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FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

         X      

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.  For the Quarterly Period ended March 31, 2003.

 

 

                  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.  For the transition Period from N/A to

 

 

Commission File No. 1-8467

 

 

BMC INDUSTRIES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Minnesota                                                                                41-0169210

(State of Incorporation)                                               (IRS Employer Identification No.)

 

One Meridian Crossings, Suite 850, Minneapolis, Minnesota 55423

(Address of Principal Executive Offices) (Zip Code)

 

 

(952) 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

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

_____  Yes

 

    X       No

 

BMC Industries, Inc. has outstanding 27,079,385 shares of common stock as of May 12, 2003.  There is no other class of stock outstanding.

 

Exhibit Index Begins at Page 13

 



PART I:  FINANCIAL INFORMATION
Item 1:  Financial Statements
BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

 

 

 

(Unaudited)

 

 

 

 

 

March 31

 

December 31

 

ASSETS

 

2003

 

 

2002

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

   Cash and cash equivalents

$

1,222

 

$

1,635

 

 

   Trade accounts receivable, net

 

25,915

 

 

27,660

 

 

   Inventories

 

65,408

 

 

59,736

 

 

   Deferred income taxes

 

9,039

 

 

9,492

 

 

   Other current assets

 

6,877

 

 

6,350

 

 

        Total current assets

 

108,461

 

 

104,873

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

283,218

 

 

279,844

 

 

Less accumulated depreciation

 

164,183

 

 

158,510

 

 

   Property, plant and equipment, net

 

119,035

 

 

121,334

 

 

Deferred income taxes

 

3,278

 

 

3,083

 

 

Intangible assets, net

 

11,924

 

 

12,141

 

 

Other assets

 

6,013

 

 

5,928

 

 

Total assets

$

248,711

 

$

247,359

 

 

               

 LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Short-term borrowings

$

657

 

$

747

 

 

Current portion of long term debt

 

112,560

 

 

14,010

 

 

Accounts payable

 

24,874

 

 

25,113

 

 

Income taxes payable

 

3,982

 

 

3,416

 

 

Deferred income taxes

 

90

 

 

88

 

 

Accrued expenses and other liabilities

 

16,474

 

 

17,359

 

 

Total current liabilities

 

158,637

 

 

60,733

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

27

 

 

97,529

 

 

Other liabilities

 

27,744

 

 

28,463

 

 

Deferred income taxes

 

1,027

 

 

1,155

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock

 

46,987

 

 

46,949

 

 

Retained earnings

 

20,683

 

 

19,957

 

 

Accumulated other comprehensive loss

 

(6,325

)

 

(7,358

)

 

Other

 

(69

)

 

(69

)

 

Total stockholders' equity

 

61,276

 

 

59,479

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

$

248,711

 

$

247,359

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.



BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
 

 

 

Three Months Ended

 

March 31

 

 

2003

 

 

2002

 

Revenues

$

55,854

 

$

68,626

 

Cost of products sold

 

46,744

 

 

63,333

 

Gross margin

 

9,110

 

 

5,293

 

Selling expense

 

3,471

 

 

3,598

 

Administrative expense

 

1,368

 

 

1,355

 

Non-recurring charges

 

--

 

 

2,800

 

Income (loss) from operations

 

4,271

 

 

(2,460

)

Other income (expense)

 

 

 

 

 

 

Interest expense

 

(2,851

)

 

(2,632

)

Interest income

 

4

 

 

47

 

Other income (expense)

 

(280

)

 

3,742

 

Earnings (loss) before income taxes

 

1,144

 

 

(1,303

)

Income tax expense

 

418

 

 

878

 

Earnings (loss) before accounting change

 

726

 

 

(2,181

)

Cumulative effective of change in accounting principle

 

--

 

 

52,704

 

 

 

 

 

 

 

 

Net earnings (loss)

$

726

 

$

(54,885

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share:

 

 

 

 

 

 

Before cumulative effect of change in accounting principle

$

0.03

 

$

(0.08

)

Cumulative effect of change in accounting principle

 

--

 

 

(1.96

)

Net earnings (loss)

$

0.03

 

$

(2.04

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares included in per share computation:

 

   

 

   
   Basic  

26,981

   

26,912

 
   Diluted  

27,085

   

26,912

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.0000

 

$

0.0025

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.



