<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 June 27, 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)
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, 1997 there were 16,370,195 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 June 27, 1997 are as follows:
Consolidated Statements of Income -
Six months ended June 27, 1997 and June 28, 1996
Consolidated Balance Sheets -
June 27, 1997 and December 31, 1996
Consolidated Statements of Cash Flows -
Six months ended June 27, 1997 and June 28, 1996
Notes to consolidated Financial Statements
1
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended First Half Ended
June 27, June 28, June 27, June 28,
(Dollars in thousands except share and per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 113,374 $ 104,349 $ 213,062 $ 198,150
Cost of sales 83,587 72,700 157,584 141,708
------------ ------------ ------------ ------------
Gross Profit 29,787 31,649 55,478 56,442
Selling, administrative
and general expenses 17,161 16,968 32,561 32,448
Research and development expenses 1,982 2,363 3,560 4,161
Other-net 20 (339) (504) (464)
------------ ------------ ------------ ------------
Operating Profit 10,624 12,657 19,861 20,297
Interest expense 79 396 364 681
------------ ------------ ------------ ------------
Income before income taxes 10,545 12,261 19,497 19,616
Income taxes 3,056 4,117 5,518 6,316
------------ ------------ ------------ ------------
Net Income $ 7,489 $ 8,144 $ 13,979 $ 13,300
============ ============ ============ ============
Per Share of Common Stock: $ 0.45 $ 0.51 $ 0.84 $ 0.83
============ ============ ============ ============
Cash dividends per common share $ 0.11 $ 0.10 $ 0.22 $ 0.20
Weighted average number
of common shares outstanding 16,580,835 16,071,742 16,575,439 16,115,593
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
Jun. 27, Dec. 31,
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $16,161 $31,749
Accounts receivable 72,426 52,211
Inventories 91,987 96,324
Prepaid expenses and other
current assets 17,089 16,949
------------ ------------
Total Current Assets 197,663 197,233
Other Assets 28,288 28,326
Property, Plant and Equipment 437,524 404,127
Less allowances for depreciation,
depletion and impairment 283,303 273,907
------------ ------------
Property, Plant and Equipment - net 154,221 130,220
------------ ------------
$380,172 $355,779
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $33,050 $25,670
Accounts payable 12,461 7,713
Other liabilities and accrued
items 26,896 25,694
Dividends payable 1,794 1,789
Income taxes 7,878 8,195
------------ ------------
Total Current Liabilities 82,079 69,061
Other Long-Term Liabilities 6,810 6,906
Retirement and Post-Employment Benefits 41,019 40,365
Long-Term Debt 18,705 18,860
Deferred Income Taxes 1,583 1,330
Shareholders' Equity 229,976 219,257
------------ ------------
$380,172 $355,779
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FIRST HALF ENDED
JUNE 27, JUNE 28,
(DOLLARS IN THOUSANDS) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $13,979 $13,300
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED FROM OPERATING ACTIVITIES:
Depreciation, depletion and amortization 9,619 9,898
Amortization of mine development 1 3,548
Decrease (Increase) in accounts receivable (20,233) (13,838)
Decrease (Increase) in Inventory 3,799 309
Decrease (Increase) in prepaid and other current assets (1,011) (356)
Increase (Decrease) in accounts payable and accrued expenses 4,948 2,426
Increase (Decrease) in interest and taxes payable (286) 1,468
Increase (Decrease) in deferred income tax 191 (1,246)
Increase (Decrease) in other long-term liabilities 1,959 718
Other - net (237) (84)
------------- -------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 12,729 16,143
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant and equipment (26,159) (11,555)
Payments for mine development (6,932) (277)
Proceeds from other investments 405 700
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (32,686) (11,132)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt 11,367 1,164
Repayment of short-term debt (93) (1,819)
Repayment of long-term debt (160) (340)
Issuance of Common Stock under stock option plans 483 1,097
Purchase of Common Stock for treasury (508) (6,656)
Payments of dividends (3,562) (4,771)
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES 7,527 (11,325)
Effects of Exchange Rate Changes (3,158) (1,103)
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (15,588) (7,417)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,749 29,553
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,161 $ 22,136
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 27, 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
June 27, 1997, and December 31, 1996 and the results of operations for the six
months ended June 27, 1997 and June 28, 1996.
