-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SnyyXpv7DGu3E8obnIefg19diOXPXTUk6DL5rBLtL/I7RU1+Q7E4hK6pv6b2y3+1 xVsi8hV8YWP5slKl0uVT5w== 0001047469-98-012856.txt : 19980401 0001047469-98-012856.hdr.sgml : 19980401 ACCESSION NUMBER: 0001047469-98-012856 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BMC INDUSTRIES INC/MN/ CENTRAL INDEX KEY: 0000215310 STANDARD INDUSTRIAL CLASSIFICATION: COATING, ENGRAVING & ALLIED SERVICES [3470] IRS NUMBER: 410169210 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08467 FILM NUMBER: 98581687 BUSINESS ADDRESS: STREET 1: 2 APPLETREE SQUARE CITY: MINNEAPOLIS STATE: MN ZIP: 55425 BUSINESS PHONE: 6128516000 MAIL ADDRESS: STREET 1: TWO APPLETREE SW SUITE 400 STREET 2: TWO APPLETREE SW SUITE 400 CITY: MINNEAPOLIS STATE: MN ZIP: 55425 FORMER COMPANY: FORMER CONFORMED NAME: BUCKBEE MEARS CO/MN DATE OF NAME CHANGE: 19830517 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- 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 ---------------------------------- Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------- ----------------------------------------- COMMON STOCK NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE ---------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 1 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. 2 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. 3 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. 4 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. 5 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 6 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. 7 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. 8 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 ITEM 2. DESCRIPTION OF PROPERTY The locations of the Company's principal production facilities are as follows:
Approximate Square Location Principal Use Feet of Space - -------- -------------- ------------------ 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
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 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 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 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:
Consolidated Financial Statements: Page: ---------------------------------- ----- 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
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: ----- II - Valuation and Qualifying Accounts.................... 17
Schedules other than the one listed above are omitted because of the absence of the conditions under which they are required or because the information required is included in the consolidated financial statements or the notes thereto. 3. EXHIBITS: Reference is made to the Exhibit Index hereinafter contained on pages 19-30 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 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 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 Schedule II Valuation and Qualifying Accounts Years Ended December 31 (in thousands)
Additions Balance Charged to Translation Balance Beginning Costs and Adjustment End of of Year Expenses Deductions and Other Year - ----------------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------------
17 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 BMC Industries, Inc. Exhibit Index to Annual Report on Form 10-K For the Year Ended December 31, 1997
Exhibit No. Exhibit Method of Filing - ----------- ------------------------ 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 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 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 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 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 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 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 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 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 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 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 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.
30 EX-3.5 2 EXHIBIT 3.5 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 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." EX-10.7 3 EXHIBIT 10.7 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 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 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 EX-10.15 4 EXHIBIT 10.15 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)." 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 EX-10.19 5 EXHIBIT 10.19 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. (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 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 EX-10.34 6 EXHIBIT 10.34 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. 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 ------------------------------ EX-10.47 7 EXHIBIT 10.47 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 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. 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 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. 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 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. 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. 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 March 3, 1998 Page 9 of 9 Agreed to this ____ day of _____________, 1998. - ------------------------------------ EX-10.48 8 EXHIBIT 10.48 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 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 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 EX-10.54 9 EXHIBIT 10.54 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. (c) The last sentence of Section 2.2 of the Credit Agreement is hereby deleted, and the following is substituted therefor: -2- 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- (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- 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- 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- EX-10.55 10 EXHIBIT 10.55 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- 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 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___________________ EX-13.1 11 EXHIBIT 13.1 HISTORICAL FINANCIAL SUMMARY (in thousands, except per share amounts and statistics and ratios)
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ 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
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. 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 - 5 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 - - 6 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 - 7 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 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts)
YEARS ENDED DECEMBER 31 1997 1996 1995 --------------------------------------------------------------------------- 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 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 - 9 CONSOLIDATED BALANCE SHEETS (in thousands)
YEARS ENDED DECEMBER 31 1997 1996 ------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 - -- 0 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except per share amounts)
Cumulative Common Retained Translation YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 Stock Earnings Adjustment Other ----------------------------------------------------------------------------------------------------------- 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) -----------------------------------------------------------------------------------------------------------
