-----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, Frn73MYyqG+t+KcA0RQaKvQaUCF0p4l4tlk1hlR4BY0SfZM6BSFijLN861TkIMNN 0MtkDffKQUO1bac2JOU/aw== 0001047469-99-032449.txt : 19990817 0001047469-99-032449.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032449 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99692557 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 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 June 30, 1999. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --------- EXCHANGE ACT OF 1934. For the transition Period from to . ------------- ------------- Commission File No. 1-8467 BMC INDUSTRIES, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Minnesota 41-0169210 - ------------------------ --------------------------------- (State of Incorporation) (IRS Employer Identification No.) One Meridian Crossings, Suite 850, Minneapolis, Minnesota 55423 --------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (612) 851-6000 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. X Yes No ------- ------- BMC Industries, Inc. has outstanding 27,350,632 shares of common stock as of August 11, 1999. There is no other class of stock outstanding. Exhibit Index Begins at Page 15 PART I: FINANCIAL INFORMATION BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) Item 1: Financial Statements
JUNE 30 December 31 ASSETS 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 947 $ 1,028 Trade accounts receivable, net of allowances 52,871 39,163 Inventories 86,137 82,853 Deferred income taxes 14,644 14,603 Other current assets 12,214 14,347 - -------------------------------------------------------------------------------------------------------------------- Total Current Assets 166,813 151,994 - -------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment 273,173 276,630 Less Accumulated Depreciation 118,830 114,036 ------------- ------------ Property, Plant and Equipment, Net 154,343 162,594 ------------- ------------ Deferred Income Taxes 3,775 5,431 Intangible Assets, Net 72,001 73,178 Other Assets 7,793 6,268 - -------------------------------------------------------------------------------------------------------------------- Total Assets $ 404,725 $ 399,465 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------------------------------------- Current Liabilities Short-term borrowings $ 1,362 $ 1,929 Accounts payable 37,002 28,315 Income taxes payable 2,078 3,375 Accrued expenses and other liabilities 27,050 23,404 - -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 67,492 57,023 - -------------------------------------------------------------------------------------------------------------------- Long-term Debt 173,603 187,266 Other Liabilities 17,965 18,372 Deferred Income Taxes 7,873 3,547 Stockholders' Equity Common stock 48,667 47,714 Retained earnings 93,816 86,436 Accumulated other comprehensive income (loss) (2,886) 1,113 Other (1,805) (2,006) - -------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 137,792 133,257 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 404,725 $ 399,465 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. Page 2 BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30 June 30 ----------------------------------------------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- Revenues $ 93,339 $ 84,941 $ 177,984 $ 165,025 Cost of products sold 75,866 82,080 146,944 150,535 - ---------------------------------------------------------------------------------------------------------------------- Gross margin 17,473 2,861 31,040 14,490 Selling 4,999 3,914 9,364 7,203 Administration 1,486 1,529 2,719 2,859 Impairment of long-lived assets - 42,800 - 42,800 Acquired research and development - 9,500 - 9,500 - ---------------------------------------------------------------------------------------------------------------------- Income (Loss) from Operations 10,988 (54,882) 18,957 (47,872) - ---------------------------------------------------------------------------------------------------------------------- Other Income and (Expense) Interest expense (3,410) (4,318) (6,873) (5,701) Interest income 81 45 86 77 Other income (expense) 69 (389) 459 (533) - ---------------------------------------------------------------------------------------------------------------------- Earnings (Loss) before Income Taxes 7,728 (59,544) 12,629 (54,029) Income Tax Expense (Benefit) 2,721 (22,392) 4,431 (20,686) - ---------------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ 5,007 $ (37,152) $ 8,198 $ (33,343) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) Per Share: Basic $ 0.18 $ (1.38) $ 0.30 $ (1.24) Diluted 0.18 (1.38) 0.30 (1.24) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Number of Shares Included in Per Share Computation: Basic 27,275 26,905 27,238 26,949 Diluted 27,769 26,905 27,587 26,949 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Dividends Declared Per Share $ 0.015 $ 0.015 $ 0.03 $ 0.03 - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. Page 3 BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30 -------------------------------------- 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities Net earnings (loss) $ 8,198 $ (33,343) Depreciation and amortization 11,377 10,369 Write-down of impaired long-lived assets - 42,800 Acquired in-process research and development - 9,500 Deferred income taxes 6,459 (18,798) Changes in operating assets and liabilities (7,679) (23,862) - ------------------------------------------------------------------------------------------------------------------------------- Total 18,355 (13,334) - ------------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities Additions to property, plant and equipment (5,251) (11,532) Business acquisitions, net of cash acquired - (101,000) - ------------------------------------------------------------------------------------------------------------------------------- Total (5,251) (112,532) - ------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities Decrease in short-term borrowings (186) (158) Increase (decrease) in long-term debt (13,195) 143,251 Common stock issued (repurchased), net 953 (15,720) Cash dividends paid (818) (820) Other 201 (84) - ------------------------------------------------------------------------------------------------------------------------------- Total (13,045) 126,469 - ------------------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (140) (17) - ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (81) 586 Cash and Cash Equivalents at Beginning of Period 1,028 2,383 - ------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 947 $ 2,969 - ------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------
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 June 30, 1999, and the results of operations and the cash flows for the periods ended June 30, 1999 and 1998. Except for the special charges recorded in the three and six-month periods ended June 30, 1998, such adjustments are of a normal recurring nature. Certain items in the financial statements for the periods ended June 30, 1998 have been reclassified to conform to the presentation for the periods ended June 30, 1999. The results of operations for the six-month period ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 1998 is derived from the audited balance sheet as of that date. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 2. Inventories
June 30, 1999 December 31, 1998 ------------- ----------------- Raw materials $ 19,506 $ 24,845 Work in process 14,149 9,047 Finished goods 52,482 48,961 ------------- ----------------- $ 86,137 $ 82,853 ------------- ----------------- ------------- -----------------
