<PAGE> 1
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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 September 26, 1997
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)
<TABLE>
<S> <C>
OHIO 34-0119320
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
17876 ST. CLAIR AVENUE, CLEVELAND, 44110
OHIO
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
</TABLE>
216-486-4200
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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, 1997 there were 16,415,365 shares of Common Stock, par
value $1 per share, outstanding.
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<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 26, 1997 are as follows:
Consolidated Statements of Income -- Nine months ended September 26,
1997 and September 27, 1996
Consolidated Balance Sheets -- September 26, 1997 and December 31, 1996
Consolidated Statements of Cash Flows -- Nine months ended September 26,
1997 and September 27, 1996
Notes to consolidated Financial Statements
1
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
------------------------- -------------------------
(Dollars in thousands except share and per SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
share amounts) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales................................... $ 109,073 $ 88,312 $ 322,135 $ 286,462
Cost of sales............................. 81,845 64,584 239,430 206,292
----------- ----------- ----------- -----------
Gross Profit................................ 27,228 23,728 82,705 80,170
Selling, administrative and general
expenses............................... 18,531 15,967 51,091 48,415
Research and development expenses......... 2,013 1,933 5,573 6,094
Other-net................................. 1,103 (230) 599 (693)
----------- ----------- ----------- -----------
Operating Profit............................ 5,581 6,058 25,442 26,354
Interest expense.......................... 18 334 382 1,015
----------- ----------- ----------- -----------
Income before income taxes.................. 5,563 5,724 25,060 25,339
Income taxes.............................. 1,574 1,159 7,092 7,475
----------- ----------- ----------- -----------
Net Income.................................. $ 3,989 $ 4,565 $ 17,968 $ 17,864
=========== =========== =========== ===========
Per Share of Common Stock:.................. $ 0.24 $ 0.28 $ 1.07 $ 1.11
=========== =========== =========== ===========
Cash dividends per common share............. $ 0.12 $ 0.11 $ 0.34 $ 0.31
Weighted average number
of common shares outstanding.............. 16,840,452 16,076,202 16,810,305 16,102,470
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPT. 26, DEC. 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................................ $ 6,954 $ 31,749
Accounts receivable.................................................. 73,749 52,211
Inventories.......................................................... 90,840 96,324
Prepaid expenses and other current assets............................ 17,687 16,949
-------- --------
Total Current Assets.............................................. 189,230 197,233
Other Assets........................................................... 27,753 28,326
Property, Plant and Equipment.......................................... 451,282 404,127
Less allowances for depreciation, depletion and impairment........... 285,522 273,907
-------- --------
Property, Plant and Equipment -- net.............................. 165,760 130,220
-------- --------
$ 382,743 $355,779
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt...................................................... $ 31,530 $ 25,670
Accounts payable..................................................... 16,138 7,713
Other liabilities and accrued items.................................. 25,781 25,694
Dividends payable.................................................... 1,972 1,789
Income taxes......................................................... 6,018 8,195
-------- --------
Total Current Liabilities......................................... 81,439 69,061
Other Long-Term Liabilities............................................ 6,990 6,906
Retirement and Post-Employment Benefits................................ 41,100 40,365
Long-Term Debt......................................................... 17,905 18,860
Deferred Income Taxes.................................................. 1,830 1,330
Shareholders' Equity................................................... 233,479 219,257
-------- --------
$ 382,743 $355,779
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
SEPT. 26, SEPT. 27,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME............................................................. $ 17,968 $ 17,864
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED FROM OPERATING ACTIVITIES:
Depreciation, depletion and amortization............................. 13,012 14,574
Amortization of mine development..................................... 1 4,427
Decrease (Increase) in accounts receivable........................... (22,657) (4,764)
Decrease (Increase) in Inventory..................................... 4,200 919
Decrease (Increase) in prepaid and other current assets.............. (1,872) (225)
Increase (Decrease) in accounts payable and accrued expenses......... 8,990 (5,018)
Increase (Decrease) in interest and taxes payable.................... (2,472) (96)
Increase (Decrease) in deferred income tax........................... 438 (1,030)
Increase (Decrease) in other long-term liabilities................... 1,590 1,846
Other -- net......................................................... (10) (6)
-------- --------
NET CASH PROVIDED FROM OPERATING ACTIVITIES....................... 19,188 28,491
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant and equipment............... (38,918) (20,754)
Payments for mine development........................................ (9,398) (529)
Proceeds from other investments...................................... 883 1,212
-------- --------
NET CASH USED IN INVESTING ACTIVITIES............................. (47,433) (20,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt............................ 7,829 1,219
Repayment of short-term debt......................................... (93) (3,449)
Proceeds from issuance of long-term debt............................. (768)
Repayment of long-term debt.......................................... (960) (800)
Issuance of Common Stock under compensation plans.................... 4,118 1,248
Purchase of treasury stock........................................... (2,038) (6,655)
Payments of dividends................................................ (5,343) (6,503)
-------- --------
NET CASH FROM/USED IN FINANCING ACTIVITIES........................ 3,513 (15,708)
Effects of Exchange Rate Changes....................................... (63) (971)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................... (24,795) (8,259)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. 31,749 29,553
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 6,954 $ 21,294
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 26, 1997
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 26, 1997, and December 31, 1996 and the results of operations for the
nine months ended September 26, 1997 and September 27, 1996.
