<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934. For the Quarterly Period ended June 30, 1999.
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 of Incorporation) (IRS Employer Identification No.)
One Meridian Crossings, Suite 850, Minneapolis, Minnesota 55423
---------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(612) 851-6000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
X Yes No
------- -------
BMC Industries, Inc. has outstanding 27,350,632 shares of common stock as of
August 11, 1999. There is no other class of stock outstanding.
Exhibit Index Begins at Page 15
<PAGE>
PART I: FINANCIAL INFORMATION
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
Item 1: Financial Statements
<TABLE>
<CAPTION>
JUNE 30 December 31
ASSETS 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 947 $ 1,028
Trade accounts receivable, net of allowances 52,871 39,163
Inventories 86,137 82,853
Deferred income taxes 14,644 14,603
Other current assets 12,214 14,347
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 166,813 151,994
- --------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 273,173 276,630
Less Accumulated Depreciation 118,830 114,036
------------- ------------
Property, Plant and Equipment, Net 154,343 162,594
------------- ------------
Deferred Income Taxes 3,775 5,431
Intangible Assets, Net 72,001 73,178
Other Assets 7,793 6,268
- --------------------------------------------------------------------------------------------------------------------
Total Assets $ 404,725 $ 399,465
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings $ 1,362 $ 1,929
Accounts payable 37,002 28,315
Income taxes payable 2,078 3,375
Accrued expenses and other liabilities 27,050 23,404
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 67,492 57,023
- --------------------------------------------------------------------------------------------------------------------
Long-term Debt 173,603 187,266
Other Liabilities 17,965 18,372
Deferred Income Taxes 7,873 3,547
Stockholders' Equity
Common stock 48,667 47,714
Retained earnings 93,816 86,436
Accumulated other comprehensive income (loss) (2,886) 1,113
Other (1,805) (2,006)
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 137,792 133,257
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 404,725 $ 399,465
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 2
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 93,339 $ 84,941 $ 177,984 $ 165,025
Cost of products sold 75,866 82,080 146,944 150,535
- ----------------------------------------------------------------------------------------------------------------------
Gross margin 17,473 2,861 31,040 14,490
Selling 4,999 3,914 9,364 7,203
Administration 1,486 1,529 2,719 2,859
Impairment of long-lived assets - 42,800 - 42,800
Acquired research and development - 9,500 - 9,500
- ----------------------------------------------------------------------------------------------------------------------
Income (Loss) from Operations 10,988 (54,882) 18,957 (47,872)
- ----------------------------------------------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (3,410) (4,318) (6,873) (5,701)
Interest income 81 45 86 77
Other income (expense) 69 (389) 459 (533)
- ----------------------------------------------------------------------------------------------------------------------
Earnings (Loss) before Income Taxes 7,728 (59,544) 12,629 (54,029)
Income Tax Expense (Benefit) 2,721 (22,392) 4,431 (20,686)
- ----------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 5,007 $ (37,152) $ 8,198 $ (33,343)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Share:
Basic $ 0.18 $ (1.38) $ 0.30 $ (1.24)
Diluted 0.18 (1.38) 0.30 (1.24)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Number of Shares Included in Per Share Computation:
Basic 27,275 26,905 27,238 26,949
Diluted 27,769 26,905 27,587 26,949
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Dividends Declared Per Share $ 0.015 $ 0.015 $ 0.03 $ 0.03
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 3
<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Cash Provided by (Used in) Operating Activities
Net earnings (loss) $ 8,198 $ (33,343)
Depreciation and amortization 11,377 10,369
Write-down of impaired long-lived assets - 42,800
Acquired in-process research and development - 9,500
Deferred income taxes 6,459 (18,798)
Changes in operating assets and liabilities (7,679) (23,862)
- -------------------------------------------------------------------------------------------------------------------------------
Total 18,355 (13,334)
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities
Additions to property, plant and equipment (5,251) (11,532)
Business acquisitions, net of cash acquired - (101,000)
- -------------------------------------------------------------------------------------------------------------------------------
Total (5,251) (112,532)
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities
Decrease in short-term borrowings (186) (158)
Increase (decrease) in long-term debt (13,195) 143,251
Common stock issued (repurchased), net 953 (15,720)
Cash dividends paid (818) (820)
Other 201 (84)
- -------------------------------------------------------------------------------------------------------------------------------
Total (13,045) 126,469
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (140) (17)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (81) 586
Cash and Cash Equivalents at Beginning of Period 1,028 2,383
- -------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 947 $ 2,969
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
Page 4
<PAGE>
BMC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
1. Financial Statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of June 30,
1999, and the results of operations and the cash flows for the periods
ended June 30, 1999 and 1998. Except for the special charges recorded
in the three and six-month periods ended June 30, 1998, such
adjustments are of a normal recurring nature. Certain items in the
financial statements for the periods ended June 30, 1998 have been
reclassified to conform to the presentation for the periods ended June
30, 1999. The results of operations for the six-month period ended June
30, 1999 are not necessarily indicative of the results to be expected
for the full year. The balance sheet as of December 31, 1998 is derived
from the audited balance sheet as of that date. For further
information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. Inventories
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials $ 19,506 $ 24,845
Work in process 14,149 9,047
Finished goods 52,482 48,961
------------- -----------------
$ 86,137 $ 82,853
------------- -----------------
------------- -----------------
</TABLE>
3. Derivative Financial Instruments
Derivative financial instruments are used by the Company to reduce
foreign exchange and interest rate risks.
Effective in the quarter ended June 30, 1999, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivatives and Similar Financial Instruments and for Hedging
Activities." This Statement changed how the Company accounts for
certain derivatives and hedging activities, including the following two
key elements: (1) all derivatives are now measured at fair value and
recognized as assets or liabilities and (2) derivatives meeting certain
criteria required by SFAS No. 133 are now specifically designated as
hedges and allowed hedge-accounting treatment. Changes in the fair
value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, depending on
the type of hedge transaction. For cash-flow hedge transactions in
which the Company is hedging the variability of cash flows related
to a variable-rate asset, liability, or a forecasted transaction,
changes in the fair value of the derivative instrument will be
recorded in other comprehensive income. The gains and losses on the
derivative instrument that are reported in other comprehensive
income will be reclassified as earnings in the periods in which
earnings are impacted by the variability of the cash flows of the
hedged item. The ineffective portion of all hedges will be
recognized in current period earnings. Accounting for the Company's
cross-currency swap agreements remains unchanged under SFAS No. 133
as these swaps continue to be accounted for under mark-to-market
accounting.
Interest Swap Agreements - In August 1998, the Company entered into
multiple interest rate swap agreements for a total of $100,000 of
notional debt which provide for the Company to swap a variable interest
rate for fixed interest rates ranging from 7.12% to 7.14%. These swaps
expire at various dates ranging from July 1999 to August 2000. Fixing
the interest rate minimizes the Company's exposure to the uncertainty
of floating
Page 5
<PAGE>
interest rates during the periods the swaps are outstanding. Amounts
paid or received under the interest rate swap agreements are recorded
as an adjustment to Interest Expense. At June 30, 1999, in accordance
with SFAS No. 133, the fair market value of these swaps, which are
classified as cash flow hedges, was recorded as a liability and as
part of accumulated other comprehensive income (loss) - see footnote 4.
