1
EXHIBIT 13
BRUSH WELLMAN INC. 1995 ANNUAL REPORT
[Assorted photos - Collage]
2
[Photo Collage]
ALLOY PRODUCTS are tailored metallurgically to specific
customer performance requirements. Copper beryllium alloys
exhibit high electrical and thermal conductivities, high
strength and hardness, good formability and excellent
resistance to corrosion, wear and fatigue. These properties
make the alloys ideal choices for a variety of demanding
applications in computers, telecommunications, automotive
electronics, energy systems, plastic molds and consumer
products.
BERYLLIUM is a unique material exhibiting physical and
mechanical properties unmatched by any other metal. It is
one of the lightest structural materials known, yet has
specific stiffness six times greater than steel. It
possesses high heat absorbing capability and has dimensional
stability over a wide range of temperatures. Beryllium
Products, including AlBeMet(R) and Brush Wellman's new
E-Materials, are used primarily in defense and commercial
aerospace applications.
CERAMIC PRODUCTS offer unique solutions for thermal
management applications. Beryllia ceramic is an effective
electrical insulator and it has excellent thermal
conductivity. It has high strength and hardness, and a low
dielectric constant. Ceramic Products are used in automotive
and power electronic systems, wireless telecommunications,
thermoelectric cooling systems, and lasers.
SPECIALTY METAL SYSTEMS, manufactured by Technical
Materials, Inc., are combinations of precious and
non-precious metals in continuous strip form and are used in
complex electronic and electrical components in
telecommunications systems, automobiles and computers.
PRECIOUS METAL PRODUCTS are produced by Williams Advanced
Materials Inc. for a variety of high reliability
applications in electrical and electronic interconnection,
packaging and processing markets principally in North
America and the Far East.
3
BRUSH WELLMAN INC.
is a leading supplier of high performance engineered materials. Since its
founding in 1931, the Company has concentrated its operations and skills on the
advancement of beryllium-based materials. Today, Brush Wellman is the only
fully integrated supplier of beryllium, beryllium-containing alloys and
beryllia ceramic in the world. Brush Wellman also supplies high quality
specialty metal systems and precious metal products. Brush Wellman markets its
products around the world through Company-owned service, distribution and
technical centers in England, Germany, Japan and the United States, as well as
through a world wide network of independent distributors. In addition, Brush
Wellman recycles beryllium and copper through its Resource Recovery operations.
Brush Wellman is headquartered in Cleveland, Ohio. Its stock is traded on
the New York Stock Exchange and identified by the symbol BW.
FINANCIAL HIGHLIGHTS
(Dollars in millions except per share amounts) 1995 1994 % Change
------- ------- --------
Sales ......................................... $369.6 $345.9 +7%
Net Income...................................... 20.7 18.6 +12%
Net Income per share ........................... 1.26 1.14 +11%
Dividends per share............................. 0.36 0.26 +38%
Shareholders' equity per share.................. 12.46 11.49 +8%
91 92 93 94 95
------ ------ ------ ------ ------
NET SALES (in millions) .......... $267.5 $265.0 $295.5 $345.9 $369.6
NET INCOME (in millions) ......... $3.1 $10.5 $6.5 $18.6 $20.7
NET INCOME PER SHARE ............. $0.19 $0.65 $0.40 $1.14 $1.26
RETURN ON SHAREHOLDERS' EQUITY.... 1.9% 6.2% 3.8% 9.9% 10.3%
<FN>
All Charts: Excluding impairment and restructuring charge in 1991.
4
TO OUR SHAREHOLDERS:
On behalf of all Brush Wellman employees, I am pleased to
report that 1995 was another year of growth as the Company's sales increased for
the third consecutive year and established a new record.
Earnings also improved to their highest level since 1988. However, we believe
that the opportunity exists for more significant earnings growth, if we can
improve our productivity and do a better job of controlling overhead costs.
1995 RESULTS
Net income in 1995 grew to $20.7 million, or $1.26 per share, a 12% increase
from 1994 net income of $18.6 million and earnings per share of $1.14. The 1994
results were a marked improvement from 1993 net income of $6.5 million and
earnings per share of 40 cents. The earnings performance in 1995 contributed to
our already strong cash flow and further strengthened our balance sheet.
Long-term debt to total capital at the end of the year was 8%.
Sales in 1995 were $370 million, a record for the Company, and a 7%
improvement over sales of $346 million during 1994, which had represented the
previous record.
The sales increases which we have achieved over the past three years have
resulted from our ability to develop new applications for our products, our
success in expanding our international presence and the cyclical strength of
several target markets.
Sales of alloys continued to grow, worldwide, reflecting high levels of
demand for these materials in electronics applications, and our continuing
success in developing new applications in automotive electronics, appliances,
telecommunications and commercial aircraft markets. Our European and Asian
marketing programs continued to produce positive results, as sales in those
regions of the world grew, once again, in 1995. Alloy sales comparisons were
boosted by the weak dollar and higher copper prices, particularly in the first
half, relative to 1994. Technical Materials, Inc. sales of specialty metal
systems increased significantly in 1995, reflecting success in marketing and
production of this unique line of specialty materials. Sales of Beryllium
Products in 1995 were greater than in 1994, despite the completion of the
government stockpile contract in June 1994. Growth in sales of AlBeMet(R) and
our new E-Materials more than offset the slight decline in metallic beryllium
sales. These new products are used in commercial satellites and other aerospace
applications. Ceramic sales also increased slightly in 1995, as sales growth in
the new Tape and Direct Bond Copper products offset declines in more traditional
beryllia products.
Williams Advanced Materials Inc. sales of precious metal products declined in
1995, following very strong performance in 1994. This decline was caused by the
redesign of a major microprocessor application, which had been anticipated by
management, and which was partially offset by growth in sales of vapor
deposition products.
Additional details of sales and financial performance during 1995 are
contained in Management's Discussion and Analysis, beginning on page 18.
STRATEGIC REVIEW: HISTORICAL PERSPECTIVE
At the beginning of the 1990's, Brush Wellman was truly at a crossroads. The end
of the Cold War resulted in dramatic reductions in defense requirements for our
materials. In addition, our largest market -- computers and related components
- -- was undergoing a major structural change. Mainframes, which had been major
users of our products, were being displaced by work stations, PC networks and
small, powerful stand-alone PCs. Traditionally, these smaller computer
architectures had not been major users of our products because the heat, power
and reliability requirements were such that premium materials were not required.
In 1989, defense/aerospace and computers (principally mainframe-related)
accounted for approximately 68% of Brush Wellman sales. The concurrent
structural changes in these two markets posed an enormous challenge for Brush
Wellman. Management recognized that a new strategy would be needed to meet this
challenge and reposition the Company for growth and prosperity in the nineties.
In developing a new strategy, management recognized that the properties
offered by Brush Wellman materials were potentially valuable to a wide variety
of markets that the Company had not successfully penetrated in the past. For
example, our materials can simultaneously provide light weight and strength, or
thermal conductivity and electrical insulating properties. They can withstand
high temperatures, readily conduct electricity and resist stress and fatigue. In
nearly all cases, it is the combination of properties which makes our products
uniquely beneficial to potential users.
Because of their unique combinations of properties, materials produced by
Brush Wellman can enable our customers to produce safer, smaller, more reliable
and more efficient products, improve productivity, and reduce costs, over the
life of their products.
Management developed a vision of Brush Wellman as a more aggressive and
highly focused organization, capable of consistently expanding the worldwide
market for our products. To accomplish our vision, it was clear that Brush
Wellman needed to shift its focus from being engineering- and sales-driven to
being market-driven, and externally rather than internally focused. To
2
5
develop and capitalize on opportunities in new markets, we needed to reallocate
resources, particularly into an expanded marketing emphasis. We also began to
develop a spirit of multi-functional teamwork, directed toward providing better
service to customers. Our compensation system was changed, so that all employees
would have a greater personal stake in, and commitment to, achieving Company
goals for profit and return on invested capital.
We have made good progress over the past four years. Since 1992, our total
sales have grown by 39%, after declining from 1988 through 1992. This growth has
been achieved fundamentally by developing new applications in new markets,
worldwide, as our traditional markets -- defense/aerospace and mainframe
computers -- have continued to decline. Target markets, such as automotive
electronics, personal computers, appliances, telecommunications, commercial
aerospace, plastic molds and recreation/leisure markets have all contributed to
the Company's growth. Automotive electronics has increased from 6% to 18% of our
sales. Electronic components such as connectors, switches, leadframes and
semiconductors used in personal computers, work stations and peripherals have
replaced mainframe computer applications as the largest market for our products.
Clearly, the experience over the past three years demonstrates that our
materials have the potential to grow in a wide variety of markets and
applications when we can demonstrate that they provide value to our customers.
Most of the growth the Company has achieved in recent years has been in new
or improved products. Alloy 174, Direct-Bond Copper, Vapor Deposition Products,
AlBeMet(R) are all very different products, serving different market niches, but
they all contributed greatly to Brush Wellman's recent sales increases. These,
and other product and process innovations, have been developed through Brush
Wellman's research and development efforts. As a world leader in the production
of high-performance engineered materials, we realize that our success in the
future depends on our ability to develop a continuing stream of ever improving
products and processes to meet the changing needs of a dynamic marketplace.
International marketing has been another major strategic thrust, and overseas
sales have contributed greatly to the Company's growth. In 1995 our
international business accounted for approximately 34% of total sales, an
all-time high. The largest overseas customer concentrations are in Germany,
Japan, the United Kingdom, Switzerland and Singapore.
