BMC Industries, Inc 2000 Annual Report  BMC INDUSTRIES, INC. is a leading manufacturer of
high-volume precision products for the entertainment, optical, high-tech,
medical, defense and aerospace industries. Since its beginning in 1907, BMC has
earned a reputation of technological leadership in its product offerings and
customer service orientation. This pattern of excellence is exemplified by our
two business segments: Buckbee-Mears and Optical Products. The
Buckbee-Mears group is composed of both Mask and Micro-Technology Operations.
Mask Operations is the only independent North American manufacturer of aperture
maskssupplying them to nearly every major picture tube manufacturer
around the world. Aperture masks are a key component in color television and computer
monitor picture tubes and consist of thousands of precise, conically shaped
holes designed to focus an electron beam on the proper phosphor color stripe to
produce a crisp image. Micro-Technology Operations is a leading producer
of a variety of precision photo-etched and electroformed parts that require
fine features and tight tolerances. The
Optical Products group, operating under the Vision-Ease trade name, is a
leading designer, manufacturer and distributor of polycarbonate, glass and
hard-resin plastic eyewear lenses. Vision-Ease is the technology and market
leader in the polycarbonate lens segment. Polycarbonate lenses are thinner
and lighter than lenses made of other materials, while providing inherent UV
filtering and impact resistant characteristics. Vision-Ease provides the most
extensive product line in the ophthalmic lens industry to the nations retail
eyewear chains, wholesale laboratories and sun lens manufacturers. BMC
is headquartered in Minneapolis, Minnesota. The Companys common stock is
traded on the New York Stock Exchange under the symbol BMM. FINANCIAL
HIGHLIGHTS(in thousands, except per share amounts, percentages and ratios) Years
  Ended December 31
  2000
  1999
  1998
  1997
  1996Revenues
  $354,485
  $353,854
  $335,138
  $312,538
  $280,487Revenue
  growth
  0.2%
  5.6%
  7.2%
  11.4%
  9.8%Gross
  margin
  53,690
  48,262
  37,143
  68,070
  67,480Net
  earnings (loss)1
  14,900
  7,824
  (30,635)
  35,721
  35,101Diluted
  earnings (loss) per share1
  0.54
  0.28
  (1.13)
  1.25
  1.24Number
  of shares included in per share computation
  27,623
  27,710
  27,014
  28,530
  28,363Net
  cash provided by operating activities
  $36,637
  $33,485
  $26,948
  $14,667
  $20,786Net
  cash used in investing activities
  (10,655)
  (13,157)
  (122,427)
  (76,867)
  (54,662)Net
  cash (used in) provided by financing activities
  (24,458)
  (20,041)
  94,124
  62,126
  20,596Capital
  expenditures
  11,929
  13,157
  21,427
  75,110
  54,662Total
  debt
  145,016
  168,262
  189,195
  74,565
  17,989Stockholders
  equity
  146,798
  136,422
  133,257
  178,752
  144,108Total
  debt to capitalization ratio
  50%
  55%
  59%
  29%
  11%Return
  on average equity
  10.5%
  5.8%
  (19.6)%
  22.1%
  27.8%Book
  value per share
  $5.36
  $4.98
  $4.90
  $6.43
  $5.26Stock
  closing price at year end
  47⁄8
  47⁄8
  61⁄4
  165⁄16
  311⁄2Adjusted
  EBITDA2
  57,966
  49,226
  38,004
  65,616
  62,8541
  Includes
  charges in 1998 for impairment of long-lived assets ($26,700 after-tax) and
  acquired in-process research and development ($6,000 after-tax).2
  Adjusted
  EBITDA is defined as net income plus charges for impairment of long-lived
  assets, acquired in-process research and development, provision for income
  taxes, net interest expense and depreciation and amortization.  Adjusted EBITDA, while not a GAAP measure,
  is presented because the Company believes it is an indicator of its ability
  to incur and service debt, and its lenders, in determining compliance with
  financial covenants, use a similar formula.  TABLE OF
CONTENTS

Business Summaries

Letter to Shareholders

Historical Financial Summary

Managements Discussion and
Analysis

Consolidated Financial Statements

Notes to Consolidated
Financial Statements

Report of Independent Auditors

Selected Quarterly Financial Data

Shareholder Information

Corporate Information

Business Summaries

Buckbee-Mears
  
  Optical ProductsdescriptionBuckbee-Mears,
  through its Mask Operations, is a leading producer of aperture masks, a
  critical component of color television and computer monitor picture tubes.
  The Company is a leading supplier of masks to nearly every major picture
  tube manufacturer in the world. Buckbee-Mears, through its Micro-Technology
  Operations, also manufactures a variety of precision photo-etched and
  electroformed components that require fine features and tight tolerances.
  Products are manufactured at facilities in Cortland, New York, Müllheim,
  Germany, Tatabánya, Hungary and St. Paul, Minnesota.
  
  Optical Products, operating as Vision-Ease, offers the
  most extensive product line in the ophthalmic lens industry with full-line
  capabilities in polycarbonate, glass and hard-resin plastic. Vision-Ease is
  the market and technological leader in the design and manufacture of the
  worlds fastest growing lens materialpolycarbonate. Vision-Ease has established a laboratory network in Europe to
  drive polycarbonate sales into this growing market. The Company manufactures
  lenses at facilities located in Ramsey, Minnesota, Azusa, California and
  Jakarta, Indonesia. We also have laboratory operations in Müllheim, Germany
  and Brou, France.markets served   Color
  television aperture masks
  
     Retail customers including Afflelou,
  ColeNational, Costco Wholesale, Eye Care Centers of America, LensCrafters,
  U.S. Vision, Vista Eyecare and Wal-Mart   Computer
  monitor aperture masks
  
     Wholesale ophthalmic laboratories   Component
  parts used in the medical, electronic, telecommunication, automotive and
  filtration market segments
  
     Sun lens manufacturers, including Bollé,
  Luxottica and Oakley   Customers
  include Hitachi, Johnson & Johnson, Matsushita, Medtronic, Philips,
  Samsung, Siemens, Thomson, Toshiba and Xeroxcompetitive strengths   Continuous
  in-line manufacturing process
  
     Market leader in manufacturing polycarbonate
  lenses   Only
  independent North American aperture mask manufacturer
  
     Technological leader in higher value-added
  products such as polarizing and progressive lenses and advanced coatings   Significant
  participant in design of HDTV, widescreen (16:9 format) and flat tube
  aperture masks
  
     Rapidly growing brand equity with Tegra®,
  Outlook and SunRx®   Process
  excellence with a wide variety of metals, including steel, invar, copper,
  nickel, molybdenum, tungsten, titanium and eligiloy
  
     Reputation for high quality and innovative
  product development   Largest manufacturer of fused multi-focal glass
  lenses   ISO
  9002 certifiedoutlook   Consumers
  continue to shift to larger screen televisions and computer monitors
  
     Leverage polycarbonate strength and leadership
  position into domestic and international growth   New
  product introductions, such as HDTV, widescreen and flat screen televisions,
  multimedia and flat CRTs will contribute to future mask growth
  
     Consumers demanding improved lens performance,
  driving growth in polarizing and progressive lenses with advanced coatings   European
  manufacturing presence available to meet international growth opportunities
  
     Improve overall product cost position by
  accelerating capacity expansion in Southeast Asia   Miniaturization
  of component parts increases volume opportunities in a variety of markets
  
     Grow European polycarbonate sales through
  retailers utilizing international lab facilities

TO
OUR SHAREHOLDERS

YEAR 2000  SOLID RESULTS AND PLATFORM
FOR GROWTH BUILT

We
are pleased with the progress made, and the results achieved, at BMC in the
year 2000. Diluted earnings per share increased from 28 cents to 54 cents 
meeting external expectations and initiating what we believe will be an ongoing
pattern of year-over-year earnings growth. We generated operating cash flow of
$36.6 million (an increase of 9% over 1999) and reduced our debt from $168.3
million at year-end 1999 to $145.0 million at year-end 2000. Finally, while
sales were relatively flat over the prior year (up 3% when adjusted for the
impact of currency), sales in strategic products, as delineated in more detail
below, were up substantially in both businesses.

Beyond
the reported results, we made significant strides during the year in
constructing a platform for the Companys future growth. Organizational and
infrastructure investments were made in both businesses aimed at driving new
earnings and revenue streams. As will be described in more detail below for
each of the businesses, the year 2000 again demonstrated the long-term
sustainability of the growth drivers in our base businesses. We leave the year
2000 very confident in our ability to grow diversified earnings and revenue
streams using our core technologies.

BUCKBEE-MEARS
 ON THE THRESHOLD OF GROWTH IN NEW MARKETS

In
addition to manufacturing aperture masks, the Buckbee-Mears group is a leading
producer of precision photo-etched and electroformed components. To better
encapsulate the non-mask segment of Buckbee-Mears, we will refer to this
segment in this and future communications as Micro-Technology Operations or
Micro-Technology.

The year 2000 was the first year in
which the Mask and Micro-Technology segments of Buckbee-Mears operated as a
single combined unit  focused on growth in new markets. While the groups
operating earnings improvement (5%) on a year-over-year basis was modest, the
true underlying increase was masked by the transitional nature of our efforts
to drive new growth and investments related thereto. We had success in a number
of areas including the qualification and development of new products, the
optimization and relocation of our production processes, the qualification and
first volume sales of advanced television mask products and the expansion of
our mask automation efforts. While mask market conditions, particularly in the
computer monitor mask segment, continue to be challenging, we successfully
combated these forces with strong cost controls and operating efficiency
efforts combined with  a focus on
improving our product mix. While the Micro-Technology portion of the business
was a drag on earnings and sales growth, substantial steps were taken,
particularly with regard to the augmentation of leadership and the allocation
of human resources, in the effort to drive diversification opportunities. As we
enter the year 2001, we are confident that we will begin to show tangible
evidence of these investments and efforts.

Noteworthy
achievements of the Buckbee-Mears team over the course of the year included the
following:

   New Micro-Technology Production Line Started in
Cortland We successfully started a new production line for a
significant portion of current and expected Micro-Technology products at the
Cortland, New York facility. This start-up included the transfer of a number of
products currently manufactured in St. Paul, Minnesota. This line provides both
broader capabilities and lower costs for our Micro-Technology business.   Advanced TV Product Sales Growth  Sales
of BMCs flat, widescreen (16:9 format), HDTV and invar masks increased by 27%
over 1999 as a result of continued growth in these product segments and BMCs
growth in market share.   Automation Expansion  Over the course of
the year 2000 and into the early part of the first quarter of 2001, automatic
inspection was added to four of BMCs television mask manufacturing lines.
Moreover, the application of automatic inspection was expanded not only on
these lines but also on the two original monitor mask lines.   Mask Yield Performance/Operating Efficiencies
 Yield improvement was shown throughout the Buckbee-Mears production lines,
particularly on the monitor lines where improvement was critical to combating
price reduction pressures.   Restart of Cortland Line 1  As a result
of stabilizing market conditions in the TV segment and our ability
to drive our cost base down, we were able to restart Line 1 at Cortland in
the fourth quarter of 2000 to manufacture additive, medium-size commodity TV
masks.In addition to the above, a number
of key organizationalsteps were taken and
investments made to drive Micro-Technologys sales and earnings growth. The
leader of Research and Development for Buckbee-Mears relocated to St. Paul
and will focus on Micro-Technology product development
projects. A new leadership position for Micro-Technology sales and
marketing was created to focus on product sales opportunities for this segment.
The Micro-Technology product sales and product development engineering staffs
were also augmented over the course of the year. Finally, significant
investments were made in marketing studies aimed at identifying attractive
high-volume business segments.

In
2000, over 15% of Micro-Technologys revenues were attributable to products
developed within the past two years. Specific product areas in which new sales
were realized included components for fuel cells, optical network attenuators,
semiconductor packaging and medical devices. Considerable efforts were devoted
to two major new product development projects, which culminated in the signing
(in the first quarter of 2001) of production and licensing agreements with
Cordis Corporation, a Johnson & Johnson company, and Visteon Corporation
for the manufacture and sale of proprietary stents and advanced electronic
interconnect devices, respectively.

Each
of our base mask markets showed continued growth
in the year 2000. The direct-view television market grew at
a worldwide rate of 6%, continuing a 30+ year trend of consistent growth.
The jumbo category (which subsumes much of the flat, widescreen and HDTV
categories) grew in total by 13%  reflective of a consistent double-digit
compound growth rate over the last 20 years. We continue to be optimistic about
growth in the jumbo segment based upon the prospects for high-definition
digital signals, growth in pure flat designs and the growth in the use of the
widescreen format.

