-----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, MEFvYCqmcmOaH7LPlCKeURmCDCXw9/XoGT7NnGjjAihoxsaMedEkrpvpPtdc0m3A FgJjrHnJvrzSU4l9JgKLlQ== 0001047469-98-020750.txt : 19980518 0001047469-98-020750.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020750 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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-Q SEC ACT: SEC FILE NUMBER: 001-08467 FILM NUMBER: 98625225 BUSINESS ADDRESS: STREET 1: ONE MERIDIAN CROSSING STREET 2: SUITE 850 CITY: MINNEAPOLIS STATE: MN ZIP: 55423 BUSINESS PHONE: 6128516000 MAIL ADDRESS: STREET 1: ONE MERIDIAN CROSSING STREET 2: SUITE 850 CITY: MINNEAPOLIS STATE: MN ZIP: 55423 FORMER COMPANY: FORMER CONFORMED NAME: BUCKBEE MEARS CO/MN DATE OF NAME CHANGE: 19830517 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934. For the Quarterly Period ended March 31, 1998. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934. For the transition Period from N/A to ____. Commission File No. 1-8467 BMC INDUSTRIES, INC. -------------------- (Exact Name of Registrant as Specified in its Charter) Minnesota 41-0169210 --------- ---------- (State of Incorporation) (IRS Employer Identification No.) One Meridian Crossings, Suite 850, Minneapolis, Minnesota 55423 --------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (612) 851-6000 -------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. X Yes No ------- ------- BMC Industries, Inc. has outstanding 26,907,972 shares of common stock as of May 14, 1998. There is no other class of stock outstanding. Page 1 of 23 Exhibit Index Begins at Page 11 PART I: FINANCIAL INFORMATION BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) Item 1: Financial Statements
March 31 December 31 -------- ----------- 1998 1997 - -------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 2,238 $ 2,383 Trade accounts receivable, net of allowances 35,893 29,824 Inventories 78,957 70,111 Deferred income taxes 6,171 5,881 Other current assets 9,173 13,595 - -------------------------------------------------------------------------------- Total Current Assets 132,432 121,794 - -------------------------------------------------------------------------------- Property, Plant and Equipment 285,666 283,070 Less Accumulated Depreciation 104,816 100,688 -------- -------- Property, Plant and Equipment, Net 180,850 182,382 -------- -------- Deferred Income Taxes 1,229 1,429 Other Assets, Net 14,110 13,802 - -------------------------------------------------------------------------------- Total Assets $328,621 $319,407 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- Current Liabilities Short-term borrowings $ 1,222 $ 1,139 Accounts payable 23,540 25,623 Income taxes payable 3,495 2,830 Accrued expenses and other liabilities 18,826 17,288 - -------------------------------------------------------------------------------- Total Current Liabilities 47,083 46,880 - -------------------------------------------------------------------------------- Long-Term Debt 95,571 73,426 Other Liabilities 17,430 17,718 Deferred Income Taxes 2,824 2,631 Stockholders' Equity Common stock 46,358 62,263 Retained earnings 122,099 118,693 Accumulated other comprehensive income (1,694) (1,217) Other (1,050) (987) - -------------------------------------------------------------------------------- Total Stockholders' Equity 165,713 178,752 - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $328,621 $319,407 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. Page 2 BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts)
Three Months Ended March 31 ------------------------ 1998 1997 - -------------------------------------------------------------------------------- Revenues $ 80,084 $ 77,127 Cost of products sold 68,455 61,145 - -------------------------------------------------------------------------------- Gross margin 11,629 15,982 Selling 3,289 2,837 Administrative 1,330 1,539 - -------------------------------------------------------------------------------- Income from Operations 7,010 11,606 - -------------------------------------------------------------------------------- Other Income and (Expense) Interest expense (1,383) (144) Interest income 32 42 Other income (expense) (144) 262 - -------------------------------------------------------------------------------- Earnings before Income Taxes 5,515 11,766 Income Taxes 1,706 3,883 - -------------------------------------------------------------------------------- Net Earnings $ 3,809 $ 7,883 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Net Earnings Per Share: Basic $ 0.14 $ 0.29 Diluted 0.14 0.28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Number of Shares Included in Per Share Computation: Basic 26,994 27,410 Diluted 27,644 28,458 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dividends Declared Per Share $ 0.015 $ 0.015 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. Page 3 BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended March 31 ------------------------ 1998 1997 - -------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities Net earnings $ 3,809 $ 7,883 Depreciation and amortization 5,002 3,283 Changes in operating assets and liabilities (10,990) 1,997 - -------------------------------------------------------------------------------- Total (2,179) 13,163 - -------------------------------------------------------------------------------- Net Cash Used in Investing Activities Additions to property, plant and equipment (3,958) (26,321) Business acquisitions, net of cash acquired -- (1,817) - -------------------------------------------------------------------------------- Total (3,958) (28,138) - -------------------------------------------------------------------------------- Net Cash Provided by Financing Activities Increase (decrease) in short-term borrowings 114 (769) Increase in long-term debt 22,270 16,950 Common stock issued (repurchased), net (15,905) 731 Cash dividends paid (417) (411) Other (63) 