NOTE B -- INVENTORIES
<TABLE>
<CAPTION>
SEPT. 26, DEC. 31,
(Dollars in thousands) 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Principally average cost:
Raw materials and supplies................................. $ 16,997 $ 20,210
In Process................................................. 56,146 55,242
Finished................................................... 40,091 42,536
-------- --------
113,234 117,988
Excess of average cost over LIFO inventory value............. 22,394 21,664
-------- --------
$ 90,840 $ 96,324
======== ========
</TABLE>
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING INFORMATION
Portions of narrative set forth in this document that are not historical in
nature are forward-looking statements. The Company's actual future performance
may differ from that contemplated by the forward-looking statements as a result
of a variety of factors that include, in addition to those mentioned elsewhere
herein, the condition of the markets which the Company serves, the success of
the Company's strategic plans, the timely and successful completion of pending
capital expansions and the conclusion of pending litigation matters in
accordance with the Company's expectation that there will be no materially
adverse effects.
RESULTS OF OPERATIONS
Sales were $109.1 million in the third quarter 1997, an increase of 23.5%
over the third quarter 1996. For the first nine months of 1997, sales were a
record $322.1 million, a 12.5% increase over 1996 sales of $286.5 million.
Year-to-date international sales of $98.8 million represent a 23.8% improvement
over 1996 sales, despite the $5.7 million negative translation effect as a
result of a stronger U.S. dollar in 1997 than 1996.
Alloy strip sales increased in the third quarter 1997 from the third
quarter 1996. These products are used in the automotive, telecommunications and
electronic markets. Strip production is currently running near capacity in
several phases of the operation. Sales of alloy bulk products were lower in the
third quarter 1997 than the third quarter 1996 as a result of reduced sales to
the recreation and leisure market. Sales of rod, plate and tube to other
markets, including plastic tooling, aerospace and foundry products, increased in
the current period from the comparable period last year. Total strip and bulk
alloy pounds shipped increased in the third quarter 1997 from the third quarter
1996 at a higher rate than the sales value as a large portion of the sales
increase was in the relatively lower priced alloys and because of the exchange
rate effect on the translated value of international sales.
Construction of the $117 million alloy expansion project in Elmore, Ohio
remained on schedule. The new casting equipment is planned to come on-line in
the fourth quarter 1997. Once fully operational, the equipment is designed to
provide additional capacity and a lower manufacturing cost for alloy strip and
bulk products. The full cost savings and quality improvements anticipated for
strip products will not be realized until the new mill equipment is installed in
mid-1998. Opportunities for bulk product sales growth are also designed to
increase with the construction of a new facility to produce a specialty family
of alloys in Lorain, Ohio. This $11.9 million plant is anticipated to start up
in the fourth quarter 1997.
Sales of precious metal products maintained their rapid advance in the
current quarter from the comparable period in 1996. Shipments of physical vapor
deposition targets, which are used in the optical data storage and hybrid
electronic component industries, remained strong. The refining operations and
brazing alloys also performed well. While the majority of precious metal sales
are gold products, the Company also manufactures products using palladium,
platinum and silver.