While
BMCs monitor mask sales contracted in the year 2000, this was largely due to a
reduction in average selling prices. Moreover, we made a conscious decision
over the course of the year to devote a portion of our monitor mask line time
to advanced television products. The monitor market continued to grow in the
year 2000, with unit sales increasing at a rate of 13%. We anticipate growth in
this segment to continue in the 5-10% range for the next 3-5 years. While this
segment has been subject to attack by LCD desktop monitors (currently 6% of the
PC monitor market), the pricing of LCD display units has been artificially depressed by a gross imbalance in supply
and demand for LCD panels, which may
cycle back to a pattern of increases given more normalized supply conditions.

Over
the last 10 years, Buckbee-Mears has enjoyed sporadic success in developing new
revenue streams. We have learned over time that we must maintain multiple,
parallel new product development efforts to sustain consistent growth because
the life cycle of new product streams is relatively limited (particularly
compared to the mask business). We believe that the broad trends in product
development, generally to smaller, more precise features, significantly favor
our etching and electroforming capabilities. We believe that this is
particularly the case in the filtration, medical, electronics and power
segments. At the same time, the Buckbee-Mears trade name enjoys an excellent
reputation worldwide and attracts a significant number of opportunities on a
passive basis. By coupling our trade reputation with an aggressive, proactive
communication of our capabilities to the design engineering communities in
the noted segments, we expect to create new high-volume opportunities. In
addition, we will be leveraging the capabilities and products that evolve in
the development projects described above with Cordis, Visteon and others.

Our
optimism about the future of Buckbee-Mears continues to be based upon our
ability to optimize the mask business and drive new product opportunities. Our
major initiatives going into the year 2001 will be, accordingly:

   Establish Diversified Micro-Technology Revenue
Streams Through the efforts described above, we expect over the
course of the year to be able to demonstrate our ability to generate new
Micro-Technology earnings and revenue streams.   Leverage Development Projects  Through
the development and production agreements described above, we have the
opportunity to not only pursue production opportunities with our partners, but
to leverage the technology that we have gained in our development efforts into
new product and customer arenas.   Grow Advanced TV Products Sales Base  A
major Mask optimization initiative for the year is to grow our portfolio of
advanced TV products both in terms of customers and types of products sold.   Expand the Impact of Automation/Improve Yields
 With four TV lines now enjoying the benefits of our proprietary automatic
inspection systems, we expect to be able to leverage these systems
progressively over time to eliminate more costs and simplify our
post-processing steps. In addition, we will continue to drive yield
improvement efforts on all production lines.VISION-EASE  IN PURSUIT OF MULTIPLE
GROWTH PATHS

Vision-Ease
showed a substantial increase in profitability on a year-over-year basis at the
same time that significant investments were being made in vehicles for future
earnings growth. While total divisional sales were only up 3% on a
year-over-year basis, our strategic product sales (high-end, value-added
products) were up 20% on a year-over-year basis. Our specifically targeted
premium prescription products grew dramatically on a year-over-year basis as
did SunSport, our plano polarizing product line, as described in more detail
below.

While
not visible in the financial results, significant effort and investment were
devoted to positioning Vision-Ease for growth in Europe and Latin America, in
our SunSport product line, and in our pursuit of new market channels.
Similarly, while we showed progress in product cost reduction, we expect to
show significantly more in the year 2001 with the movement of production to our
Asian facility and a clear definition of needed process and operating
efficiency improvements.

Key
achievements for Vision-Ease during the year 2000 included the following:

   Premium Products Sales Growth 
Vision-Ease sales of Tegra® coated polycarbonate lenses and Outlook
progressive polycarbonate lenses grew 176% in the year 2000 over 1999  as
Vision-Ease, for the first time in its history, began to make significant
inroads in the progressive lens segment. SunRx® revenues increased by 66% over
1999 as the market continued to be drawn to this high-performance product for
which Vision-Ease enjoys a proprietary technology position.   SunSport Growth  The SunSport business,
selling polarized polycarbonate lenses to premium sunwear manufacturers, also
showed dramatic growth of 64% over 1999  with customers in the
non-prescription, or plano, segment being drawn to the same polarizing
performance characteristics sought in the prescription segment.   Polycarbonate Production Rationalization/Jakarta
Start-Up  Over the course of the year, we optimized production
allocation between our Ramsey, Minnesota and Azusa, California production
facilities. In addition, we successfully initiated polycarbonate production at
our Jakarta, Indonesia facility with volume production achieved in
the fourth quarter.   European Product Qualifications and Infrastructure
Expansion  A significant portion of the year 2000 in Europe was
spent successfully qualifying our polycarbonate product line with a number of major European retailers. In
addition, we expanded our European sales and marketing infrastructure,
particularly in France where polycarbonate is growing very rapidly.   Glass Manufacturing Fully Moved to Jakarta
 Throughout the year 2000 and into the early part of the year 2001, we
successfully implemented a plan to transfer glass manufacturing completely to
our Jakarta operation from our St. Cloud, Minnesota facility.Another
major accomplishment during the year 2000 was the realignment of our sales and
marketing resources around channel, geographic and product segment objectives 
particularly in North America. Conjunctively, we have augmented the
resources devoted to those market segments showing significant growth. While
our plastic and glass business contracted during the year 2000 (largely due to
market factors in the case of glass), we are confident that this new
structure will ensure that adequate resources continue to be devoted to
non-strategic segments which continue to contribute significant profits and
revenues to Vision-Ease.

Our
new product development efforts during the year 2000 were a disappointment
relative to beginning of the year expectations. While we did not successfully
launch our proprietary polycarbonate photochromic product, we do continue to
expect to launch this product in 2001, and the product will have a variety of
attractive applications. Our launch of a finished multi-focal product line was
also delayed due to production difficulties and the need to devote press
capacity to conventional progressive lenses. We are, however, confident
that this product line will also be launched during the year 2001, and that
institutional learning from the development of this product will accelerate the
development of our wafer lamination system.

The
polycarbonate ophthalmic lens market continues to grow at extremely
attractive rates. The North American polycarbonate market segment grew at the
rate of 20% in 2000, adding to its string of 15+ years of growth at rates
in excess of 15%. Polycarbonate growth worldwide was roughly 20-22%, with
growth in Europe estimated at 24%. For obvious reasons, this continues to be a
very attractive segment and the principal focus of our strategic efforts.
Polycarbonate offers an unmatched combination of performance features (thin, lightweight,
impact resistant, UV absorptive and scratch resistant) and a modest price that
makes it extremely attractive to eyewear dispensers faced with strong
competitive pressures and the demands of managed care. Moreover, as the
industry as a whole moves to take advantage of opportunities presented by the
sunwear segment, particularly corrective sunwear, Vision-Ease is well
positioned with a polycarbonate product line that includes polarizing,
photochromic and tintable products. In sum, Vision-Ease enjoys very strong
underlying base market dynamics.

The
polarizing segment is illustrative of the growth opportunities available to
Vision-Ease  and is a segment where the Company enjoys a proprietary product
and technology leading position. Corrective polarizing lens sales in the U.S.
grew 28% in 2000, representing 20% of all prescription sun lenses sold in 2000.
Growth in plano polarizing polycarbonate lenses for premium sunwear has grown
at the compound rate of 20% since 1995. This growth for polarized products
is driven by several factors:

   The
ease of demonstrating the benefits of polarization to the patient/consumer;   The
need for the protection (impact resistance and UV filtering) of polycarbonate
in active lifestyles;   The
thinness and light weight of polycarbonate;   The ability to mold polycarbonate for extreme
designs; and   The
desire of retail sunwear makers to enhance their premium mix.Turning
to the future for Vision-Ease, this groups basic strategic mission is
comprised of three critical components:


   Driving
polycarbonate as the ophthalmic lens material of choice worldwide;   Moving
down the distribution channel and establishing a closer relationship with the
professional community both in Europe and on a worldwide basis by leveraging
our proprietary polycarbonate products and processes; and   Diversifying
our revenue streams both through non-ophthalmic optical products (like
SunSport lenses and reading glasses) as well as non-optical precision molded
products and components.In
pursuit of this mission, our major objectives for the year 2001 are as follows:

   Premium Product Growth  We expect to
continue to grow our Tegra®, Outlook and SunRx® product lines.   European Market Expansion  With the
product qualifications discussed above and the growth of polycarbonate
in the European market, we expect to show significant growth in our European operations over the course
of 2001.   SunSport
Expansion  Due to the factors described above, we expect to see
continued significant growth in polarized polycarbonate lens usage. Moreover,
we expect to add to the portfolio of products sold through our SunSport team.   Jakarta Polycarbonate Ramp-Up  Over the
course of the year, we expect to ramp up production of commodity polycarbonate
product at our Jakarta facility to substantial volumes.   Further Polycarbonate Geographic Expansion
 We expect to grow our polycarbonate lens sales outside of Europe and North
America through a focused effort over the course of the year aimed at Latin
America in particular.   Polycarbonate Cost Reduction  In addition
to the cost benefits realized in Jakarta polycarbonate volume production,
we expect to make significant inroads in reducing our domestic polycarbonate
product costs through yield improvement, automation and other measures over the
course of 2001.   Consolidate and Streamline Distribution Network
 Both as a cost control measure and as a means to better serve our
customers, we will be consolidating our distribution network over the course of
2001.Vision-Ease
continues to enjoy the luxury of a number of executable growth opportunities.
We expect clear evidence of our success on multiple fronts during 2001.


ORGANIZATIONAL DEVELOPMENT


A
dynamically evolving worldwide marketplace continues to place greater and
greater demands on our leaders and requires of them a broader and broader skill
set. We made significant progress over the course of the year on our previously
stated goal of improving the caliber of leadership at all levels throughout
BMC. Vision-Eases leadership group was dramatically enhanced by a combination
of internal promotions, internal transfers and external hires. We were
particularly fortunate to make high-quality new leadership hires in the areas
of polycarbonate operations, research and development, North American
professional relations, sales and in Europe. The Buckbee-Mears team was
significantly enhanced by internal promotions and transfers necessitated by the
merger of the Mask and Micro-Technology businesses. We are very pleased by the
manner in which affected individuals have met the challenge of their new
responsibilities. Finally, we were blessed at the corporate office with the
addition of an outstanding new Chief Financial Officer whose impact was felt
even in the portion of the year she spent on the job.

In
summary, despite very challenging hiring conditions, we are delighted with the
progress we have made in growing the BMC leadership team. We recognize,
however, the need to continue to build depth to achieve growth and the
multiple, parallel efforts required to sustain same. While it is difficult
for shareholders to have visibility to the true caliber and quality of
leadership at a given company, I can only say that I would be happy to
match this team against any other.

2000 AND BEYOND

After
major challenges to both of our base businesses in 1998 and 1999, we have
proven our ability to rebuild and revive these businesses and drive them to
substantial growth. In the case of the Buckbee-Mears mask business, we have
shown that we can optimize a business in the face of extremely strong
competitive challenges and difficult market conditions. We are presently
applying these same abilities to Vision-Ease to build world-class, highly
professional manufacturing and business processes that will enable substantial
cost savings and new product opportunities. Through the growth and optimization
of each of our base businesses, we are confident that we can significantly grow
our earnings. However, we recognize the necessity of meaningfully demonstrating
the ability to diversify our earnings streams into new high-growth
opportunities by leveraging our base capabilities. As hopefully has been
demonstrated by the comments that have preceded, we take this message very
seriously and have taken strong, multiple steps to ensure the proper allocation
of resources to drive our diversification initiatives. Diversification is a BMC
leadership team mission, which is imbedded in all of our goals and objectives.

As
we embark on our diversification efforts, we have more than adequate financial
resources to fulfill our strategic objectives. As noted above, we reduced our
debt by $23.3 million in 2000, as the organic cash-generating power of our
business grew over the course of the year. Over the last 24 months, we
have reduced our debt by $44.2 million while investing $25.1 million in our
businesses. We have the financial leverage available to drive our new business
growth initiatives.

Our
leadership team has been frustrated by the fact that our successes over the
last 12 months have generated a minimal impact on our stock value. We recognize
conjunctively, however, that we must achieve our diversification goals in
addition to showing sustained profitability growth in order to merit higher
valuation levels. As noted above, this team is committed to achieving those
goals.

CONCLUSION

We
are pleased with the results that we reported in the year 2000 and are even
more pleased with the progress we made in getting ourselves positioned for
substantial further growth in the year 2001 and beyond. As a consequence, we
believe that investment in BMC is well placed. To reinforce that point, over
the decade that concluded with the year 2000, and despite what we believe was a
disproportionate impact on our valuation resulting from the challenges faced in
the late nineties, BMC showed compound stock price appreciation of 17%,
compound earnings growth of 23% and compound sales growth of 7%. Despite our
best efforts, there is a certain amount of volatility that accompanies any
investment in a smaller company. However, we believe our historic track record
and our prospects for the future make us attractive to the long-term investor.
We appreciate your investment and ongoing support.