Early in 1995, the Company announced the formation of a new subsidiary, Brush
Wellman (Singapore) Pte Ltd., which is responsible for marketing alloys and
beryllium products to customers in Singapore, India, China, ASEAN and Australia.
This new subsidiary joins with our subsidiaries in Japan, England and Germany in
providing an enhanced level of service to customers around the world.
We believe that the potential exists to significantly expand our sales and
profits if we can deliver the benefits of our products to customers at a lower
cost. The Company has worked toward lasting cost reduction through yield and
process improvements for some time, and, while progress has been made, we will
continue to address these areas for additional improvement. Our productivity has
increased, as sales per employee have grown from $138,000 in 1991 to over
$198,000 in 1995.
In the third quarter of 1994, Brush Wellman launched BrushBREAKTHRU, a
re-engineering effort focused on alloy products. The objectives of
BrushBREAKTHRU include streamlining business practices to enable faster
responses and foster closer relationships with customers, aligning
manufacturing practices with customer requirements, making better use of our
distribution network to enhance customer satisfaction and managing inventory
more efficiently. We were in the analysis phase of the effort throughout most
of 1995. At the end of the year, we began to implement the major
recommendations of the BrushBREAKTHRU team.
Our improved results over the past four years have been due principally to
our success in developing new applications for our products, the expansion of
our international presence, and our performance in delivering record quantities
of high quality products, on time, to customers around the world. The continuing
challenge faced by Brush Wellman is to find new ways to adapt our products to
meet new demands and to do a better job of acquainting designers with the
benefits of our products for their applications.
================================================================================
[FIGURE]
BRUSH WELLMAN SALES (MILLIONS)
89 90 91 92 93 94 95
Emerging Markets
Defense/Aerospace
Emerging markets include automotive electronics, appliances, energy development
and plastic molds.
[FIGURE]
INTERNATIONAL SALES --
PERCENT OF TOTAL
85 15%
90 27%
95 34%
3
6
[FIGURE]
BRUSH WELLMAN END USE MARKETS
COMPUTERS 33%
AUTOMOTIVE ELECTRONICS 18%
TELECOMMUNICATIONS 12%
APPLIANCES/CONSUMER 10%
DEFENSE 8%
COMMERCIAL AEROSPACE 6%
ALL OTHERS 13%
[FIGURE]
COMMON STOCK PRICE
91 92 93 94 95
HIGH
CLOSE
LOW
STRATEGY FOR THE FUTURE
Brush Wellman is the world's leading producer of beryllium materials. Any
strategy for the future must recognize and build upon this unique core
competency. Given the continuing trends toward miniaturization, weight
reduction, increased electronic content, and the heightened awareness of the
costs of component failure and repair-related downtime, we are convinced that
our materials have the potential to capture a greater portion of the worldwide
specialty materials market.
Brush Wellman's current strategy builds on the successes of recent years, but
recognizes that more growth, in sales and profit, will be needed to generate
improved returns for our shareholders. Our goal is to become recognized as a
leading non-ferrous specialty alloys producer, on a worldwide basis, and to take
full advantage of all opportunities in the electronic materials marketplace. Our
strategy to accomplish this goal involves three major thrusts. First, we will
continue to concentrate on expanding the sales of our existing businesses, with
particular emphasis on international opportunities. Second, we will support the
growth potential for alloy strip by expanding production capability. Third, we
will focus attention on the electronic materials marketplace and do a better job
of capitalizing on the synergy that exists among our various products which
serve these high growth, attractive, worldwide markets.
To accomplish our first objective, we will continue to allocate sufficient
resources to marketing and sales around the world to properly communicate to
potential users the value-adding benefits provided by our products. In addition,
we will strive to make our products increasingly competitive with alternate
engineering solutions for a broader range of applications by developing
innovative ways to reduce the total cost associated with using our products, and
demonstrating that our materials add value to our customers' products.
Our second strategic thrust involves expanding production capacity for alloy
strip products. Our evaluation involves essentially four objectives. First,
increase our capacity to supply high-quality alloy products to our customers.
Second, reduce our production costs, thereby improving the competitiveness of
our products relative to alternative engineering solutions. Third, improve our
level of service to customers by reducing delivery lead times. Fourth, optimize
working capital utilization by streamlining processes and reducing
work-in-process inventory requirements. We have been studying a variety of
approaches to achieving these objectives. Any action we choose will be designed
to enhance the Company's ability to provide a superior return on investment in
the long term while maintaining our strong financial position.
Third, many of our products serve the microelectronic materials market.
Alloy, Precious Metals, Specialty Metal Strip, Ceramic and even Beryllium
Products all offer properties which are attractive to designers of sophisticated
semiconductor packages, lead frames, connectors and other electronic components.
By developing a coordinated strategy, we hope to significantly expand our
presence in these attractive, fast growing worldwide markets. A high level team
has been assembled, involving managers from all product lines to fully develop
and implement such a strategy. In this and all areas, the strategy may involve
refocused marketing, addition of necessary capacity, or strategic acquisitions.
4
7
STOCK REPURCHASE
In December 1995, the Board of Directors authorized the repurchase of up to one
million shares of the Company's common stock. These repurchases are being made
in the open market. The decision to repurchase stock is consistent with our goal
to increase shareholder value. These stock repurchases are intended to offset
any potential dilution due to issuance of stock through the incentive
compensation plans, which have been approved by shareholders. Also, while we
would anticipate that additional capital may be required to support the
Company's long-term growth objectives, Management and the Board believe that a
stock repurchase program of the scope currently underway represents a prudent
and appropriate investment.
DIVIDEND INCREASE
In August, the Board of Directors approved a 25% increase in the quarterly cash
dividend to a rate of 10 cents per share. This raised the annualized dividend
rate to 40 cents per share from the previous rate of 32 cents.
ORGANIZATION
In May 1995, Mr. David L. Burner was appointed to the Board of Directors, to
complete the term of Mr. Clark G. Waite who retired from the Company in January
1995, and who resigned from the Board in May. Mr. Burner is President of the
B.F. Goodrich Company, and is also a member of the B.F. Goodrich Company Board
of Directors.
In December 1995, the Board of Directors elected Mr. James P. Marrotte
Controller. Mr. Marrotte joined the Company in 1981, and has served in a variety
of accounting and finance functions on the product line and corporate level.
In February 1996, Dr. Jere H. Brophy transitioned from Vice President
Technology, to Executive in Residence. Dr. Brophy had directed the Company's
technology effort since 1987, and made many valuable contributions to the
Company in that role. In his new, part-time position, Dr. Brophy will continue
to offer guidance to the Company on technology-related issues.
In March 1996, the Board of Directors approved a series of management
changes. Mr. Andrew J. Sandor was named Vice President of Alloy Technology. Mr.
Sandor joined the Company in 1961 and has an extensive background in senior
management positions in manufacturing and technology. Most recently, Mr. Sandor
had served as Vice President, Operations. Mr. Daniel A. Skoch was named Vice
President Administration and Human Resources. Mr. Skoch joined the Company in
1983, and had been Vice President Human Resources since 1991. In his new
capacity Mr. Skoch will be responsible for Legal and Environmental, Health and
Safety in addition to his previous areas of responsibility, including Human
Resources and Medical. Mr. Michael D. Anderson was named Vice President
Beryllium Products. Mr. Anderson joined Brush Wellman in 1974, and has held a
variety of positions of increasing responsibility, including Director of Sales
and Marketing for Ceramic, and Director of Marketing, Beryllium Products.
OUTLOOK
The collaborative efforts of Brush Wellman employees around the world have
resulted in an impressive turnaround in the Company's performance over the past
three years. Looking forward, some economic indicators are suggesting a
flattening economy for 1996. That possibility, plus a stronger dollar and level
copper prices relative to last year, would suggest that comparisons with 1995
results may be difficult, particularly in the first half of the year. However,
our goals are to continue increasing our sales penetration in the worldwide
specialty materials market, while producing improved earnings. We will be
working very hard in 1996 to improve manufacturing yields, productivity and
working capital management. We will also resist increases in overhead costs.
However, while we must be attentive to costs at all times, cost reduction alone
will not lead Brush Wellman toward fulfilling its potential. Fundamentally,
sales growth remains the key to our success in the long run. Therefore,
regardless of the short-term economic climate, we will continue to invest time,
effort and capital into marketing and improved manufacturing technologies, with
the goals of consistent revenue growth and improved returns for our
shareholders.
/s/ Gordon D. Harnett
Gordon D. Harnett
Chairman of the Board
President and Chief Executive Officer
March 1996
5
8
CONSOLIDATED STATEMENTS OF INCOME
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands except per share amounts)
1995 1994 1993
-------- -------- --------
Net Sales ......................................................................... $369,618 $345,878 $295,478
Cost of sales .................................................................. 268,732 253,938 227,686
-------- -------- --------
Gross Margin ...................................................................... 100,886 91,940 67,792
Selling, administrative and general expenses ................................... 62,736 55,502 47,814
Research and development expenses .............................................. 7,814 8,754 7,121
Other -- net ................................................................... 1,250 2,586 2,199
-------- -------- --------
Operating Profit .................................................................. 29,086 25,098 10,658
Interest expense ............................................................... 1,653 2,071 2,952
-------- -------- --------
INCOME BEFORE INCOME TAX 27,433 23,027 7,706
Income taxes:
Currently payable............................................................... 9,547 6,270 3,597
Deferred........................................................................ (2,803) (1,793) (2,349)
-------- -------- --------
6,744 4,477 1,248
-------- -------- --------
NET INCOME $ 20,689 $ 18,550 $ 6,458
========= ======== ========
Net Income Per Share of Common Stock............................................ $ 1.26 $ 1.14 $ 0.40
========= ======== ========
Average number of shares of Common Stock outstanding............................... 16,408,553 16,243,333 16,107,853
See notes to consolidated financial statements.