144 - -------------------------------------------------------------------------------- Total 5,999 16,645 - -------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (7) (45) - -------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (145) 1,625 Cash and Cash Equivalents at Beginning of Period 2,383 2,544 - -------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 2,238 $ 4,169 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. Page 4 BMC INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share amounts) 1. Financial Statements In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 1998, and the results of operations and the cash flows for the periods ended March 31, 1998 and 1997. Such adjustments are of a normal recurring nature. Certain items in the financial statements for the period ended March 31, 1997 have been reclassified to conform to the presentation for the period ended March 31, 1998. The results of operations for the three- month period ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 1997 is derived from the audited balance sheet as of that date. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. Inventories
March 31, 1998 December 31, 1997 -------------- ----------------- Raw materials $ 28,961 $ 24,542 Work in process 21,222 15,971 Finished goods 28,774 29,598 --------- --------- Total Inventories $ 78,957 $ 70,111 --------- --------- --------- ---------
3. Earnings Per Share In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE (Statement No. 128). Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes the dilutive effects of stock options and any other dilutive securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. For the Company's earnings per share calculations, the basic and diluted weighted average outstanding shares differ only due to the dilutive impact of stock options. All earnings per share amounts for all periods have been restated to conform to the Statement No. 128 requirements. Page 5 4. Derivative Financial Instruments In January 1997, the SEC issued new rules related to disclosures about derivative financial instruments. The new rules, effective for all financial statements issued for periods ending after June 15, 1997, require accounting policy disclosures about derivative financial instruments used by the Company. Effective for periods ending after June 15, 1998, the new rules also require quantitative and qualitative disclosures about exposures to market risk from derivative financial instruments. Derivative financial instruments are used by the Company to reduce foreign exchange and interest rate risks. Foreign Currency Exchange Options - As of March 31, 1998, there were no outstanding foreign currency exchange options. As of December 31, 1997, the Company had approximately $3.6 million of outstanding foreign currency exchange options to exchange U.S. dollars for German marks at a set exchange rate. These foreign exchange options do not expose the Company to financial risk as the contracts provide an option to exchange the currencies, but do not obligate the Company to make a foreign currency exchange. Premiums paid for foreign currency exchange options are amortized to Other Expense over the life of the options. Upon exercise of foreign currency exchange options, gains are included in income. Interest Rate Swap Agreement - As of March 31, 1998, the Company had entered into an interest rate swap agreement that allows the Company to swap a variable interest rate for a fixed interest rate of 6.365% on $15 million of notional debt during a period ending March, 1999. The notional amount of debt is not a measure of the Company's exposure to credit or market risks and is not included in the condensed consolidated balance sheet. Fixing the interest rate minimizes the Company's exposure to the uncertainty of floating interest rates during this period. Amounts to be paid or received under the interest rate swap agreement are accrued and recorded as an adjustment to Interest Expense during the term of the interest rate swap agreement. 5. Comprehensive Income As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME (Statement No. 130). Statement No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or stockholders' equity. Statement No. 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement No. 130. Page 6 The components of comprehensive income, net of related tax, for the three- month periods ended March 31, 1998 and 1997 are as follows:
1998 1997 -------- -------- Net income $ 3,809 $ 7,883 Foreign currency translation adjustments (477) (3,127) -------- -------- Comprehensive income $ 3,332 $ 4,756 -------- -------- -------- --------
6. New Accounting Standards In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This statement requires additional disclosure only, and as such, is not expected to change net income or stockholders' equity as previously reported by the Company. The statement is effective for the Company's fiscal year ended December 31, 1998. 7. Legal Matters There are no material changes in the status of the Barth Industries legal proceeding or any other legal proceeding or environmental matter described in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Page 7 BMC INDUSTRIES, INC. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Total revenues for the first quarter of 1998 increased by $3.0 million or 4% from the first quarter of 1997. Revenues of the Precision Imaged Products (PIP) group for the first quarter increased 2% due primarily to increased sales of computer monitor masks. Computer monitor mask sales were approximately $8.0 million in the first quarter, an increase of 145% over the prior year quarter. Monitor mask shipments were made to additional customers in the first quarter as the PIP group continues to diversify their monitor mask customer base. Entertainment mask sales were down 15% from the prior year quarter due primarily to lower invar (a nickel alloy) mask sales. Entertainment mask sales made from invar were down 45% compared to the prior year quarter and the Company expects the soft market for invar masks to continue for the balance of 1998. The migration to larger sized masks continued in the first quarter. Jumbo (30" and larger) and large (25" to 29") AK television aperture mask sales increased 11% and 18%, respectively. The weakening of the German mark relative to the U.S. dollar had virtually no impact on earnings but reduced sales, as compared with the prior year quarter, by approximately $1.8 million. Net sales of the Optical Products group increased 7%. Sales of high end products (polycarbonate, progressive, high index and polarizing sun lenses) increased 25% over the same quarter in the prior year. Cost of sales was 85% of net sales for the first quarter of 1998, compared to 79% in the same period of 1997. The increased cost of sales percentage was almost solely due to significant start-up costs incurred on the new computer monitor mask line in Cortland, New York. The remainder of the PIP group (including both the German mask operation and Buckbee-Mears St. Paul) as well as the Optical Products group all achieved expanded gross margins over the prior year quarter. Interest expense in the first quarter of 1998 increased $1.2 million over the prior year quarter. This increase is primarily due to the significantly larger debt balance as total debt at March 31, 1997 was $33.2 million compared to $96.8 million at March 31, 1998. Interest expense also increased over the prior year due to the prior year capitalization of interest costs in connection with the Company's expansion projects. Interest expense will continue to increase during the remainder of 1998 due to the larger debt balance and the lower amount of interest that qualifies for capitalization. The provision for income taxes was 31% and 33% of pre-tax income in the first quarter of 1998 and 1997, respectively. This decrease was primarily due to dividends projected to be paid by the Company's German operation to the Parent Company which reduces the Company's effective tax rate. FOREIGN CURRENCY Fluctuations in foreign currency exchange rates, principally the German mark versus the U.S. dollar, may affect the Company's financial results. The Company's German subsidiary has a large portion of its sales denominated in U.S. dollars. As most of the German subsidiary's expenses are denominated in the German mark, this represents the most significant element of the Company's exposure to currency rate Page 8 fluctuations. This exposure is generally addressed as needed through the purchase of forward contracts and options. As of March 31, 1998, the Company had no forward options or contracts. Exposure to foreign currency exchange rate fluctuations also may exist with respect to intercompany payables or receivables with the Company's foreign subsidiaries. The Company minimizes this exposure by holding such balances at low levels. FINANCIAL POSITION AND LIQUIDITY The ratio of debt to equity increased to 0.6 at March 31, 1998 compared to 0.4 at December 31, 1997. Debt increased $22.2 million during the first three months of 1998. The increased debt level was due primarily to $16.6 million used to repurchase 1,000,000 shares of the Company's common stock. In addition, funds were used for increased working capital needs. These uses were partially offset by net earnings. Working capital was $85.3 million at March 31, 1998 compared to $74.9 million at December 31, 1997. The current ratio was 2.8 at March 31, 1998, compared to 2.6 at December 31, 1997. Working capital increases were primarily in inventory and accounts receivable. The increased inventory levels were due primarily to the addition of two new production lines in Cortland, New York and an increase in the number of part types produced by mask operations. Additional part types require increased raw materials to support production. Work-in-process inventory levels have also increased at mask operations as new employees are trained on the more rigorous inspection criteria for computer monitor masks. The increase in accounts receivable was due to a combination of the sales increase and timing of shipments. The Company expects to incur $35 to $40 million of capital spending during 1998. The Company maintains a credit agreement with three domestic banks for unsecured borrowings totaling $150 million. Additionally, the Company's German subsidiary maintains short-term and long-term credit lines totaling approximately $19 million. These credit facilities along with cash generated from operations should be sufficient to meet the Company's future capital and operating requirements. On March 24, 1998, the Company received a commitment letter from BT Alex. Brown for an unsecured revolving credit facility totaling $275 million. The purpose of the funds is to refinance the Company's existing debt and finance the Orcolite acquisition discussed below. The commitment letter is subject to customary terms and conditions. ENVIRONMENTAL There are no material changes in the status of the legal proceedings and environmental matters described in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. ACQUISITION On March 25, 1998 the Company entered into a definitive agreement to acquire Monsanto's Orcolite ophthalmic lens manufacturing business for $100 million in cash. The transaction has been approved by the boards of directors of both companies and is subject to customary conditions and normal regulatory approval. The transaction is expected to close in the second quarter of 1998. Orcolite, headquartered in Azusa, California, is a producer of ophthalmic lenses with estimated 1997 sales of $34 million. Orcolite produces both hard resin plastic and polycarbonate lenses and is well regarded in the ophthalmic lens industry for its manufacturing abilities, product innovation and customer service. Page 9 CAUTIONARY STATEMENTS Certain statements included in this Discussion and Analysis