NOTE B - INVENTORIES
<TABLE>
<CAPTION>
June 27, Dec. 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Principally average cost:
Raw materials and supplies $17,962 $20,210
In Process 54,398 55,242
Finished 41,541 42,536
------------ ------------
113,901 117,988
Excess of average cost over
LIFO inventory value 21,914 21,664
------------ ------------
$91,987 $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 in the second quarter 1997 were a record $113.4 million, compared
to $104.3 million in the second quarter 1996. Precious metal sales, which carry
lower margins, increased significantly, while several other product lines showed
modest improvements. Sales for the first half of 1997 of $213.1 million were
also a record and represent a 7.5% improvement over the first half 1996.
International sales were $64.9 million in the first half 1997, an increase of
$13.4 million over the first half 1996.
Alloy strip sales were higher in the second quarter 1997 than the
second quarter 1996 as demand from the telecommunications and automotive markets
remained robust. Sales growth occurred domestically and internationally. Alloy
bulk product sales declined in the second quarter 1997 from the comparable
period in 1996 as a result of significantly lower sales into the recreation and
leisure market. The Company is focusing marketing and research and development
efforts on regaining a share of this market with innovative alloys and material
systems. Bulk product sales to other markets increased from the prior period.
6
<PAGE> 8
Construction continued on the project to expand and modernize the beryllium
alloy production facility in Elmore, Ohio. The project's objectives are to
increase capacity, reduce costs, improve quality and cut cycle times and provide
an even safer work environment. Cost estimate revisions and scope changes have
increased the anticipated project cost to $117 million from the original $110
million. The timing of placing the new equipment in service in stages over the
next eighteen months remains unchanged.
Sales of precious metal products increased dramatically in the second
quarter 1997 compared to the second quarter 1996 on the strength of physical
vapor deposition (PVD) products continued penetration into the optical and
hybrid industries. The refining business has also improved due primarily to
recycling the PVD products. The majority of the precious metal sales are gold
products, although the Company also manufactures products from palladium,
platinum and silver.
Specialty Metal System sales were flat in the current quarter with the
comparable quarter in 1996. Strong demand from the automotive and
telecommunication market offset the softness in the semiconductor market.
Beryllium sales grew moderately in the second quarter 1997 from the
second quarter 1996. Incoming order and sales trends for AlBeMet(TM) and E
materials remain positive. Efforts are being concentrated on developing more
efficient manufacturing processes which are necessary for capturing a larger
share of the markets served by these products.
Sales of ceramic products also increased in the second quarter 1997
from the second quarter 1996. Traditional BeO products grew while direct bond
copper sales were flat.
7
<PAGE> 9
Sales of thick film circuits into the micro-electronics market by
Circuits Processing Technology Inc. (CPT) were relatively minor in the second
quarter 1997. The Company acquired CPT in the fourth quarter 1996.
Gross margin was $29.8 million or 26.3% of sales in the second quarter
1997 compared to $31.6 million or 30.3% of sales in the second quarter 1996. The
higher proportion of precious metal sales, which carry a large base metal
pass-through component and a relatively smaller value added, was a main cause of
the decline in the margin percentage. The stronger U.S. dollar relative to the
yen and deutchemark served to reduce the margin contribution from sales in Japan
and Germany.
Sales for the first six months of 1997 were $213.1 million compared to
$198.2 million for the first six months of 1996. The majority of the growth
came from precious metal products and alloy strip products. Beryllium and
ceramic sales increased as well, while specialty metal system sales decreased
slightly. The CPT acquisition also contributed a minor amount to the sales
growth. Gross margin was $55.5 million or 26.0% of sales for the first half of
1997 versus $56.4 million or 28.5% of sales in the first half of 1996. The mix
shifts and exchange rate effects on the second quarter results apply to the
first half of the year as well. Manufacturing overhead costs were lower in 1997
than 1996.