Assuming no changes in underlying interest rates, approximately 85% of
these losses are expected to be recorded into earnings within the next
twelve months.
Cross-Currency Swap Agreements - In January 1999, the Company entered
into a cross-currency swap which provided for the Company to swap
$10,000 of notional debt for the equivalent amount of Japanese
yen-denominated debt. This swap was subsequently closed out in May
1999. Under this swap, the Company also effectively swapped a fixed
U.S. dollar-based interest rate of 5.1% for a fixed Japanese yen-based
interest rate of 1.05%. This Japanese yen-based debt derivative was
accounted for under mark-to-market accounting. The Company recorded as
other income a foreign exchange gain of $112 in the quarter ended June
30, 1999 related to this swap, realizing a total year-to-date foreign
exchange gain of $453.
In August 1999, the Company entered into an agreement to swap $10,000
of notional debt for the equivalent amount of Japanese yen-denominated
debt. Under this swap, the Company also effectively swapped a floating
U.S. dollar-based interest rate for a floating Japanese yen-based
interest rate. This Japanese yen-based derivative is accounted for
under mark-to-market accounting.
Forward Foreign Exchange Contracts - In April 1999, to hedge certain
German mark (DM) denominated raw material purchases, the Company
entered into forward foreign exchange contracts to purchase a total of
15 million DM in monthly increments during the period ending December
31, 1999. As of June 30, 1999, contracts to purchase 12 million DM
remained outstanding. At June 30, 1999, in accordance with SFAS No.
133, the fair market value of these contracts was recorded as a
liability and as part of accumulated other comprehensive income (loss)
- see footnote 4. Assuming no change in underlying foreign exchange
rates, these losses are all expected to be recorded into earnings
within the next twelve months. These contracts are classified as cash
flow hedges under SFAS No. 133.
4. Comprehensive Income
The components of comprehensive income, net of related tax, for the
three and six-month periods ended June 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 5,007 $ (37,152) $ 8,198 $ (33,343)
Foreign currency translation adjustments (1,095) 344 (3,525) (133)
Loss on derivative instruments (474) - (474) -
-------------- ------------- --------------- --------------
Comprehensive income (loss) $ 3,438 $ (36,808) $ 4,199 $ (33,476)
-------------- ------------- --------------- --------------
-------------- ------------- --------------- --------------
</TABLE>
Foreign currency translation adjustment for 1999 is primarily due to
the change in cumulative translation adjustment resulting from the
strengthening of the U.S. dollar against the DM/Euro during the
six-month period ended June 30, 1999.
Page 6
<PAGE>
5. Business Acquisition
On May 15, 1998, the Company, through a wholly owned subsidiary,
acquired the Orcolite business unit of the Monsanto Company (Orcolite)
for the cash purchase price of $101,000. For financial statement
purposes, the acquisition has been accounted for under the purchase
method of accounting with the excess of the purchase price over the
fair value of the net tangible assets acquired recorded as intangible
assets which are being amortized over periods ranging from seven to
thirty years.
In addition, in accordance with generally accepted accounting
principles, the independently appraised value of acquired in-process
research and development purchased in conjunction with the acquisition
was written-off as a charge of $9,500 (pre-tax) during the second
quarter of 1998. The appraised value represents the estimated fair
value of in-process R&D based on risk-adjusted cash flows related to
the in-process R&D projects. At the date of the acquisition, the
development of these projects had not reached technological
feasibility, and these projects had no alternative future uses. There
is no assurance that the in-process projects, which remain in progress,
will be completed, or that they will meet either technological or
commercial success.
The consolidated statements of operations reflect the operations of
Orcolite after May 15, 1998. The following unaudited pro forma
information presents a summary of consolidated results of operations of
the Company and the Orcolite business unit as if the acquisition had
occurred at the beginning of fiscal 1998, with pro forma adjustments to
give effect to amortization of goodwill and other intangible assets,
depreciation expense on the fair value of property, plant and equipment
and interest expense on acquisition debt, together with the related
income tax effects. The pro forma adjustments do not include the $9,500
write-off of acquired in-process research and development discussed
above.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 93,339 $ 90,151 $ 177,984 $ 179,243
Net earnings (loss) 5,007 (37,692) 8,198 (34,961)
Diluted earnings (loss) per share 0.18 (1.40) 0.30 (1.30)
</TABLE>
The unaudited pro forma condensed combined financial information above
is not necessarily indicative of what actual results would have been
had the acquisition occurred at the date indicated. Also, the financial
impact resulting from business synergies has not been reflected in the
above pro forma financial information. Such synergies include the
following: consolidation of selling, marketing, distribution, customer
service and administrative functions; consolidation of research and
development and technical services functions; optimization of combined
production capacity; and improved purchasing leverage.
6. Impairment of Long-Lived Assets/Acquired In-Process Research and
Development
During the second quarter ended June 30, 1998, the Company recorded a
pre-tax charge of $42,800 for the write-down of certain Precision
Imaged Products (PIP) operations fixed assets,
Page 7
<PAGE>
primarily those related to the production of computer monitor masks.
After careful assessment of various factors relevant to these assets,
including significant declines in sales prices within the computer
monitor mask market, management determined it was appropriate to
write-down the value of these assets and, accordingly, such assets
were written down to estimated fair value based on estimated
discounted cash flows in accordance with SFAS No. 121.
Also during the second quarter ended June 30, 1998, the independently
appraised value of acquired in-process research and development
purchased in conjunction with the Orcolite acquisition was written-off
as a pre-tax charge of $9,500.
7. Segment Information
The Company has two operating segments which manufacture and sell a
variety of products: Precision Imaged Products (PIP) and Optical
Products. PIP manufactures principally aperture masks which are
photochemically etched fine mesh grids used in the manufacture of color
television tubes and computer monitors. Optical Products manufactures
ophthalmic lenses.
