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Index to Exhibits on Page 16
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-7006
BRUSH WELLMAN INC.
(Exact name of Registrant as specified in charter)
Ohio 34-0119320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17876 St. Clair Avenue, Cleveland, Ohio 44110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 216-486-4200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of April 30, 1994, there were 16,088,315 shares of Common Stock, par value
$1 per share, outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
BRUSH WELLMAN INC. AND SUBSIDIARIES
Item 1. Financial Statements
--------------------
The consolidated financial statements of Brush Wellman Inc. and its
subsidiaries for the quarter ended April 3, 1994. are as follows:
Consolidated Statements of Income -
Three months ended April 3, 1994 and April 4, 1993.
Consolidated Balance Sheets -
April 3, 1994 and December 31, 1993.
Consolidated Statements of Cash Flows -
Three months ended April 3, 1994 and April 4, 1993.
Notes to Consolidated Financial Statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
(Dollars in thousands except share
and per share amounts) April 3, April 4,
1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Net sales $84,794 $69,380
Costs and expenses:
Cost of sales 61,600 53,535
Selling, administrative
and general expenses 12,617 11,621
Research and development
expenses 2,186 1,766
Interest expense 471 855
Other-net 776 36
------ ------
77,650 67,813
------ ------
Income before income taxes 7,144 1,567
Income taxes 1,550 413
------ ------
Net Income $5,594 $1,154
====== ======
Per Share of Common Stock: $0.35 $0.07
Cash dividends per common share $0.05 $0.05
Weighted average number
of common shares outstanding 16,157,216 16,118,194
See notes to consolidated financial statements.
</TABLE>
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<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April. 3, Dec. 31,
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $14,443 $7,690
Accounts receivable 49,771 46,462
Inventories 85,698 86,477
Prepaid expenses and other
current assets 15,894 15,595
------- -------
Total Current Assets 165,806 156,224
Other Assets 15,933 16,231
Property, Plant and Equipment 341,021 337,342
Less allowances for depreciation,
depletion and impairment 223,611 218,416
------- -------
117,410 118,926
Goodwill 1,932 1,991
------- -------
$301,081 $293,372
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $17,718 $16,263
Accounts payable 5,378 5,427
Other liabilities and accrued
items 21,029 20,822
Dividends payable - 804
Income taxes 9,479 7,636
------- -------
Total Current Liabilities 53,604 50,952
Other Long-Term Liabilities 41,090 40,664
Long-Term Debt 24,195 24,000
Deferred Income Taxes 5,315 5,682
Shareholders' Equity 176,877 172,074
------- -------
$301,081 $293,372
======== ========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited) First Quarter Ended
Apr. 3, Apr. 4
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------ -----------------
<S> <C> <C>
Net Income $5,594 $1,154
Adjustments to Reconcile Net Income to Net Cash
Provided From Operating Activities:
Depreciation, depletion and amortization 4,638 4,851
Amortization of mine development 721 631
Decrease (Increase) in accounts receivable (2,449) (8,106)
Decrease (Increase) in Inventory 779 2,039
Decrease (Increase) in prepaid and other current assets (312) 881
Increase (Decrease) in accounts payable and accrued expenses (229) 52
Increase (Decrease) in interest and taxes payable 1,456 (128)
Increase (Decrease) in deferred income tax (368) (634)
Other - net 618 (35)
------ ------
Net Cash Provided From Operating Activities 10,448 705
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment (3,608) (2,089)
Payments for mine development (141) (240)
------ ------
Net Cash Provided From (Used in) Investment Activities (3,749) (2,329)
Cash Flows from Financing Activities:
Proceeds from (Repayment of) short-term debt - net 1,029 913
Proceeds from issuance of long-term debt 0 1,010
Issuance of Common Stock under stock option plans 14 13
Payments of dividends (1,609) (2,574)
------ ------
Net Cash Provided From ( Used in) Financing Activities (566) (638)
Effects of Exchange Rate Changes 620 807
------ ------
Net Change in Cash and Cash Equivalents 6,753 (1,455)
Cash and Cash Equivalents at Beginning of Period 7,690 4,190
------ ------
Cash and Cash Equivalents at End of Period $14,443 $2,735
======= ======
See notes to consolidated financial statements.
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
April 3, 1994
NOTE A - ACCOUNTING POLICIES
In management's opinion, the accompanying consolidated financial statements
contain all adjustments necessary to present fairly the Financial position as
of April 3, 1994 and December 31, 1993 and the results of operations for the
three months ended April 3, 1994 and April 4, 1993.
<TABLE>
<CAPTION>
NOTE B - INVENTORIES
April 3, Dec 31,
(Dollars in thousands) 1994 1993
- -------------------------------------------------------
<S> <C> <C>
Principally average cost:
Raw materials and supplies $20,326 $19,431
In Process 48,866 50,349
Finished 34,352 33,720
------- -------
103,544 103,500
Excess of average cost over
LIFO inventory value 17,846 17,023
------- -------
$85,698 $86,477
======= =======
</TABLE>
NOTE C - OTHER POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Financial Accounting Standards
Board Statement No. 112,"Employers' Accounting for Postemployment Benefits."