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 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31 1997 1996 1995 ------------------------------------------------------------------------------------ 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 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 - - 2 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 2. INVENTORIES The following is a summary of inventories at December 31:
1997 1996 - ---------------------------------------------------------------------- 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 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
3. OTHER CURRENT ASSETS AND OTHER LIABILITIES The following is a summary of other current assets at December 31:
1997 1996 - ---------------------------------------------------------------------- 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 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
The following is a summary of other liabilities at December 31:
1997 1996 - ---------------------------------------------------------------------- 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 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT, NET The following is a summary of property, plant and equipment, net at December 31:
1997 1996 - ---------------------------------------------------------------------- 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 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
5. DEBT The following is a summary of long-term debt at December 31:
1997 1996 - ---------------------------------------------------------------------- 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 - ----------------------------------------------------------------------
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 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: 1998 $1,082 1999 567 2000 444 2001 280 2002 268 Thereafter 65 - --------------------------------------------- Total minimum lease payments $2,706 - --------------------------------------------- - ---------------------------------------------
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: 1998 $6,000 1999 7,000 2000 8,500 - --------------------------------------------- - ---------------------------------------------
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:
Option Price ------------------- Number Per Share Total of Shares Average Price - ------------------------------------------------------------------------ Shares under option at December 31, 1994 2,358 $ 3.54 $ 8,344 Granted 295 15.39 4,538 Exercised (277) 2.24 (621) Forfeited (13) 1.91 (25) - ------------------------------------------------------------------------ Shares under option at December 31, 1995 2,363 5.18 12,236 Granted 87 26.99 2,362 Exercised (315) 2.79 (882) Forfeited (15) 8.71 (131) - ------------------------------------------------------------------------ Shares under option at December 31, 1996 2,120 6.41 13,585 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 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------
The following table summarizes information concerning currently outstanding and exercisable options:
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 - --------------------------------------------------------------------------------------- $ 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 - --------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------
3 - 5 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:
1997 1996 1995 - ---------------------------------------------------------------------- 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 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
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:
1997 1996 1995 - ---------------------------------------------------------------------- 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 - ----------------------------------------------------------------------
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 Pension costs for the above three defined benefit plans included the following components:
YEARS ENDED DECEMBER 31 1997 1996 1995 - -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------- - --------------------------------------------------------------------------
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:
1997 1996 - ------------------------------------------------------------------ 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) - ------------------------------------------------------------------ - ------------------------------------------------------------------
Assumptions used in developing the projected benefit obligation and the net periodic pension cost as of December 31 were as follows:
1997 1996 1995 - ------------------------------------------------------------------------------ Domestic plans (including postretirement plan): 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% - ------------------------------------------------------------------------------
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:
1997 1996 - ------------------------------------------------------------------ Accumulated postretirement benefit obligation $(1,543) $(1,243) Unrecognized net gain (146) (371) - ------------------------------------------------------------------ Accrued postretirement benefit obligation $(1,689) $(1,614) - ------------------------------------------------------------------
9. INCOME TAXES The provision for income taxes was based on earnings before income taxes, as follows:
YEARS ENDED DECEMBER 31 1997 1996 1995 - ----------------------------------------------------------------------- Domestic $ 42,605 $ 47,397 $28,362 Foreign 8,597 5,006 10,582 - ----------------------------------------------------------------------- Earnings before income taxes $ 51,202 $ 52,403 $38,944 - ----------------------------------------------------------------------- - -----------------------------------------------------------------------
The provision (benefit) for income taxes consisted of:
YEARS ENDED DECEMBER 31 1997 1996 1995 - ---------------------------------------------------------------------- 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 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
Significant components of deferred income tax assets and liabilities were as follows at December 31:
1997 1996 - ------------------------------------------------------------------ FEDERAL AND STATE NET DEFERRED INCOME TAXES 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) - ------------------------------------------------------------------ - ------------------------------------------------------------------
3 - 7 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:
YEARS ENDED DECEMBER 31 1997 1996 1995 - ----------------------------------------------------------------------- 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% - ----------------------------------------------------------------------- - -----------------------------------------------------------------------
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:
YEARS ENDED DECEMBER 31 1997 1996 1995 - --------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
(1) CORPORATE ALLOCATIONS INCLUDE ADMINISTRATIVE EXPENSES INCURRED AT THE CORPORATE HEADQUARTERS WHICH PROVIDE BENEFIT TO THE OPERATING DIVISIONS. 3 - - 8 The following is a summary of the Company's operations in different geographic areas:
YEARS ENDED DECEMBER 31 1997 1996 1995 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
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 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 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.