Engineered material systems' (formerly known as specialty metal systems)
revenues also grew in the third quarter 1997 as compared to the third quarter
1996. The majority of these sales are clad metal products which typically
include inlay, overlay or edgelay of a precious or non-precious metal onto a
base metal. These products serve the telecommunications, automotive and
semiconductor markets.
Beryllium sales were lower in the third quarter 1997 than the third quarter
1996. AlBeMet(TM) and E materials sales grew, but not enough to offset the
decline in beryllium metal sales.
Ceramic sales were higher in the third quarter 1997 than the third quarter
1996 due to a resurgence in traditional BeO and "CuPack" microwave packaging
products.
Thick film circuit sales from Circuits Processing Technology, Inc. (CPT)
were a minor contributor to the sales increase in the third quarter 1997 from
the third quarter 1996. CPT was acquired in the fourth quarter 1996.
Gross margin was $27.2 million or 25.0% of sales in the third quarter 1997
compared to $23.7 million or 26.9% of sales in the third quarter 1996. The
stronger dollar served to reduce the margin contribution from sales in Japan and
Germany because those sales are denominated in local currencies while the
majority of the product cost is incurred in dollars. Product mix also
contributed to the decline in the margin percent. A
6
<PAGE> 8
significant portion of the sales growth is in precious metals, which, while
profitable, carry a large precious metal pass-through and a relatively smaller
value added. Pressures to meet the heightened demand have caused minor
inefficiencies, i.e., higher overtime, at several manufacturing facilities,
thereby negatively impacting the margin percent.
Sales for the first nine months of 1997 were $322.1 million compared to
$286.5 million for the first nine months of 1996. While the majority of the
growth is from precious metal products, sales of all the previously discussed
product offerings, except alloy bulk products, have grown year on year. Gross
margin of $82.7 million was 25.7% of sales for the first three quarters of 1997
compared to $80.2 million and 28.0% of sales for the same period in 1996.
Product mix shifts and the stronger dollar account for the majority of the
margin percentage decline.
Selling, general and administrative expenses were $18.5 million or 17.0% of
sales in the third quarter 1997 compared to $16.0 million or 18.1% of sales in
the third quarter 1996. Year-to-date expenses were $51.1 million or 15.9% of
sales in 1997 versus $48.4 million or 16.9% of sales in 1996. Costs associated
with the start-up of the new facility in Lorain (additional people, training,
marketing activities, etc.) are a main cause for the increased expenses in the
third quarter and for the year. The implementation of a portion of a new
information system and the company-owned life insurance program also added to
the expenses in 1997. Certain distribution costs increased as well as a result
of higher sales volumes.
Research and development (R&D) expenses of $2.0 million in the third
quarter 1997 are flat with last year. R&D expenses for the first three quarters
were $5.6 million or 1.7% of sales as compared to $6.1 million or 2.1% of sales
in 1996. Two major initiatives in 1996 achieved their objectives in early 1997
and, therefore, caused a reduction in expenditures. Expenses were also lower in
1997 due to reimbursements for R&D work performed under government contracts.
The Company is planning on increasing its investment and staffing in R&D in
order to continue developing new products and technologies. R&D projects are
closely aligned with current marketing strategies and activities.
Other-net expense was $1.1 million in the third quarter 1997 compared to
other-net income of $0.2 million in the third quarter 1996. For the year,
other-net expense is $0.6 million in 1997 versus other-net income of $0.7
million in 1996. The main cause for the increased expense in 1997 is the higher
financing rates on the consigned palladium and platinum that support a portion
of the precious metal business. Disruptions in the international metal markets
caused a significant increase in available financing rates. Prior to the summer
of 1997, the rates were typically nominal. The Company has reduced its level of
consigned palladium and platinum and taken other measures to reduce its exposure
to this rate variation. The Company believes that the lower consignment position
will not materially impact customer service levels. By the end of the third
quarter 1997, the available rates, while higher than the rates in prior periods.
were significantly lower than the peak rates of July, 1997.
Interest expense was less than $0.1 million in the third quarter 1997 and
$0.4 million for the first nine months of 1997. For 1996, the expense was $0.3
million in the third quarter and $1.0 million year-to-date. Capitalized interest
associated with long-term capital projects was $0.5 million in the third quarter
1997 and $1.3 million year-to-date. The comparable totals for 1996 were $0.3
million and $0.6 million, respectively. The weighted average interest rate in
1997 is less than 1996.
