UNITED STATESECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549

FORM 10-K

| (Mark one)                                                  |
|-------------------------------------------------------------|
| [X]                                                         | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
|                                                        | THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                        |   |
| For the fiscal year ended December 31, 2001            |
|                                                        | OR |
| [  ]                                              | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
|                                                        | THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                        |   |
| For the transition period from ___________ to _____________ |
| Commission File No.:  1-8467                      |

 

**BMC INDUSTRIES, INC.**(Exact name of registrant as specified in its charter)

| Minnesota                                                               | 41-0169210                            |
|-------------------------------------------------------------------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization)         | (I.R.S. Employer Identification  No.) |
|                                                                    |                                  |
| One Meridian Crossings, Suite 850,  Minneapolis, MN                     | 55423                                 |
| (Address of principal executive  offices)                               | (Zip Code)                            |
| Registrant's telephone number,  including area code: **(952) 851-6000** |                                  |

 

| Securities registered pursuant to  Section 12(b) of the Act: |
|--------------------------------------------------------------|
|                                                         |   |
| Title of each class                                          | Name of each exchange on which  registered |
| Common Stock                                                 | New York Stock Exchange |
|                                                         |   |
| Securities registered pursuant to  Section 12(g) of the Act: |
| **None**                                                     |
| (Title of class)                                             |

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days.Yes  X   No

Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K is not contained herein, and will not be contained, tothe best of the registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10‐K.  [   ]

The aggregate market value of the registrant's common stock (its only votingstock) held by non-affiliates of the registrant, based on the closing salesprice for the registrant's common stock as reported on the New York StockExchange on March 18, 2002, was approximately $44.5 million. As ofMarch 18, 2002, there were 27,035,325 shares of common stock of theregistrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report on Form 10-K incorporates by reference information,to the extent specific sections are referred to herein, from the registrant'sproxy statement for its annual meeting of stockholders to be held on May 9,2002.

 

TABLE OF CONTENTS

 

| PART I.   |                                                                                   |
|-----------|----------------------------------------------------------------------------------------|
| Item 1.   | Business                                                                               |
| Item 2.   | Properties                                                                             |
| Item 3.   | Legal Proceedings                                                                      |
| Item 4.   | Submission of Matters to a Vote of Security Holders                                    |
| Item 4A.  | Executive Officers of the Registrant                                                   |
|      |                                                                                   |
| PART II.  |                                                                                   |
| Item 5.   | Market for Registrant's Common Equity and Related Stockholder Matters                  |
| Item 6.   | Selected Financial Data                                                                |
| Item 7.   | Management's Discussion and Analysis of Financial Condition and Results of  Operations |
| Item 7A.  | Quantitative and Qualitative Disclosures About Market Risk                             |
| Item 8.   | Financial Statements and Supplementary Data                                            |
| Item 9.   | Changes in and Disagreements with Accountants on Accounting and Financial  Disclosure  |
|      |                                                                                   |
| PART III. |                                                                                   |
| Item 10.  | Directors and Executive Officers of the Registrant                                     |
| Item 11.  | Executive Compensation                                                                 |
| Item 12.  | Security Ownership of Certain Beneficial Owners and Management                         |
| Item 13.  | Certain Relationships and Related Transactions                                         |
|      |                                                                                   |
| PART IV.  |                                                                                   |
| Item 14.  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                        |
|      | Signatures                                                                             |

 

 

#### PART I

            Certainstatements contained in this report are forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended, and are subject to theSafe Harbor provisions created by the statutes.  These statements relateto our current views with respect to non-historical information and include,without limitation, any statement that may predict, forecast, indicate or implyfuture results, performance or achievements.  These statements are notguarantees of future performance and are subject to certain risks anduncertainties - such as those discussed in the section entitled "FactorsThat May Affect Future Results" below - that could cause, and in certaininstances have caused, actual results to differ materially from those expressedor forecasted.  You should not rely on these forward-looking statements,which reflect only our opinion as of the date of this 10-K.  These factorsshould not be considered an exhaustive list.  We do not undertake theresponsibility to update any forward-looking statement that may be made from timeto time by us or on our behalf.  

### Item 1.  Business

**(a)        General Developmentof Business.**

BMC Industries, Inc., a Minnesota corporation ("BMC,""we," "our" or "us"), is a multinationalmanufacturer and distributor of a variety of products in two reportable segments:Buckbee-Mears and Optical Products, which operates under the Vision-Ease tradename.  Buckbee-Mears is comprised of Mask Operations and Micro-TechnologyOperations.  Mask Operations produces aperture masks, which are criticalcomponents of color television and computer monitor picture tubes. Micro-Technology Operations, formerly Buckbee-Mears St. Paul or"BMSP", is the leading producer of precision photo-etched metal andelectroformed components.  Micro-Technology Operations produces a varietyof component parts used in the medical, electronic, telecommunication,automotive and filtration market segments.  We changed the name of BMSP toMicro-Technology Operations in March 2001 to reflect the broad capabilitiesresident in this operation's core technology.  In response to difficulteconomic conditions and industry changes during 2001 and continuing into 2002,Buckbee-Mears has undertaken efforts to consolidate its operations and reducecosts to align its operation with the market.  In furtherance of thiseffort, Mask Operations began to exit the computer monitor segment of the maskmarket in late 2001 and intends to completely exit this segment by the end of2002.  Micro-Technology Operations is continuing in 2002 to reduceoperating expenses as a result of particularly difficult economic conditionsthat have affected its business.  We are pursuing various optionsavailable to maximize the value of Micro-Technology Operations, includingefforts underway to sell portions of the business and consolidate portions ofthe St. Paul, Minnesota operations into the Mask Operations facilities inCortland, New York and Mullheim, Germany.

Optical Products designs, manufactures and distributes polycarbonate, glassand hard-resin plastic eyeglass lenses under the trade name of"Vision-Ease."  Similar to the actions taken by Buckbee-Mears,Optical Products continues into 2002 to implement efforts begun in 2001 toreduce its cost structure, consolidate its operations and focus its resourceson higher margin, value-added products. In January 2002, Optical Products soldits Optifacts division, a developer and distributor of software used in theoptical products industry, to Essilor of America, Inc.  In February 2002,Optical Products announced the closing of its Azusa, California polycarbonatemanufacturing facility and the transfer of production to Vision-Ease's existingfacilities in Jakarta, Indonesia and Ramsey, Minnesota.

**(b)        FinancialInformation About Industry Segments.**

Financial information about our operating segments for the three most recentfiscal years appear on pages 41-42.

**(c)        NarrativeDescription of Business.**

Buckbee-Mears

*Products and Marketing.* Buckbee-Mears has manufacturing operations inCortland, New York, Mllheim, Germany and St. Paul, Minnesota, all of which areISO 9002 certified, which is a critical prerequisite to supplying a broad baseof customers.  Mask Operations manufactures aperture masks at the Cortlandand Mullheim facilities and operates a low-cost mask inspection facility inTatabanya, Hungary.  The St. Paul facility is primarily dedicated toMicro-Technology Operations for research and development activities and smallbatch or specialty manufacturing, including precision photo-etched metal parts,specialty printed circuits, precision electroformed components and precisionetched and filled glass products. Micro-Technology Operations also hasproduction operations in Cortland and Mullheim.

Two customers of Buckbee-Mears each accounted for more than 10% of our totalconsolidated revenues for 2001. Thomson, S.A. of France, including its U.S.based operations, accounted for approximately 16% of our 2001 consolidatedrevenues. Samsung Display Co., Ltd., of South Korea accounted for approximately14% of our 2001 consolidated revenues.  Thomson produces televisions inNorth America and Europe under various trademarks, including RCA and GE. Samsung produces televisions in the Americas, Europe and Asia and computermonitors in South American and Asia under the Samsung trade name.

Aperture masks are photo-chemically etched fine screen grids found in colortelevision and computer monitor picture tubes and consist of thousands ofprecise, conically shaped holes designed to focus the electron beam on theproper phosphor color stripe to produce a crisp image.  Aperture masks aremade from steel or invar, a nickel and iron alloy, and range in size from6-inch to 40-inch diagonal dimensions.  We manufacture aperture masksranging from 14-inch to 36-inch diagonal dimensions.  Our facilities employan automated continuous photochemical etching process that we originallydeveloped.  We sell aperture masks directly to color television andcomputer monitor tube manufacturers in North America, Europe, India and Asiathrough an in-house sales organization.  Sales of aperture masks comprised52%, 55% and 55% of our consolidated total revenues in 2001, 2000 and 1999,respectively.

Mask Operations is engaged in ongoing efforts to develop futuremanufacturing and technical expertise in a variety of new mask products,including high definition television ("HDTV"), multimedia, widescreen(16 x 9) and pure flat mask products.  We have made significant processcapability gains on advanced mask products, particularly in entertainmentmasks, with success in qualifying masks in the flat, widescreen and HDTVcategories. 

Micro-Technology Operations manufactures a variety of precision photo-etchedmetal and electroformed components.  We sell these components through bothan in-house sales organization and independent manufacturer representatives tocustomers in the medical, electronics, automotive, telecommunications andfiltration market segments.  Micro-Technology Operations' products includeswitch contacts, ignition components, medical device components, reusablefiltration devices and precision sorting sieves.  Over the past few years,Micro-Technology Operations has pursued a strategy of leveraging itshigh-volume precision technologies and production capabilities to attract largeend-product manufacturers for joint research and product developmentprojects.  These efforts have resulted in the development of newtechnology and new customers with significant potential future revenueopportunities.  In March 2001, Buckbee-Mears signed separate agreementswith Visteon Corporation and Cordis Corporation, a wholly-owned unit of Johnson& Johnson, which grant to BMC technology rights and/or productionopportunities in the circuit board and implantable stent markets.  Theunderlying technology of these agreements has broad potential applications andwe have ongoing efforts to market this technology.  These efforts,however, have been hampered by weak economic conditions that continue into2002.

During 2001, Mask Operations experienced a decline in demand forentertainment masks, particularly medium and large-sized televisionmasks.  Medium and large size mask sales declined 43% year-over-year,resulting from a mix shift in Europe from large to jumbo-sized masks, anoverall weak NAFTA market and a comparison to prior year sales made difficultdue to particularly strong fourth quarter 2000 sales enhanced by the sale ofmasks to a customer in China.  Sales of jumbo-sized masks (those 30"and larger) increased 14% in the fourth quarter of 2001 as compared to the sameperiod in 2000.

During portions of the third and fourth quarters of 2001, Buckbee-Mearstemporarily shut down aperture mask production lines at its Cortlandmanufacturing facility.  We timed these shutdowns to occur in conjunctionwith previously scheduled maintenance shutdowns to minimize the impact toemployees and operations.  In 2002, Mask Operations intends to exit thecomputer monitor segment of the aperture mask business and focus its operationson development and production of more profitable entertainment maskproducts.  

*Raw Materials.*  Buckbee-Mears procures raw materials frommultiple suppliers.  Steel and invar are the main raw materials used byBuckbee-Mears.  Our Cortland facility imports all of its steel and invarrequirements from suppliers in Japan and Germany.  Our Mullheim facilityobtains a majority of its steel and invar raw material from a supplier withinGermany and the remaining portion from a vendor in Japan.  Importation ofsteel into the United States is subject to certain restrictions imposed by U.S.federal trade legislation and regulations.  In addition, steel imports arethe subject of occasional domestic trade disputes and investigations that haveresulted in the imposition of tariffs by the U.S. federal government.  Wehave successfully obtained exclusions from these tariffs to date, most recentlyas March 2002, based on our inability to source aperture mask steel in theU.S.  We do not anticipate difficulty in obtaining steel or any other rawmaterials.  Our inability to obtain these materials, however, would have amaterial adverse effect on production and results of operations.

*Intellectual Property.*  We have a number of patents and licenserights that are important to the success of our Buckbee-Mears operations. These patents range in their expiration dates from 2002 to 2018***.*** We believe that the loss of any single patent would not have a material adverseeffect on our business as a whole.  We believe that improvement ofexisting products and processes and a reliance on trade secrets and unpatentedproprietary know-how are as important as patent protection in establishing andmaintaining our competitive position.  At the same time, we continue toseek patent protection for our products and processes on a selectivebasis.  There can be no assurance, however, that any issued patents willprovide substantial protection or commercial value.  We require ourconsultants and employees to agree in writing to maintain the confidentialityof our information and, within certain limits, to assign to us any inventions,and any patent or other intellectual property rights, relating to ourbusiness.  In addition, we have an Intellectual Property program thatenhances our ability to identify and protect intellectual property from thedevelopment stage through the life of our products and processes.

*Seasonality.*  Buckbee-Mears' revenues and earnings are generallylower in the first and third quarters due to maintenance shutdowns at theCortland and Mullheim facilities.  The seasonality of end product in thisbusiness segment, televisions and computer monitors, also affects our annualearnings pattern.

*Competition.*  The precision etched metal and electroformed partsbusiness is intensely competitive, with no one competitor dominating themarket. We are one of five independent mask manufacturers in the world and theonly independent mask manufacturer with production facilities in the UnitedStates.  Our primary mask competitors operate in Japan and Korea.  Inaddition, several color picture tube manufacturers operate captive maskproduction facilities and two state directed ventures operate in China. Independent mask manufacturers supply approximately 86%of the global maskmarket, with BMC among the largest at an estimated 16% of the combinedtelevision and monitor mask market share.  We supplied approximately 18%of the worldwide demand for television masks and 8% of the demand for monitormasks in 2001. Our customer, Philips Components B.V., announced in November2000 that it was merging with one of Buckbee-Mears' independent competitors,LG. Electronics of South Korea.  If completed, this transaction willresult in vertical integration of LG's mask production into a captive supplyarrangement with Philips' operations.

In addition to competition from other mask manufacturers, Mask Operationscompetes against rival technologies such as LCD monitors, plasma displays andprojection televisions.  LCD monitors accounted for 16% of total monitorsin 2001, up from 5% in 2000, and laptops grew to 20% of PC's purchased from 18%in 2000, both reducing the need for CRT tubes.  Sales of projectiontelevisions in the U.S. have grown over the last year due to rapidly droppingprices, contributing in the decline in sales of jumbo CRT televisions. Further, many consumers identify HDTV with projection televisions, furthercontributing to the growth in sales of projection televisions. Nevertheless, rival product technologies such as plasma and LCD are still veryexpensive compared to CRT technology and therefore we believe they are not apractical substitute to CRT technology for much of the global consumer monitormarket.

Many producers compete in the market for precision photo-etched andelectroformed metal parts that are produced by Micro-Technology Operations,including some that also manufacture aperture masks.  There is no clearmarket share leader in this fragmented industry.  We compete principallyon the basis of price, product quality and product availability.   Wealso attempt to build preferred supplier and research and developmentarrangements with customers to best meet their current and new productrequirements.  In order to pursue new products and technology whilemaintaining competitive on existing products, we engage in ongoing costreduction measures, including the development of automated processes.  

*Backlog.*  As of December 31, 2001, the firm backlog ofBuckbee-Mears sales orders was $14.9 million, compared with $19.7 million as ofDecember 31, 2000.  We expect that all of the December 31, 2001 backlogorders will be filled within the current fiscal year. 

*Employees*.  As of March 18, 2002, Buckbee-Mears hadapproximately 1,237 employees in the United States and Europe.  Themajority of U.S. employees are not represented by labor unions. In compliancewith local laws, production employees in Europe are represented by laborunions.  Labor relations generally are considered to be good and therehave been no significant labor disputes in the past ten years.

Optical Products

*Products and Marketing.*   Optical Products, operating underthe Vision-Ease trade name, designs, manufactures and distributes a full lineof eyeglass lenses.  The group is headquartered in Brooklyn Park,Minnesota and operates production facilities in Azusa, California; Ramsey,Minnesota; and Jakarta, Indonesia. Vision-Ease also has polycarbonatelaboratory operations in the U.S. and Europe and five distribution centers inthe U.S., Canada and England. Optical Products announced early in 2002 asignificant consolidation of operations, including the closure during the yearof our manufacturing facility in Azusa and the consolidation of itsheadquarters with BMC's corporate office space in Minneapolis.  Theprocess of transferring polycarbonate lens production from the Azusa facilityto our facilities in Ramsey and Jakarta is underway.

Vision-Ease manufactures lenses in two principal materials, polycarbonateand glass, and sources hard-resin plastic lenses.  Within each of theselens materials, we offer single-vision lenses, which have a constant correctivepower at all points; multi-focal lenses, which have two or more distinct areasof different corrective power; progressive lenses, which are a type ofmulti-focal lens with a continuous gradient of different corrective powerwithout the line or "jump" generally associated with othermulti-focal lenses; and prescription and non-prescription lenses that are usedprimarily for sunwear.  We also produce lenses with value-added featuressuch as anti-reflective and scratch-resistant coatings to meet increasingdemand for value-added products.

We sell semi-finished lenses to wholesale optical laboratories or retailoutlets with on-site laboratories, which then finish the lens by grinding andpolishing the inside surface of the lens according to the prescription providedby the optometrist or ophthalmologist.  After processing, the lens isedged and inserted into a frame by either the wholesale laboratory or a retailoptical dispenser.  We sell finished single-vision lenses to wholesalelaboratories and retail outlets. These finished lenses are ready to be edgedand inserted into frames without laboratory surfacing. We also sellsemi-finished and finished lenses to OEM customers.  We sell prescriptionand non-prescription polarizing lenses to manufacturers of sunglasses as wellas our wholesale and retail customer base.  Vision-Ease generally sellsits products to wholesale laboratories through independent salesrepresentatives and to retail outlets through an in-house sales staff.

Vision-Ease has pursued a core strategy of converting domestic andinternational ophthalmic markets to polycarbonate and is a technological leaderin the design and manufacture of polycarbonate lenses.   Althoughdomestic polycarbonate lens sales contracted slightly in 2001, sales during2001 in Europe grew by double digits and it continues to be the world's fastestgrowing lens material, with sales growth in North America of approximately 15%annually for the prior 15 years.

In early 2000, the Optical Products group established a lens laboratorynetwork in Europe to pursue growth of polycarbonate in that market. Thisnetwork is made up of administration/customer service in Mullheim, Germany anda processing facility in Brou, France.  The Brou laboratory specializes ingrinding, edging and applying anti-reflective coatings to polycarbonate lensesfor sale in the European market.  Over the course of 2000 and 2001, wequalified our polycarbonate products and laboratory processing capabilitieswith a broad cross-section of retailers in Europe.  We began similarefforts in the U.S. during 2001 through the establishment of operations toprocess and distribute polycarbonate lenses at the laboratory level.

We continue to experience diminishing sales of lenses made from glass as thelens market continues to move toward polycarbonate and hard-resin plasticlenses.  We produce semi-finished glass multi-focal and finished andsemi-finished single-vision glass lenses at our Jakarta facility.  In2001, we transferred the production of specialty glass lens products from ourformer St. Cloud, Minnesota production facility to the Jakartafacility.   We complete our product offerings through sourcing ofhard-resin plastic lenses from a low cost manufacturer in Southeast Asia. Thissourcing arrangement allows Vision-Ease to focus manufacturing capabilities onhigher-margin products while offering a complete line of lens products at costcompetitive prices. 

In January 2002, Optical Products completed the sale of its Optifactsdivision to Essilor of American, Inc. of Dallas, Texas.  Optifacts is adeveloper and distributor of software used in the ophthalmic lens industry,including lab management software used by a number of retail and wholesaleoptical laboratories.  In connection with the sale of Optifacts, Vision-Easeretained rights to license Optifacts software for laboratory operations andother internal purposes.  We used the proceeds of the Optifacts sale torepay debt.

*Intellectual Property.*  Vision-Ease holds several patentsprotecting certain products and manufacturing processes.  These patentshave expiration dates ranging from 2002 to 2019.  Vision-Ease has built astrong patent position in certain product categories, including polycarbonatepolarizing and photochromic lenses and production processes. We believe theloss of any single patent would not have a material adverse effect on ourbusiness as a whole.  We believe that improvement of existing products andprocesses, the development of new lens products and a reliance on trade secretsand unpatented proprietary know-how are as important as patent protection inestablishing and maintaining our competitive position.  At the same time,we continue to seek patent protection for our products and processes on aselective basis.  There can be no assurance, however, that any issuedpatents will provide substantial protection or commercial value.  Werequire our consultants and employees to agree in writing to maintain theconfidentiality of our information and, within certain limits, to assign to usany inventions, and any patent or other intellectual property rights, relatingto our business.  We own several trademarks, including SunRx®, Tegra®,Diamonex®, VividTM, OutlookTM, ContinuaTM and SunSport®.  As part of ourmarketing strategy to build sales of branded products, we have increased ouruse of trademarks during the past few years.  Although there are noassurances as to the strength or scope of our trademarks, we believe that thesetrademarks have been and will be useful in developing and protecting marketrecognition for our products.  In addition, we have an IntellectualProperty program that enhances our ability to identify and protect intellectualproperty from the development stage through the life of our products andprocesses.

The Optical Products group dedicates the significant portion of its processand product research and development resources in polycarbonate lens and highermargin, value-added product development.  These investments resulted inthe achievement of a significant milestone in December 2001 with the issuanceof U.S. Patent No. 6,328,446 covering technology inclusive of our proprietarypolarizing product as well as our proprietary photochromic polycarbonatelenses, which are scheduled for availability in the third quarter of 2002. This patent covers technological advances in the design and manufacture ofpremium polycarbonate sunwear.  This patent adds to a growing intellectualproperty portfolio and represents our commitment to leading the industry in thedevelopment of premium polycarbonate products and related filmtechnologies.  We intend to continue making significant investments inproduct and process design and development for all lens materials as well asleverage our core technologies to diversify into new and non-optical products.

