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, 1997.
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
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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
--------- ---------
BMC Industries, Inc. has outstanding 27,749,672 shares of common stock as of
August 11, 1997. There is no other class of stock outstanding.
Page 1 of 23
Exhibit Index Begins at Page 10.
PART I: FINANCIAL INFORMATION
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
Item 1: Financial Statements
June 30 December 31
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ASSETS 1997 1996
- --------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 2,092 $ 2,544
Trade accounts and notes receivable,
net of allowances 31,310 24,979
Inventories 59,177 50,451
Deferred income taxes 6,356 5,372
Other current assets 10,705 8,354
- --------------------------------------------------------------------------------
Total Current Assets 109,640 91,700
- --------------------------------------------------------------------------------
Property, Plant and Equipment 268,246 220,489
Less Accumulated Depreciation 99,347 96,644
--------- ---------
Property, Plant and Equipment, Net 168,899 123,845
--------- ---------
Deferred Income Taxes 5,019 5,797
Other Assets, Net 12,258 11,627
- --------------------------------------------------------------------------------
Total Assets $ 295,816 $ 232,969
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings $ 1,464 $ 1,355
Accounts payable 25,901 19,434
Income taxes payable 9,292 7,657
Accrued expenses and other liabilities 22,006 21,900
- --------------------------------------------------------------------------------
Total Current Liabilities 58,663 50,346
- --------------------------------------------------------------------------------
Long-Term Debt 54,949 16,634
Other Liabilities 18,834 19,421
Deferred Income Taxes 2,506 2,460
Stockholders' Equity
Common stock 57,776 56,551
Retained earnings 103,678 84,629
Cumulative translation adjustment 162 3,974
Other (752) (1,046)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 160,864 144,108
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 295,816 $ 232,969
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
----------------------------- -----------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Revenues $ 80,257 $ 68,174 $ 157,384 $ 136,475
Cost of products sold 58,398 49,691 119,543 104,952
- -----------------------------------------------------------------------------------------------------------------
Gross margin 21,859 18,483 37,841 31,523
Selling 2,737 2,559 5,574 5,117
Administrative 1,089 1,288 2,628 2,515
- -----------------------------------------------------------------------------------------------------------------
Income from Operations 18,033 14,636 29,639 23,891
- -----------------------------------------------------------------------------------------------------------------
Other Income and (Expense)
Interest expense (160) (60) (304) (190)
Interest income 56 31 98 150
Other income (expense) (33) 81 229 31
- -----------------------------------------------------------------------------------------------------------------
Earnings before Income Taxes 17,896 14,688 29,662 23,882
Income Taxes 5,907 4,846 9,790 7,857
- -----------------------------------------------------------------------------------------------------------------
Net Earnings $ 11,989 $ 9,842 $ 19,872 $ 16,025
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net Earnings Per Share $ 0.42 $ 0.35 $ 0.70 $ 0.57
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Number of Shares Included in Per Share Computation 28,496 28,369 28,477 28,324
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Dividends Declared Per Share $ 0.015 $ 0.0125 $ 0.03 $ 0.025
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
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
----------------------------
1997 1996
- ---------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities
Net earnings $ 19,872 $ 16,025
Depreciation and amortization 7,088 5,127
Changes in operating assets and liabilities (11,725) (16,896)
- ---------------------------------------------------------------------------------------------
Total 15,235 4,256
- ---------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities
Additions to property, plant and equipment (54,048) (22,079)
Business acquisitions, net of cash acquired (1,817) --
- ---------------------------------------------------------------------------------------------
Total (55,865) (22,079)
- ---------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities
Net increase in short-term borrowings 211 6,020
Net increase in long-term debt 39,343 --
Common stock issued 1,225 2,356
Cash dividends paid (822) (679)
Other 294 (37)
- ---------------------------------------------------------------------------------------------
Total 40,251 7,660
- ---------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (73) (171)
- ---------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (452) (10,334)
Cash and Cash Equivalents at Beginning of Period 2,544 15,874
- ---------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 2,092 $ 5,540
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
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, 1997,
and the results of operations and the cash flows for the periods ended June
30, 1997 and 1996. Such adjustments are of a normal recurring nature.
