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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 July 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 August 1, 1994 there were 16,098,415 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 July 3, 1994 are as follows:
Consolidated Statements of Income -
Three months and six months ended July 3, 1994 and
July 4, 1993.
Consolidated Balance Sheets -
July 3, 1994 and December 31, 1993.
Consolidated Statements of Cash Flows -
Six months ended July 3, 1994 and
July 4, 1993.
Notes to Consolidated Financial Statements.
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<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Second Quarter Ended First Half Ended
July 3, July 4, July 3, July 4,
(Dollars in thousands except share and per share amounts 1994 1993 1994 1993
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $86,560 $70,852 $171,354 $140,232
Costs and expenses:
Cost of sales 61,567 55,263 123,168 108,798
Selling, administrative
and general expenses 13,121 11,946 25,739 23,566
Research and development
expenses 2,189 1,815 4,376 3,581
Interest expense 449 824 920 1,679
Other-net 1,063 923 1,836 959
---------- ---------- ---------- ----------
78,389 70,771 156,039 138,583
---------- ---------- ---------- ----------
Income before income taxes 8,171 81 15,315 1,649
Income taxes 2,279 (76) 3,828 337
---------- ---------- ---------- ----------
Net Income $5,892 $157 $11,487 $1,312
========== ========== ========== ==========
Per Share of Common Stock: $0.36 $0.01 $0.71 $0.08
Cash dividends per common share $0.05 $0.05 $0.10 $0.10
Weighted average number
of common shares outstanding 16,204,652 16,087,470 16,165,713 16,101,599
<FN>
See notes to consolidated financial statements.
</TABLE>
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CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 3, Dec. 31,
(Dollars in thousands) 1994 1993
- - --------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $17,838 $7,690
Accounts receivable 56,147 46,462
Inventories 86,285 86,477
Prepaid expenses and other
current assets 15,990 15,595
---------- ----------
Total Current Assets 176,260 156,224
Other Assets 15,932 16,231
Property, Plant and Equipment 346,307 337,342
Less allowances for depreciation,
depletion and impairment 227,986 218,416
---------- ----------
118,321 118,926
Goodwill 1,873 1,991
---------- ----------
$312,386 $293,372
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $17,594 $16,263
Accounts payable 7,801 5,427
Other liabilities and accrued
items 24,457 20,822
Dividends payable - 804
Income taxes 10,025 7,636
---------- ----------
Total Current Liabilities 59,877 50,952
Other Long-Term Liabilities 41,508 40,664
Long-Term Debt 23,929 24,000
Deferred Income Taxes 4,959 5,682
Shareholders' Equity 182,113 172,074
---------- ----------
$312,386 $293,372
========== ==========
See notes to consolidated financial statements.
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<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited) First Half Ended
JULY 3, July 4,
(Dollars in thousands) 1994 1993
- - -------------------------------------------------------------------------------------------------
<S> <C>
NET INCOME $11,487 $1,312
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
Provided From Operating Activities:
Depreciation, depletion and amortization 9,270 9,700
Amortization of mine development 721 1,755
Decrease (Increase) in accounts receivable (8,291) (7,709)
Decrease (Increase) in Inventory 192 1,941
Decrease (Increase) in prepaid and other current assets (301) 1,186
Increase (Decrease) in accounts payable and accrued expenses 5,217 (1,406)
Increase (Decrease) in interest and taxes payable 1,757 (1,037)
Increase (Decrease) in deferred income tax (723) (1,334)
Other - net 739 114
--------- ---------
Net Cash Provided From Operating Activities 20,068 4,522
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment (8,911) (4,197)
Payments for mine development (253) (428)
Payments for purchase of business - 186
--------- ---------
Net Cash Provided From (Used in) Investing Activities (9,164) (4,439)
Cash Flows from Financing Activities:
Proceeds from (Repayment of) short-term debt - net 618 (571)
Proceeds from issuance of long-term debt - 706
Repayment of long-term debt (344) -
Issuance of Common Stock under stock option plans 162 10
Payments of dividends (2,414) (3,378)
--------- ---------
Net Cash Provided From ( Used in) Financing Activities (1,978) (3,233)
Effects of Exchange Rate Changes 1,222 995
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 10,148 (2,155)
Cash and Cash Equivalents at Beginning of Period 7,690 4,190
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,838 $2,035
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3, 1994
NOTE A - ACCOUNTING POLICIES
In management's opinion, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the fianancial
position as of July 3, 1994 and December 31, 1993 and the results of operations
for the the three and six months ended July 3, 1994 and July 4, 1993.