Sincerely,

/s/  Paul B. Burke

Paul B. Burke

Chairman and 
Chief Executive Officer

HISTORICAL
FINANCIAL SUMMARY(in
thousands, except per share amounts, percentages and ratios)

Years Ended December 31
  2000
  1999
  1998
  1997
  1996SUMMARY OF OPERATIONSRevenues
  $354,485
  $353,854
  $335,138
  $312,538
  $280,487Cost
  of products sold
  300,795
  305,592
  297,995
  244,468
  213,007Gross
  margin
  53,690
  48,262
  37,143
  68,070
  67,480Selling
  and administrative expenses
  22,552
  23,352
  20,675
  16,012
  15,033Impairment
  of long-lived assets
  
  
  42,800
  
  Acquired
  in-process research and development
  
  
  9,500
  
  Earnings
  (loss) before interest, other income and income taxes
  31,138
  24,910
  (35,832)
  52,058
  52,447Interest
  expense, net
  (12,833)
  (13,099)
  (13,374)
  (1,065)
  (280)Other
  income
  2,838
  1,036
  522
  209
  236Earnings
  (loss) before income taxes
  21,143
  12,847
  (48,684)
  51,202
  52,403Income
  tax (expense) benefit
  (6,243)
  (5,023)
  18,049
  (15,481)
  (17,302)Net
  earnings (loss)
  $14,900
  $7,824
  $(30,635)
  $35,721
  $35,101EARNINGS
  (LOSS) PER SHAREBasic
  $0.54
  $0.29
  $(1.13)
  $1.30
  $1.29Diluted
  0.54
  0.28
  (1.13)
  1.25
  1.24NUMBER
  OF SHARES INCLUDED IN PER SHARE COMPUTATIONBasic
  27,396
  27,299
  27,014
  27,583
  27,268Diluted
  27,623
  27,710
  27,014
  28,530
  28,363CASH FLOWCash
  dividends per share
  $0.06
  $0.06
  $0.06
  $0.06
  $0.0525Depreciation
  and amortization expense
  23,990
  23,280
  21,014
  13,349
  10,171Net
  cash provided by operating activities
  36,637
  33,485
  26,948
  14,667
  20,786Capital
  expenditures
  11,929
  13,157
  21,427
  75,110
  54,662FINANCIAL
  POSITIONWorking
  capital
  $95,322
  $88,833
  $94,971
  $74,914
  $41,354Property,
  plant and equipment, net
  139,499
  151,238
  162,594
  182,382
  123,845Total
  assets
  373,804
  383,553
  399,465
  319,407
  232,969Total
  debt
  145,016
  168,262
  189,195
  74,565
  17,989Stockholders
  equity
  146,798
  136,422
  133,257
  178,752
  144,108STATISTICS
  AND RATIOSCurrent
  ratio
  2.5
  2.5
  2.7
  2.6
  1.8Total
  debt to equity ratio
  1.0
  1.2
  1.4
  0.4
  0.1Earnings
  (loss) before interest, other income and income taxes, as a percentage of
  revenues
  8.8%
  7.0%
  (10.7)%
  16.7%
  18.7%Return
  on average equity
  10.5%
  5.8%
  (19.6)%
  22.1%
  27.8%Book
  value per share
  $5.36
  $4.98
  $4.90
  $6.43
  $5.26

MANAGEMENTS DISCUSSION AND ANALYSIS

SUMMARY

BMC
Industries, Inc. is one of the worlds largest manufacturers of aperture masks
for color picture tubes used in televisions and computer monitors and a leading
producer of precision photo-etched metal and electroformed parts. The Company
is also a leading producer of polycarbonate, glass and plastic eyewear lenses.
The Company has two business segments; Buckbee-Mears, made up of Mask
Operations and Micro-Technology Operations, and Optical Products (operating as
Vision-Ease).

Net
revenues of $354.5 million for 2000 represent a slight increase over the $353.9
million in 1999. Excluding the impact from foreign currency exchange rate
changes during the year, total revenues would have increased 3% over 1999
revenues. The revenue growth during 2000 was provided by Optical Products due
to growth in sales of high-end, value-added products (including polycarbonate,
progressive and polarizing sun lenses), partially offset by declines in glass
and plastic lens sales. Buckbee-Mears group sales decreased 1% in 2000.
Excluding the impact of foreign currency translation, the Buckbee-Mears group
revenues would have increased 3% over 1999.

Net
earnings and diluted earnings per share for 2000 were $14.9 million and $0.54,
respectively, compared to net earnings and diluted earnings per share of $7.8
million and $0.28, respectively, for 1999.

RESULTS OF OPERATIONS

The
following discussion and analysis examines the operating results of the
Companys two business segments. As used herein, operating profit refers to
operating profit before charges for the impairment of long-lived assets and acquired
in-process research and development (IPR&D), administrative expense and
interest, as shown in Note 12 to the Consolidated Financial Statements 
Segment Information.

BUCKBEE-MEARS
REVENUES AND 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% from 1999. Excluding the impact of foreign currency translation,
revenues would have increased 3% over 1999. Sales of large (24-29 inches) and
jumbo (30 inches and larger) entertainment masks were up 11% and 10%,
respectively, over 1999 levels as a result of increased demand, particularly in
Europe, for flat and widescreen (16:9 format) televisions. In addition to the
shift to larger sizes, the group experienced a favorable sales mix shift with
invar (nickel alloy) entertainment mask sales up 25% and standard AK steel
entertainment mask sales down 6%. Computer monitor mask sales decreased 10%
compared to 1999, largely offsetting the higher entertainment mask sales. Sales
of monitor masks were negatively impacted by year-over-year price reductions
and the Companys decision to utilize monitor mask production capacity for HDTV
and other higher-margin entertainment products, thus displacing monitor
volumes. Micro-Technology Operations revenue declined 22% from 1999 as the
Company has continued to redirect the efforts of this group toward new,
strategic markets.

Operating
profit for Buckbee-Mears was $25.1 million for 2000, an increase of $1.2
million from 1999. The operating margin was 12% of revenues for 2000 compared
to 11% for 1999. The increase in operating profit is primarily due to product
cost reductions derived from yield improvements and automated inspection
equipment installed in 2000, and the
favorable sales mix shift to larger sized and invar steel entertainment
masks. In addition, Mask Operations restarted an idle entertainment mask line
at the Companys Cortland, New York, facility at the end of the year which
provided some additional absorption of the groups fixed overhead. Partially
offsetting these favorable variances were continued pricing pressures in the
mask business, particularly for monitor masks, and lower profits from
Micro-Technology Operations. The group continued to invest in 2000 in the
engineering and sales and marketing infrastructure needed to drive future
growth in new Micro-Technology products and market segments. The effect of
foreign currency translation had a nominal impact on the groups operating
profit.

Comparison
of 1999 and 1998.Revenues
of Buckbee-Mears were $217.9 million for 1999, an increase of $5.8 million or
3% over 1998. The increase was primarily attributable
to incremental monitor mask revenue generated from a monitor mask
production line in Cortland that was restarted in January 1999, partially
offset by lower entertainment mask and
Micro-Technology revenues. Total year 1999 computer monitor mask sales
were $64.1 million, an increase of 74% over 1998. Sales of invar entertainment
masks were up 14% compared to total year 1998 sales. Offsetting these
increases, AK steel entertainment mask sales were down 20% compared to 1998
sales, and other Micro-Technology Operations revenue declined 17% from 1998.

Operating
profit for Buckbee-Mears was $23.9 million for 1999, an increase of $21.9
million from 1998. Operating margin was 11% of revenues for 1999 compared to 1%
for 1998. The increase in operating margin was due primarily to the increase in
monitor mask and invar entertainment mask revenue, partially offset by lower AK
steel entertainment mask revenue, pricing pressures in the mask business  particularly
pricing for monitor masks  and lower sales from Micro-Technology
products. The effect of foreign currency translation had a nominal impact on
the groups operating profit.

OPTICAL PRODUCTS
REVENUES AND OPERATING PROFIT

Comparison
of 2000 and 1999.The
Optical Products group sales were $139.6 million for 2000, an increase of $3.6
million or 3% from 1999. The increase was due to a 20% increase in sales of
high-end, value-added products (which the Company defines as polycarbonate,
progressive and 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 Outlook progressive polycarbonate lenses in
2000 grew 176% over 1999. Sales of the Companys polarized polycarbonate sun
lenses also grew significantly in 2000 with SunRx® (prescription) and SunSport
(non-prescription or plano) revenues in 2000 increasing 66% and 64%,
respectively, over sales in 1999.

Partially
offsetting the increases reported for high-end products were declines in glass
and plastic lens sales. Sales of plastic product decreased 18% and glass sales
decreased 17%, due primarily to overall market dynamics in these product
categories and difficulties the Company experienced in obtaining plastic lenses
from its OEM suppliers.

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

Comparison
of 1999 and 1998.Optical
Products group revenues were $136.0 million for 1999, an increase of $12.9
million or 11% from 1998. The increase was primarily due to the incremental
revenue contributed from the Orcolite acquisition, which was completed in May
1998. High-end, value-added product sales increased 23% and accounted for 55%
of total Optical Products group revenue in 1999 compared to 53% in 1998. On a
pro forma basis, assuming the Orcolite acquisition had occurred at the
beginning of 1998, Optical Products revenue in 1999 decreased 1%. Sales of
high-end products increased 3% over the pro forma Vision-Ease revenues for the
same period.

Sales
of mid-range and commodity plastic product decreased 8% due primarily to the
Companys reduced emphasis on plastic lens products and increased price
competition in the plastic lens segment. On a pro forma basis, plastic product
sales declined 16%. Glass product sales declined 7% due to the continued
contraction of worldwide glass lens sales.

Operating
profit of Optical Products was $5.7 million for 1999, a decrease of $13.9
million or 71% from 1998. Operating margin was 4% of net sales for 1999
compared to 16% in 1998. The 1999 operating margin decline was due primarily to
increased polycarbonate product costs, charges for product discontinuances and
phase-outs related to product line integration, aggressive product pricing on
glass, plastic and low-end polycarbonate lenses, new lens product development
costs and increased polycarbonate product promotions.

SELLING EXPENSES

Selling
expenses were $17.2 million, $18.7 million and $15.5 million or 4.8%, 5.3% and
4.6% of revenues for 2000, 1999 and 1998, respectively. The decrease in 2000 is
due primarily to decreases in the Optical Products group as a result of
expanded marketing efforts in 1999 on high-end products as well as the
consolidation of certain sales and marketing functions in 2000. The increase in
1999 is due primarily to incremental costs associated with the Orcolite
acquisition and expanded sales and marketing costs related to the promotion of
the Optical Products groups branded product lines.

ADMINISTRATIVE EXPENSES

Administrative
expenses were $5.4 million, $4.7 million and $5.2 million or 1.5%, 1.3% and
1.5% of revenues for 2000, 1999 and 1998, respectively. The increase in
administrative expenses in 2000 is due primarily to performance-based employee
incentive benefits tied to the Companys earnings and also due to expenses
related to filled positions which were open in 1999. The decrease
in administrative expenses from 1998 to 1999 is due primarily to several
open administrative positions in 1999.

INTEREST EXPENSE (INCOME)

Interest
expense was $13.1 million, $13.4 million and $13.5 million for 2000, 1999 and
1998, respectively. Interest income was $0.3 million, $0.3 million and $0.2
million for 2000, 1999 and 1998, respectively. Interest expense in 2000 was
down slightly from 1999 due to lower debt levels, partially offset by higher
interest rates in the second half of the year. 1999 interest expense was
consistent with 1998 due to flat average debt levels and interest rates
throughout the year compared to 1998.

INCOME TAXES

The
Companys effective tax rate was 30%, 39% and 37% in 2000, 1999 and 1998,
respectively. The 2000 tax rate was lower due to the Companys domestic and
foreign earnings mix, ongoing tax initiatives and a statutory rate reduction in
Germany. The 1999 tax rate was impacted by a non-recurring tax charge related
to the settlement of an audit during the year. In addition, the 1999 tax rate
was higher than the 1998 rate due to an earnings mix shift to higher taxed
foreign-based earnings in 1999.

Realization
of the Companys net deferred tax asset is dependent on future taxable income.
The Company performed a detailed analysis and believes that it is probable that
such assets will be realized based on the Companys estimate of future taxable
income and the expected timing of temporary difference reversals.

SEASONALITY

The
Companys earnings have been generally lower in the first and third quarters
due to maintenance shutdowns at the Companys mask production facilities during
those periods. Also, the seasonality of end products in several markets
(televisions, computer monitors and ophthalmic lenses) affects the Companys
annual earnings pattern.