*Competition.*  The ophthalmic lens industry is highlycompetitive.  We compete principally on the basis of product offerings,pricing, product quality and customer service.  Vision-Ease is the thirdlargest ophthalmic lens manufacturer and distributor in North America, with asubstantially smaller share of the global lens market.  Our largestcompetitors are Essilor International and Sola International Inc., who have acombined share of approximately 70% of the ophthalmic lens sales in North Americaand 50% of the world-wide lens market.  Many of our competitors,particularly Essilor and Sola, have greater financial resources thanVision-Ease with which to fund research, development and capitalexpenditures.  These competitors also own and operate a substantial numberof domestic vertically integrated wholesale laboratories.

In addition to direct competition with other manufacturers of eyeglasslenses, we compete indirectly with manufacturers of contact lenses andproviders of medical procedures for the correction of visual impairment. Contact lenses are not, however, perfect substitutes for lenses becauseof the difficulty of developing progressive or bifocal contact lenses forpresbyopia.  In addition, contact lens wearers also tend to own eyeglassesor sunwear.  A number of companies have developed, or are developing,surgical equipment or implants used to correct refractive error, includingmyopia, hyperopia and astigmatism.  These procedures are ineffective atcorrecting presbyopia, which affects the vast majority of people above the ageof 45, and is a major cause of demand for Vision-Ease's progressive and othermulti-focal lenses.  There can be no assurance, however, that currentmedical procedures, or ones developed in the future, will not materially impactdemand for our lenses.

*Raw Materials.*  Vision-Ease procures raw materials from multiplesuppliers.  There are multiple domestic and foreign sources ofpolycarbonate resin. We obtain hard-resin plastic lenses from a single sourcein Southeast Asia.    In addition, we source film used in theproduction of polarizing lenses from a single source in Japan.  Theimportation of raw materials and products into and out of foreign territoriesis subject to certain trade restrictions imposed by foreign and United Statestrade regulations that could result in the disruption of supply.  Althoughwe do not anticipate any disruption to our supply of raw materials or lensesproduced or sourced outside the U.S., the inability to obtain these suppliescould have a material adverse effect on Vision-Ease's results of operations.

*Backlog and Inventory.*  Due to the importance in the ophthalmiclens industry of rapid turnaround time from order to shipment, the backlog ofsales orders is not material.  We maintain a significant amount ofinventory, however, in order to satisfy the rapid response time and completeproduct offerings in glass, hard resin plastic and polycarbonate demanded byour customers.

*Seasonality.*  Earnings are generally lower in the first quarterdue to the seasonality of eyewear, the end product of our lenses.

*Employees.*  As of March 18, 2002, Vision-Ease had approximately1,637 employees in the United States, Europe and Indonesia.  None of theemployees in the United States are represented by labor unions.  Incompliance with local laws, production employees in Europe and Indonesia arerepresented by labor unions.  Labor relations are considered to be good atall operations and there have been no significant labor disputes in thisgroup's history of operations.

Environmental

As part of our manufacturing processes in both Buckbee-Mears and OpticalProducts, we use hazardous chemical substances that must be handled inaccordance with federal, state, local and foreign environmental and safety lawsand regulations.  These processes also generate wastewater and wastes,some of which are classified as hazardous under applicable environmental lawsand regulations.  The wastewater is treated using on-site wastewatertreatment systems.  We employ systems for either disposing of wastes inaccordance with applicable laws or regulations or recycling the chemicals weuse through the manufacturing process.  Environmental and other governmentagencies monitor the wastes and the wastewater treatment systems to ensure compliancewith applicable standards.  Although we attempt to operate within allapplicable laws and follow sound environmental procedures, environmentalregulations place responsibility for waste on the generator even after properdisposal.   There can be no assurance, therefore, that we will notincur future liability for waste disposal despite our best efforts.  As ofMarch 18, 2002, we were involved in a total of eight (8) environmentalinvestigations and/or remedial actions in which final settlement had not beenreached, of which one (1) relates to a discontinued operation, five (5) relateto Buckbee-Mears operations and two (2) relate to Optical Products operations.

To the extent possible with the amount of information available at thistime, we have evaluated our responsibility for costs and related liability withrespect to these investigations/remedial actions, have recorded accruals forour estimated liability in accordance with generally accepted accountingprinciples, and are of the opinion that our liability with respect to thesematters should not have a material adverse effect on our financial position orthe results of our operations.  In arriving at this conclusion, we haveconsidered, among other things, historical costs to address these matters; thefactors, such as volume and relative toxicity, ordinarily applied to allocateddefense and remedial costs; the probable costs to be paid by the otherpotentially responsible parties; total projected remedial costs, if known;existing technology; and currently applicable laws and regulations.  Aportion of the costs and related liability for certain matters has been or willbe covered by insurance or third parties.

We estimate that Buckbee-Mears incurred approximately $5.3 million in 2001and $5.4 million in 2000 on expenditures, including capital expenditures,related to efforts to comply with applicable laws and regulations regulatingthe discharge of materials into the environment or otherwise relating to theprotection of the environment.  We anticipate that Buckbee-Mears willspend approximately $5.2 million in 2002 and $1.0 million in 2003 on capitalexpenditures for environmental control facilities and response costs. Vision-Ease incurred approximately $0.2 million in 2001 and $0.1 million in 2000on expenditures, including capital expenditures, related to efforts to complywith applicable laws and regulations regulating the discharge of materials intothe environment or otherwise relating to the protection of theenvironment.  We estimate that Vision-Ease will make approximately $0.1million in capital expenditures for environmental control facilities duringeach of 2002 and 2003.

**(d)        FinancialInformation About Geographic Areas.**

Financial information about our operations in different geographic areas forthe three most recent fiscal years appears on page 43.

**(e)        Risk Factors**

*Restructuring. *BMC suffered a financial loss in 2001 and,partly in response, is exiting the computer monitor mask business,consolidating its manufacturing facilities and reducing its number of employeesand other costs significantly, leading to restructuring related charges toearnings of $6.0 million in 2001. We expect additional charges of $2.0 to $3.0million relating to closure of the Azusa facility in the first quarter of 2002.It is possible that additional cost-reduction or other restructuring relatedmeasures will be needed that could require additional charges to futureearnings.

*Adoption of SFAS No. 142. *In assessing the recoverability ofBMC's goodwill and other intangible assets, we are required to make assumptionsregarding estimated future cash flows and other factors to determine the fairvalue of the respective assets.  If these estimates or their relatedassumptions change in the future, BMC may be required to record impairmentcharges for these assets not previously recorded.  Effective January 1,2002, BMC will adopt Statement of Financial Accounting Standards (SFAS) No.142, *Goodwill and Other Intangible Assets*, and will be required toanalyze its goodwill for impairment issues during the first six months offiscal 2002, and on a periodic basis thereafter.  BMC did not record anyimpairment losses related to goodwill and other intangible assets during theyear-ended December 31, 2001.  Based on preliminary analysis, however, weanticipate that Optical Products will incur a goodwill impairment write-offbetween $35 million and $50 million on implementation of SFAS No. 142. Further charges may be necessary in the future.

*Pricing and Margins.*  Many market and economic factors, as wellas internal operating performance, have adversely affected, and could continueto affect, our financial performance and projected future results. Since eachof our operations supply components to manufacturers of end products,imbalances in supplies and demand at all levels of product distribution couldhave, and in some instances have had, a significant impact on our pricing andmargins.  Capacity expansions by aperture mask manufacturers helped createthis type of imbalance in the mask market a few years ago, which resulted inpricing pressures that continue to impact pricing.  In addition, marginsare affected by the need to develop new technology. Our ability to meet themarket demand for new products in a timely fashion requires the investment ofresources, which, coupled with pricing pressures, decrease our margins. Tooffset these pressures and costs, we have implemented several cost reductionmeasures and are pursuing sales of higher margin products and have taken majorsteps to reduce our fixed and variable costs in all of our operations,including the transfer of additional lens manufacturing to our Jakarta facilityand yield improvement initiatives.  These efforts may not be enough toimprove revenues, operating performance or margins.

*Reliance on key customers.*  Both Optical Products and MaskOperations rely on sales to key customers for a large share of sales.  Theloss of any of these customers could have a material adverse effect on ourresults of operations.  Although we strive to differentiate our productsand services from those of the competition, we may lose customers due tovertical integration of these customers into competitors.

*Competition/New Product Development and Introduction.*  Each ofour operations faces competition from other companies in the same technology aswell as competition with alternative technologies.  As a result, we investsignificantly in new product development.  Vision-Ease has investedsubstantial resources toward new lens offerings, particularly inpolycarbonate.  These efforts have resulted in many new products that haveexperienced success to date, including our Tegra® high-performancepolycarbonate product line, OutlookTM progressive lenses, and polarizingsunwear. Buckbee-Mears continues its efforts to develop new high-volume productopportunities.  In addition, Buckbee-Mears will continue to dedicateresources towards development of HDTV and multimedia masks.  We mustdevelop these and other new products and technologies at competitive prices andquality in order to compete in each of the markets we serve.  There are noassurances, however, that we will succeed in these efforts, that competitorswill not develop better quality and less expensive products, that we will developor introduce new products within our anticipated time schedule or thatalternative technologies, such as laser eye surgery, will not replace ourproducts.

*Litigation.*  We are subject to the normal risks of litigationand other proceedings that affect business operations, including environmentalliability for past or present environmental practices, product liability,workers' compensation and personal injury.  Although we do not anticipatethat any claims will result in liability that could have a materially adverseeffect on our financial condition and results of operations, there are noassurances that we will not incur such liability in the future given theuncertainty of litigation.

*Sources of Supply.*  The primary raw material used to produce amask is steel.  The primary raw materials used to manufacture opticalproducts are polycarbonate resin, glass blanks and plastic resins. Significantchanges in the markets for these materials, including pricing and availability,could have a material adverse impact on our financial results.   Inaddition, since Optical Products obtains the majority of its hard-resin plasticlenses from a foreign supply arrangement and its glass and a portion of itspolycarbonate lenses from its Jakarta operations, factors affecting thesesuppliers' ability to meet our demand for these products could have a materialadverse impact on our results of operation.

*Foreign Currency.*  We transact business in currencies other thanU.S. dollars.  The primary currencies used include the German mark, theeuro, Japanese yen, British pound, Canadian dollar, Hungarian forint andIndonesian rupiah.  Our primary competitors in the mask market are locatedin Japan.  Changes in the currency exchange rates between the U.S. dollarand the German mark compared to the Japanese yen affect Mask Operations'pricing competitiveness.  Although we take steps to reduce this riskthrough cross-currency swaps and other hedging transactions, we are subject tothe risk of adverse fluctuations in currency exchange rates, which may result,and have resulted, in pricing pressures and reductions in profitability due tocurrency conversion or translation.

*International Markets.*  Buckbee-Mears has a manufacturingfacility located in Mullheim, Germany and an aperture mask inspection facilityin Tatabanya, Hungary. Vision-Ease has optical lens laboratory operations inEurope, a supply arrangement with hard-resin plastic lens manufacturer inSoutheast Asia, and a joint venture in Indonesia for glass and polycarbonatelens manufacturing.  In addition, we have many international customers andare dedicating significant resources to increase business with internationalcustomers at all of our operations.  Our international operations andsales could be adversely affected by governmental regulations, politicalinstability, economic changes or instability and competitive conditions inother countries in which, and with which, we conduct business.  Economicdifficulty has been experienced in Asia during the recent past and globallyduring the past year, which serves as an example of international conditionsthat can adversely affect financial performance.  Future downturns in theglobal economy or in certain areas of the world could affect our operationswithout advance warning.  Further, there are no assurances that ourefforts to grow our business, such as penetration of polycarbonate lens salesin Europe through laboratory operations, will be successful.

**Item 2.  Properties**

The following table sets forth certain information regarding our principalproduction facilities:

 

| Location | Principal Use      | Approximate SquareFeet of Space                                                                                   |
|----------|--------------------|-------------------------------------------------------------------------------------------------------------------|
| Owned:   |               |                                                                                                              |
|     | Mullheim, Germany  | Buckbee-Mears  - Manufacturing of aperture masks and precision photo-etched metal and  electroformed products     | 170,000 |
|     | Cortland, NY       | Buckbee-Mears  - Manufacturing of aperture masks and precision photo-etched metal and  electroformed products     | 363,000 |
|     | Tatabanya, Hungary | Buckbee-Mears  - Inspection of aperture masks                                                                     | 45,000 |
|     | Ramsey, MN         | Optical Products  - Manufacturing of polycarbonate lenses, centralized distribution and  research and development | 150,000 |
|     | Jakarta, Indonesia | Optical Products  - Manufacturing of glass and polycarbonate lenses                                               | 66,000 |
| Leased:  |               |                                                                                                              |
|     | St. Paul, MN       | Buckbee-Mears  - Manufacturing of precision photo-etched metal and electroformed parts                            | 118,405 |
|     | Azusa, CA          | Optical Products  - Manufacturing of polycarbonate lenses and distribution                                        | 120,000 |

We lease approximately 14,000 square feet in suburban Minneapolis, Minnesotafor our corporate headquarters.  We also lease approximately 10,939 squarefeet in Brooklyn Park, Minnesota for our Vision-Ease headquarters; however, wewill vacate that location in 2002 and consolidate personnel at BMC'sheadquarters in Minneapolis.  We lease approximately 82,000 square feet forcustomer service, administration and distribution in St. Cloud, Minnesotapursuant to a lease that expires in 2005.  Our plant lease in St. Paulexpires in February 2004.   Vision-Ease has the option to purchasethe Azusa facility for $1.00 at anytime.  We anticipate that Vision-Easewill exercise this option and sell the Azusa property in connection with thefacility closure and transfer of operations to Ramsey and Jakarta.  Webelieve our existing facilities are sufficient to meet our current and foreseeableproduction and other needs.

In addition to the properties listed above, we operate other smallerdomestic and international warehouse, distribution, laboratory andadministrative offices. For additional information concerning our leasedproperties, see Note 8 to Notes to Consolidated Financial Statements on page34.

**Item 3.  Legal Proceedings**

With regard to certain environmental and other legal matters, see Item 1(c)"Narrative Description of Business - "Buckbee-Mears -Environmental" and "Optical Products - Environmental" and Item 7"Management's Discussion and Analysis of Financial Condition and Resultsof Operations."

Other than as noted above, there are no material pending or threatenedlegal, governmental, administrative or other proceedings to which we are aparty or of which any of our property is subject.

**Item 4.  Submission of Matters to a Vote of Security Holders**

No matter was submitted to a vote of security holders during the fourthquarter of the fiscal year covered by the report.

**Item 4A.  Executive Officers of the Registrant**

The names and ages of our executive officers, all of whose terms expire inMay 2002, the year first elected or appointed as an executive officer and theoffices held as of March 18, 2002 are listed below:

| Name (Age)              | Date First Elected or Appointed asan Executive Officer | Title                                             |
|-------------------------|--------------------------------------------------------|---------------------------------------------------|
| Paul B. Burke (46)      | August 1985                                            | Chairman of the Board and Chief Executive Officer |
| Bradley D. Carlson (37) | September 1999                                         | Treasurer                                         |
| Jon A. Dobson (35)      | December 1997                                          | Vice President, General Counsel and Secretary     |
| Curtis E. Petersen (49) | December 2001                                          | Senior Vice President and Chief Financial Officer |

There are no family relationships between or among any of the executiveofficers.  Executive officers are elected by the Board of Directors forone-year terms, commencing with their election at the first meeting of theBoard of Directors immediately following the annual meeting of stockholders andcontinuing until the next such meeting of the Board of Directors.

Except as indicated below, the executive officers have not changed theirprincipal occupations or employment during the past five years.

Mr. Burke is also a director of BMC.  Mr. Burke joined BMC as AssociateGeneral Counsel in June 1983, and became Vice President, Secretary and GeneralCounsel in August 1985.  In November 1987, he was appointed VicePresident, Ft. Lauderdale Operations of the Vision-Ease division and in May1989, he was appointed President of Vision-Ease.  In May 1991, Mr. Burkewas elected President and Chief Operating Officer of BMC, and in July 1991, hebecame President and Chief Executive Officer.  Mr. Burke was appointedChairman of the Board in May 1995.

Mr. Carlson joined BMC in September 1999 as Treasurer.  From July 1992to September 1999, Mr. Carlson held various positions with Northwest Airlines,Inc., a commercial air travel carrier, most recently as Director of CorporateFinance.  Mr. Carlson served as an Associate with Kidder Peabody, Inc., aninvestment banking firm, in 1991 and as a Corporate Finance Analyst with DainRauscher Incorporated, an investment banking firm, from December 1987 to June1990.

Mr. Dobson joined BMC in April 1995 as Director of Legal Services.  InDecember 1997, he was appointed General Counsel and Secretary.  InNovember 1999, Mr. Dobson was appointed Vice President of Human Resources,General Counsel and Secretary.  In November 2001, he was appointed VicePresident, General Counsel and Secretary.  Prior to joining BMC, Mr.Dobson was an associate with Lindquist & Vennum PLLP, a Minneapolis lawfirm, practicing exclusively in corporate and securities law.

Mr. Petersen joined BMC in August 2001 as Executive Vice President, Financeand Administration, of the Optical Products group.  In December 2001, hewas appointed Senior Vice President and Chief Financial Officer of BMC. Prior to joining BMC, Mr. Petersen served as Senior Vice President and ChiefFinancial Officer of Rivertown Trading Company, a retail catalog producer, andlater of Target.Direct.Inc., an internet-based retailer, from September 1996 toMarch 2001.  Prior to that, he served in numerous executive positions infinance, accounting and operations with Rosemount, Inc., a division of EmersonElectric Company, a process instrumentation manufacturer, and DiversifiedEnergies, Inc., a holding company with interests in natural gas, prior to itsmerger into Arkla, Inc.

 

**Part II**

**Item 5.  Market for Registrant's Common Stock and RelatedStockholder Matters**

BMC's common stock is traded on the New York Stock Exchange under the tickersymbol "BMM".  The table below sets forth the high and lowreported sales prices of BMC stock by quarter for the years 2001 and2000.  At March 18, 2002, there were approximately 1,100 stockholders ofrecord.

|               |   |                |      | Price  |
|--------------------|--------|---------------------|-----------|--------|
|               |   | Dividends Per Share |      | High   |   | Low |
| 2000               |   |                |      |   |   |   |   |   |
| First Quarter      |   | $                   | .0150     | $      |   | 6.19 | $ |   | 4.56 |
| Second Quarter     |   | .0150               |      |   | 6.00 |   |   | 3.69 |
| Third Quarter      |   | .0150               |      |   | 6.88 |   |   | 4.19 |
| Fourth Quarter     |   | .0150               |      |   | 7.00 |   |   | 4.63 |
| **2001**           |   |                |      |   |   |   |   |   |
| **First Quarter**  |   | **$**               | **.0150** | **$**  |   | **5.85** | **$** |   | **5.00** |
| **Second Quarter** |   | **.0150**           |      |   | **6.28** |   |   | **4.40** |
| **Third Quarter**  |   | **.0150**           |      |   | **5.25** |   |   | **2.00** |
| **Fourth Quarter** |   | **.0025**           |      |   | **3.05** |   |   | **1.69** |

We expect to continue our policy of paying regular cash dividends, althoughthere is no assurance as to future dividends because they are dependent onfuture earnings, capital requirements, financial condition and are subject tocertain restrictions in our revolving domestic credit facility.

** **

**Item 6.  Selected Financial Data**

The following selected financial data is derived from the consolidatedfinancial statements of the Company and should be read in conjunction with theconsolidated financial statements, related notes, and other financialinformation included herein.