<TABLE>
<CAPTION>
NOTE B - INVENTORIES
July 3, Dec 31,
(Dollars in thousands) 1994 1993
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Principally average cost:
Raw materials and supplies $20,909 $19,431
In Process 45,897 50,349
Finished 37,751 33,720
--------- ---------
104,557 103,500
Excess of average cost over
LIFO inventory value 18,272 17,023
--------- ---------
$86,285 $86,477
========= =========
</TABLE>
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ITEM 2. Management's Discussion and Analysis
- - ---------------------------------------------
Results of Operations
- - ---------------------
Second quarter 1994 sales of $87 million represents an increase of 22% over the
$71 million recorded in second quarter 1993. All five product lines
experienced gains with beryllium alloys and precious metal products being the
largest contributors. International sales were $26 million and comprised 30%
of total sales in second quarter 1994 compared to $20 million or 28% of total
sales in second quarter 1993.
Sales of beryllium alloys increased significantly in second quarter 1994 from
the year ago period. Market development efforts, coupled with continued
economic strength, account for the sales increase. The strong U.S. automotive
and telecommunications markets are the key sales growth areas for beryllium
alloys. Alloy international sales in second quarter 1994 also increased
significantly from the year ago period as a result of application development
efforts and improved economic conditions in Europe. We expect favorable sales
comparisons for the rest of 1994.
Beryllium sales increased slightly from the year ago period. The second
quarter included most of the final shipments on the Defense Logistics Agency
(DLA) supply contract. Substantially lower 1994 second half sales are expected
in this product line.
Beryllia ceramic sales were up slightly in second quarter 1994 as compared to
second quarter 1993. Continued strong U.S. automotive and telecommunications
equipment
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demands offset the decline in defense applications. New products based on
direct bond copper technology are now in production.
Specialty metal systems sales increased in second quarter 1994 as compared to
second quarter 1993. The continued strength in the automotive,
telecommunications, computer and semiconductor industries is generating
increased demand. Application development efforts are aimed at further
penetrating these markets.
Sales of precious metals products were up significantly in second 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. We anticipate that the current
high sales level should continue in the second half of 1994.
Gross margin (sales less cost of sales) increased to 28.9% of sales in second
quarter 1994 as compared to 22.0% of sales in second quarter 1993. Higher
sales and production volumes of beryllium alloys, together with improved
margins in the beryllium product line, account for much of the improvement. As
with the first quarter comparisons, the beryllium alloys product line has been
experiencing lower unit costs from higher throughput and has benefited from
manufacturing improvements, especially in strip products. The beryllium
product line enjoyed a favorable product mix in second quarter 1994. However,
the major reason for improvement was that second quarter 1993 was negatively
impacted by manufacturing problems with the AlBeMet(R) disk drive component.
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The ceramic product line is transferring its direct bond copper production from
a Syracuse, New York facility to the Newburyport, Massachusetts plant. A
provision of $600 thousand was recorded in second quarter 1994 to cover
employee relocation, severance and training, equipment relocation and some
asset abandonments.
Sales for first half 1994 were $171 million, a 22% increase over the $140
million attained in first half 1993. Increases occurred in beryllium alloys,
specialty metal systems, and precious metal products. First half 1994 gross
margin was 28.1% of sales compared to 22.4% in 1993. The factors affecting
second quarter gross margin also apply to first half performance.
Selling, administrative and general expenses were $13.1 million or 15.2% of
sales, up from $11.9 million or 16.9% of sales in second quarter 1993. For the
first half, these expenses totaled $25.7 million compared to $23.6 million in
the prior year. The increase resulted from higher marketing, selling and
distribution expenses and an increased accrual for incentive compensation.
Research and development (R&D) expenses in second quarter and first half 1994
exceeded the comparable 1993 periods by more than 20%. This increase was
mainly in beryllium products where efforts are focused on new product
development, especially in AlBeMet(R) materials. 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 second quarter and first half 1994 as
compared to 1993, due principally to lower average debt outstanding.
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Other-net expense was $1.1 million in the second quarter and $1.8 million for
the half compared to $0.9 million and $1.0 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. First
half 1993 included $0.7 million of non-recurring gains from a contract
settlement and a license payment.
Income before taxes was $8.2 million in second quarter 1994 and $15.3 million
for the half. The comparable 1993 results were $0.1 million and $1.6 million.
The higher sales volume and related gross margin improvements account for the
increase. Income taxes were provided for at an effective rate of 25% of
pre-tax income for the first half, resulting in a 28% rate for the second
quarter. For the first half 1993, an effective tax rate of 20% was employed.
Earnings per share were $0.36 in the second quarter and $0.71 for the first
half compared to $0.01 and $0.08 in 1993.
Financial Condition
- - -------------------
Net cash provided from operating activities was $20.1 million during first half
1994 as compared to $4.5 million in the comparable 1993 period.
During the first half accounts receivable increased $9.7 million or 21%, which
is in line with the 22% increase in sales. Total inventories are virtually
unchanged. The beryllium product line inventories have been reduced to
correspond to the expected lower sales. The beryllium alloy product line
inventories have increased based on the higher sales
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levels and a seasonal increase in finished goods in preparation for plant
shutdowns for maintenance, primarily the Reading, Pennsylvania finishing mill.
Capital expenditures for property, plant and equipment amounted to $8.9 million
during first half 1994 and are expected to total $17 million for the year.