3. Derivative Financial Instruments Derivative financial instruments are used by the Company to reduce foreign exchange and interest rate risks. Effective in the quarter ended June 30, 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivatives and Similar Financial Instruments and for Hedging Activities." This Statement changed how the Company accounts for certain derivatives and hedging activities, including the following two key elements: (1) all derivatives are now measured at fair value and recognized as assets or liabilities and (2) derivatives meeting certain criteria required by SFAS No. 133 are now specifically designated as hedges and allowed hedge-accounting treatment. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. For cash-flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be recorded in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. Accounting for the Company's cross-currency swap agreements remains unchanged under SFAS No. 133 as these swaps continue to be accounted for under mark-to-market accounting. Interest Swap Agreements - In August 1998, the Company entered into multiple interest rate swap agreements for a total of $100,000 of notional debt which provide for the Company to swap a variable interest rate for fixed interest rates ranging from 7.12% to 7.14%. These swaps expire at various dates ranging from July 1999 to August 2000. Fixing the interest rate minimizes the Company's exposure to the uncertainty of floating Page 5 interest rates during the periods the swaps are outstanding. Amounts paid or received under the interest rate swap agreements are recorded as an adjustment to Interest Expense. At June 30, 1999, in accordance with SFAS No. 133, the fair market value of these swaps, which are classified as cash flow hedges, was recorded as a liability and as part of accumulated other comprehensive income (loss) - see footnote 4. Assuming no changes in underlying interest rates, approximately 85% of these losses are expected to be recorded into earnings within the next twelve months. Cross-Currency Swap Agreements - In January 1999, the Company entered into a cross-currency swap which provided for the Company to swap $10,000 of notional debt for the equivalent amount of Japanese yen-denominated debt. This swap was subsequently closed out in May 1999. Under this swap, the Company also effectively swapped a fixed U.S. dollar-based interest rate of 5.1% for a fixed Japanese yen-based interest rate of 1.05%. This Japanese yen-based debt derivative was accounted for under mark-to-market accounting. The Company recorded as other income a foreign exchange gain of $112 in the quarter ended June 30, 1999 related to this swap, realizing a total year-to-date foreign exchange gain of $453. In August 1999, the Company entered into an agreement to swap $10,000 of notional debt for the equivalent amount of Japanese yen-denominated debt. Under this swap, the Company also effectively swapped a floating U.S. dollar-based interest rate for a floating Japanese yen-based interest rate. This Japanese yen-based derivative is accounted for under mark-to-market accounting. Forward Foreign Exchange Contracts - In April 1999, to hedge certain German mark (DM) denominated raw material purchases, the Company entered into forward foreign exchange contracts to purchase a total of 15 million DM in monthly increments during the period ending December 31, 1999. As of June 30, 1999, contracts to purchase 12 million DM remained outstanding. At June 30, 1999, in accordance with SFAS No. 133, the fair market value of these contracts was recorded as a liability and as part of accumulated other comprehensive income (loss) - see footnote 4. Assuming no change in underlying foreign exchange rates, these losses are all expected to be recorded into earnings within the next twelve months. These contracts are classified as cash flow hedges under SFAS No. 133. 4. Comprehensive Income The components of comprehensive income, net of related tax, for the three and six-month periods ended June 30, 1999 and 1998 are as follows:
Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------------------- 1999 1998 1999 1998 ------------------------------------------------------------------- Net earnings (loss) $ 5,007 $ (37,152) $ 8,198 $ (33,343) Foreign currency translation adjustments (1,095) 344 (3,525) (133) Loss on derivative instruments (474) - (474) - -------------- ------------- --------------- -------------- Comprehensive income (loss) $ 3,438 $ (36,808) $ 4,199 $ (33,476) -------------- ------------- --------------- -------------- -------------- ------------- --------------- --------------
Foreign currency translation adjustment for 1999 is primarily due to the change in cumulative translation adjustment resulting from the strengthening of the U.S. dollar against the DM/Euro during the six-month period ended June 30, 1999. Page 6 5. Business Acquisition On May 15, 1998, the Company, through a wholly owned subsidiary, acquired the Orcolite business unit of the Monsanto Company (Orcolite) for the cash purchase price of $101,000. For financial statement purposes, the acquisition has been accounted for under the purchase method of accounting with the excess of the purchase price over the fair value of the net tangible assets acquired recorded as intangible assets which are being amortized over periods ranging from seven to thirty years. In addition, in accordance with generally accepted accounting principles, the independently appraised value of acquired in-process research and development purchased in conjunction with the acquisition was written-off as a charge of $9,500 (pre-tax) during the second quarter of 1998. The appraised value represents the estimated fair value of in-process R&D based on risk-adjusted cash flows related to the in-process R&D projects. At the date of the acquisition, the development of these projects had not reached technological feasibility, and these projects had no alternative future uses. There is no assurance that the in-process projects, which remain in progress, will be completed, or that they will meet either technological or commercial success. The consolidated statements of operations reflect the operations of Orcolite after May 15, 1998. The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and the Orcolite business unit as if the acquisition had occurred at the beginning of fiscal 1998, with pro forma adjustments to give effect to amortization of goodwill and other intangible assets, depreciation expense on the fair value of property, plant and equipment and interest expense on acquisition debt, together with the related income tax effects. The pro forma adjustments do not include the $9,500 write-off of acquired in-process research and development discussed above.
Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------------------- 1999 1998 1999 1998 ------------------------------------------------------------------- Revenues $ 93,339 $ 90,151 $ 177,984 $ 179,243 Net earnings (loss) 5,007 (37,692) 8,198 (34,961) Diluted earnings (loss) per share 0.18 (1.40) 0.30 (1.30)
The unaudited pro forma condensed combined financial information above is not necessarily indicative of what actual results would have been had the acquisition occurred at the date indicated. Also, the financial impact resulting from business synergies has not been reflected in the above pro forma financial information. Such synergies include the following: consolidation of selling, marketing, distribution, customer service and administrative functions; consolidation of research and development and technical services functions; optimization of combined production capacity; and improved purchasing leverage. 6. Impairment of Long-Lived Assets/Acquired In-Process Research and Development During the second quarter ended June 30, 1998, the Company recorded a pre-tax charge of $42,800 for the write-down of certain Precision Imaged Products (PIP) operations fixed assets, Page 7 primarily those related to the production of computer monitor masks. After careful assessment of various factors relevant to these assets, including significant declines in sales prices within the computer monitor mask market, management determined it was appropriate to write-down the value of these assets and, accordingly, such assets were written down to estimated fair value based on estimated discounted cash flows in accordance with SFAS No. 121. Also during the second quarter ended June 30, 1998, the independently appraised value of acquired in-process research and development purchased in conjunction with the Orcolite acquisition was written-off as a pre-tax charge of $9,500. 7. Segment Information The Company has two operating segments which manufacture and sell a variety of products: Precision Imaged Products (PIP) and Optical Products. PIP manufactures principally aperture masks which are photochemically etched fine mesh grids used in the manufacture of color television tubes and computer monitors. Optical Products manufactures ophthalmic lenses. The following is a summary of certain financial information relating to the two segments for the three-month period ended June 30, 1999:
