those officers, the Board shall cause a
special meeting of stockholders to be called and held no later than 90
days after receipt of the demand, all at the expense of the corporation.
If the Board fails to cause a special meeting to be called and held as
required herein, a stockholder or stockholders making the demand may
call a meeting by giving
<PAGE>
notice as required by Section 302.A.435, Minnesota Statutes, all at the
expense of the corporation.
Special meetings shall be held on the date and at the time and place
fixed by the chief executive officer, the chief financial officer or the
Board, except that a special meeting called by or at the demand of a
stockholder or stockholders hereunder shall be held in the county where
the principal executive office is located."
<PAGE>
EXECUTIVE PERQUISITE/FLEX POLICY
EFFECTIVE JANUARY 1, 1998
A. EXECUTIVE PERQUISITES
The Company will provide for the direct payment of selected perquisite
expenses that are offered because of competitive compensation practice
and/or because the service is being expensed in the business interests
of the Company.
The following outlines the executive perquisites offered:
-- Physical examination every three years under 40 years of age, every
two years over age 40
-- Tax preparation fees up to $750/year
-- Tax gross-up on 25% of the imputed income from the IRS "Annual Lease
Value Table" and IRS defined fuel costs for personal use or actual
expense
-- Automobile actual operating expenses
<PAGE>
B. OFFICER FLEX ACCOUNT
The Company will reimburse Corporate officers for the reasonable cost
of certain services. The maximum allowable reimbursement will be up to 10%
of the officers' annual base pay.
Expenses eligible for reimbursement are as follows:
-- Athletic, country and business club memberships
-- Automobile lease, or, if the automobile is purchased, monthly
reimbursement equivalent to the pro-forma lease cost
<PAGE>
C. INELIGIBLE EXPENSES
The following expenses will no longer be eligible for direct payment
or reimbursement:
-- Home security system
-- Legal advice
-- Tax assistance in excess of $750/year
-- Financial counseling
-- Daycare for children
-- Season tickets to sporting and cultural events
-- First class business travel
-- Spouse travel not required by business needs
-- Additional personal liability insurance
-- Additional business liability insurance
-- Education for children
-- Additional business travel insurance
-- Supplemental life insurance
-- Up to $3,000/per calendar year of health care expenses not covered by
Company benefit plans
-- Personal computer leases
<PAGE>
BMC INDUSTRIES, INC. PROFIT SHARING PLAN
1994 REVISION
THIRD 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 7.2(A) thereof is amended by substituting "$5000" for "$3500."
2. Subsection 8.1(A)(1) thereof is amended by substituting "$5000" for "$3500"
each place it appears therein.
3. Section 12.27 thereof is amended to read as follows:
"12.27 QUALIFIED EMPLOYEE. A "Qualified Employee" is an Employee who
performs services for a Participating Business Unit as a common-law
employee (as classified by the Participating Employer at the time the
services are performed without regard to any subsequent
reclassification) together with any Employee who is a United States
citizen and who performs services for a foreign subsidiary of a
Participating Employer as a common-law employee of the foreign
subsidiary (as classified by the Participating Employer at the time the
services are performed without regard to any subsequent
reclassification), with respect to which subsidiary such Participating
Employer has entered into an agreement under Code section 3121(1), but
only if contributions under a funded plan of deferred compensation,
which is sponsored by such foreign subsidiary or a Participating
Employer, are not provided for such person with respect to remuneration
paid to him by such foreign subsidiary, provided that such person is
employed at a facility, or within a division or business unit, the
eligible employees of which have been designated by the Participating
Employer to participate in the Plan. In no event, however, will the
term Qualified Employee include any individual who is
(a) covered by a collective bargaining agreement, for whom retirement
benefits were the subject of good faith bargaining between such person's
representative and the Participating Employer, and who is not, as a result
of such bargaining, specifically covered by this Plan; or
(b) a nonresident alien who receives no earned income (within the
meaning of Code section 911(d)(2)) from a Participating Employer that
constitutes income from sources within the United States (within the
meaning of Code section 861(a)(3)); or
(c) a leased employee as defined under Code section 414(n)(2)."
<PAGE>
The amendments set forth are items 1 and 2 above are effective January 1, 1998,
and apply to all Participants, including those who terminated employment before
January 1, 1998, and the Beneficiaries of deceased Participants, including those
who died before January 1, 1998. The amendment set forth at item 3 above is
effective March 1, 1998.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
its duly authorized officers this 28th day of February, 1998.
BMC INDUSTRIES, INC.
Attest: /s/JON A. DOBSON By: /s/STEFAN PETERSON
---------------------- ---------------------
Secretary Director of Compensation, Benefits & HRIS
2
<PAGE>
BMC INDUSTRIES, INC. SAVINGS PLAN
1994 REVISION
THIRD 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. Subsection 2.1 thereof is amended to read as follows:
"2.1 ELIGIBILITY REQUIREMENTS. (A) An Employee is eligible to
participate in the Plan
(1) for the purposes of having Pre-Tax Contributions (but not
Matching Contributions with respect thereto) made on his or her behalf
and making After-Tax Contributions and having a rollover or transfer
made on his or her behalf pursuant to Section 3.4, on the day on which
he or she first completes an Hour of Actual Service as a Qualified
Employee, and
(2) for the purpose of having Matching Contributions made on his
or her behalf, on the first day of the calendar quarter that falls on or
next follows the last day of the first Computation Period of the type
described in Section 10.1(a) during which he or she completes at least
1000 Hours of Service if he or she is a Qualified Employee on the date
on which he or she would otherwise be eligible to participate.
(B) If the Computation Period described in Subsection (A)(2) with
respect to an Employee begins on an Affiliated Organization's first
regular business day after the first day of a calendar quarter,
notwithstanding Subsection (A)(2), the Employee is eligible to
participate in the Plan for the purpose specified as of the first day of
the calendar quarter immediately preceding the last day of the
Computation Period if the sole reason he or she is not then eligible
pursuant to Subsection (A) is that the Computation Period has not ended.
(C) If an Employee or former Employee has satisfied the service
requirements set forth in Subsection(A)(2) but is not a Qualified
Employee on the date on which he or she would otherwise be eligible to
participate in the Plan for a specified purpose, he or she will become
eligible to participate for that purpose on the first day of the
calendar quarter that falls on or next follows the date on which he or
she completes an Hour of Actual Service as a Qualified Employee, if he
or she remains a Qualified Employee on the date on which he or she would
otherwise become eligible to participate.
<PAGE>
(D) Notwithstanding Subsection (A), in conjunction with an acquisition,
the Company's Board may specify a special entry date for those qualified
Employees with respect to whom pre-acquisition service is taken into
account pursuant to Section 10.5"
2. Subsection 3.1(B)(1) thereof is amended to read as follows:
"(1) An Active Participant may elect to reduce his or her Compensation
by any one percent increment from one percent to a maximum specified by
Plan Rules, and the percentage so elected will automatically apply to
his or her Compensation as adjusted from time to time. Plan Rules may
specify a lower maximum percentage for Active Participants who are
Highly Compensated Employees."
3. Subsection 3.3(b)(1) thereof is amended to read as follows:
"(1) An Active Participant may elect to contribute any one percent
increment of his or her Compensation from one percent to a maximum
specified by Plan Rules, and the percentage so elected will
automatically apply to his or her Compensation as adjusted from time to
time. Plan Rules may specify a lower maximum percentage for Active
Participants who are Highly Compensated Employees."
4. Subsection 7.2(A) thereof is amended by substituting "$5000" for "$3500"
therein.
5. Section 8.1 thereof is amended by substituting "$5000" for "$3500" each
place it appears therein.
6. Section 12.34 thereof is amended to read as follows:
"12.34 QUALIFIED EMPLOYEE. A "Qualified Employee" is an Employee who
performs services for a Participating Business Unit as a common-law
employee (as classified by the Participating Employer at the time the
services are performed without regard to any subsequent
reclassification) together with any Employee who is a United States
citizen and who performs services for a foreign subsidiary of a
Participating Employer as a common-law employee of the foreign
subsidiary (as classified by the Participating Employer at the time the
services are performed without regard to any subsequent
reclassification), with respect to which subsidiary such Participating
Employer has entered into an agreement under Code section 3121(1), but
only if contributions under a funded plan of deferred compensation,
which is sponsored by such foreign subsidiary or a Participating
Employer, are not provided for such person with respect to remuneration
paid to him by such foreign subsidiary, provided that such person is
employed at a facility, or within a division or business unit, the
eligible employees of which have been designated by the Participating
Employer to participate in the Plan. In no event, however, will the term
Qualified Employee include any individual who is
(a) covered by a collective bargaining agreement, for whom
retirement benefits were the subject of good faith bargaining between
such person's representative
2
<PAGE>
and the Participating Employer, and who is not, as a result of such
bargaining, specifically covered by this Plan; or
(b) a nonresident alien who receives no earned income (within the
meaning of Code section 911(d)(2)) from a Participating Employer that
constitutes income from sources within the United States (within the
meaning of Code section 861(a)(3)); or
(c) a leased employee as defined under Code section 414(n)(2)."
The amendments set forth at items 1 and 6 are effective as of March 1, 1998.
The amendments set forth at items 2 and 3 above are effective as of April 1,
1998. The amendments set forth at items 4 and 5 above are effective as of
January 1, 1998 and apply to all Participants, including those who terminated
employment before January 1, 1998 and the Beneficiaries of deceased
Participants, including those who died before January 1, 1998.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed
by its duly authorized officers this 28th day of February, 1998.
BMC INDUSTRIES, INC.
Attest: /s/ Jon A. Dobson By: /s/ Stefan Peterson
------------------------------ ------------------------------
Secretary Director of Compensation,
Benefits & HRIS
3
<PAGE>
AMENDMENT OF LEASE
This Amendment of Lease ("Amendment" is made as of this 25th day of
September, 1997, by and between GMT Corporation, a Minnesota corporation, whose
address is 245 East Sixth Street 55101 ("Landlord") and BMC Industries, Inc., a
Minnesota corporation, whose address is 278 East Seventh Street, Saint Paul,
Minnesota 55101 ("Tenant").
RECITALS:
WHEREAS, Landlord and Tenant are parties to that certain Agreement
originally between Control Data Corporation and Buckbee Mears Company dated
November 20, 1978, as amended by various amendments and agreements
(collectively, "Lease"); and
WHEREAS, Landlord and Tenant desire to amend the Lease upon terms and
conditions set forth below.
NOW, THEREFORE, In consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Effective October 1st, 1997 through February 28th, 1999 the leased space
shall be increased by 19,219 square feet on PS-3 ("PS-3 Space") as shown
on Exhibit A attached hereto and made a part hereof. Tenant has the
option to review this lease on this space for another one-year period.
2. Except, as specifically provided herein, tenant agrees to accept the
PS-3 space "as is".
3. Tenant shall pay an annual rent of $10 per square foot. This rate shall
only include rent, real estate taxes and common area maintenance.