6
9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
-------- -------- --------
Cash Flows from Operating Activities:
Net Income ............................................................................... $ 20,689 $ 18,550 $ 6,458
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities:
Depreciation, depletion and amortization ............................................... 18,042 17,588 18,642
Amortization of mine development ....................................................... 2,869 2,031 3,078
Decrease (Increase) in accounts receivable ............................................. (308) (4,610) (9,941)
Decrease (Increase) in inventory ....................................................... 874 (7,058) 6,416
Decrease (Increase) in prepaid and other current assets ................................ (1,951) 565 (112)
Increase (Decrease) in accounts payable and accrued expenses ........................... (1,856) 8,389 (4,118)
Increase (Decrease) in interest and taxes payable ...................................... 1,050 809 (408)
Increase (Decrease) in deferred income tax ............................................. (1,284) (1,879) (1,554)
Increase (Decrease) in other long-term liabilities ..................................... 2,061 704 (271)
Other -- net ........................................................................... (589) 80 144
-------- -------- --------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 39,597 35,169 18,334
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment ................................... (24,244) (17,214) (11,901)
Payments for mine development ............................................................ (787) (543) (814)
Payments for acquisition of business ..................................................... -- (720) --
Other investments -- net ................................................................. 718 (24) 645
Borrowing from Company-owned life insurance policy ....................................... -- -- 14,885
-------- -------- --------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES (24,313) (18,501) 2,815
Cash Flows from Financing Activities:
Proceeds from issuance of short-term debt ................................................ 5,845 -- --
Repayment of long-term debt .............................................................. (758) (704) (9,000)
Repayment of short-term debt ............................................................. (5,000) (1,962) (5,101)
Purchase of treasury stock ............................................................... (2,826) -- --
Issuance of Common Stock under stock option plans ........................................ 1,141 502 10
Payments of dividends .................................................................... (5,489) (3,702) (4,183)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,087) (5,866) (18,274)
Effects of Exchange Rate Changes ............................................................ 915 1,949 625
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 9,112 12,751 3,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,441 7,690 4,190
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,553 $ 20,441 $ 7,690
======== ======== ========
See notes to consolidated financial statements.
7
10
CONSOLIDATED BALANCE SHEETS
Brush Wellman Inc. and Subsidiaries
December 31, 1995 and 1994
(Dollars in thousands)
1995 1994
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................................................. $ 29,553 $ 20,441
Accounts receivable (less allowance of $1,015 for 1995 and $1,037 for 1994) ........................... 52,532 52,272
Inventories ........................................................................................... 92,727 93,601
Prepaid expenses and deferred income taxes ............................................................ 16,935 14,903
--------- ---------
TOTAL CURRENT ASSETS 191,747 181,217
OTHER ASSETS ............................................................................................. 18,912 19,153
PROPERTY, PLANT AND EQUIPMENT
Land .................................................................................................. 4,399 4,399
Buildings ............................................................................................. 76,258 71,624
Machinery and equipment ............................................................................... 258,265 247,182
Construction in progress .............................................................................. 14,564 7,661
Allowances for depreciation ........................................................................... (240,449) (224,242)
--------- ---------
113,037 106,624
Mineral resources ..................................................................................... 5,661 5,512
Mine development ...................................................................................... 15,220 14,433
Allowances for amortization and depletion ............................................................. (12,724) (9,806)
--------- ---------
8,157 10,139
--------- ---------
PROPERTY, PLANT AND EQUIPMENT--NET 121,194 116,763
--------- ---------
$ 331,853 $ 317,133
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt ....................................................................................... $ 22,757 $ 20,643
Accounts payable ...................................................................................... 8,772 8,861
Salaries and wages .................................................................................... 10,030 9,031
Taxes other than income taxes ......................................................................... 1,981 1,843
Other liabilities and accrued items ................................................................... 11,723 14,361
Dividends payable ..................................................................................... 1,621 1,288
Income taxes .......................................................................................... 9,707 8,482
--------- ---------
TOTAL CURRENT LIABILITIES 66,591 64,509
OTHER LONG-TERM LIABILITIES .............................................................................. 4,148 3,306
RETIREMENT AND POST-EMPLOYMENT BENEFITS .................................................................. 41,297 40,048
LONG-TERM DEBT ........................................................................................... 16,996 18,527
DEFERRED INCOME TAXES .................................................................................... 2,519 3,803
SHAREHOLDERS' EQUITY
Serial Preferred Stock, no par value; 5,000,000 shares authorized, none issued ........................ -- --
Common Stock, $1 par value
Authorized 45,000,000 shares; issued 21,330,401 shares (21,215,210 for 1994) ........................ 21,330 21,215
Additional paid-in capital ............................................................................ 45,658 44,258
Retained income ....................................................................................... 218,209 203,341
--------- ---------
285,197 268,814
Less: Common Stock in treasury, 5,259,177 shares in 1995 (5,093,295 in 1994) .......................... 84,701 81,874
Deferred Compensation - Restricted Stock ............................................................ 194 --
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 200,302 186,940
--------- ---------
$ 331,853 $ 317,133
========= =========
See notes to consolidated financial statements.
8
11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands except per share amounts)
DEFERRED
ADDITIONAL COMMON COMPENSATION-
COMMON PAID-IN RETAINED STOCK IN RESTRICTED
STOCK CAPITAL INCOME TREASURY STOCK
------------------------------------------------------------
BALANCES AT JANUARY 1, 1993 $ 21,180 $ 43,781 $185,737 $ 81,874
Net income.......................................................... 6,458
Declared dividends $.20 per share................................... (3,217)
Proceeds from sale of 900 shares under option plans................. 1 9
-------- -------- -------- -------- -----
BALANCES AT DECEMBER 31, 1993 21,181 43,790 188,978 81,874
Net income........................................................... 18,550
Declared dividends $.26 per share.................................... (4,187)
Proceeds from sale of 34,500 shares under option plans............... 34 427
Income tax benefit from employees' stock options..................... 41
-------- -------- -------- -------- -----
BALANCES AT DECEMBER 31, 1994 21,215 44,258 203,341 81,874
Net income.......................................................... 20,689
Declared dividends $.36 per share................................... (5,821)
Proceeds from sale of 71,270 shares under option plans.............. 71 910
Income tax benefit from employees' stock options.................... 160
Granted performance restricted shares............................... 44 330 1 $ 389
Amortization of deferred compensation-restricted stock.............. (195)
Purchase of shares for treasury..................................... 2,826
-------- -------- -------- -------- -----
BALANCES AT DECEMBER 31, 1995 $ 21,330 $ 45,658 $218,209 $ 84,701 $ 194
======== ======== ======== ======== =====
See notes to consolidated financial statements.
9
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brush Wellman Inc. and Subsidiaries
December 31, 1995
NOTE A - ACCOUNTING POLICIES
ORGANIZATION: The Company is a manufacturer of engineered materials used in the
computer and related electronics, telecommunications and automotive electronic
markets. The Company also sells into the aerospace/defense and
appliance/consumer markets. The majority of sales are to customers in North
America, Western Europe and the Pacific rim. Major products sold include
beryllium, beryllium alloys, beryllia ceramic, precious metal products and
specialty metal systems. The majority of products are manufactured and/or
distributed through shared Company facilities.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
CONSOLIDATION: The consolidated financial statements include the accounts of
Brush Wellman Inc. and its subsidiaries, all of which are wholly owned.
CASH EQUIVALENTS: All highly liquid investments with a put option or maturity of
three months or less when purchased are considered to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. The cost of
domestic inventories except ore and supplies is principally determined using the
last-in, first-out (LIFO) method. The remaining inventories are stated
principally at average cost.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the
basis of cost. Depreciation is computed principally by the straight-line method,
except certain facilities for which depreciation is computed by the
sum-of-the-years digits or units-of-production method.
MINERAL RESOURCES AND MINE DEVELOPMENT: Property acquisition costs and mining
costs associated with waste rock removal are recorded at cost and are depleted
or amortized by the units-of-production method based on recoverable proven
beryllium reserves. Exploration and pre-production mine development expenses are
charged to operations in the period in which they are incurred.
INTANGIBLE ASSETS: The cost of intangible assets is amortized by the
straight-line method over the periods estimated to be benefited, which is
generally ten years or less.
DERIVATIVES: Forward foreign exchange currency contracts are marked-to-market
using the period end exchange rates and any unrealized losses are taken to
income. Realized gains and losses on forward contracts and realized gains on
foreign currency options are taken to income when the financial instrument
matures. Option premiums are classified as prepaid expenses and amortized over
the term of the option.
ADVERTISING COSTS: The Company expenses all advertising costs as incurred.
Advertising costs were immaterial for the years presented in the consolidated
financial statements.
INCOME TAXES: The Company uses the liability method as required by Statement of
Financial Accounting Standards No. 109 in measuring the provision for income
taxes and recognizing deferred tax assets and liabilities on the balance sheet.
This statement requires that deferred income taxes reflect the tax consequences
of currently enacted rates for differences between the tax bases of assets and
liabilities and their financial reporting amounts.