Three Months Ended June 30 ----------------------------------------------------------------------------------------------- Precision Image Products Optical Products Consolidated --------------------------------- ------------------------------ ----------------------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- Revenues $ 55,851 $ 53,296 $ 37,488 $ 31,645 $ 93,339 $ 84,941 Cost of products sold 47,250 58,255 28,616 23,825 75,866 82,080 ---------------------------------------------------------------------------------------------------------------------- Gross margin 8,601 (4,959) 8,872 7,820 17,473 2,861 Gross margin % 15.4% (9.3)% 23.7% 24.7% 18.7% 3.4% Selling 1,591 1,133 3,408 2,781 4,999 3,914 Impairment of long- lived assets - 42,800 - - - 42,800 Acquired research and development - - - 9,500 - 9,500 Unallocated corporate administration - - - - 1,486 1,529 ---------------------------------------------------------------------------------------------------------------------- Income from operations $ 7,010 $ (48,892) $ 5,464 $ (4,461) $ 10,988 $ (54,882) ------------------------------------------------------------ ------------------------------------------------------------ Operating income % 12.6% (91.7)% 14.6% (14.1)% 11.8% (64.6)% Interest and other income (expense), net (3,260) (4,662) ------------ ----------- Earnings before income taxes $ 7,728 $ (59,544) ------------ ----------- ------------ -----------
Page 8 The following is a summary of certain financial information relating to the two segments for the six-month period ended June 30, 1999:
Six Months Ended June 30 ----------------------------------------------------------------------------------------------- Precision Image Products Optical Products Consolidated --------------------------------- ------------------------------ ----------------------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- Revenues $ 105,850 $ 108,568 $ 72,134 $ 56,457 $ 177,984 $ 165,025 Cost of products sold 92,339 108,320 54,605 42,215 146,944 150,535 ----------------------------------------------------------------------------------------------------------------------- Gross margin 13,511 248 17,529 14,242 31,040 14,490 Gross margin % 12.8% 0.2% 24.3% 25.2% 17.4% 8.8% Selling 2,948 2,266 6,416 4,937 9,364 7,203 Impairment of long- lived assets - 42,800 - - - 42,800 Acquired research and development - - - 9,500 - 9,500 Unallocated corporate administration - - - - 2,719 2,859 ----------------------------------------------------------------------------------------------------------------------- Income from operations $ 10,563 $ (44,818) $ 11,113 $ (195) $ 18,957 $ (47,872) ------------------------------------------------------------ ------------------------------------------------------------ Operating income % 10.0% (41.3)% 15.4% (0.3)% 10.7% (29.0)% Interest and other income (expense), net (6,328) (6,157) ------------ ------------ Earnings before income taxes $ 12,629 $ (54,029) ------------ ------------ ------------ ------------
8. Legal Matters During the quarter ended June 30, 1999, no significant new legal proceedings or environmental matters arose and there were no material changes in the status of the legal proceedings or environmental matters described in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Page 9 BMC INDUSTRIES, INC. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis of results of operations and financial condition should be read in conjunction with the Company's accompanying unaudited condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND 1998 Total revenues for the second quarter of 1999 increased by $8.4 million, or 10%, from the second quarter of 1998. Revenues of the Optical Products group generated sales of $37.5 million in the second quarter of 1999, up 18%, or $5.8 million, over the prior year quarter due predominantly to growth in sales of high-end products (polycarbonate, progressive and polarizing sun lenses) and largely driven by the acquisition of Orcolite in May 1998. Sales of high-end products increased 38% in second quarter 1999 over second quarter 1998 and accounted for 57% of total Optical Products group revenues in second quarter 1999 compared to 48% in second quarter 1998. Second quarter 1999 Optical Products group revenues were up 2% compared to the pro forma combined Vision-Ease/Orcolite 1998 revenues for the same period reflecting a decline in glass and plastic lens sales resulting from the continued shift in the ophthalmic lens market towards polycarbonate and a soft domestic retail segment affected by consolidation. Sales of high-end products in second quarter 1999 increased 11% over the pro forma combined Vision-Ease/Orcolite revenues for the same period in 1998. Revenues of the Precision Imaged Products (PIP) group for the second quarter increased 5% from the prior year quarter which was driven by increased sales of computer monitor masks and jumbo invar entertainment masks, offset by lower sales of standard AK steel and other-than-jumbo invar entertainment masks and by lower sales at BMSP. Sales of computer monitor masks in the second quarter of 1999 nearly doubled, increasing 97% compared to second quarter 1998, due to both incremental revenue from the Cortland monitor mask line that was restarted in the first quarter of 1999 and increased sales of larger-sized monitor masks. Sales of standard AK steel and other-than-jumbo invar entertainment masks in second quarter 1999 declined 19%, collectively, compared to the prior year quarter. These declines were partially offset by a 53% increase in sales of jumbo invar entertainment masks. In addition, performance of the Cortland monitor mask line showed progressive improvement over the course of the quarter. BMSP's second quarter 1999 revenues and operating income were down compared to second quarter 1998, but showed improvement over first quarter 1999, as disruptions in the ordering patterns of certain major customers improved. Cost of products sold were 81% of net sales for the second quarter of 1999, compared to 97% in the same period of 1998. The decreased cost of products sold percentage was due primarily to improved PIP gross margins and the increased mix of higher-margin optical product sales. The PIP gross margin percentage is up significantly from 1998 reflecting the unusual charges in the second quarter of 1998 related to mask inventories and moving certain mask inspection operations, the heavier mix of higher-margin invar entertainment mask sales, an improved monitor mask sales mix, and the impact of cost reduction initiatives; all offset by overall lower pricing within the Mask business, particularly within the monitor segment, and lower profitability at BMSP. Page 10 Selling expenses were $5.0 million, or 5.4%, of revenues and $3.9 million, or 4.6%, of revenues for the second quarter of 1999 and 1998, respectively. The increase is primarily due to higher selling costs associated with the Optical Products group, principally for expanded sales and marketing efforts associated with high-end products. During the second quarter ended June 30, 1998, the Company recorded a pre-tax charge of $42,800 for the write-down of certain Precision Imaged Products (PIP) operations fixed assets, primarily those related to the production of computer monitor masks. After careful assessment of various factors relevant to these assets, including significant declines in sales prices within the computer monitor mask market, management determined it was appropriate to write-down the value of these assets and, accordingly, such assets were written down to estimated fair value based on estimated discounted cash flows in accordance with SFAS No. 121. Also during the second quarter ended June 30, 1998, the independently appraised value of acquired in-process research and development purchased in conjunction with the Orcolite acquisition was written-off as a pre-tax charge of $9,500. Interest expense in the second quarter of 1999 decreased $0.9 million from the prior year quarter. This decrease is primarily due to financing costs incurred in the prior year as part of the cash purchase of Orcolite for $101 million in May of 1998. The provision for income tax expense (benefit) was 35% of pre-tax income and (38%) of pre-tax loss in the second quarter of 1999 and 1998, respectively. The difference in effective tax rate versus the statutory U.S. tax rate is primarily due to the impact of the tax benefit associated with dividends paid by the Company's German operation to the Parent Company which reduce the Company's effective tax rate. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND 1998 Total revenues for the first six months of 1999 increased by $13.0 million, or 8%, from the first six months of 1998. Revenues of the Optical Products group were up 28% due mainly to growth in sales of high-end products (polycarbonate, progressive and polarizing sun lenses) and largely resulting from the acquisition of Orcolite in May 1998. Optical Products group revenues for the six month period were up 2% compared to the pro forma combined Vision-Ease/Orcolite 1998 revenues for the same period. Revenues of the Precision Imaged Products (PIP) group for the six month period decreased 3% from the prior year period due primarily to a decline in sales of AK steel entertainment masks and the slowdown of BMSP offset by increased sales of monitor masks and jumbo invar entertainment masks. Cost of products sold were 83% and 91% of net sales for the first six months of 1999 and 1998, respectively. The decreased cost of sales percentage was due primarily to improved PIP gross margins and the increased mix of higher-margin optical product sales. The PIP gross margin is up from 1998 reflecting the unusual charges in the second quarter of 1998 related to mask inventories and moving certain mask inspection operations, the heavier mix of high-margin invar entertainment mask sales, an improved monitor mask sales mix and the impact of cost reduction initiatives; all offset by overall lower pricing within the Mask business, particularly within the monitor segment, and lower profitability at BMSP. Selling expenses were $9.4 million, or 5.3%, of revenues and $7.2 million, or 4.4%, of revenues for the first six months of 1999 and 1998, respectively. The increase is primarily due to higher selling costs associated with the Optical Products group, principally for expanded sales and marketing efforts associated with high-end products and incremental costs associated the Orcolite acquisition. Page 11 During the second quarter ended June 30, 1998, the Company recorded a pre-tax charge of $42,800 for the write-down of certain Precision Imaged Products (PIP) operations fixed assets, primarily those related to the production of computer monitor masks. After careful assessment of various factors relevant to these assets, including significant declines in sales prices within the computer monitor mask market, management determined it was appropriate to write-down the value of these assets and, accordingly, such assets were written down to estimated fair value based on estimated discounted cash flows in accordance with SFAS No. 121. Also during the second quarter ended June 30, 1998, the independently appraised value of acquired in-process research and development purchased in conjunction with the Orcolite acquisition was written-off as a pre-tax charge of $9,500. Interest expense in the first six months of 1999 was $6.9 million compared to $5.7 million in the first six months of 1998. This increase is primarily due to the increased debt level to fund the cash purchase of Orcolite for $101 million in May of 1998, offset partially by the financing costs incurred related to the Orcolite acquisition. The provision for income tax expense (benefit) was 35% of pre-tax income and (38%) of pre-tax loss for the first six months of 1999 and 1998, respectively. The difference in effective tax rate versus the statutory U.S. tax rate is primarily due to the impact of the tax benefit associated with dividends paid by the Company's German operation to the Parent Company which reduce the Company's effective tax rate. MARKET RISK There were no significant changes in market risks from those disclosed in the Company's Form 10-K for the year ended December 31, 1998. However, to hedge certain German mark (DM) denominated steel purchases, the Company entered into forward foreign exchange contracts to purchase a total of 15 million DM in monthly increments during the period ending December 31, 1999. FINANCIAL POSITION AND LIQUIDITY Debt decreased approximately $14.2 million from $189.2 million to $175.0 million during the first six months of 1999 primarily as a result of cash flow from operations of $18.8 million, offset by capital expenditures of $5.3 million. Working capital was $99.3 million at June 30, 1999 compared to $95 million at December 31, 1998. The current ratio was 2.5 at June 30, 1999 compared to 2.7 at December 31, 1998. The ratio of debt to capitalization was 0.56 at June 30, 1999 compared to 0.59 at December 31, 1998. There were no significant changes in the Company's credit facilities during the quarter ended June 30, 1999. The Company was in compliance with all covenants related to credit facilities at June 30, 1999. The Company continues to expect that the combination of present capital resources, internally-generated funds and unused financing sources will be adequate to meet the Company's financing requirements for 1999. ENVIRONMENTAL There were no material changes in the status of the legal proceedings and environmental matters described in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Page 12 YEAR 2000 COMPLIANCE The Company has computer systems and applications at the corporate level and at each of its operating divisions that require or have required modifications made necessary by the upcoming year 2000. If appropriate modifications are not made, or are not completed in a timely manner, the Y2K issue could have a material adverse impact on the operations of the Company. The Company has been addressing the Y2K issue using essentially the following four-phase approach: - Phase I - Identification of all significant computer systems within the Company with exposure to Y2K issues; - Phase II - For each system, assessment of Y2K issue(s) and required remediation; - Phase III - Remediation and testing of systems to be Y2K compliant; - Phase IV - Assessment of Y2K preparedness of significant third parties. Phase I was formally completed and summarized on a Company-wide basis in early 1998. Phase II is essentially completed for all information technology (IT) systems and is in process and estimated to be completed in the third quarter of 1999 for all non-IT systems. Non-IT systems are generally embedded technology, such as micro-controllers. Phase III is in various stages of completion depending on the systems involved. For IT systems, the most significant efforts of this phase involve the accelerated replacement of non-compliant IT systems within the Mask Operations group and the remediation and testing of important mainframe applications and operating systems within the Optical Products group. Y2K-compliant integrated IT systems from SAP are currently being implemented in the Mask Operations group in various phases beginning in early 1999 and continuing through the third quarter and fourth quarter of 1999. Y2K remediation and testing within the Optical Products group is currently in process and estimated to be completed during the fourth quarter of 1999. For non-IT systems, Phase III is scheduled to be completed during the fourth quarter of 1999. For Phase IV, the Company is in the process of assessing the Y2K preparedness of significant third parties, including key vendors and service providers, and estimates that this phase will be ongoing during the remainder of 1999. The Company currently estimates that it will cost $3-4 million using both internal and external resources to address the Y2K issue as discussed above, including the cost of replacing the IT systems within the Mask Operations group. Through June 30, 1999, the Company had spent approximately $2 million of this total estimate. The Company's current most reasonably likely worst case Y2K scenario is that modification work will not proceed on schedule, causing some increase to the total cost of achieving Y2K compliance, or the potential inability to obtain raw materials from suppliers in a timely manner. The impact on the Company's results of operations if the Company or its suppliers or customers are not fully Y2K compliant is not reasonably determinable. Since the Company is depending on its ability to execute modification plans and its vendors to continue material supply without interruption, there can be no assurance that unforeseen difficulties will not arise for the Company or its customers and that related costs will not thereby be incurred. Management believes it has planned appropriately to resolve the Y2K issue with respect to all material elements under the Company's direct control. A number of significant risks do exist, however, including the potential inability of the Company to obtain (or retain) the proper internal and external resources to fully address all Y2K exposures in the timeframes required and at the cost estimated, as well as the risk that key suppliers, customers or other significant third parties, including those in utilities, communications, transportation, banking and government are not prepared for the year 2000. Page 13 The Company has begun to establish contingency plans relative to the Y2K issue and expects to further develop such plans during the remainder of 1999. CAUTIONARY STATEMENTS Certain statements included in this Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q by the Company or its representatives, as well as other communications, including reports to shareholders, news releases and presentations to securities analysts or investors, contain forward-looking statements made in good faith by the Company pursuant to the "Safe Harbor" provisions of the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. These statements relate to non-historical information and include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements. The Company wishes to caution the reader not to place undo reliance on any such forward-looking statements, which reflect our opinion as of the date of this Form 10-Q. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected and include, among others, lower demand for televisions and computer monitors; further mask price declines and imbalances of supply and demand; unsuccessful customer part qualifications; liability and other claims asserted against the Company; continued slowdown at BMSP; inability to penetrate the lead frame market; inability to develop and introduce new products; failure of new products to gain customer acceptance; unsuccessful cost reduction and reorganization efforts; potential loss on cross-currency swaps; higher operating expenses and lower yields associated with production shutdowns or start-ups; negative foreign currency fluctuations affecting cross-currency swaps; inability to partner with new BMSP customers or transition development relationships into full scale production; the impact of Y2K information systems issues; the effect of the economic uncertainty in Asia; and a potential economic slowdown in other parts of the world such as South America. These and other factors are more particularly described in "Item 1 - Business" of the Company's Form 10-K for the year ended December 31, 1998, which in some cases have affected and in the future could adversely affect the Company's actual results and could cause the Company's actual financial performance to differ materially from that expressed in any forward-looking statement. These factors should not, however, be considered an exhaustive list. The Company does not undertake the responsibility to update any forward-looking statement that may be made from time to time by or on behalf of the Company. Page 14 Part II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. With regard to legal proceedings and certain environmental matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" which begins on page 10 and Note 8 of the "Notes to Condensed Consolidated Financial Statements" on page 9. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 12 . ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. The Company's 1999 Annual Meeting of Stockholders was held on May 12, 1999. One matter was submitted to a vote of stockholders: Election of certain members of the Company's Board of Directors. (1) The nominees for election to the Company's Board of Directors, as listed in the Company's Proxy Statement dated March 31, 1999, were elected for two year terms at that meeting. Voting for the individual nominees was as follows:
Nominee Votes For Votes Withheld or Against ------- --------- ------------------------- Mr. John W. Castro 22,211,506 853,658 Dr. H. Ted Davis 22,197,545 867,619 Mr. Joe E. Davis 22,197,706 867,458 Mr. James M. Ramich 22,201,605 863,559
The following directors did not stand for election this year because their terms of office continued after the meeting: Mr. Lyle D. Altman, Mr. Paul B. Burke and Mr. Harry A. Hammerly. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS 10.1 Third Declaration of Amendment, dated July 7, 1999, to the BMC Industries, Inc. Savings and Profit Sharing Plan (filed herein). 10.2 BME Share Pledge Agreement dated June 24, 1999 among the Company, Buckbee-Mears Europe and several banks (filed herein). 27. Financial Data Schedule (filed only in electronic format). 99.1 News Release, dated July 20, 1999, announcing the second quarter 1999 operating results (filed herein). Page 15 99.2 News Release, dated June 10, 1999, announcing quarterly dividend (filed herein). (b) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K for the quarter ended June 30, 1999. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BMC INDUSTRIES, INC. /s/ Jeffrey J. Hattara ------------------------------------------ Jeffrey J. Hattara Chief Financial Officer (Principal Financial Officer) /s/ Steven E. Opdahl ------------------------------------------ Steven E. Opdahl Controller (Principal Accounting Officer) Dated: August 16, 1999 Page 16 EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 BMC INDUSTRIES, INC. SAVINGS AND PROFIT SHARING PLAN THIRD DECLARATION OF AMENDMENT Pursuant to the retained power of amendment contained in Section 11.2 of the BMC Industries, Inc. Savings and Profit Sharing Plan, the undersigned hereby amends the Plan in the manner described below. 1. Section 12.18(a) is amended to read as follows: (a) The "Eligible Earnings" of a Participant from a Participating Employer for any Plan Year for purposes of Before-Tax Contributions, After-Tax Contributions and Matching Contributions is the sum of all remuneration paid to the Participant by the Participating Employer for the portion of a Plan Year in which he or she is an Active Participant that is reportable in the "wages, tips, other compensation" box of Internal Revenue Form W-2, increased by amounts that are deferred under Section 3.1 as Before-Tax Contributions and amounts by which a Participant's compensation from the Participating Employer for such portion of the Plan Year is reduced under a Code section 125 cafeteria plan. To the extent otherwise included, Eligible Earnings are determined under this clause (a) by excluding the amount of any imputed income of the Participant with respect to the portion of the Plan Year in which he or she is an Active Participant, severance pay of any kind or nature, tuition aid, relocation reimbursement, payments made pursuant to the BMC Industries, Inc. Long-Term Incentive Plan or amounts attributable to a stock incentive award (including, but not limited to stock options, stock appreciation rights, restricted stock, performance units or stock bonuses). 2. Section 12.18(b) is amended to read as follows: (b) The "Eligible Earnings" of a Participant from a Participating Employer for any Plan Year for the purpose of Profit Sharing Contributions is: (i) for non-sales personnel -- the Participant's annual base salary or wages paid to the Participant by the Participating Employer during the Plan Year, including shift premium, increased by amounts paid to the Participant by the Participating Employer during the Plan Year for time in excess of straight time but disregarding the portion of such amounts, if any, representing a premium over straight time rates, and (ii) for sales personnel -- the greater of (A) the Participant's annual base salary paid by the Participating Employer during the Plan Year, or (B) the lesser of (1) the Participant's annual base salary plus commissions paid by the Participating Employer during the Plan Year or (2) $60,000. To the extent otherwise included, Eligible Earnings are determined under this clause (b) by excluding severance pay of any kind or nature, tuition aid, relocation reimbursement, payments made pursuant to the BMC Industries, Inc. Long-Term Incentive Plan or amounts attributable to a stock incentive award (including, but not limited to stock options, stock appreciation rights, restricted stock, performance units or stock bonuses). 