Selling, administrative and general expenses were $17.2 million or
15.1% of sales in the second quarter 1997 compared to $17.0 million or 16.3% of
sales in the second quarter 1996. Year-to-date expenses were $32.6 million in
1997 (15.3% of sales) and $32.4 million in 1996 (16.4% of sales). Salary and
fringe costs are higher from general wage increases and a slight increase in
headcount. However, the exchange rate effect on the international subsidiaries'
expenses and internal cost control programs have helped to offset this increase.
8
<PAGE> 10
Research and development (R&D) expenses were $2.0 million in the second
quarter 1997 and $2.4 million in the second quarter 1996. For the first six
months, R&D expenses were $3.6 million in 1997 and $4.2 million in 1996. Two
major initiatives in 1996, the development of an innovative beryllium copper
alloy and the development of investment casting capabilities, achieved
objectives in 1997 and, therefore, caused a reduction in expenditures. Active
development of new products and technologies is key to maintaining the
Company's competitive advantage.
Other-net expense was less than $0.1 million in the second quarter 1997
compared to other-net income of $0.3 million in the second quarter 1996. Other-
net income was $0.5 million for the first six months of both 1997 and 1996.
Interest income declined slightly in the current quarter compared to the second
quarter 1996 as a result of lower cash balances.
Included in other-net is the financing fee for maintaining consigned
stocks of palladium and platinum that support a portion of the precious metal
sales. This fee, in certain instances, is passed directly through to the
customer. Disruptions in the international metal markets caused a significant
increase in available financing rates during the second quarter 1997. The fee,
which in most periods, including the first half of 1996, is usually nominal,
increased in the second quarter 1997, although it still was not material. The
Company has taken steps to minimize its exposure. While the Company cannot
predict what the financing rates will be for the balance of the year,
management believes that at the current levels, the net cost to the Company
will be higher than in the comparable periods in 1996 by an immaterial amount.
Interest expense was less than $0.1 million in the second quarter 1997
and $0.4 million in the comparable period last year. First half expense was
$0.4 million in 1997 and $0.7
9
<PAGE> 11
million in 1996. Capitalized interest associated with long-term capital projects
increased in 1997.
Second quarter 1997 income before income taxes was $10.5 million, a
decrease from $12.3 million in the second quarter 1996. The unfavorable
sales mix and exchange rate effects on margins were the main causes of the
decline. Year-to-date income before income taxes of $19.5 million in 1997 is
essentially flat with 1996. Income taxes were provided for at 29.0% in the
second quarter 1997 and 28.3% in the first half of 1997. In 1996, taxes were
provided for at 33.6% for the second quarter and 32.2% for the first half. The
lower rate in 1997 resulted from utilization of investment tax credits, an
increase in the depletion allowance and an increase in foreign tax benefits.
Earnings per share were $0.45 for the second quarter and $0.84 for the first
half of 1997. Earnings per share were $0.51 and $0.83 for the respective periods
in 1996.
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
second quarter 1997 and 1996 and year-to-date 1997 and 1996 is not material.
Financial Condition
- -------------------
Net cash provided from operations was $12.7 million during the first
half 1997 compared to $16.1 million in the first half 1996. The increase in
accounts receivable in 1997,
10
<PAGE> 12
driven by the higher sales, is the major difference. Inventories have declined
on higher sales and, therefore, inventory turns have improved.
Cash balances decreased to $16.2 million at the end of the second
quarter 1997 from $31.7 million at December 31, 1996, primarily as a result of
capital expenditures for property, plant and equipment and mine development
costs totaling $33.1 million. In addition to the beryllium alloy expansion and
modernization project, a substantial portion of which is being financed through
off-balance sheet leases, the Company is constructing a new facility to produce
a specialty family of alloys in Lorain, Ohio. This facility has an estimated
cost of $11.9 million and is anticipated to begin production before the end
of 1997. Other major projects include the development of a new bertrandite mine
pit in Utah and the implementation of a new enterprise-wide information system.