The following is a summary of certain financial information relating to
the two segments for the three-month period ended June 30, 1999:
<TABLE>
<CAPTION>
Three Months Ended June 30
-----------------------------------------------------------------------------------------------
Precision Image Products Optical Products Consolidated
--------------------------------- ------------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 55,851 $ 53,296 $ 37,488 $ 31,645 $ 93,339 $ 84,941
Cost of products sold 47,250 58,255 28,616 23,825 75,866 82,080
----------------------------------------------------------------------------------------------------------------------
Gross margin 8,601 (4,959) 8,872 7,820 17,473 2,861
Gross margin % 15.4% (9.3)% 23.7% 24.7% 18.7% 3.4%
Selling 1,591 1,133 3,408 2,781 4,999 3,914
Impairment of long-
lived assets - 42,800 - - - 42,800
Acquired research and
development - - - 9,500 - 9,500
Unallocated corporate
administration - - - - 1,486 1,529
----------------------------------------------------------------------------------------------------------------------
Income from operations $ 7,010 $ (48,892) $ 5,464 $ (4,461) $ 10,988 $ (54,882)
------------------------------------------------------------
------------------------------------------------------------
Operating income % 12.6% (91.7)% 14.6% (14.1)% 11.8% (64.6)%
Interest and other income
(expense), net (3,260) (4,662)
------------ -----------
Earnings before income
taxes $ 7,728 $ (59,544)
------------ -----------
------------ -----------
</TABLE>
Page 8
<PAGE>
The following is a summary of certain financial information relating to
the two segments for the six-month period ended June 30, 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------------------------------------------------------------------------
Precision Image Products Optical Products Consolidated
--------------------------------- ------------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 105,850 $ 108,568 $ 72,134 $ 56,457 $ 177,984 $ 165,025
Cost of products sold 92,339 108,320 54,605 42,215 146,944 150,535
-----------------------------------------------------------------------------------------------------------------------
Gross margin 13,511 248 17,529 14,242 31,040 14,490
Gross margin % 12.8% 0.2% 24.3% 25.2% 17.4% 8.8%
Selling 2,948 2,266 6,416 4,937 9,364 7,203
Impairment of long-
lived assets - 42,800 - - - 42,800
Acquired research and
development - - - 9,500 - 9,500
Unallocated corporate
administration - - - - 2,719 2,859
-----------------------------------------------------------------------------------------------------------------------
Income from operations $ 10,563 $ (44,818) $ 11,113 $ (195) $ 18,957 $ (47,872)
------------------------------------------------------------
------------------------------------------------------------
Operating income % 10.0% (41.3)% 15.4% (0.3)% 10.7% (29.0)%
Interest and other income
(expense), net (6,328) (6,157)
------------ ------------
Earnings before income
taxes $ 12,629 $ (54,029)
------------ ------------
------------ ------------
</TABLE>
8. Legal Matters
During the quarter ended June 30, 1999, no significant new legal
proceedings or environmental matters arose and there were no material
changes in the status of the legal proceedings or environmental matters
described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Page 9
<PAGE>
BMC INDUSTRIES, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of results of operations and financial
condition should be read in conjunction with the Company's accompanying
unaudited condensed consolidated financial statements and notes thereto and
the audited consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Total revenues for the second quarter of 1999 increased by $8.4 million, or
10%, from the second quarter of 1998. Revenues of the Optical Products group
generated sales of $37.5 million in the second quarter of 1999, up 18%, or
$5.8 million, over the prior year quarter due predominantly to growth in
sales of high-end products (polycarbonate, progressive and polarizing sun
lenses) and largely driven by the acquisition of Orcolite in May 1998. Sales
of high-end products increased 38% in second quarter 1999 over second quarter
1998 and accounted for 57% of total Optical Products group revenues in second
quarter 1999 compared to 48% in second quarter 1998. Second quarter 1999
Optical Products group revenues were up 2% compared to the pro forma combined
Vision-Ease/Orcolite 1998 revenues for the same period reflecting a decline
in glass and plastic lens sales resulting from the continued shift in the
ophthalmic lens market towards polycarbonate and a soft domestic retail
segment affected by consolidation. Sales of high-end products in second
quarter 1999 increased 11% over the pro forma combined Vision-Ease/Orcolite
revenues for the same period in 1998. Revenues of the Precision Imaged
Products (PIP) group for the second quarter increased 5% from the prior year
quarter which was driven by increased sales of computer monitor masks and
jumbo invar entertainment masks, offset by lower sales of standard AK steel
and other-than-jumbo invar entertainment masks and by lower sales at BMSP.
Sales of computer monitor masks in the second quarter of 1999 nearly doubled,
increasing 97% compared to second quarter 1998, due to both incremental
revenue from the Cortland monitor mask line that was restarted in the first
quarter of 1999 and increased sales of larger-sized monitor masks. Sales of
standard AK steel and other-than-jumbo invar entertainment masks in second
quarter 1999 declined 19%, collectively, compared to the prior year quarter.
These declines were partially offset by a 53% increase in sales of jumbo
invar entertainment masks. In addition, performance of the Cortland monitor
mask line showed progressive improvement over the course of the quarter.
BMSP's second quarter 1999 revenues and operating income were down compared
to second quarter 1998, but showed improvement over first quarter 1999, as
disruptions in the ordering patterns of certain major customers improved.
Cost of products sold were 81% of net sales for the second quarter of 1999,
compared to 97% in the same period of 1998. The decreased cost of products
sold percentage was due primarily to improved PIP gross margins and the
increased mix of higher-margin optical product sales. The PIP gross margin
percentage is up significantly from 1998 reflecting the unusual charges in
the second quarter of 1998 related to mask inventories and moving certain
mask inspection operations, the heavier mix of higher-margin invar
entertainment mask sales, an improved monitor mask sales mix, and the impact
of cost reduction initiatives; all offset by overall lower pricing within the
Mask business, particularly within the monitor segment, and lower
profitability at BMSP.
Page 10
<PAGE>
Selling expenses were $5.0 million, or 5.4%, of revenues and $3.9 million, or
4.6%, of revenues for the second quarter of 1999 and 1998, respectively. The
increase is primarily due to higher selling costs associated with the Optical
Products group, principally for expanded sales and marketing efforts
associated with high-end products.
During the second quarter ended June 30, 1998, the Company recorded a pre-tax
charge of $42,800 for the write-down of certain Precision Imaged Products
(PIP) operations fixed assets, primarily those related to the production of
computer monitor masks. After careful assessment of various factors relevant
to these assets, including significant declines in sales prices within the
computer monitor mask market, management determined it was appropriate to
write-down the value of these assets and, accordingly, such assets were
written down to estimated fair value based on estimated discounted cash flows
in accordance with SFAS No. 121. Also during the second quarter ended June
30, 1998, the independently appraised value of acquired in-process research
and development purchased in conjunction with the Orcolite acquisition was
written-off as a pre-tax charge of $9,500.
Interest expense in the second quarter of 1999 decreased $0.9 million from
the prior year quarter. This decrease is primarily due to financing costs
incurred in the prior year as part of the cash purchase of Orcolite for $101
million in May of 1998.
The provision for income tax expense (benefit) was 35% of pre-tax income and
(38%) of pre-tax loss in the second quarter of 1999 and 1998, respectively.
The difference in effective tax rate versus the statutory U.S. tax rate is
primarily due to the impact of the tax benefit associated with dividends paid
by the Company's German operation to the Parent Company which reduce the
Company's effective tax rate.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Total revenues for the first six months of 1999 increased by $13.0 million,
or 8%, from the first six months of 1998. Revenues of the Optical Products
group were up 28% due mainly to growth in sales of high-end products
(polycarbonate, progressive and polarizing sun lenses) and largely resulting
from the acquisition of Orcolite in May 1998. Optical Products group revenues
for the six month period were up 2% compared to the pro forma combined
Vision-Ease/Orcolite 1998 revenues for the same period. Revenues of the
Precision Imaged Products (PIP) group for the six month period decreased 3%
from the prior year period due primarily to a decline in sales of AK steel
entertainment masks and the slowdown of BMSP offset by increased sales of
monitor masks and jumbo invar entertainment masks.
Cost of products sold were 83% and 91% of net sales for the first six months
of 1999 and 1998, respectively. The decreased cost of sales percentage was
due primarily to improved PIP gross margins and the increased mix of
higher-margin optical product sales. The PIP gross margin is up from 1998
reflecting the unusual charges in the second quarter of 1998 related to mask
inventories and moving certain mask inspection operations, the heavier mix of
high-margin invar entertainment mask sales, an improved monitor mask sales
mix and the impact of cost reduction initiatives; all offset by overall lower
pricing within the Mask business, particularly within the monitor segment,
and lower profitability at BMSP.