4. Landlord will install, at its expense, a new elevator between the second
and third floors of the building at the entrance of the skyway. This
elevator will be accessible only to the skyway and not to the PS-3
Space. Landlord will construct a wall around the new elevator and
skyway access to block all public access to the PS-3 Space. Landlord
will block all public access to the PS-3 space within ten weeks of the
date of this Amendment.
5. During the first ten weeks required for item 4 above, Landlord will only
invoice tenant for 17,895 square feet. Thereafter, Landlord will
invoice tenant for the entire 19,219 square feet.
6. Landlord, at its expense, will construct a wall around the current third
floor passenger elevators and stairway access. Access to the PS-3 Space
will be limited to one door from the newly constructed confined space
around the passenger elevator/stairway access. Tenant, at its expense,
will place a combination lock on this door. Landlord will complete this
work within ten weeks of the date of this Amendment.
7. Landlord shall have one week from the date of this Amendment to remove
all debris and equipment from the PS-3 Space. Landlord shall have no
obligation to remove or construct interior walls within the PS-3 Space.
However, Tenant shall have the right to remove and/or construct interior
walls within the PS-3 Space to meet its requirements. Tenant shall not
have an obligation to remove or restore interior walls within the PS-3
Space following termination of the Lease.
8. Tenant agrees to take all reasonable measures to reduce the noise
created by the operation of its equipment in the PS-3 space so as to
prevent the disturbance of other tenants within the building.
9. Except as specifically provided herein, the terms and conditions of the
Lease shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, This Amendment has been executed as of the date set forth
above.
LANDLORD: GMT CORPORATION
By: /s/ HENRY ZAIDAN
------------------------------
Its: PRESIDENT
------------------------------
TENANT: BMC INDUSTRIES, INC.
By: /s/ BENJAMIN A. TENO
------------------------------
Its: VICE PRESIDENT/GENERAL MANAGER
------------------------------
<PAGE>
FORM OF CHANGE OF CONTROL AGREEMENT
March 3, 1998
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.
(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
<PAGE>
March 3, 1998
Page 2 of 9
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 faih 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.
(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.
<PAGE>
March 3, 1998
Page 3 of 9
(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;
(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
<PAGE>
March 3, 1998
Page 4 of 9
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 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.
<PAGE>
March 3, 1998
Page 5 of 9
(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 PAYMENTS. 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 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
<PAGE>
March 3, 1998
Page 6 of 9
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 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.
<PAGE>
March 3, 1998
Page 7 of 9
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 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.
<PAGE>
March 3, 1998
Page 8 of 9
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 theCompany 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 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 o 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: --------------------------------
Paul B. Burke
Chairman, President & CEO
<PAGE>
March 3, 1998
Page 9 of 9
Agreed to this ____ day of
_____________, 1998.
- ------------------------------------
<PAGE>
EMPLOYMENT SEVERANCE AGREEMENT
This Employment Severance Agreement ("Agreement") is made and entered into as
of January 26, 1998 by and between BMC Industries, Inc., a Minnesota
corporation ("Corporation"), and Jeffrey J. Hattara ("Executive").
WHEREAS, the Executive desires to ensure a certain tenure of employment with
the Corporation; and
WHEREAS, the Corporation desires to employ the Executive as its Vice President
of Finance and Administration and Chief Financial Officer, and Executive is
willing to accept such employment by the Corporation, subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
SECTION 1. TERMS OF EMPLOYMENT.
1.1 DEFINITIONS. For the purpose of this Agreement, the following terms
shall have the following meanings:
1.1.1 "Termination For Cause" shall mean termination by the
Corporation of the Executive's employment by the Corporation by
reason of the Executive's willful dishonesty toward, fraud upon, or
deliberate injury or attempted injury to the Corporation, or by
reason of the Executive's willful material breach of duties which
has resulted in material injury to the Corporation.
1.1.2 "Termination Other Than For Cause" shall mean termination by the
Corporation of the Executive's employment by the Corporation (other
than in a Termination for Cause).
1.1.3 "Voluntary Termination" shall mean termination by the Executive
of the Executive's employment by the Corporation other than
termination by reason of the Executive's death or disability.
1.2 TERM. Except in the event of Termination for Cause, the Corporation
intends to employ Executive for a period of at least two years beginning on
January 26, 1998 (the "Term").
1.3 TERMINATION FOR CAUSE. Termination for Cause may be effected by the
Corporation at any time during the Term of this Agreement and shall be effected
by written notification to the Executive. Upon Termination of Cause, the
Executive shall promptly be paid all accrued salary, vested deferred
compensation (other than pension or profit sharing plan benefits which will be
paid in accordance with the applicable plan), any benefits under any plans of
the Corporation in which the Executive is a participant
<PAGE>
to the full extent of the Executive's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by the Executive
in connection with his duties hereunder, all to the date of termination, but
the Executive shall not be paid any other compensation or reimbursement of
any kind, including without limitation, Severance Compensation (as defined
herein).
1.4 TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything else in
this Agreement, the Corporation may effect a Termination Other Than For Cause
at any time upon giving written notice to the Executive of such termination.
Upon any Termination Other Than For Cause, the Executive shall promptly be paid
all accrued salary, bonus compensation to the extent earned, if any, in
accordance with the Management Incentive Plan, vested deferred compensation
(other than pension or profit sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Corporation in which the Executive is a participant to the full extent of the
Executive's rights under such plans, accrued vacation pay and any appropriate
business expenses incurred by the Executive in connection with his duties
hereunder, all to the date of termination, and Severance Compensation, but no
other compensation or reimbursement of any kind.
1.5 DEATH. In the event of the Executive's death during the term of
this Agreement, the Executive's employment shall be deemed to have terminated
as of the last day of the month during which his death occurs and the
Corporation shall promptly pay to his estate or such beneficiaries as the
Executive may from time to time designate all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension or profit sharing benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which the
Executive is a participant to the full extent of the Executive's rights under
such plans, accrued vacation pay and any appropriate business expenses incurred
by the Executive in connection with his duties hereunder, all to the date of
termination, but the Executive's estate shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
Severance Compensation.
1.6 VOLUNTARY TERMINATION. In the event of a Voluntary Termination, the
Corporation shall promptly pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which the Executive
is a participant to the full extent of the Executive's rights under such plans,
accrued vacation pay and any appropriate business expenses incurred by the
Executive in connection with his duties hereunder, all to the date of
termination, but no other compensation or reimbursement of any kind, including
without limitation, Severance Compensation.
1.7 TERMINATION UPON A CHANGE IN CONTROL. Notwithstanding the terms of this
Agreement, this Agreement shall be null and void in the event of a Change in
Control, as defined in the Change in Control Agreement between the Executive
and the
<PAGE>
Corporation. This Agreement shall terminate immediately in the event of a
Change in Control.
SECTION 2. SEVERANCE COMPENSATION.
2.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN
FOR CAUSE. In the event the Executive's employment is
terminated in a Termination Other Than for Cause, the Executive
shall be paid as Severance Compensation his base salary (at the
rate payable at the time of such termination), for a period of
twelve (12) months from the date of such termination, payable in
twelve (12) equal monthly installments. Executive also shall
continue to receive medical and dental benefits at the
Corporation's cost for such twelve (12) month period, provided,
however, that such coverage will cease upon Executive's
subsequent employment with a new employer.
2.2 NO SEVERANCE COMPENSATION UPON OTHER TERMINATION. In the event of a
Voluntary Termination, Termination for Cause, termination by reason
of the Executive's death or disability, the Executive or his estate
shall not be paid any Severance Compensation.
SECTION 3. WITHHOLDINGS. All compensation and benefits to the Executive
hereunder shall be reduced by all federal, state, local and other withholding
and similar taxes and payments required by applicable law.
SECTION 4. ASSIGNMENT. Except as otherwise provided within this Agreement,
neither party hereto may transfer this Agreement without prior written consent
of the other party.
SECTION 5. LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota. Any dispute
relating to this Agreement shall be settled in the courts of this State.
SECTION 6. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between and among the parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
SECTION 7. AGREEMENT BINDING. This Agreement shall be binding upon the
heirs, executors, administrators, successors and assigns of the parties hereto.
/s/ Jeffrey J. Hattara BMC Industries, Inc.
----------------------
Jeffrey J. Hattara
By: /s/Paul B. Burke
-----------------------
Its: Chief Executive Officer
<PAGE>
SECOND AMENDMENT TO
CREDIT AGREEMENT
This Amendment is agreed to as of the 23rd day of December, 1997, by
and among BMC Industries, Inc., a Minnesota corporation (the "Borrower");
Norwest Bank Minnesota, National Association, a national banking association, as
Agent under the Credit Agreement described below (in such capacity, the
"Agent"); and Norwest Bank Minnesota, National Association, a national banking
association, U.S. Bank National Association, a national banking association
formerly known as First Bank National Association, and NBD Bank, a Michigan
banking corporation, as Banks (the "Banks").
The Borrower, the Agent and the Banks are each parties to a Credit
Agreement dated as of June 5, 1996, as amended by an amendment dated June 27,
1997 (together with all amendments, modifications and restatements thereof, the
"Credit Agreement").
The Borrower has requested the ability to effect Eurodollar Rate
borrowings on a 7-day basis, and the Agent and the Banks are willing to grant
the Borrower's request.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. AMENDMENT. The Credit Agreement is hereby amended as follows:
(a) The definition of "Facility B Commitment Termination Date" in
Section 1.1 of the Credit Agreement is hereby amended in its entirety to
read as follows:
"Facility B Commitment Termination Date" means the earliest of
(i) June 26, 1998, (ii) the date on which the fourth Borrowing under
Section 2.2 (excluding General Purpose Facility B Borrowings, as
defined in Section 2.2) is made, (iii) the date on which the Facility
B Commitment Amounts have been reduced to $0 pursuant to Section 2.9,
or (iv) the date on which the Commitments have been terminated
pursuant to Section 7.2.
(b) The definition of "Interest Period" in Section 1.1 of the Credit
Agreement is hereby amended in its entirety to read as follows:
"Interest Period" means, with respect to any Advance bearing
interest at a Eurodollar Rate, (i) if such Interest Period commences
on or before December 31, 1997, a period of seven days or one, two,
three, or six months beginning on a Eurodollar Business Day, and
(ii) thereafter, a period of one, two, three, or six months beginning
on a Eurodollar Business Day, in each case as elected by the Borrower.
<PAGE>
(c) The last sentence of Section 2.2 of the Credit Agreement is
hereby deleted, and the following is substituted therefor:
-2-
<PAGE>
Except as set forth below in this Section 2.2, the proceeds of each
Facility B Advance shall be used by the Borrower to facilitate one or
more Permitted Acquisitions. The Borrower may use the proceeds of up
to $25,000,000 in Facility B Advances at any time outstanding to
facilitate the repurchase or retirement by the Borrower of its own
stock. In addition, the Borrower may use the proceeds of one or more
Borrowings under this Section 2.2 (each, a "General Purpose Facility B
Borrowing") for the Borrower's general corporate purposes so long as
the aggregate principal amount of such General Purpose Facility B
Borrowings outstanding at any one time does not exceed $10,000,000;
provided, however, that the Borrower shall repay all Facility B
Advances comprising such General Purpose Facility B Borrowings not
later than the 60th day following the day on which the first such
General Purpose Facility B Borrowing is effected (or, if sooner,
February 28, 1998). The Borrower may not use the proceeds of any
Facility B Advance to repay any other Facility B Advance.
