<PAGE> 1
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 October 2, 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 November 1, 1994 there were 16,121,915 shares of Common Stock,
par value $1 per share, outstanding.
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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 October 2, 1994 are as follows:
Consolidated Statements of Income -
Three months and nine months ended October 2, 1994 and
October 3, 1993.
Consolidated Balance Sheets -
October 2, 1994 and December 31, 1993.
Consolidated Statements of Cash Flows -
Nine months ended October 2, 1994 and October 3, 1993.
Notes to Consolidated Financial Statements.
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Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(Dollars in thousands except share and per share amounts) 1994 1993 1994 1993
- - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $86,730 $76,816 $258,084 $217,048
Costs and expenses:
Cost of sales 66,630 59,985 189,799 168,781
Selling, administrative
and general expenses 14,003 11,577 39,743 35,144
Research and development
expenses 2,147 1,670 6,523 5,250
Interest expense 537 752 1,457 2,431
Other-net 652 754 2,486 1,714
------------- ------------- -------------- ------------
83,969 74,738 240,008 213,320
------------- ------------- -------------- ------------
Income before income taxes 2,761 2,078 18,076 3,728
Income taxes 329 416 4,157 753
------------- ------------- -------------- ------------
Net Income $ 2,432 $ 1,662 $ 13,919 $ 2,975
============= ============= ============== ============
Per Share of Common Stock $0.15 $0.10 $0.86 $0.18
Cash dividends per common share $0.08 $0.05 $0.18 $0.15
Weighted average number
of common shares outstanding 16,192,515 16,087,494 16,184,387 16,096,814
</TABLE>
See notes to consolidated financial statements.
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Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
October 2, Dec. 31,
(Dollars in thousands) 1994 1993
- - - - -------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 13,843 $ 7,690
Accounts receivable 57,376 46,462
Inventories 88,962 86,477
Prepaid expenses and other
current assets 15,759 15,595
-------- --------
Total Current Assets 175,940 156,224
Other Assets 15,727 16,231
Property, Plant and Equipment 349,760 337,342
Less allowances for depreciation,
depletion and impairment 232,970 218,416
-------- --------
116,790 118,926
Goodwill 1,815 1,991
-------- --------
$310,272 $293,372
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $ 16,075 $ 16,263
Accounts payable 7,557 5,427
Other liabilities and accrued
items 23,539 20,822
Dividends payable - 804
Income taxes 9,394 7,636
-------- --------
Total Current Liabilities 56,565 50,952
Other Long-Term Liabilities 41,958 40,664
Long-Term Debt 23,562 24,000
Deferred Income Taxes 4,650 5,682
Shareholders' Equity 183,537 172,074
-------- --------
$310,272 $293,372
======== ========
</TABLE>
See notes to consolidated financial statements.
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Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Oct. 2, Oct. 3,
(Dollars in thousands) 1994 1993
- - - - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 13,919 $ 2,975
Adjustments to Reconcile Net Income to Net Cash
Provided From Operating Activities:
Depreciation, depletion and amortization 13,992 14,508
Amortization of mine development 1,158 2,461
Decrease (Increase) in accounts receivable (9,430) (10,175)
Decrease (Increase) in Inventory (2,485) 2,828
Decrease (Increase) in prepaid and other current assets 3 672
Increase (Decrease) in accounts payable and accrued expenses 3,571 567
Increase (Decrease) in interest and taxes payable 1,339 (232)
Increase (Decrease) in deferred income tax (1,033) (2,006)
Other - net 1,784 638
-------- --------
Net Cash Provided From Operating Activities 22,818 12,236
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment (12,385) (8,209)
Payments for mine development (450) (678)
-------- --------
Net Cash Provided From (Used in) Investing Activities (12,835) (8,887)
Cash Flows from Financing Activities:
Proceeds from (Repayment of) short-term debt - net (1,939) (3,188)
Proceeds from issuance of long-term debt - 445
Repayment of long-term debt (698) -
Issuance of Common Stock under stock option plans 442 10
Payments of dividends (3,703) (4,182)
-------- --------
Net Cash Provided From (Used in) Financing Activities (5,898) (6,915)
Effects of Exchange Rate Changes 2,068 1,061
-------- --------
Net Change in Cash and Cash Equivalents 6,153 (2,505)
Cash and Cash Equivalents at Beginning of Period 7,690 4,190
-------- --------
Cash and Cash Equivalents at End of Period $ 13,843 $ 1,685
======== ========
</TABLE>
See notes to consolidated financial statements.