Price Dividends ---------------------------- Per Share High Low ------------------------------------------------------------------- 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 -------------------------------------------------------------------
4 - 1 SELECTED QUARTERLY DATA (unaudited, in thousands, except per share amounts)
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year 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 --------------------------------------------------------------------------------------------------------------
(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 - - 2 EX-21.1 12 EXHIBIT 21.1 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 EX-23.1 13 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of BMC Industries, Inc. of our report dated January 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 EX-27.1 14 EXHIBIT 27.1
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 2,364 19 31,942 2,118 70,111 121,794 283,070 100,688 319,407 46,880 0 0 0 62,263 116,489 319,407 310,733 312,538 244,468 16,012 (209) 0 1,298 51,202 15,481 35,721 0 0 0 35,721 1.30 1.25
EX-27.2 15 EXHIBIT 27.2
5 1,000 YEAR YEAR 3-MOS 6-MOS 9-MOS DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 3,721 2,468 3,966 3,814 4,820 12,153 76 3,022 1,726 450 25,639 27,309 26,054 28,578 25,942 2,636 2,330 2,759 3,302 3,105 34,772 50,451 39,938 47,098 48,643 83,366 91,700 81,042 90,404 90,137 171,711 220,489 181,192 188,920 200,313 90,302 96,644 91,613 92,551 95,316 182,332 232,969 187,729 204,279 212,502 50,636 50,346 49,515 59,091 55,275 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 52,974 56,551 54,710 55,302 55,613 55,492 87,557 60,462 69,093 76,598 182,332 232,969 187,729 204,279 212,502 253,900 279,827 68,301 135,815 203,973 255,355 280,487 68,301 136,475 204,633 202,595 213,007 55,261 104,952 158,792 14,137 15,033 3,785 7,632 11,176 146 (236) 50 (31) (120) 0 0 0 0 0 562 540 130 190 436 38,944 52,403 9,194 23,882 34,559 14,397 17,302 3,011 7,857 11,377 24,547 35,101 6,183 16,025 23,182 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 24,547 35,101 6,183 16,025 23,182 .91 1.29 .23 .59 .85 .87 1.24 .22 .57 .82
EX-27.3 16 EXHIBIT 27.3
5 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 4,092 2,014 2,119 77 78 19 31,684 34,396 37,509 3,194 3,086 3,059 52,034 59,177 62,080 99,759 109,640 112,806 241,981 268,246 277,788 96,564 99,347 99,171 262,182 295,816 309,842 59,092 58,663 41,409 0 0 0 0 0 0 0 0 0 57,282 57,776 61,452 92,046 103,088 110,375 262,182 295,816 309,842 77,026 156,233 234,666 77,127 157,384 236,470 61,145 119,543 181,356 4,376 8,202 12,250 (262) (229) (300) 0 0 0 144 304 707 11,766 29,662 42,600 3,883 9,790 13,853 7,883 19,872 28,747 0 0 0 0 0 0 0 0 0 7,883 19,872 28,747 .29 .72 1.04 .28 .70 1.01
EX-99.1 17 EXHIBIT 99.1 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. EX-99.2 18 EXHIBIT 99.2 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- 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- EX-99.3 19 EXHIBIT 99.3 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 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- 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- BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts)
Three Months Ended Year Ended December 31 December 31 ------------------ ---------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------
-more- BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except per share amounts)
DECEMBER 31 December 31 ASSETS 1997 1996 - --------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
-30- EX-99.4 20 EXHIBIT 99.4 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- EX-99.5 21 EXHIBIT 99.5 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- EX-99.6 22 EXHIBIT 99.6 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- 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- -----END PRIVACY-ENHANCED MESSAGE-----