Selling expenses were $9.4 million, or 5.3%, of revenues and $7.2 million, or
4.4%, of revenues for the first six months of 1999 and 1998, respectively.
The increase is primarily due to higher selling costs associated with the
Optical Products group, principally for expanded sales and marketing efforts
associated with high-end products and incremental costs associated the
Orcolite acquisition.
Page 11
<PAGE>
During the second quarter ended June 30, 1998, the Company recorded a pre-tax
charge of $42,800 for the write-down of certain Precision Imaged Products
(PIP) operations fixed assets, primarily those related to the production of
computer monitor masks. After careful assessment of various factors relevant
to these assets, including significant declines in sales prices within the
computer monitor mask market, management determined it was appropriate to
write-down the value of these assets and, accordingly, such assets were
written down to estimated fair value based on estimated discounted cash flows
in accordance with SFAS No. 121. Also during the second quarter ended June
30, 1998, the independently appraised value of acquired in-process research
and development purchased in conjunction with the Orcolite acquisition was
written-off as a pre-tax charge of $9,500.
Interest expense in the first six months of 1999 was $6.9 million compared to
$5.7 million in the first six months of 1998. This increase is primarily due
to the increased debt level to fund the cash purchase of Orcolite for $101
million in May of 1998, offset partially by the financing costs incurred
related to the Orcolite acquisition.
The provision for income tax expense (benefit) was 35% of pre-tax income and
(38%) of pre-tax loss for the first six months of 1999 and 1998,
respectively. The difference in effective tax rate versus the statutory U.S.
tax rate is primarily due to the impact of the tax benefit associated with
dividends paid by the Company's German operation to the Parent Company which
reduce the Company's effective tax rate.
MARKET RISK
There were no significant changes in market risks from those disclosed in the
Company's Form 10-K for the year ended December 31, 1998. However, to hedge
certain German mark (DM) denominated steel purchases, the Company entered
into forward foreign exchange contracts to purchase a total of 15 million DM
in monthly increments during the period ending December 31, 1999.
FINANCIAL POSITION AND LIQUIDITY
Debt decreased approximately $14.2 million from $189.2 million to $175.0
million during the first six months of 1999 primarily as a result of cash
flow from operations of $18.8 million, offset by capital expenditures of $5.3
million. Working capital was $99.3 million at June 30, 1999 compared to $95
million at December 31, 1998. The current ratio was 2.5 at June 30, 1999
compared to 2.7 at December 31, 1998. The ratio of debt to capitalization was
0.56 at June 30, 1999 compared to 0.59 at December 31, 1998.
There were no significant changes in the Company's credit facilities during
the quarter ended June 30, 1999. The Company was in compliance with all
covenants related to credit facilities at June 30, 1999. The Company
continues to expect that the combination of present capital resources,
internally-generated funds and unused financing sources will be adequate to
meet the Company's financing requirements for 1999.
ENVIRONMENTAL
There were no material changes in the status of the legal proceedings and
environmental matters described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
Page 12
<PAGE>
YEAR 2000 COMPLIANCE
The Company has computer systems and applications at the corporate level and
at each of its operating divisions that require or have required
modifications made necessary by the upcoming year 2000. If appropriate
modifications are not made, or are not completed in a timely manner, the Y2K
issue could have a material adverse impact on the operations of the Company.
The Company has been addressing the Y2K issue using essentially the following
four-phase approach:
- Phase I - Identification of all significant computer systems within
the Company with exposure to Y2K issues;
- Phase II - For each system, assessment of Y2K issue(s) and required
remediation;
- Phase III - Remediation and testing of systems to be Y2K compliant;
- Phase IV - Assessment of Y2K preparedness of significant third
parties.
Phase I was formally completed and summarized on a Company-wide basis in
early 1998. Phase II is essentially completed for all information technology
(IT) systems and is in process and estimated to be completed in the third
quarter of 1999 for all non-IT systems. Non-IT systems are generally embedded
technology, such as micro-controllers. Phase III is in various stages of
completion depending on the systems involved. For IT systems, the most
significant efforts of this phase involve the accelerated replacement of
non-compliant IT systems within the Mask Operations group and the remediation
and testing of important mainframe applications and operating systems within
the Optical Products group. Y2K-compliant integrated IT systems from SAP are
currently being implemented in the Mask Operations group in various phases
beginning in early 1999 and continuing through the third quarter and fourth
quarter of 1999. Y2K remediation and testing within the Optical Products
group is currently in process and estimated to be completed during the fourth
quarter of 1999. For non-IT systems, Phase III is scheduled to be completed
during the fourth quarter of 1999. For Phase IV, the Company is in the
process of assessing the Y2K preparedness of significant third parties,
including key vendors and service providers, and estimates that this phase
will be ongoing during the remainder of 1999.
The Company currently estimates that it will cost $3-4 million using both
internal and external resources to address the Y2K issue as discussed above,
including the cost of replacing the IT systems within the Mask Operations
group. Through June 30, 1999, the Company had spent approximately $2 million
of this total estimate.
The Company's current most reasonably likely worst case Y2K scenario is that
modification work will not proceed on schedule, causing some increase to the
total cost of achieving Y2K compliance, or the potential inability to obtain
raw materials from suppliers in a timely manner. The impact on the Company's
results of operations if the Company or its suppliers or customers are not
fully Y2K compliant is not reasonably determinable. Since the Company is
depending on its ability to execute modification plans and its vendors to
continue material supply without interruption, there can be no assurance that
unforeseen difficulties will not arise for the Company or its customers and
that related costs will not thereby be incurred.
Management believes it has planned appropriately to resolve the Y2K issue
with respect to all material elements under the Company's direct control. A
number of significant risks do exist, however, including the potential
inability of the Company to obtain (or retain) the proper internal and
external resources to fully address all Y2K exposures in the timeframes
required and at the cost estimated, as well as the risk that key suppliers,
customers or other significant third parties, including those in utilities,
communications, transportation, banking and government are not prepared for
the year 2000.
Page 13
<PAGE>
The Company has begun to establish contingency plans relative to the Y2K
issue and expects to further develop such plans during the remainder of 1999.
CAUTIONARY STATEMENTS
Certain statements included in this Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-Q by the
Company or its representatives, as well as other communications, including
reports to shareholders, news releases and presentations to securities
analysts or investors, contain forward-looking statements made in good faith
by the Company pursuant to the "Safe Harbor" provisions of the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. These statements relate to
non-historical information and include, without limitation, any statement
that may predict, forecast, indicate or imply future results, performance or
achievements. The Company wishes to caution the reader not to place undo
reliance on any such forward-looking statements, which reflect our opinion as
of the date of this Form 10-Q. These statements are not guarantees of future
performance and are subject to certain risks and uncertainties that could
cause actual results to differ materially from those presently anticipated or
projected and include, among others, lower demand for televisions and computer
monitors; further mask price declines and imbalances of supply and demand;
unsuccessful customer part qualifications; liability and other claims
asserted against the Company; continued slowdown at BMSP; inability to
penetrate the lead frame market; inability to develop and introduce new
products; failure of new products to gain customer acceptance; unsuccessful
cost reduction and reorganization efforts; potential loss on cross-currency
swaps; higher operating expenses and lower yields associated with production
shutdowns or start-ups; negative foreign currency fluctuations affecting
cross-currency swaps; inability to partner with new BMSP customers or
transition development relationships into full scale production; the impact
of Y2K information systems issues; the effect of the economic uncertainty in
Asia; and a potential economic slowdown in other parts of the world such as
South America. These and other factors are more particularly described in
"Item 1 - Business" of the Company's Form 10-K for the year ended December
31, 1998, which in some cases have affected and in the future could adversely
affect the Company's actual results and could cause the Company's actual
financial performance to differ materially from that expressed in any
forward-looking statement. These factors should not, however, be considered
an exhaustive list. The Company does not undertake the responsibility to
update any forward-looking statement that may be made from time to time by or
on behalf of the Company.