OTHER POSTEMPLOYMENT BENEFITS: Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." This Standard requires accrual accounting for benefits
to former or inactive employees after employment but before retirement. The
adoption of this standard did not have a significant effect on the consolidated
financial statements at the time of adoption nor was one anticipated thereafter.
RECLASSIFICATION: Certain amounts in prior years have been reclassified to
conform with the 1995 consolidated financial statement presentation.
NET INCOME PER SHARE: Net income per share is based on the weighted average
number of outstanding shares of Common Stock including common stock equivalents
(stock options) as appropriate under the treasury stock method.
ASSET IMPAIRMENT: In 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." This Statement requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. The Company will
adopt Statement 121 in the first quarter of 1996 as required. Due to the
complexity of the operations of its various facilities and the extensive number
of estimates that must be used to assess the impact of this Statement, the
financial statement impact of adoption has not yet been determined.
NOTE B - ACQUISITIONS
In October 1994, the Company acquired the assets, including net working capital,
of Hydrostatics Inc. This transaction was accounted for as a purchase and did
not have a material impact on operations.
10
13
NOTE C - INVENTORIES
Inventories in the consolidated balance sheets are summarized as follows:
DECEMBER 31
(DOLLARS IN THOUSANDS) 1995 1994
-------- --------
Principally average cost:
Raw materials and supplies ................... $ 19,719 $ 21,020
In process ................................... 57,013 55,008
Finished ..................................... 42,222 39,530
-------- --------
118,954 115,558
Excess of average cost over LIFO
inventory value .............................. 26,227 21,957
-------- --------
$ 92,727 $ 93,601
======== ========
Inventories aggregating $62,675,000 and $63,502,000 are stated at LIFO at
December 31, 1995 and 1994, respectively.
NOTE D - INTEREST
Interest expense associated with active construction and mine development
projects is capitalized and amortized over the future useful lives of the
related assets. Interest paid was $2,284,000, $2,518,000 and $3,184,000 in 1995,
1994 and 1993, respectively. Interest costs capitalized and the amounts
amortized are as follows:
(DOLLARS IN THOUSANDS) 1995 1994 1993
------ ------ ------
Interest incurred .......................... $2,099 $2,407 $3,177
Less capitalized interest .................. 446 336 225
------ ------ ------
$1,653 $2,071 $2,952
====== ====== ======
Amortization, included principally
in cost of sales ........................ $ 578 $ 525 $ 639
====== ====== ======
In 1986, the Company purchased company-owned life insurance policies insuring
the lives of certain United States employees. The contracts are recorded at cash
surrender value, net of policy loans, in other assets. The net contract expense,
including interest expense recorded in Selling, Administrative and General
expenses, was $954,000, $598,000 and $184,000 in 1995, 1994 and 1993,
respectively. The related interest expense was $4,788,000, $4,091,000 and
$1,820,000, respectively.
NOTE E - DEBT
A summary of long-term debt follows:
DECEMBER 31
(DOLLARS IN THOUSANDS) 1995 1994
-------- --------
9.53% - 9.68% medium-term notes, $5,000,000
payable in each of 1995, 1997 and 2000 ............. $ 10,000 $ 15,000
Variable rate industrial development revenue bonds
payable in installments beginning in 2005 .......... 3,000 3,000
5.45% - 6.45% industrial development
revenue bonds payable in equal installments
in 1996 through 2000 ............................... 4,000 4,000
4.90% note payable in yen in equal
installments through 1997 .......................... 1,495 2,241
-------- --------
18,495 24,241
Current portion of long-term debt .................... (1,499) (5,714)
-------- --------
$ 16,996 $ 18,527
======== ========
Maturities on long-term debt instruments as of December 31, 1995, are as
follows:
1996 .................................................. $ 1,499
1997 .................................................. 6,596
1998 .................................................. 800
1999 .................................................. 800
2000 .................................................. 5,800
Thereafter ............................................ 3,000
-------
$18,495
=======
The Company has a revolving credit agreement with four banks which provides a
maximum availability of $50,000,000 through April 30, 1998. At December 31,
1995, there were no borrowings outstanding against this agreement.
The Company has a private placement agreement whereby the Company can issue
up to an aggregate of $75,000,000 of medium-term notes ($10,000,000 outstanding
at December 31, 1995). The notes bear a fixed interest rate and may have
maturities from nine months to thirty years from date of issue as agreed upon in
each case by the purchaser and the Company.
Included in short-term debt is $21,258,000 outstanding under lines of credit
totaling $92,807,000. The $92,807,000 lines of credit consist of $50,000,000,
$32,936,000 and $9,871,000 of domestic, foreign and precious metal (primarily
gold) denominated debt, respectively. The domestic and foreign lines are
uncommitted, unsecured and renewed annually. The precious metal facility is
committed, secured and renewed annually. Of the amount outstanding, $11,387,000
is payable in foreign currencies and $9,871,000 is denominated in precious
metal, primarily gold. Also included in short-term debt is $800,000 representing
the current maturity of an industrial development revenue bond and $699,000
representing the current portion of the yen note payable. The average rate on
short-term debt was 3.6% and 2.0% as of December 31, 1995 and 1994,
respectively.
During December 1995, the Company entered into an interest rate swap
agreement to manage its interest rate exposure on the $3,000,000 variable rate
industrial development revenue bond. The Company converted the variable rate to
a fixed rate of 6.03% under the interest rate swap agreement that matures in
2002.
During 1994, the Company re-funded its $3,000,000 industrial development
revenue bonds. The 7.25% bonds were re-funded into variable rate demand bonds.
The variable rate ranged from 3.00% to 5.70% during 1995 and 2.15% to 5.70%
during 1994.
The loan agreements include certain restrictive covenants covering the
incurrence of additional debt, interest coverage, and maintenance of working
capital and tangible net worth (as defined).
11
14
Notes to Consolidated Statements (continued)
NOTE F - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has a program in place to manage foreign currency risk. As part of
that program, the Company has entered into forward contracts and purchased
foreign currency options to hedge anticipated foreign currency transactions,
primarily foreign sales during the next twelve months. The purpose of the
program is to protect against the reduction in value of the foreign currency
transactions from adverse exchange rate movements. Should the dollar strengthen
significantly, the decrease in the value of the foreign currency transactions
will be partially offset by the gains on the hedge contracts and options.
All hedge contracts mature in one year or less. The options were generally
several percent out-of-the-money at the time of purchase. At year end, the
Company was in a net unrealized gain position on its hedge contracts that was
not material to the Company. Therefore, the fair market value of the forward
contracts approximates their nominal value as of the balance sheet date. The
contracted amounts of the Company's outstanding forward contracts and purchased
option contracts as of December 31, 1995 were as follows:
PURCHASED
FORWARD OPTION TOTAL
(DOLLARS IN THOUSANDS) CONTRACTS CONTRACTS CONTRACTS
--------- --------- ---------
Currency:
Deutschemark ................. $ 6,950 $ 5,200 $12,150
Yen .......................... 4,950 4,400 9,350
Sterling ..................... 1,485 1,800 3,285
------- ------- -------
Total ........................ $13,385 $11,400 $24,785
======= ======= =======
CASH AND CASH EQUIVALENTS
Included in cash equivalents are $21.4 million ($10.5 million in 1994) in
variable rate demand notes which are investments in debt securities that are
revalued every seven days and puttable to the remarketing agent with seven days'
notice. The notes are guaranteed by letters of credit from highly rated
financial institutions. The carrying amounts reported in the balance sheet for
cash and cash equivalents approximate fair value.
LONG- AND SHORT-TERM DEBT
The fair value of the Company's debt (which had a carrying value of $39,753,000)
at December 31, 1995, was estimated at $40,980,000 using a discounted cash flow
analysis based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
In December 1995, the Company entered into an interest rate swap, converting
to a fixed rate from a variable rate on a $3,000,000 industrial development
revenue bond. The fair value of this swap approximates its carrying value.
NOTE G - CAPITAL STOCK
The Company has 5,000,000 shares of Serial Preferred Stock authorized (no par
value), none of which has been issued. Certain terms of the Serial Preferred
Stock, including dividends, redemption and conversion, will be determined by the
Board of Directors prior to issuance.
On January 26, 1988, the Company's Board of Directors declared a dividend of
one preferred stock purchase right for each outstanding share of Common Stock.
Each right entitles the shareholder to buy one one-hundredth of a share of
Serial Preferred Stock, Series A, at an initial exercise price of $100. 450,000
unissued shares of Serial Preferred Stock have been designated as Series A
Preferred Stock. Each share of Series A Preferred Stock will be entitled to
participate in dividends on an equivalent basis with one hundred shares of Brush
Wellman Common Stock. Each share of Series A Preferred Stock will be entitled to
one vote. The rights are not exercisable and will not be evidenced by separate
right certificates until a specified time after any person or group acquires
beneficial ownership of 20% or more (or announces a tender offer for 20% or
more) of Brush Wellman Common Stock. The rights expire on January 26, 1998, and
can be redeemed for 3 cents per right under certain circumstances.
In December 1995, the Company's Board of Directors authorized a program to
repurchase up to 1,000,000 shares of its Common Stock. Through December 31,
1995, the Company repurchased 165,200 shares at a total cost of $2,826,000 under
this program.