BMC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

 

 

Three Months Ended

 

March 31

 

 

 

2003

 

 

2002

 

Net Cash Provided by (Used in) Operating Activities

 

 

 

 

 

 

   Net earnings (loss)

$

726

 

$

(54,885

)

   Depreciation and amortization

 

5,082

 

 

5,574

 

   Gain on sale of assets

 

--

 

 

(3,429

)

   Deferred income taxes

 

114

 

 

3,259

 

   Accounting change - goodwill write-down

 

--

 

 

52,704

 

   Changes in operating assets and liabilities

 

(5,437

)

 

7,809

 

        Total

 

485

 

 

11,032

 

 

 

 

 

 

 

 

Net Cash Provided by (Used in) Investing Activities

 

 

 

 

 

 

   Additions to property, plant and equipment

 

(1,932

)

 

(1,527

)

   Proceeds from sale of assets

 

--

 

 

3,685

 

        Total

 

(1,932

)

 

2,158

 

 

 

 

 

 

 

 

Net Cash Provided by (Used in) Financing Activities

 

 

 

 

 

 

   Decrease in short-term borrowings

 

(83

)

 

(62

)

   Increase (decrease) in long-term debt

 

1,048

 

 

(13,558

)

   Cash dividends paid

 

--

 

 

(68

)

        Total

 

965

 

 

(13,688

)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

69

 

 

(9

)

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(413

)

 

(507

)

Cash and cash equivalents at beginning of period

 

1,635

 

 

1,941

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

1,222

 

$

1,434

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.


 

BMC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
 

 

1.         Financial Statements

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2003, and the results of operations and the cash flows for the three month period ended March 31, 2003 and 2002.  Such adjustments are of a normal recurring nature.  The results of operations for the three-month period ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year.  The balance sheet as of December 31, 2002 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, 2002.

 

2.        Stock-Based Compensation

 

In December 2002, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123.  SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends certain disclosure requirements of SFAS No. 123.  The Company will continue to follow Accounting Principles Board Opinion  (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options and non-vested stock awards.  The Company has adopted SFAS No. 148 in first quarter 2003 and the disclosure requirements are provided below.

 

For purposes of pro forma disclosures, the estimated fair value of the options using the Black-Scholes option pricing model is amortized to expense over the options' vesting period.  The Company's pro forma net earnings and earnings per share were as follows:

 

 

 

March 31, 2003

 

 

March 31, 2002

 

Net earnings (loss) - as reported

$

726

 

$

(54,885

)

Net earnings (loss) - pro forma

 

484

 

 

(55,260

)

Basic and diluted earnings (loss) per share - as reported

 

 

0.03

 

 

 

(2.04

 

)

Basic and diluted earnings (loss) per share - pro forma

 

 

0.02

 

 

 

(2.05

 

)

Stock-based compensation, net of tax - pro forma

 

 

242

 

 

 

375

 

 

3.        Restructuring

 

In February 2002, the Company announced its plans to close the Optical Products group's Azusa, California facility, consolidate the operations into the Company's existing plants in Ramsey, Minnesota and Jakarta, Indonesia and market the excess real estate for sale.  The total restructuring related costs recorded were $2,800, and $2,745 was utilized during 2002.  The Company utilized $47 of the remaining liability in the first quarter of 2003.   The following table details the restructuring reserve charges and account balance for the three months ended March 31, 2003:

 

 

 

Severance & Related Costs

 

 

Property, Plant & Equipment

 

 

Contractual Obligations and Other

 

 

 

 

Total

 

Liability as of December 31, 2002

 

$

 

55

 

 

$

 

--

 

 

$

 

--

 

 

$

 

55

 

Utilized in 2003

 

47

 

 

--

 

 

--

 

 

47

 

Liability as of March 31, 2003

 

$

 

8

 

 

$

 

--

 

 

$

 

--

 

 

$

 

8

 

 

In fourth quarter 2001, the Company announced restructuring initiatives in both of its business segments.  These restructuring initiatives resulted in the recording of total pre-tax restructuring related charges of $12,165.  The charges included $6,218 classified as restructuring, with $1,180 utilized in 2001, and $5,947 of inventory and other asset write-downs classified as cost of sales.  Through March 31, 2003, the Company has utilized $510 of the $2,210 restructuring reserve remaining at December 31, 2002, all of which is attributable to the Buckbee-Mears business segment.  The remaining restructuring liability consists primarily of costs anticipated with the closing of the St. Paul facility and severance costs at the Mullheim, Germany facility.  The Company anticipates that substantially all of the remaining restructuring reserve will be utilized by first quarter 2004.