Page 14
<PAGE>
Part II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
With regard to legal proceedings and certain environmental
matters, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which begins on
page 10 and Note 8 of the "Notes to Condensed Consolidated
Financial Statements" on page 9.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 12 .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
The Company's 1999 Annual Meeting of Stockholders was held on
May 12, 1999. One matter was submitted to a vote of
stockholders: Election of certain members of the Company's
Board of Directors.
(1) The nominees for election to the Company's Board of
Directors, as listed in the Company's Proxy Statement
dated March 31, 1999, were elected for two year terms
at that meeting. Voting for the individual nominees
was as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld or Against
------- --------- -------------------------
<S> <C> <C>
Mr. John W. Castro 22,211,506 853,658
Dr. H. Ted Davis 22,197,545 867,619
Mr. Joe E. Davis 22,197,706 867,458
Mr. James M. Ramich 22,201,605 863,559
</TABLE>
The following directors did not stand for election
this year because their terms of office continued
after the meeting: Mr. Lyle D. Altman, Mr. Paul B.
Burke and Mr. Harry A. Hammerly.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.1 Third Declaration of Amendment, dated July 7, 1999, to
the BMC Industries, Inc. Savings and Profit Sharing
Plan (filed herein).
10.2 BME Share Pledge Agreement dated June 24, 1999 among
the Company, Buckbee-Mears Europe and several banks
(filed herein).
27. Financial Data Schedule (filed only in electronic
format).
99.1 News Release, dated July 20, 1999, announcing the
second quarter 1999 operating results (filed herein).
Page 15
<PAGE>
99.2 News Release, dated June 10, 1999, announcing
quarterly dividend (filed herein).
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K for the
quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BMC INDUSTRIES, INC.
/s/ Jeffrey J. Hattara
------------------------------------------
Jeffrey J. Hattara
Chief Financial Officer
(Principal Financial Officer)
/s/ Steven E. Opdahl
------------------------------------------
Steven E. Opdahl
Controller
(Principal Accounting Officer)
Dated: August 16, 1999
Page 16
<PAGE>
EXHIBIT 10.1
BMC INDUSTRIES, INC.
SAVINGS AND PROFIT SHARING PLAN
THIRD DECLARATION OF AMENDMENT
Pursuant to the retained power of amendment contained in Section 11.2 of the
BMC Industries, Inc. Savings and Profit Sharing Plan, the undersigned hereby
amends the Plan in the manner described below.
1. Section 12.18(a) is amended to read as follows:
(a) The "Eligible Earnings" of a Participant from a Participating
Employer for any Plan Year for purposes of Before-Tax
Contributions, After-Tax Contributions and Matching
Contributions is the sum of all remuneration paid to the
Participant by the Participating Employer for the portion of a
Plan Year in which he or she is an Active Participant that is
reportable in the "wages, tips, other compensation" box of
Internal Revenue Form W-2, increased by amounts that are
deferred under Section 3.1 as Before-Tax Contributions and
amounts by which a Participant's compensation from the
Participating Employer for such portion of the Plan Year is
reduced under a Code section 125 cafeteria plan. To the extent
otherwise included, Eligible Earnings are determined under
this clause (a) by excluding the amount of any imputed income
of the Participant with respect to the portion of the Plan
Year in which he or she is an Active Participant, severance
pay of any kind or nature, tuition aid, relocation
reimbursement, payments made pursuant to the BMC Industries,
Inc. Long-Term Incentive Plan or amounts attributable to a
stock incentive award (including, but not limited to stock
options, stock appreciation rights, restricted stock,
performance units or stock bonuses).
2. Section 12.18(b) is amended to read as follows:
(b) The "Eligible Earnings" of a Participant from a Participating
Employer for any Plan Year for the purpose of Profit Sharing
Contributions is:
(i) for non-sales personnel --
the Participant's annual base salary or wages paid to
the Participant by the Participating Employer during
the Plan Year, including shift premium, increased by
amounts paid to the Participant by the Participating
Employer during the Plan Year for time in excess of
straight time but disregarding the portion of such
amounts, if any, representing a premium over straight
time rates, and
(ii) for sales personnel --
the greater of (A) the Participant's annual base
salary paid by the Participating Employer during the
Plan Year, or (B) the lesser of
<PAGE>
(1) the Participant's annual base salary plus
commissions paid by the Participating Employer
during the Plan Year or (2) $60,000.
To the extent otherwise included, Eligible Earnings are
determined under this clause (b) by excluding severance pay of
any kind or nature, tuition aid, relocation reimbursement,
payments made pursuant to the BMC Industries, Inc. Long-Term
Incentive Plan or amounts attributable to a stock incentive
award (including, but not limited to stock options, stock
appreciation rights, restricted stock, performance units or
stock bonuses).
3. The foregoing amendment is effective as of July 1, 1999.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed
this 7th day of July, 1999.
BMC INDUSTRIES, INC.
Attest: /s/ Jon A. Dobson By: /s/ Stefan Peterson
--------------------------- --------------------------------------
Secretary Director of Compensation, Benefits & HRIS
<PAGE>
EXHIBIT 10.2
Number_119___of the Roll of Deeds for 1999
[LOGO]
Transacted in Frankfurt am Main
on June, 24th,1999
Before me, the undersigned
Notary
DIETER HEITBAUM
with business residence in Frankfurt am Main
appeared today
1. Rechtsanwalt Ralph Hummel,
having his office at Wiesenau 1, 60323 Frankfurt am Main, Federal
Republic of Germany, personally known to the notary, not acting in his
own name and behalf, but, excluding any personal liability, according
to powers of attorney presented, in the name and on behalf of
a) BMC Industries, Inc,
One Meridian Crossings,
Suite 850, Minneapolis MN 55423
hereinafter called the "Pledgor"
b) Buckbee-Mears Europe
Gesellschaft mit beschrankter Haftung
Renkenrunsstra(beta)e 24-26
Industriegebiet West
79379 Mullheim
hereinafter called the "Company"
2. Rechtsanwalt Guido Zoller
Fasanenweg 18 A, 56235 Ransbach-Baumbach
identified by passport No. 2117132650 (Ransbach-Baumbach)
not acting in his own name but in his capacity as Vice-President of
Bankers Trust Company
One Bankers Trust Plaza, 14th Floor
<PAGE>
130 Liberty Street
New York, New York 10006
USA
acting as Collateral Agent for the Bank Creditors as listed unter
a) - h) below
hereinafter called the "Agent"
and acting on behalf of:
a) Wachovia Bank N.A., 191 Peachtree Street, NE,
MC 370-28th Fl., Atlanta, GA 30303
b) Norwest Bank Minnesota, Norwest Center,
6th & Marquette-MS 0085, Minneapolis, MN 55479
c) First National Bank of Chicago, Mail Suite ILI 0088
One First National Plaza Chicago, IL 60670
d) Credit Agricole Indosuez, 55 East Monroe Street,
Ste. 4700, Chicago, IL 60601
e) Bankers Trust Company
14th Floor, 130 Liberty Street, New York, NY 10006
f) Harris Bank & Trust, 111 W. Monroe Street, Chicago, IL 60690
g) Union Bank of California, 350 California Street, 6th Floor
San Francisco, CA 94104
h) U.S. Bank National Association, 601 Second Avenue South,
6th Floor, Minneapolis, MN 55402
hereinafter called the "Pledgees"
The persons appearing stated that the parties represented by them have requested
that this instrument be recorded in the English language. As the Notary and the
persons appearing have command of the English language, this recording is done
in English.