The 1995 Stock Incentive Plan authorizes the granting of five categories of
incentive awards: performance restricted shares, performance shares, performance
units, restricted shares and option rights. In 1995, a total of 43,921
performance restricted shares and 21,961 performance shares were granted to
certain employees (682 and 341 were subsequently forfeited, respectively). The
market value of the performance restricted shares and the performance shares
adjusted for management's expectation of reaching the Management Objectives as
outlined in the plan agreement, and the related dividends on the performance
restricted shares have been recorded as deferred compensation-restricted stock
and are shown as a separate component of shareholders' equity. At December 31,
1995, no amount for the performance shares has been recorded as deferred
compensation-restricted stock. Deferred compensation is being amortized over the
two year vesting period and amounted to $195,000 in 1995. Option rights entitle
the optionee to purchase common shares at a price equal to or greater than
market value on the date of grant. Option rights outstanding under the 1995
Stock Incentive Plan and previous plans generally become exercisable over a four
year period and expire ten years from the date of the grant. In 1995, the
Company's right to grant options on a total of 228,565 shares (under the
Company's 1979, 1984 and 1989 stock option plans) was terminated upon
shareholder approval of the 1995 Stock Incentive Plan. No further stock awards
will be made under the Company's 1979, 1984 and 1989 stock option plans except
to the extent that shares become available for grant under these plans by reason
of termination of options previously granted.
The 1990 Stock Option Plan for Non-Employee Directors provides for a
one-time grant of 5,000 options to each non-employee director at not less than
the fair market value of the shares at the date of the grant. Options are
non-qualified and become exercisable six months after the date of grant. The
options generally expire ten years after the date they were granted.
In 1995, the Company canceled the stock appreciation rights plan. During
1995, 1994 and 1993, no stock appreciation rights were granted or exercised.
12
15
A summary of option activity during the years 1995, 1994 and 1993 follows:
SHARES OPTION PRICES
--------- ----------------
Outstanding at January 1, 1993 .......... 1,767,815 $12.00 to $38.94
Granted ................................. 257,250 $11.81 to $13.56
Exercised ............................... (900) $12.00 to $14.50
Canceled ................................ (280,075) $12.00 to $38.94
---------
Outstanding at December 31, 1993 ........ 1,744,090 $11.81 to $38.94
Granted ................................. 215,700 $15.19 to $15.75
Exercised ............................... (34,500) $12.00 to $15.31
Canceled ................................ (346,990) $12.00 to $38.94
---------
Outstanding at December 31, 1994 ........ 1,578,300 $11.81 to $38.94
Granted ................................. 210,400 $17.69 to $19.81
Exercised ............................... (71,270) $12.00 to $17.25
Canceled ................................ (55,690) $12.00 to $38.94
---------
Outstanding at December 31, 1995 ........ 1,661,740 $11.81 to $38.94
=========
At December 31, 1995, options for 1,313,560 shares (1,235,560 shares at December
31, 1994) were exercisable, and there were 545,432 shares (243,565 at December
31, 1994) available for future grants.
NOTE H - INCOME TAXES
Income before income taxes and income taxes are made up of the following
components, respectively:
(DOLLARS IN THOUSANDS) 1995 1994 1993
-------- -------- -------
Income before income taxes:
Domestic ................................ $ 20,480 $ 17,570 $ 7,316
Foreign ................................. 6,953 5,457 390
-------- -------- -------
Total before income taxes ............. $ 27,433 $ 23,027 $ 7,706
======== ======== =======
Income taxes:
Current income taxes:
Domestic ................................ $ 6,779 $ 5,374 $ 3,326
Foreign ................................. 2,768 1,968 271
Benefit of foreign loss carryforward .... -- (1,072) --
-------- -------- -------
Total current ......................... 9,547 6,270 3,597
Deferred income taxes:
Principally domestic .................... (2,803) (1,793) (2,349)
-------- -------- -------
Total income taxes .................... $ 6,744 $ 4,477 $ 1,248
======== ======== =======
A reconciliation of the federal statutory and effective income tax
rates(benefits) follows:
1995 1994 1993
---- ---- ---
Federal statutory rate ..................... 35.0% 34.0% 34.0%
State and local income taxes, net
of federal tax effect .................... 2.1 3.2 2.7
Effect of excess of percentage
depletion over cost depletion ............ (5.5) (6.1) (15.3)
Company-owned life insurance ............... (4.9) (5.1) (7.2)
Difference due to book and tax basis
of assets of acquired businesses ......... 0.4 0.4 1.1
Taxes on foreign income - net .............. (2.2) (3.5) (1.9)
Reduction of valuation allowance ........... -- (4.7) --
Other items ................................ (0.3) 1.2 2.8
---- ---- ----
Effective tax rate ..................... 24.6% 19.4% 16.2%
==== ==== ====
Included in income taxes currently payable, as shown in the Consolidated
Statements of Income, are $904,000, $1,116,000 and $312,000 of state and local
income taxes in 1995, 1994 and 1993, respectively.
The Company made domestic and foreign income tax payments, net of refunds,
of $8,087,000, $5,353,000 and $4,082,000 in 1995, 1994 and 1993, respectively.
Under Statement 109, deferred tax assets and liabilities are determined
based on temporary differences between the financial reporting bases and the tax
bases of assets and liabilities. Deferred tax assets and (liabilities) recorded
in the consolidated balance sheets consist of the following at December 31:
(DOLLARS IN THOUSANDS) 1995 1994
-------- --------
Postretirement benefits other than pensions ........ $ 12,333 $ 11,957
Alternative minimum tax credit ..................... 5,937 5,704
Other deferred assets and reserves ................. 5,339 5,000
Restructuring accrual .............................. 1,981 1,950
Miscellaneous ...................................... 236 64
-------- --------
Total deferred tax assets .......................... 25,826 24,675
Depreciation ....................................... (9,836) (10,370)
Pensions ........................................... (3,914) (3,721)
Mine development ................................... (2,070) (2,479)
Capitalized interest expense ....................... (1,340) (1,392)
Inventory .......................................... (214) (1,064)
-------- --------
Total deferred tax liabilities ..................... (17,374) (19,026)
-------- --------
Net deferred tax asset ............................. $ 8,452 $ 5,649
======== ========
NOTE I - PENSIONS
The Company and its subsidiaries have noncontributory pension plans covering
substantially all U.S. employees. Plans provide benefits based on the
participants' years of service and compensation or stated amounts for each year
of service. The Company's funding policy is to make the minimum actuarially
computed annual contributions required by applicable regulations. No
contributions were made in 1995, 1994 or 1993.
A summary of the components of net periodic pension cost for pension plans
follows (in thousands):
DEFINED BENEFIT PLANS: 1995 1994 1993
-------- ------- -------
Service cost-benefits earned
during the period ..................... $ 1,942 $ 2,125 $ 1,846
Interest cost on projected
benefit obligation .................... 4,512 4,247 4,035
Actual return (increase)/decrease
on plan assets ........................ (12,684) 897 (5,744)
Net amortization and deferral ........... 5,759 (7,684) (669)
-------- ------- -------
Total (credit) expense ................ $ (471) $ (415) $ (532)
======== ======= =======
The following table sets forth the funded status of the Company's plans and the
amounts recognized in the consolidated balance sheets at December 31 (in
thousands):
13
16
Notes to Consolidated Statements (continued)
PLANS WHOSE ASSETS
EXCEED ACCUMULATED
BENEFITS
1995 1994
-------- --------
Actuarial present value of benefit obligations:
Vested benefit obligation ........................... $ 49,410 $ 41,130
======== ========
Accumulated benefit obligation ...................... $ 53,669 $ 44,828
======== ========
Plan assets at fair value ........................... $ 76,970 $ 68,192
Projected benefit obligation ........................ (65,044) (53,323)
-------- --------
Plan assets in excess of projected benefit obligation 11,926 14,869
Unrecognized net (gain) or loss ..................... 1,731 (1,283)
Unrecognized net assets, at date of adopting
FAS 87, net of amortization ....................... (4,723) (5,430)
Unrecognized prior service cost ..................... 2,577 2,788
-------- --------
Net pension asset recognized at December 31 ......... $ 11,511 $ 10,944
======== ========
Assumptions used in accounting for the pension plans were:
1995 1994 1993
---- ---- ----
Weighted-average discount rate.................... 7.25% 8.25% 7.5%
Rate of increase in compensation levels............ 5% 5% 5%
Expected long-term rate of return on assets........ 9% 9% 9%
Plan assets consist primarily of listed common stocks, corporate and government
bonds and short-term investments.
The Company also has accrued unfunded retirement arrangements for certain
U.S. employees and directors. At December 31, 1995, the projected benefit
obligation was $1,569,000 ($1,312,000 in 1994). A corresponding accumulated
benefit obligation of $1,421,000 has been recognized as a liability in the
balance sheet and is included in retirement and post-employment benefits.
Certain foreign subsidiaries have funded and accrued unfunded retirement
arrangements which are not material to the consolidated financial statements.
The Company also sponsors a defined contribution plan available to
substantially all U.S. employees. Company contributions to the plan are based on
matching a percentage of employee savings up to a specified savings level. The
Company's contribution was $1,683,000 in 1995, $1,596,000 in 1994 and $1,529,000
in 1993.
NOTE J - OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plans and deferred
contribution plans, the Company currently provides postretirement medical and
death benefits to certain full-time employees and spouses, excluding those of
subsidiaries. The Company also provides medical benefits to certain retired
employees and spouses from an operation that was divested in 1985.
