<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 September 29, 1995
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 October 31, 1995 there were 16,236,424 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 September 29, 1995 are as follows:
Consolidated Statements of Income -
Nine months ended September 29, 1995 and October 2, 1994
Consolidated Balance Sheets -
September 29, 1995 and December 31, 1994
Consolidated Statements of Cash Flows -
Nine months ended September 29, 1995 and October 2, 1994
Notes to consolidated Financial Statements
1
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 29, October 2, September 29, October 2,
(Dollars in thousands except share and per share amounts) 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $89,361 $86,730 $285,555 $258,084
Costs and expenses:
Cost of sales 66,729 66,630 208,310 189,799
Selling, administrative
and general expenses 15,327 14,003 46,590 39,743
Research and development
expenses 2,119 2,147 5,934 6,523
Interest expense 331 537 1,192 1,457
Other-net 725 652 1,104 2,486
---------- ---------- ---------- ----------
85,231 83,969 263,130 240,008
---------- ---------- ---------- ----------
Income before income taxes 4,130 2,761 22,425 18,076
Income taxes 799 329 5,628 4,157
---------- ---------- ---------- ----------
Net Income $3,331 $2,432 $16,797 $13,919
========== ========== ========== ==========
Per Share of Common Stock: $0.20 $0.15 $1.02 $0.86
========== ========== ========== ==========
Cash dividends per common share $0.10 $0.08 $0.26 $0.18
Weighted average number
of common shares outstanding 16,518,151 16,192,515 16,423,947 16,184,387
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 29, December 31,
(Dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $23,253 $20,441
Accounts receivable 61,450 52,272
Inventories 91,657 93,601
Prepaid expenses and other current assets 15,906 14,903
------------ ------------
Total Current Assets 192,266 181,217
Other Assets 18,386 19,153
Property, Plant and Equipment 365,874 350,811
Less allowances for depreciation,
depletion and impairment 249,696 234,048
------------ ------------
Property, Plant and Equipment -- net 116,178 116,763
------------ ------------
$326,830 $317,133
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $18,868 $20,643
Accounts payable 6,703 8,861
Other liabilities and accrued items 25,946 26,649
Dividends payable 1,288
Income taxes 11,080 8,482
------------ ------------
Total Current Liabilities 62,597 65,923
Other Long-Term Liabilities 43,313 41,940
Long-Term Debt 17,826 18,527
Deferred Income Taxes 2,283 3,803
Shareholders' Equity 200,811 186,940
------------ ------------
$326,830 $317,133
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 29, October 2,
(Dollars in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $16,797 $13,919
Adjustments to Reconcile Net Income to Net Cash
Provided From Operating Activities:
Depreciation, depletion and amortization 14,739 13,992
Amortization of mine development 2,166 1,158
Decrease (Increase) in accounts receivable (8,862) (9,430)
Decrease (Increase) in Inventory 1,944 (2,485)
Decrease (Increase) in prepaid and other current assets (986) 3
Increase (Decrease) in accounts payable and accrued expenses (3,029) 3,571
Increase (Decrease) in interest and taxes payable 2,128 1,339
Increase (Decrease) in deferred income tax (1,521) (1,033)
Other - net 1,000 1,784
------------- -------------
Net Cash Provided From Operating Activities 24,376 22,818
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment (15,471) (12,385)
Payments for mine development (674) (450)
Proceeds from other investments 947
------------- -------------
Net Cash Used in Investing Activities (15,198) (12,835)
Cash Flows from Financing Activities:
Repayment of short-term debt - net (1,910) (1,939)
Repayment of long-term debt- net (776) (698)
Issuance of Common Stock under stock option plans 1,291 442
Payments of dividends (5,504) (3,703)
------------- -------------
Net Cash Used in Financing Activities (6,899) (5,898)
Effects of Exchange Rate Changes 533 2,068
------------- -------------
Net Change in Cash and Cash Equivalents 2,812 6,153
Cash and Cash Equivalents at Beginning of Period 20,441 7,690
------------- -------------
Cash and Cash Equivalents at End of Period $23,253 $13,843
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 29, 1995
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 September 29, 1995 and December 31, 1994 and the results of operations for
the three and nine months ended September 29, 1995 and October 2, 1994.
Note B - Inventories
<TABLE>
<CAPTION>
September 29, December 31,
(Dollars in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Principally average cost:
Raw materials and supplies $20,050 $21,020
In Process 55,900 55,008
Finished 41,350 39,530
------------- -------------
117,300 115,558
Excess of average cost over
LIFO inventory value 25,643 21,957
------------- -------------
$91,657 $93,601
============= =============
</TABLE>
5
<PAGE> 7
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
Results of Operations
- ---------------------
Third quarter 1995 sales of $89 million represent an increase of 3% over the
third quarter 1994. Four of the five major product groups had increased sales.