Certain items in the financial statements for the periods ended June 30,
1996 have been reclassified to conform to the presentation for the periods
ended June 30, 1997. The results of operations for the three-month and
six-month periods ended June 30, 1997 are not necessarily indicative of the
results to be expected for the full year. The balance sheet as of December
31, 1996 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, 1996.
2. Derivative Financial Instruments
In January 1997, the SEC issued new rules related to disclosures about
derivative financial instruments. The new rules, effective for all
financial statements issued for periods ending after June 15, 1997,
require accounting policy disclosures about derivative financial
instruments used by the Company. Effective for periods ending after
June 15, 1998, the new rules also require quantitative and qualitative
disclosures about exposures to market risk from derivative financial
instruments.
Derivative financial instruments are used by the Company to reduce
foreign exchange and interest rate risks.
Foreign Currency Exchange Options - As of June 30, 1997, the Company had
approximately $10.5 million of outstanding foreign currency exchange
options to exchange U.S. dollars for German marks at a set exchange
rate. These foreign exchange options do not expose the Company to
financial risk as the contracts provide an option to exchange the
currencies, but do not obligate the Company to make a foreign currency
exchange. Premiums paid for foreign currency exchange options are
amortized to Other Expense over the life of the options. Upon exercise
of foreign currency exchange options, gains are included in income.
Interest Rate Swap Agreement - As of June 30, 1997, the Company had
entered into an interest rate swap agreement that allows the Company to
swap a variable interest rate for a fixed interest rate of 6.365% on $15
million of notional debt for a period of two years ending March, 1999.
The notional amount of debt is not a measure of the Company's exposure
to credit or market risks and is not included in the condensed
consolidated balance sheet. Fixing the interest rate minimizes the
Company's exposure to the uncertainty of floating interest rates during
this two year period. Amounts to be paid or received under the interest
rate swap agreement are accrued and recorded as an adjustment to
Interest Expense during the term of the interest rate swap agreement.
3. Inventories
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials $ 16,317 $ 15,461
Work in process 14,496 9,807
Finished goods 28,364 25,183
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Total Inventories $ 59,177 $ 50,451
--------- ---------
--------- ---------
4. 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 using the treasury stock
method. Fully diluted earnings per share did not differ significantly from
primary earnings per share in any period.
Page 5
Currently, earnings per share calculations are performed pursuant to
Accounting Principles Board Opinion No. 15, EARNINGS PER SHARE. The
Company will be required to present earnings per share data in accordance
with Statement of Accounting Standards No. 128, EARNINGS PER SHARE,
commencing with the fourth quarter of 1997. Statement No. 128 will require
the presentation of basic earnings per share and diluted earnings per
share. Basic earnings per share is calculated as net earnings divided by
the weighted average outstanding common shares. Diluted earnings per share
includes the effect of all outstanding dilutive securities, such as stock
options, and is calculated similarly to the current fully-diluted earnings
per share. While early adoption of Statement No. 128 is not permitted, the
following pro-forma supplemental data is presented using the Statement No.
128 approach:
Three months ended Six months ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
Basic $ 0.44 $ 0.36 $ 0.72 $ 0.59
Diluted 0.42 0.35 0.70 0.57
5. 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,
1996.
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, 1997 AND 1996
Total revenues for the second quarter of 1997 increased $12.1 million or 18%
from the second quarter of 1996. Revenues of the Precision Imaged Products
group for the second quarter increased 25% due primarily to sales of large
(25" to 29") and invar television aperture masks increasing 35% and 31%,
respectively, over second quarter 1996 sales. Second quarter sales of jumbo
(30" and larger) television aperture masks slightly lagged 1996. Second
quarter 1996 jumbo sales were strong with a 42% increase over 1995 levels.