Employees become eligible at age 55 with 10 years of service. Certain
employees, excluding those of subsidiaries, who retired after June 30, 1992
receive credits, based on years of service up to 30, to be used toward the
purchase of medical benefits. Contributions toward the cost of medical benefits
are required from retirees with less than 30 years of service and also for
increases in the cost of medical benefits due to inflation. Employees who
retired prior to July 1, 1992 generally had less stringent eligibility criteria
and contribution rates, and account for the majority of the postretirement
benefit obligation.
The following table presents the plan's funded status and the amounts
recognized in the Company's consolidated balance sheets (in thousands):
DECEMBER 31,
1995 1994
------- -------
Accumulated postretirement benefit obligation:
Retirees ............................................... $23,610 $26,350
Fully eligible active plan participants .............. 4,696 3,917
Other active plan participants ....................... 4,636 3,368
------- ------
32,942 33,635
Plan assets ............................................ -- --
Unrecognized net gain .................................. 2,858 1,533
------- -------
Accrued postretirement benefit obligation .............. $35,800 $35,168
======= =======
Net periodic postretirement benefit cost includes the following components
(in thousands):
1995 1994 1993
------- ------ -------
Service cost ................................. $ 304 $ 341 $ 282
Interest cost ................................ 2,409 2,612 2,826
Amortization of (gain) ....................... (140) -- --
Adjustment to benefit obligation ............. -- -- (1,227)
------- ------ -------
Net periodic postretirement benefit cost ..... $ 2,573 $2,953 $ 1,881
======= ====== =======
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) used in determining the
accumulated postretirement benefit obligation as of December 31, 1995 is 6.75%
for retirees age 65 and over and 9.0% for retirees under age 65 in 1996, and
both are assumed to decrease gradually to 4.5% until 2005 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995 by
$2,158,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1995 by $146,000. This increase would
apply only to employees who retired prior to July 1, 1992.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 31, 1995, 8.25% at
December 31, 1994 and 7.5% at December 31, 1993.
NOTE K - CONTINGENCIES
The Company is from time to time involved in various legal and other proceedings
that relate to the ordinary course of operating its business, including, but not
limited to: employment-related actions; product liability claims; and workers'
compensation claims.
While the Company is unable to predict the outcome of current proceedings,
based upon the facts currently known to it, the Company does not believe that
resolution of these proceedings will have a material adverse effect on the
financial condition or operations of the Company.
14
17
The Company has an active program for environmental compliance which
includes the identification of environmental projects and estimating their
impact on the Company's financial performance and available resources.
Environmental expenditures that relate to current operations, such as
wastewater treatment and control of airborne emissions, are either expensed or
capitalized as appropriate. For projects involving remediation, estimates of
the probable costs are made and the Company established reserves of $3.3
million at December 31, 1995 ($3.8 million at December 31, 1994). These
reserves cover existing or currently foreseen projects. Expenditures are
charged to the reserve which is adjusted from time to time as additional
projects are identified and for which probable costs of remediation can be
estimated. The current portion of the reserve is included in the balance sheet
as current other liabilities and accrued items while the long-term portion is
included under other long-term liabilities.
NOTE L - OPERATIONS BY GEOGRAPHIC AREA
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995
---------------------------------------------------------------
Operations International
in the Distribution Adjustments &
United States Subsidiaries Eliminations Consolidated
------------- ------------ ------------ ------------
Sales to unaffiliated customers..................................... $278,455 $91,163 $369,618
Transfers between operations........................................ 54,065 ($54,065)
------- -------- --------- --------
Net Sales....................................................... $332,520 $91,163 ($54,065) $369,618
======= ====== ======= ========
Operating profit (loss) ............................................ $ 24,932 $ 7,378 ($3,224) $ 29,086
======= ====== =======
Interest expense.................................................... (1,653)
-----
Income before income taxes...................................... $ 27,433
======
Identifiable assets at December 31, 1995............................ $287,977 $44,718 ($4,835) $327,860
======= ====== =====
Corporate assets.................................................... 3,993
-----
Total assets at December 31, 1995............................... $331,853
=======
1994
-----------------------------------------------------------
Sales to unaffiliated customers..................................... $262,358 $83,520 $345,878
Transfers between operations........................................ 47,239 ($47,239)
------- ------- ------ --------
Net Sales....................................................... $309,597 $83,520 ($47,239) $345,878
======= ====== ======= =======
Operating profit (loss) ............................................ $ 21,520 $ 5,841 ($ 2,263) $ 25,098
======= ====== =======
Interest expense.................................................... (2,071)
------
Income before income taxes...................................... $ 23,027
======
Identifiable assets at December 31, 1994............................ $274,376 $41,687 ($ 5,538) $310,525
======= ====== =======
Corporate assets.................................................... 6,608
-----
Total assets at December 31, 1994................................. $317,133
========
1993
----------------------------------------------------------
Sales to unaffiliated customers..................................... $244,394 $51,084 $295,478
Transfers between operations........................................ 32,339 ($32,339)
------- ------- ------ --------
Net Sales....................................................... $276,733 $51,084 ($32,339) $295,478
======== ======= ======= =======
Operating profit ................................................... $ 9,255 $ 1,034 $ 369 $ 10,658
======== ======= =======
Interest expense.................................................... (2,952)
------
Income before income taxes...................................... $ 7,706
======
Identifiable assets at December 31, 1993............................ $259,839 $30,894 ($2,927) $287,806
======== ======= =======
Corporate assets.................................................... 5,566
-----
Total assets at December 31, 1993............................... $293,372
=========
Transfers between operations are accounted for in the same manner as sales to
unaffiliated customers. Corporate assets are principally cash and cash
equivalents and investments.
Total international sales were $127,289,000 in 1995, $114,911,000 in
1994, and $86,334,000 in 1993. These are comprised of exports from United
States operations and direct sales by international distribution subsidiaries,
primarily in Europe. Most of these sales represent products manufactured in the
United States.
Export sales from United States operations amounted to $36,126,000 in 1995,
$31,391,000 in 1994, and $35,101,000 in 1993.
15
18
Notes to Consolidated Statements (continued)
NOTE M - QUARTERLY DATA (UNAUDITED)
Years ended December 31, 1995 and 1994
(Dollars in thousands except per share amounts)
1995
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Net Sales...................................................... $98,912 $97,283 $89,361 $84,062 $369,618
Gross Margin................................................... 27,372 27,241 22,632 23,641 100,886
Percent of Sales............................................ 27.7% 28.0% 25.3% 28.1% 27.3%
Net Income..................................................... 6,789 6,676 3,332 3,892 20,689
Per Share of Common Stock:
Net Income.................................................. 0.42 0.40 0.20 0.24 1.26
Dividends................................................... 0.08 0.08 0.10 0.10 0.36
Stock price range
High........................................................ 18.13 21.88 23.63 18.63
Low......................................................... 14.50 17.63 18.38 16.00
1994
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
Net Sales....................................................... $84,794 $86,560 $86,730 $87,794 $345,878
Gross Margin.................................................... 23,194 24,992 20,100 23,654 91,940
Percent of Sales............................................. 27.4% 28.9% 23.2% 26.9% 26.6%
Net Income...................................................... 5,594 5,893 2,432 4,631 18,550
Per Share of Common Stock:
Net Income................................................... 0.35 0.36 0.15 0.28 1.14
Dividends.................................................... 0.05 0.05 0.08 0.08 0.26
Stock price range
High......................................................... 17.25 18.63 17.88 17.88
Low.......................................................... 13.38 15.00 13.50 14.38
Charges related to the transfer of the direct bond copper production from New
York to Massachusetts reduced second quarter 1994 net income by approximately
$450,000 ($0.03 per share). Third quarter 1994 net income was reduced by
approximately $1,500,000 ($0.09 per share) due to the partial closure of the
Applications Development Center.
16
19
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Board of Directors and Shareholders
Brush Wellman Inc.
We have audited the accompanying consolidated balance sheets of Brush Wellman
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brush Wellman
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 22, 1996
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
The management of Brush Wellman Inc. is responsible for the contents of the
financial statements which are prepared in conformity with generally accepted
accounting principles. The financial statements necessarily include amounts
based on judgments and estimates. Financial information elsewhere in the annual
report is consistent with that in the financial statements.
The Company maintains a comprehensive accounting system which includes
controls designed to provide reasonable assurance as to the integrity and
reliability of the financial records and the protection of assets. However,
there are inherent limitations in the effectiveness of any system of internal
controls and, therefore, it provides only reasonable assurance with respect to
financial statement preparation. An internal audit staff is employed to
regularly test and evaluate both internal accounting controls and operating
procedures, including compliance with the Company's statement of policy
regarding ethical and lawful conduct. The role of the independent auditors is
to provide an objective review of the financial statements and the underlying
transactions in accordance with generally accepted auditing standards.
The Audit Committee of the Board of Directors, comprised of directors who
are not members of management, meets regularly with management, the independent
auditors and the internal auditors to ensure that their respective
responsibilities are properly discharged. The independent auditors and the
internal audit staff have full and free access to the Audit Committee.
/s/ Carl Cramer
Carl Cramer
Vice President Finance and Chief Financial Officer
17
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
1995 TO 1994 COMPARISON
Worldwide sales in 1995 were a record $370 million compared to $346 million in
1994. All product lines, except precious metals, increased over the prior year
with beryllium alloys and specialty metal systems increasing significantly.