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Notes to Consolidated Financial Statements
(unaudited)
October 2, 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 October 2, 1994 and December 31, 1993 and the results of
operations for the three and nine months ended October 2, 1994 and
October 3, 1993.
Note B - Inventories
<TABLE>
<CAPTION>
October 2, Dec 31,
(Dollars in thousands) 1994 1993
- - - - --------------------------------------------------------------------------------
<S> <C> <C>
Principally average cost:
Raw materials and supplies $ 20,241 $ 19,431
In Process 51,139 50,349
Finished 37,205 33,720
-------- --------
108,585 103,500
Excess of average cost over
LIFO inventory value 19,623 17,023
-------- --------
$ 88,962 $ 86,477
======== ========
</TABLE>
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ITEM 2. Management's Discussion and Analysis
Results of Operations
Third quarter 1994 sales of $87 million represent an increase of 13% over the
$77 million recorded in third quarter 1993. Four of the five product lines had
greater sales, with beryllium alloys and precious metal products being the
largest contributors. International sales were $31 million and comprised 36%
of total sales in third quarter 1994 compared to $25 million or 32% of total
sales in third quarter 1993.
Sales of beryllium alloys increased significantly in third quarter 1994 from
the year ago period. Market development efforts, coupled with favorable
economic conditions, account for the sales increase. The strong U.S.
automotive and telecommunications markets were the key sales growth areas for
beryllium alloys. Alloy international sales in third quarter 1994 also
increased significantly from the year ago period as a result of application
development efforts and improved economic conditions in Europe. Continuing
economic growth in Asia has also served to increase international sales. We
expect favorable sales comparisons, both domestically and internationally, for
the rest of 1994.
Beryllium sales decreased significantly from the year ago period. Third
quarter 1993 included shipments to the Defense Logistics Agency (DLA) and sales
to a computer disk drive manufacturer. Small amounts of both products were
shipped in third quarter 1994 and the DLA contract is now complete.
Application development efforts are focused on aerospace and avionics markets,
particularly using AlBeMet(R), a family of materials containing 30% to 62%
beryllium in aluminum.
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Beryllia ceramic sales were up slightly in third quarter 1994 as compared to
third quarter 1993. Demand for beryllia ceramic products was strong in U.S.
automotive markets as well as from telecommunications growth worldwide.
Recently introduced products derived from beryllia tape, along with direct bond
copper products, are generating new applications with long-term growth
potential.
Specialty metal systems sales increased in third quarter 1994 as compared to
third quarter 1993. The continued strength in the automotive,
telecommunications, computer and semiconductor industries has generated the
increased demand. Application development efforts are aimed at further
penetrating these markets.
Sales of precious metals products were up significantly in third quarter 1994
over the comparable 1993 period. High demand for frame lid assemblies from
semiconductor manufacturers, along with increasing sales of vapor deposition
targets, accounted for much of the increase. To further enhance this product
line, Williams Advanced Materials purchased the assets, including net working
capital, of Hydrostatics Inc., a producer of precious metal fine wire products.
This product fills an identified need to support markets in the semiconductor
and hybrid microelectronics industries. The transaction was completed in
October 1994.
Gross margin (sales less cost of sales) increased to 23.2% of sales in third
quarter 1994 as compared to 21.9% of sales in third quarter 1993. Included
primarily in cost of sales is a $2 million provision for partial closure of the
Applications Development Center in Fremont, California. Without this charge,
third quarter 1994 gross margin would have been 25.3%. As was the case in
first half 1994, the improved margin results from higher sales and
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production volumes of beryllium alloys, coupled with manufacturing
improvements, especially for alloy strip products. Third quarter 1993 was
negatively impacted by manufacturing problems with a disk drive component.