Third quarter 1997 income before income taxes of $5.6 million, was a slight
decrease from the $5.7 million in the third quarter 1996. As described above,
higher expenses and a lower margin percent offset the benefits of the increased
sales. Year-to-date 1997 income before income taxes of $25.0 million is $0.3
million less than last year. Income taxes were provided for at 28.3% in the
third quarter 1997 and the first nine months of 1997. In 1996, the comparable
tax rates were 20.2% for the third quarter and 29.5% for the first nine months.
The lower rate in the third quarter 1996 was partially the result of a
year-to-date revision to the estimated impact of certain tax credits and
adjustments. The lower 1997 year-to-date rate results from utilization of
investment tax credits associated with various capital projects. Earnings per
share were $0.24 for the third quarter and $1.07 for the first nine months of
1997. Earnings per share were $0.28 and $1.11 for the respective 1996 periods.
The earnings per share calculation is also impacted by the number of
average shares outstanding which increased to 16.8 million in the third quarter
1997 from 16.1 million in the third quarter 1996. This increase
7
<PAGE> 9
resulted from the purchase of CPT in the fourth quarter 1996 and the dilutive
effect of previously issued stock options due to a higher stock price in the
third quarter 1997.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for the
periods reported on herein is not material.
FINANCIAL CONDITION
Cash flow from operating activities was $19.2 million for the first three
quarters of 1997. Accounts receivable increased $21.5 million, adversely
affecting cash flow in the quarter. The receivables growth is a result of higher
international sales, which tend to have longer collection periods, higher total
sales in the third quarter 1997 than the fourth quarter 1996 and a slight
increase in the domestic collection period. Inventory declined $4.2 million
during 1997 despite the sales increase as a result of capacity pressures and
improved inventory control and planning efforts.
Cash balances at the end of the third quarter 1997 were $7.0 million, a
decline of $24.7 million since December 31, 1996. The main causes for this
decline are the $38.9 million in capital expenditures and the $9.4 million
expenditure for mine development during the first nine months of 1997. In
addition to the alloy expansion project, a substantial portion of which is being
financed through off-balance sheet leases, major capital projects include the
construction of the new facility in Lorain, Ohio, the implementation of a new
enterprise-wide information system and a new plating line at the Lincoln, Rhode
Island facility. The development of the new bertrandite mine pits in Utah was
substantially complete as of the end of the third quarter 1997.
Short-term debt stood at $31.5 million as of the end of the third quarter
1997, an increase of $5.9 million since December 31, 1996. Most of the increase
was in Japan. Short-term debt is composed primarily of precious metal and
foreign currency debt that is used as hedges against current assets so
denominated.
Dividends paid year-to-date were $5.3 million. The dividend payout was
increased by $0.01 per share per quarter by the Board of Directors in the third
quarter 1997. The Company repurchased 87,600 shares at a cost of $2.0 million
through the first nine months of 1997. The repurchase program is designed to
offset the dilutive effect of stock option plans.
Cash flow from operations was $28.5 million for the first nine months of
1996. During this time period, accounts receivable increased $4.8 million and
inventory declined $0.9 million. Capital expenditures were $20.8 million and
payments for mine development total $0.5 million. Treasury stock purchases were
$6.7 million and dividends paid were $6.5 million in the first three quarters of
1996.
Funds being generated from operations, plus the available borrowing
capacity, are believed adequate to support 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.
OTHER
FASB Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information," requires that a publicly held company report financial and
descriptive information about its operating segments in financial statements
issued to shareholders for interim and annual periods. The Statement also
requires additional disclosures with respect to products and services,
geographic areas of operation and major customers and is effective for fiscal
years beginning after December 15, 1997. The Company is studying the potential
effects this may cause upon its financial disclosures and expects to adopt the
Statement in the first quarter 1998.
8
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) Environmental Proceedings.
RECENT DEVELOPMENTS RELATING TO PENDING CLAIMS SINCE THE END OF SECOND
QUARTER 1997. As previously reported in the Company's annual report on Form 10-K
for the year ended December 31, 1996, the Company received a complaint on July
26, 1994 in GLIDDEN COMPANY ET AL. V. AMERICAN COLOR AND CHEMICAL ET AL., No.