Sales of beryllium alloy products increased in both the domestic and
international markets. The focused marketing efforts--teams dedicated towards
particular markets and/or end use applications--helped support the domestic
growth. Successful examples of these efforts include the continued penetration
into the automotive electronics market and a significant increase in shipments
of products used in aircraft bearings and bushings. Telecommunications and
computers also remain important markets for beryllium alloys as do appliances,
especially in Europe. Favorable economic conditions in portions of western
Europe, particularly in the first half of the year, helped fuel an addition in
sales there. Sales in Asia grew as a result of increased market share and
development of new applications. The sales trend in general for beryllium alloy
strip products is for customers to move toward the lower price alloys such as
the Company's Alloy 174. The sales increase in 1995 over 1994 was also due, in
part, to favorable foreign currency exchange rates and the pass-through effect
of higher commodity costs, particularly copper.
Beryllium sales increased slightly in 1995 over 1994, but were still
somewhat lower than in the recent years prior to 1994. A large portion of
beryllium sales continues to be for defense/aerospace applications and 1995
sales were enhanced by shipments for defense programs in Europe and growth in
new domestic defense applications in avionics. The two targets for growth are
new defense/aerospace systems, particularly upgrades of current defense
systems, and commercial applications. Research and development, marketing and
manufacturing efforts have now been re-deployed to concentrate on specific
applications in these and related markets.
Ceramic sales grew in 1995 as compared to 1994. The increase is primarily a
result of the continued development of products utilizing the direct bond
copper technology. These sales were not profitable due to new process
development and other start-up costs. Equipment designed to increase
efficiencies was installed late in the year.
Sales of specialty metal systems increased in 1995 over 1994. Most products
experienced gains in 1995 with CERDIP sales increasing significantly.
Sales improved as a result of developing new product applications, increasing
market share and continued expansion into the international markets. Major
applications for these products continue to be automotive electronics and
telecommunications.
Precious metal sales declined significantly in 1995 as compared to 1994.
Frame lid assembly sales were reduced due to a customer's re-design of a major
microprocessor application. The re-design had been anticipated by management
and resources have been directed towards developing alternative products and
markets. Sales of vapor deposition targets, which service the CD-ROM, specialty
coatings, telecommunications and semiconductor fabrication markets, continue to
increase. A small acquisition in late 1994 gave the Company access to the
ultra-fine wire market. These sales were minor in 1995, but are anticipated to
grow.
International operations consist of distribution centers in Germany,
England and Japan, primarily for alloy products, a marketing office in
Singapore and a small precious metal finishing facility in Singapore. Sales by
these operations totaled $91 million in 1995 compared to $84 million in 1994.
As previously noted, sales of beryllium alloy increased while sales of frame
lid assemblies from Singapore declined. Sales by the international operations
are predominantly in their respective local currencies with the balance in U.S.
dollars. Direct export sales to unaffiliated customers totaled $36 million in
1995 and $31 million in 1994. The majority of these sales are to Canada and
western Europe. U.S. exports are all denominated in dollars.
As outlined in Note F to the Consolidated Financial Statements, the Company
has a foreign currency hedge program to protect against adverse currency
movements. Should the dollar strengthen significantly, the decrease in value of
foreign currency transactions will be partially offset by gains on the hedge
contracts. As of December 31, 1995, outstanding hedge contracts totaled $24.8
million compared to $18.2 million at December 31, 1994.
Gross margin was 27.3% in 1995 as compared to 26.6% in 1994. The
increase in international sales, which generally carry higher margins,
contributed to this improvement as did the favorable exchange rates. The
direct bond copper start-up costs and a shift in the remaining frame lid
assembly business to smaller and costlier pieces offset a portion of this
increase. Certain manufacturing expenses, including maintenance at the
Elmore, Ohio facility, were higher in 1995 than 1994. Commercial
applications of beryllium, particularly those products containing
AlBeMet(R), also have lower margins than traditional defense applications,
although
18
21
restructuring efforts have reduced certain overhead costs. The
pass-through effect of higher commodity costs in beryllium alloy sales
reduced the margin percent while having no bearing on the actual margin
measured in dollars.
Selling, administrative and general expenses were $62.7 million (17.0% of
sales) in 1995 compared to $55.5 million (16.0% of sales) in 1994. Most expense
categories were higher. Causes of the increases include the alloy products
re-design effort and start-up costs associated with the Singapore subsidiary
established to provide marketing support in South Asia. Portions of these
expenses should be lower in future periods. Distribution and other
sales-related expenses grew due to higher volumes of beryllium alloy products.
The exchange rate effect on the international operations' expenses was also
unfavorable.
Research and development (R&D) expenses were $7.8 million in 1995 compared
to $8.8 million in 1994. The decrease was due to focusing beryllium products'
research efforts on selected key applications. R&D expenses supporting all
other products either increased or were flat with the prior year. The R&D
efforts for new process and product development are coordinated with the
Company's overall marketing strategies and growth plans.
Other-net expense was $1.3 million in 1995 and $2.6 million in 1994. This
category included such expenses as amortization of intangible assets and other
non-operating items. The decrease in net expense was due, in part, to an
increase in foreign currency exchange gains in 1995.
Interest expense fell to $1.7 million in 1995 from $2.1 million in 1994
due to a lower average level of debt outstanding and an increase in
capitalized interest associated with active capital expenditure projects.
Income before income taxes rose to $27.4 million in 1995 from $23.0 million
in 1994. Higher sales and the resulting gross margin, along with a favorable
foreign currency effect, combined to improve earnings. This improvement was
partially offset by the increase in selling, general and administrative
expenses.
In 1995, an effective tax rate of 24.6% of pre-tax earnings was employed
compared to 19.4% of pre-tax earnings in 1994. Higher domestic and foreign
pre-tax earnings account for the increase. The 1995 effective rate is still
well below the statutory rate as detailed in Note H to the Consolidated
Financial Statements.
Comparative earnings per share were $1.26 in 1995 and $1.14 in 1994.
1994 TO 1993 COMPARISON
Worldwide sales in 1994 were $346 million compared to $295 million in 1993. The
product lines of beryllium alloys, specialty metal systems and precious metal
products achieved significant sales increases in 1994. Sales also increased in
the ceramics product line while beryllium product line sales had a significant
reduction in 1994 as compared to 1993.
The significant sales growth in beryllium alloys was achieved in both
domestic and international markets. The principal markets driving the increase
were automotive electronics, computers, telecommunications and appliances. Most
beryllium alloy products experienced gains in 1994 as compared to 1993.
Beryllium alloys were supported by a strong U.S. economy, continued economic
growth in Asia and improving conditions in Europe. While the favorable economic
background was a plus, the key to the added volume was a focused marketing
effort. This effort was a combination of the marketing, sales, technical,
quality and operating groups working as a team to provide quality, cost-
competitive products on a timely basis. This was best seen in the expanding use
of the Company's Alloy 174 strip in automotive electronics on a growing list of
car platforms and global demand for the Company's products in undersea cable
components. Also, in the steel industry, Phase 3HP Mold Plate underwent field
trials at two slab casters during 1994 with performance results exceeding
expectations in all respects.
Beryllium sales were lower due to completion of the Defense Logistics
Agency (DLA) supply contract and reduced AlBeMet(R) sales due to the end of an
application at a computer disk drive manufacturer. Although overall defense
spending is at a reduced level, this is still the base business to support the
beryllium product line in the near term.
Ceramic sales increased in 1994 as compared to 1993. The increase was
principally in the U.S. automotive and worldwide telecommunications industries,
which have more than offset declining defense applications.
Specialty metal systems saw major gains in 1994 as compared to 1993. During
1994, this product line was able to maintain the momentum of programs initiated
in prior years. The additional sales resulted primarily from a combination of
successfully executing marketing strategies, enlarging market share and new
product applications. The improved economy also contributed to growth.
Sales of precious metal products also increased significantly in 1994 over
1993. Continued high demand and increased market share for frame
19
22
lid assemblies from semiconductor manufacturers, along with increasing vapor
deposition target sales, accounted for most of the improved volume. A
substantial portion of the increase came from frame lid assembly sales in Asia
through the Singapore facility. To further enhance this product line, the
Company purchased the assets of Hydrostatics Inc., a small manufacturer of
precious metal ultra-fine wire produced using an innovative technology, in
October 1994. This product fills an identified need to support markets in the
semiconductor and hybrid microelectronics industries.
Total international sales were $115 million in 1994 and $86 million in
1993. Sales from foreign operations were $84 million in 1994 compared to $51
million in 1993, while direct exports totaled $31 million in 1994 and $35
million in 1993. The 1994 increase was primarily from beryllium alloys and the
previously mentioned frame lid assemblies fabricated in Singapore. This
increase occurred even though delivery of disk drive components ceased in 1994.
Although much of the beryllium alloy sales increase was in Europe and Asia,
growth was also seen in other parts of the world.
Gross margin (sales less cost of sales) was 26.6% in 1994 and 22.9% in
1993. In 1994, a provision of $2 million was reserved for downsizing the
Fremont, California facility and a provision of $0.6 million was made to
transfer direct bond copper production from the Syracuse, New York facility to
the Newburyport, Massachusetts plant. Without these charges, gross margin would
have been 27.2%. Higher sales and production volumes of beryllium alloys
account for much of the improvement. The beryllium alloy product line
experienced lower unit costs from the higher throughput and benefited from
manufacturing improvements, especially in strip products. In the beryllium
product line, margins recovered in 1994 from 1993. However, the major reason
for improvement in the beryllium product line was that 1994 did not experience
the negative impact of manufacturing problems with the AlBeMet(R) disk drive
component that occurred in 1993.