of Financial Condition and Results of Operations by the Company or its representatives, as well as other communications, including reports to shareholders, news releases and presentations to securities analysts or investors, contain forward-looking statements made in good faith by the Company pursuant to the "Safe Harbor" provisions of the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. These statements relate to non-historical information which are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected. The Company wishes to caution the reader not to place undo reliance on any such forward-looking statements. These statements are qualified by important factors listed separately in "Item 1 - - Business" of the Company's Form 10-K for the year ended December 31, 1997, which in some cases have affected and in the future could adversely affect the Company's actual results and could cause the Company's actual financial performance to differ materially from that expressed in any forward-looking statement. These factors should not, however, be considered an exhaustive list. The Company does not undertake the responsibility to update any forward-looking statement that may be made from time to time by or on behalf of the Company. Page 10 Part II: OTHER INFORMATION ITEM 1. With regard to legal proceedings and certain environmental matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 9 and Note 7 of the "Notes to Condensed Consolidated Financial Statements" on page 7. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Page -------- ---- 10.1 Commitment letter, dated March 24, 1998, from BT Alex. Brown for an unsecured revolving credit facility totaling $275 million . . . . . . . . . . . . . . . . . . . . . . . . .12 27. Financial Data Schedule (filed only in electronic format) 99.1 News Release, dated May 12, 1998, announcing the addition of two new directors to the Board of Directors . . . . . . . . .19 99.2 News Release, dated April 22, 1998, announcing the first quarter 1998 operating results . . . . . . . . . . . . . . . .20 (b) REPORTS ON FORM 8-K. The Company filed a Form 8-K, dated April 3, 1998, reporting the acquisition of Monsanto's Orcolite unit. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BMC INDUSTRIES, INC. /s/ Jeffrey L. Wright ------------------------------- Jeffrey L. Wright Controller (Principal Accounting Officer) Dated: May 14, 1998 Page 11 EX-10.1 2 EXHBIT 10.1 March 24, 1998 BMC Industries, Inc. 2 Appletree Square, Suite 400 8011 34th Avenue South Minneapolis, MN 55425 Attention: Jeffrey J. Hattara Vice President of Finance & Administration, Chief Financial Officer Ladies and Gentlemen: You have informed Bankers Trust Company ("BTCo") and NBD Bank ("NBD" and together with BTCo, the "Underwriters") that you are presently considering a transaction (the "Acquisition") in which BMC Industries, Inc., a Minnesota corporation (the "Company"), will acquire substantially all of the assets of Orcolite, a division of Monsanto Company (the "Orcolite Assets") and the business related to the Orcolite Assets (the "Business"), for approximately $100 million in cash. The Underwriters understand that the Company will require a credit facility (the "Credit Facility") aggregating up to $275 million (the "Credit Amount"). The Credit Amount will be used to provide funds necessary to finance the Acquisition, to refinance certain indebtedness of the Company, to pay certain fees and expenses incurred in connection with the Acquisition and for general corporate and working capital purposes. We currently contemplate that the Credit Facility would consist of a $275 million five year senior unsecured revolving facility. BTCo is pleased to confirm that it is willing to commit to provide on the terms and conditions set forth herein and in Exhibit A attached hereto (the "Term Sheet") two-thirds of the Credit Amount ($183,334,250). NBD is pleased to confirm that it is willing to commit to provide on the terms and conditions set forth herein and in Exhibit A attached hereto (the "Term Sheet") the remaining one-third of the Credit Amount ($91,665,750). In connection with the Credit Facility, BTCo shall act as administrative agent (the "Administrative Agent") for the Credit Facility. BTCo and NBD each reserve the right, prior to or after execution of the definitive credit documentation with respect to the Credit Facility, to syndicate all or part of its commitments to one or more financial institutions or other institutional "accredited investors" (as defined in Regulation D of the Securities Page 12 Act of 1933, as amended) (collectively, the "Lenders" and each a "Lender") that will become parties to such definitive credit documentation pursuant to a syndication managed by BTCo. The proposed financial terms and conditions for the Credit Facility are based upon our review to date of certain information about the Company and its subsidiaries provided to the Underwriters by you. If either of the Underwriter's due diligence review of materials about the Company and its subsidiaries discloses, or either of the Underwriter's otherwise discovers, information not previously disclosed to such Underwriter which such Underwriter reasonably believes has or is reasonably likely to have a material adverse effect on the business, assets, financial condition or prospects of the Company and its subsidiaries taken as a whole, and the transactions contemplated hereby, the Underwriters may, in their sole discretion, suggest alternative financing amounts or structures that ensure adequate protection for the Underwriters or decline to provide the financing. The Underwriters intend to commence syndication efforts promptly after your execution of this letter, and you agree actively to assist the Underwriters in achieving a syndication that is satisfactory to the Underwriters and you. Such syndication will be accomplished by a variety of means, including direct contact during the syndication between senior