3. The foregoing amendment is effective as of July 1, 1999. IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed this 7th day of July, 1999. BMC INDUSTRIES, INC. Attest: /s/ Jon A. Dobson By: /s/ Stefan Peterson --------------------------- -------------------------------------- Secretary Director of Compensation, Benefits & HRIS EX-10.2 3 EXHIBIT 10.2 EXHIBIT 10.2 Number_119___of the Roll of Deeds for 1999 [LOGO] Transacted in Frankfurt am Main on June, 24th,1999 Before me, the undersigned Notary DIETER HEITBAUM with business residence in Frankfurt am Main appeared today 1. Rechtsanwalt Ralph Hummel, having his office at Wiesenau 1, 60323 Frankfurt am Main, Federal Republic of Germany, personally known to the notary, not acting in his own name and behalf, but, excluding any personal liability, according to powers of attorney presented, in the name and on behalf of a) BMC Industries, Inc, One Meridian Crossings, Suite 850, Minneapolis MN 55423 hereinafter called the "Pledgor" b) Buckbee-Mears Europe Gesellschaft mit beschrankter Haftung Renkenrunsstra(beta)e 24-26 Industriegebiet West 79379 Mullheim hereinafter called the "Company" 2. Rechtsanwalt Guido Zoller Fasanenweg 18 A, 56235 Ransbach-Baumbach identified by passport No. 2117132650 (Ransbach-Baumbach) not acting in his own name but in his capacity as Vice-President of Bankers Trust Company One Bankers Trust Plaza, 14th Floor 130 Liberty Street New York, New York 10006 USA acting as Collateral Agent for the Bank Creditors as listed unter a) - h) below hereinafter called the "Agent" and acting on behalf of: a) Wachovia Bank N.A., 191 Peachtree Street, NE, MC 370-28th Fl., Atlanta, GA 30303 b) Norwest Bank Minnesota, Norwest Center, 6th & Marquette-MS 0085, Minneapolis, MN 55479 c) First National Bank of Chicago, Mail Suite ILI 0088 One First National Plaza Chicago, IL 60670 d) Credit Agricole Indosuez, 55 East Monroe Street, Ste. 4700, Chicago, IL 60601 e) Bankers Trust Company 14th Floor, 130 Liberty Street, New York, NY 10006 f) Harris Bank & Trust, 111 W. Monroe Street, Chicago, IL 60690 g) Union Bank of California, 350 California Street, 6th Floor San Francisco, CA 94104 h) U.S. Bank National Association, 601 Second Avenue South, 6th Floor, Minneapolis, MN 55402 hereinafter called the "Pledgees" The persons appearing stated that the parties represented by them have requested that this instrument be recorded in the English language. As the Notary and the persons appearing have command of the English language, this recording is done in English. The Notary asked the persons appearing whether they, or any member of their respective firms had acted in the matter which is the subject of this instrument, except in a notarial capacity. The persons appearing replied in the negative. The persons appeared asked the notary to record the following SHARE PLEDGE AGREEMENT (Verpfandungsvereinbarung uber GmbH-Geschaftsanteile) 1. Pledgor is the legal and beneficiary owner of all shares of Buckbee-Mears Europe Gesellschaft mit beschrankter Haftung, a company with limited liability organized and existing under laws of the Federal Republic of Germany and registered at the Commercial Register of the Lower Court in Freiburg im Breisgau under number HRB 60Mu with a registered share capital of DM 6,100,000.-- (the "Company") which comprises of: 1 share of DM 2.000.000 1 share of DM 1.500.000 1 share of DM 1.000.000 1 share of DM 980.000 1 share of DM 600.000 1 share of DM 19.000 1 share of DM 1.000 All of the share capital has been fully paid; an obligation for additional contribution to the share capital does not exist ("keine Nachschu(beta)pflicht"). None of the shares is certificated. 2.1 Pledgor has entered into a written Pledge Agreement on June 25, 1998, which is governed by the laws of the State of New York, U.S.A. with the Agent as Collateral Agent for the Pledgees and the Agent as lenders under a Credit Agreement dated as of June 25, 1998, under which the Pledgor besides other collateral such as the pledge of shares in other non-German subsidiaries is required to pledge 65% of the issued and outstanding shares in the Company. To comply with the formal requirements of valid share pledges under Section 15 GmbHG (German law on limited liability companies) the parties have decided to enter into this notarial Share Pledge Agreement. 2.2 Agent has been appointed to act as Agent hereunder by Pledgees pursuant to the Credit Agreement. All actions, whether corporate or other, options, rights, notices or other acts or things to be taken, exercised, given or done by the Pledgees hereunder shall exclusively be taken, exercised, given or done by the Agent as representative on behalf of each Pledgee and the Pledgor shall direct all actions, declarations, exercises of rights, notices or other acts or things to be taken solely to the Agent. 3. Pledgor hereby pledges ("verpfandet") to Pledgees 65% of its shares in the entire capital stock of the Company in the total amount of DM 3,965,000 constituting 65% of the issued and outstanding capital stock of the Company which 65% shall comprise off: _ 1 share of DM 2.000.000; _ 1 share of DM 1.000.000 and _ 1 split share of DM 965.000 (out of the share of DM 980.000 described under 2. above) as well as 65% of all shares in the Company which the Pledgor may acquire or create in the future in the event of any increase of the statutary share capital of the Company or otherwise. 3.1 The Pledge shall secure Pledgor's current and future obligations arising from the above mentioned Credit Agreement and other Loan Documents and any Interest Rate Protection and Other Hedging Agreement with the Pledgees (collectively, the "Secured Debt Agreements"), whether now in existence or hereafter arising as amended and restated and all further defined in the Pledge Agreement dated June 25, 1998 in its Section 1 and therein collectively called the Secured Obligations. The parties to this Agreement understand that, if the Pledges created hereunder lapse during the time the Secured Debt Agreements are in effect because all Secured Obligations have been repaid in full, the Pledges will again be created if due to another drawdown or request for extension of credit by the Pledgor under the Secured Debt Agreement again Secured Obligations are created. Upon the assignment of any of the Secured Obligations or any part thereof by any of the Pledgees, the respective assignee will, by operation of law, obtain a pledge (Pfandrecht) over the Shares or become a joint holder of a pledge over the Shares. So long as any rights or obligations hereunder do not pass to the assignee by operation of law, each Pledgee may, to the extent possible under German law, upon assignment of any of the Secured Obligations or any portion thereof, assign or otherwise transfer all or any portion of its rights or obligations hereunder in accordance with the provisions in this regard set out in the Credit Agreement but not otherwise. 3.2 Unless an Event of Default as defined in the Secured Debt Agreements shall have occurred and be continuing and the Pledgees have not exercised enforcement rights under Section 5. hereof all cash dividends and distributions payable in respect of the Pledged Shares shall be paid to the Pledgor which owns such Pledged Shares, PROVIDED, that all cash dividends payable in respect of the Pledged Shares that represent in whole or in part an extraordinary, liquidating or other distribution in return of capital shall be paid, to the extent representing an extraordinary, liquidating or other distribution in return of capital, to the Pledgees and retained by them as part of the collateral. 4. As long as no Event of Default as defined in the Secured Debt Agreements shall have occurred and be continuing and the Pledgees have not exercised enforcement rights provided for in Section 5 hereof, the Pledgor shall be entitled to exercise all voting rights attached to the Shares for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement. Upon the occurrence and during the continuance of an Event of Default, the Pledgees shall, notwithstanding any other rights or remedies that they may have, be entitled to exercise, after giving the Pledgor at least five days prior written notice, all of the voting rights thereafter; and the Pledgor hereby irrevocably grants a power of attorney to the Agent on behalf of the Pledgees (and their successors) to vote the Shares at any shareholders' meeting thereafter and to exercise any other voting rights the Pledgors may have with respect to the Shares. Upon receipt of such notification, the Pledgor shall no longer be permitted to exercise any of the voting rights. The right of the Pledgees to exercise such voting rights shall be for the duration of this Agreement only and shall lapse upon the curing of the Event of Default and in any case upon complete satisfaction of the Secured Obligations. 5. The Pledgees may, at any time after any Event of Default, as defined in the Secured Debt Agreements, has occurred and is continuing, avail themselves of all rights and remedies that a Pledgee has upon default of a Pledgor under the law of the Federal Republic of Germany. Unless otherwise provided herein, Section 1273 et seq. of the German Civil Code (BGB) shall apply. Notwithstanding anything herein to the contrary, such rights and remedies shall be exercised solely by the Agent acting on behalf of the Pledgees in accordance with the terms of the Credit Agreement. The Pledgees shall be entitled to have the Pledged Shares sold at public auction, provided that the Pledgees have requested in writing to fulfill the Secured Obligations within a period of 15 days and further provided that the Pledgor does not satisfy these Secured Obligations within the time limit set. 6. Pledgor hereby represents and warrants that its shares as well as any further rights and claims resulting from its participation in the Company are neither assigned nor pledged or encumbered with any other rights of third parties in priority to those of the Pledgees. 