Total debt increased by $1.3 million during first half 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>
SECOND QUARTER ENDED SIX MONTHS ENDED
------------------------------ -------------------------------
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 16,093,442 16,087,411 16,090,655 16,087,090
Dilutive stock options
based on the treasury
stock method using
average market price 111,210 42 75,058 14,509
----------- ----------- ----------- -----------
TOTALS 16,204,652 16,087,453 16,165,713 16,101,599
=========== =========== =========== ===========
Net Income $ 5,892,000 $ 1,158,000 $11,487,000 1,312,000
Per share amount $ 0.36 $ 0.01 $ 0.71 $ 0.08
Fully Diluted:
Average shares outstanding 16,093,442 16,087,411 16,090,655 16,087,090
Dilutive stock options
based on the treasury
stock method using year-
end market price if higher
than average market price 111,210 59 75,058 14,509
----------- ----------- ----------- -----------
TOTALS 16,204,652 16,087,470 16,165,713 16,101,599
=========== =========== =========== ===========
Net Income $ 5,892,000 $ 158,000 $11,487,000 $ 3,312,000
Per share amount $ 0.36 $ 0.01 $ 0.71 $ 0.08
</TABLE>
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PART II OTHER INFORMATION
BRUSH WELLMAN INC. AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
- - ------ -----------------
(a) Legal Proceedings Initiated Since
the End of First Quarter 1994
---------------------------------
(i) Troy Murphy Morgan, Corky Dean McCarter and his wife Karen
Denise Smith McCarter, Richard Emory Myers, Sr. and his wife Wilma Dean
Kennedy Myers and Kathlene Beatty jointly filed suit against the Company and
two other defendants in the United States District Court for the Eastern
District of Tennessee on June 24, 1994. Service of process on the Company
occurred on July 5, 1994. Messrs. Morgan, McCarter and Myers and Ms. Beatty
claim that, while they were employees of an alleged customer of the Company,
they contracted chronic beryllium disease as a result of exposure to beryllium
and beryllium-containing products. Ms. McCarter and Ms. Myers are claiming
loss of consortium. The plaintiffs' aggregate claim for relief, which
includes compensatory and punitive damages, totals $19 million. Defense of
this case is being conducted by counsel selected by the Company. It is
anticipated that such counsel will be retained by the Company's insurance
carrier.
(ii) 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 Pleas of Ottawa
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County, Ohio on June 27, 1994. Service of process on the Company occurred on
July 7, 1994. The complaint alleges 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 is premised on a theory of intentional
tort. The estate of Mr. Mendoza seeks $500,000 in compensatory damages and
$500,000 in punitive damages; Ms. Mendoza seeks damages for loss of consortium
in the amount of $250,000. Defense of this case is being conducted by counsel
retained by the Company and the Company's insurance carrier is investigating
its liability for these claims.
(iii) Ursula Cruz, Javier Fimbres, Norma Flores, Robert
Kofira, Rosa Maldonado and Hildegard Stoecker and their respective spouses
filed separate suits against the Company and certain Company employees in the
Superior Court of Pima County, Arizona on June 30, 1994. Service of process
on the Company for each of the suits occurred on July 7, 1994. The plaintiffs
claim that, during their employment with the Company, they contracted chronic
beryllium disease as a result of exposure to beryllium and beryllium-containing
products. The plaintiffs seek compensatory and punitive damages of an
unspecified amount based on allegations that the Company intentionally
misrepresented the potential danger of exposure to beryllium and breached an
agreement to pay certain benefits in the event the plaintiffs contracted
chronic beryllium disease. Defense of this case is
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being conducted by counsel retained by the Company and the Company's insurance
carrier is investigating its liability for these claims.
The Company believes that resolution of the cases referred to above
will not have a material effect on the Company.
(b) Recent Developments Relating to
Pending Legal Proceedings
-------------------------------
On November 1, 1989, the Company appealed to the Ohio
Environmental Board of Review (the "Board of Review") to vacate or modify
certain conditions in an NPDES waste water discharge permit issued by the Ohio
Environmental Protection Agency (the "Ohio EPA") for the Company's Elmore, Ohio
facility. On June 30, 1994, a Settlement Agreement was filed with the Board of
Review. Under the Settlement Agreement, the Ohio EPA is expected to issue a
modified NPDES permit and administrative orders, following a public comment
period, in September 1994. If these actions occur, the Company will be
obligated to dismiss its appeal.
(c) Asbestos Exposure Claims
------------------------
A subsidiary of the Company (the "Subsidiary") is a co-defendant in
twenty-nine 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-eight 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
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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. 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 earn
ings (filed as Exhibit 1 to Part 1 of this
report)
(b) Reports on Form 8-K
-------------------
There have been no reports on Form 8-K during the
quarter ended July 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: August 3, 1994
/s/ Clark G. Waite
---------------------------
Clark G. Waite, Sr. Vice
President and Chief Financial
Officer
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