(d) The phrase, "If such Borrowing is to be made under Section 2.2,"
in Section 2.3 of the Credit Agreement is hereby deleted, and the following
is substituted therefor:
If such Borrowing is to be made under Section 2.2, such notice or
request shall specify the intended use of the proceeds of such
Borrowing, and, if the proceeds of such Borrowing are to be used to
facilitate a Permitted Acquisition,
2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Agent and the Banks as follows:
(a) The Borrower has all requisite power and authority, corporate or
otherwise, to execute and deliver this Amendment, and to perform this
Amendment and the Credit Agreement as amended hereby. This Amendment has
been duly and validly executed and delivered to the Agent by the Borrower,
and this Amendment, and the Credit Agreement as amended hereby, constitute
the Borrower's legal, valid and binding obligations enforceable in
accordance with their terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment, and the performance of the Credit Agreement as amended hereby,
have been duly authorized by all necessary corporate action and do not and
will not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate the Borrower's articles
of incorporation or bylaws or any provision of any law, rule, regulation or
order presently in effect having applicability to the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or
agreement to which the Borrower is a party or by which the Borrower or its
properties may be bound or affected.
-3-
<PAGE>
(c) All of the representations and warranties contained in Article IV
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of
-4-
<PAGE>
such date, except to the extent that such representations and warranties
relate solely to an earlier date.
3. CONDITIONS. The amendments set forth in paragraph 1 shall be
effective only if the Agent has received this Amendment, duly executed by each
of the parties hereto, on or before the date hereof (or such later date as the
Banks may agree to in writing).
4. MISCELLANEOUS. The Borrower shall pay all costs and expenses of
the Agent, including attorneys' fees, incurred in connection with the drafting
and preparation of this Amendment and any related documents. Except as amended
by this Amendment, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect. This Amendment may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts of this Amendment, taken together,
shall constitute but one and the same instrument. This Amendment shall be
governed by the substantive law of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
BMC INDUSTRIES, INC. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, AS
AGENT AND AS A BANK
By /s/Jeffrey L. Wright By /s/Scott Bjelde
Its Corporate Controller Its Vice President
U.S. BANK NATIONAL NBD BANK
ASSOCIATION
By /s/David Shapiro By /s/Marguerite C. Gordy
Its Financial Banking Officer Its Second Vice President
-5-
<PAGE>
CONSENT OF GUARANTOR
The undersigned, as a guarantor of all indebtedness of the Borrower to
the Banks under its Guaranty dated June 5, 1996, hereby consents to the
foregoing Amendment and acknowledges that all indebtedness arising under the
Credit Agreement, as amended thereby, shall constitute Indebtedness as defined
in and guarantied under that Guaranty. The foregoing confirmation shall not be
deemed to limit the terms of the Guaranty in any manner. The undersigned
acknowledges that this Consent merely confirms the terms of the Guaranty, and
that no such confirmation is required in connection with this Amendment or any
future amendment to or restatement of the Credit Agreement or any document
executed in connection with the Credit Agreement or this Amendment.
VISION-EASE LENS, INC.
By /s/Ray Rogers
Its _Director
-6-
<PAGE>
THIRD AMENDMENT TO
CREDIT AGREEMENT
This Amendment is agreed to as of the 27th day of February, 1998, by
and among BMC Industries, Inc., a Minnesota corporation (the "Borrower");
Norwest Bank Minnesota, National Association, a national banking association, as
Agent under the Credit Agreement described below (in such capacity, the
"Agent"); and Norwest Bank Minnesota, National Association, a national banking
association, U.S. Bank National Association, a national banking association
formerly known as First Bank National Association, and NBD Bank, a Michigan
banking corporation, as Banks under the Credit Agreement (the "Banks").
The Borrower, the Agent and the Banks are each parties to a Credit
Agreement dated as of June 5, 1996, as amended by amendments dated June 27, 1997
and December 23, 1997 (together with all amendments, modifications and
restatements thereof, the "Credit Agreement").
The Borrower has asked for changes in its ability to make general
purpose borrowings under the Credit Agreement, and the Agent and the Banks are
willing to grant the Borrower's request.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. AMENDMENT. The next-to-last sentence of Section 2.2 of the
Credit Agreement (commencing with the words, "In addition, the Borrower may
use . . .") is hereby deleted, and the following is substituted therefor:
In addition, the Borrower may use the proceeds of one or more
Borrowings under this Section 2.2 (each, a "General Purpose Facility B
Borrowing") for the Borrower's general corporate purposes so long as
the aggregate principal amount of such General Purpose Facility B
Borrowings outstanding at any one time does not exceed $20,000,000.
2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Agent and the Banks as follows:
(a) The Borrower has all requisite power and authority, corporate or
otherwise, to execute and deliver this Amendment, and to perform this
Amendment and the Credit Agreement as amended hereby. This Amendment has
been duly and validly executed and delivered to the Agent by the Borrower,
and this Amendment, and the Credit Agreement as amended hereby, constitute
the Borrower's legal, valid and binding obligations enforceable in
accordance with their terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment, and the performance of the Credit Agreement as amended hereby,
have
-1-
<PAGE>
been duly authorized by all necessary corporate action and do not and
will not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate the Borrower's articles
of incorporation or bylaws or any provision of any law, rule, regulation or
order presently in effect having applicability to the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or
agreement to which the Borrower is a party or by which the Borrower or its
properties may be bound or affected.
(c) All of the representations and warranties contained in Article IV
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
3. CONDITIONS. The amendments set forth in paragraph 1 shall be
effective only if the Agent has received this Amendment, duly executed by each
of the parties hereto, on or before the date hereof (or such later date as the
Banks may agree to in writing).
4. MISCELLANEOUS. The Borrower shall pay all costs and expenses of
the Agent, including attorneys' fees, incurred in connection with the drafting
and preparation of this Amendment and any related documents. Except as amended
by this Amendment, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect. This Amendment may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts of this Amendment, taken together,
shall constitute but one and the same instrument. This Amendment shall be
governed by the substantive law of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
BMC INDUSTRIES, INC. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, AS
AGENT AND AS A BANK
By /s/JEFFREY HATTARA By /s/SCOTT BJELDE
------------------ ---------------
Its VP Administration & Finance Its Vice President
& CFO
<PAGE>
U.S. BANK NATIONAL NBD BANK
ASSOCIATION
By ________________________________
Its ______________________________ By /s/MARGUERITE C. GORDY
Its _Second Vice President
CONSENT OF GUARANTOR
The undersigned, as a guarantor of all indebtedness of the Borrower to
the Banks under its Guaranty dated June 5, 1996, hereby consents to the
foregoing Amendment and acknowledges that all indebtedness arising under the
Credit Agreement, as amended thereby, shall constitute Indebtedness as defined
in and guarantied under that Guaranty. The foregoing confirmation shall not be
deemed to limit the terms of the Guaranty in any manner. The undersigned
acknowledges that this Consent merely confirms the terms of the Guaranty, and
that no such confirmation is required in connection with this Amendment or any
future amendment to or restatement of the Credit Agreement or any document
executed in connection with the Credit Agreement or this Amendment.
VISION-EASE LENS, INC.
By /s/Ray Rogers
Its Director___________________
<PAGE>
HISTORICAL FINANCIAL SUMMARY
(in thousands, except per share amounts and statistics and ratios)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Revenues $ 312,538 $ 280,487 $ 255,355 $ 219,968 $ 195,431
Operations Cost of products sold 244,468 213,007 202,595 181,024 163,828
- ------------------------------------------------------------------------------------------------------------------------------
Gross margin 68,070 67,480 52,760 38,944 31,603
Selling and administrative 16,012 15,033 14,137 12,188 11,706
- ------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
interest, other expense and income taxes 52,058 52,447 38,623 26,756 19,897
Interest income (expense), net (1,065) (280) 467 (2,369) (4,820)
Other income (expense) 209 236 (146) (57) 93
Income taxes 15,481 17,302 14,397 9,326 4,790
- ------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
before cumulative effect of accounting changes 35,721 35,101 24,547 15,004 10,380
Provision for loss related to discontinued
operation, net of tax -- -- -- (839) (415)
Cumulative effect of accounting changes -- -- -- -- 12,131
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 35,721 $ 35,101 $ 24,547 $ 14,165 $ 22,096
- ------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Number of shares included in per share
Per Share computation 27,583 27,268 26,896 25,023 22,423
Earnings from continuing operations $ 1.30 $ 1.29 $ 0.91 $ 0.60 $ 0.46
Loss from discontinued operation -- -- -- (0.03) (0.01)
Cumulative effect of accounting changes -- -- -- -- 0.54
- ------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.30 $ 1.29 $ 0.91 $ 0.57 $ 0.99
- ------------------------------------------------------------------------------------------------------------------------------
Diluted Number of shares included in per share computation 28,530 28,363 28,234 27,335 24,868
Earnings Per Earnings from continuing operations $ 1.25 $ 1.24 $ 0.87 $ 0.55 $ 0.42
Share Loss from discontinued operation -- -- -- (0.03) (0.02)
Cumulative effect of accounting changes -- -- -- -- 0.49
- ------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.25 $ 1.24 $ 0.87 $ 0.52 $ 0.89
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flow Cash dividends per share $ 0.06 $ 0.0525 $ 0.0425 $ 0.02 $ --
Depreciation and amortization expense 13,349 10,171 8,290 8,250 8,462
Net cash provided by operating activities 14,667 20,786 45,261 36,680 25,931
Capital expenditures 75,110 54,662 39,196 13,537 7,870
- ------------------------------------------------------------------------------------------------------------------------------
Financial Working capital $ 74,914 $ 41,354 $ 32,730 $ 38,769 $ 34,517
Position Property, plant and equipment, net 182,382 123,845 81,409 49,858 43,005
Total assets 319,407 232,969 182,332 138,686 130,312
Total debt 74,565 17,989 47 66 27,247
Stockholders' equity 178,752 144,108 108,466 81,788 58,900
- ------------------------------------------------------------------------------------------------------------------------------
Statistics Current ratio 2.6 1.8 1.6 2.0 1.9
and Ratios Total debt to equity ratio 0.4 0.1 0.0 0.0 0.5
Earnings from continuing operations before
interest, other expense
and income taxes, as a percentage of revenues 16.7% 18.7% 15.1% 12.2% 10.2%
Return on average equity(1) 22.1% 27.8% 25.8% 20.1% 20.7%
Book value per share $ 6.43 $ 5.26 $ 4.01 $ 3.05 $ 2.59
</TABLE>
THE NUMBER OF SHARES AND PER SHARE AMOUNTS HAVE BEEN ADJUSTED FOR
TWO-FOR-ONE STOCK SPLITS IN 1995 AND 1994.