The Notary asked the persons appearing whether they, or any member of their
respective firms had acted in the matter which is the subject of this
instrument, except in a notarial capacity. The persons appearing replied in the
negative.
<PAGE>
The persons appeared asked the notary to record the following
SHARE PLEDGE AGREEMENT
(Verpfandungsvereinbarung uber GmbH-Geschaftsanteile)
1. Pledgor is the legal and beneficiary owner of all shares of
Buckbee-Mears Europe Gesellschaft mit beschrankter Haftung, a company
with limited liability organized and existing under laws of the Federal
Republic of Germany and registered at the Commercial Register of the
Lower Court in Freiburg im Breisgau under number HRB 60Mu with a
registered share capital of DM 6,100,000.-- (the "Company") which
comprises of:
1 share of DM 2.000.000
1 share of DM 1.500.000
1 share of DM 1.000.000
1 share of DM 980.000
1 share of DM 600.000
1 share of DM 19.000
1 share of DM 1.000
All of the share capital has been fully paid; an obligation for
additional contribution to the share capital does not exist ("keine
Nachschu(beta)pflicht"). None of the shares is certificated.
2.1 Pledgor has entered into a written Pledge Agreement on June 25, 1998,
which is governed by the laws of the State of New York, U.S.A. with the
Agent as Collateral Agent for the Pledgees and the Agent as lenders
under a Credit Agreement dated as of June 25, 1998, under which the
Pledgor besides other collateral such as the pledge of shares in other
non-German subsidiaries is required to pledge 65% of the issued and
outstanding shares in the Company. To comply with the formal
requirements of valid share pledges under Section 15 GmbHG (German law
on limited liability companies) the parties have decided to enter into
this notarial Share Pledge Agreement.
2.2 Agent has been appointed to act as Agent hereunder by Pledgees pursuant
to the Credit Agreement. All actions, whether corporate or other,
options, rights, notices or other acts or things to be taken,
exercised, given or done by the Pledgees hereunder shall exclusively be
taken, exercised, given or done by the Agent as representative on
behalf of each Pledgee and the Pledgor shall direct all actions,
declarations, exercises of rights, notices or other acts or things to
be taken solely to the Agent.
3. Pledgor hereby pledges ("verpfandet") to Pledgees 65% of its shares in
the entire capital stock of the Company in the total amount of DM
3,965,000 constituting 65% of the issued and outstanding capital stock
of the Company which 65% shall comprise off:
<PAGE>
_ 1 share of DM 2.000.000;
_ 1 share of DM 1.000.000 and
_ 1 split share of DM 965.000 (out of the share of DM 980.000
described under 2. above)
as well as 65% of all shares in the Company which the Pledgor may
acquire or create in the future in the event of any increase of the
statutary share capital of the Company or otherwise.
3.1 The Pledge shall secure Pledgor's current and future obligations
arising from the above mentioned Credit Agreement and other Loan
Documents and any Interest Rate Protection and Other Hedging Agreement
with the Pledgees (collectively, the "Secured Debt Agreements"),
whether now in existence or hereafter arising as amended and restated
and all further defined in the Pledge Agreement dated June 25, 1998 in
its Section 1 and therein collectively called the Secured Obligations.
The parties to this Agreement understand that, if the Pledges created
hereunder lapse during the time the Secured Debt Agreements are in
effect because all Secured Obligations have been repaid in full, the
Pledges will again be created if due to another drawdown or request for
extension of credit by the Pledgor under the Secured Debt Agreement
again Secured Obligations are created.
Upon the assignment of any of the Secured Obligations or any part
thereof by any of the Pledgees, the respective assignee will, by
operation of law, obtain a pledge (Pfandrecht) over the Shares or
become a joint holder of a pledge over the Shares. So long as any
rights or obligations hereunder do not pass to the assignee by
operation of law, each Pledgee may, to the extent possible under German
law, upon assignment of any of the Secured Obligations or any portion
thereof, assign or otherwise transfer all or any portion of its rights
or obligations hereunder in accordance with the provisions in this
regard set out in the Credit Agreement but not otherwise.
3.2 Unless an Event of Default as defined in the Secured Debt Agreements
shall have occurred and be continuing and the Pledgees have not
exercised enforcement rights under Section 5. hereof all cash dividends
and distributions payable in respect of the Pledged Shares shall be
paid to the Pledgor which owns such Pledged Shares, PROVIDED, that all
cash dividends payable in respect of the Pledged Shares that represent
in whole or in part an extraordinary, liquidating or other distribution
in return of capital shall be paid, to the extent representing an
extraordinary, liquidating or other distribution in return of capital,
to the Pledgees and retained by them as part of the collateral.
4. As long as no Event of Default as defined in the Secured Debt
Agreements shall have occurred and be continuing and the Pledgees have
not exercised enforcement rights provided for in Section 5 hereof, the
Pledgor shall be entitled to exercise all voting rights attached to the
Shares for any purpose not inconsistent with the terms of this
Agreement or the Credit Agreement.
<PAGE>
Upon the occurrence and during the continuance of an Event of Default,
the Pledgees shall, notwithstanding any other rights or remedies that
they may have, be entitled to exercise, after giving the Pledgor at
least five days prior written notice, all of the voting rights
thereafter; and the Pledgor hereby irrevocably grants a power of
attorney to the Agent on behalf of the Pledgees (and their successors)
to vote the Shares at any shareholders' meeting thereafter and to
exercise any other voting rights the Pledgors may have with respect to
the Shares. Upon receipt of such notification, the Pledgor shall no
longer be permitted to exercise any of the voting rights. The right of
the Pledgees to exercise such voting rights shall be for the duration
of this Agreement only and shall lapse upon the curing of the Event of
Default and in any case upon complete satisfaction of the Secured
Obligations.
5. The Pledgees may, at any time after any Event of Default, as defined in
the Secured Debt Agreements, has occurred and is continuing, avail
themselves of all rights and remedies that a Pledgee has upon default
of a Pledgor under the law of the Federal Republic of Germany. Unless
otherwise provided herein, Section 1273 et seq. of the German Civil
Code (BGB) shall apply. Notwithstanding anything herein to the
contrary, such rights and remedies shall be exercised solely by the
Agent acting on behalf of the Pledgees in accordance with the terms of
the Credit Agreement. The Pledgees shall be entitled to have the
Pledged Shares sold at public auction, provided that the Pledgees have
requested in writing to fulfill the Secured Obligations within a period
of 15 days and further provided that the Pledgor does not satisfy these
Secured Obligations within the time limit set.