The weakening of the German mark relative to the U.S. dollar had virtually no
impact on earnings but reduced sales, as compared with the prior year
quarter, by nearly $1 million. Second quarter sales included over $2 million
of computer monitor mask sales. Net sales of the Optical Products group
increased 4% due to higher sales in all major product lines, except for
glass. Sales of high end products (polycarbonate, progressive, high index
and polarizing sun lenses) increased 15% over the same quarter in the prior
year.
Cost of sales were 73% of net sales for the second quarter of both 1997 and
1996. Improvements in product mix were offset by start-up expenses for the
new entertainment line at the Cortland, New York facility and dielot and part
qualification expenses for the computer monitor line at the Germany facility.
Also, Optical Products group profitability was impacted by a number of
one-time expenses including: expenses preparatory to the shutdown of the Ft.
Lauderdale plastic lens manufacturing facility which ceased operations in
July, expenses incidental to the new polycarbonate manufacturing, centralized
distribution and research and development facility and start-up costs for the
operation's first anti-reflective coating machine. In addition, resources
devoted to the ongoing development of new products and materials were higher
in the second quarter.
Despite an increased debt level, interest expense in the second quarter of
1997 was comparable to the prior year quarter due to the capitalization of
interest costs in connection with the Company's expansion projects.
The provision for income taxes was 33% of pre-tax income in the second
quarter of both 1997 and 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Total revenues for the first six months of 1997 increased $20.9 million or 15%
from the first six months of 1996. Revenues of the Precision Imaged Products
group increased 19% for the first six months due primarily to sales of large
(25" to 29") and invar television aperture masks increasing 31% and 18%,
respectively, over 1996 sales. For the first six months sales of jumbo (30"
and larger) television aperture masks were down 11% from 1996. 1996 jumbo
sales were very strong with a 64% increase over 1995 levels. The weakening of
the German mark relative to the U.S. dollar had virtually no impact on earnings
but reduced sales, as compared with the prior year, by over $4 million. The
first six months included over $5 million of computer monitor mask sales. Net
sales of the Optical Products group increased 7% due to higher sales in all
major product lines, except for glass. Sales of high end products
Page 7
(polycarbonate, progressive, high index and polarizing sun lenses) increased
21% over the same period in the prior year.
Cost of sales were 76% of net sales for the first six months of 1997,
compared to 77% in the same period of 1996. The decline occurred primarily
in the Precision Imaged Products group and was due primarily to sales mix
changes, largely offset by line time required for new customer and part
qualification on the computer monitor line and start-up expenses for the new
entertainment line at the Cortland facility. The Optical Products group cost
of sales as a percentage of sales was consistent with the prior year.
Despite an increased debt level, interest expense in the first six months of
1997 was comparable to the prior year due to the capitalization of interest
costs in connection with the Company's expansion projects.
The provision for income taxes was 33% of pre-tax income in the first six
months of both 1997 and 1996.
FINANCIAL POSITION AND LIQUIDITY
Cash and cash equivalent balances decreased $0.5 million and debt increased
$38.4 million during the first six months of 1997. The increased debt level
was due primarily to $54 million of capital expenditures relating primarily
to the expansion of the Company's aperture mask manufacturing facilities and
increased inventory and accounts receivable levels, offset partially by
increased accounts payable balances. The increased inventory levels were due
primarily to the new television aperture mask production line which started
in the second quarter at the Cortland facility and the acquisition of
Vision-Ease Asia early in 1997. The increased accounts receivable levels were
due primarily to the increased sales. The increased accounts payable balance
was due primarily to payables related to the Cortland expansion project and
Optical Product's new polycarbonate manufacturing, centralized distribution
and research and development facility currently under construction. Due
primarily to the increases in accounts receivable and inventory, working
capital was $51.0 million at June 30, 1997 compared to $41.4 million at
December 31, 1996. The current ratio was 1.87 at June 30, 1997, compared to
1.82 at December 31, 1996. The ratio of debt to equity increased to 0.35 at
June 30, 1997 compared to 0.12 at December 31, 1996 due to the increased debt
levels.