EARNING PER SHARE FOR ALL PERIODS HAVE BEEN RESTATED TO REFLECT
ADOPTIONING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
EARNINGS PER SHARE.
(1) CALCULATION EXCLUDES CUMULATIVE EFFECT OF ACCOUNTING CHANGES
IN 1993.
<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
REVENUES AND OPERATING PROFIT
COMPARISON OF 1997 AND 1996. Revenues of the Precision Imaged Products group
were $219.0 million for 1997, an increase of $26.5 million or 14% from those for
1996. The improvement was primarily attributable to increased sales of computer
monitor masks. Total year 1997 computer monitor mask sales exceeded $20.0
million, an increase of over $15.0 million compared to 1996. Almost all of the
computer monitor masks in 1997 were produced at the Mullheim, Germany plant.
Sales of large (25-29 inches) television masks were up 16% while sales of invar
television masks were flat compared to total year 1996 sales. Jumbo (30 inches
and larger) television mask sales were 16% below the prior year which is a
difficult comparison following a 58% increase in jumbo mask sales over 1995.
Sales were reduced almost $11 million in 1997 due to the strengthening of the
U.S. dollar versus the German mark. Buckbee-Mears St. Paul posted record total
year 1997 sales while generating its first sales of lead frames for
semiconductor packages in the fourth quarter of 1997.
Operating profit of the Precision Imaged Products group was $41.5 million for
1997, a decrease of $1.6 million or 4% from that realized in 1996. The rate of
operating profit expressed as a percentage of revenues was 19% for 1997,
compared to 22% for 1996. The decline in operating profit is primarily due to
the start-up and de-bugging of the new Cortland, New York monitor mask line. The
Company dedicated a large portion of production time to the qualification of
parts for a number of customers. In addition, resources were allocated to the
new television mask line in Cortland which continued to ramp up in 1997,
including successfully qualifying parts in a multiple-up configuration. The
Company expects these lines to reach their full production capabilities in the
second half of 1998. Additional contributing factors to the lower operating
profits were slower growth in higher-priced color television masks, which was
described above, and a downward pressure on mask prices. These operating profit
reductions were offset partially by the record earnings posted by Buckbee-Mears
St. Paul for the year as a result of product mix and manufacturing improvements
and profit recognized upon completion of a long-term mask equipment and
technology contract.
COMPARISON OF 1996 AND 1995. 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. 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.
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 revenues was 22% for 1996,
compared to 19% 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.
OPTICAL PRODUCTS
REVENUES AND OPERATING PROFIT
COMPARISON OF 1997 AND 1996. Revenues of the Optical Products group were
$93.5 million for 1997, an increase of $5.6 million or 6% from those for
1996. The increase was primarily due to a 26% increase in sales of high-end
products (polycarbonate, progressive, high index and polarizing sun lenses)
as consumer preferences for advanced materials, designs and features increased.
Sales of mid-range hard-resin plastic products showed more modest gains as
competition continued to grow in this segment of the market and were impacted
by Vision-Ease's transition to a new supply arrangement with a Southeast Asian
lens manufacturer. Glass product sales declined because of contraction of the
worldwide market for glass lenses. Overall glass earnings are expected to
decline in the future due to continued contraction in the demand for glass
products. To partially offset this decline, the Company entered into a
majority-owned joint venture in 1997 with a glass lens manufacturer located in
Southeast Asia to establish an alternate, low cost source for glass lenses.
Operating profit of the Optical Products group was $14.9 million for 1997, an
increase of $0.5 million or 4% over 1996. The rate of operating profit expressed
as a percentage of total revenues was 16% for 1997 and 1996. 1997 operating
profit growth lagged the sales growth due to a number of factors, including the
weakening of earnings on glass products, new lens product development, new
polycarbonate product promotions, duplicate facility costs associated with
polycarbonate manufacturing and costs associated with closing the Ft.
Lauderdale, Florida facility and transitioning production to St. Cloud,
Minnesota. The new polycarbonate manufacturing, centralized distribution and
research and development facility was completed in the third quarter of 1997,
but a full transfer of operations will not be completed until the second quarter
of 1998 to ensure minimal interruption of polycarbonate manufacturing.
2
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<PAGE>
COMPARISON OF 1996 AND 1995. 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 increased.
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.
SELLING EXPENSES
Selling expenses were $11.7 million, $10.0 million and $8.6 million or 3.7%,
3.6% and 3.4% of revenues for 1997, 1996 and 1995, respectively. The increase
in 1997 is primarily due to incremental costs to launch the Optical Products
group new premium line of polycarbonate lenses bearing the Tegra-Registered
Trademark- trade name. The increase in 1996 over 1995 reflects the impact of
increased revenues.
ADMINISTRATIVE EXPENSES
Administrative expenses were $4.3 million, $5.0 million and $5.5 million or
1.4%, 1.8% and 2.2% of revenues for 1997, 1996 and 1995, respectively. The
decline in administrative expenses from 1996 to 1997 is primarily due to a
reduction in employee performance based incentive benefits tied to the
Company's earnings. 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.
INTEREST INCOME (EXPENSE)
Interest expense was $1.3 million, $0.5 million and $0.6 million for 1997, 1996
and 1995, respectively. Interest income was $0.2 million, $0.3 million and $1.0
million for 1997, 1996 and 1995, respectively. Due to increases in short-term
and long-term debt levels, interest expense increased in 1997, although a full
year's interest impact was not realized due to the capitalization of interest
costs in connection with the Company's expansion projects. Interest expense is
expected to increase significantly in 1998 because of the larger debt balance
and a lower amount of interest that can be capitalized. In 1996, interest income
earned on cash balances declined 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.
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 (approximately 31% and 28% in 1997 and 1996, respectively). 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. Sales were reduced almost $11.0
million in 1997 due to the strengthening of the U.S. dollar versus the German
mark; however, earnings were impacted less than $0.4 million. See Note 6 to the
Consolidated Financial Statements--Commitments for a discussion of the foreign
currency exchange options outstanding at December 31, 1997.
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 1997, the Company established a majority-owned subsidiary (the Subsidiary) in
Southeast Asia. In accordance with generally accepted accounting principles, the
functional currency of the Subsidiary is the U.S. dollar. As a large majority
of the Subsidiary's economic activities are transacted in U.S. dollars, foreign
exchange exposure is limited.
In 1997, the Company incurred $0.4 million of foreign exchange gains and
incurred minimal foreign exchange losses in 1996 and 1995.
SEASONALITY
The Company's earnings are generally lower in the first and third quarters due
to maintenance shutdowns 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 30%, 33% and 37% in 1997, 1996 and 1995, respectively. In
all years presented, reduction of the valuation allowance relating to deferred
tax assets lowered the effective tax rate with the largest impact occurring in
1997. The 1996 rate was lower than the 1995 rate due principally to a lower
proportion of the Company's total earnings being generated by the Company's
German subsidiary.
DIVIDENDS
In 1997, the Company continued the payment of cash dividends to shareholders.
Cash dividends of one and one half cents per share were declared in each quarter
of 1997. The Company expects to continue dividend payments in 1998.
2
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<PAGE>
ENVIRONMENTAL
Prior to 1997, the Company had been involved in seven sites where environmental
investigations were still occurring and where final settlement had not been
reached. During 1997, 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 signed a de micromis settlement agreement with the
PRP group for another site in February 1998. 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 five.
In addition to the five sites, the Company has continued its site
investigations at its former Ft. Lauderdale facility for contamination which
occurred prior to the Company's operation of the facility. During 1997, the
Company submitted additional test results for the site to the state
regulatory agency seeking approval of the scope and completion of testing.
The Company's consultant had indicated that it is reasonably probable that
some type of remediation would be required and had 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 costs 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 Ft. Lauderdale matter, as well as the
additional five sites discussed above, or the Company's exposure if any of
these cases are decided adversely.
In addition to the above investigations, PRPs for a site in Cortland, New York
have alleged that the Company is a participant in depositing waste at that site.
The Company believes it has no liability for 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 former Ft.
Lauderdale facility, will have a materially adverse effect on the financial
condition of the Company beyond the recorded reserves.
FINANCIAL POSITION AND LIQUIDITY
Working capital was $74.9 million, and the current ratio was 2.6 at December 31,
1997, compared to $41.4 million and a current ratio of 1.8 at December 31, 1996.
Inventory balances increased $19.7 million during 1997. Precision Imaged
Products' inventory levels primarily increased due to the addition of the
computer monitor mask production line in Mullheim, Germany and the addition of
the two new production lines in Cortland, New York. Optical Products'
inventories have increased in preparation for future orders and to support new
product introductions and sales growth. Other current assets increased $5.2
million due primarily to an income tax refund expected to be received in the
first quarter of 1998. Accounts payable were up primarily to fund the increased
production levels resulting from the Company's expansion efforts in 1997.
At December 31, 1997, the Company had $74.6 million in debt and the ratio of
total debt to total equity was 0.4. 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.
The Company's cash flow activities in 1997 included generating $14.7 million
of cash flow from operating activities and $62.1 million from financing
activities, primarily through incremental debt. The cash generated from
operating and financing activities was used for property, plant and equipment
additions totaling $75.1 million. The increase in the Company's capital
spending in 1997 was primarily due to $49.4 million of capital spending
relating to the two-line expansion of the Company's mask manufacturing
facility at Cortland, New York. The Cortland expansion was completed in the
second and third quarters of 1997. In addition, $8.4 million of capital
spending was used for the new polycarbonate manufacturing facility and
equipment. 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 in Cortland. 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.
2
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7
<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. In December 1997, the credit facility was amended
to allow up to $25 million of borrowing under the $80 million acquisition credit
facility specifically for purposes of repurchasing the Company's common stock.
Additionally, in early 1998, the credit facility was further amended to provide
for up to $20 million of borrowing under the $80 million acquisition facility
for general corporate purposes. Borrowings under this $20 million portion of the
acquisition facility must be repaid by June 26, 1998. The Company's German
subsidiary maintains short-term and long-term credit facilities totaling $19.2
million. The acquisition credit facility will provide funds for the Company's
stock repurchase program and 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.
YEAR 2000 COMPLIANCE
The Company has many computer applications at each of its locations that require
modifications made necessary by the upcoming year 2000. These time-sensitive
applications could cause a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in normal business activities. Management
at each location has determined what actions are necessary to prepare for this
change. Certain applications have already been upgraded and the remaining
application conversions are planned at various intervals with all computer
systems scheduled to be upgraded by the middle of 1999. Management does not
anticipate that the conversion of any computer system to be year 2000 compliant,
or the cost associated with those conversions, will have a materially adverse
effect on the consolidated financial statements or operations of the Company.
However, if such modifications and conversions are not made, or are not
completed timely, the year 2000 issue could have a material impact on the
operations of the Company.