The cumulative effect of adoption had essentially no effect on the Company's
cash position.
NOTE D - INCOME TAXES
Effective January 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109,"Accounting for Income Taxes." The cumulative effect of
adoption had essentially no effect on earnings and no effect on the Company's
cash position.
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Item 2. Management's Discussion and Analysis
------------------------------------
Results of Operations
- ---------------------
First quarter 1994 sales of $85 million represents an increase of 22% over the
$69 million recorded in first quarter 1993 and 8% over the $78 million recorded
in fourth quarter 1993. The increases were primarily in beryllium alloys and
precious metal products. International sales totaled $25 million and comprised
29% of total sales in the first quarter 1994 compared to $18 million or 27% of
total sales in 1993.
Sales of beryllium alloys increased 20% in first quarter 1994 from the year ago
period. Economic strength, coupled with market development efforts, accounts
for the sales increase. The strong U.S. automotive market, along with
telecommunications, are the key market growth areas for beryllium alloys. We
expect favorable sales comparisons throughout 1994.
Beryllium sales decreased slightly from the year ago period. Final shipments
of AlBeMet(TM) components for a computer disk drive occurred in first quarter
1994. This program was active throughout 1993. The Defense Logistics Agency
(DLA) supply contract will be completed in second quarter 1994. Therefore,
lower 1994 second half sales for this product line are expected. Development
of new products and applications are focused on aerospace and avionics
markets.
Beryllia ceramic sales were flat in first quarter 1994 as compared to first
quarter 1993. Strong U.S. automotive and telecommunications equipment demands
were offset by the decline in defense applications. New products based on
direct bond copper technology are now in production.
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Specialty metal systems sales increased in first quarter 1994 as compared to
first quarter 1993. Application development efforts, coupled with strength in
the automotive, telecommunications, computer and semiconductor industries, are
generating increased demand.
Sales of precious metal products were up significantly in first quarter 1994
over the comparable 1993 period and exceeded the strong fourth quarter of 1993.
This increase is being fueled by the demand from semiconductor producers that
utilize the Company's frame lid assembly products. It is anticipated that this
demand will slow over the remainder of 1994. Precious metal vapor deposition
targets represent a growing new product line.
Gross margin (sales less cost of sales) increased to 27.4% of sales in first
quarter 1994 as compared to 22.8% of sales in first quarter 1993. Higher sales
and production volumes of beryllium alloys account for the improvement. In
addition to lower unit costs from the higher throughput, better manufacturing
efficiency and yields also contributed. Product mix and the relatively weaker
dollar also enhanced first quarter alloy margins. The precious metal content
of sales increased in first quarter 1994 as compared to first quarter 1993 in
both price and quantity, and this tends to restrain the gross margin
percentage. First quarter 1993 gross margin was negatively impacted by
manufacturing problems with the AlBeMet(TM) disk drive component.
Selling, administrative and general expenses were $12.6 million or 14.9% of
sales, up from $11.6 million or 16.7% of sales in first quarter 1993. The
increase is primarily in administrative and general expenses which include an
increased accrual for incentive compensation.
Research and development (R&D) expenses in first quarter 1994 were more than
20% higher than in first quarter 1993. This increase is mainly in beryllium
products where efforts are focused
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on new product development, especially in AlBeMet(TM) materials. R&D expenses
for the year 1994 are expected to approximate $8 million as compared to $7.1
million during 1993.
Interest expense was down substantially in first quarter 1994 as compared to
first quarter 1993. This is due principally to lower average debt outstanding.
A $3 million 7-1/4% industrial revenue bond was refunded in February 1994 which
will reduce interest expense further.
Other-net expense was $0.8 million in first quarter 1994 compared to less than
$0.1 million in first quarter 1993. This category includes non- operating items
such as currency exchange and translation effects, interest income and
amortization of goodwill. First quarter 1993 included $0.7 million of
nonrecurring gains from a contract settlement and a license payment.
First quarter 1994 income before income taxes increased to $7.1 million from
$1.6 million in first quarter 1993 due primarily to the improved gross margin.
Income taxes were provided for at an effective rate of 21.7% of pre-tax income
in first quarter 1994 compared to 25.9% in first quarter 1993 and 16.2% for all
of 1993. First quarter earnings per share were $0.35 in 1994 compared to $0.07
in 1993.
Financial Condition
- -------------------
Net cash provided from operating activities was $10.4 million during first
quarter 1994 as compared to $0.7 million in the 1993 comparable period.
Capital expenditures for property, plant and equipment amounted to $3.6 million
during first quarter 1994 and are expected to total $20 million for the year.
A higher level of spending will
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occur during second quarter 1994 for a project to extend the life and capacity
of the tailings pond at the Company's Utah extraction facility.
Total debt increased by $1.7 million during first quarter 1994. All of the
increase was in the international subsidiaries and includes exchange rate
movements. Long-term debt at the end of the quarter was 12% of total capital.