Sales for the first nine months of 1994 were $258 million, a 19% increase over
the $217 million attained in the first nine months of 1993. All product lines,
except beryllium, contributed to the increase. Nine months 1994 gross margin
was 26.5% of sales compared to 22.2% in 1993. The factors affecting third
quarter gross margin also relate to the nine-month comparison.
Third quarter 1994 selling, administrative and general expenses were $14.0
million or 16.1% of sales, up from $11.6 million or 15.1% of sales in third
quarter 1993. Through the nine months of 1994, these expenses totaled $39.7
million compared to $35.1 million in the prior year. The increase is in all
expense categories and includes an increased accrual for incentive
compensation. A portion of the increase in administrative costs is from an
alloy business process redesign effort. A group of employees and consultants
have been charged with reviewing/analyzing specific activities in the Company
to find opportunities for improvement. This process redesign effort will
continue into 1995.
Research and development (R&D) expenses in third quarter 1994 exceeded the
comparable 1993 period by more than 25%. This increase arose mainly in
beryllium and ceramic products where efforts are focused on new product
development. R&D expenses for the year 1994 are expected to exceed $8 million
as compared to $7.1 million during 1993.
Interest expense fell substantially in the third quarter and nine months of
1994 as compared to 1993 because of lower average debt outstanding.
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Other-net expense was $0.7 million in third quarter 1994 and $2.4 million for
the nine months compared to $0.8 million and $1.7 million in the corresponding
1993 periods. This category includes non-operating items such as currency
exchange and translation effects, interest income and amortization of goodwill.
The first nine months of 1993 included $0.7 million of non-recurring gains from
a contract settlement and a license payment.
Income before taxes was $2.8 million in third quarter 1994 and $18.1 million
for the nine months. The comparable 1993 results were $2.1 million and $3.7
million. Higher sales volume and related gross margin improvements account for
the increase. Income taxes were provided for at an effective rate of 23% of
pre-tax income for the first nine months of 1994, resulting in a 12% rate for
the third quarter. This is a reduction from the 25% effective rate used in the
first half and is due to anticipated higher tax credits. For the nine months
1993, an effective tax rate of 20% was employed.
Earnings per share were $0.15 in third quarter 1994 and $0.86 for the first
nine months compared to $0.10 and $0.18, respectively, in 1993.
Financial Condition
Net cash provided from operating activities was $22.8 million during the nine
months 1994 as compared to $12.2 million in the comparable 1993 period.
During the nine months, accounts receivable increased $10.9 million or 23%,
which is slightly above the 19% increase in sales. Total inventories increased
$2.5 million. The beryllium product line inventories have been reduced to
correspond to lower sales. The beryllium alloy product line inventories have
increased reflecting higher sales levels.
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Capital expenditures for property, plant and equipment amounted to $12.4
million for the first nine months of 1994 and are expected to total $17 million
for the year.
Total debt decreased by $0.6 million during the first nine months of 1994.
Long-term debt at the end of the quarter was 11.4% 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>
THIRD QUARTER ENDED NINE MONTHS ENDED
------------------------------ -----------------------------------
October 2, October 3 October 2, October 3
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 16,106,822 16,087,415 16,096,005 16,087,197
Dillutive stock options based
on the treasury stock method
using average market price 84,534 0 78,077 9,617
----------- ----------- ------------ -----------
TOTALS 16,191,356 16,087,415 16,174,082 16,096,814
=========== =========== ============ ===========
Net Income $ 2,432,000 $ 1,662,000 $ 13,919,000 $ 2,975,000
Per share amount $0.15 $0.10 $0.86 $0.18
Fully diluted:
Average shares outstanding 16,106,822 16,087,415 16,096,005 16,087,197
Dillutive stock options based
on the treasury stock method
using average market price 85,693 79 88,382 9,617
----------- ----------- ------------ -----------
TOTALS 16,192,515 16,087,494 16,184,387 16,096,814
=========== =========== ============ ===========
Net Income $ 2,432,000 $ 1,662,000 $ 13,919,000 $ 2,975,000
Per share amount $0.15 $0.10 $0.86 $0.18
</TABLE>
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PART II OTHER INFORMATION
BRUSH WELLMAN INC. AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
(a) Legal Proceedings Concluded Since
the End of Second Quarter 1994
Esmeralda Mendoza, on her own behalf and on behalf of the
estate of her husband Phillip Mendoza, filed suit against the Company in the
Court of Common Please of Ottawa County, Ohio on June 27, 1994. Service of
process on the Company occurred on July 7, 1994. The complaint alleged that,
while he was an employee of the Company, Mr. Mendoza contracted chronic
beryllium disease as a result of exposure to beryllium dust. The claim was
premised on a theory of intentional tort. The estate of Mr. Mendoza sought
$500,000 in compensatory damages and $500,000 in punitive damages; Ms. Mendoza
sought damages for loss of consortium in the amount of $250,000. This claim
was first disclosed on the Company's report on Form 10-Q for the second quarter
of 1994. On September 9, 1994, plaintiffs filed a notice of dismissal without
prejudice.