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 and 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 undue reliance on any such
forward-looking statements. These statements are qualified by potential risks
and uncertainties, including lower demand for televisions and computer monitors,
inability to penetrate the lead frame market, problems associated with shut-down
of the Brooklyn Center, Minnesota polycarbonate manufacturing facility and the
transfer of operations to the Ramsey, Minnesota facility, higher operating
expenses and lower yields associated with production start-up, foreign currency
fluctuations, successful customer part qualifications and economic uncertainty
in Asia. These factors are more particularly described in "Item 1 - Business" of
the Company's Form 10-K and in some cases have affected and in the future could
adversely affect the Company's actual results, thereby causing 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.
2
- -
8
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues Revenues $ 312,538 $ 280,487 $ 255,355
and Expenses Cost of products sold 244,468 213,007 202,595
---------------------------------------------------------------------------
Gross margin 68,070 67,480 52,760
Selling 11,696 10,028 8,592
Administrative 4,316 5,005 5,545
---------------------------------------------------------------------------
Income from Operations 52,058 52,447 38,623
---------------------------------------------------------------------------
Other Income Interest income 233 260 1,029
and (Expenses) Interest expense (1,298) (540) (562)
Other income (expense) 209 236 (146)
---------------------------------------------------------------------------
Earnings before Income Taxes 51,202 52,403 38,944
Income Taxes 15,481 17,302 14,397
---------------------------------------------------------------------------
Net Earnings $ 35,721 $ 35,101 $ 24,547
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings Per Share Basic $ 1.30 $ 1.29 $ 0.91
Diluted 1.25 1.24 0.87
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Number of Shares Included Basic 27,583 27,268 26,896
in Per Share Computation Diluted 28,530 28,363 28,234
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
-
9
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets CURRENT ASSETS
Cash and cash equivalents $ 2,383 $ 2,544
Trade accounts receivable,
less allowances of $2,118 and $2,330 29,824 24,979
Inventories 70,111 50,451
Deferred income taxes 5,881 5,372
Other current assets 13,595 8,354
-------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 121,794 91,700
-------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 182,382 123,845
DEFERRED INCOME TAXES 1,429 5,797
OTHER ASSETS, NET 13,802 11,627
-------------------------------------------------------------------------------------
TOTAL ASSETS $ 319,407 $ 232,969
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
LIABILITIES AND CURRENT LIABILITIES
STOCKHOLDERS' EQUITY Short-term borrowings $ 1,139 $ 1,355
Accounts payable 25,623 19,434
Accrued compensation and benefits 11,614 14,919
Income taxes payable 2,830 7,657
Other current liabilities 5,674 6,981
-------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 46,880 50,346
-------------------------------------------------------------------------------------
LONG-TERM DEBT 73,426 16,634
OTHER LIABILITIES 17,718 19,421
DEFERRED INCOME TAXES 2,631 2,460
STOCKHOLDERS' EQUITY
Common stock (shares issued of 27,811 and 27,381) 62,263 56,551
Retained earnings 118,693 84,629
Cumulative translation adjustment (1,217) 3,974
Other (987) (1,046)
-------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS EQUITY 178,752 144,108
-------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 319,407 $ 232,969
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
- --
0
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Cumulative
Common Retained Translation
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 Stock Earnings Adjustment Other
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
Net earnings - 35,721 - -
Exercise of options, 428 shares, including tax benefit 5,697 - - -
Restricted stock grants, net of forfeitures
and including tax benefit 15 - - -
Repayments of employee loans for option exercises,
net of additional loans - - - 59
Cash dividends declared-$0.06 per share - (1,657) - -
Translation adjustment - - (5,191) -
-----------------------------------------------------------------------------------------------------------
December 31, 1997 BALANCE $ 62,263 $ 118,693 $ (1,217) $ (987)
-----------------------------------------------------------------------------------------------------------
</TABLE>
COMMON STOCK: 99,000 SHARES OF VOTING COMMON STOCK WITHOUT
PAR VALUE AUTHORIZED; 27,811, 27,381, AND 27,066 SHARES
ISSUED AND OUTSTANDING AT DECEMBER 31, 1997, 1996 AND 1995,
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.
3
-
1
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from NET EARNINGS $ 35,721 $ 35,101 $ 24,547
Operating ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
Activities CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 13,349 10,171 8,290
Provisions for product returns, uncollectible
trade receivables and inventory reserves 2,322 4,358 3,854
Deferred income taxes 4,347 (460) 613
Other non-cash income and expense items (864) (1,489) 191
DECREASE (INCREASE) IN ASSETS
Trade accounts receivable (7,308) (3,482) 653
Inventories (23,066) (19,599) (5,209)
Other current assets (5,296) (3,471) (626)
Other noncurrent assets (3,051) (217) (1,013)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable 6,438 (785) 7,858
Income taxes payable (4,248) (1,300) 1,747
Accrued expenses and other current liabilities (2,568) 3,585 (951)
Other noncurrent liabilities (1,109) (1,626) 5,307
------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,667 20,786 45,261
------------------------------------------------------------------------------------
Cash Flows from Additions to property, plant and equipment (75,110) (54,662) (39,196)
Investing Business acquisitions, net of cash acquired (1,817) - (5,167)
Activities Proceeds from sale of property and equipment 60 - 28
------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (76,867) (54,662) (44,335)
------------------------------------------------------------------------------------
Cash Flows from Increase (decrease) in short-term borrowings (130) 1,257 -
Financing Increase (decrease) in long-term debt 58,135 16,950 (19)
Activities Common stock issued, including tax benefit 5,712 3,577 1,818
Cash dividends paid (1,650) (1,361) (1,074)
Employee (loans) for exercise of stock options,
net of repayments 59 173 (218)
------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,126 20,596 507
------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (87) (50) 114
------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (161) (13,330) 1,547
Cash and cash equivalents at beginning of year 2,544 15,874 14,327
------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,383 $ 2,544 $ 15,874
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
- -
2
<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 or majority-owned.
REVENUE RECOGNITION--Revenue related to the majority of the Company's products
is recognized upon shipment of product to the customer.
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 generally 40 years for
buildings, 20 years for building improvements and infrastructure, and 8 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--In 1997, the Financial Accounting Standards Board (FASB)
issued Statement No. 128, EARNINGS PER SHARE (Statement 128). Statement 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 128
requirements.
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).
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.
NEW ACCOUNTING STANDARDS--In June 1997, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME, which
requires disclosure of comprehensive income and its components in the Company's
financial statements. Additionally, the FASB issued SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. Both statements require
additional disclosure only, and as such, are not expected to change net income
or shareholders' equity as previously reported by the Company. The statements
are effective for the Company's fiscal year ended December 31, 1998.
RECLASSIFICATION--Certain items in the 1996 and 1995 Consolidated Financial
Statements have been reclassified to conform to the 1997 presentation. These
reclassifications had no impact on net income or shareholders' equity as
previously reported.
3
-
3
<PAGE>
2. INVENTORIES
The following is a summary of inventories at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 24,542 $ 15,461
Work in process 15,971 9,807
Finished goods 29,598 25,183
- ----------------------------------------------------------------------
Total inventories $ 70,111 $ 50,451
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
3. OTHER CURRENT ASSETS AND OTHER LIABILITIES
The following is a summary of other current assets at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Federal income tax refundable $ 5,628 $ --
Molds used to produce eyewear lenses 4,169 4,795
Other 3,798 3,559
- ----------------------------------------------------------------------
Total other current assets $ 13,595 $ 8,354
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
The following is a summary of other liabilities at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Accrued foreign pension cost $ 8,042 $ 8,469
Employee retirement obligations 4,991 5,099
Other 4,685 5,853
- ----------------------------------------------------------------------
Total other liabilities $ 17,718 $ 19,421
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT, NET
The following is a summary of property, plant and equipment, net at December
31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 3,495 $ 2,508
Buildings and improvements 111,236 49,154
Machinery and equipment 150,834 110,460
Construction in progress 17,505 58,367
- ----------------------------------------------------------------------
Total 283,070 220,489
Less accumulated depreciation
and amortization 100,688 96,644
Total property, plant and equipment, net $ 182,382 $ 123,845
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
5. DEBT
The following is a summary of long-term debt at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
1997 1996
U.S. revolving credit facility $ 64,250 $ 6,800
German credit facility 8,712 11,064
Other 1,603 125
- ----------------------------------------------------------------------
74,565 17,989
Less amounts due within one year 1,139 1,355
- ----------------------------------------------------------------------
Total long-term debt $ 73,426 $ 16,634
- ----------------------------------------------------------------------
</TABLE>
The Company maintains a 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. In December 1997, the Agreement
was amended to allow up to $25,000 of borrowing under the $80,000 acquisition
facility specifically for purposes of repurchasing the Company's common stock.
Additionally, in early 1998, the credit facility was further amended to provide
for up to $20,000 of borrowing under the $80,000 acquisition facility for
general corporate purposes. Any borrowings under the $20,000 for general
corporate purposes must be repaid by June 26, 1998.
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, 1997.
The Company's German subsidiary maintains short-term credit lines of $2,503 and
long-term credit lines of $16,686. The short-term credit lines are unsecured and
bear interest at either 0.75% over the DM LIBOR rate or approximately 3.0% over
the German Bundesbank Discount rate. The short-term credit lines may be
withdrawn by the lender at any time. The weighted average interest rate on
short-term debt outstanding at December 31, 1997 and 1996 was 7.0% and 7.25%,
respectively. A portion of the long-term credit line is secured by land and
buildings with a net book value of $10,519 at December 31, 1997. These long-term
credit lines bear interest at 0.50% to 0.75% over the DM LIBOR rate.
In March 1997, the Company 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 for a period of two years 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 two year 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.
On December 31, 1997 and 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 $1,139 in 1998,
$8,564 in 1999, $64,480 in 2000, $231 in 2001, $112 in 2002 and $39
thereafter.
There were $1,819 of outstanding letters of credit at December 31, 1997.
Interest expense paid, net of amounts capitalized of $2,609, $302 and $0, was
$660, $15 and $55 in 1997, 1996 and 1995, respectively.
3
- -
4
<PAGE>
6. COMMITMENTS
The Company leases four manufacturing facilities, 16 sales, distribution or
administrative facilities and the Company headquarters. In addition, the Company
leases data processing and other equipment.
At December 31, 1997, the approximate future minimum rental commitments required
under non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1998 $1,082
1999 567
2000 444
2001 280
2002 268
Thereafter 65
- ---------------------------------------------
Total minimum lease payments $2,706
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
Rent expense was $1,892, $2,535 and $2,644 in 1997, 1996 and 1995, respectively.
The Company's Vision-Ease subsidiary has entered into a long-term Product
Manufacturing and Sales Agreement (the Supply Agreement) with a plastic lens
manufacturer located in Southeast Asia. The Supply Agreement provides for the
Southeast Asian manufacturer to supply and Vision-Ease to purchase certain
minimum levels of plastic lenses. At December 31, 1997, the approximate future
purchase commitments under this Supply Agreement are as follows:
<TABLE>
<S> <C>
1998 $6,000
1999 7,000
2000 8,500
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
The Company's German subsidiary has a large portion of its sales denominated in
U.S. dollars (approximately 31% and 28% in 1997 and 1996, respectively). 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. 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. At December
31, 1996, there were no outstanding forward contracts or options. 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 recorded as a reduction
of Cost of Products Sold.