management and advisors of the Company and its affiliates and the proposed syndicate members. To assist the Underwriters in their syndication efforts, you hereby agree (i) to provide and cause your advisors to provide the Underwriters and the other syndicate members upon request with all information reasonably deemed necessary by the Underwriters to complete syndication, including but not limited to financial projections, pro forma financial statements and other information and evaluations prepared by the Company and its affiliates and their respective advisors, or on their behalf, relating to the transactions contemplated hereby, (ii) to assist the Underwriters upon their reasonable request in the preparation of an Information Memorandum to be used in connection with the syndication of the Credit Facilities, and (iii) to otherwise assist the Underwriters in its syndication efforts, including by making officers of the Company and its affiliates available from time to time to attend and make presentations regarding the business and prospects of the Company and its subsidiaries, as appropriate, at a meeting or meetings of Lenders or prospective Lenders. The Underwriters will not be obligated to enter into or make the initial loan under the Credit Facility unless and until all of the following conditions and the conditions otherwise set forth herein and in the Term Sheet have been met: (a) The structure and all terms of, and the documentation for, each component of the Acquisition shall be satisfactory to the Underwriters including, without limitation, the agreements and documentation pertaining to the Credit Facility (the "Loan Documentation") The Loan Documentation shall contain such covenants, terms, conditions, representations, warranties and events of default (in addition to those referred to herein or in the Term Sheet) as are customarily included by the Underwriters in agreements governing transactions of the kind and subject to negotiation between the Underwriters and the Company; Page 13 (b) The Acquisition shall have been consummated in all material respects in accordance with the documentation therefore and all applicable laws. All necessary material governmental and third party approvals and/or consents in connection with the Acquisition, the transactions contemplated by the Credit Facility and otherwise referred to herein shall have been obtained and remain in effect; (c) There shall not exist any judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions upon the Acquisition or the transactions contemplated by the Credit Facility; (d) The results of each of the Underwriters' due diligence review, analysis and testing of the assets, liabilities, commitments, contingencies, results of operations and prospects of the Company and its subsidiaries and the Orcolite Assets and Orcolite Business shall be acceptable to the Underwriters; (e) Financial projections and pro forma financial statements for Borrower and its subsidiaries shall have been delivered to the Underwriters in form satisfactory to the Underwriters and such projections and pro forma financial statements, including any assumptions made therein, shall be reasonable, as determined by the Underwriters in their sole discretion; (f) Since December 31, 1997, there shall have been no (i) material adverse change in, or event materially and adversely affecting, the assets liabilities, business, operations or condition (financial or otherwise) of the Company and its subsidiaries taken as a whole or (ii) material adverse change in, or event materially and adversely affecting, the assets, liabilities, business, operations or condition (financial or otherwise) of the Orcolite Business which, on a pro forma basis, would have a material adverse effect on the Company and its subsidiaries taken as a whole; and (g) There shall have been no material adverse change after the date hereof in the syndication market for credit facilities similar in nature to the Credit Facility contemplated herein, and there shall not have occurred and be continuing any material disruption of, or a material adverse change in, the financial, banking or capital markets that would have a material adverse effect on the syndication of the Credit Facility, in each case, as determined by each Underwriter in its sole discretion. The Loan Documentation shall be prepared by Winston & Strawn as special counsel to BTCo and the Administrative Agent. The reasonable costs and expenses of Winston & Strawn in connection with the preparation, execution and delivery of this letter, the Loan Documentation and the transactions contemplated hereby and thereby and all other reasonable out-of-pocket costs and expenses of BTCo and the Administrative Agent (including, without limitation, the costs and expenses of syndication and of outside advisors and consultants) in connection therewith (including in connection with the transactions contemplated by the Acquisition Agreement and the Loan Documentation) shall be for your account, whether or not Page 14 any portion of the Credit Facilities is made available and whether or not the Acquisition Agreement or the Acquisition is consummated. To induce the Underwriters to enter into this letter, the Company hereby agrees to indemnify and hold harmless each of the Underwriters and each director, officer, employee, agent, attorney and affiliate thereof (each an "Indemnified Person") from and against any and all actions, suits, proceedings (including any investigations or inquiries), claims, losses, damages, liabilities or expenses of any kind or nature whatsoever which may be incurred by or asserted against or involve either or both of the Underwriters or any such indemnified person as a result of or arising out of or in any way related to or resulting from this letter or the transactions contemplated hereby and, upon demand, to pay and reimburse the Underwriters and each indemnified person for any reasonable legal or other out-of-pocket expenses