***HISTORICAL FINANCIAL SUMM*ARY**

*(in thousands, except per share amounts, percentages and ratios)*

| Years Ended December 31                                                                      |   | **2001**    |   |   | 2000    |   |   | 1999    |   |   | 1998    |   |   | 1997    |   |
|----------------------------------------------------------------------------------------------|--------|-------------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Summary of Operations                                                                        |   |        |   |   |    |   |   |    |   |   |    |   |   |    |   |
| Revenues                                                                                     | **$**  | **302,296** |   | $      | 354,485 |   | $      | 353,854 |   | $      | 335,138 |   | $      | 312,538 |   |
| Cost of products sold                                                                        |   | **276,999** |   |   | 300,795 |   |   | 305,592 |   |   | 297,995 |   |   | 244,468 |   |
| Gross margin                                                                                 |   | **25,297**  |   |   | 53,690  |   |   | 48,262  |   |   | 37,143  |   |   | 68,070  |   |
| Selling and administrative expenses                                                          |   | **21,948**  |   |   | 22,552  |   |   | 23,352  |   |   | 20,675  |   |   | 16,012  |   |
| Non-recurring charges                                                                        |   | **6,218**   |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |
| Impairment of long-lived assets                                                              |   | **--**      |   |   | --      |   |   | --      |   |   | 42,800  |   |   | --      |   |
| Acquired in-process research and development                                                 |   | **--**      |   |   | --      |   |   | --      |   |   | 9,500   |   |   | --      |   |
| Earnings (loss) before interest, other income and income taxes                               |   | **(2,869**  | **)**  |   | 31,138  |   |   | 24,910  |   |   | (35,832 | )      |   | 52,058  |   |
| Interest expense, net                                                                        |   | **(11,244** | **)**  |   | (12,833 | )      |   | (13,099 | )      |   | (13,374 | )      |   | (1,065  | )      |
| Other income                                                                                 |   | **883**     |   |   | 2,838   |   |   | 1,036   |   |   | 522     |   |   | 209     |   |
| Earnings (loss) before income taxes                                                          |   | **(13,230** | **)**  |   | 21,143  |   |   | 12,847  |   |   | (48,684 | )      |   | 51,202  |   |
| Income tax expense (benefit)                                                                 |   | **9,370**   |   |   | 6,243   |   |   | 5,023   |   |   | (18,049 | )      |   | 15,481  |   |
| Net earnings (loss)                                                                          | **$**  | **(22,600** | **)**  | $      | 14,900  |   | $      | 7,824   |   | $      | (30,635 | )      | $      | 35,721  |   |
| Earnings (Loss) Per Share                                                                    |   |        |   |   |    |   |   |    |   |   |    |   |   |    |   |
|   Basic                                                                                 | **$**  | **(0.83**   | **)**  | $      | 0.54    |   | $      | 0.29    |   | $      | (1.13   | )      | $      | 1.30    |   |
|   Diluted                                                                               |   | **(0.83**   | **)**  |   | 0.54    |   |   | 0.28    |   |   | (1.13   | )      |   | 1.25    |   |
| Number of shares included in per share computation                                           |   |        |   |   |    |   |   |    |   |   |    |   |   |    |   |
|   Basic                                                                                 |   | **27,205**  |   |   | 27,396  |   |   | 27,299  |   |   | 27,014  |   |   | 27,583  |   |
|   Diluted                                                                               |   | **27,205**  |   |   | 27,623  |   |   | 27,710  |   |   | 27,014  |   |   | 28,530  |   |
| Cash Flow                                                                                    |   |        |   |   |    |   |   |    |   |   |    |   |   |    |   |
| Cash dividends declared per share                                                            | **$**  | **0.0475**  |   | $      | 0.06    |   | $      | 0.06    |   | $      | 0.06    |   | $      | 0.06    |   |
| Depreciation and amortization expense                                                        |   | **23,807**  |   |   | 23,990  |   |   | 23,280  |   |   | 21,014  |   |   | 13,349  |   |
| Net cash provided by operating activities                                                    |   | **17,256**  |   |   | 36,637  |   |   | 33,485  |   |   | 26,948  |   |   | 14,667  |   |
| Capital expenditures                                                                         |   | **14,134**  |   |   | 11,929  |   |   | 13,157  |   |   | 21,427  |   |   | 75,110  |   |
| Financial Position                                                                           |   |        |   |   |    |   |   |    |   |   |    |   |   |    |   |
| Working capital                                                                              | **$**  | **70,253**  |   | $      | 95,322  |   | $      | 88,833  |   | $      | 94,971  |   | $      | 74,914  |   |
| Property, plant and equipment, net                                                           |   | **131,541** |   |   | 139,499 |   |   | 151,238 |   |   | 162,594 |   |   | 182,382 |   |
| Total assets                                                                                 |   | **331,746** |   |   | 373,804 |   |   | 383,553 |   |   | 399,465 |   |   | 319,407 |   |
| Total debt                                                                                   |   | **142,168** |   |   | 145,016 |   |   | 168,262 |   |   | 189,195 |   |   | 74,565  |   |
| Stockholders' equity                                                                         |   | **116,511** |   |   | 146,798 |   |   | 136,422 |   |   | 133,257 |   |   | 178,752 |   |
| Statistics and Ratios                                                                        |   |        |   |   |    |   |   |    |   |   |    |   |   |    |   |
| Current ratio                                                                                |   | **2.3**     |   |   | 2.5     |   |   | 2.5     |   |   | 2.7     |   |   | 2.6     |   |
| Total debt to equity ratio                                                                   |   | **1.2**     |   |   | 1.0     |   |   | 1.2     |   |   | 1.4     |   |   | 0.4     |   |
| Earnings (loss) before interest, other income and income taxes, as a  percentage of revenues |   | **(0.9)**   | **%**  |   | 8.8     | %      |   | 7.0     | %      |   | (10.7   | )%     |   | 16.7    | %      |
| Return on average equity                                                                     |   | **(17.2)**  | **%**  |   | 10.5    | %      |   | 5.8     | %      |   | (19.6   | )%     |   | 22.1    | %      |
| Book value per share                                                                         | **$**  | **4.33**    |   | $      | 5.36    |   | $      | 4.98    |   | $      | 4.90    |   | $      | 6.43    |   |

****

**Selected Quarterly Data**(Unaudited, in thousands, except per share amounts)

|                                      |   | First Quarter |   |   | Second Quarter |   |   | Third Quarter |   |   | Fourth Quarter |   |   | Total Year |   |
|-------------------------------------------|--------|---------------|--------|--------|----------------|--------|--------|---------------|--------|--------|----------------|--------|--------|------------|--------|
| ***2001***                                |   |          |   |   |           |   |   |          |   |   |           |   |   |       |   |
| Revenues                                  | $      | 85,760        |   | $      | 78,720         |   | $      | 73,339        |   | $      | 64,477         |   | $      | 302,296    |   |
| Gross margin                              |   | 11,456        |   |   | 11,957         |   |   | 2,553         |   |   | (669           | )      |   | 25,297     |   |
| Net earnings (loss)                       |   | 2,046         |   |   | (7,451         | )      |   | (4,146        | )      |   | (13,049        | )      |   | (22,600    | )      |
| Earnings (loss) per share                 |   |          |   |   |           |   |   |          |   |   |           |   |   |       |   |
|   Basic                         |   | 0.07          |   |   | (0.27          | )      |   | (0.15         | )      |   | (0.48          | )      |   | (0.83      | )      |
|   Diluted                       |   | 0.07          |   |   | (0.27          | )      |   | (0.15         | )      |   | (0.48          | )      |   | (0.83      | )      |
| Number of shares included in computation: |   |          |   |   |           |   |   |          |   |   |           |   |   |       |   |
|   Basic                         |   | 27,398        |   |   | 27,393         |   |   | 27,101        |   |   | 26,933         |   |   | 27,205     |   |
|   Diluted                       |   | 27,633        |   |   | 27,393         |   |   | 27,101        |   |   | 26,933         |   |   | 27,205     |   |
|                                      |   |          |   |   |           |   |   |          |   |   |           |   |   |       |   |
| ***2000***                                |   |          |   |   |           |   |   |          |   |   |           |   |   |       |   |
| Revenues                                  | $      | 88,751        |   | $      | 94,237         |   | $      | 90,179        |   | $      | 81,318         |   | $      | 354,485    |   |
| Gross margin                              |   | 12,064        |   |   | 15,891         |   |   | 12,649        |   |   | 13,086         |   |   | 53,690     |   |
| Net earnings (loss)                       |   | 2,301         |   |   | 5,475          |   |   | 2,737         |   |   | 4,387          |   |   | 14,900     |   |
| Earnings (loss) per share                 |   |          |   |   |           |   |   |          |   |   |           |   |   |       |   |
|   Basic                         |   | 0.08          |   |   | 0.20           |   |   | 0.10          |   |   | 0.16           |   |   | 0.54       |   |
|   Diluted                       |   | 0.08          |   |   | 0.20           |   |   | 0.10          |   |   | 0.16           |   |   | 0.54       |   |
| Number of shares included in computation: |   |          |   |   |           |   |   |          |   |   |           |   |   |       |   |
|   Basic                         |   | 27,384        |   |   | 27,401         |   |   | 27,399        |   |   | 27,400         |   |   | 27,396     |   |
|   Diluted                       |   | 27,599        |   |   | 27,582         |   |   | 27,645        |   |   | 27,669         |   |   | 27,623     |   |

** **

**Item 7.  Management's Discussion and Analysis of Financial Conditionand Results of Operations**

This discussion and analysis should be read in conjunction with theConsolidated Financial Statements and related footnotes included elsewhere inthis report.

**Summary**

BMC Industries, Inc. has two business segments; Buckbee-Mears, made up ofMask Operations and Micro-Technology Operations, and Optical Products(operating under the Vision-Ease trade name).  Buckbee-Mears is a leadingmanufacturer of high-volume precision products for the entertainment, optical,high-tech, medical, defense and aerospace industries.  Optical Products isa leading producer of polycarbonate, glass and plastic eyewear lenses.  

Net revenues of $302.3 million for 2001 represent a decrease of 15% from the$354.5 million in 2000.  The decline in revenue during 2001 wasattributable to decreases in both divisions.  Buckbee-Mears group salesdecreased 20% in 2001 due to a contracted market environment for computermonitors and for television sets, exacerbated by continued excess inventory inthe picture tube supply chain.  Optical Products revenues were impacted bycapacity constraints in the beginning of the year, which affect revenuegeneration, and a noticeable decline in sales following the events of September11, 2001.

Net loss and diluted loss per share for 2001 were ($22.6) million and($0.83), respectively, compared to net earnings and diluted earnings per shareof $14.9 million and $0.54, respectively, for 2000. 

**Critical Accounting Policies**

Management's Discussion and Analysis of Financial Condition and Results ofOperations discusses BMC's consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of these financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  On an on-going basis,management evaluates its estimates and adjustments, including those related tomerchandise returns, bad debts, inventories, intangible assets, income taxes,restructuring costs, retirement benefits, and contingencies andlitigation.  Management bases its estimates and judgments on historicalexperience and on various other factors that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others,affect its more significant judgments and estimates used in the preparation ofits consolidated financial statements.

***Bad Debt***

The Company maintains an allowance for doubtful accounts for estimatedlosses resulting from the inability of its customers to make requiredpayments.  If the financial condition of the Company's customers were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.

***Inventory***

The Company reduces the stated value of its inventory for obsolescence orimpairment in an amount equal to the difference between the cost of inventoryand the estimated market value based upon assumptions about future demand andmarket conditions.  If actual future demand or market conditions are lessfavorable than those projected by management, additional reductions in statedvalue may be required.

***Goodwill and Intangible Impairment***

In assessing the recoverability of the Company's goodwill and otherintangible assets the Company must make assumptions regarding estimated futurecash flows and other factors to determine the fair value of the respectiveassets.  If these estimates or their related assumptions change in thefuture, the Company may be required to record impairment charges for these assetsnot previously recorded.  Effective January 1, 2002, the Company willadopt Statement of Financial Accounting Standards (SFAS) No. 142, *Goodwilland Other Intangible Assets*, and will be required to analyze its goodwillfor impairment issues during the first six months of fiscal 2002, and on aperiodic basis thereafter.  During the year ended December 31, 2001, theCompany did not record any impairment losses related to goodwill and otherintangible assets.

Based on preliminary analysis, the Company anticipates that its OpticalProducts segment will incur a goodwill impairment write-off between $35 millionand $50 million on implementation of SFAS No. 142.  This write-off will bereflected as a cumulative effect of a change in accounting principle in the Company'sstatement of operations.  Additional discussion is included in thisManagement Discussion and Analysis on page 22.

***Income Taxes***

In determining the carrying value of the Company's net deferred tax assets,the Company must assess the likelihood of sufficient future taxable income incertain tax jurisdictions, based on estimates and assumptions to realize thebenefit of these assets.  If these estimates and related assumptionschange in the future, the Company may be required to record additional valuationallowances against its deferred tax assets, resulting in additional income taxexpense in the Company's consolidated statement of operations.  Managementevaluates the realizability of the deferred tax assets quarterly and assessesthe need for additional valuation allowances or reduction of existingallowances quarterly.  During the year ended December 31, 2001, theCompany recorded $14.5 million of valuation allowances related to its netdeferred tax assets.

** Restructuring Initiatives**

Beginning in the fourth quarter 2001 and continuing into first half of 2002,the Company has been executing significant restructuring initiatives in boththe Buckbee-Mears and Optical Products business groups.

The Buckbee-Mears group's Mask Operations will exit the computer monitorsegment of the aperture mask business and Micro-Technology Operations will becompletely restructured by selling or consolidating into its other facilitiesall operations currently located in St. Paul, Minnesota, by reorganization ofemployees devoted to new sales initiatives and by rationalization of productofferings.  These actions have resulted, and will result, in staffingreductions at all three of the group's manufacturing sites, including Cortland,New York, Mullheim, Germany and St. Paul.

The Optical Products group will discontinue certain Vision-Ease productdevelopment activities, discontinue or phase-out certain Vision-Ease productcategories and close its production facility in Azusa, California resulting ina consolidation of the Optical Products group's operations into twofacilities.  Additional polycarbonate lens manufacturing capacity will betransferred to the Jakarta, Indonesia plant and polarized lens manufacturingwill be consolidated in the Ramsey, Minnesota facility.  In first quarter2002, the Company expects to record additional restructuring expenses ofapproximately $2.0 to $3.0 million related to the closure of the Azusafacility.

**Results of Operations**

The following discussion and analysis examines the operating results of theCompany's two business segments.  As used herein, "operatingprofit" refers to operating profit before non-recurring charges,administrative expense and interest, as shown in Note 12 to the ConsolidatedFinancial Statements - Segment Information.

**Revenues and Operating Profit**

***Buckbee-Mears***

*Comparison of 2001 and 2000.*  Buckbee-Mears group revenues were$170.9 million for 2001, a decrease of  $44.0 million or 20% from2000.  Sales of entertainment masks decreased 15% from sales in 2000 andcomputer monitor mask sales decreased 30% compared to 2000.  Sales ofentertainment masks were impacted by a decline in demand beginning in the firsthalf of the year, especially in the NAFTA market, as well as price reductionsduring the last part of 2001.  Sales of monitor masks were negativelyimpacted by year-over-year price reductions and contraction in demand forcomputer products.  Micro-Technology Operations revenue declined 34% from2000 as the Company's customers reacted to slow demand in the semiconductor,automotive and telecommunications segments.

Buckbee-Mears group revenues for 2002 are expected to decrease approximately$25 to $35 million as a result of exiting the computer segment of the aperturemask business.

Operating profit for Buckbee-Mears was $5.1 million for 2001, beforenon-recurring charges of $5.0 million, a decrease of $20.0 million from2000.  The operating margin was 3% of revenues for 2001 compared to 12%for 2000.  The decrease in operating profit is primarily due to reduceddemand for television products, which accelerated in the second quarter of theyear. Pricing pressures in both the computer mask and television mask marketsand under-absorption of costs also had negative impacts on operating profitsand margins.  The Company began taking action in the second quarter of2001 to reduce costs, first by bringing down one line in Cortland, N.Y. duringsecond quarter and then by extending the annual third quarter plant shutdown bya few weeks.  Operating profit was also impacted by costs incurred as aresult of restructuring initiatives commencing in the fourth quarter. Inventory write-offs of $2.6 million and other asset write-downs of $1.4million were recorded as a result of the decision to exit the computer monitormask business and to sell or consolidate into other facilities operationscurrently located in St. Paul, Minnesota.  The effect of foreign currencytranslation had a nominal impact on the group's operating profit.

*Comparison of 2000 and 1999.*  Buckbee-Mears group revenues were$214.9 million for 2000, a decrease of  $3.0 million or 1% from1999.  Excluding the impact of foreign currency translation, revenueswould have increased 3% over 1999.  Sales of large (24-29 inches) andjumbo (30 inches and larger) entertainment masks were up 11% and 10%,respectively, over 1999 levels as a result of increased demand, particularly inEurope, for flat and widescreen (16:9 format) televisions.  In addition tothe shift to larger sizes, the group experienced a favorable sales mix shiftwith invar (nickel alloy) entertainment mask sales up 25% and standard AK steelentertainment mask sales down 6%.  Computer monitor mask sales decreased10% compared to 1999, largely offsetting the higher entertainment masksales.  Sales of monitor masks were negatively impacted by year-over-yearprice reductions and the Company's decision to utilize monitor mask productioncapacity for HDTV and other higher-margin entertainment products, thusdisplacing monitor volumes.  Micro-Technology Operations revenue declined22% from 1999 as the Company has continued to redirect the efforts of thisgroup toward new, strategic markets.

Operating profit for Buckbee-Mears was $25.1 million for 2000, an increaseof $1.2 million from 1999.  The operating margin was 12% of revenues for2000 compared to 11% for 1999.  The increase in operating profit isprimarily due to product cost reductions derived from yield improvements andautomated inspection equipment installed in 2000, and the favorable sales mixshift to larger sized and invar steel entertainment masks.  In addition,Mask Operations restarted an idle entertainment mask line at the Company'sCortland, New York facility at the end of the year which provided someadditional absorption of the group's fixed overhead.  Partially offsettingthese favorable variances were continued pricing pressures in the maskbusiness, particularly for monitor masks, and lower profits fromMicro-Technology Operations.  The group continued to invest in 2000 in theengineering, and sales and marketing infrastructure needed to drive futuregrowth in new Micro-Technology products and market segments.  The effectof foreign currency translation had a nominal impact on the group's operatingprofit.

***Optical Products***

*Comparison of 2001 and 2000.  *Optical Products group revenueswere $131.4 million in 2001, a decrease of $8.2 million or 6% from 2000. The decrease was due to soft retail demand and capacity constraints in premiumproduct categories in the first part of the year and declines in sales in thelast part of the year following the events of September 11, 2001.  Salesof high end products decreased 5% from 2000.  Much of the decrease wasattributable to declines in sales of mainline polycarbonate lenses, SunSport®non-ophthalmic lenses and Tegra®-coated polycarbonate lenses.  Strongsales in the SunRx® premium polarized lenses (increasing 15% over 2000) offsetsome of the sales reductions in other product lines.  Sales of glasslenses continue to decline year over year.

Operating profit of Optical Products was $3.3 million for 2001, excludingnon-recurring charges of $1.2 million, a decrease of $8.1 million or 71% from2000.  The decrease in margin was due in part to reductions in sales ofhigher margin premium products and higher production costs related to underabsorbed fixed costs.  Operating profit was also impacted by costs incurredas a result of restructuring initiatives commencing in the fourth quarter of2001.  Inventory write-offs of $1.0 million and other asset write-downs of$1.0 million were recorded for discounted or phased-out product categories.

The Company is currently in the process of closing the Azusa Californiapolycarbonate operation and moving that manufacturing capacity to Ramsey,Minnesota and Jakarta, Indonesia.  As discussed earlier, restructuringcharges of approximately $2.0 to 3.0 million will be recorded in first quarter2002.  Fixed overhead costs and product costs should be reduced as theresult of these moves.

*Comparison of 2000 and 1999.  *The Optical Products group saleswere $139.6 million for 2000, an increase of $3.6 million or 3% from1999.  The increase was due to a 20% increase in sales of high-end,value-added products (which the Company defines as polycarbonate, progressiveand polarizing sun lenses).  Sales of high-end products accounted for 63%of total Optical Products group revenue in 2000 compared to 55% in 1999. Sales of Tegra® coated polycarbonate lenses and OutlookTM progressivepolycarbonate lenses in 2000 grew 176% over 1999.  Sales of the Company'spolarized polycarbonate sun lenses also grew significantly in 2000 with SunRx®(prescription) and SunSport® (non-prescription or plano) revenues in 2000increasing 66% and 64%, respectively, over sales in 1999.

Partially offsetting the increases reported for high-end products weredeclines in glass and plastic lens sales.  Sales of plastic productdecreased 18% and glass sales decreased 17%, due primarily to overall marketdynamics in these product categories and difficulties the Company experiencedin obtaining plastic lenses from its OEM supplier.

Operating profit of Optical Products was $11.4 million for 2000, an increaseof $5.7 million or 99% from 1999.  Operating margin was 8% of net salesfor 2000 compared to 4% in 1999.  The operating margin increase in 2000was primarily due to the favorable sales mix shift to high-end, value-addedproducts experienced in 2000.  In addition, 1999 results were negativelyimpacted by poor product cost performance and product line integration costs.

**Selling Expenses**

Selling expenses were $16.9 million, $17.2 million and $18.7 million or5.6%, 4.8% and 5.3% of revenues for 2001, 2000 and 1999, respectively. Thedecrease in 2001 is due primarily to lower expenses in the Buckbee-Mearssegment as a result of cost reduction efforts, including personnel reductions,initiated mid-year when sales demand began to decline.  Optical Productsgroup selling expenses were even with 2000.  The increase in sellingexpense as a percentage of sales was primarily due to the decrease in salescompared to prior years.

**Administrative Expenses**

Administrative expenses were $5.0 million, $5.4 million and $4.7 million or1.7%, 1.5% and 1.3% of revenues for 2001, 2000 and 1999, respectively. The decrease in administrative expenses in 2001 is due primarily toperformance-based employee incentive benefits incurred in 2000 tied to theCompany's earnings, which were not paid in 2001.  In addition to theincentive benefits, expenses for 2000 were higher than 1999 due to expensesrelated to filled positions in 2000, which were open in 1999.  Theincrease in expenses as a percentage of sales in 2001 is primarily due to thedecrease in sales.

**Interest Expense (Income)**

Interest expense was $11.8 million, $13.1 million and $13.4 million for2001, 2000 and 1999, respectively.  Interest income was $0.5 million, $0.3million and $0.3 million for 2001, 2000 and 1999, respectively.  Interestexpense in 2001 was lower than 2000 due to lower overall debt levels throughoutthe year and lower interest rates in 2001.  Interest expense in 2000 wasdown slightly from 1999 due to lower debt levels, partially offset by higherinterest rates in the second half of the year.