 

The activity of the restructuring reserve for first quarter 2003 was as follows:

 

 

 

Severance and Related Costs

 

 

Contractual Obligations and Other

 

 

 

 

Total

 

 

Restructuring reserve, December 31, 2002

$

723

 

$

1,487

 

$

2,210

 

  Utilized in 2003

 

--

 

 

(510

)

 

(510

)

Foreign currency translation

 

13

 

 

--

 

 

13

 

Restructuring reserve, March 31, 2003

$

736

 

$

977

 

$

1,713

 

 

The Company does not expect to record any additional restructuring charges related to the initiatives discussed above.


4.         Debt

 

The Company is in compliance with all debt covenants as of March 31, 2003.  However, given the impact of current market conditions, the Company believes it will likely not be in compliance with debt covenants at the end of second quarter 2003.  The Company will be working with its lenders to remedy the expected debt covenant violation.  As a result, all of the debt under the Company's domestic credit facility has been classified as current as of March 31, 2003.

 

5.         Inventories

 

 

 

March 31, 2003

 

December 31, 2002

Raw materials

 

$

14,026

 

 

$

13,030

Work in process

 

 

6,288

 

 

6,156

Finished goods

 

 

45,094

 

 

 

40,550

 

 

$

65,408

 

 

$

59,736

 

6.         Derivative Financial Instruments

 

Derivative financial instruments are used by the Company to reduce foreign exchange and interest rate risks.

 

Interest Rate Swap Agreement - At various dates during 2001 and 2000, the Company entered into multiple interest rate swap agreements, which provide for the Company to swap a variable interest rate for fixed interest rates ranging from 6.7% to 7.1%.  At March 31, 2003, $50,000 of these swaps remained outstanding with $25,000 of these swaps expiring in May 2003 and the remaining $25,000 of these swaps expiring in June 2003.  At March 31, 2003, $391 of deferred net losses on the interest rate swap agreements were included in accumulated other comprehensive loss.

 

7.       Comprehensive Income (Loss)

 

The components of comprehensive income (loss), net of related tax, for the three-month periods ended March 31, 2003 and 2002 are as follows:

 

 

 

2003

 

 

2002

 

Net earnings (loss)

$

726

 

$

(54,885

)

Foreign currency translation adjustments

 

270

 

 

(611

)

Gain (loss) on derivative instruments

 

763

 

 

735

 

Comprehensive income (loss)

$

1,759

 

$

(54,761

)

 

Foreign currency translation adjustment for 2003 is primarily due to the strengthening of the Euro against the U.S. dollar during the quarter ended March 31, 2003.


8.         Legal Matters

 

On March 17, 2003, the Company settled its lawsuit for patent infringement against Younger Mfg. Co., which operates under the name "Younger Optics".  Under terms of the settlement, the Company entered into an agreement in which Younger will license the Company's polycarbonate polarizing patent portfolio and the Company received a license to certain Younger patents.  No other 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, 2002.

 

9.        Segment Information

 

The Company has two business segments that manufacture and sell a variety of products:  Buckbee-Mears and Optical Products (operating under the Vision-Ease trade name).  Buckbee-Mears, made up of Mask Operations and Non-Mask Operations, is a leading manufacturer of high-volume precision products for the entertainment, optical, high-tech, medical, and filtration industries.  Mask Operations produces aperture masks, which are critical components of color television picture tubes.  Non-Mask Operations is a leading producer of precision photo-etched metal and electroformed components that require fine features and tight tolerances.  Optical Products designs, manufactures and distributes polycarbonate, glass and hard-resin plastic eyeglass lenses.