incurred in connection with investigating, defending or preparing to defend any such action, suit, proceeding (including any inquiry or investigation) or claim (whether or not the Underwriters or any such indemnified person is a party to any action or proceeding out of which any such expenses arise); Provided, However, the Company shall not indemnify any indemnified person pursuant to this paragraph against any loss, claim, damage, expense or liability resulting from the gross negligence or willful misconduct of such indemnified person. The foregoing provisions of this paragraph shall be in addition to any rights that an indemnified party shall have at common law or otherwise. Neither the Underwriters nor any indemnified person shall be responsible or liable for consequential or punitive damages which may be alleged as a result of this letter. Each of the Underwriters reserves the right to employ the services of its affiliates in providing the services contemplated by this letter and to allocate, in whole or in part to such affiliate, certain fees payable to BTCo or NBD in such manner as such affiliates and BTCo or NBD, as applicable, may agree in their sole discretion. You acknowledge that each Underwriter may share with any of its affiliates, and such affiliates may share with BTCo or NBD, as applicable, any information relating to the matters contemplated hereby, including the Acquisition, the Orcolite Assets, the Orcolite Business, the Company and its subsidiaries and affiliates, including any information as to the creditworthiness of any such entities. Each of the Underwriters agrees to treat, and cause any such affiliate to treat, any non-public information provided to it by you, the Company or any of your affiliates, as confidential information in accordance with customary banking industry practices. Except as described above, the provisions of the immediately preceding three paragraphs shall survive any termination of this letter. You hereby represent and covenant that (i) all information which has been or is hereafter made available to the Underwriters or the other Lenders by you or any of your representatives in connection with the transactions contemplated hereby (the "Information") is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not materially misleading (it being understood by the Page 15 Underwriters that any representations by you as to any information relating to Seller and its subsidiaries is made to your best knowledge and is based solely on publicly available information) and (ii) all financial projections concerning the Company and its subsidiaries and Seller and its subsidiaries that have or are hereafter made available to the Underwriters or the other Lenders by you in connection with the transactions contemplated hereby (the "Projections") have been or will be prepared in good faith based upon reasonable assumptions. You agree to supplement the Information and the Projections from time to time until the closing date of the Acquisition so that the representation and warranty in the preceding sentence is true and correct on such closing date. You acknowledge that in arranging and syndicating the Credit Facility, the Underwriters will be using and relying on the Information and Projections without independent verification thereof. In issuing this commitment and undertaking, as the case may be, the Underwriters are relying on the accuracy of the information furnished by you or on your behalf. Each of the Underwriters' obligations hereunder shall terminate on the first to occur of (x) May 15, 1998 unless a definitive agreement providing for the Acquisition has been entered into by the Company (and/or its respective Affiliates) and Monsanto Company (with such agreement being herein called the "Acquisition Agreement"), (y) on June 1, 1998, unless the Acquisition has been consummated and the initial borrowing date under the Credit Facility (the "Closing Date") shall have occurred or (z) at any time prior to June 1, 1998 if the Acquisition Agreement, or your rights to consummate the Acquisition thereunder, terminates. If you are in agreement with the foregoing, please sign and return to BTCo a copy of this letter, together with an executed copy of the letter agreement dated the date hereof providing for certain fees and expenses payable to BTCo (the "BTCo Fee Letter") and return to NBD a copy of this letter, together with an executed copy of the letter agreement dated the date hereof providing for certain fees and expenses payable to NBD (the "NBD Fee Letter"). This offer shall terminate at 4:00 p.m., New York time, on March 31, 1998 unless a signed copy of this letter, together with a signed copy of the BTCo Fee Letter, has been delivered to BTCo and a signed copy of this letter, together with a signed copy of the NBD Fee Letter, has been delivered to NBD (including by way of facsimile transmission) by such time. If this letter is not accepted by you as provided in the immediately preceding sentence, you are to immediately return this letter (and any copies hereof) to the undersigned. After such acceptance, this letter and its contents shall not be disclosed by you except in furtherance of, and to other proposed participants in, the transactions contemplated by such letter and, in any event, this letter shall not be disclosed publicly (unless required by law) without the prior written consent of the Underwriters, except that, following your acceptance of this letter, you may make public disclosure of the existence and amount of each of the Underwriters' commitment, you may file a copy of this letter in any public record in which it is required by law to be filed and you may make such other public disclosures of the terms and conditions hereof as you are required by law, in the opinion of your counsel, to make. The BTCo Fee Letter and the contents thereof, shall not be disclosed by you without the prior written consent of BTCo. The NBD Fee Letter and the contents