Dividends paid to shareholders totaled $3.6 million in the first half
of 1997. The average number of outstanding shares of common stock is higher at
the end of the second quarter 1997 than the second quarter 1996, mainly as a
result of the shares issued to acquire CPT in the fourth quarter 1996. During
1997, 23,600 shares of stock were re-purchased by the Company at a cost of $0.5
million.
Balance sheet debt of $51.8 million at the end of the second quarter
1997 is $7.2 million higher than at December 31.1996. Short-term debt is
composed primarily of gold and foreign currency debt that is used as hedges
against assets so denominated.
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.
11
<PAGE> 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
(a) Environmental Proceedings.
--------------------------
RECENT DEVELOPMENTS RELATING TO PENDING CLAIMS SINCE THE END
OF FIRST 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, service of which was waived on September 29, 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 22 defendants (4 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 remedial investigation/feasibility study and risk assessment
have been submitted to the U.S. EPA and approved. The revised feasibility study
presents eight alternative remedies with estimated present worth costs ranging
from zero (no action alternative) up to $14.7 million. In July 1997, the U.S.
EPA selected a remedy with an estimated present worth cost of $6.1 million. 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.
12
<PAGE> 14
(b) Beryllium Exposure Claims.
--------------------------
RECENT DEVELOPMENTS RELATING TO PENDING CLAIMS SINCE THE END
OF FIRST 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 March 14, 1997, the Company filed a motion for summary
judgment in MORGAN ET AL. V. BRUSH WELLMAN INC. ET AL., a product liability case
filed in June 1994 in the United States District Court, Eastern District of
Tennessee, in which the plaintiffs claim damages in an aggregate amount of $19
million. The motion was denied on June 26, 1997. Additional defendants were
added in this case pursuant to a motion filed on April 17, 1997 amending the
complaint, and the court's order dated May 22, 1997. The Company also filed a
motion to dismiss on January 17, 1997 in BALLINGER ET AL. V. BRUSH WELLMAN INC.,
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. This motion remains pending.
In RUFFIN ET AL. V. BRUSH WELLMAN INC. ET AL., a product
liability case in which the plaintiffs claimed compensatory and punitive damages
of an unspecified amount, the plaintiffs 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. 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 not yet expired. 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. The plaintiffs have also
requested the court to enter an order that certain facts be taken as established
for purposes of the case. The motion alleges that the Company, without
substantial justification, failed to produce documentation within its possession
and control in response to discovery requests. The Company has opposed the
motion and intends to contest it vigorously. Hearing for sanctions has been set
for September 8, 1997.
13
<PAGE> 15
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.
The Company is also 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 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; BERLIN V. BRUSH WELLMAN INC., filed January 24, 1997;
and KNEPPER ET AL. V. BRUSH WELLMAN INC., filed January 23, 1997. The complaints
in all of these cases allege that the employees contracted chronic beryllium
disease at the workplace and include claims for employer intentional tort and,
except in the STARIN and BERLIN cases, claims by family members. The plaintiffs
in these cases seek both compensatory and, except in the KNEPPER case, punitive
damages. These cases were 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 March 28, 1997. 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 April 7, 1997, the Company filed a motion to dismiss an
amended complaint in the KNEPPER case. This motion was denied by the court. A
motion to strike the class action allegations in the WHITAKER case was filed on
April 25, 1997. This motion was not opposed and the court granted the motion on
May 16, 1997. The prayer for relief, originally $100 million on behalf of the
class, has not yet been changed since the striking of the class action
allegations.
As previously reported in the Company's annual report on Form
10-K for the year ended December 31, 1996, the Company sought reimbursement of
defense costs incurred in the MIA JOHNSON, WHITAKER, MUSSER, JACOBS, and KNEPPER
cases from certain insurance carriers. Subject to a reservation of rights and
pursuant to an interim arrangement,
14
<PAGE> 16
these insurance carriers have agreed to pay approximately one-half of the
defense costs in each of these cases.
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.
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. This motion is pending before the court.