MASK OPERATIONS
EXTENDED SHUTDOWN

During
the third quarter of 1998, the Company shut down three manufacturing lines (two
entertainment mask and one computer monitor mask) at the Companys Cortland
facility for an extended period of time. These shutdowns were done in
conjunction with the Companys normal summer maintenance shutdowns to avoid
additional ramp-up costs. One entertainment mask line resumed operation in the
fourth quarter 1998. The computer monitor mask line was restarted in late
January 1999 and the remaining entertainment mask line was restarted in the
fourth quarter of 2000.

DIVIDENDS

In
2000, the Company continued payment of cash dividends to shareholders. Cash
dividends of one and one-half cents per share were declared in each quarter of
2000. The Company currently expects to continue dividend payments in 2001.

ENVIRONMENTAL

The
Companys operations are subject to federal, state, local and foreign environmental
laws and regulations. Under the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended (CERCLA or Superfund), the Company has been designated as a
potentially responsible party (PRP) by the United States Environmental
Protection Agency with respect to certain waste sites at which the Company may
have had direct or indirect involvement. Similar designations have been made by
some state environmental agencies under applicable state environmental laws.
Such designations are made regardless of the extent of the Companys
involvement. Such designations have been made by the filing of
a complaint, the issuance of an administrative directive or order, or the
issuance of a notice or demand letter. These actions are in various stages of
administrative or judicial proceedings. They include demands for recovery of
past governmental costs and/or for future investigative or remedial actions. In
many cases, the dollar amount of site costs or the Companys portion of site
costs is not specified. In most cases, however, the Company has been designated
a de minimis party and claims have been asserted against a number of other
entities for the same recovery or other relief as was asserted against the
Company. The Company is currently participating in eight environmental
investigations and/or remedial actions in which final settlement has not been
reached.

To
the extent possible, and with the amount of information available at this time,
the Company has evaluated its responsibility for costs and related liability
with respect to the above investigations and/or remedial actions, and has
recorded reserves for such liability in accordance with generally accepted
accounting principles. It is the Companys opinion that the Companys liability
with respect to these matters should not have a material adverse effect on the
financial position or the results of operations of the Company. 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 defense and remedial costs; the
probable costs to be paid by the other potentially responsible parties; total
projected remedial costs, to the extent known; existing technology; and
currently enacted laws and regulations. A portion of the costs and related
liability for these matters has been or will be covered by insurance or third
parties.

FINANCIAL POSITION AND LIQUIDITY

Working
capital was $95.3 million and the current ratio was 2.5 at December 31, 2000,
compared to $88.8 million and a current ratio of 2.5 at December 31, 1999.
Accounts receivable balances increased $3.6 million compared to 1999 due
primarily to a higher level of mask sales in the last month of 2000. Inventory
levels were even with 1999. Accounts payable and other liabilities increased
primarily due to extended payment terms with certain vendors at Buckbee-Mears
and a higher level of expense accruals at the end of 2000 compared to 1999.

At
December 31, 2000, the Company had $145.0 million in debt and the ratio of
total debt to total equity was 1.0. At December 31, 1999, the Company had
$168.3 million in debt and the ratio of total debt to total equity was 1.2. The
$23.3 million reduction in debt during 2000 was due primarily to improved
working capital utilization and cash generated from operations.

In
2000, the Company generated $36.6 million of cash flow from operating
activities. The cash generated from operating activities was used primarily for
debt reduction totaling $23.3 million and property, plant and equipment
additions totaling $11.9 million. The Company generated $33.5 million of cash
flow from operating activities in 1999, which was used primarily for debt
reduction totaling $20.9 million and property, plant and equipment additions
totaling $13.2 million. In 1998, the Company generated $26.9 million of cash
flow from operating activities and $94.1 million from financing activities,
primarily through incremental debt. The cash generated from operating and
financing activities in 1998 was used primarily for property, plant and
equipment additions totaling $21.4 million and the cash acquisition of Orcolite
for $101.0 million.

Capital
spending in 2001 is planned to be approximately $20.0 million. It is currently
anticipated that 2001 capital expenditures will be financed primarily with
funds from operations.

As
of December 31, 2000, the Company had a $220.0 million domestic secured credit
facility with a syndicate of banks. There was $143.1 million outstanding under
this facility at December 31, 2000. The Companys German subsidiary maintains
short-term and long-term credit facilities with available credit of $13.2
million at December 31, 2000. The Company currently believes that internally
generated funds and unused financing sources will be adequate to meet the
Companys financing requirements for 2001.

MARKET RISK

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

To
manage the volatility relating to these exposures, the Company utilizes various
derivative instruments, including foreign currency forward-exchange contracts
and cross-currency swaps. The cross-currency swaps are accounted for under
mark-to-market accounting.

At
December 31, 2000 and 1999, the Company had approximately 19.8 million DM and
11.0 million DM, respectively, of outstanding foreign currency forward-exchange
contracts to exchange U.S. dollars for German marks at a set exchange rate. In
addition, at December 31, 2000, the Company had approximately 15 billion rupiah
of outstanding foreign currency forward-exchange contracts to exchange U.S.
dollars for Indonesian rupiah at a set exchange rate. There were no outstanding
foreign currency forward-exchange contracts for the rupiah at December 31,
1999. At December 31, 2000, the Companys German subsidiary had approximately
$5.9 million of outstanding foreign currency forward-exchange contracts to sell
U.S. dollars for German marks at a set exchange rate. There were no outstanding
foreign currency forward-exchange contracts for the U.S. dollar
at December 31, 1999.

In
August 1999, the Company entered into a cross-currency swap that provided for
the Company to swap a total of $10.0 million of notional debt for the
equivalent amount of Japanese yen-denominated debt. Under this swap, the
Company also effectively swapped a floating U.S. dollar-based interest rate for
a floating Japanese yen-based interest rate. Under mark-to-market accounting,
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 swap agreement. This swap
agreement was closed out in May 2000. The Company does not currently have any
cross-currency swaps outstanding, but continually monitors its foreign currency
position.

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

In
October and November 1998, the Company entered into cross-currency swaps which
provided for the Company to swap a total of $20.0 million of floating
notional debt for the equivalent amount of floating Japanese yen-denominated
debt. These swap contracts were settled in November 1998, resulting in a gain
of $0.9 million, which was recorded as Other Income.

The
Company experiences foreign currency gains and losses, which are reflected on
the Companys Statements of Operations, due to the strengthening and weakening
of the U.S. dollar against the currencies of the Companys foreign subsidiaries
and the resulting effect on the valuation of the inter-company and other
accounts. The net exchange gain or loss was not material in 2000 or 1999. The
Company anticipates that it will continue to incur exchange gains and losses
from foreign operations in the future.

The
Companys net investment in foreign subsidiaries with non-U.S. dollar functional currency was $27.6 million and
$28.8 million at December 31, 2000 and 1999, respectively, translated into U.S.
dollars at year-end exchange rates. The potential loss in value resulting from
a hypothetical 10% change in foreign currency exchange rates is $2.5 million
and $2.6 million in 2000 and 1999, respectively. The loss, if incurred, would
be recorded as a charge to Accumulated Other Comprehensive Income (Loss).

During
2000 and 1999, the U.S. dollar strengthened against the DM. A weaker dollar
generally has a positive impact on overseas results because foreign
currency-denominated earnings translate into more U.S. dollars; a stronger dollar
generally has a negative translation effect. However, a significant component
of our overseas revenue is U.S. dollar based, somewhat mitigating this effect.
As a result, the effect of the change in exchange rates for 2000 and 1999 did
not have a material impact on net earnings.

InterestSubstantially
all of the Companys debt and associated interest expense is sensitive to
changes in the level of interest rates. To mitigate the impact of fluctuations
in interest rates, the Company enters into interest rate swaps to hedge the
exposure of a portion of its floating-rate debt. The Companys primary interest
rate exposure is U.S., and to a lesser extent DM/Euro and yen-based interest
rates.

At
various dates during 1998, 1999 and 2000, the Company entered into multiple
interest rate swap agreements to provide for the Company to swap a variable
interest rate for fixed interest rates ranging from 6.2% to 7.1%. At December
31, 2000, $75.0 million of these swaps remained outstanding with the swaps
expiring at various dates ranging from January 2001 to June 2003.

A
hypothetical 100 basis point increase in interest rates would result in a $0.7
million and $0.8 million adverse impact on interest expense in 2000 and 1999,
respectively.

IMPACT OF YEAR 2000

The
Company is not aware of any material problems resulting from Year 2000 issues,
either with its products, its internal systems or the products and services of
third parties.

NEW ACCOUNTING STANDARDS

SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, was
adopted by the Company in 1999, and SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities  an Amendment of FASB
Statement No. 133, was adopted by the Company in 2000. See Note 6 to the
Consolidated Financial Statements  Derivative Instruments and Hedging
Activities. The adoption of these new statements did not have a material
effect on results of operations or financial position.

In
December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB
101). SAB 101, as amended, summarizes some of the SECs views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company has reviewed the rule requirements and determined
compliance therewith. SAB 101 was effective for the Company in the fourth
quarter of 2000 and did not have a material effect on the Companys operations
or financial position.

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. The euro
trades on currency exchanges and is available for non-cash transactions. From
January 1, 1999 through January 1, 2002, each of the participating countries is
scheduled to maintain its national (legacy) currency as legal tender for goods
and services. Beginning January 1, 2002, new euro-denominated bills and coins
will be issued, and legacy currencies will be withdrawn from circulation no
later than July 1, 2002. The Companys foreign operating subsidiaries that will
be affected by the euro conversion have established plans to address the
business issues raised, including the competitive impact of cross-border price
transparency. It is not anticipated that there will be any near-term business
ramifications; however, the long-term implications, including any changes or
modifications that will need to be made to business and financial strategies,
are still being reviewed. From an accounting, treasury and computer system
standpoint, the impact from the euro currency conversion is not expected to
have a material impact on the financial position or results of operations
of the Company.

CAUTIONARY STATEMENTS

Certain
statements included in this Managements Discussion and Analysis by the Company
or its representatives, as well as other communications, including its filings
with the SEC, reports to shareholders, news releases and presentations to
securities analysts or investors, contain forward-looking statements made in
good faith by the Company pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements relate to non-historical information and include, without
limitation, any statement that may predict, forecast, indicate or imply future
results, performance or achievements. The Company wishes to caution the reader
not to place undue reliance on any such forward-looking statements. These
statements are not guarantees of future performance and are subject to a number
of risks and uncertainties detailed from time to time in reports filed by the
Company with the SEC, including Forms 10–Q
and 10-K, that could cause actual results or outcomes to differ
materially from those presently anticipated or projected and include, among
others; further mask and ophthalmic lens price declines, particularly for
computer monitor masks, and imbalances of supply and demand; slowdown in growth
of high-end products; rising raw material and chemical costs; ability to
improve operating and manufacturing efficiencies; ability to meet customer new
product qualifications; consumer demand for direct-view high-definition
television and digital receivers; competition with alternative technologies and
products, including laser surgery for the correction of visual impairment and
liquid crystal, plasma, projection and other types of visual displays; ability
to implement the Optical Products groups initiatives in strategic
polycarbonate marketing; ability to grow sales of polycarbonate products both
domestically and abroad, including growth in European sales through the
operation of processing laboratories; new product development, introduction and
acceptance; cost reduction and reorganization efforts; continued slowdown for
Micro-Technology Operations; ability to diversify Micro-Technology customer and
product base and partner with new and existing Buckbee-Mears customers or
transition development relationships into full-scale production; the effect of
regional or global economic slowdowns; adjustments to inventory valuations;
liability and other claims asserted against BMC; negative foreign currency
fluctuations; and ability to recruit and retain key personnel. These factors
should not, however, be considered an exhaustive list. The Company does not
undertake the responsibility to update any forward-looking statement that may
be made from time to time by or on behalf of the Company. Investors should also
be aware that while the Company does, from time to time, communicate with
securities analysts, it is against BMCs policy to disclose to them any
material non-public information or other confidential commercial information
prior to disclosure of such information by means designed to broadly
disseminate such information to all
investors. Accordingly, shareholders should not assume that the Company
agrees with any statement or report issued by any analyst irrespective of the
content of the statement or report. In addition, BMC does not confirm financial
forecasts or projections issued by others. Thus, to the extent that reports
issued by securities analysts contain any projections, forecasts or opinions,
such reports are not the responsibility of BMC.