**Income Taxes**

The Company's effective tax rate, exclusive of deferred tax asset valuationreserve adjustments, was 39%, 30% and 39% in 2001, 2000 and 1999,respectively.  The 2001 tax rate was higher than the 2000 rate due to theCompany's domestic and foreign earnings mix.  The 2000 tax rate was lowerthan the 1999 rate due to the Company's domestic and foreign earnings mix,ongoing tax initiatives and a statutory rate reduction in Germany.

Realization of the Company's net deferred tax asset is dependent on futuretaxable income.  During 2001, the Company established a deferred tax assetvaluation reserve of $14.5 million, the effect of which increased income taxexpense.  The need for the valuation reserve was driven by projections forfuture U.S. taxable income, which impacts the potential for realizing thebenefits of the Company's carryovers.  The statutory time period for usingthe carryovers on its income tax returns extends beyond the period the Companyused to assess impairment for accounting purposes.  If, at some time inthe future, it is determined that all or a portion of the existing carryoversmay be realized, the valuation reserve will be reduced accordingly.

**Seasonality**

The Company's earnings have been generally lower in the first and thirdquarters due to maintenance shutdowns at the Company's mask productionfacilities during those periods.  Also, the seasonality of end products inseveral markets (televisions, computer monitors and ophthalmic lenses) affectsthe Company's annual earnings pattern.

**Dividends**

In 2001, the Company continued payment of cash dividends toshareholders.  Cash dividends of one and one-half cents per share weredeclared in first, second and third quarter of 2001 and one-quarter cent pershare in fourth quarter 2001.  The Company currently expects to continuedividend payments in 2002.

**Environmental**

The Company's operations are subject to federal, state, local and foreignenvironmental laws and regulations.  Under the Comprehensive EnvironmentalResponse Compensation and Liability Act of 1980, as amended (CERCLA orSuperfund), the Company has been designated as a potentially responsible party(PRP) by the United States Environmental Protection Agency with respect tocertain waste sites at which the Company may have had direct or indirectinvolvement.  Similar designations have been made by some state environmentalagencies under applicable state environmental laws.  Such designations aremade regardless of the extent of the Company's involvement.  Suchdesignations have been made by the filing of a complaint, the issuance of anadministrative directive or order, or the issuance of a notice or demandletter.  These actions are in various stages of administrative or judicialproceedings.  They include demands for recovery of past governmental costsand/or for future investigative or remedial actions.  In many cases, thedollar amount of site costs or the Company's portion of site costs is notspecified.  In most cases, however, the Company has been designated a deminimis party and claims have been asserted against a number of other entitiesfor the same recovery or other relief as was asserted against theCompany.  The Company is currently participating in eight environmentaland/or remedial actions in which final settlement has not been reached.

To the extent possible, and with the amount of information available at thistime, the Company has evaluated its responsibility for costs and relatedliability with respect to the above investigations and/or remedial actions, andhas recorded reserves for such liability in accordance with generally acceptedaccounting principles.  It is the Company's opinion that the Company'sliability with respect to these matters should not have a material adverseeffect on the financial position or the results of operations of theCompany.  In arriving at this conclusion, the Company has considered,among other things, the payments that have been made in the past; the factors,such as volume and relative toxicity, ordinarily applied to allocated defenseand remedial costs; the probable costs to be paid by the other potentiallyresponsible parties; total projected remedial costs, to the extent known;existing technology; and currently enacted laws and regulations.  Aportion of the costs and related liability for these matters has been or willbe covered by insurance or third parties.

**Financial Position and Liquidity**

Working capital was $70.3 million and the current ratio was 2.3 at December31, 2001, compared to $95.3 million and a current ratio of 2.5 at December 31,2000.  Accounts receivable balances decreased $10.6 million compared to2000 due primarily to lower sales in both segments and factoring of foreignreceivables at Buckbee-Mears at the end of the year.  Inventory levelswere lower than 2000 despite lower sales due to extended shut downs inBuckbee-Mears' mask operations in third and fourth quarters and a two-week shutdown of the Optical Products Azusa facility in December.  In addition,initiatives to manage steel purchases in the mask operations reduced the rawmaterials inventory balances.  Accounts payable and other liabilities decreasedprimarily due to lower raw materials purchases and lower incentive benefitsaccruals in 2001 compared to extended payment terms with certain vendors atBuckbee-Mears and a higher level of expense accruals at the end of 2000.

At December 31, 2001, the Company had $142.2 million in debt and the ratioof total debt to total equity was 1.2.  The $2.8 million reduction in debtwas due to management of and reduction in the Company's working capital in2001.  At December 31, 2000, the Company had $145.0 million in debt andthe ratio of total debt to total equity was 1.0.   The $23.3 millionreduction in debt during 2000 was due primarily to improved working capitalutilization and cash generated from operations.

In 2001, the Company generated $17.3 million of cash flow from operatingactivities.  The cash generated from operating activities was usedprimarily for debt reduction totaling $2.8 million and property, plant andequipment additions totaling $14.1 million.  In 2000, the Companygenerated $36.6 million of cash flow from operating activities.  The cashgenerated from operating activities was used primarily for debt reductiontotaling $23.3 million and property, plant and equipment additions totaling$11.9 million.  The Company generated $33.5 million of cash flow fromoperating activities in 1999, which was used primarily for debt reductiontotaling $20.9 million and property, plant and equipment additions totaling$13.2 million.

Capital spending in 2002 is planned to be approximately $12.0 million. It is currently anticipated that 2002 capital expenditures will be financedprimarily with funds from operations.

During 2001, the Company amended its current revolving domestic creditagreement (the Agreement), which expires in 2003.  The Amendment to the Agreementprovided for the conversion of certain previously outstanding revolving loansto term loans and permanently reduced the aggregate commitment under theAgreement from $220 million to $185 million.  This Agreement is secured bya pledge of certain shares of common stock of the Company's subsidiaries, anintercompany note from one of the Company's European holding companies,security interests in certain assets, including domestic receivables,inventories and machinery and equipment, as well as a mortgage on its realproperty located in Ramsey, Minnesota.  As of December 31, 2001, there was$141.0 million outstanding under this facility.  The Company's Germansubsidiary maintains short-term and long-term credit facilities with availablecredit of $16.5 million at December 31, 2001.  The Company believes thatinternally generated funds and unused financing sources will be adequate tomeet the Company's financing requirements for 2002.  The Company was incompliance with all covenants under the Agreement at December 31, 2001.

**Market Risk**

***Foreign Currency***

A portion of the Company's operations consists of manufacturing and salesactivities in foreign jurisdictions.  The Company manufactures itsproducts in the United States, Germany, Hungary and Indonesia and purchasesproducts from Asian, as well as other foreign suppliers.  The Companysells 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 theGerman mark (DM/Euro).  Buckbee-Mears also has an indirect exposure to theJapanese yen and the Korean won because its most significant competitors areJapanese and Korean.  As a result, the Company's financial results couldbe significantly affected by factors such as changes in foreign currencyexchange rates or weak economic conditions in foreign markets.  Inaddition, 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 inthe Company's markets and may limit the Company's ability to increase productpricing in times of adverse currency movements.

To manage the volatility relating to its direct exposures, the Companyutilizes various derivative instruments, including foreign currencyforward-exchange contracts and cross-currency swaps.  The cross-currencyswaps are accounted for under mark-to-market accounting.  At December 31,2001, the Company had no outstanding foreign currency forward-exchangecontracts.

At December 31, 2000, the Company had approximately 19.8 million DM ofoutstanding foreign currency forward-exchange contracts to exchange U.S.dollars for German marks at a set exchange rate.  In addition, at December31, 2000, the Company had approximately 15 billion rupiah of outstandingforeign currency forward-exchange contracts to exchange U.S. dollars forIndonesian rupiah at a set exchange rate.  At December 31, 2000, theCompany's German subsidiary had approximately $5.9 million of outstandingforeign currency forward-exchange contracts to sell U.S. dollars for Germanmarks at a set exchange rate.

In August 1999, the Company entered into a cross-currency swap that providedfor the Company to swap a total of $10.0 million of notional debt for theequivalent amount of Japanese yen-denominated debt.  Under this swap, theCompany also effectively swapped a floating U.S. dollar-based interest rate fora floating Japanese yen-based interest rate.  Under mark-to-marketaccounting, the Company recorded as Other Income a foreign exchange gain of$0.6 million in 2000 and a loss of $1.2 million in 1999 for this swapagreement.  This swap agreement was closed out in May 2000.  TheCompany does not currently have any cross-currency swaps outstanding, butcontinually monitors its foreign currency position.

In January 1999, the Company entered into a cross-currency swap, whichprovided for the Company to swap a total of $10.0 million of notional debt forthe equivalent amount of Japanese yen-denominated debt.  This swapagreement was closed out in May 1999.  The Company recorded as OtherIncome a foreign exchange gain of $0.5 million in 1999 related to this swap.

The Company experiences foreign currency gains and losses, which arereflected on the Company's Statements of Operations, due to the strengtheningand weakening of the U.S. dollar against the currencies of the Company'sforeign subsidiaries and the resulting effect on the valuation of inter-companyand other accounts.  The net exchange gain or loss was not material in2001 or 2000.  The Company anticipates that it will continue to incurexchange gains and losses from foreign operations in the future.

The Company's net investment in foreign subsidiaries with non-U.S. dollarfunctional currency was $26.1 million and $27.6 million at December 31, 2001and 2000, respectively, translated into U.S. dollars at year-end exchangerates.  The potential loss in value resulting from a hypothetical 10%reduction in foreign currency exchange rates is $2.4 million and $2.5 millionin 2001 and 2000, respectively.  The loss, if incurred, would be recordedas a charge to Accumulated Other Comprehensive Income (Loss).

During 2001 and 2000, the U.S. dollar strengthened against the DM.  A strongerdollar generally has a negative impact on overseas results because foreigncurrency-denominated earnings translate into less U.S. dollars; a weaker dollargenerally has a positive translation effect.  However, a significantcomponent of our overseas revenue is U.S. dollar based, somewhat mitigatingthis effect.  As a result, the effect of the change in exchange rates for2001 and 2000 did not have a material impact on net earnings.

***Interest***

Substantially all of the Company's debt and associated interest expense issensitive to changes in the level of interest rates.  To mitigate theimpact of fluctuations in interest rates, the Company enters into interest rateswaps to hedge the exposure of a portion of its floating-rate debt.  TheCompany's primary interest rate exposure is U.S., and to a lesser extentDM/Euro and yen-based interest rates.

At various dates during 1999 and 2000, the Company entered into multipleinterest rate swap agreements to provide for the Company to swap a variableinterest rate for fixed interest rates ranging from 6.7% to 7.1%.  AtDecember 31, 2001, $50 million of these swaps remained outstanding with theswaps expiring in May 2003 and June 2003.

A hypothetical 100 basis point increase in interest rates would result in a$0.9 million and $0.7 million adverse impact on interest expense in 2001 and2000, respectively.

**New Accounting Standards**

In July 2001, the Financial Accounting Standards Board (FASB) issuedStatements of Financial Accounting Standards (SFAS) No. 141, *Business Combinations*. SFAS No. 41 eliminates the pooling-of-interest method and requires the purchasemethod of accounting on all business combinations completed after June 30,2001.  This pronouncement was effective for any business combination thatis completed after June 30, 2001 and had no impact on the Company's currentfinancial statements.

Also in July 2001, the FASB issued SFAS No. 142, *Goodwill and OtherIntangible Assets*.  Under SFAS No. 142, goodwill and intangiblesassets deemed to have indefinite lives will no longer be amortized but will besubject to annual impairment tests in accordance with the statement, with atransitional impairment test required to be completed by the end of the secondquarter 2002.  The Company has adopted this statement as of January 1,2002.  Application of the non-amortization provisions of the statement isexpected to result in an annual increase of pre-tax earnings of approximately$2.0 million.  The Company will first evaluate goodwill for impairment bycomparing the segment level unamortized goodwill balance to projecteddiscounted cash flows as required by SFAS No. 142.  The Company plans tocomplete this transitional impairment test by the end of first quarter2002.  Based on preliminary analysis, the Company anticipates that itsOptical Products segment will incur a goodwill impairment write-off between $35million and $50 million.  No reclassifications of intangibles as outlinedin SFAS No. 142 will be required upon implementation of thispronouncement.  Any impairment required by SFAS No. 142 will be reflectedas the cumulative effect of a change in accounting principle.

In August 2001, the FASB issued SFAS No. 143, *Accounting for AssetRetirement Obligations*, which is effective for fiscal years beginning afterJune 15, 2002.  This statement applies to obligations associated with theretirement of tangible long-lived assets.  The adoption of thispronouncement is not expected to have a material impact on the Company'sconsolidated results of operations, financial position or cash flows.

In October 2001, the FASB issued SFAS No. 144, *Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of*,which is effective for fiscal years beginning after June 15, 2002.  Thisstatement addresses financial accounting and reporting for the impairment ordisposal of long-lived assets and supersedes SFAS No. 121, *Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of*,and the accounting and reporting provisions of Accounting Principles Board(APB) Opinion No. 30, *Reporting the Results of Operations* for a disposalof a segment of a business.  The adoption of this pronouncement is notexpected to have a material impact on the Company's consolidated results ofoperations, financial position or cash flows.

**Euro Currency Conversion**

On January 1, 1999, 11 of the 15 member countries of the European Union,including Germany, adopted the euro as their common legal currency.  Theeuro trades on currency exchanges and is available for non-cashtransactions.  From January 1, 1999 through January 1, 2002, each of theparticipating countries was scheduled to maintain its national (legacy)currency as legal tender for goods and services.  Beginning January 1,2002, new euro-denominated bills and coins have been issued, and legacycurrencies will be withdrawn from circulation no later than July 1, 2002. The Company's foreign operating subsidiaries that will be affected by the euroconversion have established plans to address the business issues raised,including the competitive impact of cross-border price transparency.  Itis not anticipated that there will be any near-term business ramifications;however, the long-term implications, including any changes or modifications thatwill need to be made to business and financial strategies, are still beingreviewed.  From an accounting, treasury and computer system standpoint,the impact from the euro currency conversion is not expected to have a materialimpact on the financial position or results of operations of the Company.

**Cautionary Statements**

Certain statements included in this Management's Discussion and Analysis, aswell as other communications, including its filings with the SEC, reports toshareholders, news releases and presentations to securities analysts orinvestors, contain forward-looking statements made in good faith by the Companypursuant to the "Safe Harbor" provisions of the *Private SecuritiesLitigation Reform Act of 1995.*  These statements relate tonon-historical information and include, without limitation, any statement thatmay predict, forecast, indicate or imply future results, performance orachievements. We wish to caution the reader not to place undue reliance on anysuch forward-looking statements.  These statements are not guarantees offuture performance and are subject to a number of risks and uncertaintiesdetailed from time to time in reports filed by BMC with the SEC, including thedisclosure in the Form 10-K under "Risk Factors" and elsewhere inForms 10-Q and 10-K, that could cause actual results or outcomes to differmaterially from those presently anticipated or projected and include, amongothers, ability to manage working capital and align costs with marketconditions; continued imbalance in supply and demand for computer monitormasks; further aperture mask price declines,; slowdown in growth of high-endlens products; rising raw material costs; ability to improve manufacturingyields and operating efficiencies; ability to qualify new products with customers;consumer demand for direct-view high-definition television and digitalreceivers; competition with alternative technologies and products, includinglaser surgery for the correction of visual impairment and LCD, plasma,projection and other types of visual displays; ability to source plastic lensproduct requirement from third parties; ability to gain market share ofpolycarbonate products both domestically and abroad, including growth inEuropean sales through the operation of processing laboratories; higher thanexpected restructuring related costs; ability to restructure theMicro-Technology Operations and diversify its customer and product base; theeffect of regional or global economic slowdowns; the impact of domestic orglobal terrorism on consumer spending choices; adjustments to inventoryvaluations; liability and other claims asserted against BMC; negative foreigncurrency fluctuations; and ability to recruit and retain key personnel. These factors should not, however, be considered an exhaustive list.  Wedo does not undertake the responsibility to update any forward-lookingstatement that may be made from time to time by or on behalf of BMC.

** **

**Item 7A.  Quantitative and Qualitative Disclosures About Market Risk**

Disclosures about market risks appear on pages 21-22 of the"Management's Discussion and Analysis" for the year ended December31, 2001.

 

**Item 8.  Financial Statements and Supplementary Data**

 

***CONSOLIDATED STATEMENTS OF OPERATIONS***(in thousands, except per share amounts)

| Years Ended December 31                            |   | **2001**    |   |   | 2000    |   |   | 1999    |   |
|----------------------------------------------------|--------|-------------|--------|--------|---------|--------|--------|---------|--------|
| Revenues                                           | **$**  | **302,296** |   | $      | 354,485 |   | $      | 353,854 |   |
| Cost of products sold                              |   | **276,999** |   |   | 300,795 |   |   | 305,592 |   |
| Gross margin                                       |   | 25,297      |   |   | 53,690  |   |   | 48,262  |   |
| Selling expense                                    |   | **16,910**  |   |   | 17,163  |   |   | 18,650  |   |
| Administrative expense                             |   | **5,038**   |   |   | 5,389   |   |   | 4,702   |   |
| Non-recurring charges                              |   | **6,218**   |   |   | --      |   |   | --      |   |
| Income (loss) from operations                      |   | **(2,869**  | **)**  |   | 31,138  |   |   | 24,910  |   |
| Other income and (expense)                         |   |        |   |   |    |   |   |    |   |
|   Interest expense                            |   | **(11,752** | **)**  |   | (13,115 | )      |   | (13,376 | )      |
|   Interest income                             |   | **508**     |   |   | 282     |   |   | 277     |   |
|   Other income                                |   | **883**     |   |   | 2,838   |   |   | 1,036   |   |
| Earnings (loss) before income taxes                |   | **(13,230** | **)**  |   | 21,143  |   |   | 12,847  |   |
| Income tax expense (benefit)                       |   | **9,370**   |   |   | 6,243   |   |   | 5,023   |   |
| Net earnings (loss)                                | **$**  | **(22,600** | **)**  | $      | 14,900  |   | $      | 7,824   |   |
| Earnings (loss) per share                          |   |        |   |   |    |   |   |    |   |
|   Basic                                       | **$**  | **(0.83**   | **)**  | $      | 0.54    |   | $      | 0.29    |   |
|   Diluted                                     |   | **(0.83**   | **)**  |   | 0.54    |   |   | 0.28    |   |
| Number of shares included in per share computation |   |        |   |   |    |   |   |    |   |
|   Basic                                       |   | **27,205**  |   |   | 27,396  |   |   | 27,299  |   |
|   Diluted                                     |   | **27,205**  |   |   | 27,623  |   |   | 27,710  |   |

See Notes to Consolidated Financial Statements.

***CONSOLIDATED BALANCE SHEETS***(in thousands)

| December 31                                                                  |   | **2001**    |   |   | 2000    |   |
|------------------------------------------------------------------------------|--------|-------------|--------|--------|---------|--------|
| Assets                                                                       |   |        |   |   |    |   |
| Current Assets                                                               |   |        |   |   |    |   |
|    Cash and cash equivalents                                       | **$**  | **1,941**   |   | $      | 2,290   |   |
|    Trade accounts receivable, less allowances of $2,368 and $2,863 |   | **35,024**  |   |   | 45,645  |   |
|    Inventories                                                     |   | **71,634**  |   |   | 82,015  |   |
|    Deferred income taxes                                           |   | **10,250**  |   |   | 17,954  |   |
|    Other current assets                                            |   | **4,197**   |   |   | 11,455  |   |
|         Total current assets              |   | **123,046** |   |   | 159,359 |   |
| Property, plant and equipment, net                                           |   | **131,541** |   |   | 139,499 |   |
| Deferred income taxes                                                        |   | **7,166**   |   |   | 4,389   |   |
| Intangible assets, net                                                       |   | **62,069**  |   |   | 65,180  |   |
| Other assets, net                                                            |   | **7,924**   |   |   | 5,377   |   |
| Total assets                                                                 | **$**  | **331,746** |   | $      | 373,804 |   |
|                                                                         |   |        |   |   |    |   |
| Liabilities and Stockholders' Equity                                         |   |        |   |   |    |   |
| Current Liabilities                                                          |   |        |   |   |    |   |
|    Short-term borrowings                                           |   | **854**     |   |   | 1,206   |   |
|    Accounts payable                                                |   | **19,707**  |   |   | 33,939  |   |
|    Accrued compensation and benefits                               |   | **9,695**   |   |   | 14,465  |   |
|    Income taxes payable                                            |   | **7,532**   |   |   | 6,374   |   |
|    Accrued restructuring expenses                                  |   | **5,038**   |   |   | --      |   |
|    Accrued liability for derivative instruments                    |   | **2,794**   |   |   | 1,107   |   |
|    Other current liabilities                                       |   | **7,173**   |   |   | 6,946   |   |
|        Total current liabilities               |   | **52,793**  |   |   | 64,037  |   |
| Long-term debt                                                               |   | **141,314** |   |   | 143,810 |   |
| Other liabilities                                                            |   | **19,526**  |   |   | 17,080  |   |
| Deferred income taxes                                                        |   | **1,602**   |   |   | 2,079   |   |
|                                                                         |   |        |   |   |    |   |
| Stockholders' Equity                                                         |   |        |   |   |    |   |
|    Common stock (shares issued of 26,910 and 27,399)               |   | **46,786**  |   |   | 49,240  |   |
|    Retained earnings                                               |   | **81,979**  |   |   | 105,876 |   |
|    Accumulated other comprehensive loss                            |   | **(12,180** | **)**  |   | (6,669  | )      |
|    Other                                                           |   | **(74**     | **)**  |   | (1,649  | )      |
|         Total stockholders' equity        |   | **116,511** |   |   | 146,798 |   |
| Total liabilities and stockholders' equity                                   | **$**  | **331,746** |   | $      | 373,804 |   |

See Notes to Consolidated Financial Statements.

***CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY***(in thousands, except per share amounts)

| Years Ended December 31,   2001, 2000 and 1999                    |   | Common Stock |   |   | Retained Earnings |   | Accumulated  Other Comprehensive Income (Loss) |        | Other  |   |    | Total  |   |
|------------------------------------------------------------------------|--------|--------------|--------|--------|-------------------|--------|------------------------------------------------|-------------|--------|--------|---------|--------|--------|
| Balance at December 31, 1998                                           | $      | 47,714       |   | $      | 86,436            |   | $                                              | 1,113       |   | $      | (2,006  | )      | $      | 133,257 |   |
|   Comprehensive income:                                           |   |         |   |   |              |   |                                           |        |   |   |    |   |   |   |   |
|     Net earnings                                        |   | --           |   |   | 7,824             |   |                                           | --          |   |   | --      |   |   | 7,824 |   |
|     Foreign currency translation adjustments            |   | --           |   |   | --                |   |                                           | (4,577      | )      |   | --      |   |   | (4,577 | ) |
|     Loss on derivative instruments                      |   | --           |   |   | --                |   |                                           | (31         | )      |   | --      |   |   | (31 | ) |
|   Total comprehensive income                                      |   |         |   |   |              |   |                                           |        |   |   |    |   |   | 3,216 |   |
| Exercise of options, including tax benefit                             |   | 1,153        |   |   | --                |   |                                           | --          |   |   | --      |   |   | 1,153 |   |
| Restricted stock grants, net of forfeitures and including tax benefits |   | 210          |   |   | --                |   |                                           | --          |   |   | --      |   |   | 210 |   |
| Repayments of stock option loans                                       |   | --           |   |   | --                |   |                                           | --          |   |   | 226     |   |   | 226 |   |
| Cash dividends declared-$0.06 per share                                |   | --           |   |   | (1,640            | )      |                                           | --          |   |   | --      |   |   | (1,640 | ) |
| Balance at December 31, 1999                                           |   | 49,077       |   |   | 92,620            |   |                                           | (3,495      | )      |   | (1,780  | )      |   | 136,422 |   |
|   Comprehensive income:                                           |   |         |   |   |              |   |                                           |        |   |   |    |   |   |   |   |
|     Net earnings                                        |   | --           |   |   | 14,900            |   |                                           | --          |   |   | --      |   |   | 14,900 |   |
|     Foreign currency translation adjustments            |   | --           |   |   | --                |   |                                           | (2,027      | )      |   | --      |   |   | (2,027 | ) |
|     Loss on derivative instruments                      |   | --           |   |   | --                |   |                                           | (1,147      | )      |   | --      |   |   | (1,147 | ) |
|   Total comprehensive income                                      |   |         |   |   |              |   |                                           |        |   |   |    |   |   | 11,726 |   |
| Exercise of options, including tax benefit                             |   | 15           |   |   | --                |   |                                           | --          |   |   | --      |   |   | 15 |   |
| Restricted stock grants, net of forfeitures and including tax benefits |   | 148          |   |   | --                |   |                                           | --          |   |   | --      |   |   | 148 |   |
| Repayments of stock option loans                                       |   | --           |   |   | --                |   |                                           | --          |   |   | 131     |   |   | 131 |   |
| Cash dividends declared-$0.06 per share                                |   | --           |   |   | (1,644            | )      |                                           | --          |   |   | --      |   |   | (1,644 | ) |
| Balance at December 31, 2000                                           |   | 49,240       |   |   | 105,876           |   |                                           | (6,669      | )      |   | (1,649  | )      |   | 146,798 |   |
|   Comprehensive loss:                                             |   |         |   |   |              |   |                                           |        |   |   |    |   |   |   |   |
|   Net loss                                                        |   | --           |   |   | (22,600           | )      |                                           | --          |   |   | --      |   |   | (22,600 | ) |
|   Foreign currency translation adjustments                        |   | --           |   |   | --                |   |                                           | (1,500      | )      |   | --      |   |   | (1,500 | ) |
|   Loss on derivative instruments                                  |   | --           |   |   | --                |   |                                           | (1,676      | )      |   | --      |   |   | (1,676 | ) |
|   Minimum pension liability                                       |   | --           |   |   | --                |   |                                           | (2,335      | )      |   | --      |   |   | (2,335 | ) |
| Total comprehensive income (loss)                                      |   |         |   |   |              |   |                                           |        |   |   |    |   |   | (28,111 | ) |
| Exercise of options, including tax benefit                             |   | 736          |   |   | --                |   |                                           | --          |   |   | --      |   |   | 736 |   |
| Restricted stock grants, net of forfeitures and including tax benefits |   | 171          |   |   | --                |   |                                           | --          |   |   | --      |   |   | 171 |   |
| Exchange of common stock for stock option loan payments                |   | (3,361       | )      |   | --                |   |                                           | --          |   |   | 1,575   |   |   | 1,786 | ) |
| Cash dividends declared-$0.0475 per share                              |   | --           |   |   | (1,297            | )      |                                           | --          |   |   | --      |   |   | (1,297 | ) |
| **Balance at December 31, 2001**                                       | **$**  | **46,786**   |   | **$**  | **81,979**        |   | **$**                                          | **(12,180** | **)**  | **$**  | **(74** | **)**  | **$**  | **116,511** |   |

Common Stock:  99,000 shares of voting common stock without par valueauthorized; 26,910, 27,399, 27,370 shares issued and outstanding at December31, 2001, 2000 and 1999, respectively.

Undesignated Stock:  500 shares authorized, of which 200 shares weredesignated as Series A Junior Participating Preferred Shares on June 30, 1998in connection with the Company's adoption of a Share Rights Plan.  TheBoard of Directors is authorized to designate the name of each class or seriesof the undesignated shares and to set the terms thereof (including, withoutlimitation, terms with respect to redemption, dividend, liquidation, conversionand voting rights and preferences.)

See Notes to Consolidated Financial Statements.

***CONSOLIDATED STATEMENTS OF CASH FLOW***(in thousands)

| Years Ended December 31                                                                        |   | **2001**    |   |   | 2000    |   |   | 1999    |   |
|------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|---------|--------|--------|---------|--------|
| Cash Flows from Operating Activities                                                           |   |        |   |   |    |   |   |    |   |
| Net earnings (loss)                                                                            | **$**  | **(22,600** | **)**  | $      | 14,900  |   | $      | 7,824   |   |
| **Adjustments to reconcile net (loss) earnings to net cash provided by  operating activities** |   |        |   |   |    |   |   |    |   |
|   Depreciation and amortization                                                           |   | **23,807**  |   |   | 23,990  |   |   | 23,280  |   |
|   Gain on sale of property and equipment                                                  |   | **(74**     | **)**  |   | (443    | )      |   | --      |   |
|   Deferred income taxes                                                                   |   | **5,571**   |   |   | (983    | )      |   | (644    | )      |
| Decrease (increase) in assets                                                                  |   |        |   |   |    |   |   |    |   |
|   Trade accounts receivable                                                               |   | **9,877**   |   |   | (4,235  | )      |   | (4,475  | )      |
|   Inventories                                                                             |   | **9,500**   |   |   | (1,084  | )      |   | (2,252  | )      |
|   Other current assets                                                                    |   | **6,059**   |   |   | 1,106   |   |   | 1,762   |   |
|   Other non-current assets                                                                |   | **(3,002**  | **)**  |   | (835    | )      |   | 538     |   |
| Increase (decrease) in liabilities                                                             |   |        |   |   |    |   |   |    |   |
|   Accounts payable                                                                        |   | **(13,891** | **)**  |   | 4,033   |   |   | 3,029   |   |
|   Income taxes payable                                                                    |   | **1,406**   |   |   | (1,387  | )      |   | 4,972   |   |
|   Accrued expenses and other current liabilities                                          |   | **2,676**   |   |   | 2,767   |   |   | (2,685  | )      |
|   Other non-current liabilities                                                           |   | **(2,073**  | **)**  |   | (1,192  | )      |   | 2,136   |   |
| Net cash provided by operating activities                                                      |   | **17,256**  |   |   | 36,637  |   |   | 33,485  |   |
| Cash Flows from Investing Activities                                                           |   |        |   |   |    |   |   |    |   |
|   Additions to property, plant and equipment                                              |   | **(14,134** | **)**  |   | (11,929 | )      |   | (13,157 | )      |
|   Business acquisitions, net of cash acquired                                             |   | **--**      |   |   | (1,219  | )      |   | --      |   |
|   Proceeds from sale of property and equipment                                            |   | **743**     |   |   | 2,493   |   |   | --      |   |
| Net cash used in investing activities                                                          |   | **(13,391** | **)**  |   | (10,655 | )      |   | (13,157 | )      |
| Cash Flows from Financing Activities                                                           |   |        |   |   |    |   |   |    |   |
|   (Decrease) increase in short-term borrowings                                            |   | **(328**    | **)**  |   | (959    | )      |   | 845     |   |
|   Decrease in long-term debt                                                              |   | **(2,496**  | **)**  |   | (22,149 | )      |   | (20,839 | )      |
|   Common stock issued, including tax benefit                                              |   | **173**     |   |   | 163     |   |   | 1,363   |   |
|   Cash dividends paid                                                                     |   | **(1,640**  | **)**  |   | (1,644  | )      |   | (1,636  | )      |
|   Net employee repayments (loans) for exercise of stock  options                     |   | **132**     |   |   | 131     |   |   | 226     |   |
| Net cash used in financing activities                                                          |   | **(4,159**  | **)**  |   | (24,458 | )      |   | (20,041 | )      |
|   Effect of exchange rate changes on cash and cash equivalents                            |   | **(55**     | **)**  |   | (380    | )      |   | (169    | )      |
| Net increase (decrease) in cash and cash equivalents                                           |   | **(349**    | **)**  |   | 1,144   |   |   | 118     |   |
| Cash and cash equivalents at beginning of year                                                 |   | **2,290**   |   |   | 1,146   |   |   | 1,028   |   |
| Cash and cash equivalents at end of year                                                       | **$**  | **1,941**   |   | $      | 2,290   |   | $      | 1,146   |   |

See Notes to Consolidated Financial Statements.

***NOTES TO CONSOLIDATED FINANCIAL STATEMENTS***(in thousands, except per share amounts)

**1.         Summary ofSignificant Accounting Policies**

The Consolidated Financial Statements include the accounts of the Companyand its subsidiaries, all of which are wholly or majority-owned.

**Revenue Recognition**--Revenue is recognized upon shipment of productto the customer, when persuasive evidence of an arrangement exists, the priceto the buyer is fixed and determinable, and collectibility is reasonablyassured.

**Cash Equivalents**--Consist of highly liquid debt instruments with amaturity of three months or less at the date of purchase.  Theseinstruments are carried at cost, which approximates fair market value.

**Inventories**--Stated at the lower of cost or market.  Cost isdetermined principally on the average cost method.

**Provisions for Inventory Reserves, Uncollectible Trade Receivables andProduct Returns**--The Company determines its provision for obsolete andslow-moving inventory based on management's analysis of inventory levels andfuture sales forecasts.  However, the factors impacting such provisionsvary significantly between the Buckbee-Mears and Optical Productssegments.  Within the Buckbee-Mears segment, products are manufactured tocustomer specifications and changes in product demand from the loss of acustomer, a new product offering or modifications to customer specificationscan significantly impair the value of raw material and finished goods onhand.  As a result, inventory valuation reserve requirements within thissegment must be established based on specific facts and circumstances that canfluctuate significantly and are difficult to predict.  We do notanticipate these conditions will change due to the customized nature of theproducts manufactured by the Buckbee-Mears segment.  The Optical Productssegment inventory reserve requirements historically have been more predictableand more readily estimated by analyzing historic build and sales patterns.

The Company establishes a reserve and records a provision for doubtfulreceivable accounts based on historic loss levels as well as specificprovisions considering current facts and circumstances.  Both theBuckbee-Mears and Optical Products segments have several large customers that,if circumstances warrant, can create the need for additional, specific,reserves.

The provision and reserve for product returns is calculated primarily on apercentage of sales basis, which is established based on trends that havehistorically provided a reasonable estimate.  This reserve is alsocalculated on a specific basis considering current facts and circumstances.

**Property, Plant and Equipment**--Stated at cost.  Additions,improvements or major renewals are capitalized, while expenditures that do notenhance or extend the asset's useful life are charged to operating expense asincurred.  Depreciation is provided on the straight-line method overestimated useful lives of generally 40 years for buildings, 20 years forbuilding improvements and infrastructure and 8 years for machinery andequipment.  Depreciation of assets included in construction in progressdoes not begin until the construction is complete and the assets are placedinto service.  Depreciation expense was $20,272, $20,504 and $19,827 in2001, 2000 and 1999, respectively.

The Company evaluates long-lived assets for impairment whenever changes incircumstances indicate that the carrying amount of the asset may not berecoverable.

**Intangible Assets**--Consist primarily of goodwill and otheracquisition-related intangible assets, which are stated at fair value as of thedate acquired in a business acquisition accounted for as a purchase, lessaccumulated amortization.  Amortization is computed on a straight-linebasis over estimated useful lives of 7 to 30 years.  Amortization expensewas $3,535, $3,486 and $3,453 in 2001, 2000 and 1999, respectively. Management periodically assesses the amortization period and recoverability ofthe carrying amount of goodwill based upon an estimate of future cash flowsfrom related operations.

**Income Taxes**--A deferred tax liability is recognized for temporarydifferences between financial reporting and tax reporting that will result intaxable income in future years.  A deferred tax asset is recognized fortemporary differences that will result in tax deductions in future years.

**Comprehensive Income (Loss)**--Comprehensive Income (Loss) consists ofnet earnings, foreign currency translation adjustments, gains/losses onderivative instruments and adjustments for minimum pension liability and ispresented in the Consolidated Statements of Stockholders' Equity.  Theaccumulated loss on derivative instruments was $2,854, $1,178 and $31 as ofDecember 31, 2001, 2000 and 1999, respectively.   The accumulatedforeign currency translation loss was $6,991, $5,491 and $3,464 as of December31, 2001, 2000 and 1999, respectively.  The accumulated minimum pensionliability was $2,335 as of December 31, 2001.

**Earnings Per Share**--The basic earnings per share amounts aredetermined based on the weighted average common shares outstanding, while thediluted earnings per share amounts also give effect to the common sharesdilutive potential.  For the Company's earnings per share calculations,the basic and diluted weighted average outstanding share amounts differ onlydue to the dilutive impact of stock options and non-vested stock awards.

**Stock-Based Compensation**--The Company has elected to follow AccountingPrinciples Board Opinion No. 25 (APB 25), "Accounting for Stock Issued toEmployees," and related interpretations in accounting for its employeestock options and non-vested stock awards.  Under APB 25, because theexercise price of employee stock options equals the market price of theunderlying stock on the date of grant, no compensation expense isrecorded.  For non-vested stock awards, compensation cost is recognizedfor the fair value of the stock awarded and is charged to expense over therespective vesting periods.  The Company has adopted the disclosure-onlyprovisions of SFAS No. 123 (SFAS 123), "Accounting for Stock-BasedCompensation."

**Estimates**--The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results could differ from those estimates.

**Reclassification**--Certain items in the 2000 and 1999 ConsolidatedFinancial Statements have been reclassified to conform to the 2001presentation.  These reclassifications had no impact on net income orstockholders' equity as previously reported.

**2.         Restructuring**

In fourth quarter 2001, the Company announced restructuring initiatives inboth of its business groups.  The Company will exit the computer monitorsegment of the aperture mask business, will sell or consolidate into its otherfacilities all operations currently located in St. Paul, Minnesota, phase outof certain products and discontinue certain optical products developmentactivities.  The total restructuring related costs recorded for the yearended December 31, 2001 were $12,165.  The charges include restructuringcosts of $6,218 and asset write-downs and other restructuring related costs of$5,947, which are recorded as a component of cost of products sold in theConsolidated Statement of Operations.  The Company expects to complete therestructuring initiatives by the end of 2002.

The following table displays the activity and balances of the restructuringreserve account for the year ended December 31, 2001:

|                                             |   | Restructuring Costs         |
|--------------------------------------------------|--------|-----------------------------|
|                                             |   | Severance and Related Costs |   |   | Contractual Obligations and Other |   |   | Total |
| Charged to operations in 2001:                   |   |                        |   |   |   |   |   |   |
|   Buckbee-Mears                             | $      | 3,309                       |   | $ | 1,729 |   | $ | 5,038 |
|   Optical Products                          |   | 295                         |   |   | 885 |   |   | 1,180 |
|      Total                   |   | 3,604                       |   |   | 2,614 |   |   | 6,218 |
| Utilized in 2001:                                |   |                        |   |   |   |   |   |   |
|   Buckbee-Mears                             |   | --                          |   |   | -- |   |   | -- |
|   Optical Products                          |   | 295                         |   |   | 885 |   |   | 1,180 |
|      Total                   |   | 295                         |   |   | 885 |   |   | 1,180 |
| Restructuring liability as of December 31, 2001: |   |                        |   |   |   |   |   |   |
|   Buckbee-Mears                             |   | 3,309                       |   |   | 1,729 |   |   | 5,038 |
|   Optical Products                          |   | --                          |   |   | -- |   |   | -- |
|      Total                   | $      | 3,309                       |   | $ | 1,729 |   | $ | 5,038 |

 

|                           |   | Other Restructuring Related Costs |
|--------------------------------|--------|-----------------------------------|
|                           |   | Inventory Adjustments             |   |   | Asset  Write-downs and Other |   |   | Total |
| Charged to operations in 2001: |   |                              |   |   |   |   |   |   |
|   Buckbee-Mears           | $      | 2,573                             |   | $ | 1,389 |   | $ | 3,962 |
|   Optical Products        |   | 1,024                             |   |   | 961 |   |   | 1,985 |
|      Total | $      | 3,597                             |   | $ | 2,350 |   | $ | 5,947 |

Subsequent to December 31, 2001, the Company announced its plans to closethe Optical Products production facility in Azusa, California in the first halfof 2002.  Additional restructuring charges related to the closure in therange of $2.5 to $3.0 million are expected to be recorded in the first quarterof 2002.

**3.         Inventories**

The following is a summary of inventories at December 31:

|              |   | 2001   |   |   | 2000   |
|-------------------|--------|--------|--------|--------|--------|
| Raw materials     | $      | 16,857 |   | $      | 20,614 |
| Work in process   |   | 7,445  |   |   | 17,835 |
| Finished goods    |   | 47,332 |   |   | 43,566 |
| Total inventories | $      | 71,634 |   | $      | 82,015 |

**4.         Intangible Assets**

The following is a summary of intangible assets at December 31:

|                          |   | 2001   |   |   | 2000   |
|-------------------------------|--------|--------|--------|--------|--------|
| Goodwill                      | $      | 61,738 |   | $      | 61,738 |
| Other                         |   | 13,732 |   |   | 13,254 |
| Total                         |   | 75,470 |   |   | 74,992 |
| Less accumulated amortization |   | 13,401 |   |   | 9,812  |
| Total intangible assets, net  | $      | 62,069 |   | $      | 65,180 |

**5.         Property, Plantand Equipment**

The following is a summary of property, plant and equipment at December 31:

|                                           |   | 2001    |   |   | 2000    |
|------------------------------------------------|--------|---------|--------|--------|---------|
| Land and improvements                          | $      | 6,279   |   | $      | 6,333   |
| Buildings and improvements                     |   | 91,999  |   |   | 92,196  |
| Machinery and equipment                        |   | 175,769 |   |   | 170,065 |
| Construction in progress                       |   | 7,869   |   |   | 7,974   |
| Total                                          |   | 281,916 |   |   | 276,568 |
| Less accumulated depreciation and amortization |   | 150,375 |   |   | 137,069 |
| Total property, plant and equipment, net       | $      | 131,541 |   | $      | 139,499 |

**6.         DerivativeInstruments and Hedging Activities**

Derivative financial instruments are used by the Company to reduce foreignexchange and interest rate risks.  All derivatives are recognized on thebalance sheet at their fair value.  On the date a derivative contract isentered into the derivative is designated as a fair value hedge, cash flowhedge or a foreign-currency net investment hedge.  The Company hedges someselected foreign-currency denominated forecasted transactions (cash flow hedges),in which changes in the fair value of highly effective derivatives are recordedin Accumulated Other Comprehensive Income (Loss).  The Company also hasmultiple interest rate swap agreements (cash flow hedges), which provide forthe Company to swap a variable interest rate for fixed interest rates.

The Company formally documents all relations between hedging instruments andthe hedged items, as well as its risk-management objectives and strategy forundertaking various hedge transactions.  The Company formally assesses,both at the hedge's inception and on an ongoing basis, whether the derivativesthat are used in hedging transactions are highly effective in offsettingchanges in cash flows of the hedged items.

**Foreign Currency Forward-Exchange Contracts**

The Company uses foreign currency forward-exchange contracts with durationsof less than twelve months to hedge against the effect of exchange ratefluctuations on certain foreign currency denominated steel purchases and otherexpenditures, and certain U.S. dollar denominated sales in a foreignsubsidiary.