International sales totaled $30 million and accounted for 34% of total sales in
the third quarter 1995 compared to $31 million or 36% of total sales in the
third quarter 1994. Increases in international sales of Alloy Products in the
current quarter were essentially offset by a decline in international Precious
Metal sales as compared to third quarter 1994.
Sales of Alloy Products increased significantly in third quarter 1995 versus
the comparable period in 1994. Application development efforts and strong
demand in key markets, including automotive electronics and telecommunications,
account for a major portion of the increase. Strong economic conditions in
various international markets, particularly Germany, also contributed to the
increase. Sales in 1995 continue to be favorably impacted by the higher
pass-through commodity costs, primarily copper.
Beryllium Products sales increased during the third quarter 1995 over third
quarter 1994. Sales in 1995 were still below the 1993 level due to the
discontinuation of shipments to the Defense Logistics Agency stockpile and a
computer disk drive arm program. Marketing and research and development efforts
have now been focused on several specific markets, including aerospace and
avionics.
6
<PAGE> 8
Sales of Ceramic Products increased over third quarter 1994. The
sales growth in the third quarter was slower than the first half 1995. The
increased sales in 1995 is due primarily to products using the direct bond
copper technology. Key markets for Ceramic products are telecommunications and
automotive electronics.
Specialty Metal Systems sales increased significantly in the third quarter as
compared to the year-ago period. Market development application efforts and
quality improvements contributed to the increase. Markets for these products
include automotive, telecommunications, computers and semiconductors.
Sales of Precious Metal Products in the third quarter 1995 decreased from the
third quarter 1994. Fourth quarter sales are expected to be less than the
comparable period last year. The decrease is due to a major customer for frame
lid assemblies that has redesigned their applications into a different
technology. The continued development of the vapor deposition target business
and the transition into the precious metal ultra-fine wire business help to
offset a portion of the decline in the frame lid assembly volume.
Gross margin (sales less cost of sales) increased to $23 million for the
quarter as compared to $20 million in 1994. The margin percent also increased
to 25% of sales as compared to 23% of sales in third quarter 1994. In general,
the product mix is shifting towards lower margin products while efforts are
underway to reduce the manufacturing costs of these products. The two main
facilities for producing Alloy Products had brief scheduled shutdowns in the
third quarter for planned maintenance activity, the cost of which is
7
<PAGE> 9
generally provided for throughout the year. Included primarily in cost of
sales in 1994 is a $2 million provision for partial closure of a facility in
Fremont, California.
Sales for the first nine months of 1995 were $286 million, an increase of 11%
over sales of $258 in 1994. Alloy, Ceramic and Specialty Metal Products sales
increased over the year-ago period. Precious Metal Products sales declined for
the first ninth months of 1995 as the decline in the third quarter more than
offset the increased sales in the half. Beryllium sales declined in 1995 as
well. International sales were up significantly over the prior year. The
majority of this growth was due to higher volume, although sales were
favorably affected by the impact of currency rates on revenues generated
outside the United States. The dollar strengthened against the yen in the
third quarter which may minimize this favorable currency impact in the coming
quarters. Gross margin for the year increased to $77 million compared to $68
million in 1994. As a percent of sales, gross margin increased to 27% in 1995
from 26% in 1994.
Selling, administrative and general expenses were $15.3 million or 17% of sales
in the third quarter compared to $14.0 million or 16% of sales in the third
quarter 1994. Year-to-date expenses are $46.6 million compared to $39.7
million in 1994. Most expense categories show an increase over prior years.
Causes of the year-to-date increases include the Alloy Products re-design
effort, start-up costs associated with the Singapore subsidiary established to
provide marketing supporting in south Asia and a higher volume of sales-related
activity. The exchange rate effect on the foreign operations' expenses was also
unfavorable.
8
<PAGE> 10
Research and development expenses were $5.9 million for the first nine months
compared to $6.5 million in 1994. Increased focus on
specific projects has helped to reduce costs. Total expenses for 1995 should
be in line with the nine-month average.
Other-net expense was $0.7 million for the quarter and $1.1 million for the
first nine months compared to $0.7 million and $2.5 million in 1994 for the
quarter and nine months, respectively. This category includes non-operating
items such as currency exchange and translation effects, goodwill amortization,
cash discounts and interest income. The year-to-date changes in 1995 over 1994
are mainly from currency exchange gains and an increase in interest income from
a higher level of investments with a higher average effective interest rate.
Interest expense declined for the third quarter and for the nine months as
compared to 1994 due to a lower average level of debt outstanding.
Capitalized interest associated with active capital expenditure projects
increased for the first ninth months of 1995 as compared to the same period
last year.