CONSOLIDATEDSTATEMENTS OF OPERATIONS(in thousands, except per share amounts)

Years
  Ended December 31
  2000
  1999
  1998Revenues
  $354,485
  $353,854
  $335,138Cost
  of products sold
  300,795
  305,592
  297,995Gross
  margin
  53,690
  48,262
  37,143Selling
  expense
  17,163
  18,650
  15,496Administrative
  expense
  5,389
  4,702
  5,179Impairment
  of long-lived assets
  
  
  42,800Acquired
  in-process research and development
  
  
  9,500Income
  (loss) from operations
  31,138
  24,910
  (35,832)Other
  income and (expense)Interest
  expense
  (13,115)
  (13,376)
  (13,537)Interest
  income
  282
  277
  163Other
  income
  2,838
  1,036
  522Earnings
  (loss) before income taxes
  21,143
  12,847
  (48,684)Income
  tax expense (benefit)
  6,243
  5,023
  (18,049)Net
  earnings (loss)
  $14,900
  $7,824
  $(30,635)Earnings
  (loss) per shareBasic
  $0.54
  $0.29
  $(1.13)Diluted
  0.54
  0.28
  (1.13)Number
  of shares included in per share computationBasic
  27,396
  27,299
  27,014Diluted
  27,623
  27,710
  27,014See Notes to Consolidated Financial Statements.CONSOLIDATED BALANCE
SHEETS(in thousands)

December 31
  2000
  1999ASSETSCurrent
  AssetsCash
  and cash equivalents
  $2,290
  $1,146Trade
  accounts receivable, less allowances of $2,863 and $3,374
  45,645
  42,025Inventories
  82,015
  82,312Deferred
  income taxes
  17,954
  11,588Other
  current assets
  11,455
  12,580Total
  current assets
  159,359
  149,651Property,
  plant and equipment, net
  139,499
  151,238Deferred
  income taxes
  4,389
  9,761Intangible
  assets, net
  65,180
  68,232Other
  assets, net
  5,377
  4,671Total
  assets
  $373,804
  $383,553LIABILITIES
  AND STOCKHOLDERS EQUITYCurrent
  LiabilitiesShort-term
  borrowings
  $1,206
  $2,303Accounts
  payable
  33,939
  30,342Accrued
  compensation and benefits
  14,465
  12,909Income
  taxes payable
  6,374
  8,093Other
  current liabilities
  8,053
  7,171Total
  current liabilities
  64,037
  60,818Long-term
  debt
  143,810
  165,959Other
  liabilities
  17,080
  18,229Deferred
  income taxes
  2,079
  2,125Stockholders
  EquityCommon
  stock (shares issued of 27,399 and 27,370)
  49,240
  49,077Retained
  earnings
  105,876
  92,620Accumulated
  other comprehensive income (loss)
  (6,669)
  (3,495)Other
  (1,649)
  (1,780)Total
  stockholders equity
  146,798
  136,422Total
  liabilities and stockholders equity
  $373,804
  $383,553See Notes to Consolidated Financial Statements.





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY(in thousands, except per share amounts

Common
  Stock
  Retained
  Earning
  Accumulated
  Other
  Comprehensive
  Income (Loss)
  Other
  TotalYears Ended December 31, 2000, 1999 and 1998BALANCE AT DECEMBER 31, 1997
  $62,263
  $118,693
  $(1,217)
  $(987)
  $178,752Comprehensive
  Loss:Net
  loss
  
  (30,635)
  
  
  (30,635)Foreign
  currency translation adjustments
  
  
  2,330
  
  2,330Total
  comprehensive loss
  
  
  
  
  (28,305)Repurchase
  of 1,000 shares of Company stock
  (16,636)
  
  
  
  (16,636)Exercise
  of options, including tax benefit
  2,048
  
  
  
  2,048Restricted
  stock grants, net of forfeitures and including tax benefits
  39
  
  
  
  39Net
  employee repayments (loans) for exercise of stock options
  
  
  
  (1,019)
  (1,019)Cash
  dividends declared  $0.06 per share
  
  (1,622)
  
  
  (1,622)BALANCE AT DECEMBER 31, 1998
  47,714
  86,436
  1,113
  (2,006)
  133,257Comprehensive
  Income:Net
  earnings
  
  7,824
  
  
  7,824Foreign
  currency translation adjustments
  
  
  (4,577)
  
  (4,577)Loss
  on derivative instruments
  
  
  (31)
  
  (31)Total
  comprehensive income
  
  
  
  
  3,216Exercise
  of options, including tax benefit
  1,153
  
  
  
  1,153Restricted
  stock grants, net of forfeitures and including tax benefits
  210
  
  
  
  210Net
  employee repayments (loans) for exercise of stock options
  
  
  
  226
  226Cash
  dividends declared  $0.06 per share
  
  (1,640)
  
  
  (1,640)BALANCE AT DECEMBER 31, 1999
  49,077
  92,620
  (3,495)
  (1,780)
  136,422Comprehensive
  Income:Net
  earnings
  
  14,900
  
  
  14,900Foreign
  currency translation adjustments
  
  
  (2,027)
  
  (2,027)Loss
  on derivative instruments
  
  
  (1,147)
  
  (1,147)Total
  comprehensive income
  
  
  
  
  11,726Exercise
  of options, including tax benefit
  15
  
  
  
  15Restricted
  stock grants, net of forfeitures and including tax benefits
  148
  
  
  
  148Net
  employee repayments (loans) for exercise of stock options
  
  
  
  131
  131Cash
  dividends declared  $0.06 per share
  
  (1,644)
  
  
  (1,644)BALANCE AT DECEMBER 31, 2000
  $49,240
  $105,876
  $(6,669)
  $(1,649)
  $146,798Common Stock: 99,000 shares of voting common stock without
par value authorized; 27,399, 27,370 and 27,173 shares issued and outstanding
at December 31, 2000, 1999 and 1998, respectively.

Undesignated Stock: 500 shares authorized, of which 200
shares were designated as Series A Junior Participating Preferred Shares on
June 30, 1998 in connection with the Companys adoption of a Share Rights Plan.
The Board of Directors is authorized to designate the name of each class or
series of the undesignated shares and to set the terms thereof (including,
without limitation, terms with respect to redemption, dividend, liquidation,
conversion and voting rights and preferences).

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)

Years Ended December 31
  2000
  1999
  1998CASH FLOWS FROM OPERATING ACTIVITIESNet
  earnings (loss)
  $14,900
  $7,824
  $(30,635)Adjustments
  to reconcile net earnings (loss) to net cash provided by operating activitiesDepreciation
  and amortization
  23,990
  23,280
  21,014Gain
  on sale of property and equipment
  (443)
  
  Impairment
  of long-lived assets
  
  
  42,800Acquired
  in-process research and development
  
  
  9,500Deferred
  income taxes
  (983)
  (644)
  (10,665)Other
  non-cash income and expense items
  
  (4)
  (933)Decrease (increase) in assetsTrade
  accounts receivable
  (4,235)
  (4,475)
  (2,621)Inventories
  (1,084)
  (2,252)
  (1,930)Other
  current assets
  1,106
  1,762
  (616)Other
  noncurrent assets
  (835)
  538
  3,155Increase (decrease) in liabilitiesAccounts
  payable
  4,033
  3,029
  (560)Income
  taxes payable
  (1,387)
  4,972
  581Accrued
  expenses and other current liabilities
  2,767
  (2,685)
  (1,787)Other
  noncurrent liabilities
  (1,192)
  2,140
  (355)Net
  cash provided by operating activities
  36,637
  33,485
  26,948CASH
  FLOWS FROM INVESTING ACTIVITIESAdditions
  to property, plant and equipment
  (11,929)
  (13,157)
  (21,427)Business
  acquisitions, net of cash acquired
  (1,219)
  
  (101,000)Proceeds
  from sale of property and equipment
  2,493
  
  Net
  cash used in investing activities
  (10,655)
  (13,157)
  (122,427)CASH
  FLOWS FROM FINANCING ACTIVITIESDecrease
  (increase) in short-term borrowings
  (959)
  845
  723Decrease
  (increase) in long-term debt
  (22,149)
  (20,839)
  110,601Common
  stock issued, including tax benefit
  163
  1,363
  2,087Common
  stock repurchased
  
  
  (16,636)Cash
  dividends paid
  (1,644)
  (1,636)
  (1,632)Net
  employee repayments (loans) for exercise of stock options
  131
  226
  (1,019)Net
  cash (used in) provided by financing activities
  (24,458)
  (20,041)
  94,124Effect
  of exchange rate changes on cash and cash equivalents
  (380)
  (169)
  Net
  increase (decrease) in cash and cash equivalents
  1,144
  118
  (1,355)Cash
  and cash equivalents at beginning of year
  1,146
  1,028
  2,383Cash
  and cash equivalents at end of year
  $2,290
  $1,146
  $1,028See Notes to Consolidated Financial Statements.

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

1.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

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

Revenue
Recognition Revenue is recognized
upon shipment of product to the customer and when persuasive evidence of an
arrangement exists, the price to the buyer is fixed and determinable, and
collectibility is reasonably assured.

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

Inventories Stated at the lower of cost or market. Cost is determined principally on the
average cost method.

Provisions
for Inventory Reserves, Uncollectible Trade Receivables and Product ReturnsThe
Company determines its provision for obsolete and slow-moving inventory based
on managements analysis of inventory levels and future sales forecasts.
However, the factors impacting such provisions vary significantly between the
Buckbee-Mears and Optical Products segments. Within the Buckbee-Mears segment,
products are manufactured to customer specifications and changes in product
demand from the loss of a customer, a new product offering or modifications to
customer specifications can significantly impair the value of raw material and
finished goods on hand. As a result, inventory valuation reserve requirements
within this segment must be established based on specific facts and
circumstances that can fluctuate significantly and are difficult to predict. We
do not anticipate these conditions will change due to the customized nature of
the products manufactured by the Buckbee-Mears segment. The Optical Products
segment inventory reserve requirements historically have been more predictable
and more readily estimated by analyzing historic build and sales patterns.

The
Company establishes a reserve and records a provision for doubtful receivable accounts
based on historic loss levels as well as specific provisions considering
current facts and circumstances. Both the Buckbee-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 a
percentage of sales basis, which is established based on trends that have
historically provided a reasonable estimate. This reserve is also calculated 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 not enhance or extend the assets useful life are charged to operating
expense as incurred. Depreciation is provided on the straight-line method over
estimated useful lives of generally 40 years for buildings, 20 years for
building improvements and infrastructure and eight years for machinery and
equipment. Depreciation of assets included in construction in progress does not
begin until the construction is complete and the assets are placed into
service. Depreciation expense was $20,504, $19,827 and $18,980 in 2000, 1999
and 1998, respectively.

Statement
of Financial Accounting Standards (SFAS) No. 121 (SFAS 121), Accounting for
the Impairment of Long-Lived Assets, prescribes that an impairment loss be
recognized in the event that facts and circumstances indicate that the carrying
amount of an asset may not be recoverable, and the estimated future
undiscounted cash flows related to the asset are less than the carrying
amount of the asset. After careful assessment of various factors relevant to
its computer monitor mask business, including significant declines in sales
prices, the Company determined it was appropriate to write down the value of
its computer monitor mask production assets in the second quarter of 1998.
As a result, the Company recorded a charge of $26,700 after-tax ($42,800
pre-tax) in accordance with SFAS 121 in 1998.

Intangible
Assets Consist primarily of
goodwill and other acquisition-related intangible assets, which are stated at
fair value as of the date acquired in a business acquisition accounted for as a
purchase, less accumulated amortization. Amortization is computed on a
straight-line basis over estimated useful lives of 7 to 30 years. Amortization
expense was $3,486, $3,453 and $2,034 in 2000, 1999 and 1998, respectively.
Management periodically assesses the amortization period and recoverability of
the carrying amount of goodwill based upon an estimate of future cash flows
from related operations.





Income
Taxes A deferred tax
liability is recognized for temporary differences between financial reporting
and tax reporting that will result in taxable income in future years. A
deferred tax asset is recognized for temporary differences that will result in
tax deductions in future years.

Comprehensive
Income (Loss) The Company follows
SFAS No. 130 (SFAS 130), Reporting Comprehensive Income. Comprehensive Income
(Loss) consists of net earnings, foreign currency translation adjustments and
gains/losses on derivative instruments and is presented in the Consolidated
Statements of Stockholders Equity. The accumulated loss on derivative instruments
was $1,178, $31 and $0 as of December 31, 2000, 1999 and 1998, respectively.
The accumulated foreign currency translation loss (gain) was $5,491, $3,464 and
$(1,113) as of December 31, 2000, 1999 and 1998, respectively.

Earnings
Per Share The basic earnings per
share amounts are determined based on the weighted average common shares
outstanding, while the diluted earnings per share amounts also give effect to
the common shares dilutive potential. For the Companys earnings per share
calculations, the basic and diluted weighted average outstanding share amounts
differ only due to the dilutive impact of stock options.

