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, 1996.
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.
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(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0169210
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(State of Incorporation) (IRS Employer Identification No.)
Two Appletree Square, Minneapolis, Minnesota 55425
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(Address of Principal Executive Offices) (Zip Code)
(612) 851-6000
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(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
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BMC Industries, Inc. has outstanding 27,313,089 shares of common stock as of
August 12, 1996. There is no other class of stock outstanding.
Page 1 of 73
Exhibit Index Begins at Page 9.
PART I: FINANCIAL INFORMATION
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
Item 1: Financial Statements
June 30, 1996 December 31, 1995
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ASSETS
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Current Assets
Cash and cash equivalents $ 5,540 $ 15,874
Trade accounts and notes receivable,
net of allowances 25,276 23,003
Inventories 47,098 34,772
Deferred income taxes 4,831 3,753
Other current assets 7,659 5,964
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Total Current Assets 90,404 83,366
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Property, Plant and Equipment 188,920 171,711
Less Accumulated Depreciation 92,551 90,302
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Property, Plant and Equipment, Net 96,369 81,409
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Deferred Income Taxes 5,607 5,362
Other Assets, Net 11,899 12,195
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Total Assets $ 204,279 $ 182,332
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
Short-term borrowings $ 6,020
Accounts payable 18,444 $ 20,408
Income taxes payable 10,094 9,308
Accrued expenses and other current liabilities 24,533 20,920
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Total Current Liabilities 59,091 50,636
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Other Liabilities 19,261 21,654
Deferred Income Taxes 1,532 1,576
Stockholders' Equity
Common stock 55,302 52,974
Retained earnings 66,305 50,962
Cumulative translation adjustment 4,070 5,749
Other (1,282) (1,219)
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Total Stockholders' Equity 124,395 108,466
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Total Liabilities and Stockholders' Equity $ 204,279 $ 182,332
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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 Six Months Ended
June 30 June 30
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1996 1995 1996 1995
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Revenues
Net sales of primary products $ 67,513 $ 64,026 $ 135,622 $ 121,779
Equipment and technology sales 661 5,621 853 9,202
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Total Revenues 68,174 69,647 136,475 130,981
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Operating Costs and Expenses
Cost of sales of primary products 49,487 50,764 104,582 99,110
Cost of equipment and technology sales 204 3,757 370 5,668
Selling 2,559 2,205 5,117 4,480
Administrative 1,288 1,330 2,515 2,584
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Total Operating Costs and Expenses 53,538 58,056 112,584 111,842
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Income from Operations 14,636 11,591 23,891 19,139
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Other Income and (Expense)
Interest expense (60) (28) (190) (105)
Interest income 31 213 150 398
Other income (expense) 81 (92) 31 (159)
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Earnings before Income Taxes 14,688 11,684 23,882 19,273
Income Tax Provision 4,846 4,207 7,857 7,102
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Net Earnings $ 9,842 $ 7,477 $ 16,025 $ 12,171
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Net Earnings Per Share $ 0.35 $ 0.26 $ 0.57 $ 0.43
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Number of Shares Included in Per Share Computation 28,369 28,233 28,324 28,131
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Dividends Declared Per Share $ 0.0125 $ 0.01 $ 0.025 $ 0.02
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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
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1996 1995
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Net Cash Provided by Operating Activities
Net earnings $ 16,025 $ 12,171
Depreciation and amortization 5,127 4,363
Changes in operating assets and liabilities (16,896) 146
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Total 4,256 16,680
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Net Cash Provided by (Used in) Investing Activities
Additions to property, plant and equipment (22,079) (11,590)
Other -- 22
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Total (22,079) (11,568)
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Net Cash Provided by (Used in) Financing Activities
Short-term borrowings 6,020 --
Common stock issued 2,356 388
Cash dividends paid (679) (536)
Other (37) (157)
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Total 7,660 (305)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (171) 303
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Net Increase (Decrease) in Cash and Cash Equivalents (10,334) 5,110
Cash and Cash Equivalents at Beginning of Period 15,874 14,327
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Cash and Cash Equivalents at End of Period $ 5,540 $ 19,437
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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,
1996, and the results of operations and the cash flows for the periods
ended June 30, 1996 and 1995. Such adjustments are of a normal
recurring nature. Certain items in the financial statements for the
periods ended June 30, 1995 have been reclassified to conform to the
presentation for the periods ended June 30, 1996. Per share amounts for
the periods ended June 30, 1995 have been restated to reflect a
two-for-one stock split in the third quarter of 1995. The results of
operations for the three-month and six-month periods ended June 30, 1996
are not necessarily indicative of the results to be expected for the
full year. The balance sheet as of December 31, 1995 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,
1995.