As of December 31, 2001, no contracts to purchase German marks (DM) remainedoutstanding.  At December 31, 2001, $60 of deferred net losses onderivative instruments was included in Accumulated Other Comprehensive Income(Loss).   These losses will be recorded into earnings in the firstquarter of 2002.

During 2000, the Company's German subsidiary entered into forward-exchangecontracts to sell U.S. dollars to hedge certain U.S. dollar denominatedsales.  As of December 31, 2001, no contracts to sell U.S. dollarsremained outstanding.

Also, during 2000, the Company entered into forward-exchange contracts topurchase a total of 22.5 billion Indonesian rupiah to hedge certain purchasesin our Vision-Ease Indonesian operations.  As of December 31, 2001, nocontracts to purchase rupiah remained outstanding.  During 2001, thesecontracts were terminated and recorded a realized loss of $133, which isincluded in other income in the consolidated statement of operations.

**Interest Rate Swaps**

At various dates during 1999 and 2000, the Company entered into multipleinterest rate swap agreements to provide for the Company to swap a variableinterest rate for fixed interest rates ranging from 6.7% to 7.1%.  AtDecember 31, 2001, $50,000 of these swaps remained outstanding with the swapsexpiring in May 2003 and June 2003.  The notional amount of interest rateswaps is not a measure of the Company's exposure to credit or market risks andis not included in the Consolidated Balance Sheets.  Fixing the interestrate minimizes the Company's exposure to the uncertainty of floating interestrates during this period.

Amounts to be paid or received under the interest rate swap agreement areaccrued and recorded as an adjustment to Interest Expense during the term ofthe interest rate swap agreement.  At December 31, 2001, deferred netlosses on the interest rate swap agreements in the amount of $2,794 wereincluded in Accumulated Other Comprehensive Income (Loss).

Cross-Currency Swaps

In January 1999, the Company entered into a cross-currency swap, whichprovided for the Company to swap $10,000 of notional debt for the equivalentamount of Japanese yen-denominated debt.  This swap was subsequentlyclosed out in May 1999.  Under this swap, the Company also effectivelyswapped a fixed U.S. dollar-based interest rate of 5.1% for a fixed Japaneseyen-based interest rate of 1.05%.  This Japanese yen-based debt derivativewas accounted for under mark-to-market accounting.  The Company recordedas Other Income a foreign exchange gain of $453 in 1999 related to this swap.

In August 1999, the Company entered into a cross-currency swap agreement toswap $10,000 of notional debt for the equivalent amount of Japaneseyen-denominated debt.  Under this swap, the Company also effectivelyswapped a floating U.S. dollar-based interest rate for a floating Japaneseyen-based interest rate.  This Japanese yen-based debt derivative wasaccounted for under mark-to-market accounting.  This swap was subsequentlyclosed out in May 2000.  The Company recorded as Other Income foreignexchange gains of $598 in 2000 and losses of $1,173 in 1999 related to thisswap.

The Company had no cross-currency swaps outstanding as of December 31, 2001.

**7.         Debt**

The following is a summary of debt at December 31:

|                             |   | 2001    |   |   | 2000    |   |
|----------------------------------|--------|---------|--------|--------|---------|--------|
| U.S. revolving credit facility   | $      | 141,000 |   | $      | 143,100 |   |
| German credit facility           |   | 546     |   |   | 521     |   |
| Other                            |   | 622     |   |   | 1,395   |   |
| Total                            |   | 142,168 |   |   | 145,016 |   |
| Less amounts due within one year |   | 854     |   |   | 1,206   |   |
| Total long-term debt             | $      | 141,314 |   | $      | 143,810 |   |

During 2001, the Company amended its current revolving domestic creditagreement (the Agreement), which expires in 2003.  The amendment to theAgreement provided for the conversion of certain previously outstandingrevolving loans to term loans and permanently reduced the aggregate commitmentunder the Agreement from $220,000 to $185,000.  This Agreement is securedby a pledge of certain shares of common stock of the Company's subsidiaries, anintercompany note from one of the Company's European holding companies,security interests in certain assets, including domestic receivables,inventories and machinery and equipment, as well as a mortgage on its realproperty located in Ramsey, Minnesota.

Borrowings under the Agreement bear interest at the Eurodollar rate plus aspread ranging from 1.50% to 3.00%.  The rate spread is dependent upon theCompany's ratio of debt to cash flow, as defined in the Agreement.  TheCompany's effective rate under the agreement was 5.07% at December 31,2001.  In addition, the Company pays a facility fee on unborrowed funds atrates ranging from 0.375% to 0.500% (0.500% at December 31, 2001), depending onthe Company's debt to EBITDA ratio.  Under terms of the Agreement, theCompany must meet certain financial covenants, including maintaining aspecified consolidated net worth, leverage ratio (debt to EBITDA), interestcoverage ratio and level of capital expenditures.  The Company was incompliance with all covenants under the Agreement at December 31, 2001.

The Company's German subsidiary maintains short-term and long-term creditfacilities with available credit at December 31, 2001 of $440 and $16,013,respectively.  The short-term credit lines are unsecured and bear interestat either 0.75% over the Euro LIBOR rate or approximately 4.0% over the EuroBase rate.  The lender may withdraw the short-term lines at anytime.  There was $25 debt outstanding at December 31, 2001 under theGerman short-term credit lines.  A portion of the long-term credit line issecured by land and buildings with a net book value of $8,250 at December 31,2001.  These long-term credit lines bear interest at 0.50% to 0.75% overthe DM LIBOR rate.

On December 31, 2001 and 2000, the estimated fair value of the Company'sdebt described above approximates the recorded amount.

Annual maturities of debt for the next five years are $854 in 2002, $141,285in 2003, $10 in 2004, $10 in 2005 and $9 in 2006.

There was $2,390 of outstanding letters of credit at December 31, 2001.

Interest expense paid, net of amounts capitalized of $200, $410 and $253,was $10,921, $13,035 and $12,964 in 2001, 2000 and 1999, respectively.

**8.         Commitments andContingencies**

The Company leases four manufacturing facilities, five sales, distributionor administrative facilities and the Company headquarters.  In addition,the Company leases certain data processing and other equipment.

At December 31, 2001, the approximate future minimum rental commitmentsrequired under non-cancelable operating leases are as follows:

| 2002                         | $      | 2,503 |
|------------------------------|--------|-------|
| 2003                         |   | 1,523 |
| 2004                         |   | 636   |
| 2005                         |   | 292   |
| Total minimum lease payments | $      | 4,954 |

Rent expense was $2,987, $2,387 and $1,591 in 2001, 2000 and 1999,respectively.

At December 31, 2001, the Company had commitments of approximately $173related to capital projects.

The Company has entered into a long-term Product Manufacturing and SalesAgreement (the Supply Agreement) with a plastic lens manufacturer located inSoutheast Asia.  The Supply Agreement provides for the Southeast Asianmanufacturer to supply, and the Company to purchase, certain minimum levels ofplastic lenses.  At December 31, 2001, the approximate future purchasecommitments under this Supply Agreement were as follows:

| 2002  | $      | 8,414  |
|-------|--------|--------|
| 2003  |   | 7,000  |
| 2004  |   | 2,405  |
| Total |   | 17,819 |

**9.         Stock Purchaseand Award Plans**

The Restated and Amended 1994 Stock Incentive Plan (the 1994 Plan) providesfor the granting of either incentive stock options or nonqualified stockoptions to purchase shares of the Company's common stock and for otherstock-based awards to officers, directors and key employees responsible for thedirection and management of the Company and to non-employee consultants andindependent contractors.  During 2000, the Company's stockholders approvedan amendment to the 1994 Plan authorizing an additional 2,000 shares of commonstock for issuance.  At December 31, 2001, 4,459 shares of common stockwere reserved for issuance under the 1994 Plan and for outstanding optionsunder the 1984 Omnibus Stock Plan, which terminated on January 10, 1994. The reserved shares included 1,684 shares available for awards under the 1994Plan.

Information relating to stock options during 2001, 2000 and 1999 is asfollows:

|                                     |   |      |   |   |      | Option Price |   |
|------------------------------------------|--------|-----------|--------|--------|-----------|--------------|--------|
|                                     |   | Number    |   |   | Per Share |         | Total  |   |
|                                     |   | of Shares |   |   | Average   |         | Price  |   |
| Shares under option at December 31, 1998 |   | 2,329     |   | $      | 10.83     | $            | 25,226 |   |
| 1999 Activity:                           |   |      |   |   |      |         |   |   |
| Granted                                  |   | 798       |   |   | 7.31      |         | 5,830  |   |
| Exercised                                |   | (150      | )      |   | 6.58      |         | (987   | ) |
| Forfeited                                |   | (443      | )      |   | 12.09     |         | (5,355 | ) |
| Shares under option at December 31, 1999 |   | 2,534     |   |   | 9.75      |         | 24,714 |   |
| 2000 Activity:                           |   |      |   |   |      |         |   |   |
| Granted                                  |   | 450       |   |   | 5.29      |         | 2,379  |   |
| Exercised                                |   | (3        | )      |   | 5.00      |         | (15    | ) |
| Forfeited                                |   | (212      | )      |   | 9.66      |         | (2,047 | ) |
| Shares under option at December 31, 2000 |   | 2,769     |   |   | 9.04      |         | 25,031 |   |
| 2001 Activity:                           |   |      |   |   |      |         |   |   |
| Granted                                  |   | 832       |   |   | 5.62      |         | 4,678  |   |
| Exercised                                |   | (247      | )      |   | 1.94      |         | (478   | ) |
| Forfeited                                |   | (578      | )      |   | 7.60      |         | (4,393 | ) |
| Shares under option at December 31, 2001 |   | 2,776     |   | $      | 8.95      | $            | 24,838 |   |
|                                     |   |      |   |   |      |         |   |   |
| Shares exercisable at December 31, 2001  |   | 1,584     |   | $      | 10.04     | $            | 15,911 |   |
| Shares exercisable at December 31, 2000  |   | 1,591     |   | $      | 8.49      | $            | 13,502 |   |
| Shares exercisable at December 31, 1999  |   | 1,052     |   | $      | 8.19      | $            | 8,617  |   |
|                                     |   |      |   |   |      |         |   |   |   |

The following table summarized information concerning currently outstandingand exercisable options:

|   |                     |   | Options Outstanding |   | Options Exercisable                                  |
|--------|--------------------------|--------|---------------------|--------|------------------------------------------------------|
|   | Range of Exercise Prices |   | Number Outstanding  |   | Weighted Average Remaining  Contractual Life (Years) |   | Weighted Average Exercise Price |   | Number Exercisable |   | Weighted Average Exercise Price |
| $      | 0 - 5                    |   | 639                 |   | 2.1                                                  | $ | 3.49 |   | 461 | $ | 3.29 |
|   | 5 - 10                   |   | 1,465               |   | 7.4                                                  |   | 5.99 |   | 640 |   | 6.03 |
|   | 10 - 20                  |   | 343                 |   | 5.8                                                  |   | 14.65 |   | 206 |   | 15.35 |
|   | 20 - 31                  |   | 329                 |   | 4.8                                                  |   | 26.8 |   | 277 |   | 26.61 |
|   |                     |   | 2,776               |   | 5.7                                                  | $ | 8.95 |   | 1,584 | $ | 10.04 |

All outstanding options are nonqualified options.  No compensationexpense related to stock option grants was recorded in 2001, 2000 or 1999, asthe option exercise prices were equal to fair market value on the date ofgrant.

At December 31, 2001, there were 149 shares outstanding pursuant tonon-vested stock awards under the 1994 Plan.

Pro forma information regarding net income and earnings per share isrequired by SFAS 123 and has been determined as if the Company had accountedfor its employee stock options under the fair value method of thatStatement.  The fair value for these options was estimated at the date ofgrant using a Black-Scholes option pricing model with the following weightedaverage assumptions for 2001, 2000 and 1999:

|                           |   | 2001    |    | 2000    |   | 1999   |   |        |
|--------------------------------|--------|---------|---------|---------|--------|--------|--------|--------|
| Risk-free interest rate        |   | 5.00    | %       | 6.02    | %      | 6.20   | %      |   |
| Dividend yield                 |   | 2.78    | %       | 1.23    | %      | 1.23   | %      |        |
| Volatility factor              |   | 0.85    |    | 0.76    |   | 0.80   |   |   |
| Weighted average expected life |   | 5 years | 5 years | 5 years |
|                           |   |    |    |    |   |   |        |   |   |  |

The Black-Scholes option valuation model was developed for use in estimatingthe fair value of traded options, which have no vesting restrictions and arefully transferable.  In addition, option valuation models require theinput of highly subjective assumptions, including the expected stock pricevolatility.  Because the Company's employee stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management's opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of its employeestock options.

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

|                                                           |   | 2001    |   |   | 2000   |   |   | 1999  |   |
|----------------------------------------------------------------|--------|---------|--------|--------|--------|--------|--------|-------|--------|
| Net earnings (loss) - as reported                              | $      | (22,600 | )      | $      | 14,900 |   | $      | 7,824 |   |
| Net earnings (loss) - pro forma                                |   | (24,226 | )      |   | 13,208 |   |   | 6,291 |   |
| Basic earnings (loss) per share - as reported                  |   | (0.83   | )      |   | 0.54   |   |   | 0.29  |   |
| Basic earnings (loss) per share - pro forma                    |   | (0.89   | )      |   | 0.48   |   |   | 0.23  |   |
| Diluted earnings (loss) per share - as reported                |   | (0.83   | )      |   | 0.54   |   |   | 0.28  |   |
| Diluted earnings (loss) per share - pro forma                  |   | (0.89   | )      |   | 0.48   |   |   | 0.23  |   |
| Weighted average fair value of options granted during the year |   | 3.11    |   |   | 3.22   |   |   | 4.60  |   |

Because SFAS 123 provides for pro forma amounts for options grantedbeginning in 1995, the pro forma expense will likely increase in future yearsas the new option grants become subject to the pricing model.

**Stock Option Exercise Loan Program**.  During 2000, the Companydiscontinued the Stock Option Exercise Loan Program under which holders ofexercisable stock options could obtain interest-free and interest-bearing loansfrom the Company to facilitate their exercise of stock options.  Underprovisions of the program, new loans cannot be made, but existing loans willcontinue to be administered until they are repaid.  Such full recourseloans are evidenced by demand promissory notes and are secured by shares ofstock.  The portion of such loans directly related to the option exerciseprice is classified as a reduction of stockholders' equity.  The remainderis included in current assets.

In August 2001, 686,630 common shares at a market value of $3,361 werereceived from officers of the Company in exchange for the repayment of certainstock option loans and exercise of certain stock options as follows:

| Receipt of common shares                | $      | (3,361 | )      |
|-----------------------------------------|--------|--------|--------|
| Repayment of stock option loans         |   | 2,627  |   |
| Option exercise proceeds                |   | 478    |   |
| Tax benefit adjustment of stock options |   | 256    |   |
| Net cash                                | $      | --     |   |

**Share Rights Plan**.  In June 1998, the Company adopted a ShareRights Plan and declared a dividend of one Preferred Share Purchase Right(Right) for each outstanding share of common stock to stockholders of record onJuly 20, 1998.  The Rights will become exercisable after any person orgroup acquires or announces a tender or exchange offer resulting in thebeneficial ownership of 15% or more of the Company's common stock.  EachRight entitles shareholders to buy one five-hundredth of a share of a newlycreated series of preferred stock at an exercise price of $75 subject toadjustment upon certain events.  If any person or group acquires 15% ormore of the Company's common stock, if the Company is acquired in a businesscombination, or if the Company sells 50% or more of its assets, each Rightentitles its holder, other than the person or group acquiring the common stock,to purchase at the Right's then current exercise price, shares of the Company'scommon stock having a value of twice the Right's then current exercise price. The Rights are redeemable at $0.001 per Right and will expire on July 20, 2008unless extended or redeemed earlier by the Company.

**10.         Employee BenefitPlans**

The Company maintains a savings and profit sharing plan coveringsubstantially all of its domestic salaried employees and a majority of thosedomestic hourly employees not covered by a pension plan or retirement funddescribed below.  Under the terms of the profit sharing provision of theplan, the Company makes an annual minimum contribution equal to 3% ofparticipants' wages, with the potential for an additional discretionarycontribution depending upon the Company's profitability.  Provisions ofthe profit sharing portion of the plan include 100% vesting after five years ofcontinuous service, and payment of benefits upon retirement, total disability,death or termination.  Under the terms of the savings provision of theplan, the Company makes an annual minimum contribution, which is invested inCompany stock, equal to 25% of participants' before-tax contributions up to 6%of base salary, with the potential for an additional discretionary contributiondepending upon the Company's profitability.  Provisions of the savingsportion of the plan include vesting of the Company's contributions at the rateof 25% per year of continuous service, and payment of benefits upon retirement,total disability, death or termination.

In 2002, the Company's savings and profit sharing plan was amended. Under the profit sharing provision of the plan, the Company makes no annualminimum contribution.  Depending upon the Company's profitability, adiscretionary contribution up to 12% of participants' wages may be made. Vesting provisions for this portion of the plan have not changed.  Underterms of the savings provision of the plan, the Company makes a quarterlycontribution equal to 100% of participants' before-tax contributions up to 3%of base salary with an additional contribution equal to 50% of participants'before-tax contributions between 3% and 5% of base salary.  Provisions ofthe savings portion of the plan were changed to included immediate vesting ofthe Company's contribution.

In addition, the Company's German subsidiary has a noncontributory definedbenefit pension plan covering substantially all of its employees. Benefits payable under the plan are based upon the participant's base salaryprior to retirement and years of credited service.  As allowed underGerman law, this plan is not funded.  However, under generally accepted accountingprinciples, the estimated future liability is accrued in the Company'sConsolidated Financial Statements.

In addition to the defined benefit plans discussed above, the Company hadtwo defined benefit post-retirement plans covering certain domesticemployees.  One plan provided medical benefits and the other provides lifeinsurance benefits.  During 2000, the Company terminated the medicalbenefits plan, resulting in a termination gain of $1,678, which is included inOther Income in the Consolidated Statement of Operations.  The lifeinsurance plan provides term life insurance coverage to all retired full-timehourly employees at one former domestic operation.  The Company accruesthe expected cost of providing benefits under the life insurance benefit planduring the years that eligible employees rendered service.  The lifeinsurance plan is not funded and the liability under the plan is immaterial.

The above described defined benefit and post-retirement plans included thefollowing components:

|                                           |   | Pension Benefits |   |   | Post-Retirement Benefits |   |
|------------------------------------------------|--------|------------------|--------|--------|--------------------------|--------|
|                                           |   | 2001             |   |   | 2000                     |   |   | 2001 |   |   | 2000 |   |   |
| Change in Benefit Obligation:                  |   |             |   |   |                     |   |   |   |   |   |   |   |   |
| Benefit obligation at beginning of year        | $      | 13,486           |   | $      | 13,272                   |   | $ | -- |   | $ | 1,948 |   |   |
| Service cost                                   |   | 445              |   |   | 450                      |   |   | -- |   |   | 47 |   |   |
| Interest cost                                  |   | 825              |   |   | 802                      |   |   | -- |   |   | 55 |   |   |
| Foreign currency exchange rate changes         |   | (521             | )      |   | (606                     | )      |   | -- |   |   | -- |   |   |
| Plan participants' contribution                |   | --               |   |   | --                       |   |   | -- |   |   | 138 |   |   |
| Actuarial (gain) loss                          |   | 393              |   |   | (11                      | )      |   | -- |   |   | 228 |   |   |
| Benefit payments                               |   | (474             | )      |   | (421                     | )      |   | -- |   |   | (555 | ) |   |
| Settlement/curtailment gain                    |   | --               |   |   | --                       |   |   | -- |   |   | (1,861 | ) |   |
| Benefit obligation at end of year              |   | 14,154           |   |   | 13,486                   |   |   | -- |   |   | -- |   |   |
|                                           |   |             |   |   |                     |   |   |   |   |   |   |   |   |
| **Change in Fair Value of Plan Assets:**       |   |             |   |   |                     |   |   |   |   |   |   |   |   |
| Fair value of plan assets at beginning of year |   | 4,335            |   |   | 4,011                    |   |   | -- |   |   | -- |   |   |
| Actual return on plan assets                   |   | (983             | )      |   | 577                      |   |   | -- |   |   | -- |   |   |
| Employer contribution                          |   | 261              |   |   | --                       |   |   | -- |   |   | 417 |   |   |
| Plan participants' contributions               |   | --               |   |   | --                       |   |   | -- |   |   | 138 |   |   |
| Benefit payments                               |   | (287             | )      |   | (253                     | )      |   | -- |   |   | (555) |   |   |
| Fair value of plan assets at end of year       |   | 3,326            |   |   | 4,335                    |   |   | -- |   |   | -- |   |   |
|                                           |   |             |   |   |                     |   |   |   |   |   |   |   |   |
| **Funded Status:**                             |   |             |   |   |                     |   |   |   |   |   |   |   |   |
| Funded status of the plan (underfunded)        |   | (10,828          | )      |   | (9,151                   | )      |   | -- |   |   | -- |   |   |
| Unrecognized transitional amount               |   | 34               |   |   | 48                       |   |   | -- |   |   | -- |   |   |
| Unrecognized net gain                          |   | 1,197            |   |   | (423                     | )      |   | -- |   |   | -- |   |   |
| Accrued pension cost                           | $      | (9,597           | )      | $      | (9,526                   | )      | $ | -- |   | $ | -- |   |   |
|                                           |   |             |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |

 

|                                    |   | 2001   |   |   | 2000   |   |   | 1999   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Components of Net Periodic Pension Cost |   |   |   |   |   |   |   |   |   |
| Pension benefits:                       |   |   |   |   |   |   |   |   |   |
| Service cost                            | **$**  | 445    |   | $      | 450    |   |   | 490    |   |
| Interest cost                           |   | 825    |   |   | 802    |   |   | 824    |   |
| Expected return on plan assets          |   | (268   | )      |   | (350   | )      |   | (313   | )      |
| Amortization of transition obligation   |   | 11     |   |   | 12     |   |   | 14     |   |
| Recognized actuarial gain               |   | (7     | )      |   | (11    | )      |   | --     |   |
| Net periodic pension cost               | $      | 1,006  |   | $      | 903    |   | $      | 1,015  |   |
|                                    |   |   |   |   |   |   |   |   |   |
| Post-retirement benefits:               |   |   |   |   |   |   |   |   |   |
| Service costs                           | $      | --     |   | $      | 47     |   | $      | 173    |   |
| Interest cost                           |   | --     |   |   | 55     |   |   | 156    |   |
| Recognized actuarial (gain) loss        |   | --     |   |   | 3      |   |   | 7      |   |
| Settlement/curtailment gain             |   | --     |   |   | (1,678 | )      |   | --     |   |
| Net periodic pension cost               | $      | --     |   | $      | (1,573 | )      | $      | 336    |   |

Assumptions used in developing the projected benefit obligation and the netperiodic pension cost as of December 31 were as follows:

|                                                              |   | 2001   |   |   | 2000   |   |   | 1999   |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Domestic plans (including post-retirement plan in 2000 and 1999): |   |   |   |   |   |   |   |   |   |
|   Discount rate                                              |   | 7.75   | %      |   | 7.75   | %      |   | 7.75   | %      |
|   Rate of return on plan assets                              |   | 9.00   | %      |   | 9.00   | %      |   | 9.00   | %      |
| Foreign plan:                                                     |   |   |   |   |   |   |   |   |   |
|   Discount rate                                              |   | 6.00   | %      |   | 6.00   | %      |   | 6.00   | %      |
|   Rate of increase in compensation                           |   | 2.50   | %      |   | 2.50   | %      |   | 2.50   | %      |

Under a contract with its union employees, one of the Company's domesticoperations makes, on behalf of each active participant, fixed weeklycontributions to a retirement fund (aggregating $90, $122 and $147 in 2001,2000 and 1999, respectively).  At December 31, 2001, the Company wasrequired to record a minimum pension liability of $1,700, net of taxes, underthis contract.  In addition, the Company was required to record a minimumpension liability of $635 for another defined benefit plan.  These minimumpension liability adjustments are reflected in other liabilities andaccumulated other comprehensive loss. 