Stock-Based
Compensation The Company has
elected to follow Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options and non-vested stock awards. Under
APB 25, because the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recorded. For non-vested stock awards, compensation cost is recognized for the
fair value of the stock awarded and is charged to expense over the respective
vesting periods. The Company has adopted
the disclosure-only provisions of SFAS No. 123 (SFAS 123), Accounting
for Stock-Based Compensation.

Estimates The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Reclassification Certain items in the 1999 and 1998 Consolidated Financial Statements have
been reclassified to conform to the 2000 presentation. These reclassifications
had no impact on net income or stockholders equity as previously reported.

2.  BUSINESS ACQUISITION

On
May 15, 1998, the Company, through a wholly-owned subsidiary, acquired the
Orcolite business unit of the Monsanto Company (Orcolite) for the cash purchase
price of $101,000. For financial statement purposes, the acquisition has been
accounted for under the purchase method of accounting with the excess of the
purchase price over the fair value of the net tangible assets acquired recorded
as intangible assets which are being amortized over periods ranging from 7 to
30 years.

In
addition, in accordance with generally accepted accounting principles, the
independently appraised value of acquired in-process research and development
(IPR&D) purchased in conjunction with the acquisition, was written off as a
charge of $9,500 (pre-tax) during the second quarter of 1998. The appraised
value represents the estimated fair value of IPR&D based on risk-adjusted
cash flows related to the IPR&D projects. At the date of the acquisition,
the development of these projects had not reached technological feasibility and
these projects had no alternative future uses.

The
consolidated statements of earnings reflect the operations of Orcolite after
May 15, 1998. The following unaudited pro forma information presents a summary
of consolidated results of operations of the Company and the Orcolite business
unit as if the acquisition had occurred at the beginning of fiscal 1998, with
pro forma adjustments to give effect to amortization of goodwill and other
intangible assets, depreciation expense on the fair value of property, plant
and equipment and interest expense on acquisition debt, together with the
related income tax effects. The pro forma adjustments do not include the $9,500
write-off of acquired IPR&D discussed above.

Unaudited
  1998Year
  Ended December 31Revenues
  $349,356Net
  loss
  (32,253)Diluted
  loss per share
  (1.19)The
unaudited pro forma condensed combined financial information above is not
necessarily indicative of what actual results would have been had the
acquisition occurred at the date indicated.

3.  INVENTORIES

The following is a summary of inventories at
December 31:

2000
  1999Raw
  materials
  $20,614
  $24,167Work
  in process
  17,835
  12,564Finished
  goods
  43,566
  45,581Total
  inventories
  $82,015
  $82,3124.  INTANGIBLE ASSETS

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

2000
  1999Goodwill
  $61,525
  $61,559Other
  13,467
  12,941Total
  74,992
  74,500Less
  accumulated amortization
  (9,812)
  (6,268)Total
  intangible assets, net
  $65,180
  $68,2325.  PROPERTY, PLANT AND
EQUIPMENT

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

2000
  1999Land
  and improvements
  $6,333
  $6,472Buildings
  and improvements
  92,196
  97,877Machinery
  and equipment
  170,065
  169,172Construction
  in progress
  7,974
  5,286Total
  276,568
  278,807Less
  accumulated depreciation and amortization
  (137,069)
  (127,569)Total
  property, plant and equipment, net
  $139,499
  $151,238

6.  DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES

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

Effective
in 1999, the Company adopted SFAS No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities, and effective in 2000, the
Company adopted SFAS No. 138 (SFAS 138), Accounting for Certain Derivative
Instruments and Certain Hedging Activities
 an Amendment of FASB Statement No. 133. In doing so, the Company did
not incur any transition adjustments to earnings. All derivatives are
recognized on the balance sheet at their fair value. On the date a
derivative contract is entered into, the derivative is designated as a fair
value hedge, cash flow hedge or a foreign-currency net investment hedge. The
Company hedges some selected foreign-currency denominated forecasted
transactions (cash flow hedges), in which changes in the fair value of highly
effective derivatives are recorded in Accumulated Other Comprehensive Income
(Loss). The Company also has multiple interest rate swap agreements (cash flow
hedges), which provide for the Company to swap a variable interest rate for
fixed interest rates. Accounting for the Companys cross-currency swap
agreements remains unchanged under SFAS 133 and SFAS 138 as these swaps
continue to be accounted for under mark-to-market accounting.

The
Company formally documents all relations between hedging instruments and the
hedged items, as well as its risk-management objectives and strategy for
undertaking various hedge transactions. The Company formally assesses, both at
the hedges inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in cash
flows of the hedged items.

FOREIGN CURRENCY FORWARD-EXCHANGE
CONTRACTS

The
Company uses foreign currency forward-exchange contracts with durations of less
than 12 months to hedge against the effect of exchange rate fluctuations on
certain foreign currency denominated steel purchases and other expenditures,
and certain U.S. dollar denominated sales in a foreign subsidiary.

As
of December 31, 2000, contracts to purchase 19,800 German marks (DM) remained
outstanding and expire in 2001. The fair market value of these contracts was
recorded as a liability and as part of Accumulated Other Comprehensive Income
(Loss). At December 31, 2000, $255 of
deferred net losses on derivative instruments were included in
Accumulated Other Comprehensive Income (Loss). Assuming no change in underlying
foreign exchange rates, these losses are expected to be recorded into earnings
during the next 12 months.

During
2000, the Companys German subsidiary entered into foreign currency
forward-exchange contracts to sell U.S. dollars to hedge certain U.S. dollar
denominated sales. As of December 31, 2000, contracts to sell $5,850 remained
outstanding and expire in 2001. The fair market value of these contracts was
recorded as an asset and as part of Accumulated Other Comprehensive Income
(Loss). At December 31, 2000, deferred gains on these contracts in the amount
of $450 were included in Accumulated Other Comprehensive Income (Loss).
Assuming no change in underlying foreign exchange rates, these gains are
expected to be recorded into earnings within the next 12 months.

Also, during 2000, the Company
entered into foreign currency forward-exchangecontracts
to purchase a total of 22.5 billion Indonesian rupiah to hedge certain
purchases in our Vision-Ease Indonesian operations. As of December 31, 2000,
contracts to purchase 15 billion rupiah remained outstanding and expire in
2001. The fair market value of these contracts was recorded as a liability and
as part of Accumulated Other Comprehensive Income (Loss). At December 31, 2000,
$140 of deferred net losses on these contracts was included in Accumulated Other
Comprehensive Income (Loss). Assuming no change in underlying foreign exchange
rates, these losses are all expected to be recorded into earnings within the
next 12 months.

INTEREST RATE SWAPS

At
various dates during 1998, 1999 and 2000, the Company entered into multiple
interest rate swap agreements to provide for the Company to swap a variable
interest rate for fixed interest rates ranging from 6.2% to 7.1%. At December
31, 2000, $75,000 of these swaps remained outstanding with the swaps expiring
at various dates ranging from January 2001 to June 2003. The notional amount of
interest rate swaps is not a measure of the Companys exposure to credit or
market risks and is not included in the Consolidated Balance Sheets. Fixing the
interest rate minimizes the Companys exposure to the uncertainty of floating
interest rates during this period.

Amounts
to be paid or received under the interest rate swap agreement are accrued and
recorded as an adjustment to Interest Expense during the term of the
interest rate swap agreement. At December 31, 2000, deferred net losses on the
interest rate swap agreements in the amount of $1,233 were included in
Accumulated Other Comprehensive Income (Loss).

CROSS-CURRENCY SWAPS

In
January 1999, the Company entered into a cross-currency swap, which
provided for the Company to swap $10,000 of notional debt for the equivalent
amount of Japanese yen-denominated debt. This swap was subsequently closed out
in May 1999. Under this swap, the Company also effectively swapped a fixed U.S.
dollar-based interest rate of 5.1% for a fixed Japanese yen-based interest rate
of 1.05%. This Japanese yen-based debt derivative was accounted for under
mark-to-market accounting. The Company recorded as 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 to swap
$10,000 of notional debt for the equivalent amount of Japanese yen-denominated
debt. Under this swap, the Company also effectively swapped a floating U.S.
dollar-based interest rate for a floating Japanese yen-based interest rate.
This Japanese yen-based debt derivative was accounted for under mark-to-market
accounting. This swap was subsequently closed out in May 2000. The Company recorded as Other Income foreign
exchange gains of $598 in 2000 and losses of $1,173 in 1999 related to this
swap.

The Company had no cross-currency swaps
outstanding as of December 31, 2000.

7.  DEBT

The
following is a summary of long-term debt at December 31:

2000
  1999U.S.
  revolving credit facility
  $143,100
  $163,500Japanese
  yen-denominated cross-currency swap
  
  1,173German
  credit facility
  521
  1,496Other
  1,395
  2,093Total
  145,016
  168,262Less
  amounts due within one year
  (1,206)
  (2,303)Total
  long-term debt
  $143,810
  $165,959

The
Company has a revolving domestic credit agreement (the Agreement) with a
syndicate of banks for secured borrowings totaling up to $220,000. This
Agreement, which expires in 2003, is secured by a pledge of certain shares of
common stock of the Companys subsidiaries and an intercompany note from one of
the Companys European holding companies. Borrowings under the Agreement bear
interest at the Eurodollar rate plus a spread ranging from 0.5% to 1.623%. The
rate spread is dependent upon the Companys ratio of debt to cash flow, as
defined in the Agreement. The Companys effective rate under the Agreement was
7.9% at December 31, 2000. In addition, the Company pays a facility fee on
unborrowed funds at rates ranging from 0.225% to 0.475% (0.375% at
December 31, 2000), depending on the Companys debt to cash flow ratio. Under
terms of the Agreement, the Company must meet certain financial covenants,
including maintaining a specified consolidated net worth, leverage ratio (debt
to cash flow), interest coverage ratio and level of capital expenditures. The Company was in compliance with all
covenants under the Agreement at December 31, 2000.

The
Companys German subsidiary maintains short-term and long-term credit
facilities with available credit at December 31, 2000 of $500 and $12,700,
respectively. The short-term credit lines are unsecured and bear interest at
either 0.75% over the DM LIBOR rate or approximately 3.0% over the German
Bundesbank Discount rate. The lender may withdraw the short-term lines at any
time. There was no debt outstanding at December 31, 2000 and 1999 under the
German short-term credit lines. A portion of the long-term credit line is
secured by land and buildings with a net book value of $9,766 at December 31, 2000.
These long-term credit lines bear interest at 0.50% to 0.75% over the DM LIBOR
rate.

On
December 31, 2000 and 1999, the estimated fair value of the Companys debt
described above approximates the recorded amount.

Annual
maturities of long-term debt for the next five years are $1,206 in 2001, $195
in 2002, $143,110 in 2003, $10 in 2004, $10 in 2005 and $485 thereafter.

There
was $1,790 of outstanding letters of credit at December 31, 2000.

Interest
expense paid, net of amounts capitalized of $410, $253 and $685, was $13,035,
$12,964 and $11,456 in 2000, 1999 and 1998, respectively.

8.  COMMITMENTS

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

At
December 31, 2000, the approximate future minimum rental commitments required
under non-cancelable operating leases are as follows:

2001
  $2,6992002
  2,3302003
  1,5792004
  6622005
  261Total
  minimum lease payments
  $7,531Rent expense was $2,387, $1,591 and
$1,079 in 2000, 1999 and 1998, respectively.

At December 31, 2000, the Company
had commitments of approximately $590 related to capital projects.

9.  STOCK OPTIONS/AWARDS AND
STOCK REPURCHASES/OTHER

The
Restated and Amended 1994 Stock Incentive Plan (the 1994 Plan) provides for the
granting of either incentive stock options or nonqualified stock options to
purchase shares of the Companys common stock and for other stock-based awards
to officers, directors and key employees responsible for the direction and
management of the Company and to non-employee consultants and independent
contractors. During 2000, the Companys stockholders approved an amendment to
the 1994 Plan authorizing an additional 2,000 shares of common stock for
issuance. At December 31, 2000, 4,758 shares of common stock were reserved for
issuance under the 1994 Plan and for outstanding options under the 1984 Omnibus
Stock Plan, which terminated on January 10, 1994. The reserved shares included
1,989 shares available for awards under the 1994 Plan.