thereof, shall not be disclosed by you without the prior written consent of NBD. Page 16 This letter may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts shall be an original, but all of which when taken together shall constitute one agreement. This letter, together with the BTCo Fee Letter and the NBD Fee Letter embodies the entire agreement and understanding between you and the Underwriters with respect to the Credit Facility and supersedes all prior agreements and understandings relating to the subject matter hereof. You acknowledge, however, that BTCo and NBD and/or any of their affiliates may be providing other services and/or other financing to you in connection with the Acquisition and that this letter relates only to the Credit Facility, with all such other services and financing to be agreed upon pursuant to other documentation. This letter may only be amended in writing. Page 17 THIS LETTER WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS AND ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED BY THIS LETTER IS HEREBY WAIVED. YOU HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS LETTER OR ANY MATTERS CONTEMPLATED HEREBY. Very truly yours, BANKERS TRUST COMPANY By: /s/ Virginia M. Sermier Name: Virginia M. Sermier Title: Managing Director NBD BANK By: /s/ Carolann M. Morykwas Name: Carolann M. Morykwas Title: Authorized Agent Accepted and Agreed to this 24th day of March, 1998 BMC INDUSTRIES, INC. By: /s/ Jeffrey J. Hattara Name: Jeffrey J. Hattara Title: Vice President, Finance and Administration, Chief Financial Officer Page 18 EX-99.1 3 EXHIBIT 99.1 Contact: Jeffrey J. Hattara (NYSE-BMC) (612)851-6030 FOR IMMEDIATE RELEASE BMC INDUSTRIES ADDS TWO DIRECTORS TO ITS BOARD May 12, 1998 --Minneapolis, Minnesota - BMC Industries, Inc. ("BMC") today announced the addition of H. Ted Davis and James Ramich to its Board of Directors, effective May 8, 1998. Dr. Davis has over 35 years of experience in education and research and consulting in the areas of chemical engineering, science and technology. Dr. Davis serves as Dean of the Institute of Technology and is the Regents' Professor, Department of Chemical Engineering and Materials Science, at the University of Minnesota. For 15 years Dr. Davis also served as Head of the Department of Chemical Engineering, which has been rated the top chemical engineering department in the country. In addition to holding a Ph.D. in chemical physics from the University of Chicago, Dr. Davis has received numerous honors and awards for his work in these areas. Mr. Ramich has had a distinguished career with Corning Incorporated for 25 years, most recently as Executive Vice President, Corning Communications. He served in a number of other senior management and operating positions at Corning, including President, Corning Japan, Executive Vice President, Information Display Group and Vice President of Corporate Development. Mr. Ramich also served in several manufacturing, sales and marketing positions. Mr. Ramich holds an M.B.A. from Columbia University. Paul B. Burke, BMC's Chairman, President and Chief Executive Officer, stated, "We are delighted that Ted Davis and Jim Ramich have agreed to serve on BMC's Board of Directors. Ted brings a tremendous amount of knowledge in chemical engineering and technology that will be instrumental in developing and enhancing our processes and products. Jim offers vast experience in business management, corporate development and operations in multinational operations and in the display industry. BMC will benefit greatly from Jim's ability to apply this experience to BMC's existing and future business operations." BMC Industries, Inc. is one of the world's largest manufacturers of aperture masks for color picture tubes used in televisions and computer monitors. The Company is also a leading producer of glass, plastic and polycarbonate eyewear lenses. BMC's common stock is traded on the New York Stock Exchange under the symbol BMC. -30- Page 19 EX-99.2 4 EXHIBIT 99.2 CONTACT: Jeffrey J. Hattara (NYSE -- BMC) (612) 851-6030 FOR IMMEDIATE RELEASE BMC REPORTS FIRST QUARTER 1998 EARNINGS April 22, 1998 -- Minneapolis, MN -- BMC Industries, Inc. today reported first quarter 1998 net earnings of $3,809,000 or $0.14 diluted earnings per share, compared to $7,883,000 or $0.28 diluted earnings per share in the first quarter 1997. Total first quarter revenues increased 4% from $77,127,000 in 1997 to $80,084,000 in 1998. Paul B. Burke, BMC's Chairman and Chief Executive Officer stated "All of our operations enjoyed significant profitability increases over 1997 except for our Cortland, New York mask operating facility. As anticipated, the Cortland facility incurred significant continuing start-up expenses in the first quarter on its new production lines, particularly the high resolution monitor line, which more than offset our gains everywhere else. I am pleased to report, however, that the Cortland operation made significant progress in both increasing and stabilizing yields on these lines and in qualifying new parts. As also previously disclosed, we expect start-up activity and yield ramp up on the high resolution line in Cortland to linger into the second quarter." First quarter sales for the Precision Imaged Products operation (including both the Mask Operations and Buckbee-Mears St. Paul) were slightly ahead of first quarter 1997 sales. Computer monitor mask sales were approximately $8 million in the first quarter, an increase of 145% over the prior year quarter. More importantly, production level computer monitor mask shipments were made to additional customers in the first quarter, as the Mask Group continues to diversify its monitor mask customer base. Entertainment mask sales were down 7% (adjusted for currency translation) from the prior year quarter due primarily to lower invar sales. Invar sales were down 45% compared to the prior year quarter, and we expect the soft market for invar entertainment masks