2. Inventories
June 30, 1996 December 31, 1995
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Raw materials $ 15,150 $ 12,556
Work in process 8,173 5,772
Finished goods 23,775 16,444
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Total Inventories $ 47,098 $ 34,772
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3. Credit Agreement
During the second quarter of 1996, the Company signed a new credit
agreement (the Agreement) with three domestic banks for unsecured
borrowings totaling $150,000. This Agreement consists of a $70,000
four-year revolving credit facility for general corporate purposes and
an $80,000 one-year acquisition credit facility. Borrowings under the
Agreement bear interest at the Eurodollar Rate plus 0.30% to 0.70%. The
rate spread is dependent upon the Company's ratio of debt to total
capitalization. In addition, the Company pays a facility fee on
unborrowed funds at rates ranging from 0.08% to 0.175%, depending on the
Company's debt to total capitalization ratio. Under terms of the
Agreement, the Company must meet certain affirmative covenants,
including maintaining a specified total capitalization ratio, interest
coverage ratio, cash flow leverage ratio and tangible net worth. The
Company was in compliance with all covenants and no borrowings were
outstanding under the Agreement at June 30, 1996.
Page 5
4. 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 June 30,
1996, the contract was approximately 90% complete. At June 30, 1996, no
material change had been made in the estimate of costs to complete the
contract.
5. Earnings Per Share
Primary earnings per share is computed using the weighted average number
of common and common equivalent shares outstanding during the periods.
Common stock equivalents include dilutive stock options using the
treasury stock method. Fully diluted earnings per share did not differ
significantly from primary earnings per share in all periods presented.
As indicated in Note 1, per share amounts for the periods ended June 30,
1995 have been restated to reflect a two-for-one stock split in the
third quarter of 1995.
6. Legal Matters
There are no material changes in the status of the Barth Industries
legal proceeding or any other legal proceeding or environmental matter
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Page 6
BMC INDUSTRIES, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Second quarter revenues from primary products (excluding equipment and
technology sales) increased $3.5 million or 5.4% from the second quarter of
1995. Due to the impact of the decline in value of the Deutsche Mark (DM)
relative to the U.S. Dollar on the German mask operation, primary product
revenues of the Precision Imaged Products group increased only slightly from
the strong second quarter of 1995. In the second quarter, sales of jumbo (30"
and larger) aperture masks, which have higher gross margin percentages than
smaller mask sizes, increased 41.9% over second quarter 1995 sales. The
Company made its first sales of computer monitor high-resolution masks
manufactured from the new aperture mask line at its manufacturing facility in
Germany during the second quarter. While the sales impact of this line was
nominal in the second quarter, the Company believes that the new
high-resolution line will contribute significant sales in future quarters.
Net sales of the Optical Products group increased 17.5% due to higher sales in
all product lines. In particular, sales of high end products (polycarbonate,
progressive, high index and polarizing sunglass lenses) increased 21.2% over
the same quarter in the prior year.
Cost of sales of primary products was 73.3% of net sales for the second
quarter of 1996, compared to 79.3% in the same period of 1995. The
improvement occurred in both groups and was due primarily to improved sales
mix of higher-margin products and improved yields and manufacturing
efficiencies. The Optical Products group also benefited from the acquisition
of plastic lenses from a lower cost, off-shore manufacturer.
The provision for income taxes was 33.0% of pre-tax income in the second
quarter of 1996 compared to 36.0% for the same period in 1995. The lower
effective rate in the second quarter of 1996 was primarily due to utilization
of excess foreign tax credits upon the repatriation of earnings from the
Company's German subsidiary and additionally, foreign earnings, which incur
taxes at rates higher than in the U.S., represented a lower proportion of
earnings in the second quarter of 1996 compared to the same period in 1995.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Total revenues from primary products (excluding equipment and technology
sales) for the first six months of 1996 increased $13.8 million or 11.4% over
the first six months of 1995. Primary product revenues from the Precision
Imaged Products group for the first six months of 1996 increased 11.4% due
primarily to continued improvement in sales mix toward higher-margin jumbo
masks (30" and larger) and invar color television aperture masks. For the
first six months of 1996, sales of jumbo masks and masks made from invar
increased 64.1% and 24.0%, respectively, over the comparable 1995 period. Net
sales of the Optical Products group increased 11.4% due to higher sales in all
product lines. In particular, sales of high end products (polycarbonate,
progressive, high index and polarizing sunglass lenses) increased more than
15.2% over the prior year.