7. Shareholders Resolution The Pledgor, being the only shareholder of the Company, waiving all forms and requirements of the calling and holding of a shareholders' meeting, hereby holds a shareholders' meeting and resolves unanimously as follows: (1) The split-up of the share in the amount of DM 980.000 into one split share in the amount of DM 965.000 which is subject to the Pledge under the Share Pledge Agreement and the transactions contemplated hereby, and one remaining split share in the amount of DM 15.000 is, for the purposes of this Agreement and the transactions contemplated hereby, herewith resolved. It is further resolved that, for the pledges of future shares under this Agreement, any additional share capital of the Company, in whatever nominal value, which the Pledgor may acquire or create in the future in the event of any increase of the stated capital of the Company or otherwise, shall be split into one split share in the nominal value equal to 65% of the nominal value of any additional share capital (such split share being a future share hereunder) and one remaining split share in a nominal amount equal to 35% of such additional share capital; provided, that if due to the German law provisions on the nominal amount of shares, a split share equaling 65% of any additional share capital may not be formed, this split share shall be deemed to have such a nominal amount permissible, under German law, which is lower than, but comes as close as possible to, 65% of the additional share capital, and provided further, that a split share equaling less 65% of any additional share capital may not be formed, the split share shall be deemed to have such nominal amount permissible under German law which is higher than, but comes as close as possible to, 65% of the additional share capital. The same procedure shall apply upon the upcoming conversion of the Company's share capital in the European Currency Euro. (2) The management of the Company is hereby instructed to grant the consent to the Pledges and each of the share splits under Section 7 (1) above according to Section 17 subsection 1 of the German Law on Limited Liability Companies (GmbHG) on behalf of the Company. 8. The approval to the Pledge of the pledged shares under the Agreement which under Section 8 of the articles of association of the Company requires the Company's approval is hereby granted by the Company. Furthermore, the approval to the share-splits resolved under Section 7 above is approved. 9. The fees for this notarial deed and its execution shall be borne by Pledgor. 10. If a provision of this Agreement is or becomes invalid, the validity of the remaining provisions shall remain unaffected thereby; the parties undertake to replace the invalid provision by a valid provision which comes as near as possible to the economic purpose of the invalid provision. 11. This Agreement shall be governed by German law. The persons appearing instructed the Notary to notify the Company of the execution of this instrument pursuant to Section 16 GmbH AcT (GmbHG) and Section 1280 German Civil Code (BGB) by delivery of a certified copy of this instrument. The Notary advised the persons appearing (1) that a first priority pledge interest will not be created unless the Pledgor is the lawful owner of the shares and has not previously disposed of or encumbered such shares, and that there is no bona fide acquisition of shares or pledge of shares under German law; (2) that a pledge interest will not be created unless the Pledgee is creditor of the Secured Obligations and unless and as long as the Secured Obligations by this Pledge legally exist; (3) that the parties hereto will be liable as joint and several debtors for all notarial fees and taxes, if any, by operation of law, irrespective of whatever internal agreement has been made in that respect. The persons appearing stated that the value of the shares of the Company is DM 3.965.000. This instrument was read to the persons appearing, approved by them and personally signed by them and the notary as follows: /s/ Ralph Hummell /s/ Guido Zoller Notarized by: /s/ Dieter Heitbaum EX-27 4 EXHIBIT 27
5 0000215310 BMC INDUSTRIES, INC 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 943 4 59,882 7,011 86,137 166,813 273,173 118,830 404,725 67,492 0 0 0 48,667 89,125 404,725 177,984 177,954 146,944 12,083 (459) 0 6,873 12,629 4,431 8,198 0 0 0 8,198 0.30 0.30
EX-99.1 5 EXHIBIT 99.1 EXHIBIT 99.1 CONTACT: Jeffrey J. Hattara (NYSE - BMC) (612) 851-6030 FOR IMMEDIATE RELEASE BMC REPORTS SECOND QUARTER 1999 EARNINGS July 20, 1999 - Minneapolis, MN - BMC Industries, Inc. reported net earnings of $5.0 million, or $0.18 per diluted share, for the quarter ended June 30, 1999. This compares to a net loss of $37.2 million, or $1.38 per diluted share (net earnings of $2.6 million, or $0.09 per diluted share, excluding one-time and special charges), in the second quarter of 1998. Total second quarter revenues increased 10% from $84.9 million in 1998 to $93.3 million in 1999. Paul B. Burke, BMC's Chairman and Chief Executive Officer stated "We are pleased with the overall performance of the Company in the second quarter. This quarter's results reflect strong incremental growth in sales of computer monitor masks attributable to the Cortland monitor mask line that was restarted earlier in the year, as well as the ongoing benefits from the integration of the Orcolite acquisition into Vision-Ease. During the second quarter, we increased revenues by 10% and improved operating income by 52% over the prior year quarter. We also continued progress on cash generation for debt reduction and strategic investments. We believe that our improving operating performance and strengthening balance sheet will drive further growth in both revenue and earnings." BMC's Optical Products group generated sales of $37.5 million in the second quarter of 1999, up 18%, or $5.8 million, over the prior year quarter due predominantly to growth in sales of high-end products (polycarbonate, progressive and polarizing sun lenses) and largely driven by the acquisition of Orcolite in May 1998. Sales of high-end products increased 38% in second quarter 1999 over second quarter 1998 and accounted for 57% of total Optical Products group revenues in second quarter 1999 compared to 48% in second quarter 1998. Second quarter 1999 Optical Products group revenues were up 2% compared to the pro forma combined Vision-Ease/Orcolite 1998 revenues for the same period due to a decline in glass and plastic lens sales resulting from the continued shift in the ophthalmic lens market towards polycarbonate and a soft domestic retail segment affected by consolidation. However, sales of high-end products in second quarter 1999 increased 11% over the pro forma combined Vision-Ease/Orcolite revenues for the same period in 1998. Driven by this high-end product sales growth, the Optical Products group's ongoing operating earnings increased 8% during the second quarter of 1999 over the prior year quarter. Vision-Ease achieved this improvement in earnings despite the impact of additional amortization expense and substantially increased sales and marketing expenses in the quarter, including considerable incremental promotional expenditures on the new -more- proprietary Outlook-TM- progressive lens, as well as additional sales support for our proprietary polarized product line to prepare for the peak sun lens season. Vision-Ease is beginning to see the benefit of these investments through new product growth, including a greater than 50% increase in sales of sun lens products during second quarter 1999 over the same period in 1998, and the addition of the Outlook(TM) lens to the product offering of several major retailers. Testing continued during the quarter at several retail locations for Vision-Ease's proprietary lens lamination system, which makes it possible for dispensers to provide premium, anti-reflective coated, multi-focal polycarbonate lenses to consumers on a same-day basis. Vision-Ease remains on schedule for the roll out of this system in the second half of this year. The Company has received strong interest in this system from both domestic and international customers. Second quarter revenues from the Precision Imaged Products group ("PIP", which includes both the Mask Operations and Buckbee-Mears St. Paul) increased 5% from $53.3 million in second quarter 1998 to $55.9 million in second quarter 1999. This revenue increase was driven by increased sales of computer monitor masks and jumbo invar entertainment masks, offset by lower sales of standard AK steel and other-than-jumbo invar entertainment masks and by lower sales at BMSP. Sales of computer monitor masks in the second quarter of 1999 nearly doubled, increasing 97% compared to second quarter 1998, due to both incremental revenue from the Cortland monitor mask line that was restarted in the first quarter of 1999 and increased sales of larger-sized monitor masks. Sales of standard AK steel and other-than-jumbo invar entertainment masks in second quarter 1999 declined 19%, collectively, compared to the prior year quarter. These declines were partially offset by a 53% increase in sales of jumbo invar entertainment masks. In addition, performance of the Cortland monitor mask line showed progressive improvement over the course of the quarter. BMSP's second quarter 1999 revenues and operating income were down compared to second quarter 1998, but showed improvement over first quarter 1999, as the previously announced disruption in the ordering patterns of certain major customers improved. During the second quarter, BMSP continued to devote substantial efforts and resources to increasing new business, diversifying its customer base and reducing costs. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are intended to be covered by the safe harbors created thereby. Statements made in this press release which are not strictly historical, including statements regarding future performance, are forward-looking statements and as such are subject to a number of risks and uncertainties, including, among others, lower demand for televisions and computer monitors; further mask price declines and imbalances of supply and demand; successful customer part qualifications; liability and other claims asserted against BMC; continued slowdown at BMSP; successful new product development, introduction and acceptance, including the roll out of the lens lamination system; successful cost reduction and reorganization efforts; higher operating expenses and lower yields associated with any additional production shutdowns or start-ups; negative foreign currency fluctuations, including adverse fluctuations affecting cross-currency swaps; inability to partner with new -more- BMSP customers; the impact of Y2K information systems issues; the effect of the economic uncertainty in Asia; and a potential economic slowdown in other parts of the world such as South America. These and other risks and uncertainties are detailed in BMC's Annual Report and Form 10-K for the year ended December 31, 1998. BMC Industries, Inc. is a leading producer of polycarbonate, glass and plastic eyewear lenses. BMC is also one of the world's largest manufacturers of aperture masks for color picture tubes used in televisions and computer monitors. BMC's common stock is traded on the New York Stock Exchange under the symbol BMC. -more- BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------------------ 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- Revenues $ 93,339 $ 84,941 $ 177,984 $ 165,025 Cost of products sold 75,866 82,080 146,944 150,535 - -------------------------------------------------------------------------------------------------------------------------------- Gross Margin 17,473 2,861 31,040 14,490 Selling 4,999 3,914 9,364 7,203 Administrative 1,486 1,529 2,719 2,859 Impairment of long-lived assets - 42,800 - 42,800 Acquired research and development - 9,500 - 9,500 - -------------------------------------------------------------------------------------------------------------------------------- Income from Operations 10,988 (54,882) 18,957 (47,872) - -------------------------------------------------------------------------------------------------------------------------------- Other Income and (Expense) Interest expense (3,410) (4,318) (6,873) (5,701) Interest income 81 45 86 77 Other income (expense) 69 (389) 459 (533) - -------------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 7,728 (59,544) 12,629 (54,029) Income Taxes 2,721 (22,392) 4,431 (20,686) - -------------------------------------------------------------------------------------------------------------------------------- Net Earnings $ 5,007 $ (37,152) $ 8,198 $ (33,343) - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Net Earnings Per Share: Basic $ 0.18 $ (1.38) $ 0.30 $ (1.24) Diluted 0.18 (1.38) 0.30 (1.24) - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Number of Shares Included in Per Share Computation: Basic 27,275 26,905 27,238 26,949 Diluted 27,769 26,905 27,587 26,949 - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
-more- BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands)
- ------------------------------------------------------------------------------------------------------------------------ JUNE 30 December 31 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 947 $ 1,028 Trade accounts receivable, net 52,871 39,163 Inventories 86,137 82,853 Deferred income taxes 14,644 14,603 Other current assets 12,214 14,347 - -------------------------------------------------------------------------------------------------------------------------- Total Current Assets 166,813 151,994 - -------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment 273,173 276,630 Less accumulated depreciation 118,830 114,036 - -------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 154,343 162,594 - -------------------------------------------------------------------------------------------------------------------------- Deferred income taxes 3,775 5,431 Intangibles and other assets, net 79,794 79,446 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 404,725 $ 399,465 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------------------------------------------- Short-term borrowings $ 1,362 $ 1,929 Accounts payable 37,002 28,315 Income taxes payable 2,078 3,375 Accrued expenses and other current liabilities 27,050 23,404 - -------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 67,492 57,023 - -------------------------------------------------------------------------------------------------------------------------- Long-term debt 173,603 187,266 Other liabilities 17,965 18,372 Deferred income taxes 7,873 3,547 Stockholders' equity Common stock 48,667 47,714 Retained earnings 93,816 86,436 Accumulated other comprehensive income (2,886) 1,113 Other (1,805) (2,006) - -------------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 137,792 133,257 - -------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 404,725 $ 399,465 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
-more- BMC INDUSTRIES, INC. SEGMENT INFORMATION (Unaudited) (in thousands)
Three Months Ended June 30 --------------------------------------------------------------------------------------------------------- Precision Imaged Products Optical Products Consolidated --------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Revenues $ 55,851 $ 53,296 $ 37,488 $ 31,645 $ 93,339 $ 84,941 Cost of products sold 47,250 58,255 28,616 23,825 75,866 82,080 - ----------------------------------------------------------------------------------------------------------------------------------- Gross margin 8,601 (4,959) 8,872 7,820 17,473 2,861 Gross margin % 15.4% (9.3)% 23.7% 24.7% 18.7% 3.4% Selling 1,591 1,133 3,408 2,781 4,999 3,914 Impairment of long-lived assets - 42,800 - - - 42,800 Acquired research and development - - - 9,500 - 9,500 Unallocated corporate administration - - 1,486 1,529 - ----------------------------------------------------------------------------------------------------------------------------------- Income from operations $ 7,010 $ (48,892) $ 5,464 $ (4,461) $ 10,988 $ (54,882) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Operating income % 12.6% (91.7)% 14.6% (14.1)% 11.8% (64.6)% Capital spending $ 2,747 $ 7,574 Depreciation and amortization $ 5,730 $ 5,365 EBITDA $ 16,787 $ (49,906) EBITDA % 18.0% (58.8)%
-30- EX-99.2 6 EXHIBIT 99.2 EXHIBIT 99.2 Contact: Jeffrey J. Hattara (NYSE-BMC) (612)851-6030 FOR IMMEDIATE RELEASE BMC ANNOUNCES QUARTERLY DIVIDEND June 10, 1999 -- Minneapolis, Minnesota - BMC Industries, Inc. today announced that its Board of Directors has approved a continuation of its quarterly cash dividend of $.015 per share. Shareholders of record as of June 23, 1999 will receive a dividend of $.015 for each share owned on that date, to be paid on July 7, 1999. BMC Industries, Inc. is one of the world's largest manufacturers of aperture masks for color picture tubes used in televisions and computer monitors. The Company is also a leading producer of polycarbonate, glass and plastic eyewear lenses. BMC's common stock is traded on the New York Stock Exchange under the symbol BMC. -30- -----END PRIVACY-ENHANCED MESSAGE-----