to continue for the balance of the year. The migration to larger sized masks continued in the first quarter. Jumbo (30" and larger) and large (25" to 29") masks made of AK steel increased 11% and 18%, respectively, over the prior year quarter. The strength of the U.S. dollar verses the German mark had less than a $100,000 impact on earnings but reduced sales, as compared to the prior year quarter, by approximately $1.8 million. Buckbee-Mears St. Paul -more- Page 20 (BMSP) achieved excellent financial results, posting a 21% revenue gain over the prior year quarter and record profitability. BMSP is continuing to find high demand for precision etched and electroformed parts. BMC's Optical Products operation achieved sales growth of 7% over the prior year, while profits grew 39%. The increased profitability was fueled by exceptionally strong sales of high-end products (polycarbonate, high-index, progressive and polarizing sun lenses) which grew 25% over the prior year quarter. Transfer of the polycarbonate manufacturing operations to the new production facility in Ramsey, Minnesota will be completed in the second quarter. We expect to begin realizing the benefit of improved yields and productivity from this new facility beginning in the second half of 1998. The closing process for the recently announced acquisition of certain assets of Orcolite, a division of Monsanto Company, is proceeding as planned and on schedule. Statements made in this press release which are not historical, including statements regarding future performance, are forward looking statements and as such are subject to a number of risks, including lower demand for televisions and computer monitors, inability to penetrate the lead frame market, problems associated with transfer of the polycarbonate operations, higher operating expenses and lower yields associated with production start-up, foreign currency fluctuations, successful customer part qualifications and the effect of economic uncertainty in Asia. These and other risks and uncertainties are detailed in the Company's Form 10-K for the year ended December 31, 1997. BMC is one of the world's largest manufacturers of aperture masks for color television picture tubes and computer monitors. The Company is also a leading producer of glass, plastic and polycarbonate eyewear lenses. The common stock of the Company is traded on the New York Stock Exchange under the symbol "BMC". -more- Page 21 BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts)
Three Months Ended March 31 ---------------------- 1998 1997 - -------------------------------------------------------------------------------- Revenues $ 80,084 $ 77,127 Cost of products sold 68,455 61,145 - -------------------------------------------------------------------------------- Gross Margin 11,629 15,982 Selling 3,289 2,837 Administrative 1,330 1,539 - -------------------------------------------------------------------------------- Income from Operations 7,010 11,606 - -------------------------------------------------------------------------------- Other Income and (Expense) Interest expense (1,383) (144) Interest income 32 42 Other income (expense) (144) 262 - -------------------------------------------------------------------------------- Earnings before Income Taxes 5,515 11,766 Income Taxes 1,706 3,883 - -------------------------------------------------------------------------------- Net Earnings $ 3,809 $ 7,883 - -------------------------------------------------------------------------------- Net Earnings Per Share: Basic $ 0.14 $ 0.29 Diluted 0.14 0.28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Number of Shares Included in Per Share Computation: Basic 26,994 27,410 Diluted 27,644 28,458 - --------------------------------------------------------------------------------
-more- Page 22 BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands)
March 31 December 31 -------- ----------- 1998 1997 - -------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 2,238 $ 2,383 Trade accounts receivable, net of allowances 35,893 29,824 Inventories 78,957 70,111 Deferred income taxes 6,171 5,881 Other current assets 9,173 13,595 - -------------------------------------------------------------------------------- Total Current Assets 132,432 121,794 - -------------------------------------------------------------------------------- Property, Plant and Equipment 285,666 283,070 Less Accumulated Depreciation 104,816 100,688 -------- -------- Property, Plant and Equipment, Net 180,850 182,382 -------- -------- Deferred Income Taxes 1,229 1,429 Other Assets, Net 14,110 13,802 - -------------------------------------------------------------------------------- Total Assets $328,621 $319,407 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- Current Liabilities Short-term borrowings $ 1,222 $ 1,139 Accounts payable 23,540 25,623 Income taxes payable 3,495 2,830 Accrued expenses and other current liabilities 18,826 17,288 - -------------------------------------------------------------------------------- Total Current Liabilities 47,083 46,880 - -------------------------------------------------------------------------------- Long-Term Debt 95,571 73,426 Other Liabilities 17,430 17,718 Deferred Income Taxes 2,824 2,631 Stockholders' Equity Common stock 46,358 62,263 Retained earnings 122,099 118,693 Other comprehensive income (1,694) (1,217) Other (1,050) (987) - -------------------------------------------------------------------------------- Total Stockholders' Equity 165,713 178,752 - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $328,621 $319,407 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
-30- Page 23 EX-27.1 5 EXHIBIT 27.1
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 2,219 19 37,889 1,996 78,957 132,432 285,666 104,816 328,621 47,083 0 0 0 46,358 119,355 328,621 79,882 80,084 68,455 4,619 144 0 1,383 5,515 1,706 3,809 0 0 0 3,809 0.14 0.14
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