At December 31, 1997, the Company had commitments of approximately $3,100
related to capital projects.
7. STOCK OPTION PLAN AND COMMON STOCK REPURCHASES
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, 1997, 3,368 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 1,143 shares
available for awards under the 1994 Plan.
Information relating to stock options during 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
Option Price
-------------------
Number Per Share Total
of Shares Average Price
- ------------------------------------------------------------------------
<S> <C> <C> <C>
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
Granted 611 23.75 14,513
Exercised (428) 3.81 (1,631)
Forfeited (78) 15.15 (1,182)
- ------------------------------------------------------------------------
Shares under option
at December 31, 1997 2,225 $11.36 $25,285
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Shares exercisable
at December 31, 1997 908 $ 4.18 $ 3,797
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Shares exercisable
at December 31, 1996 1,035 $ 3.04 $ 3,149
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Shares exercisable
at December 31, 1995 824 $ 2.47 $ 2,033
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------------------------
Weighted
Range Average Weighted Weighted
of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0 - 5 1,050 5.2 $ 3.30 765 $ 2.96
5 - 10 290 6.2 7.48 99 7.26
10 - 20 354 8.9 15.86 23 14.99
20 - 31 531 8.5 26.44 21 22.06
- ---------------------------------------------------------------------------------------
2,225 6.7 $ 11.36 908 $ 4.18
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
3
-
5
<PAGE>
All outstanding options are nonqualified options. No compensation expense
related to stock option grants was recorded in 1997, 1996 or 1995 as the option
exercise prices were equal to fair market value on the date of grant.
At December 31, 1997, there were 6 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 1997,
1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.71% 6.21% 5.37%
Dividend yield 0.30% 0.19% 0.16%
Volatility factor 0.47 0.39 0.41
Weighted average expected life 5 years 5 years 5 years
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings - as reported $35,721 $35,101 $24,547
Net earnings - pro forma 34,926 34,746 24,475
Basic earnings per share - as reported 1.30 1.29 0.91
Basic earnings per share - pro forma 1.27 1.23 0.91
Diluted earnings per share - as reported 1.25 1.24 0.87
Diluted earnings per share - pro forma 1.22 1.23 0.87
Weighted average fair value of
options granted during the year 10.98 11.61 6.61
- ----------------------------------------------------------------------
</TABLE>
Because Statement 123 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.
COMMON STOCK REPURCHASES--Subsequent to December 31, 1997, the Company
repurchased 1,000 common shares at a total cost of approximately $16,600. This
share repurchase was financed using the Company's amended domestic bank credit
facility and; accordingly, was recorded as a reduction to common stock and an
increase to long-term debt.
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. During 1997, the Company curtailed benefits payable under
the plan, resulting in a curtailment loss of $141. 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.
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.
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.
3
- -
6
<PAGE>
Pension costs for the above three defined benefit plans included the following
components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the year $ 469 $ 475 $ 434
Interest cost on projected
benefit obligation 824 810 775
Actual return on plan assets (766) (578) (710)
Net amortization and deferral 535 405 572
Curtailment loss 141 -- --
Pension costs $ 1,203 $ 1,112 $ 1,071
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ (10,719) $ (10,538)
- ------------------------------------------------------------------
Accumulated benefit obligation $ (11,478) $ (11,279)
- ------------------------------------------------------------------
Projected benefit obligation $ (12,898) $ (12,636)
Plan assets at fair value 4,225 3,650
- ------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (8,673) (8,986)
Unrecognized net loss 150 68
Unrecognized prior service cost -- 123
Unrecognized transition amount 97 160
- ------------------------------------------------------------------
Accrued pension costs $ (8,426) $ (8,635)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
Assumptions used in developing the projected benefit obligation and the net
periodic pension cost as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
Domestic plans (including postretirement plan):
<S> <C> <C> <C>
Discount rate 6.75% 7.50% 7.00%
Rate of return on plan assets 7.00% 7.00% 7.00%
Foreign plan:
Discount rate 6.30% 7.00% 7.50%
Rate of increase in compensation 3.00% 3.00% 3.00%
- ------------------------------------------------------------------------------
</TABLE>
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 $145, $150 and $145 in 1997, 1996 and 1995, respectively). At
December 31, 1997, the market value of this fund's assets of $17,776 exceeded
benefit obligations of $14,755 by $3,021. Pursuant to the plan, excess funded
amounts are not available to the Company.
The total cost of all profit sharing, savings and pension plans, domestic and
foreign, was $3,118, $4,523 and $4,301 in 1997, 1996 and 1995, 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:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation $(1,543) $(1,243)
Unrecognized net gain (146) (371)
- ------------------------------------------------------------------
Accrued postretirement benefit obligation $(1,689) $(1,614)
- ------------------------------------------------------------------
</TABLE>
9. INCOME TAXES
The provision for income taxes was based on earnings before income taxes, as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 42,605 $ 47,397 $28,362
Foreign 8,597 5,006 10,582
- -----------------------------------------------------------------------
Earnings before income taxes $ 51,202 $ 52,403 $38,944
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 7,957 $13,227 $ 7,162
State 722 1,931 1,661
Foreign 2,455 2,604 4,961
Deferred
Federal and state 2,736 (386) 72
Foreign 1,611 (74) 541
- ----------------------------------------------------------------------
Income tax expense $15,481 $17,302 $14,397
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
Significant components of deferred income tax assets and liabilities were as
follows at December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------
FEDERAL AND STATE NET DEFERRED INCOME TAXES
<S> <C> <C>
Deferred tax asset
Compensation and benefit-related
accruals $ 4,574 $ 5,555
Reserves and accruals 3,583 4,043
Depreciation -- 3,412
Other temporary differences 2,180 2,341
- ------------------------------------------------------------------
Total 10,337 15,351
- ------------------------------------------------------------------
Deferred tax liability
Depreciation (2,031) --
Capitalized molds (996) (1,659)
- ------------------------------------------------------------------
Total (3,027) (1,659)
- ------------------------------------------------------------------
Net deferred tax asset
before valuation allowance 7,310 13,692
- ------------------------------------------------------------------
Valuation allowance -- (3,670)
Net deferred tax asset $ 7,310 $10,022
- ------------------------------------------------------------------
- ------------------------------------------------------------------
FOREIGN NET DEFERRED INCOME TAXES
Deferred tax liability
Depreciation $(3,264) $(3,020)
Other temporary differences (203) (3)
- ------------------------------------------------------------------
Total (3,467) (3,023)
- ------------------------------------------------------------------
Deferred tax asset
Reserves and accruals -- 936
Retirement benefits 586 560
Other temporary differences 161 214
- ------------------------------------------------------------------
Total 747 1,710
- ------------------------------------------------------------------
Net deferred tax liability $(2,720) $(1,313)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
3
-
7
<PAGE>
The federal and state net deferred tax asset included a current portion of
$5,881 and $4,225 at December 31, 1997 and 1996, respectively, and a long-term
portion of $1,429 and $5,797 at December 31, 1997 and 1996, respectively. The
foreign net deferred tax liability included a current liability of $89 at
December 31, 1997, a current asset of $1,147 at December 31, 1996 and a
long-term liability of $2,631 and $2,460 at December 31, 1997 and 1996,
respectively.
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
deferred tax asset to a net amount which the Company believed more likely than
not that it would realize, based on the Company's estimates of its future
earnings and the expected timing of temporary difference reversals. During 1997,
the Company concluded a valuation reserve was no longer necessary given its
estimates of future earnings and the expected timing of temporary difference
reversals. Accordingly, the allowance of $3,670 was reversed during 1997,
eliminating the balance.
The differences between income taxes at the U.S. federal statutory tax rate and
the effective tax rate were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
- -----------------------------------------------------------------------
Differences in taxation
of foreign earnings 2.0 1.5 4.6
State income taxes,
net of federal benefit 1.3 2.6 2.5
- -----------------------------------------------------------------------
Change in deferred
tax valuation allowance (7.2) (5.4) (4.8)
- -----------------------------------------------------------------------
Other items (0.9) (0.7) (0.3)
- -----------------------------------------------------------------------
Effective tax rate 30.2% 33.0% 37.0%
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
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, 1997 were approximately
$18,125. 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 $17,447, $17,039 and $10,333 in 1997, 1996 and 1995,
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
61%, 60% and 57% of the Company's consolidated total revenues in 1997, 1996 and
1995, respectively. Optical Products manufactures ophthalmic lenses.
The following is a summary of certain financial information relating to the two
industry segments served:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES BY SEGMENT
Precision Imaged Products $219,007 $192,552 $179,199
Optical Products 93,531 87,935 76,156
- ---------------------------------------------------------------------------------
TOTAL REVENUES $312,538 $280,487 $255,355
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
OPERATING PROFIT BY SEGMENT
Precision Imaged Products
Before corporate allocation $ 41,489 $ 43,087 $ 34,475
Less corporate allocation(1) (2,314) (2,416) (2,131)
- ---------------------------------------------------------------------------------
TOTAL 39,175 40,671 32,344
Optical Products
Before corporate allocation 14,885 14,365 9,693
Less corporate allocation(1) (988) (1,104) (905)
- ---------------------------------------------------------------------------------
TOTAL 13,897 13,261 8,788
- ---------------------------------------------------------------------------------
TOTAL OPERATING PROFIT 53,072 53,932 41,132
Corporate expense (1,014) (1,485) (2,509)
Interest income (expense), net (1,065) (280) 467
Other income (expense) 209 236 (146)
- ---------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES $ 51,202 $ 52,403 $ 38,944
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
IDENTIFIABLE ASSETS BY SEGMENT
Precision Imaged Products $218,988 $158,276 $106,685
Optical Products 81,834 58,617 46,094
- ---------------------------------------------------------------------------------
TOTAL IDENTIFIABLE ASSETS 300,822 216,893 152,779
Corporate and other assets 18,585 16,076 29,553
- ---------------------------------------------------------------------------------
TOTAL ASSETS $319,407 $232,969 $182,332
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION BY SEGMENT
Precision Imaged Products $ 10,457 $ 7,391 $ 5,689
Optical Products 2,670 2,536 2,436
Corporate and other 222 244 165
- ---------------------------------------------------------------------------------
TOTAL DEPRECIATION
AND AMORTIZATION $ 13,349 $ 10,171 $ 8,290
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
CAPITAL EXPENDITURES BY SEGMENT
Precision Imaged Products $ 60,605 $ 49,672 $ 35,316
Optical Products 14,397 4,750 3,637
Corporate and other 108 240 243
- ---------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $ 75,110 $ 54,662 $ 39,196
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) CORPORATE ALLOCATIONS INCLUDE ADMINISTRATIVE EXPENSES INCURRED AT THE
CORPORATE HEADQUARTERS WHICH PROVIDE BENEFIT TO THE OPERATING DIVISIONS.