Information
relating to stock options during 2000, 1999 and 1998 is as follows:

Option PriceNumber
  of Shares
  Per
  Share
  Average
  Total
  PriceShares
  under option at December 31, 1997
  2,225
  $11.36
  $25,2851998
  Activity:Granted
  902
  9.38
  8,465Exercised
  (345)
  4.70
  (1,621)Forfeited
  (201)
  13.78
  (2,769)Terminated
  (252)
  16.40
  (4,134)Shares
  under option at December 31, 1998
  2,329
  10.83
  25,2261999
  Activity:Granted
  798
  7.31
  5,830Exercised
  (150)
  6.58
  (987)Forfeited
  (443)
  12.09
  (5,355)Shares
  under option at December 31, 1999
  2,534
  9.75
  24,7142000
  Activity:Granted
  450
  5.29
  2,379Exercised
  (3)
  5.00
  (15)Forfeited
  (212)
  9.66
  (2,047)Shares
  under option at December 31, 2000
  2,769
  $9.04
  $25,031Shares
  exercisable at December 31, 2000
  1,591
  $8.49
  $13,502Shares
  exercisable at December 31, 1999
  1,052
  $8.19
  $8,617Shares
  exercisable at December 31, 1998
  942
  $7.07
  $6,660

The
following table summarizes information concerning currently outstanding and
exercisable options:

Range
  of
  Exercise Prices
  Options
  Outstanding
  Options
  ExercisableNumber
   Outstanding
  Weighted
   Average
   Remaining
   Contractual
   Life (Years)
  Weighted
   Average
   Exercise
   Price
  Number
   Exercisable
  Weighted
   Average
   Exercise
   Price$0 - 5
  818
  3.1
  $3.08
  639
  $2.765 - 10
  1,228
  7.7
  6.12
  587
  6.0810 - 20
  350
  7.3
  14.32
  120
  13.3920 - 31
  373
  5.5
  26.75
  245
  26.812,769
  6.0
  $9.04
  1,591
  $8.49

All outstanding options are
nonqualified options.No compensation expense
related to stock option grants was recorded in 2000, 1999 or 1998 as the option
exercise prices were equal to fair market value on the date of grant.

At
December 31, 2000, there were 97 shares outstanding pursuant to non-vested
stock awards under the 1994 Plan.

Pro
forma information regarding net income and earnings per share is required by
SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2000, 1999 and 1998:

2000
  1999
  1998Risk-free
  interest rate
  6.02%
  6.20%
  5.50%Dividend
  yield
  1.23%
  1.23%
  0.96%Volatility
  factor
  0.76
  0.80
  0.55Weighted
  average expected life
  5 years
  5 years
  5 yearsThe
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Companys employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

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

2000
  1999
  1998Net
  earnings (loss)  as reported
  $14,900
  $7,824
  $(30,635)Net
  earnings (loss)  pro forma
  13,208
  6,291
  (32,006)Basic
  earnings (loss) per share  as reported
  0.54
  0.29
  (1.13)Basic
  earnings (loss) per share  pro forma
  0.48
  0.23
  (1.18)Diluted
  earnings (loss) per share  as reported
  0.54
  0.28
  (1.13)Diluted
  earnings (loss) per share  pro forma
  0.48
  0.23
  (1.18)Weighted
  average fair value of options granted during the year
  3.22
  4.60
  4.52Because
SFAS 123 provides for pro forma amounts for options granted beginning in 1995,
the pro forma expense will likely increase in future years as the new option
grants become subject to the pricing model.

Stock
Option Exercise Loan Program.During 2000, the Company discontinued the Stock Option Exercise Loan Program
under which holders of exercisable stock options could obtain interest-free and
interest-bearing loans from the Company to facilitate their exercise of stock
options. Under provisions of the program, new loans cannot be made, but
existing loans will continue to be administered until they are repaid. Such
full recourse loans are evidenced by demand promissory notes and are secured by
shares of stock. The portion of such loans directly related to the option
exercise price is classified as a reduction of stockholders equity. The
remainder is included in current assets.

Common
Stock Repurchases.In January 1998, the
Company repurchased 1,000 common shares at a total cost of approximately
$16,600. This share repurchase was financed
using the Companys domestic bank credit facility.

Share
Rights Plan.In June 1998, the
Company adopted a Share Rights Plan and declared a dividend of one Preferred
Share Purchase Right (Right) for each outstanding share of common stock to
stockholders of record on July 20, 1998. The Rights will become exercisable
after any person or group acquires or announces a tender or exchange offer
resulting in the beneficial ownership of 15% or more of the Companys common
stock. Each Right entitles shareholders to buy one five-hundredth of a share of
a newly created series of preferred stock at an exercise price of $75 subject
to adjustment upon certain events. If any person or group acquires 15% or more
of the Companys common stock, if the Company is acquired in a business
combination, or if the Company sells 50% or more of its assets, each Right
entitles 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s
common 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, 2008
unless extended or redeemed earlier by the Company.

10.  EMPLOYEE BENEFIT PLANS

The
Company maintains a savings and profit sharing plan covering substantially all
of its domestic salaried employees and a majority of those domestic hourly
employees not covered by a pension plan or retirement fund described below.
Under the terms of the profit sharing provision of the plan, the Company makes
an annual minimum contribution equal to 3% of participants wages, with the
potential for an additional discretionary contribution depending upon the
Companys profitability. Provisions of the profit sharing portion of the plan
include 100% vesting after five years of continuous service, and payment
of benefits upon retirement, total disability, death or termination. Under
the terms of the savings provision of the plan, the Company makes an annual
minimum contribution, which is invested in Company stock, equal to 25% of
participants before-tax contributions up to 6% of base salary, with the
potential for an additional discretionary contribution depending upon the
Companys profitability. Provisions of the savings portion of the plan include
vesting of the Companys contributions at the rate of 25% per year of
continuous service, and payment of benefits upon retirement, total disability,
death or termination.

In
addition, the Companys German subsidiary has a noncontributory defined benefit
pension plan covering substantially all of its employees. Benefits payable
under the plan are based upon the participants base salary prior to retirement
and years of credited service. As allowed under German law, this plan is not
funded. However, under generally accepted accounting principles, the estimated
future liability is accrued in the Companys Consolidated Financial Statements.

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

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

Pension Benefits
  Post-Retirement Benefits2000
  1999
  2000
  1999CHANGE
  IN BENEFIT OBLIGATION:Benefit
  obligation at beginning of year
  $13,272
  $14,321
  $1,948
  $1,662Service
  cost
  450
  490
  47
  173Interest
  cost
  802
  824
  55
  156Foreign
  currency exchange rate changes
  (606)
  (1,511)
  
  Plan
  participants contributions
  
  
  138
  92Actuarial
  (gain) loss
  (11)
  (494)
  228
  112Benefit
  payments
  (421)
  (358)
  (555)
  (247)Settlement/curtailment
  gain
  
  
  (1,861)
  Benefit
  obligation at end of year
  13,486
  13,272
  
  1,948CHANGE IN FAIR VALUE OF PLAN ASSETS:Fair
  value of plan assets at beginning of year
  4,011
  3,579
  
  Actual
  return on plan assets
  577
  675
  
  Employer
  contribution
  
  
  417
  155Plan
  participants contributions
  
  
  138
  92Benefit
  payments
  (253)
  (243)
  (555)
  (247)Fair
  value of plan assets at end of year
  4,335
  4,011
  
  FUNDED
  STATUS:Funded
  status of the plan (underfunded)
  (9,151)
  (9,261)
  
  (1,948)Unrecognized
  transitional amount
  48
  64
  
  Unrecognized
  net gain
  (423)
  (165)
  
  (41)Fourth
  quarter contribution
  
  
  
  7Accrued
  pension cost
  $(9,526)
  $(9,362)
  $
  $(1,982)

2000
  1999
  1998COMPONENTS
  OF NET PERIODIC PENSION COSTPension
  benefits:Service
  cost
  $450
  $490
  $497Interest
  cost
  802
  824
  832Expected
  return on plan assets
  (350)
  (313)
  (371)Amortization
  of transition obligation
  12
  14
  15Recognized
  actuarial gain
  (11)
  
  (5)Net
  periodic pension cost
  $903
  $1,015
  $968Post-retirement
  benefits:Service
  cost
  $47
  $173
  $87Interest
  cost
  55
  156
  108Recognized
  actuarial (gain) loss
  3
  7
  Settlement/curtailment
  gain
  (1,678)
  
  Net
  periodic pension cost
  $(1,573)
  $336
  $195

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

2000
  1999
  1998Domestic
  plans (including post-retirement plan):Discount
  rate
  7.75%
  7.75%
  6.75%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 domestic operations
makes, on behalf of each active participant, fixed weekly contributions to a
retirement fund (aggregating $122, $147 and $173 in 2000, 1999 and 1998,
respectively). At December 31, 2000, the market value of this funds assets of
$17,598 was lower than benefit obligations of $17,774 by $176.

The
total cost of all profit sharing, savings and pension plans, domestic and
foreign, was $4,591, $5,469 and $2,708 in 2000, 1999 and 1998, respectively.

11.  INCOME TAXES

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

Years
  Ended December 31
  2000
  1999
  1998Domestic
  $6,648
  $(1,472)
  $(50,756)Foreign
  14,495
  14,319
  2,072Earnings
  (loss) before income taxes
  $21,143
  $12,847
  $(48,684)

The
provision (benefit) for income taxes consisted of:

Years
  Ended December 31
  2000
  1999
  1998CurrentFederal
  $1,102
  $10
  $(6,223)State
  (15)
  (59)
  75Foreign
  6,310
  6,811
  150DeferredFederal
  and state
  (1,292)
  (610)
  (12,722)Foreign
  138
  (1,129)
  671Income
  tax expense (benefit)
  $6,243
  $5,023
  $(18,049)

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

2000
  1999FEDERAL
  AND STATE NET DEFERRED INCOME TAXESDeferred
  tax assetReserves
  and accruals
  $3,277
  $5,357Compensation
  and benefit-related accruals
  4,609
  5,238Other
  temporary differences
  2,617
  1,052NOL
  and tax credit carryovers
  14,844
  12,232Total
  25,347
  23,879Deferred
  tax liabilityDepreciation
  (3,032)
  (2,634)Capitalized
  molds and tooling
  (214)
  (436)Total
  (3,246)
  (3,070)Net
  deferred tax asset
  $22,101
  $20,809FOREIGN
  NET DEFERRED INCOME TAXESDeferred
  tax liabilityDepreciation
  $(2,487)
  $(3,626)Inventory
  (352)
  Other
  temporary differences
  (642)
  (366)Total
  (3,481)
  (3,992)Deferred
  tax assetRetirement
  benefits
  751
  741Inventory
  
  622Other
  temporary differences
  893
  1,044Total
  1,644
  2,407Net
  deferred tax liability
  $(1,837)
  $(1,585)

The
federal and state net deferred tax asset included a current portion of $18,190
and $11,588 at December 31, 2000 and 1999, respectively, and a long-term
portion of $3,911 and $9,221 at December 31, 2000 and 1999, respectively. The
foreign net deferred tax liability included a current liability of $236 and $0
at December 31, 2000 and 1999, respectively, and a long-term liability of
$1,601 and $1,585 at December 31, 2000 and 1999, respectively.

Net
operating loss carryforwards of $14,105 at December 31, 2000 expire in 2020.
General business credit carryforwards of $207 expire in 2020 and 2021. Foreign
tax credit carryforwards of $8,225 expire in 2003 through 2005. Alternative
minimum tax credits of $881 can be carried forward indefinitely to offset
regular tax liabilities.

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

Years
  Ended December 31
  2000
  1999
  1998Statutory
  rate
  35.0%
  35.0%
  (35.0)%Differences
  in taxation of foreign earnings
  6.1
  4.8
  0.1Foreign
  income taxed in the U.S.
  (9.5)
  (5.3)
  (1.9)Unfavorable
  settlement of tax audit
  
  4.8
  State
  income taxes, net of federal benefit
  1.0
  (0.7)
  (1.4)Other
  items
  (3.1)
  0.5
  1.1Effective
  tax rate
  29.5%
  39.1%
  (37.1)%

Differences
in taxation of foreign earnings relate primarily to taxation of foreign
earnings at rates in excess of the U.S. statutory rate. Undistributed earnings
of foreign subsidiaries at December 31, 2000 were approximately $13,519. No
U.S. taxes have been provided on these undistributed earnings, because the
Company expects to be able to utilize foreign tax credits to offset any U.S.
tax that would result from their distribution.

Income
taxes paid (refunded) were $7,888, $(2,489) and $(8,571) in 2000, 1999 and
1998, respectively.

12.  SEGMENT INFORMATION

The Company has two operating
segments which manufacture and sell a variety of products: Buckbee-Mearsand
Optical Products. Buckbee-Mears manufactures precision photo-etched and
electroformed parts that require fine features and tight tolerances. Its
principal product is aperture masks, a key component used in the manufacture of
color television and computer monitor picture tubes. Optical Products
manufactures ophthalmic lenses. Net sales of aperture masks comprised 91%, 89%
and 86% of Buckbee-Mears segment revenues in 2000, 1999 and 1998,
respectively, and 55%, 55% and 54% of the Companys consolidated total revenues
in 2000, 1999 and 1998, respectively.