The total cost of all profit sharing, savings and pension plans, domesticand foreign, was $2,754, $4,591 and $5,469 in 2001, 2000 and 1999,respectively.

**11.         Income Taxes**

The provision for income taxes was based on earnings (loss) before incometaxes, as follows:

| Years ended December 31                    |   | 2001    |   |   | 2000   |   |   | 1999   |   |
|--------------------------------------------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
| Domestic                                   | $      | (16,806 | )      | $      | 6,648  |   | $      | (1,472 | )      |
| Foreign                                    |   | 3,576   |   |   | 14,495 |   |   | 14,319 |   |
|   Earnings (loss) before income taxes | $      | (13,230 | )      | $      | 21,143 |   | $      | 12,847 |   |

The provision for income taxes consisted of:

| Years ended December 31  |   | 2001   |   |   | 2000   |   |   | 1999   |   |
|--------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Current                  |   |   |   |   |   |   |   |   |   |
|   Federal           | $      | (150   | )      | $      | 1,102  |   | $      | 10     |   |
|   State             |   | 58     |   |   | (15    | )      |   | (59    | )      |
|   Foreign           |   | 3,878  |   |   | 6,310  |   |   | 6,811  |   |
| Deferred                 |   |   |   |   |   |   |   |   |   |
|   Federal and state |   | 6,504  |   |   | (1,292 | )      |   | (610   | )      |
|   Foreign           |   | (920   | )      |   | 138    |   |   | (1,129 | )      |
| Income tax expense       | $      | 9,370  |   | $      | 6,243  |   | $      | 5,023  |   |

Significant components of deferred income tax assets and liabilities were asfollows at December 31:

|                                            |   | 2001    |   |   | 2000   |   |
|-------------------------------------------------|--------|---------|--------|--------|--------|--------|
| **Federal and State Net Deferred Income Taxes** |   |    |   |   |   |   |
| Deferred tax asset                              |   |    |   |   |   |   |
| Reserves and accruals                           | $      | 4,642   |   | $      | 3,277  |   |
| Compensation and benefit-related accruals       |   | 5,319   |   |   | 4,609  |   |
| Other temporary differences                     |   | 1,206   |   |   | 2,617  |   |
| NOL and tax credit carryovers                   |   | 23,414  |   |   | 14,844 |   |
| Valuation allowance                             |   | (14,500 | )      |   | --     |   |
| Total                                           |   | 20,081  |   |   | 25,347 |   |
| Deferred tax liability                          |   |    |   |   |   |   |
| Depreciation                                    |   | (2,430  | )      |   | (3,032 | )      |
| Capitalized molds and tooling                   |   | (799    | )      |   | (214   | )      |
| Total                                           |   | (3,229  | )      |   | (3,246 | )      |
| Net deferred tax asset                          | $      | 16,852  |   | $      | 22,101 |   |
|                                            |   |    |   |   |   |   |
| **Foreign Net Deferred Income Taxes**           |   |    |   |   |   |   |
| Deferred tax liability                          |   |    |   |   |   |   |
| Depreciation                                    | $      | (1,908  | )      | $      | (2,487 | )      |
| Inventory                                       |   | (110    | )      |   | (352   | )      |
| Other temporary differences                     |   | (565    | )      |   | (642   | )      |
| Total                                           |   | (2,583  | )      |   | (3,481 | )      |
| Deferred tax asset                              |   |    |   |   |   |   |
| Retirement benefits                             |   | 815     |   |   | 751    |   |
| Other temporary differences                     |   | 730     |   |   | 893    |   |
| Total                                           |   | 1,545   |   |   | 1,644  |   |
| Net deferred tax liability                      |   | (1,038  | )      |   | (1,837 | )      |

The federal and state net deferred tax asset included a current portion of$10,198 and $18,190 at December 31, 2001 and 2000, respectively, and along-term portion of $6,654 and $3,911 at December 31, 2001 and 2000,respectively.  The foreign net deferred tax liability included a currentasset of $52 at December 31, 2001 and a current liability of $236 at December31, 2000, and a long-term liability of  $1,090 and $1,601 at December 31,2001 and 2000, respectively.

Net operating loss carryforwards of $17,883 at December 31, 2001 expire in2019 and 2020.  General business credit carryforwards of $549 expire in2019 to 2021.  Foreign tax credit carryforwards of $14,970 expire in 2003through 2006.  Alternative minimum tax credits of $876 can be carriedforward indefinitely to offset regular tax liabilities.

The differences between income taxes at the U.S. federal statutory tax rateand the effective tax rate were as follows:

| Years ended December 31                    |   | 2001  |   |   | 2000 |   |   | 1999 |   |
|--------------------------------------------|--------|-------|--------|--------|------|--------|--------|------|--------|
| Statutory rate                             |   | (35.0 | )%     |   | 35.0 | %      |   | 35.0 | %      |
| Difference in taxation of foreign earnings |   | 10.7  |   |   | 6.1  |   |   | 4.8  |   |
| Foreign income taxed in the U.S.           |   | (14.9 | )      |   | (9.5 | )      |   | (5.3 | )      |
| Unfavorable settlement of tax audit        |   | --    |   |   | --   |   |   | 4.8  |   |
| State income taxes, net of federal benefit |   | (1.6  | )      |   | 1.0  |   |   | (0.7 | )      |
| Change in deferred tax valuation allowance |   | 109.6 |   |   | --   |   |   | --   |   |
| Other items                                |   | 2.0   |   |   | (3.1 | )      |   | 0.5  |   |
| Effective tax rate                         |   | 70.8  | %      |   | 29.5 | %      |   | 39.1 | %      |

Differences in taxation of foreign earnings relate primarily to taxation offoreign earnings at rates in excess of the U.S. statutory rate. Undistributed earnings of foreign subsidiaries at December 31, 2001 wereapproximately $10,858.  No U.S. taxes have been provided on theseundistributed earnings, because the Company expects to be able to utilizeforeign tax credits to offset any U.S. tax that would result from theirdistribution.

During 2001, the Company established a deferred tax asset valuation reserveof $14.5 million, the effect of which increased income tax expense.  Theneed for the valuation reserve was driven by projections for future U.S.taxable income, which impacts the potential for realizing the benefits of theCompany's carryovers.  The statutory time period for using the carryoverson its income tax returns extends beyond the period the Company used to assessimpairment for accounting purposes.  If at some time in the future it isdetermined that all or a portion of the existing carryovers may be realized,the valuation reserve will be reduced accordingly.

Income taxes paid (refunded) were $612, $7,888 and $(2,489) in 2001, 2000and 1999, respectively.

**12.         SegmentInformation**

The Company has two operating segments, which manufacture and sell a varietyof products:  Buckbee-Mears and Optical Products.  Buckbee-Mearsmanufactures precision photo-etched and electroformed parts that require tighttolerances and miniaturization.  Its principal product is aperture masks,a key component used in the manufacture of color television and computermonitor picture tubes. Optical Products manufactures ophthalmic lenses. Net sales of aperture masks comprised 93%, 91% and 89% of Buckbee-Mears segmentrevenues in 2001, 2000 and 1999, respectively, and 52%, 55% and 55% of theCompany's consolidated total revenues in 2001, 2000 and 1999,respectively.  

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

| Years ended December 31                  |   | 2001    |   |   | 2000    |   |   | 1999    |   |
|------------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                     |   |    |   |   |    |   |   |    |   |
| Total Revenues by Segment                |   |    |   |   |    |   |   |    |   |
| Buckbee-Mears                            | $      | 170,862 |   | $      | 214,880 |   | $      | 217,868 |   |
| Optical Products                         |   | 131,434 |   |   | 139,605 |   |   | 135,986 |   |
| Total Revenues                           | $      | 302,296 |   | $      | 354,485 |   | $      | 353,854 |   |
|                                     |   |    |   |   |    |   |   |    |   |
| Operating Profit (Loss) by Segment       |   |    |   |   |    |   |   |    |   |
| Buckbee-Mears                            |   |    |   |   |    |   |   |    |   |
| Before non-recurring charges             | $      | 5,089   |   | $      | 25,108  |   | $      | 23,863  |   |
| Non-recurring charges                    |   | (5,038  | )      |   | --      |   |   | --      |   |
| Total                                    |   | 51      |   |   | 25,108  |   |   | 23,863  |   |
| Optical Products                         |   |    |   |   |    |   |   |    |   |
| Before non-recurring charges             |   | 3,298   |   |   | 11,419  |   |   | 5,749   |   |
| Non-recurring charges                    |   | (1,180  | )      |   | --      |   |   | --      |   |
| Total                                    |   | 2,118   |   |   | 11,419  |   |   | 5,749   |   |
| Total segment operating profit           |   | 2,169   |   |   | 36,527  |   |   | 29,612  |   |
| Administrative expense                   |   | (5,038  | )      |   | (5,389  | )      |   | (4,702  | )      |
| Interest expense, net                    |   | (11,244 | )      |   | (12,833 | )      |   | (13,099 | )      |
| Other income                             |   | 883     |   |   | 2,838   |   |   | 1,036   |   |
| Earnings (loss) before income taxes      |   | (13,230 | )      |   | 21,143  |   |   | 12,847  |   |
|                                     |   |    |   |   |    |   |   |    |   |
| Identifiable Assets by Segment           |   |    |   |   |    |   |   |    |   |
| Buckbee-Mears                            | $      | 132,755 |   | $      | 158,453 |   | $      | 159,431 |   |
| Optical Products                         |   | 180,648 |   |   | 191,884 |   |   | 196,074 |   |
| Total identifiable assets                |   | 313,403 |   |   | 350,337 |   |   | 355,505 |   |
| Corporate and other assets               |   | 18,343  |   |   | 23,467  |   |   | 28,048  |   |
| Total assets                             | $      | 331,746 |   | $      | 373,804 |   | $      | 383,553 |   |
|                                     |   |    |   |   |    |   |   |    |   |
| Depreciation and Amortization by Segment |   |    |   |   |    |   |   |    |   |
| Buckbee-Mears                            | $      | 12,191  |   | $      | 13,492  |   | $      | 12,883  |   |
| Optical Products                         |   | 11,516  |   |   | 10,336  |   |   | 10,231  |   |
| Corporate and other                      |   | 100     |   |   | 162     |   |   | 166     |   |
| Total depreciation and amortization      | $      | 23,807  |   | $      | 23,990  |   | $      | 23,280  |   |
|                                     |   |    |   |   |    |   |   |    |   |
| Capital Expenditures by Segment          |   |    |   |   |    |   |   |    |   |
| Buckbee-Mears                            | $      | 5,779   |   | $      | 7,703   |   | $      | 5,556   |   |
| Optical Products                         |   | 8,311   |   |   | 4,182   |   |   | 7,469   |   |
| Corporate and other                      |   | 44      |   |   | 44      |   |   | 132     |   |
| Total capital expenditures               | $      | 14,134  |   | $      | 11,929  |   | $      | 13,157  |   |

The following is a summary of the Company's operations in differentgeographic areas:

| Years ended December 31                    |   | 2001    |   |   | 2000    |   |   | 1999    |   |
|--------------------------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                       |   |    |   |   |    |   |   |    |   |
| Total Revenues from Unaffiliated Customers |   |    |   |   |    |   |   |    |   |
| United States                              | $      | 192,879 |   | $      | 232,458 |   | $      | 227,390 |   |
| Germany                                    |   | 84,399  |   |   | 95,796  |   |   | 103,788 |   |
| Other                                      |   | 25,018  |   |   | 26,231  |   |   | 22,676  |   |
| Total                                      | $      | 302,296 |   | $      | 354,485 |   | $      | 353,854 |   |
|                                       |   |    |   |   |    |   |   |    |   |
| Long-Lived Assets                          |   |    |   |   |    |   |   |    |   |
| United States                              | $      | 101,482 |   | $      | 107,679 |   | $      | 119,190 |   |
| Germany                                    |   | 18,136  |   |   | 21,404  |   |   | 24,155  |   |
| Other                                      |   | 11,923  |   |   | 10,416  |   |   | 7,893   |   |
| Total                                      | $      | 131,541 |   | $      | 139,499 |   | $      | 151,238 |   |

The Company evaluates segment performance based on profit or loss fromoperations before interest, other income/expense, taxes and charges forcorporate administration.  Revenues by geographic area are based uponrevenues generated from each country's operations.  Net sales tounaffiliated foreign customers from domestic operations (export sales) in 2001,2000 and 1999 were $56,139, $61,686 and $56,893, or 19%, 17% and 16%,respectively, of total revenues.  Buckbee-Mears had sales to one customerof $42,566, $62,895 and $71,303; to another customer of $47,502, $58,174 and$45,077; and to a third customer of $24,258, $27,178 and $46,078 in 2001, 2000and 1999, respectively.  Optical Products did not have sales to anyindividual customer greater than 10% of total revenues.

**13.         Concentrationsof Credit Risk**

Approximately 55% of the trade accounts receivable before allowances(receivables) of Buckbee-Mears at December 31, 2001 were represented by fourcustomers.  Approximately 63% of the receivables of Optical Products atDecember 31, 2001 were represented by 20 customers.  These 24 customersrepresented approximately 59% of the Company's consolidated receivables atDecember 31, 2001, with one customer of Buckbee-Mears representingapproximately 12% and another customer representing approximately 5% ofconsolidated receivables and one customer of Optical Products representingapproximately 8% and another customer representing 7% of consolidatedreceivables.

Buckbee-Mears' customer base consists of the largest television and computermonitor manufacturers in the world.  Accordingly, Buckbee-Mears generallydoes not require collateral and its trade receivables are unsecured. Optical Products' customer base consists of a wide range of eyewear retailersand optical laboratories.  Optical Products performs detailed creditevaluations of customers and establishes credit limits as necessary. Collateral or other security for accounts receivable is obtained as considerednecessary for Optical Products' customers.

**14.         Legal Matters**

The Company is a defendant in various suits, claims and investigations thatarise in the normal course of business.  In the opinion of the Company'smanagement, the ultimate disposition of these matters will not have a materialadverse effect on the consolidated financial position, liquidity or results ofoperations of the Company.

**15.         New AccountingStandards**

In July 2001, the Financial Accounting Standards Board (FASB) issuedStatements of Financial Accounting Standards (SFAS) No. 141, *BusinessCombinations*.  SFAS No. 41 eliminates the pooling-of-interest methodand requires the purchase method of accounting on all business combinationscompleted after June 30, 2001.  This pronouncement was effective for anybusiness combination that is completed after June 30, 2001 and had no impact onthe Company's current financial statements.

Also in July 2001, the FASB issued SFAS No. 142, *Goodwill and OtherIntangible Assets*.  Under SFAS No. 142, goodwill and intangiblesassets deemed to have indefinite lives will no longer be amortized but will besubject to annual impairment tests in accordance with the statement, with atransitional impairment test required to be completed by the end of the secondquarter 2002.  The Company has adopted this statement as of January 1,2002.  Application of the non-amortization provisions of the statement isexpected to result in an annual increase of earnings of approximately $2.0million.  The Company will first evaluate goodwill for impairment bycomparing the segment level unamortized goodwill balance to projecteddiscounted cash flows as required by SFAS No. 142.  The Company plans tocomplete this transitional impairment test by the end of first quarter2002.  Based on preliminary analysis, the Company anticipates that itsOptical Products segment will incur a goodwill impairment write-off between $35million and $50 million.  No reclassifications of intangibles assets willbe necessary.  Any impairment required by SFAS No. 142 will be reflectedas the cumulative effect of a change in accounting principle.

In August 2001, the FASB issued SFAS No. 143, *Accounting for AssetRetirement Obligations*, which is effective for fiscal years beginning afterJune 15, 2002.  This statement applies to obligations associated with theretirement of tangible long-lived assets.  The adoption of this pronouncementis not expected to have a material impact on the Company's consolidated resultsof operations, financial position or cash flows.

In October 2001, the FASB issued SFAS No. 144, *Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of*,which is effective for fiscal years beginning after June 15, 2002.  Thisstatement addresses financial accounting and reporting for the impairment ordisposal of long-lived assets and supersedes SFAS No. 121, *Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of*,and the accounting and reporting provisions of Accounting Principles Board(APB) Opinion No. 30, *Reporting the Results of Operations* for a disposalof a segment of a business.  The adoption of this pronouncement is notexpected to have a material impact on the Company's consolidated results ofoperations, financial position or cash flows.

**Report of Independent Auditors**

The Board of Directors and Stockholders

BMC Industries, Inc.

We have audited the accompanying consolidated balance sheets of BMCIndustries, Inc. as of December 31, 2001 and 2000, and the related consolidatedstatements of operations, stockholders' equity and cash flows for each of thethree years in the period ended December 31, 2001.  Our audits alsoincluded the financial statement schedule listed in Item 14(a).  Thesefinancial statements and schedule are the responsibility of the Company'smanagement.  Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with auditing standards generallyaccepted in the United States.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,in all material respects, the consolidated financial position of BMCIndustries, Inc. at December 31, 2001 and 2000, and the consolidated results ofits operations and its cash flows for each of the three years in the periodended December 31, 2001, in conformity with accounting principles generallyaccepted in the United States.  Also in our opinion, the financialstatement schedule referred to above, when considered in relation to the basicfinancial statements taken as a whole, presents fairly in all material aspectsthe information set forth therein.

 

Ernst & Young LLP

 

Minneapolis, MinnesotaJanuary 30, 2002

****

**Item 9.    Changes in and Disagreements withAccountants on Accounting and Financial Disclosure**

None.

 

**Part III**

**Item 10.  Directors and Executive Officers of the Registrant**

(a)         *Directors of theRegistrant*

The information under the caption "Election of Directors" on pages2-5 of our proxy statement for the annual meeting of stockholders to be held onMay 9, 2002 is incorporated herein by reference.

(b)         *ExecutiveOfficers of the Registrant*

Information concerning our executive officers is included in this reportunder Item 4A, "Executive Officers of the Registrant."

(c)         *Compliance withSection 16(a) of the Exchange Act*

The information under the caption "Section 16(a) Beneficial OwnershipReporting Compliance" on page 18 of our proxy statement for the annualmeeting of stockholders to be held on May 9, 2002 is incorporated herein byreference.

** **

**Item 11.  Executive Compensation**

The information contained under the caption "ExecutiveCompensation" on pages 9-11 and 13-15, and "Election of Directors -Information About the Board and Its Committees" on pages 3-5 of our proxystatement for the annual meeting of stockholders to be held on May 9, 2002 isincorporated herein by reference.

**Item 12.  Security Ownership of Certain Beneficial Owners andManagement**

The information contained under the caption "Security Ownership ofCertain Beneficial Owners and Management" on pages 7-8 of our proxystatement for the annual meeting of stockholders to be held on May 9, 2002 isincorporated herein by reference.