In April, 1993, the Company learned that the Ohio
Environmental Protection Agency had recommended that the Ohio Attorney
General's office consider initiation of enforcement proceedings against the
Company with respect to alleged violation
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<PAGE> 14
of various environmental laws at the facility in Elmore, Ohio. On October 19,
1994, the Court of Common Pleas for Ottawa County, Ohio entered a consent
decree resolving the alleged violations relating to air emissions standards.
Pursuant to the terms of the consent decree, the Company will pay a total of
$47,000. Resolution of certain alleged violations of hazardous waste and solid
waste requirements is still pending.
(b) Legal Proceedings Initiated Since
the End of Second Quarter 1994
On September 1, 1994, the Company was served with a Complaint
filed in Case No. 94-CV-3970 in the United States District Court for the
Eastern District of Pennsylvania, The Glidden Company, et al. v. American Color
and Chemical Co., et al. The plaintiffs in the case are five companies who are
undertaking investigatory and other remedial activities at the Berks Landfill
in Sinking Springs, Pennsylvania, pursuant to orders of the EPA. The 18
defendants include the owner of the site, the former operators of the site,
transporters who took waste to the site and several generators of waste
allegedly disposed of at the site, including the Company. The landfill
reportedly operated for approximately 37 years, and it is believed that
hundreds of entities in addition to the ones involved in the lawsuit generated
waste disposed of at the site or hauled waste to the site.
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<PAGE> 15
The plaintiffs have submitted a draft remedial investigation
report and a draft risk assessment to the EPA. By their action, the plaintiffs
seek to obtain contribution from all the defendants for all past and future
costs incurred with respect to the site. The Company has not yet responded to
the Complaint.
(c) Asbestos Exposure Claims
A subsidiary of the Company (the "Subsidiary") is a
co-defendant in thirty-one 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-nine 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.
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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. A separate, limited agreement with Pneumo Abex
Corporation relating to the expenses of handling the cases expired on June 30,
1994. This agreement is subject to revival, however, if either the Subsidiary
or Pneumo Abex Corporation withdraws from the agreement with the five insurers
referred to above. In eleven of the 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.
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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)
27. Financial Data Schedule
(b) Reports on Form 8-K
There have been no reports on Form 8-K during the
quarter ended October 2, 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: November 14, 1994
/s/ CLARK G. WAITE
-----------------------------
Clark G. Waite, Sr. Vice
President and Chief Financial
Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> OCT-02-1994
<CASH> 13,843
<SECURITIES> 0
<RECEIVABLES> 57,376
<ALLOWANCES> 931
<INVENTORY> 88,962
<CURRENT-ASSETS> 175,940
<PP&E> 349,760
<DEPRECIATION> 232,970
<TOTAL-ASSETS> 310,272
<CURRENT-LIABILITIES> 56,565
<BONDS> 23,562
<COMMON> 21,211
0
0
<OTHER-SE> 162,326
<TOTAL-LIABILITY-AND-EQUITY> 310,272
<SALES> 258,084
<TOTAL-REVENUES> 258,084
<CGS> 189,799
<TOTAL-COSTS> 236,065
<OTHER-EXPENSES> 2,386
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 1,457
<INCOME-PRETAX> 18,076
<INCOME-TAX> 4,157
<INCOME-CONTINUING> 13,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,919
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