3
- -
8
<PAGE>
The following is a summary of the Company's operations in different geographic
areas:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES FROM UNAFFILIATED
CUSTOMERS
United States $199,825 $187,430 $176,173
Germany 104,384 85,667 76,220
Other 8,329 7,390 2,962
- --------------------------------------------------------------------------------
TOTAL $312,538 $280,487 $255,355
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANSFERS BETWEEN GEOGRAPHIC AREAS
United States $ 7,546 $ 5,810 $ 3,143
Germany 7,720 2,893 16,228
Other 4,285 -- --
Eliminations (19,551) (8,703) (19,371)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET EARNINGS
United States $ 31,191 $ 32,625 $ 19,467
Germany 4,776 2,084 5,016
Other (246) 392 64
- --------------------------------------------------------------------------------
TOTAL $ 35,721 $ 35,101 $ 24,547
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States $263,637 $175,636 $136,692
Germany 52,535 62,016 50,677
Other 11,804 2,642 1,093
Eliminations (8,569) (7,325) (6,130)
- --------------------------------------------------------------------------------
TOTAL $319,407 $232,969 $182,332
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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 1997, 1996 and 1995 were $47,913, $43,492 and
$40,566, or 15%, 16% and 16%, respectively, of total revenues. Precision Imaged
Products had sales to one customer of $62,062, $52,899 and $60,738; to another
customer of $48,963, $33,435 and $22,202; to a third customer of $34,101,
$28,600 and $16,857; and to a fourth customer of $33,336, $32,417 and $31,975 in
1997, 1996 and 1995, respectively.
11. CONCENTRATIONS OF CREDIT RISK
Approximately 65% of the trade accounts receivable before allowances
(receivables) of Precision Imaged Products at December 31, 1997 were represented
by four customers. Approximately 42% of the receivables of Optical Products at
December 31, 1997 were represented by 20 customers. These 24 customers
represented approximately 55% of the Company's consolidated receivables at
December 31, 1997, with one customer of Precision Imaged Products representing
approximately 19% 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. 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 Ft. 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.
3
-
9
<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, 1997 and 1996, and the related consolidated statements
of earnings, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 26, 1998
4
-
0
<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 1997, 1996 and 1995. At March 2,
1998 there were approximately 1,001 stockholders of record.
<TABLE>
<CAPTION>
Price
Dividends ----------------------------
Per Share High Low
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
-------------------------------------------------------------------
1997 FIRST QUARTER $ .0150 $ 34 1/4 $ 27 5/8
SECOND QUARTER .0150 35 3/8 24
THIRD QUARTER .0150 35 3/16 29 3/4
FOURTH QUARTER .0150 32 15/16 15 15/16
-------------------------------------------------------------------
</TABLE>
4
-
1
<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> <C>
1996 Revenues $ 68,301 $ 68,174 $ 68,158 $ 75,854 $ 280,487
Gross margin 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(1)
Basic 0.23 0.36 0.26 0.44 1.29
Diluted 0.22 0.35 0.25 0.42 1.24
Number of Shares Included
in Computation
Basic 27,167 27,264 27,309 27,331 27,268
Diluted 28,278 28,369 28,390 28,416 28,363
--------------------------------------------------------------------------------------------------------------
1997 Revenues $ 77,127 $ 80,257 $ 79,086 $ 76,068 $ 312,538
Gross profit 15,982 21,859 17,273 12,956 68,070
Net earnings 7,883 11,989 8,875 6,974 35,721
Earnings per share(1)
Basic 0.29 0.44 0.32 0.25 1.30
Diluted 0.28 0.42 0.31 0.24 1.25
Number of Shares Included
in Computation
Basic 27,410 27,463 27,681 27,776 27,583
Diluted 28,458 28,496 28,619 28,545 28,530
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) EARNINGS PER SHARE FOR ALL PERIODS HAVE BEEN RESTATED TO REFLECT
ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS BOARD NO.
128, EARNINGS PER SHARE.
4
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2
<PAGE>
Exhibit 21.1
SUBSIDIARIES
OF
BMC INDUSTRIES, INC.
1. Buckbee-Mears Europe GmbH
2. BMC Industries Foreign Sales Corporation
3. Buckbee-Mears Hungary Kft.
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>
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 26, 1998, included in the
1997 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 26,
1998, 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.
/s/ Ernst & Young LLP
Ernst & Young, LLP
Minneapolis, Minnesota
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,364
<SECURITIES> 19
<RECEIVABLES> 31,942
<ALLOWANCES> 2,118
<INVENTORY> 70,111
<CURRENT-ASSETS> 121,794
<PP&E> 283,070
<DEPRECIATION> 100,688
<TOTAL-ASSETS> 319,407
<CURRENT-LIABILITIES> 46,880
<BONDS> 0
0
0
<COMMON> 62,263
<OTHER-SE> 116,489
<TOTAL-LIABILITY-AND-EQUITY> 319,407
<SALES> 310,733
<TOTAL-REVENUES> 312,538
<CGS> 244,468
<TOTAL-COSTS> 16,012
<OTHER-EXPENSES> (209)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,298
<INCOME-PRETAX> 51,202
<INCOME-TAX> 15,481
<INCOME-CONTINUING> 35,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,721
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.25
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996
SEP-30-1996
<CASH> 3,721 2,468 3,966 3,814
4,820
<SECURITIES> 12,153 76 3,022 1,726
450
<RECEIVABLES> 25,639 27,309 26,054 28,578
25,942
<ALLOWANCES> 2,636 2,330 2,759 3,302
3,105
<INVENTORY> 34,772 50,451 39,938 47,098
48,643
<CURRENT-ASSETS> 83,366 91,700 81,042 90,404
90,137
<PP&E> 171,711 220,489 181,192 188,920
200,313
<DEPRECIATION> 90,302 96,644 91,613 92,551
95,316
<TOTAL-ASSETS> 182,332 232,969 187,729 204,279
212,502
<CURRENT-LIABILITIES> 50,636 50,346 49,515 59,091
55,275
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 52,974 56,551 54,710 55,302
55,613
<OTHER-SE> 55,492 87,557 60,462 69,093
76,598
<TOTAL-LIABILITY-AND-EQUITY> 182,332 232,969 187,729 204,279
212,502
<SALES> 253,900 279,827 68,301 135,815
203,973
<TOTAL-REVENUES> 255,355 280,487 68,301 136,475
204,633
<CGS> 202,595 213,007 55,261 104,952
158,792
<TOTAL-COSTS> 14,137 15,033 3,785 7,632
11,176
<OTHER-EXPENSES> 146 (236) 50 (31)
(120)
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 562 540 130 190
436
<INCOME-PRETAX> 38,944 52,403 9,194 23,882
34,559
<INCOME-TAX> 14,397 17,302 3,011 7,857
11,377
<INCOME-CONTINUING> 24,547 35,101 6,183 16,025
23,182
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 24,547 35,101 6,183 16,025
23,182
<EPS-PRIMARY> .91 1.29 .23 .59
.85
<EPS-DILUTED> .87 1.24 .22 .57
.82
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 4,092 2,014 2,119
<SECURITIES> 77 78 19
<RECEIVABLES> 31,684 34,396 37,509
<ALLOWANCES> 3,194 3,086 3,059
<INVENTORY> 52,034 59,177 62,080
<CURRENT-ASSETS> 99,759 109,640 112,806
<PP&E> 241,981 268,246 277,788
<DEPRECIATION> 96,564 99,347 99,171
<TOTAL-ASSETS> 262,182 295,816 309,842
<CURRENT-LIABILITIES> 59,092 58,663 41,409
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 57,282 57,776 61,452
<OTHER-SE> 92,046 103,088 110,375
<TOTAL-LIABILITY-AND-EQUITY> 262,182 295,816 309,842
<SALES> 77,026 156,233 234,666
<TOTAL-REVENUES> 77,127 157,384 236,470
<CGS> 61,145 119,543 181,356
<TOTAL-COSTS> 4,376 8,202 12,250
<OTHER-EXPENSES> (262) (229) (300)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 144 304 707
<INCOME-PRETAX> 11,766 29,662 42,600
<INCOME-TAX> 3,883 9,790 13,853
<INCOME-CONTINUING> 7,883 19,872 28,747
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 7,883 19,872 28,747
<EPS-PRIMARY> .29 .72 1.04
<EPS-DILUTED> .28 .70 1.01
</TABLE>
<PAGE>
CONTACT: Raymond B. Rogers (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES QUARTERLY DIVIDEND
December 12, 1997 -- Minneapolis, Minnesota -- BMC Industries, Inc. today
announced that its Board of Directors has approved a continuation of its
quarterly cash dividend of $.015 per share.
Shareholders of record as of December 23, 1997 will receive a dividend of $.015
for each share owned on that date, to be paid on January 5, 1998.
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>
CONTACT: Ray Rogers (NYSE - BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES FOURTH QUARTER EARNINGS WILL BE
SHORT OF ANALYSTS' EXPECTATIONS
November 19, 1997 - Minneapolis, MN -- BMC announced today that the Company
expects its earnings to fall short of analysts' expectations for the fourth
quarter. After reassessing sales prospects and investments required for key
strategic initiatives during the quarter, the Company expects earnings per share
for the fourth quarter in the range of 22 to 26 cents as opposed to the 54 to 55
cents currently estimated by securities analysts.
In summarizing the changes to the Company's anticipated fourth quarter financial
performance, Paul Burke, Chief Executive Officer, stated: "While the fourth
quarter performance has been impacted by market factors, a significant portion
of the change from prior estimates is attributable to a conscious decision on
our part to invest for BMC's future. We continue to believe BMC has excellent
businesses with very attractive long-term growth opportunities. We have always
characterized 1997 as a transitional year and expect significant improvement in
our earnings performance in 1998."
The Company noted that expected sales shortfalls were principally in the area of
television masks where, despite the addition of a new TV mask production line in
its Cortland, New York facility, the Company expects sales to be lower for the
quarter. Moreover, Invar TV mask sales, where the Company enjoys higher
margins, are expected to fall significantly short of the prior year. The
Company indicated, however, that it believes the TV sales slowdown to be a
temporary situation produced by a number of independent factors. The Company
reiterated its strong belief in the growth prospects for the TV mask business.
Adding to the Company's shortfall was the decision to make significant
incremental investments in new high resolution part qualifications, startup of
the Hungarian high resolution inspection facility, new lens product development
and new polycarbonate product promotions. Quarterly results will also be
affected by price pressures on monitor masks and the weakening yen versus the
dollar, which may be partially offset by an accelerated mix migration to higher
margin and larger Invar monitor masks.
-more-
<PAGE>
Statements made in this press release which are not historical, including
statements regarding fourth quarter 1997 performance, are forward looking
statements and as such are subject to a number of risks. These and other risks
and uncertainties are detailed in the Company's Form 10-K for the year ended
December 31, 1996.