**Item 13.  Certain Relationships and Related Transactions**

The information contained under the caption "Certain Transactions"on page 17-18 of our proxy statement for the annual meeting of stockholders tobe held on May 9, 2002 is incorporated herein by reference.

 

**PART IV.**

**Item 14.  Exhibits, Financial Statement Schedules, and Reports onForm 8-K**

**(a)         1.         FinancialStatements**

|   | The following items are included herein on the pages indicated.                                       |
|--------|-------------------------------------------------------------------------------------------------------|
|   |                                                                                                  |   |   |
|   | Consolidated Financial Statements:                                                                    | Page |
|   |                                                                                                  |   |
|   | Consolidated Statements of Operations for the Years Ended December 31,  2001, 2000 and 1999           |  24 |
|   |                                                                                                  |   |
|   | Consolidated Balance Sheets as of December 31, 2001 and 2000                                          |  25 |
|   |                                                                                                  |   |
|   | Consolidated Statements of Stockholders' Equity for the Years Ended  December 31, 2001, 2000 and 1999 |  26 |
|   |                                                                                                  |   |
|   | Consolidated Statements of Cash Flows for the Years Ended December 31,  2001, 2000 and 1999           |  27 |
|   |                                                                                                  |   |
|   | Notes to Consolidated Financial Statements                                                            |  28 |
|   |                                                                                                  |   |
|   | Price Range of Common Stock                                                                           |  12 |
|   |                                                                                                  |   |
|   | Report of Independent Auditors                                                                        |  45 |
|   |                                                                                                  |   |
|   | Selected Quarterly Financial Data (unaudited)                                                         |  14 |

** **

**            2.          FinancialStatement Schedule:**

The following financial statement schedule is included herein and should beread in conjunction with the consolidated financial statements referencedabove:

|   |                                         | Page:                                                                        |
|--------|----------------------------------------------|------------------------------------------------------------------------------|
|   | II  - Valuation and Qualifying Accounts |               49 |

Schedules other than the one listed above are omitted because of the absenceof the conditions under which they are required or because the informationrequired is included in the consolidated financial statements or the notesthereto.

**            3.          Exhibits:**

|   | Reference is made to the Exhibit Index contained on pages 51 of this Form  10-K.                                                                                                                                                                                                                                                                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | A copy of any of the exhibits listed or referred to herein will be  furnished at a reasonable cost to any person who was a BMC stockholder as of  March 18, 2002, upon receipt from any such person of a written request for  any exhibit. Requests should be sent to Investor Relations Department, BMC  Industries, Inc., One Meridian Crossings, Suite 850, Minneapolis, MN  55423. |
|   | The following is a list of each management contract or compensatory plan  or arrangement required to be filed as an exhibit to this Form 10-K pursuant  to Item 14(c):                                                                                                                                                                                                                      |
|        | a)                                                                                                                                                                                                                                                                                                                                                                                          | Revised Executive Perquisite/Flex Policy (effective as of January 1, 1998)  (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1998 (File No. 1-8467)). |
|        | b)                                                                                                                                                                                                                                                                                                                                                                                          | Restated and Amended Directors' Deferred Compensation Plan (incorporated  by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for  the year ended December 31, 1996 (File No. 1-8467)). |
|        | c)                                                                                                                                                                                                                                                                                                                                                                                          | Form of Change of Control Agreement entered into between the Company and  Mr. Burke (incorporated by reference to Exhibit 10.31 to the Company's Annual  Report on Form 10-K for the year ended December 31, 1991 (File No 1-8467)). |
|        | d)                                                                                                                                                                                                                                                                                                                                                                                          | Form of Change of Control Agreement entered into between the Company and  Messrs. Carlson, Dobson and Petersen (incorporated by reference to Exhibit  10.29 to the Company's Annual Report on Form 10-K for the year ended December  31, 1999 (File No. 1-8467)). |
|        | e)                                                                                                                                                                                                                                                                                                                                                                                          | Employment Agreement by and between the Company and Paul B. Burke, dated  as of January 1, 1999 (incorporated by reference to Exhibit 10.25 of the  Company's Annual Report on Form 10-K for the year ended December 31, 1998  (File No. 1-8467)). |
|        | f)                                                                                                                                                                                                                                                                                                                                                                                          | Employment Agreement by and between the Company and Curtis E. Petersen,  dated December 3, 2001 (filed herewith as Exhibit 10.23). |
|        | g)                                                                                                                                                                                                                                                                                                                                                                                          | BMC Industries, Inc. Executive Benefit Plan, effective January 1, 1993  (incorporated by reference to Exhibit 10.22 of the Company's Annual Report on  Form 10-K for the year ended December 31, 1998 (File No. 1-8467)). |
|        | h)                                                                                                                                                                                                                                                                                                                                                                                          | First Declaration of Amendment, effective September 1, 1998, to the BMC  Industries, Inc. Executive Benefit Plan (incorporated by reference to Exhibit  10.12 to the Company's Annual Report on Form 10-K for the year ended December  31, 1998 (File No. 1-8467)). |

**(b)        Reports on Form 8-K**

The Company filed a Form 8-K, dated as of October 12, 2002, on October 24,2001, reporting the completion of a Second Amendment and Restatement Agreement amendingthe Company's Amended and Restated Credit Agreement dated June 25, 1998.

**(c)        Exhibits**

The response to this portion of Item 14 is submitted as a separate sectionof this report.

**(d)        Financial StatementSchedules**

The response to this portion of Item 14 is submitted as a separate sectionof this report.

Schedule IIValuation and Qualifying AccountsYears Ended December 31

(in thousands)

|                              | Balance Beginning of Year | Additions Charged to Costs and  Expenses | Deductions   | Translation Adjustment and Other | Balance  End of  Year |
|-----------------------------------|---------------------------|------------------------------------------|--------------|----------------------------------|-----------------------|
| 2001                              |                      |                                     |         |                             |                  |
| Allowance for doubtful accounts   | $1,433                    | $1,452                                   | $1,300       | $0                               | $1,585                |
| Allowance for merchandise returns | 1,430                     | 595                                      | 766          | (476)                            | 783                   |
|   Total                      | $2,863                    | $2,047                                   | $2,066       | ($476)                           | $2,368                |
| Inventory reserves                | $10,669                   | $3,696                                   | $1,567       | ($218)                           | $12,580               |
|                              |                      |                                     |         |                             |                  |
| 2000                              |                      |                                     |         |                             |                  |
| Allowance for doubtful accounts   | $1,828                    | $1,388                                   | $1,783       | $0                               | $1,433                |
| Allowance for merchandise returns | 1,546                     | 583                                      | 483          | (216)                            | 1,430                 |
|   Total                      | $3,374                    | $1,971                                   | $2,266       | ($216)                           | $2,863                |
| Inventory reserves                | $15,317                   | ($3,021)                                 | $1,201       | ($426)                           | $10,669               |
|                              |                      |                                     |         |                             |                  |
| 1999                              |                      |                                     |         |                             |                  |
| Allowance for doubtful accounts   |  

$1,266            |  

$1,132                           |  

$570 |  

$0                       |  

$1,828        |
| Allowance for merchandise returns |  

1,358             |  

1,076                            |  

474  |  

(414)                    |  

1,546         |
|   Total                      | $2,624                    | $2,208                                   | $1,044       | ($414)                           | $3,374                |
| Inventory reserves                | $12,791                   | $4,100                                   | $1,145       | ($429)                           | $15,317               |
|                              |                      |                                     |         |                             |                  |

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed onMarch 29, 2002, on its behalf by the undersigned, thereunto duly authorized.

|   | BMC INDUSTRIES, INC.                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|   | By:  /s/Curtis E.  Petersen                    |
|   |                                                                                                                                               | Curtis E. Petersen  Senior Vice President and  Chief Financial Officer |

Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below on March 29, 2002, by the following persons onbehalf of the registrant and in the capacities indicated.

| Signature                                                                                                                                                                                                                                                                                                                                                                                      | Title                                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                              |
| /s/Paul B.  Burke_                                                    Paul B. Burke                                        | Chairman of the Board and Chief Executive Officer (Principal Executive  Officer)                                  |
|                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                              |
| /s/Curtis E.  Petersen                                                  Curtis E. Petersen                                           | Senior Vice President and Chief Financial Officer (Principal Financial  Officer and Principal Accounting Officer) |
|                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                              |
| /s/John W.  Castro                                                      John W. Castro                           | Director                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                              |
| /s/H. Ted  Davis                                                         H. Ted Davis             | Director                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                              |
| /s/Joe E.  Davis                                                           Joe E. Davis | Director                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                              |
| /s/Harry A.  Hammerly                                               Harry A. Hammerly                                                               | Director                                                                                                          |

 

BMC Industries, Inc.Exhibit Index to Annual Report on Form 10-KFor the Year Ended December 31, 2001

| Exhibit No. |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Exhibit Method of Filing |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|
| 3.1         | Second Restated Articles of Incorporation of the Company, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                     | Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1994 (File No. 1-8467). |
| 3.2         | Amendment to the Second Restated Articles of Incorporation, dated May 8,  1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                     | Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1994 (File No. 1-8467). |
| 3.3         | Amendment to the Second Restated Articles of Incorporation, dated October  30, 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                     | Incorporated by reference to Exhibit 3.1 to the Company's quarterly report  on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-8467). |
| 3.4         | Amendment to the Second Restated Articles of Incorporation, dated August  7, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                     | Incorporated by reference to Exhibit 3.4 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1998 (File No. 1-8467). |
| 3.5         | Articles of Correction to the Second Restated Articles of Incorporation,  dated November 22, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                     | Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1999 (File No. 1-8467). |
| 3.6         | Restated Bylaws of the Company, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                     | Incorporated by reference to Exhibit 3.4 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1994 (File No. 1-8467). |
| 3.7         | Amendment to the Restated Bylaws of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                     | Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1997 (File No. 1-8467). |
| 3.8         | Amendment to the Restated Bylaws of the Company, dated February 20, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                     | Incorporated by reference to Exhibit 3.7 to the Company's Annual Report on  Form 10-K for the year ended December 31, 1998 (File No. 1-8467). |
| 4.1         | Specimen Form of the Company's Common Stock Certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                     | Incorporated by reference to Exhibit 4.3 to the Company's Registration  Statement on Form S-2 (File No. 2-83809). |
| 4.2         | Form of Share Rights Agreement, dated as of June 30, 1998, between the  Company and Norwest Bank, National Association, as Rights Agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                     | Incorporated by reference to Exhibit 1 to the Company's Registration  Statement on Form 8-A, dated July 14, 1998. |
| 10.1        | 1984 Omnibus Stock Program, as amended effective December 19, 1989.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                     | Incorporated by reference to Exhibit 10.1 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1989 (File No. 1-8467). |
| 10.2        | Revised Executive Perquisite/Flex Policy (effective as of January 1,  1998).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                     | Incorporated by reference to Exhibit 10.4 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1998 (File No. 1-8467). |
| 10.3        | Restated and Amended Directors' Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                     | Incorporated by reference to Exhibit 10.15 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1996 (File No. 1-8467). |
| 10.4        | BMC Industries, Inc. Executive Benefit Plan, effective January 1, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                     | Incorporated by reference to Exhibit 10.11 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1998 (File No. 1-8467). |
| 10.5        | First Declaration of Amendment to the BMC Industries Executive Benefit  Plan, effective September 1, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                     | Incorporated by reference to Exhibit 10.12 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1998 (File No. 1-8467). |
| 10.6        | Lease Agreement, dated November 20, 1978, between Control Data Corporation  and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                     | Incorporated by reference to Exhibit 10.9 to the Company's Registration  Statement on Form S-2 (File No. 2-79667). |
| 10.7        | Amendment to Lease Agreement, dated December 27, 1983, between Control  Data Corporation and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                     | Incorporated by reference to Exhibit 10.24 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1983 (File No. 1-8467). |
| 10.8        | Amendment to Lease Agreement, dated April 9, 1986, between Control Data  Corporation and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                     | Incorporated by reference to Exhibit 10.15 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1987 (File No. 1-8467). |
| 10.9        | Amendment to Lease Agreement, dated April 12, 1989, between GMT  Corporation (as successor in interest to Control Data Corporation) and the  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                     | Incorporated by reference to Exhibit 10.14 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1989 (File No. 1-8467). |
| 10.10       | Amendment to Lease Agreement, dated March 19, 1990, between GMT  Corporation and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                     | Incorporated by reference to Exhibit 10.15 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1989 (File No. 1-8467). |
| 10.11       | Amendment to Lease Agreement, dated May 17, 1993, between GMT Corporation  and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                     | Incorporated by reference to Exhibit 10.20 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1993 (File No. 1-8467). |
| 10.12       | Amendment of Lease, dated April 6, 1994 by and between GMT Corporation and  the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                     | Incorporated by reference to Exhibit 10.23 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1994 (File No. 1-8467). |
| 10.13       | Waiver of Condition Precedent, dated July 29, 1994, by and between GMT  Corporation and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                     | Incorporated by reference to Exhibit 10.24 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1994 (File No. 1-8467). |
| 10.14       | Amendment of Lease, dated September 25, 1997 by and between GMT  Corporation and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                     | Incorporated by reference to Exhibit 10.34 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1997 (File No. 1-8467). |
| 10.15       | Amendment of Lease, dated August 1, 1998 by and between GMT Corporation  and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                     | Incorporated by reference to Exhibit 10.26 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1999 (File No. 1-8467). |
| 10.16       | Amendment of Lease, dated August 1, 1998 by and between GMT Corporation  and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                     | Incorporated by reference to Exhibit 10.27 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1999 (File No. 1-8467). |
| 10.17       | Notice of Reduction of Leased Space, dated March 8, 1999, from the Company  to GMT Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                     | Filed electronically herewith. |
| 10.18       | Notice of Reduction of Leased Space, dated July 20, 1999, from the Company  to GMT Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                     | Filed electronically herewith. |
| 10.19       | Notice of Reduction of Leased Space, dated June 14, 2000, from the Company  to GMT Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                     | Filed electronically herewith. |
| 10.20       | Notice of Reduction of Leased Space, dated May 4, 2001, from the Company  to GMT Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                     | Filed electronically herewith. |
| 10.21       | Form of Change of Control Agreement entered into between the Company and  Mr. Burke.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                     | Incorporated by reference to Exhibit 10.31 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1991 (File No. 1-8467). |
| 10.22       | Form of Change of Control Agreement entered into between the Company and  Messrs. Carlson, Dobson, and Petersen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                     | Incorporated by reference to Exhibit 10.29 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1999 (File No. 1-8467). |
| 10.23       | Employment Agreement by and between the Company and Curtis E. Petersen,  dated December 3, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                     | Filed electronically herewith. |
| 10.24       | Employment Agreement, by and between the Company and Paul B. Burke, dated  as of January 1, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                     | Incorporated by reference to Exhibit 10.25 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1998 (File No. 1-8467). |
| 10.25       | Commitment letter, dated March 24, 1998, from BT Alex. Brown for an  unsecured revolving credit facility totaling $275 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                     | Incorporated by reference to Exhibit 10.1 to the Company's Quarterly  Report on Form 10-Q for the quarter ended March 30, 1998 (File No. 1-8467). |
| 10.26       | Credit Agreement, dated as of May 15, 1998, between the Company, Bankers  Trust Company as Administrative Agent, NBD Bank as Documentation Agent and  Various Lending Institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                     | Incorporated by reference to Exhibit 10.1 to the Company's Quarterly  Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-8467). |
| 10.27       | Amended and Restated Credit Agreement, dated as of June 25, 1998, among  the Company, Several Banks, Bankers Trust Company as the Agent and a Lender  and NBD Bank as Documentation Agent and a Lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                     | Incorporated by reference to Exhibit 10.2 to the Company's Quarterly  Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-8467). |
| 10.28       | Amendment No. 1 to Amended and Restated Credit Agreement, dated as of July  23, 1998, among the Company, Several Banks, Bankers Trust Company as Agent  and a Lender, NBD Bank as Documentation Agent and a Lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                     | Incorporated by reference to Exhibit 10.3 to the Company's Quarterly  Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-8467). |
| 10.29       | Amendment No. 2 to Amended and Restated Credit Agreement, dated as of  December 30, 1998, among the Company, Several Banks, Bankers Trust Company as  Agent and a Lender, NBD Bank as Documentation Agent and a Lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                     | Incorporated by reference to Exhibit 10.30 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1998 (File No. 1-8467). |
| 10.30       | Amendment No. 3 to Amended and Restated Credit Agreement, Dated April 29,  1999, among the Company, Several Banks, Bankers' Trust Company as Agent and a  Lender, NBD Bank as Documentation Agent and a Lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                     | Incorporated by reference to Exhibit 10.1 to the Company's Quarterly  Report on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-8467). |
| 10.31       | Consent, Waiver and Fourth Amendment to Credit Agreement, dated December  21, 1999, among the Company, several banks, Bankers Trust Company as Agent  and a Lender, Bank One (as assignee of NBD Bank) as agent and a Lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                     | Incorporated by reference to Exhibit 10.38 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1999 (File No. 1-8467). |
| 10.32       | BME Share Pledge Agreement, dated June 24, 1999, among the Company,  Buckbee-Mears Europe and several banks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                     | Incorporated by reference to Exhibit 10.2 to the Company's Quarterly  Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-8467). |
| 10.33       | Amended and Restated Pledge Agreement, dated December 21, 1999, among the  Company and Bankers Trust Company as Collateral Agent and a Lender.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                     | Incorporated by reference to Exhibit 10.40 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1999 (File No. 1-8467). |
| 10.34       | Release of Pledge, dated December 21, 1999, among the Company and Bankers  Trust Company as Collateral Agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                     | Incorporated by reference to Exhibit 10.41 to the Company's Annual Report  on Form 10-K for the year ended December 31, 1999 (File No. 1-8467). |
| 10.35       | Second Amendment and Restatement Agreement, dated as of October 12, 2001,  by and among the Company, Bankers Trusty Company as Administrative Agent,  Bank One, NA, as Documentation Agent and Various Lending Institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                     | Incorporated by reference to Exhibit 10.46 to the Company's Current Report  on Form 8-K dated October 12, 2001 and filed with the Commission on October  24, 2001 (File No. 1-8467). |
| 10.36       | Security Agreement, dated as of October 12, 2001, between the Company,  Bankers Trust Company as Administrative Agent, and U.S. Bank National  Association                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                     | Incorporated by reference to Exhibit 10.47 to the Company's Current Report  on Form 8-K dated October 12, 2001 and filed with the Commission on October  24, 2001 (File No. 1-8467). |
| 10.37       | Subsidiary Guarantor Security Agreement, dated as of October 12, 2001,  among Vision-Ease Lens, Inc., Vision-Ease Lens Azusa, Inc., Bankers Trust  Company, as Administrative Agent and U.S. Bank National Association.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                     | Incorporated by reference to Exhibit 10.48 to the Company's Current Report  on Form 8-K dated October 12, 2001 and filed with the Commission on October  24, 2001 (File No. 1-8467). |
| 10.38       | Amended and Restated Subsidiary Guarantee Agreement, dated as of October  12, 2001, made by Vision-Ease Lens, Inc. and Vision-Ease Lens Azusa, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                     | Incorporated by reference to Exhibit 10.49 to the Company's Current Report  on Form 8-K dated October 12, 2001 and filed with the Commission on October  24, 2001 (File No. 1-8467). |
| 10.39       | Second Amended and Restated Agreement, dated as of October 12, 201, made  by the Company to Bankers Trust Company, as Collateral Agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                     | Incorporated by reference to Exhibit 10.50 to the Company's Current Report  on Form 8-K dated October 12, 2001 and filed with the Commission on October  24, 2001 (File No. 1-8467). |
| 10.40       | Mortgage Assignment of Leases and Rents and Fixture Filing, dated as of  October 12, 2001, made by Vision-Ease Lens, Inc. to Bankers Trust Company, as  Administrative Agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                     | Incorporated by reference to Exhibit 10.51 to the Company's Current Report  on Form 8-K dated October 12, 2001 and filed with the Commission on October  24, 2001 (File No. 1-8467). |
| 10.41       | Lease, dated October 29, 1997, by and among the Company and Meridian  Crossings LLC (d/b/a Told Development Company).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                     | Incorporated by reference to Exhibit 10.3 to the Company's quarterly  Report on Form 10-Q for the quarter ended September 30, 1997 (File No. 1-8467). |
| 10.42       | First Amendment to Lease, dated March 5, 2002, between OTR, an Ohio  general partnership, acting as the duly authorized nominee of the Board of  the State Teachers Retirement System of Ohio and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                     | Filed electronically herewith. |
| 10.43       | Commercial Lease, dated September 26, 2000,  between Minnesota Logistics II, LLC and Vision-Ease Lens, Inc.
 
Filed electronically herewith.
21.1

Subsidiaries of the Registrant.

 

Filed electronically herewith.

23.1

Consent of Ernst & Young LLP, Independent Auditors.

 

Filed electronically herewith.

99.1

Press Release, dated November 19, 2001, announcing organizational changes.

 

Filed electronically herewith.

99.2

Press Release, dated January 21, 2002, announcing BMC to Report Fourth  Quarter Results and Host Conference Call on Tuesday, February 5, 2002.

 

Filed electronically herewith.

99.3

Press Release, dated January 28, 2002, announcing BMC completes sale of  Vision-Ease's Optifacts Division.

 

Filed electronically herewith.

99.4

Press Release, dated February 5, 2002, announcing fourth quarter and full  year 2001 results.

 

Filed electronically herewith.

99.5

Press Release, dated February 15, 2002, announcing quarterly dividend.

 

Filed electronically herewith.

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