6. Pledgor hereby represents and warrants that its shares as well as any
further rights and claims resulting from its participation in the
Company are neither assigned nor pledged or encumbered with any other
rights of third parties in priority to those of the Pledgees.
7. Shareholders Resolution
The Pledgor, being the only shareholder of the Company, waiving all
forms and requirements of the calling and holding of a shareholders'
meeting, hereby holds a shareholders' meeting and resolves unanimously
as follows:
(1) The split-up of the share in the amount of DM 980.000 into one
split share in the amount of DM 965.000 which is subject to
the Pledge under the Share Pledge Agreement and the
transactions contemplated hereby, and one remaining split
share in the amount of DM 15.000 is, for the purposes of this
Agreement and the transactions contemplated hereby, herewith
resolved. It is further resolved that, for the pledges of
future shares under this Agreement, any additional share
capital of the Company, in whatever nominal value, which the
Pledgor may acquire or create in the future in the event of
any increase of the stated capital of the Company or
otherwise, shall be split into one split share in the nominal
value equal to 65% of the nominal value of any additional
share capital (such split share being a future share
hereunder) and one remaining split share in a nominal amount
equal to 35% of such additional share capital;
<PAGE>
provided, that if due to the German law provisions on the
nominal amount of shares, a split share equaling 65% of any
additional share capital may not be formed, this split share
shall be deemed to have such a nominal amount permissible,
under German law, which is lower than, but comes as close as
possible to, 65% of the additional share capital, and provided
further, that a split share equaling less 65% of any
additional share capital may not be formed, the split share
shall be deemed to have such nominal amount permissible under
German law which is higher than, but comes as close as
possible to, 65% of the additional share capital. The same
procedure shall apply upon the upcoming conversion of the
Company's share capital in the European Currency Euro.
(2) The management of the Company is hereby instructed to grant
the consent to the Pledges and each of the share splits under
Section 7 (1) above according to Section 17 subsection 1 of
the German Law on Limited Liability Companies (GmbHG) on
behalf of the Company.
8. The approval to the Pledge of the pledged shares under the Agreement
which under Section 8 of the articles of association of the Company
requires the Company's approval is hereby granted by the Company.
Furthermore, the approval to the share-splits resolved under Section 7
above is approved.
9. The fees for this notarial deed and its execution shall be borne by
Pledgor.
10. If a provision of this Agreement is or becomes invalid, the validity of
the remaining provisions shall remain unaffected thereby; the parties
undertake to replace the invalid provision by a valid provision which
comes as near as possible to the economic purpose of the invalid
provision.
11. This Agreement shall be governed by German law.
The persons appearing instructed the Notary to notify the Company of the
execution of this instrument pursuant to Section 16 GmbH AcT (GmbHG) and
Section 1280 German Civil Code (BGB) by delivery of a certified copy of this
instrument.
<PAGE>
The Notary advised the persons appearing
(1) that a first priority pledge interest will not be created unless the
Pledgor is the lawful owner of the shares and has not previously
disposed of or encumbered such shares, and that there is no bona fide
acquisition of shares or pledge of shares under German law;
(2) that a pledge interest will not be created unless the Pledgee is
creditor of the Secured Obligations and unless and as long as the
Secured Obligations by this Pledge legally exist;
(3) that the parties hereto will be liable as joint and several debtors for
all notarial fees and taxes, if any, by operation of law, irrespective
of whatever internal agreement has been made in that respect.
The persons appearing stated that the value of the shares of the Company is
DM 3.965.000.
This instrument was read to the persons appearing, approved by them and
personally signed by them and the notary as follows:
/s/ Ralph Hummell
/s/ Guido Zoller
Notarized by: /s/ Dieter Heitbaum
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000215310
<NAME> BMC INDUSTRIES, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 943
<SECURITIES> 4
<RECEIVABLES> 59,882
<ALLOWANCES> 7,011
<INVENTORY> 86,137
<CURRENT-ASSETS> 166,813
<PP&E> 273,173
<DEPRECIATION> 118,830
<TOTAL-ASSETS> 404,725
<CURRENT-LIABILITIES> 67,492
<BONDS> 0
0
0
<COMMON> 48,667
<OTHER-SE> 89,125
<TOTAL-LIABILITY-AND-EQUITY> 404,725
<SALES> 177,984
<TOTAL-REVENUES> 177,954
<CGS> 146,944
<TOTAL-COSTS> 12,083
<OTHER-EXPENSES> (459)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,873
<INCOME-PRETAX> 12,629
<INCOME-TAX> 4,431
<INCOME-CONTINUING> 8,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,198
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
<PAGE>
EXHIBIT 99.1
CONTACT: Jeffrey J. Hattara (NYSE - BMC)
(612) 851-6030 FOR IMMEDIATE RELEASE
BMC REPORTS SECOND QUARTER 1999 EARNINGS
July 20, 1999 - Minneapolis, MN - BMC Industries, Inc. reported net earnings
of $5.0 million, or $0.18 per diluted share, for the quarter ended June 30,
1999. This compares to a net loss of $37.2 million, or $1.38 per diluted
share (net earnings of $2.6 million, or $0.09 per diluted share, excluding
one-time and special charges), in the second quarter of 1998. Total second
quarter revenues increased 10% from $84.9 million in 1998 to $93.3 million in
1999.
Paul B. Burke, BMC's Chairman and Chief Executive Officer stated "We are
pleased with the overall performance of the Company in the second quarter.
This quarter's results reflect strong incremental growth in sales of computer
monitor masks attributable to the Cortland monitor mask line that was
restarted earlier in the year, as well as the ongoing benefits from the
integration of the Orcolite acquisition into Vision-Ease. During the second
quarter, we increased revenues by 10% and improved operating income by 52%
over the prior year quarter. We also continued progress on cash generation
for debt reduction and strategic investments. We believe that our improving
operating performance and strengthening balance sheet will drive further
growth in both revenue and earnings."
BMC's Optical Products group generated sales of $37.5 million in the second
quarter of 1999, up 18%, or $5.8 million, over the prior year quarter due
predominantly to growth in sales of high-end products (polycarbonate,
progressive and polarizing sun lenses) and largely driven by the acquisition
of Orcolite in May 1998. Sales of high-end products increased 38% in second
quarter 1999 over second quarter 1998 and accounted for 57% of total Optical
Products group revenues in second quarter 1999 compared to 48% in second
quarter 1998. Second quarter 1999 Optical Products group revenues were up 2%
compared to the pro forma combined Vision-Ease/Orcolite 1998 revenues for the
same period due to a decline in glass and plastic lens sales resulting from
the continued shift in the ophthalmic lens market towards polycarbonate and a
soft domestic retail segment affected by consolidation. However, sales of
high-end products in second quarter 1999 increased 11% over the pro forma
combined Vision-Ease/Orcolite revenues for the same period in 1998. Driven by
this high-end product sales growth, the Optical Products group's ongoing
operating earnings increased 8% during the second quarter of 1999 over the
prior year quarter. Vision-Ease achieved this improvement in earnings despite
the impact of additional amortization expense and substantially increased
sales and marketing expenses in the quarter, including considerable
incremental promotional expenditures on the new
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<PAGE>
proprietary Outlook-TM- progressive lens, as well as additional sales support
for our proprietary polarized product line to prepare for the peak sun lens
season. Vision-Ease is beginning to see the benefit of these investments
through new product growth, including a greater than 50% increase in sales of
sun lens products during second quarter 1999 over the same period in 1998,
and the addition of the Outlook(TM) lens to the product offering of several
major retailers.