 

The following is a summary of certain financial information relating to the two segments:

 

 

Three Months Ended March 31

 

 

Buckbee-Mears

 

Optical Products

 

Consolidated

 

 

 

2003

 

 

2002

 

 

2003

 

 

2002

 

 

2003

 

 

2002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

26,883

 

$

35,547

 

$

28,971

 

$

33,079

 

$

55,854

 

$

68,626

 

Cost of products sold

 

24,039

 

 

33,105

 

 

22,705

 

 

30,228

 

 

46,744

 

 

63,333

 

Gross margin

 

2,844

 

 

2,442

 

 

6,266

 

 

2,851

 

 

9,110

 

 

5,293

 

Gross margin %

 

10.6

%

 

6.9

%

 

21.6

%

 

8.6

%

 

16.3

%

 

7.7

%

Selling expense

 

1,167

 

 

1,060

 

 

2,304

 

 

2,538

 

 

3,471

 

 

3,598

 

Non-recurring charges

 

--

 

 

--

 

 

--

 

 

2,800

 

 

--

 

 

2,800

 

Unallocated corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  administration

 

--

 

 

--

 

 

--

 

 

--

 

 

1,368

 

 

1,355

 

Income (loss) from

  operations

 

$

 

1,677

 

 

$

 

1,382

 

 

$

 

3,962

 

 

 

$

 

(2,487

 

)

 

 

4,271

 

 

 

 

(2,460

 

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) %

 

 

6.2

 

%

 

 

3.9

 

%

 

 

13.7

 

%

 

 

(7.5

 

)%

 

 

7.6

 

%

 

 

(3.6

 

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,127

)

 

1,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before

  income taxes and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  accounting change

 

 

 

 

 

 

 

 

 

 

 

 

$

1,144

 

$

(1,303

)

 



 

BMC INDUSTRIES, INC.
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS

 

Comparison of three months ended March 31, 2003 and 2002

 

Total revenues for the first quarter of 2003 of $55.9 million decreased by $12.8 million or 19% from the first quarter of 2002. 

 

Revenues of the Buckbee-Mears group for the first quarter decreased 24%, or $8.6 million, from $35.5 million in 2002 to $26.9 million in 2003.  Sales of monitor masks decreased $4.9 million from first quarter 2002 as a result of the Company's migration out of the computer monitor mask market and the sale of its non-mask sheet-etching business in 2002.  Total sales of entertainment masks decreased 10% from first quarter 2002 as a result of overall market softness.  Sales declined in the North American and European regions and were partially offset by increased sales in Asia to both traditional and new customers.  The Company has increased its selling efforts in Asia as a number of its traditional North American and Western European picture-tube customers have either closed operations or moved them to lower-cost manufacturing sites, such as China.

 

Revenues of the Optical Products group were $29.0 million in the first quarter of 2003, down $4.1 or 12% from the prior year quarter sales of $33.1 million.  First quarter sales were up $7.3 million, or 34%, compared to fourth quarter 2002.  Polycarbonate lens sales were $1.0 million lower compared to first quarter 2002, but were up $6.0 million from fourth quarter 2002.  Plastic lens sales in first quarter 2003 decreased $1.4 million and glass lens sales were $1.7 million lower than first quarter 2002.  Sales of both plastic and glass lenses grew $0.7 million compared to fourth quarter 2002.  The decrease in polycarbonate sales from first quarter 2002 was the result of manufacturing issues occurring in 2002, which hampered the Company's ability to fully meet customer demand and sales were lost.  The Company is making significant improvements in customer service and is re-establishing relationships with former customers and building new customer relationships.  Sales of plastic lenses were constrained due to supply issues and glass sales continue to decrease as the market moves away from this material for lens products.

 

Cost of products sold were 83.7% of net sales for the first quarter 2003, compared to 92.3% in the same period of 2002.  Buckbee-Mears' gross margin percentage increased from first quarter 2002 primarily due to cost reduction efforts initiated over a year ago and from exiting the low margin computer monitor mask business.  However, current market conditions in the mask business will result in pressure on margins.  The Optical Products group's gross margin increased as a result of production being moved to Jakarta resulting in lower costs and due to an increase in higher margin film product sales.  The first quarter 2002 margin was negatively impacted by a $2.8 million non-recurring restructuring charges related to the Azusa plant closure as well as manufacturing costs associated with the closure of that plant and relocation of those operations to the Ramsey, Minnesota and Jakarta, Indonesia facilities.

 

Selling expenses were $3.5 million or 6.2% of revenues and $3.6 million or 5.2% of revenues for the first quarter of 2003 and 2002, respectively.  Selling expenses in both business segments are not directly linked to sales and therefore, while the absolute amount of selling expenses was consistent quarter over quarter, selling expenses as a percent of sales increased because of a decrease in sales quarter over quarter.