Income before income taxes was $4.1 million for the quarter compared to $2.8
million in third quarter 1994. Higher sales and the resulting gross margin
account for the increase over 1994. For the nine months, income before taxes
was $22.4 million as compared to $18.1 million in 1994. Income taxes were
provided for at an effective rate of 25% of pre-tax income for the first nine
months of 1995, resulting in a 19% rate for the third quarter. The
effective tax rate was 23% for the first nine months 1994.
9
<PAGE> 11
Lower anticipated tax credits and higher pre-tax earnings account for
the increased rate.
Earnings per share were $0.20 for the quarter and $1.02 for the first nine
months compared to 1994 results of $0.15 and $0.86.
10
<PAGE> 12
Financial Condition
- -------------------
Net cash provided from operations was $24.4 million during first nine months of
1995 compared to $22.8 million for the same period in 1994.
During the nine months, accounts receivable increased 17.6%, a higher rate than
the increase in sales. This is due in large part to the increase in
international sales, which typically take longer to collect. There does not
appear to be any increased risk of non-payment of receivables and the
collection record remains very good. Total inventories decreased $1.9 million
due to increased efforts to improve inventory turns and operating efficiencies.
Capital expenditures for property, plant and equipment were $15.5 million for
the first nine months compared to $12.4 million for the first nine months 1994.
The company is currently reviewing various alternative capital projects to
improve the quality and cost of its alloy strip products.
Total debt decreased by $2.5 million during the first nine months of 1995.
Long-term debt at the end of the quarter was 9% of total capital.
Funds being generated by operations plus the available borrowing capacity are
believed adequate to support the Company's short-term and long-term capital
requirements which include operating requirements, capital expenditures,
remediation projects, dividends and small acquisitions. Excess cash, if any,
is invested in money market instruments and other high quality investments.
11
<PAGE> 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
(a) Environmental Proceedings
-------------------------
RECENT DEVELOPMENTS RELATING TO PENDING CLAIMS SINCE THE END
OF SECOND QUARTER 1995. On July 26, 1994, the Company received a complaint,
service of which was waived on September 29, 1994, in GLIDDEN COMPANY ET AL. V.
AMERICAN COLOR AND CHEMICAL ET AL., filed in the United States District Court
for the Eastern District of Pennsylvania. This claim was disclosed on the
Company's annual report on Form 10-K for the year ended December 31, 1994. The
plaintiffs are five companies which, pursuant to orders issued by the United
States EPA under CERCLA, have been spending funds to secure, maintain and
conduct an investigation of the Berks Landfill in Sinking Springs,
Pennsylvania. The plaintiffs are alleged to have had their wastes disposed of
at the landfill, which operated from 1950 through October 1, 1986. The 18
defendants consist of former owners or operators of the site and alleged
transporters and/or generators of waste disposed of at the site. It is
believed that hundreds of other entities disposed of waste at the site during
its long period of operation. The plaintiffs seek to recover their past and
future costs pursuant to rights of contribution under CERCLA and the
Pennsylvania Hazardous Sites Cleanup Act. Plaintiffs allege that, as of
September 1994, they had spent $355,000 to secure and maintain the site and
that they expected to spend $1.7 million for a remedial
investigation/feasibility study and a risk assessment. Such study and risk
assessment have been submitted to the United States EPA for its review.
Discovery is proceeding.
12
<PAGE> 14
(b) Beryllium Exposure Claims
-------------------------
CLAIMS INITIATED SINCE THE END OF SECOND QUARTER 1995. George
R. Faccio and his wife filed suit against the Company in the Superior Court of
Pima County, Arizona on July 26, 1995, for which service of process on the
Company on August 3, 1995. This suit has been removed to the U.S. District
Court for the District of Arizona. Mr. Faccio claims that, while he was an
employee of an electrical construction firm that allegedly performed services
on the premises of the Company, he contracted chronic beryllium disease as a
result of exposure to beryllium and beryllium-containing products. Mrs. Faccio
claims loss of consortium. Mr. and Mrs. Faccio seek compensatory and punitive
damages of an unspecified amount. 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.
Robert Gallo and his wife filed suit against the Company in
the Common Pleas Court of Berks County, Pennsylvania on August 28, 1995, for
which service of process on the Company occurred on August 29, 1995. Mr. Gallo
claims that, while he was an employee of a customer of the Company, he
contracted chronic beryllium disease as a result of exposure to beryllium and
beryllium-containing products. Mrs. Gallo claims deprivation of comfort,
companionship, services and assistance of her husband. Mr. Gallo seeks
compensatory and punitive damages of an unspecified amount. Mrs. Gallo seeks
compensatory damages of an unspecified amount. Defense of this case is being
conducted by counsel selected by the Company.