Page 7
Cost of sales of primary products was 77.1% of net sales for the first six
months of 1996, compared to 81.4% in the same period of 1995. The improvement
occurred throughout the Company and was due primarily to improved sales mix of
higher-margin products and improved yields and manufacturing efficiencies.
The provision for income taxes was 32.9% of pre-tax income in the first six
months of 1996 compared to 36.8% for the same period in 1995. The lower
effective rate in the first six months of 1996 was primarily due to
utilization of excess foreign tax credits upon the repatriation of earnings
from the Company's German subsidiary and additionally, foreign earnings, which
incur taxes at higher rates than in the U.S., represented a lower proportion
of earnings in the first six months of 1996 compared to the same period in
1995. The Company anticipates that its effective tax rate for the total year
of 1996 will be lower than the 37.0% effective rate for the total year of 1995
for the reasons described above.
FINANCIAL POSITION AND LIQUIDITY
Cash and cash equivalent balances decreased $10.3 million and short-term
borrowings increased $6.0 million during the first six months of 1996, due
primarily to $22.1 million of capital expenditures relating primarily to the
expansion of the Company's aperture mask manufacturing facilities and
increased inventory levels, offset partially by cash generated from earnings.
The increased inventory levels were due primarily to building inventories
related to the new computer monitor high-resolution mask line and increasing
inventories in the Optical Products group to support new product
introductions. Working capital was $31.3 million at June 30, 1996 compared to
$32.7 million at December 31, 1995. The current ratio was 1.53 at June 30,
1996, compared to 1.65 at December 31, 1995. The ratio of total liabilities
to equity declined to .64 at June 30, 1996 compared to .68 at December 31,
1995.
During the second quarter, the Company signed a $150 million unsecured credit
facility consisting of a $70 million revolving credit facility for general
purposes and an $80 million acquisition credit facility. The Company expects
a significant increase in its capital spending in 1996 due to approximately
$55 million of capital spending relating to the two-line expansion of the
Company's aperture mask manufacturing facility at Cortland, New York. The
revolving credit facility will provide the funds needed for capital spending
related to the Cortland expansion. The acquisition credit facility will
provide immediately available funds in the event the Company encounters a
strategic acquisition opportunity. As of June 30, 1996, the Company had
commitments of approximately $13.8 million related to capital projects, a
majority of which was related to the Cortland expansion.
ENVIRONMENTAL
In April 1996, the Company was named as a potentially responsible party (PRP)
at a site in Zionsville, Indiana. This is the third site at this location for
which the Company has been named a PRP. The Company entered into a de minimus
settlement agreement for the prior two sites and also believes that it will be
a de minimus party at this site. The Company does not believe the eventual
outcome at this site will have a material adverse effect on the financial
condition of the Company.
There are no material changes in the status of the legal proceedings and
environmental matters described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
Page 8
Part II: OTHER INFORMATION
ITEM 1. With regard to legal proceedings and certain environmental matters,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 8 and Note 6 of the "Notes to Condensed
Consolidated Financial Statements" on page 6.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
The Company's 1996 Annual Meeting of Stockholders was held on
April 25, 1996. 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 22, 1996,
were elected for two year terms at that meeting. Voting for the
individual nominees was as follows:
Votes Withheld
Nominee Votes For or Against
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Mr. Lyle D. Altman 19,522,226 60,801
Mr. Paul B. Burke 19,526,465 56,562
Mr. Harry A. Hammerly 19,524,826 58,201
The following directors did not stand for election this year
because their terms of office continued after the meeting:
Mr. John W. Castro, Mr. Joe E. Davis and Dr. Richard A. Swalin.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Page
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10.1 Credit Agreement among BMC Industries, Inc., Norwest
Bank Minnesota, National Association, and various
banks .................................................. 11
10.2 First Declaration of Amendment, dated as of March 29,
1996, to the BMC Industries, Inc. Savings Plan, 1994
Revision ............................................... 65
10.3 Amendment No. 1 to the 1994 Stock Incentive Plan ....... 67
27. Financial Data Schedule (filed only in electronic format)
99.1 News Release, dated July 18, 1996, announcing the
second quarter 1996 operating results .................. 68
99.2 News Release, dated June 10, 1996, announcing $150
million credit facility ................................ 72
99.3 News Release, dated June 7, 1996, announcing quarterly
dividend ............................................. 73
Page 9
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 1996.
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.
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Jeffrey L. Wright
Corporate Controller
(Principal Accounting Officer)
Dated: August 13, 1996
Page 10