94-C-3970, filed in the United States District Court for the Eastern District of
Pennsylvania. The plaintiffs are five companies which, pursuant to orders issued
by the U.S. Environmental Protection Agency (the "U.S. EPA") under the
Comprehensive, Environmental, Response, Compensation and Liability Act
("CERCLA"), have been spending funds to secure, maintain and conduct an
investigation of the Berks Landfill in Sinking Springs, Pennsylvania ("Berks
Site"). The plaintiffs are alleged to have disposed of wastes at the Berks Site,
which operated from 1950 through October 1, 1986. The 40 defendants (22 of which
were added in 1997) consist of former owners or operators of the Berks Site and
alleged transporters and/or generators of waste disposed of at the Berks Site.
It is believed that hundreds of other entities disposed of waste at the Berks
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 $335,000 to secure and maintain the Berks Site
and that they expected to spend $1.7 million for a remedial
investigation/feasibility study and a risk assessment. The Company's remediation
expenses at the Berks Site will be affected by a number of uncertainties,
including the method and extent of remediation, the percentage of waste disposed
of at the Berks Site attributable to the Company relative to that attributable
to other parties, and the financial capabilities of the other Potentially
Responsible Persons. Discovery is proceeding pursuant to a case management
order. On September 30, 1997, the U.S. EPA sent a special notice letter to the
Company and 28 other entities, 7 of whom are not parties to the GLIDDEN
litigation. The letter requests reimbursement of the U.S. EPA's past costs (at
least $755,959) and future costs relating to the landfill, and solicits a
proposal to conduct or finance the remedial action selected by the U.S. EPA in
its July 1997 Record of Decision, the present worth cost of which is estimated
by the U.S. EPA to be $6.1 million. The Company will be meeting with the other
recipients of this letter to explore a joint response.
(b) Beryllium Exposure Claims.
RECENT DEVELOPMENTS RELATING TO PENDING CLAIMS SINCE THE END OF SECOND
QUARTER 1997. As previously reported in the Company's annual report on Form 10-K
for the year ended December 31, 1996, the Company is a defendant in product
liability cases in which the plaintiffs allege injury resulting from exposure to
beryllium and beryllium-containing materials, other than as employees of the
Company, and claim recovery based on various legal theories.
On September 4, 1997, fourteen plaintiffs were added pursuant to an amended
complaint in
BALLINGER ET AL. V. BRUSH WELLMAN INC. ET AL., a product liability case filed in
November 1996 in the District Court, County of Jefferson, Colorado, in which the
plaintiffs claim compensatory and punitive damages of an unspecified amount. The
Company filed a motion to dismiss the amended complaint on September 16, 1997.
This motion is pending along with the motion to dismiss the original complaint
filed on January 17, 1997.
In FACCIO ET AL. V. BRUSH WELLMAN INC., another product liability case,
filed in July 1995 in the United States District Court, District of Arizona, in
which the plaintiffs seek compensatory and punitive damages of an unspecified
amount, the plaintiffs filed a motion for a hearing on sanctions on April 23,
1997 alleging that the Company, without substantial justification, failed to
produce documentation within its possession and control in response to discovery
requests. The plaintiffs also requested the court to enter an order that certain
facts be taken as established for purposes of the case. The Company has opposed
the motion and intends to contest it vigorously. The hearing for sanctions,
originally fixed for September 8, 1997, was changed to October 23, 1997.
9
<PAGE> 11
All of the foregoing product liability cases were previously reported in
the Company's annual report on Form 10-K for the year ended December 31, 1996,
and developments relating to the BALLINGER and FACCIO cases were also reported
in the Company's quarterly report on Form 10-Q for the quarter ended June 27,
1997.