CLAIMS INITIATED SINCE THE END OF FIRST QUARTER 1997. On June
27, 1997, Victor Wallace and his spouse filed a suit against the Company and
certain other companies in the Superior Court of California, County of Los
Angeles, alleging injury resulting from exposure to beryllium and
beryllium-containing products, other than as employees of the Company, and
claiming recovery based on various legal theories, including product liability:
WALLACE, ET AL. V. BRUSH WELLMAN INC., ET AL. The plaintiffs seek damages in an
unspecified amount.
15
<PAGE> 17
The defense for the WALLACE case is being conducted by
counsel retained by the Company. The Company intends to contest the claim
vigorously and believes that the resolution of this case will not have a
material effect on the Company.
(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-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-four 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.
16
<PAGE> 18
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) The Company's Annual Meeting of Shareholders for 1997 was held
on May 6, 1997.
(b) Not applicable.
(c) At the Annual Meeting, three directors were elected to serve
for a term of three years by the following vote.
<TABLE>
<CAPTION>
Shares Shares
Voted Voted
"For" "Against"
---------- --------
<S> <C> <C>
Gordon D. Harnett 14,740,111 202,894
William P. Madar 14,770,095 172,910
Robert M. McInnes 14,757,204 185,801
</TABLE>
The selection of Ernst & Young as independent auditors for
1997 was ratified and approved by the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted Voted Voted Non-voting
"For" "Against" "Abstaining" Shares
---------- ------------ ------------- ------------
<S> <C> <C> <C>
14,799,396 72,245 71,364 -0-
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
--------
11. Statement re computation of per share earnings (filed
as Exhibit 1 to Part I of this report).
(b) Reports on Form 8-K
-------------------
There have been no reports on Form 8-K during the quarter
ended June 27, 1997.
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: August 8, 1997
/s/Carl Cramer
-----------------------------------
Carl Cramer
Vice President Finance and
Chief Financial Officer
18
<PAGE> 1
PART I
EXHIBIT 11
BRUSH WELLMAN INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
--------------------------- ----------------------------
July 27 June 28 July 27 June 28
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary Diluted:
Average shares outstanding 16,293,343 15,872,613 16,290,635 15,912,605
Dilutive stock options based
on the treasury stock method
using average market price 249,783 173,915 196,652 177,027
----------- ----------- ----------- -----------
TOTALS 16,543,126 16,046,528 16,487,287 16,089,632
=========== =========== =========== ===========
Net Income $ 7,489,000 $ 8,144,000 $13,979,000 $13,300,000
Per share amount $ 0.45 $ 0.51 $ 0.85 $ 0.83
=========== =========== =========== ===========
Fully Diluted:
Average shares outstanding 16,293,343 15,872,613 16,290,635 15,912,605
Dilutive stock options based
on the treasury stock method
using average market price 287,492 199,129 284,804 202,988
----------- ----------- ----------- -----------
TOTALS 16,580,835 16,071,742 16,575,439 16,115,593
=========== =========== =========== ===========
Net Income $ 7,489,000 $ 8,144,000 $13,979,000 $13,300,000
Per share amount $ 0.45 $ 0.51 $ 0.84 $ 0.83
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-27-1997
<CASH> 16,161
<SECURITIES> 0
<RECEIVABLES> 72,426
<ALLOWANCES> 1,039
<INVENTORY> 91,987
<CURRENT-ASSETS> 197,663
<PP&E> 437,524
<DEPRECIATION> 283,303
<TOTAL-ASSETS> 380,172
<CURRENT-LIABILITIES> 82,079
<BONDS> 18,705
<COMMON> 21,969
0
0
<OTHER-SE> 208,007
<TOTAL-LIABILITY-AND-EQUITY> 380,172
<SALES> 213,062
<TOTAL-REVENUES> 213,062
<CGS> 157,584
<TOTAL-COSTS> 193,705
<OTHER-EXPENSES> (652)
<LOSS-PROVISION> 148
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> 19,497
<INCOME-TAX> 5,518
<INCOME-CONTINUING> 13,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,979
<EPS-PRIMARY> .85
<EPS-DILUTED> .84
</TABLE>