Testing continued during the quarter at several retail locations for
Vision-Ease's proprietary lens lamination system, which makes it possible for
dispensers to provide premium, anti-reflective coated, multi-focal
polycarbonate lenses to consumers on a same-day basis. Vision-Ease remains on
schedule for the roll out of this system in the second half of this year. The
Company has received strong interest in this system from both domestic and
international customers.
Second quarter revenues from the Precision Imaged Products group ("PIP",
which includes both the Mask Operations and Buckbee-Mears St. Paul) increased
5% from $53.3 million in second quarter 1998 to $55.9 million in second
quarter 1999. This revenue increase was driven by increased sales of computer
monitor masks and jumbo invar entertainment masks, offset by lower sales of
standard AK steel and other-than-jumbo invar entertainment masks and by lower
sales at BMSP. Sales of computer monitor masks in the second quarter of 1999
nearly doubled, increasing 97% compared to second quarter 1998, due to both
incremental revenue from the Cortland monitor mask line that was restarted in
the first quarter of 1999 and increased sales of larger-sized monitor masks.
Sales of standard AK steel and other-than-jumbo invar entertainment masks in
second quarter 1999 declined 19%, collectively, compared to the prior year
quarter. These declines were partially offset by a 53% increase in sales of
jumbo invar entertainment masks. In addition, performance of the Cortland
monitor mask line showed progressive improvement over the course of the
quarter.
BMSP's second quarter 1999 revenues and operating income were down compared
to second quarter 1998, but showed improvement over first quarter 1999, as
the previously announced disruption in the ordering patterns of certain major
customers improved. During the second quarter, BMSP continued to devote
substantial efforts and resources to increasing new business, diversifying
its customer base and reducing costs.
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 which are intended to be covered by the safe harbors
created thereby. Statements made in this press release which are not strictly
historical, including statements regarding future performance, are
forward-looking statements and as such are subject to a number of risks and
uncertainties, including, among others, lower demand for televisions and
computer monitors; further mask price declines and imbalances of supply and
demand; successful customer part qualifications; liability and other claims
asserted against BMC; continued slowdown at BMSP; successful new product
development, introduction and acceptance, including the roll out of the lens
lamination system; successful cost reduction and reorganization efforts;
higher operating expenses and lower yields associated with any additional
production shutdowns or start-ups; negative foreign currency fluctuations,
including adverse fluctuations affecting cross-currency swaps; inability to
partner with new
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<PAGE>
BMSP customers; the impact of Y2K information systems issues; the effect of
the economic uncertainty in Asia; and a potential economic slowdown in other
parts of the world such as South America. These and other risks and
uncertainties are detailed in BMC's Annual Report and Form 10-K for the year
ended December 31, 1998.
BMC Industries, Inc. is a leading producer of polycarbonate, glass and
plastic eyewear lenses. BMC is also one of the world's largest manufacturers
of aperture masks for color picture tubes used in televisions and computer
monitors. BMC's common stock is traded on the New York Stock Exchange under
the symbol BMC.
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<PAGE>
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 93,339 $ 84,941 $ 177,984 $ 165,025
Cost of products sold 75,866 82,080 146,944 150,535
- --------------------------------------------------------------------------------------------------------------------------------
Gross Margin 17,473 2,861 31,040 14,490
Selling 4,999 3,914 9,364 7,203
Administrative 1,486 1,529 2,719 2,859
Impairment of long-lived assets - 42,800 - 42,800
Acquired research and development - 9,500 - 9,500
- --------------------------------------------------------------------------------------------------------------------------------
Income from Operations 10,988 (54,882) 18,957 (47,872)
- --------------------------------------------------------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (3,410) (4,318) (6,873) (5,701)
Interest income 81 45 86 77
Other income (expense) 69 (389) 459 (533)
- --------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 7,728 (59,544) 12,629 (54,029)
Income Taxes 2,721 (22,392) 4,431 (20,686)
- --------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 5,007 $ (37,152) $ 8,198 $ (33,343)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Earnings Per Share:
Basic $ 0.18 $ (1.38) $ 0.30 $ (1.24)
Diluted 0.18 (1.38) 0.30 (1.24)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Number of Shares Included in Per Share Computation:
Basic 27,275 26,905 27,238 26,949
Diluted 27,769 26,905 27,587 26,949
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
JUNE 30 December 31
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 947 $ 1,028
Trade accounts receivable, net 52,871 39,163
Inventories 86,137 82,853
Deferred income taxes 14,644 14,603
Other current assets 12,214 14,347
- --------------------------------------------------------------------------------------------------------------------------
Total Current Assets 166,813 151,994
- --------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 273,173 276,630
Less accumulated depreciation 118,830 114,036
- --------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 154,343 162,594
- --------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 3,775 5,431
Intangibles and other assets, net 79,794 79,446
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 404,725 $ 399,465
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Short-term borrowings $ 1,362 $ 1,929
Accounts payable 37,002 28,315
Income taxes payable 2,078 3,375
Accrued expenses and other current liabilities 27,050 23,404
- --------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 67,492 57,023
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt 173,603 187,266
Other liabilities 17,965 18,372
Deferred income taxes 7,873 3,547
Stockholders' equity
Common stock 48,667 47,714
Retained earnings 93,816 86,436
Accumulated other comprehensive income (2,886) 1,113
Other (1,805) (2,006)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 137,792 133,257
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 404,725 $ 399,465
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
BMC INDUSTRIES, INC.
SEGMENT INFORMATION
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30
---------------------------------------------------------------------------------------------------------
Precision Imaged Products Optical Products Consolidated
---------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 55,851 $ 53,296 $ 37,488 $ 31,645 $ 93,339 $ 84,941
Cost of products sold 47,250 58,255 28,616 23,825 75,866 82,080
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin 8,601 (4,959) 8,872 7,820 17,473 2,861
Gross margin % 15.4% (9.3)% 23.7% 24.7% 18.7% 3.4%
Selling 1,591 1,133 3,408 2,781 4,999 3,914
Impairment of long-lived
assets - 42,800 - - - 42,800
Acquired research and
development - - - 9,500 - 9,500
Unallocated corporate
administration - - 1,486 1,529
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations $ 7,010 $ (48,892) $ 5,464 $ (4,461) $ 10,988 $ (54,882)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income % 12.6% (91.7)% 14.6% (14.1)% 11.8% (64.6)%
Capital spending $ 2,747 $ 7,574
Depreciation and
amortization $ 5,730 $ 5,365
EBITDA $ 16,787 $ (49,906)
EBITDA % 18.0% (58.8)%
</TABLE>
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<PAGE>
EXHIBIT 99.2
Contact: Jeffrey J. Hattara (NYSE-BMC)
(612)851-6030 FOR IMMEDIATE RELEASE
BMC ANNOUNCES QUARTERLY DIVIDEND
June 10, 1999 -- 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 June 23, 1999 will receive a dividend of $.015 for
each share owned on that date, to be paid on July 7, 1999.
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.
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