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 September 30, 1994. 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.) TWO APPLETREE SQUARE, MINNEAPOLIS, MINNESOTA 55425 -------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (612) 851-6000 -------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. X Yes No ----- ----- BMC Industries, Inc. has outstanding 13,344,842 shares of common stock as of November 9, 1994. There is no other class of stock outstanding. Page 1 of 14. Exhibit Index Begins at Page 9. PART I FINANCIAL INFORMATION BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) Item 1: Financial Statements September 30 December 31 ASSETS 1994 1993 - ---------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 8,630 $ 10,927 Trade accounts and notes receivable, net of allowances 24,778 22,711 Inventories - Note 7 29,672 27,278 Deferred income taxes 2,783 4,051 Other current assets 5,540 6,547 - ---------------------------------------------------------------------------- Total Current Assets 71,403 71,514 - ---------------------------------------------------------------------------- Property, Plant and Equipment 129,878 116,990 Less Accumulated Depreciation 85,064 73,985 ------- ------- Property, Plant and Equipment - Net 44,814 43,005 ------- ------- Deferred Income Taxes 7,853 8,095 Other Assets - Net 7,950 7,698 - ---------------------------------------------------------------------------- Total Assets $132,020 $130,312 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------- Current Liabilities Current portion of long-term debt $ 19 $ 8,914 Accounts payable 13,013 9,828 Income taxes payable 6,362 3,976 Accrued expenses 19,745 14,279 - ---------------------------------------------------------------------------- Total Current Liabilities 39,139 36,997 - ---------------------------------------------------------------------------- Long-Term Debt 52 18,333 Other Liabilities 15,617 15,237 Deferred Income Taxes 909 845 Stockholders' Equity Common stock 50,626 43,611 Other (1,165) (1,097) Retained earnings 22,487 13,928 Cumulative translation adjustment 4,355 2,458 - ---------------------------------------------------------------------------- Total Stockholders' Equity 76,303 58,900 - ---------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $132,020 $130,312 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 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 Nine Months Ended September 30 September 30 ---------------------- ------------------------ 1994 1993 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ Revenues Net sales of primary products $53,488 $44,558 $159,434 $138,902 Equipment and technology sales 491 650 4,256 1,604 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues 53,979 45,208 163,690 140,506 - ------------------------------------------------------------------------------------------------------------------------------ Operating Costs and Expenses Cost of sales of primary products 45,593 39,421 133,155 118,282 Cost of equipment and technology sales 201 301 3,145 577 Selling 2,038 1,818 6,140 5,784 Administrative 994 729 3,049 2,826 - ------------------------------------------------------------------------------------------------------------------------------ Total operating costs and expenses 48,826 42,269 145,489 127,469 - ------------------------------------------------------------------------------------------------------------------------------ Income from Operations 5,153 2,939 18,201 13,037 - ------------------------------------------------------------------------------------------------------------------------------ Other Income and (Expense) Interest expense (1,240) (1,149) (3,052) (3,829) Interest income 168 44 379 159 Other (36) 72 (19) 65 - ------------------------------------------------------------------------------------------------------------------------------ Earnings from Continuing Operations before Income Taxes and Cumulative Effect of Accounting Changes 4,045 1,906 15,509 9,432 Income Tax Provision 1,759 419 5,844 2,722 - ------------------------------------------------------------------------------------------------------------------------------ Earnings from Continuing Operations before Cumulative Effect of Accounting Changes 2,286 1,487 9,665 6,710 Provision for Loss Related to Discontinued Operation (less applicable income tax benefit of $461)--(Note 5) -- -- (839) -- - ------------------------------------------------------------------------------------------------------------------------------ Earnings Before Cumulative Effect of Accounting Changes 2,286 1,487 8,826 6,710 Cumulative Effect of Accounting Changes (Note 6) -- -- -- 12,131 - ------------------------------------------------------------------------------------------------------------------------------ Net Earnings $ 2,286 $ 1,487 $ 8,826 $ 18,841 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share from Continuing Operations $ 0.16 $ 0.12 $ 0.71 $ 0.55 Loss Per Share Related to Discontinued Operation -- -- (.06) -- Cumulative Effect of Accounting Changes -- -- -- 0.99 - ------------------------------------------------------------------------------------------------------------------------------ Net Earnings Per Share $ 0.16 $ 0.12 $ 0.65 $ 1.54 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Number