BMC Industries, Inc is one of the world's largest manufacturers of aperture
masks for color picture tubes used in television 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: Ray B. Rogers (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC REPORTS RECORD 1997 EARNINGS;
BOARD AUTHORIZES ADDITIONAL REPURCHASE OF
1,000,000 SHARES BEYOND 1,000,000 ALREADY REPURCHASED
January 26, 1998 -- Minneapolis, MN -- BMC Industries, Inc. today reported
record total year 1997 net earnings of $35,721,000 or $1.25 diluted earnings per
share, an increase from $35,101,000 or $1.24 diluted earnings per share in 1996.
Total year revenues increased 11% from $280,487,000 in 1996 to $312,538,000 in
1997.
BMC reported fourth quarter 1997 net earnings of $6,974,000 or $0.24 diluted
earnings per share, compared to earnings of $11,919,000 or $0.42 diluted
earnings per share in the year-earlier period. Fourth quarter revenues
increased slightly from $75,854,000 in the fourth quarter of 1996 to $76,068,000
in the fourth quarter of 1997.
Paul B. Burke, BMC's chairman and chief executive officer, stated "I am very
pleased to report BMC's fifth straight year of record total year results. BMC
achieved these results while undertaking its most aggressive expansion in the
history of the Company, with each of the Company's operations making significant
investments for long-term growth. We made significant progress on all three new
mask production lines during 1997. As we have consistently stated, 1997 was a
transitional year and we expect our investments to result in significant
improvement in our earnings performance in 1998 and beyond."
Mr. Burke also stated, "We expect to feel the continued effect of start-up and
expansion-related issues and expenses into the second quarter of 1998. First
quarter earnings are expected to be below the prior-year period and second
quarter earnings are anticipated to be flat as compared to the prior-year
quarter. However, we expect third and fourth quarter earnings to be
significantly higher, with total-year earnings at least 15% higher than total-
year 1997."
Fourth quarter sales for the Company's Precision Imaged Products operation
(including both the Mask Operations and Buckbee-Mears St. Paul) were flat
compared to the fourth quarter of 1996. As previously announced, the
profitability of the Mask Operations
<PAGE>
decreased from the year earlier quarter due to a number of independent factors,
including lower jumbo (30" and larger), large (25" to 29") and Invar TV mask
sales and expansion related expenses. For the total year, sales of Invar TV
masks were flat compared to total year 1996 sales, while large mask sales
increased 16% over total year 1996 sales. Jumbo mask sales were lower than
total year 1996 sales, which is a difficult comparison following a 49% increase
over 1995. The strength of the U.S. dollar versus the German mark had less
than a $400,000 impact on earnings but reduced sales, as compared with the
prior year quarter, by approximately $2.7 million. For the total year, sales
were reduced almost $11 million due to the strengthening of the U.S. dollar
versus the German mark. Buckbee-Mears St. Paul posted record fourth quarter
and total year 1997 earnings as a result of product mix and manufacturing
improvements. BMSP also generated its first sales of lead frames for
semiconductor packages in the fourth quarter.
Fourth quarter Precision Imaged Products sales included approximately $9 million
of high resolution computer monitor mask sales compared to approximately $4
million in the year-earlier period. Total year 1997 high resolution computer
monitor mask sales exceeded $20 million. The computer monitor mask line in
Germany produced almost all of the monitor mask sales in the fourth quarter and
for the total year. Part qualification on the new monitor mask line at the
Cortland, New York facility is continuing in the first quarter. The Company
expects the Cortland line to add a small amount of sales in the first quarter
with sales approaching normal production levels beginning in the second quarter
of 1998.
BMC's Optical Products operation also produced record fourth quarter sales.
Fourth quarter sales increased approximately 7% over the prior year quarter,
while profits lagged fourth quarter 1996 earnings due to a number of factors,
including new lens product development, new polycarbonate product promotions and
duplicate facility costs associated with polycarbonate manufacturing. The new
polycarbonate manufacturing, centralized distribution and research and
development facility was completed in the third quarter of 1997, but a full
transfer of operations will not be completed until the second quarter of 1998 to
ensure minimal disruption of polycarbonate manufacturing. Sales growth was
driven by a 34% increase in high-end products (polycarbonate, progressive, high
index and polarizing sun lenses) over the prior year quarter. Revenues from
high-end products increased 26% for total year 1997 over the prior year.
BMC also announced the repurchase of 1,000,000 shares of its common stock as
authorized by the Board of Directors on April 7, 1997. The Company purchased
the shares in the open market between January 6, 1998 and January 13, 1998 at an
average price of approximately $16.59 per share. On January 23, 1998, the Board
of Directors authorized the Company to repurchase up to an additional 1,000,000
shares of the Company's outstanding common stock. These shares will be
purchased in open market or negotiated transactions, with the timing and terms
of the purchases to be determined by BMC management based on market conditions.
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 a reduction in demand for
televisions and computer monitors, inability to penetrate the lead frame
market, problems associated with shut-down of the old
-more-
<PAGE>
polycarbonate facility and the transfer of operations to the new facility,
higher levels of operating expenses and lower production yields associated with
production start-up, foreign currency fluctuations, the effect of economic
instability in Asia and changes in the prices of raw materials. These and other
risks and uncertainties are detailed in the Company's Form 10-K for the year
ended December 31, 1996.
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)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31 December 31
------------------ ----------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $76,068 $75,854 $312,538 $280,487
Cost of products sold 63,112 54,215 244,468 213,007
- ------------------------------------------------------------------------------------------------------------------------
Gross margin 12,956 21,639 68,070 67,480
Selling 3,080 2,577 11,696 10,028
Administrative 682 1,280 4,316 5,005
- ------------------------------------------------------------------------------------------------------------------------
Income from Operations 9,194 17,782 52,058 52,447
- ------------------------------------------------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (591) (104) (1,298) (540)
Interest income 90 50 233 260
Other income (expense) (91) 116 209 236
- ------------------------------------------------------------------------------------------------------------------------
Earnings before Income Taxes 8,602 17,844 51,202 52,403
Income Taxes 1,628 5,925 15,481 17,302
- ------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 6,974 $11,919 $ 35,721 $ 35,101
- ------------------------------------------------------------------------------------------------------------------------
Net Earnings Per Share:
Basic $ 0.25 $ 0.44 $ 1.30 $ 1.29
Diluted 0.24 0.42 1.25 1.24
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Number of Shares Included in Per Share Computations:
Basic 27,776 27,331 27,583 27,268
Diluted 28,545 28,416 28,530 28,363
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
-more-
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31 December 31
ASSETS 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,383 $ 2,544
Trade accounts receivable, net of allowances 29,824 24,979
Inventories 70,111 50,451
Deferred income taxes 5,881 5,372
Other current assets 13,595 8,354
- ---------------------------------------------------------------------------------------------------------
Total Current Assets 121,794 91,700
- ---------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 283,070 220,489
Less Accumulated Depreciation 100,688 96,644
-------- --------
Property, Plant and Equipment, Net 182,382 123,845
-------- --------
Deferred Income Taxes 1,429 5,797
Other Assets, Net 13,802 11,627
- ---------------------------------------------------------------------------------------------------------
Total Assets $319,407 $232,969
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings $ 1,139 $ 1,355
Accounts payable 25,623 19,434
Income taxes payable 2,830 7,657
Accrued expenses and other current liabilities 17,288 21,900
Total Current Liabilities 46,880 50,346
- ---------------------------------------------------------------------------------------------------------
Long-Term Debt 73,426 16,634
Other Liabilities 17,718 19,421
Deferred Income Taxes 2,631 2,460
Stockholders' Equity
Common stock 62,263 56,551
Retained earnings 118,693 84,629
Cumulative translation adjustment (1,217) 3,974
Other (987) (1,046)
- ---------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 178,752 144,108
- ---------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $319,407 $232,969
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE>
CONTACT: Ray B. Rogers (NYSE -- BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES NEW CFO
January 26, 1998 -- Minneapolis, MN -- BMC Industries, Inc. today announced that
Jeffrey J. Hattara has joined the Company as Vice President of Finance and
Administration and Chief Financial Officer. Mr. Hattara will be responsible for
the Company's worldwide financial and accounting operations. He has over 19
years of experience in similar positions with USG Corporation.
Paul B. Burke, BMC's chairman and chief executive officer, stated "I am
delighted that Jeff Hattara has joined the BMC team. His wealth of financial
management experience will be a real asset in leading BMC into the 21st
century."
Prior to joining BMC Industries, Inc., Mr. Hattara served in a variety of
financial, treasury and controllership positions at USG, and played an integral
role in acquisitions, divestitures, capital restructuring and syndicated bank
loans. Most recently, he served as Director of Finance of USG Interiors, Inc.,
a $600 million international subsidiary of USG Corporation. Mr. Hattara has an
undergraduate degree from the University of Illinois in finance and accounting
and a Master of Management degree from Northwestern University.
BMC Industries 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. BMC's
common stock is traded on the New York Stock Exchange under the symbol "BMC."
-30-
<PAGE>
Contact: Jeffrey J. Hattara (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES QUARTERLY DIVIDEND
March 18, 1998 --Minneapolis, Minnesota - BMC Industries, Inc. today announced
that its Board of Directors has approved a continuation of its quarterly cash
dividend of $.015 per share.
Shareholders of record as of March 30, 1998 will receive a dividend of $.015 for
each share owned on that date, to be paid on April 13, 1998.
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: Jeffrey J. Hattara (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC INDUSTRIES TO ACQUIRE MONSANTO'S ORCOLITE UNIT
FOR $100 MILLION
March 25, 1998 --Minneapolis, Minnesota - BMC Industries, Inc. ("BMC") and
Monsanto Company ("Monsanto") announced today that they have entered into a
definitive agreement under which BMC will acquire Monsanto's Orcolite 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.
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 capabilities, product innovation and customer
service. Orcolite employs approximately 285 people at the California facility.
When the transaction closes, Orcolite will be operated with BMC's existing
ophthalmic lens subsidiary, Vision-Ease Lens, Inc. ("Vision-Ease"), to form a
single ophthalmic lens business. Vision-Ease plans to operate Orcolite's
manufacturing facility to accommodate increasing product demand and facilitate
the launch of a continued stream of new, innovative products.
"This is an outstanding opportunity for Vision-Ease and the customers we serve,"
stated Paul B. Burke, Chairman and CEO of BMC. "The relative strengths of
Vision-Ease and Orcolite complement each other well. With this combination,
Vision-Ease and Orcolite customers will enjoy the benefits of broader product
lines, significantly increased sales and marketing efforts, more resources
devoted to research and development and better service levels."
-more-
<PAGE>
The acquisition will be funded through borrowings under a $275 million
syndicated bank credit facility provided for BMC by BT Alex. Brown and NBD
Bank. This facility is committed, subject to customary terms and conditions,
and will provide sufficient funds to satisfy working capital requirements and
general corporate purposes.
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.
-30-