Exhibits to Part I
- ------------------
1. Computation of Per Share Earnings
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<TABLE>
PART I
EXHIBIT 1
BRUSH WELLMAN INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
FIRST QUARTER ENDED
----------------------------------------
April 3, April 4,
1994 1993
------------- ------------
<S> <C> <C>
Primary:
Average shares outstanding 16,087,928 16,086,779
Dilutive stock options based
on the treasury stock method
using average market price 44,950 31,415
----------- -----------
TOTALS 16,132,878 16,118,194
=========== ===========
Net Income $ 5,594,000 $ 1,154,000
Per share amount $ .35 $ .07
=========== ===========
Fully diluted:
Average shares outstanding 16,087,928 16,086,779
Dilutive stock options based
on the treasury stock method
using period-end market price,
if higher than the average
market price 69,288 31,415
----------- ----------
TOTALS 16,157,216 16,118,194
=========== ==========
Net Income $ 5,594,000 $ 1,154,000
Per share amount $ .35 $ .07
=========== ===========
</TABLE>
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PART II OTHER INFORMATION
BRUSH WELLMAN INC. AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
- --------------------------
(a) Asbestos Exposure Claims
------------------------
A subsidiary of the Company (the "Subsidiary") is a
co-defendant in twenty-eight cases making claims for asbestos-induced illness
allegedly relating to the former operations of the Subsidiary, then known as
The S. K. Wellman Corp. Twenty-three of these cases have been reported in
prior filings with the S.E.C. The Subsidiary is one of a large number of
defendants in each case. The plaintiffs seek compensatory and punitive
damages, in most cases of unspecified sums. Each case has been referred to a
liability insurance carrier for defense. With respect to those referrals on
which a carrier has acted to date, a carrier has accepted the defense of the
actions, without admitting or denying liability. Two hundred and six similar
cases previously reported have been dismissed or disposed of by pre-trial
judgment, one by jury verdict of no liability and ten others by settlement for
nominal sums. The Company believes that resolution of the pending cases
referred to above will not have a material effect upon the Company.
The Subsidiary has entered into an agreement with the
predecessor owner of its operating assets, Pneumo Abex Corporation (formerly
Abex Corporation), and five insurers, regarding the handling of these cases.
Under the agreement, the insurers share expenses of defense, and the
Subsidiary, Pneumo Abex Corporation and the insurers share payment of
settlements and/or judgments. Certain expenses of handling the cases are also
subject to a limited, separate reimbursement agreement with Pneumo Abex
Corporation. In eleven of the
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pending cases, both expenses of defense and payment of settlements and/or
judgments are subject to a limited, separate reimbursement agreement with MLX
Corp., the parent of the company that purchased the Subsidiary's operating
assets in 1986.
(b) Claims Concluded Since the End of Fourth Quarter 1993
-----------------------------------------------------
Since the end of fourth quarter 1993, the following proceeding
was concluded:
Alfred L. Haynes and his wife filed suit against the Company
and several other defendants in the United States District Court for the
Eastern District of Tennessee, for which service of process on the Company
occurred on September 28, 1992. Mr. Haynes claimed that, while he was an
employee of an alleged customer of the Company, he contracted chronic beryllium
disease as a result of exposure to beryllium and beryllium-containing products.
Mr. Haynes sought compensatory damages in the amount of $5 million; his wife
claimed damages of $1.5 million for loss of consortium. Both plaintiffs sought
punitive damages in the amount of $3 million. On April 30, 1994, the Court
granted the Company's motion for dismissal on summary judgment. Although
plaintiffs are not expected to appeal, no such appeal need occur until the case
is resolved as to the other defendants.
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Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company's Annual Meeting of Shareholders for 1994 was held on
May 3, 1994.
(b) Not applicable.
(c) At the Annual Meeting, four directors were elected to serve for a
term of three years by the following vote:
<TABLE>
<CAPTION>
Shares Shares
Voted Voted
"For" "Withheld"
-------------- ----------
<S> <C> <C>
Gordon D. Harnett 13,447,918 95,225
William P. Madar 13,460,185 82,958
Robert M. McInnes 13,458,562 84,581
Henry G. Piper 13,426,436 116,707
</TABLE>
The selection of Ernst & Young as independent auditors for 1994
was ratified and approved by the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted Voted Voted Non-voting
"For" "Against" "Abstaining" Shares
-------------- ---------- ------------ -----------
<S> <C> <C> <C>
13,473,257 40,857 29,029 -0-
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
11. Statement re computation of per share earnings (filed
as Exhibit 1 to Part I of this report)
(b) Reports on Form 8-K
-------------------
There have been no reports on Form 8-K during the quarter
ended April 3, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRUSH WELLMAN INC.
Dated: May 9, 1994
/s/ CLARK G. WAITE
-----------------------------
Clark G. Waite, Sr. Vice
President, Finance and Administration,
and Chief Financial Officer
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INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page Number
- --------- ---------------------- -----------
<S> <C> <C>
11 Statement re: computation of per 11
share earnings (filed as Exhibit 1
to Part I of this report)
</TABLE>
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