of Shares Included in Per Share Computation 13,861 12,594 13,569 12,264 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Dividends Declared Per Share $ 0.02 $ -- $ 0.02 $ -- - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ See accompanying Notes to Condensed Consolidated Financial Statements. Page 3 BMC INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30 ----------------- 1994 1993 - ------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities Net earnings $ 8,826 $ 18,841 Depreciation and amortization 6,660 6,322 Effect of accounting changes 0 (12,131) Changes in operating assets and liabilities 9,201 2,468 - ------------------------------------------------------------------------------------------------- Total 24,687 15,500 - ------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities Additions to property, plant and equipment (6,709) (5,916) Other 6 (16) - ------------------------------------------------------------------------------------------------- Total (6,703) (5,932) - ------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities Decrease in short-term borrowings (23) (194) Repayment of long-term debt(1) (22,534) (13,129) Common stock issued(1) 2,036 753 - ------------------------------------------------------------------------------------------------- Total (20,521) (12,570) - ------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents 240 (56) - ------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (2,297) (3,058) Cash and Cash Equivalents at Beginning of Period 10,927 9,376 - ------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 8,630 $ 6,318 - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- <FN> (1) IN 1994, IN ADDITION TO THE LONG-TERM DEBT REPAYMENT AND COMMON STOCK ISSUANCE SHOWN ABOVE, $4,911 OF LONG-TERM DEBT WAS FORGIVEN AS CONSIDERATION FOR THE EXERCISE OF WARRANTS. 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 September 30, 1994, and the results of operations and the cash flows for the periods ended September 30, 1994 and 1993. Such adjustments are of a normal recurring nature. Certain items in the financial statements for the period ended September 30, 1993 have been reclassified to conform to the presentation for the period ended September 30, 1994. The results of operations for the three-month and nine-month periods ended September 30, 1994 are not necessarily indicative of the results to be expected for the full year. The balance sheet at December 31, 1993 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, 1993. 2. Retirement of Long-Term Debt In the third quarter of 1994, the Company repaid all of its outstanding senior, subordinated and industrial development revenue bond debt. 3. Exercise of Warrants by Warrant Holders In the third quarter of 1994, all remaining holders of warrants to purchase the Company's common stock exercised their warrants. As a result, the Company issued 445,605 shares of its common stock to warrant holders. During the nine months ended September 30, 1994, all holders of warrants exercised their warrants resulting in the issuance of 965,514 shares of common stock. 4. Stock Split On August 15, 1994, the Company declared a two-for-one stock split. Shareholders of record on August 25, 1994, received one additional share of common stock for each common share owned on that date. As a result, the number of outstanding shares and earnings per share for prior periods presented have been restated to reflect the split. Page 5 5. Provision for Loss Related to Discontinued Operation In the first quarter of 1994, the Company made a provision for estimated losses of $1,300, less applicable income tax effect of $461, related to a discontinued operation. This provision was prompted by claims and expenses growing out of environmental contamination and other claims related to the discontinued operation. The environmental contamination occurred before 1980 at an operation acquired by the Company in 1983 and disposed of in 1986. 6. Accounting Changes Effective January 1, 1993, the Company changed its method of accounting for income taxes as required by Financial Accounting Standards Board Statement No. 109, ACCOUNTING FOR INCOME TAXES. As permitted under the new rules, prior years' financial statements were not restated. The cumulative effect of adopting Statement No. 109 as of January 1, 1993, was to increase net income by $12,855 or $1.05 per share. The principal change affecting the Company under Statement No. 109 is a change in the recognition and measurement criteria with respect to deferred tax assets. Also effective January 1, 1993, the Company adopted Financial Accounting Standards Board Statement No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The cumulative effect of adopting Statement No. 106 was to decrease net income by $724, net of tax, or $.06 per share. Under the new rules the Company accrues the expected cost of providing postretirement benefits other than pensions during the years that eligible employees render service. 7. Inventories September 30, 1994 December 31, 1993 ------------------ ----------------- Raw materials $11,921 $8,543 Work in process 4,984 4,559 Finished goods 12,767 14,176 ------- ------- Total Inventories $29,672 $27,278 ------- ------- ------- ------- 8. Long-term Contract Work is continuing on a long-term contract for the construction of aperture mask production equipment for a customer in China. At September 30, 1994, the contract was 11.5% complete. No change has been made in the estimate of costs to complete the contract. 