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

Years Ended December 31
  2000
  1999
  1998TOTAL REVENUES BY SEGMENTBuckbee-Mears
  $214,880
  $217,868
  $212,083Optical
  Products
  139,605
  135,986
  123,055Total
  revenues
  $354,485
  $353,854
  $335,138OPERATING PROFIT (LOSS) BY SEGMENTBuckbee-MearsBefore
  impairment charge
  $25,108
  $23,863
  $1,969Impairment
  of long-lived assets
  
  
  (42,800)Total
  25,108
  23,863
  (40,831)Optical
  ProductsBefore
  acquired research and development charge
  11,419
  5,749
  19,678Acquired
  in-process research and development
  
  
  (9,500)Total
  11,419
  5,749
  10,178Total
  Segment Operating Profit (Loss)
  36,527
  29,612
  (30,653)Administrative
  expense
  (5,389)
  (4,702)
  (5,179)Interest
  expense, net
  (12,833)
  (13,099)
  (13,374)Other
  income
  2,838
  1,036
  522Earnings
  (loss) before income taxes
  $21,143
  $12,847
  $(48,684)IDENTIFIABLE ASSETS BY SEGMENTBuckbee-Mears
  $158,453
  $159,431
  $168,540Optical
  Products
  191,884
  196,074
  206,825Total
  identifiable assets
  350,337
  355,505
  375,365Corporate
  and other assets
  23,467
  28,048
  24,100Total
  assets
  $373,804
  $383,553
  $399,465DEPRECIATION AND AMORTIZATION BY SEGMENTBuckbee-Mears
  $13,492
  $12,883
  $13,582Optical
  Products
  10,336
  10,231
  7,215Corporate
  and other
  162
  166
  217Total
  depreciation and amortization
  $23,990
  $23,280
  $21,014CAPITAL EXPENDITURES BY SEGMENTBuckbee-Mears
  $7,703
  $5,556
  $9,764Optical
  Products
  4,182
  7,469
  11,526Corporate
  and other
  44
  132
  137Total
  capital expenditures
  $11,929
  $13,157
  $21,427The
following is a summary of the Companys operations in different geographic
areas:

Years Ended December 31
  2000
  1999
  1998TOTAL
  REVENUES FROM UNAFFILIATED CUSTOMERSUnited
  States
  $232,458
  $227,390
  $233,142Germany
  95,796
  103,788
  94,181Other
  26,231
  22,676
  7,815Total
  $354,485
  $353,854
  $335,138LONG-LIVED ASSETSUnited
  States
  $107,679
  $119,190
  $124,543Germany
  21,404
  24,155
  30,052Other
  10,416
  7,893
  7,999Total
  $139,499
  $151,238
  $162,594

The
Company evaluates segment performance based on profit or loss from operations
before interest, other income/expense, taxes and charges for corporate
administration. Revenues by geographic area are based upon revenues generated
from each countrys operations. Net sales to unaffiliated foreign customers
from domestic operations (export sales) in 2000, 1999 and 1998 were $61,686, $56,893 and $40,820, or 17%, 16% and 12%,
respectively, of total revenues. Buckbee-Mears had sales to one customer
of $62,895, $71,303 and $51,785; to another customer of $58,174, $45,077 and
$56,983; and to a third customer of $27,178, $46,078 and $33,801 in 2000, 1999
and 1998, respectively. Optical Products did not have sales to any individual customer greater than 10% of total
revenues.

13.  CONCENTRATIONS OF CREDIT
RISK

Approximately
64% of the trade accounts receivable before allowances (receivables) of
Buckbee-Mears at December 31, 2000 were represented by four customers.
Approximately 53% of the receivables of Optical Products at December 31, 2000
were represented by 20 customers. These 24 customers represented approximately
59% of the Companys consolidated receivables at December 31, 2000, with one
customer of Buckbee-Mears representing approximately
18% of consolidated receivables and another customer representing
approximately 15% of consolidated receivables.

Buckbee-Mears
customer base consists of the largest television and computer monitor
manufacturers in the world. Accordingly, Buckbee-Mears generally does not
require collateral and its trade receivables are unsecured. Optical Products
customer base consists of a wide range of eyewear retailers and optical
laboratories. Optical Products performs detailed credit evaluations of
customers and establishes credit limits as necessary. Collateral or other
security for accounts receivable is obtained as considered necessary for
Optical Products customers.

14.  LEGAL MATTERS

The
Company is a defendant in various suits, claims and investigations that arise
in the normal course of business. In the opinion of the Companys management,
the ultimate disposition of these matters will not have a material adverse
effect on the consolidated financial position, liquidity or results of
operations of the Company.

REPORT
OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
BMC Industries, Inc.

We
have audited the accompanying consolidated balance sheets of BMC Industries,
Inc. as of December 31, 2000 and 1999, and the related consolidated statements
of operations, stockholders equity and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 BMC Industries, Inc.
at December 31, 2000 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.

/s/
Ernst & Young LLP

Minneapolis, Minnesota
January 26, 2001

SELECTED QUARTERLY DATA(Unaudited,
in thousands, except per share amounts)

First
   Quarter
  Second
   Quarter
  Third
   Quarter
  Fourth
   Quarter
  Total
   Year1999Revenues
  $84,645
  $93,339
  $88,321
  $87,549
  $353,854Gross
  margin
  13,567
  17,473
  9,250
  7,972
  48,262Net
  earnings (loss)
  3,191
  5,007
  (426)
  52
  7,824Earnings
  (loss) per shareBasic
  0.12
  0.18
  (0.02)
  0.00
  0.29Diluted
  0.12
  0.18
  (0.02)
  0.00
  0.28Number
  of shares included in computationBasic
  27,201
  27,275
  27,349
  27,370
  27,299Diluted
  27,405
  27,769
  27,349
  27,668
  27,7102000Revenues
  $88,751
  $94,237
  $90,179
  $81,318
  $354,485Gross
  margin
  12,064
  15,891
  12,649
  13,086
  53,690Net
  earnings
  2,301
  5,475
  2,737
  4,387
  14,900Earnings
  per shareBasic
  0.08
  0.20
  0.10
  0.16
  0.54Diluted
  0.08
  0.20
  0.10
  0.16
  0.54Number
  of shares included in computationBasic
  27,384
  27,401
  27,399
  27,400
  27,396Diluted
  27,599
  27,582
  27,645
  27,669
  27,623

PRICE RANGE OF COMMON STOCK

The
Companys common stock is traded on the New York Stock Exchange under the
ticker symbol BMM. The table below sets forth the high and low reported sales
prices of the Companys stock by quarter for the years 2000 and 1999. At March
23, 2001, there were approximately 1,100 stockholders of record.

Dividends
  Per Share
  PriceHigh
  Low1999First
  Quarter
  $.0150
  $67⁄16
  $43⁄16Second
  Quarter
  .0150
  11 3⁄16
  45⁄16Third
  Quarter
  .0150
  13 1/4
  103⁄8Fourth
  Quarter
  .0150
  12 11⁄16
  4 1/22000First
  Quarter
  $.0150
  $63⁄16
  $49⁄16Second
  Quarter
  .0150
  6
  311⁄16Third
  Quarter
  .0150
  67⁄8
  43⁄16Fourth
  Quarter
  .0150
  7
  45⁄8

SHAREHOLDER INFORMATION

NYSE LISTINGThe common shares of BMC Industries, Inc.
are traded on the New York Stock Exchange under the symbol BMM.

ANNUAL MEETINGThe annual meeting of stockholders will
be held at 10:00 a.m. on Thursday, May 17, 2001, at the Holiday Inn Select
International Hotel, Three Appletree Square (34th Avenue South & Interstate
494), Bloomington, Minnesota. Meeting notices and proxy materials were mailed
to all stockholders of record as of March 23, 2001.

STOCKHOLDERS REQUESTS FOR
INFORMATIONRequests to transfer the Companys shares
should be addressed to the Companys transfer agent and registrar:
Wells Fargo Bank Minnesota, N.A.
Shareowner Services
P.O. Box 738
161 N. Concord Exchange
South St. Paul, MN 55075-0738
Telephone (800) 468-9716
Fax (651) 450-4078

For other information regarding your
stock holdings and a copy of the annual report to the Securities and Exchange Commission on Form 10-K, please write to:

BMC Industries, Inc.
Investor Relations Department
One Meridian Crossings
Suite 850
Minneapolis, MN 55423

In addition, these and similar reports
can be accessed through our Web site at www.bmcind.com.

AUDITORSErnst & Young LLP
Minneapolis, Minnesota

CORPORATE HEADQUARTERSBMC Industries, Inc.
One Meridian Crossings
Suite 850
Minneapolis, MN 55423
Telephone (952) 851-6000
Fax (952) 851-6050

CORPORATE
INFORMATION

BOARD OF DIRECTORS

Paul B. BurkeChairman
of the Board and Chief Executive Officer of BMC Industries, Inc.

John W. Castro 1,2President
and Chief Executive Officer of Merrill Corporation

Joe E. Davis 1,3Former
President and Chief Executive Officer of National Health Enterprises, Inc.

H. Ted Davis 2,4Dean,
Institute of Technology, University of Minnesota

Harry A. Hammerly 1,4Former
Executive Vice President and Director of 3M Company

James M. Ramich 2,3Former
Executive Vice President, Corning Communications of Corning Incorporated

1Audit Committee2 Compensation Committee3 Finance Committee4 Corporate Governance Committee

CORPORATE OFFICERS

Paul B. BurkeChairman
of the Board and Chief Executive Officer

Benoit Y. PouliquenPresident
and Chief Operating Officer

Kathleen P. PepskiSenior
Vice President and Chief Financial Officer

Jon A. DobsonVice
President, Human Resources, General Counsel and Secretary

Bradley D. CarlsonTreasurer

Kevin E. RoeActing
Corporate Controller

BUCKBEE-MEARS

MASK OPERATIONS

5791 Route 80 
Tully, New York 13159

Gerald C. Gugger, Vice President, Finance and
Administration

Gary W. Nelson, Senior Vice President, Sales and
Marketing, Buckbee-Mears Group

Joseph P. Springer, Vice President, Worldwide Sales and
Marketing, Mask Operations

BUCKBEE-MEARS
CORTLANDP.O. Box 189, 30 Kellogg Road
Cortland, New York 13045

James D. Brewer, Vice President, Cortland Operations

BUCKBEE-MEARS
EUROPE GMBHRenkenrunsstrasse 24-26
D-79379 Müllheim, Germany

Michael Sillmann, Managing Director and Vice President,
BME Operations

BUCKBEE-MEARS
HUNGARY KFT.2800 Tatabánya
Tavaszmezo u. 6., Hungary

MICRO-TECHNOLOGY OPERATIONS

BUCKBEE-MEARS
ST. PAUL278 East Seventh Street
St. Paul, Minnesota 55101

Dr. Derek B. Harris, Vice President, Technology and St. Paul
Operations

OPTICAL PRODUCTS

VISION-EASE
LENS, INC.7100 Northland Circle, Suite 312
Brooklyn Park, Minnesota 55428

Mark W. Becker, Vice President, Professional Services

Richard D. Mark, Vice President, North American Retail
Sales

Richard J. Montag,Vice President, Americas Sales and
Glass and Plastic Business

VISION-EASE
LENS - RAMSEY7000 Sunwood Drive
Ramsey, Minnesota 55303

Joseph B. Gudenburr, Vice President, Polycarbonate and
Research & Development Operations

Eric N. Hockert, Vice President, Research and
Development

Ronald R. Zimmer, Vice President, Distribution

VISION-EASE
LENS  ST. CLOUD700 North 54th Avenue
St. Cloud, Minnesota 56301

VISION-EASE LENS AZUSA, INC.16016 Montoya Street
Azusa, California 91702

Daniel A. Klamut, Vice President, SunSport

P.T.
VISION-EASE ASIAJln. Meranti 3 Blok L No. 8
Delta Silicon Industrial Park
Lippo Cikarang Bekasi 17550, Indonesia

Milind A. Gadre, Vice President and Managing Director,
Asian Business and Operations

VISION-EASE EUROPE LIMITED48 Tailors Court
Temple Farm Industrial Estate
South End-on-Sea, Essex SS2 5SX 
United Kingdom

VISION-EASE DEUTSCHLAND GMBHRenkenrunsstrasse 24-26
D-79379 Müllheim, Germany

Guntram Mehl, Vice President, Vision-Ease Europe

VISION-EASE FRANCE SASZone Industrielle  Route de Chartres
28160 Brou, France