Ronald P. Watt and his wife filed suit against the Company in
the Common Pleas Court of Cuyahoga County, Ohio on August 7, 1995, for which
service
13
<PAGE> 15
of process on the Company occurred on August 10, 1995. Mr. Watt claims that,
while he was an employee of the Company, he contracted chronic beryllium
disease as a result of exposure to beryllium and beryllium-containing products.
Mrs. Watt claims loss of consortium. Mr. and Mrs. Watt each claim
compensatory damages in an amount in excess of $25,000 and punitive damages in
an amount in excess of $25,000. Defense of this case is being conducted by
counsel retained by the Company.
Esmeralda Mendoza, on her own behalf and on behalf of the
estate of her husband Phillip Mendoza, refiled suit against the Company in the
Court of Common Pleas of Ottawa County, Ohio on September 5, 1995. Plaintiffs
had filed a notice of dismissal on September 9, 1994 with respect to an earlier
suit against the Company. The current 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 estate of Mr. Mendoza seeks $500,000
in compensatory damages and $500,000 in punitive damages. Mrs. 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.
The State Compensation Fund filed suit against the Company in
the Superior Court of Pima County, Arizona, for which service of process on the
Company occurred on August 21, 1995. In August 1994, the Company first
notified the State Compensation Fund, a workers' compensation fund, of the
filing of employee suits against the Company. The Company requested that the
State Compensation Fund defend such suits pursuant to the Company's State
Compensation Fund policies. (The employee claims were disclosed in the
Company's report on Form 10-K for the year
14
<PAGE> 16
ended December 31, 1994 and the Company's report on Form 10-Q for the quarter
ended April 2, 1995.) The State Compensation Fund has denied coverage and
defense of such suits, but after discussion, indicated that it would defend
some of the employee lawsuits under a reservation of rights. In view of the
dispute with respect to defense and indemnity, the State Compensation Fund
filed a declaratory judgment action. The State Compensation Fund's complaint
seeks a determination that it is not required to defend or indemnify the
Company with respect to the employee claims. The Company has filed an answer
and counterclaim. Defense of this case is being conducted by counsel retained
by the Company.
(c) Asbestos Exposure Claims
------------------------
A subsidiary of the Company (the "Subsidiary") is a
co-defendant in twenty-four cases making claims for asbestos-induced illness
allegedly relating to the former operations of the Subsidiary, then known as
The S.K. Wellman Corp. Nineteen 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 twenty-five 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.
15
<PAGE> 17
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. 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.
16
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
11. Statement re: computation of per share earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
There have been no reports on Form 8-K during the quarter
ended September 29, 1995.
17
<PAGE> 19
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 3, 1995
/s/ Carl Cramer
---------------------------
Carl Cramer
Vice President Finance and
Chief Financial Officer
18
<PAGE> 1
EXHIBIT 11
BRUSH WELLMAN INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
---------------------------- -----------------------------
September 29, October 2, September 29, October 2,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 16,234,035 16,106,822 16,193,815 16,096,005
Dilutive stock options based
on the treasury stock method
using average market price 284,097 84,534 225,276 78,077
------------- ------------- ------------- -------------
TOTALS 16,518,132 16,191,356 16,419,091 16,174,082
============= ============= ============= =============
Net Income $3,332,000 $2,432,000 $16,796,000 $13,919,000
Per share amount $0.20 $0.15 $1.02 $0.86
============= ============= ============= =============
Fully diluted:
Average shares outstanding 16,234,035 16,106,822 16,193,815 16,096,005
Dilutive stock options based
on the treasury stock method
using average market price 284,116 85,693 230,132 88,382
------------- ------------- ------------- -------------
TOTALS 16,518,151 16,192,515 16,423,947 16,184,387
============= ============= ============= =============
Net Income $3,332,000 $2,432,000 $16,796,000 $13,919,000
Per share amount $0.20 $0.15 $1.02 $0.86
============= ============= ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-29-1995
<CASH> 23,253
<SECURITIES> 0
<RECEIVABLES> 61,450
<ALLOWANCES> 1,079
<INVENTORY> 91,657
<CURRENT-ASSETS> 192,266
<PP&E> 365,874
<DEPRECIATION> 249,696
<TOTAL-ASSETS> 326,830
<CURRENT-LIABILITIES> 62,597
<BONDS> 18,868
<COMMON> 21,344
0
0
<OTHER-SE> 179,467
<TOTAL-LIABILITY-AND-EQUITY> 326,830
<SALES> 285,555
<TOTAL-REVENUES> 285,555
<CGS> 208,310
<TOTAL-COSTS> 260,834
<OTHER-EXPENSES> 1,020
<LOSS-PROVISION> 84
<INTEREST-EXPENSE> 1,192
<INCOME-PRETAX> 22,425
<INCOME-TAX> 5,628
<INCOME-CONTINUING> 16,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,797
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