 

Interest expense in the first quarter of 2003 increased $0.2 million from the prior year quarter due to higher credit spreads and fees associated with the amended debt agreement, which was completed in third quarter 2002.

 

Other income in 2002 includes a gain of approximately $3.5 million on the sale of the Optical Products group's Optifacts software unit.

 

The provision for income taxes was an expense of $0.4 million, or 37% of pre-tax income, for the first quarter 2003.  The provision for income taxes for the first quarter of 2002 was an expense of $0.9 million on a loss before accounting change of $1.3 million.  In first quarter 2002, the Company recorded an increase in its tax valuation reserve for foreign tax credits and NOL carryforwards, which resulted in additional tax expense for the quarter.  The mix of domestic and foreign earnings also impacts the 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, 2002.

 

FOREIGN CURRENCY

 

A portion of the Company's operations consists of manufacturing and sales activities in foreign jurisdictions.  The Company manufactures its products in the United States, Germany, Hungary and Indonesia and purchases products from Asian, as well as other foreign suppliers.  The Company sells its products in the United States and into various foreign markets.  The Company's sales are typically denominated in either the U.S. dollar or the European Union Euro.  Buckbee-Mears also has an indirect exposure to the Japanese yen and the Korean won because its most significant competitors are Japanese and Korean.  As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.  In addition, sales of products overseas are affected by the value of the U.S. dollar relative to other currencies.  Long-term strengthening of the U.S. dollar may have an adverse effect on these sales and competitive conditions in the Company's markets and may limit the Company's ability to increase product pricing in times of adverse currency movements.

 

To manage the volatility relating to these exposures, the Company from time-to-time will utilize various derivative instruments, including foreign currency forward-exchange contracts and cross-currency swaps, when considered necessary.  The Company has no foreign currency forward-exchange contracts or cross-currency swaps outstanding as of March 31, 2003.

 

INTEREST RATE SWAPS

 

At various dates during 2001 and 2000, the Company entered into multiple interest rate swap agreements which provide for the Company to swap a variable interest rate for fixed interest rates ranging from 6.7% to 7.1%.  At March 31, 2003, $50 million of these swaps remained outstanding with $25,000 of these swaps expiring in May 2003 and the remaining $25,000 of these swaps expiring in June 2003.  These swaps are discussed in footnote 5.

 

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, 2002.


FINANCIAL POSITION AND LIQUIDITY

Total debt increased $0.9 million from $112.3 million at December 31, 2002 to $113.2 million at March 31, 2003.   Working capital increased to $48.4 million at March 31, 2003 compared to $44.1 million at December 31, 2002.  The increases in debt and working capital relate primarily to lower sales and resulting increases in inventories during the quarter.  The current ratio was 1.8 and 1.7 at March 31, 2003 and December 31, 2002, respectively.  The ratio of debt to capitalization was 65% at both March 31, 2003 and December 31, 2002. 

There were no significant changes in the Company's credit facilities during the quarter ended March 31, 2003.  In March 2003, the Company made a $3.5 million payment on its term loans, reducing the outstanding balance of such term loans from $105.0 million to $101.5 million.  The Company's domestic credit agreement, which expires on May 14, 2004, has total term loans of $101.5 and revolving credit of $35.0 million, subject to a monthly borrowing base calculation, which has impacted and may impact the ability of the Company to fully utilize its total revolving commitment amount.  The Company's borrowing base under the revolving commitment as of March 31, 2003 was $33.9 million.

The Company was in compliance with all covenants related to its credit facilities at March 31, 2003.  However, given the impact of current market conditions, the Company believes it will likely not be in compliance with various financial covenants at the end of second quarter 2003.  The Company will be working with its lenders and requesting modifications to certain requirements under its senior credit facilities during the second quarter 2003.  There is no assurance, however, that the Company will be successful in these efforts to modify its existing senior credit facilities.  As a result, all of the debt under the Company's domestic credit facility has been classified as current as of March 31, 2003. 