As previously reported in the Company's annual report on Form 10-K for the
year ended December 31, 1996 and the Company's quarterly reports on Form 10-Q
for the quarters ended June 27 and March 28, 1997 respectively, the Company is a
defendant in seven cases pending before the Court of Common Pleas of Cuyahoga
County, Ohio, brought by current and former employees of the Company and, in
some of the cases, their family members: MIA JOHNSON, EXECUTRIX OF THE ESTATE OF
ETHEL JONES, ET AL. V. BRUSH WELLMAN INC., filed January 22, 1997; WHITAKER ET
AL. V. BRUSH WELLMAN INC., filed August 23, 1996; MUSSER ET AL. V. BRUSH WELLMAN
INC., filed October 25, 1996; JACOBS ET AL. V. BRUSH WELLMAN INC., filed
December 31, 1996; STARIN V. BRUSH WELLMAN INC., filed December 31, 1996;
KNEPPER ET AL. V. BRUSH WELLMAN INC., filed January 23, 1997 and BERLIN V. BRUSH
WELLMAN INC., filed January 24, 1997. The complaints in all of these cases
allege that the employees contracted chronic beryllium disease at the workplace
and include claims by family members. The plaintiffs in these cases seek both
compensatory and, except in the Knepper case, punitive damages. All of these
cases, except the Knepper case, have been consolidated at least for purposes of
discovery and pretrial motions. The consolidation order of the court indicates
that, after discovery, the court will revisit whether the cases should be
consolidated for trial. On October 6, 1997, the Company filed a motion to
dismiss or in the alternative for summary judgment in the Knepper case. This
motion remains pending. On October 16, 1997, two of the plaintiffs in the
consolidated cases dismissed their complaint without prejudice.
Rudy Gamez, an employee of the Company, filed a suit in the Superior Court
of Pima County, Arizona, on July 5, 1996 (GAMEZ ET AL. V. BRUSH WELLMAN INC. ET
AL.), claiming that, during his employment with the Company, he contracted
chronic beryllium disease as a result of exposure to beryllium and
beryllium-containing products. Gamez seeks compensatory and punitive damages
based on allegations that the Company intentionally misrepresented the potential
danger of exposure to beryllium and breached an agreement to pay certain
benefits should he contract chronic beryllium disease. This case was reported in
the Company's annual report on Form 10-K for the year ended December 31, 1996
and the Company's quarterly report on Form 10-Q for the quarter ended June 27,
1997. On July 9, 1997, the plaintiff moved to amend his complaint to add claims
for breach of contract and bad faith. On July 23, 1997, the Company filed a
motion for summary judgment. The plaintiff's motion to amend his complaint was
granted on August 15, 1997. The Company's motion for summary judgment was denied
on September 29, 1997.
CLAIMS CONCLUDED SINCE THE END OF SECOND QUARTER 1997. As previously
reported in the Company's quarterly report on Form 10-Q for the quarter ended
June 27, 1997, the plaintiffs in RUFFIN ET AL. V. BRUSH WELLMAN INC. ET AL., a
product liability case originally filed in September 1991 in the Superior Court
of New Jersey, Essex County, had appealed the trial court's summary judgment
entered in favor of the Company to the New Jersey Superior Court, Appellate
Division, in May 1995. In this case, the plaintiffs had claimed compensatory and
punitive damages of an unspecified amount. The New Jersey Superior
Court -- Appellate Division rendered its judgment on July 15, 1997 affirming the
judgment of the trial court. The time limit for filing an appeal from the
judgment of the New Jersey Superior Court, Appellate Division, has expired.
In GALLO ET AL.V. BRUSH WELLMAN, INC. ET AL., a product liability case
filed on August 28, 1995 in the Court of Common Pleas of Berks County,
Pennsylvania -- Civil Division, the plaintiffs sought compensatory damages of an
unspecified amount. Mr. Gallo also sought punitive damages of an unspecified
amount. This case was reported in the Company's annual report on Form 10-K for
the year ended December 31, 1996. On September 26, 1997, the plaintiffs in this
case voluntarily dismissed their claims against the Company.
CLAIMS INITIATED SINCE THE END OF SECOND QUARTER 1997. On August 7, 1997,
the Company was named one of ten defendants in a product liability case filed in
the U.S. District Court for the
10
<PAGE> 12
Eastern District of Tennessee: JAMES L. GRANT ET AL. V. BRUSH WELLMAN INC. ET
AL. The complaint alleges that while Mr. Grant was employed by Union Carbide and
Martin Marietta at two Department of Energy plants in Oak Ridge, Tennessee, he
developed chronic beryllium disease. Mr. Grant seeks compensatory damages of
$5,000,000 against each defendant, Mrs. Grant seeks compensatory damages of
$1,000,000 against each defendant and both seek punitive damages of $10,000,000
against each defendant. The Company believes that resolution of this case will
not have a material adverse effect on the Company. Defense of this case is being
conducted by counsel selected by the Company and retained, with reservation of
rights, by the Company's insurance carriers.