The Company expects to incur more than $75 million of capital spending during
1997, a significant portion of which is related to completing the expansion
of the Cortland facility. The Company has $88 million in revolving credit
facilities which will provide the funds needed for capital spending related
to the Cortland expansion and the Company's new polycarbonate facility under
construction in Ramsey, Minnesota. The Company's $80 million acquisition
credit facility will provide funds in the event the Company encounters a
strategic acquisition opportunity. As of June 30, 1997, the Company had
commitments of approximately $17 million related to capital projects, a
majority of which were related to the Cortland expansion. The revolving
credit facilities along with cash generated from operations should be
sufficient to meet the Company's future capital and operating requirements.
Page 8
FOREIGN CURRENCY
Fluctuations in foreign currency exchange rates, principally the German mark
and Japanese yen versus the U.S. dollar, may affect the Company's financial
results. The Company's German subsidiary has a large portion of its sales
denominated in U.S. dollars. As most of the German subsidiary's expenses are
denominated in the German mark, this represents the most significant element
of the Company's exposure to currency rate fluctuations. This exposure is
generally addressed as needed through the purchase of forward contracts and
options. As of June 30, 1997, the Company had approximately $10.5 million of
outstanding foreign exchange options to exchange U.S. dollars for German
marks at a set exchange rate. These options mature at various intervals
through March 1998.
Exposure to foreign currency exchange rate fluctuations also may exist with
respect to intercompany payables or receivables with the Company's German
subsidiary. The Company minimizes this exposure by holding such balances at
low levels.
ENVIRONMENTAL
There are no material changes in the status of the legal proceedings and
environmental matters described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
CAUTIONARY STATEMENTS
Certain statements included in this Discussion and Analysis of Financial
Condition and Results of Operations by the Company or its representatives, as
well as other communications, including reports to shareholders, news
releases and presentations to securities analysts or investors, contain
forward-looking statements made in good faith by the Company pursuant to the
"Safe Harbor" provisions of the PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. These statements relate to non-historical information which are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those presently anticipated or projected. The Company
wishes to caution the reader not to place undo reliance on any such
forward-looking statements. These statements are qualified by important
factors listed separately in "Item 1 - Business" of the Company's Form 10-K
for the year ended December 31, 1996, 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 9
Part II: OTHER INFORMATION
ITEM 1. With regard to legal proceedings and certain environmental matters,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 9 and Note 5 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 1997 Annual Meeting of Stockholders was held on May 8,
1997. 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 26, 1997,
were elected for two year terms at that meeting. Voting for the
individual nominees was as follows:
VOTES WITHHELD
NOMINEE VOTES FOR OR AGAINST
------- --------- --------------
Mr. John W. Castro 18,718,444 31,858
Mr. Joe E. Davis 18,717,830 32,472
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 PAGE
-------- ----
10.1 First Amendment to Credit Agreement, dated June 27, 1997, by and
among the Company, Norwest Bank Minnesota, N.A. (as agent),
Norwest Bank Minnesota, N.A., First Bank National
Association and NBD Bank ................................................. 12
10.2 Second Declaration of Amendment, dated May 2, 1997, to the BMC
Industries, Inc. Profit Sharing Plan 1994 revision........................ 16
11.1 Computation of Net Earnings per Share..................................... 18
27. Financial Data Schedule (filed only in electronic format)
99.1 News Release, dated July 22, 1997, announcing the
second quarter 1997 operating results..................................... 19
99.2 News Release, dated June 6, 1997, announcing quarterly dividend........... 23
Page 10
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 1997.
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.
-----------------------------------------
Jeffrey L. Wright
Controller (Principal Accounting Officer)
Dated: August 13, 1997
Page 11