The Company has historically had uneven cash flows, with a large amount of customer receipts received near month-ends.  In an effort to meet financial covenants, which are measured at quarter-ends, the Company takes action to minimize its outstanding debt at each quarter end.  As a result, the Company's intra-quarter debt balances may fluctuate, and have fluctuated, significantly from those debt balances reported at quarter end.  Also, the Company is required under its current senior credit facilities to make term loan amortization payments of $3.5 million at the end of each quarter.  The combination of uneven cash flows, higher inter-quarter debt balances, current letter of credit usage and the monthly borrowing base formula required under the facility may result, and has resulted, in significant usage of the revolving credit facilities and may prevent the Company from borrowing additional funds if the maximum amount of undrawn liquidity is reached. 

The Company is also assessing alternative financing arrangements to its current senior credit facilities in anticipation of the May 2004 expiration date of its current domestic credit agreement.  There is no assurance that new credit arrangements or alternative financing terms will be available, or if available will be on terms comparable to those in the current agreement.

 

CAUTIONARY STATEMENTS

 

Certain statements included in this Management's 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 undue 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, our ability to manage working capital and align costs with market conditions; ability to achieve higher yields at Vision-Ease; ability to reduce inventories while maintaining consistently high customer service levels and product fill rates; ability to increase sales of products at both business groups; ability to replace lost domestic aperture mask sales with sales in Asia and other areas of the world; further aperture mask price declines; slowdown in growth of, or price reductions in, high-end optical lens products; fluctuations in currency exchange rates; rising raw material costs; ability to execute efficiently the temporary shut down and start-up of operations at the Company's aperture mask production facilities during the second and third quarters; ability to achieve FDA approval for production of medical products at our Cortland facility; ongoing economic uncertainty and the affect of war or other conflict on the Company's operations; the ability to generate sufficient cash flow to meet debt service obligations; the ability to meet future financial covenants related to, and the ability to negotiate financing arrangements in addition to, or in replacement of, our existing senior credit facilities.  Certain of these and other risks and uncertainties are more particularly described in "Item 1 - Business" of the Company's Form 10-K for the year ended December 31, 2002, 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.

 

Item 3.             Quantitative and Qualitative Disclosure About Market Risk

 

See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 10.

 

Item 4.             Controls and Procedures. 

 

Within the 90-day period prior to the filing of this report, an evaluation was performed under the supervision and with the participation of management, including Douglas C. Hepper, our principal executive officer, and Curtis E. Petersen, our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)).  Based on that evaluation, BMC's management, including Messrs. Hepper and Petersen, concluded that our disclosure controls and procedures are effective.

 

There have been no significant changes, including corrective actions with regard to significant deficiencies or material weaknesses, in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of the evaluation referenced above.

 

 

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" and Note 8 of the "Notes to Condensed Consolidated Financial Statements".

 

Item 6.             Exhibits and Reports on Form 8-K.

 

            (a)       Exhibits                                                                                                                      

                       

99.1    Certification of CEO under Section 906 of the Sarbanes-Oxley Act of 2002 (filed herein.)

 

99.2    Certification of CFO under Section 906 of the Sarbanes-Oxley Act of 2002 (filed herein.)

 

            (b)       Reports on Form 8-K.

 

The Company filed a Form 8-K, dated April 29, 2003, reporting BMC Industries, Inc. issued a press release announcing first quarter 2003 financial results.

 

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/Richard G. Faber                                         

Richard G. Faber

Corporate Controller

(Principal Accounting Officer)

 

Dated:  May 15, 2003

 


 

 

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Douglas C. Hepper, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of BMC Industries, Inc.

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flow of the registrant as of, and for, the periods presented in this quarterly report;

 

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

     

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

     

b) 

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and

 

     

c) 

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

     

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

 

     

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

 

6.  

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

                                                                                    /s/ Douglas C. Hepper                        

                                                                                    Douglas C. Hepper

                                                                                    Chairman, President

Date:  May 15, 2003                                             and Chief Executive Officer


    


                                                                              

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Curtis E. Petersen, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of BMC Industries, Inc.

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flow of the registrant as of, and for, the periods presented in this quarterly report;

 

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

     

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

     

b) 

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and

 

     

c) 

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

     

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

 

     

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

 

6.  

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

                                                                                    /s/ Curtis E. Petersen                                      

                                                                                    Curtis E. Petersen

                                                                                    Senior Vice President

Date:  May 15, 2003                                             and Chief Financial Officer