The Company is one of five defendants in a case filed in the District Court
of Harris County, Texas, on August 15, 1997: BILLY RAY CASH ET AL. V. BRUSH
WELLMAN INC. ET AL. The complaint alleges that the Company sold harmful and
toxic substances to Reed Tool Company, the employer of Mr. Cash, and that, as a
result of exposure to such products, Mr. Cash developed severe respiratory
disease. Mrs. Cash has brought a claim for loss of consortium. The plaintiffs
seek compensatory and punitive damages of unspecified amounts. The Company
believes that resolution of this case will not have a material adverse effect on
the Company. Defense of this case is being conducted by counsel selected by the
Company and retained, with reservation of rights, by the Company's insurance
carriers.
(c) 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-seven of these cases have been reported in prior filings with the S.E.C.
In all but a small portion of these cases, 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 for
defense pursuant to liability insurance coverage and has been accepted for
defense without admission or denial of carrier liability. Two hundred
thirty-eight similar cases previously reported have been dismissed or disposed
of by pretrial judgment, one by jury verdict of no liability and thirteen others
by settlement for nominal sums. In one pending case, a Delaware subsidiary of
the Subsidiary, formerly known as The S.K. Wellman Company, is a defendant along
with several other defendants. The Company believes that resolution of the
pending cases referred to in this paragraph will not have a material effect on
the Company.
The Subsidiary is a party to 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 certain 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.
11
<PAGE> 13
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
26, 1997.
12
<PAGE> 14
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 7, 1997
/s/ Carl Cramer
--------------------------------------
Carl Cramer
Vice President Finance and
Chief Financial Officer
13
<PAGE> 1
PART I
EXHIBIT 11
BRUSH WELLMAN INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary diluted:
Average shares outstanding............ 16,363,620 15,879,424 16,315,324 15,901,463
Dilutive stock options based on the
treasury stock method using average
market price....................... 406,577 196,286 263,300 183,607
----------- ----------- ----------- -----------
TOTALS........................... 16,770,197 16,075,710 16,578,624 16,085,070
=========== =========== =========== ===========
Net Income............................ $ 3,989,000 $ 4,565,000 $ 17,968,000 $ 17,864,000
Per share amount...................... $ 0.24 $ 0.28 $ 1.08 $ 1.11
=========== =========== =========== ===========
Fully diluted:
Average shares outstanding............ 16,363,620 15,879,424 16,315,324 15,901,463
Dilutive stock options based on the
treasury stock method using average
market price....................... 476,832 196,778 494,981 201,007
----------- ----------- ----------- -----------
TOTALS........................... 16,840,452 16,076,202 16,810,305 16,102,470
=========== =========== =========== ===========
Net Income............................ $ 3,989,000 $ 4,565,000 $ 17,968,000 $ 17,864,000
Per share amount...................... $ 0.24 $ 0.28 $ 1.07 $ 1.11
=========== =========== =========== ===========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 6,954
<SECURITIES> 0
<RECEIVABLES> 73,749
<ALLOWANCES> 1,083
<INVENTORY> 90,840
<CURRENT-ASSETS> 189,230
<PP&E> 451,282
<DEPRECIATION> 285,522
<TOTAL-ASSETS> 382,743
<CURRENT-LIABILITIES> 81,439
<BONDS> 17,905
0
0
<COMMON> 22,158
<OTHER-SE> 211,321
<TOTAL-LIABILITY-AND-EQUITY> 382,743
<SALES> 322,135
<TOTAL-REVENUES> 322,135
<CGS> 239,430
<TOTAL-COSTS> 269,094
<OTHER-EXPENSES> 418
<LOSS-PROVISION> 181
<INTEREST-EXPENSE> 382
<INCOME-PRETAX> 25,060
<INCOME-TAX> 7,092
<INCOME-CONTINUING> 17,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,968
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