9. Earnings Per Share Primary earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common stock equivalents include dilutive stock options and warrants using the treasury stock method. Fully diluted earnings per share did not differ significantly from primary earnings per share in both years. Page 6 BMC INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 Total revenues for the third quarter of 1994 increased by $8.8 million or 19% from the third quarter of 1993. Net sales of primary products increased $8.9 million or 20% from the third quarter of 1993. Net sales of the Precision Imaged Products group increased by 33% due primarily to an improvement in sales mix related to increased sales of larger-sized and invar color television aperture masks. Net sales of the Optical Products group increased 2% due primarily to an increase in unit sales of polycarbonate eyewear lenses partially offset by a decline in sales of hard resin plastic eyewear lenses. Cost of sales of primary products was 85.2% of net sales for the third quarter of 1994, compared to 88.5% in the same period of 1993. The improvement occurred in both groups and was due primarily to improved sales mix and enhanced manufacturing efficiencies. Net interest expense for the third quarter of 1994 declined by $33,000 in comparison to the prior year's third quarter. This was due primarily to lower average debt balances in the third quarter of 1994, largely offset by charges associated with the prepayment of the Company's long-term debt. The provision for income taxes was 43.5% of pre-tax income in the third quarter of 1994 compared to 22.0% for the same period in 1993. The Company anticipates that its effective tax rate for the total year of 1994 will be in the approximate range of 37% to 41%. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 Total revenues for the first nine months of 1994 increased $23.2 million or 17% over the first nine months of 1993. Net sales of primary products increased $20.5 million or 15% . Net sales of the Precision Imaged Products group increased by 19% due primarily to an improvement in sales mix related to increased sales of larger-sized and invar color television aperture masks. Net sales of the Optical Products group increased 8%, due primarily to an increase in unit sales of polycarbonate eyewear lenses. Cost of sales of primary products was 83.5% of net sales in the first nine months of 1994 compared to 85.2% in the same period of 1993. The improvement occurred throughout the Company and was due primarily to improved sales mix and enhanced manufacturing efficiencies. Net interest expense declined by $997,000 in the first nine months of 1994 compared to the same period in 1993, due to lower average debt balances, partially offset by charges associated with prepayment of the Company's long term debt. The provision for income taxes was 37.7% of pre-tax income in the first nine months of 1994 compared to 28.9% for the same period in 1993. The Company anticipates that its effective tax rate for the total year of 1994 will be in the approximate range of 37% to 41%. Page 7 FINANCIAL POSITION AND LIQUIDITY Cash and cash equivalent balances declined by $2.3 million during the first nine months of 1994, due primarily to prepayment of substantially all of the Company's debt and capital expenditures, partially offset by collections on an equipment contract, the exercise of warrants and a net reduction in non-cash/non-debt working capital. Working capital was $32.3 million at September 30, 1994, compared to $34.5 million at December 31, 1993. The current ratio was 1.8 at September 30, 1994, compared with 1.9 at December 31, 1993. Total debt was $71,000 at September 30, 1994, compared to $27.2 million at December 31, 1993. The ratio of total liabilities to equity declined to 0.7 at September 30, 1994 compared to 1.2 at December 31, 1993. The Company had $41.8 million available for short-term borrowing under domestic and foreign bank lines at September 30, 1994. As of September 30, 1994, the Company had commitments of $5.1 million for capital purchases. Management believes that sufficient cash can be generated through operations and borrowings to finance the Company's short and long-term cash needs. Page 8 PART II. OTHER INFORMATION. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS 28.1 News Release, dated October 18, 1994, announcing third quarter 1994 operating results. . . Filed herewith, page 10. 28.2 News Release, dated September 1, 1994, announcing retirement of all debt and declaration of cash dividend . . . Filed herewith, 28.3 News Release, dated August 15, 1994, announcing declaration of a 2-for-1 stock split . . . Filed herewith, Page 14. (b) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K during the quarter ended September 30, 1994. SIGNATURES Pursuant to the requirements of the Securities 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/ Terry R. Nygaard -------------------- Terry R. Nygaard Controller (Principal Accounting Officer) Dated: November 11, 1994. Page 9