Selling, administrative and general expenses in 1994 were $55.5 million
(16.0% of sales) compared to $47.8 million (16.2% of sales) in 1993. The
increase was across all expense categories and includes an increased accrual
for incentive compensation. A portion of the increase in administrative costs
relate to an alloy business process redesign effort. A group of employees and
consultants have been charged with reviewing and analyzing specific activities
in the Company to find opportunities for improvement.
Research and development (R&D) expenses of $8.8 million in 1994 exceeded
the $7.1 million spent in 1993 by more than 20%. The addition was primarily in
the beryllium and ceramic product lines where efforts centered on new product
development. The beryllium alloy product line also saw an increase as
efforts were directed at both product development and process technology
enhancements.
Interest expense was $2.1 million in 1994 and $3.0 million in 1993. All
amounts are net of interest capitalized on active construction and mine
development projects. Lower average debt reduced interest costs in 1994.
Other-net expense was $2.6 million in 1994 and $2.2 million in 1993.
Included in both years were the postretirement benefit costs pursuant to
Statement of Financial Accounting Standard (FAS) 106 for a divested operation.
In 1993, the Company made an adjustment to the FAS 106 demographic assumptions
for the divested operation, which resulted in a reduction of the liability and
increased income by $1.3 million. Concurrently, the carrying value of a
building from the divested operation was reduced by $0.9 million.
Income before income taxes in 1994 of $23.0 million was significantly
higher than the 1993 pre-tax income of $7.7 million. Higher sales volume and
related gross margin improvements account for the increase. The increased
selling, general and administrative expense offsets some of the gains in gross
margin.
The effective tax rate employed for 1994 was 19.4% of pre-tax income as
compared to 16.2% of pre-tax income in 1993. The increase in pre-tax income
accounts for the higher rate. The effective rate was significantly below
statutory rates due to relatively fixed tax credits and allowances as shown in
Note H to the Consolidated Financial Statements.
Comparative earnings per share were $1.14 in 1994 and $0.40 in 1993.
FINANCIAL POSITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operating activities totaled $39.6 million in 1995. Cash
balances increased $9.1 million and total debt increased $0.6 million. Accounts
receivable were essentially unchanged from year-end 1994. FIFO inventories
increased $3.4 million, primarily due to higher copper and nickel costs and an
increase in international inventories corresponding to higher sales. The LIFO
reserve, however, increased $4.3 million resulting in a net decrease of $0.9
million in the LIFO inventory value.
Capital expenditures for property, plant and equipment amounted to $24.2
million in 1995. Major expenditures included a new rod mill for the Elmore,
Ohio facility that is scheduled to be completed in mid-1996 and a plating line
and a stretch bend leveler for the Lincoln, Rhode Island facility. There were
also several environmental remediation projects that were capitalized at the
Elmore, Ohio and Delta, Utah plant sites. Management is currently studying
plans for modernizing portions of the alloy strip
20
23
manufacturing process in order to reduce costs, improve quality and add
capacity in selected areas. Capital expenditures are anticipated to
increase in 1996.
During the fourth quarter 1995, the Company initiated a program to
re-purchase up to one million shares of its Common Stock. Approximately 165,000
shares at a cost of $2.8 million were re-purchased under this program as of
December 31, 1995, with the balance anticipated to be re-purchased during 1996.
The average number of shares outstanding increased in 1995 over 1994 due to an
increase in the number of previously issued stock options included in the
diluted outstanding share calculation as a result of a higher share price.
Dividends paid on outstanding shares totaled $5.5 million.
Short-term debt at December 31, 1995 was $22.8 million, including $1.5
million of the current portion of long-term debt. The $21.3 million balance is
denominated principally in gold and foreign currencies to provide hedges
against current assets so denominated. Credit lines amounting to $71.5 million
are available for additional borrowing. The domestic and foreign lines are
uncommitted, unsecured and renewed annually. The precious metal facility is
committed, secured and renewed annually.
Long-term debt was $17.0 or 8% of total capital at December 31, 1995.
Long-term financial resources available to the Company include $60 million of
medium-term notes and $50 million under a revolving credit agreement.
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.
Cash flow from operating activities in 1994 was $35.2 million. During 1994,
cash balances increased $12.7 million while total debt decreased $1.1 million.
Capital expenditures totaled $17.2 million and dividends paid were $3.7
million. Long-term debt of $18.5 million was 9% of total capital at December
31, 1994.
ORE RESERVES
The Company's reserves of beryllium-bearing bertrandite ore are located in Juab
County, Utah. An ongoing drilling program has generally added to proven
reserves. Proven reserves are the measured quantities of ore commercially
recoverable through the open pit method. Probable reserves are the estimated
quantities of ore known to exist, principally at greater depths, but prospects
for commercial recovery are indeterminable. Ore dilution that occurs
during mining approximates 7%. About 87% of beryllium in ore is recovered in
the extraction process. The Company augments its proven reserves of bertrandite
ore through the purchase of imported beryl ore (approximately 4% beryllium)
which is also processed at the Utah extraction plant.
1995 1994 1993 1992 1991
----- ---- ---- ---- ----
Proven bertrandite
ore reserves at
year end (thousands
of dry tons)......... 6,927 6,747 6,786 6,787 6,855
Grade % beryllium...... 0.249% 0.251% 0.251% 0.251% 0.251%
Probable bertrandite
ore reserves at
year-end (thousands
of dry tons)......... 7,346 7,559 7,594 7,482 7,215
Grade % beryllium...... 0.281% 0.279% 0.279% 0.281% 0.284%
Bertrandite ore
processed (thousands
of dry tons, diluted) 96 79 92 91 80
Grade % beryllium,
diluted............... 0.232% 0.240% 0.232% 0.234% 0.237%
INFLATION AND CHANGING PRICES
The prices of major raw materials, such as copper, nickel and gold, purchased
by the Company increased during 1995. Such changes in costs are generally
reflected in selling price adjustments. The prices of labor and other factors
of production generally increase with inflation. Additions to capacity, while
more expensive over time, usually result in greater productivity or improved
yields. However, market factors, alternative materials and competitive pricing
have affected the Company's ability to offset wage and benefit increases. The
Company employs the last-in, first-out (LIFO) inventory valuation method
domestically to more closely match current costs with revenues.
Environmental Matters
As indicated in Note K to the Consolidated Financial Statements, the Company
maintains an active program of environmental compliance. For projects involving
remediation, estimates of the probable costs are made and the Company has set
aside a reserve of $3.3 million at December 31, 1995 ($3.8 million at December
31, 1994). This reserve covers existing and currently foreseen projects.
21
24
SELECTED FINANCIAL DATA
Brush Wellman Inc. and Subsidiaries
(Dollars in thousands except per share amounts)
1995 1994 1993 1992
FOR THE YEAR
Net Sales..................................................... $369,618 $345,878 $295,478 $265,034
Cost of sales................................................. 268,732 253,938 227,686 192,944
Gross margin.................................................. 100,886 91,940 67,792 72,090
Operating profit.............................................. 29,086 25,098 10,658 16,949
Interest expense.............................................. 1,653 2,071 2,952 3,206
Income (loss) before income taxes............................. 27,433 23,027 7,706 13,743
Income taxes (benefit)........................................ 6,744 4,477 1,248 3,243
Net Income (loss) ............................................ 20,689 18,550 6,458 10,500
Per share of Common Stock:
Net income (loss)........................................... 1.26 1.14 0.40 0.65
Cash dividends declared..................................... 0.36 0.26 0.20 0.26
Depreciation and amortization.................................. 20,911 19,619 21,720 20,180
Capital expenditures........................................... 24,244 17,214 11,901 13,604
Mine development expenditures.................................. 787 543 814 848
YEAR-END POSITION
Working Capital............................................... 125,156 116,708 105,272 88,616
Ratio of current assets to current liabilities................ 2.9 to 1 2.8 to 1 3.1 to 1 2.5 to 1
Property and equipment:
At cost................................................... 374,367 350,811 337,342 332,971
Cost less depreciation and impairment..................... 121,194 116,763 118,926 127,991
Total assets................................................. 331,853 317,133 293,372 310,039
Other long-term liabilities.................................. 45,445 43,354 40,663 40,332
Long-term debt............................................... 16,996 18,527 24,000 33,808
Shareholders' equity......................................... 200,302 186,940 172,075 168,824
Book value per share......................................... 12.46 11.59 10.70 10.49
Number of shares of stock outstanding........................ 16,071,224 16,121,915 16,087,415 16,086,515
Shareholders of record....................................... 2,351 2,521 2,566 2,762
Number of employees.......................................... 1,856 1,833 1,803 1,831
See Notes to consolidated financial statements.
SALES PER EMPLOYEE
(IN THOUSANDS)
1991 1992 1993 1994 1995
[S] [C] [C] [C] [C]
$ $ $ $ $
INTERNATIONAL SALES
(IN MILLIONS)
1991 1992 1993 1994 1995
[S] [C] [C] [C] [C]
$ $ $ $ $
LONG-TERM DEBT
% OF CAPITAL AT YEAR-END
1991 1992 1993 1994 1995
[S] [C] [C] [C] [C]
% % % % %
22
25
1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ----
$267,473 $297,390 $317,828 $345,838 $307,571 $241,428
202,080 212,841 233,165 239,554 211,885 161,392
65,393 84,549 84,663 106,284 95,686 80,036
(57,354) 28,132 29,195 54,704 48,788 42,401
3,755 3,359 2,860 2,843 2,965 2,148
(61,109) 24,773 26,335 51,861 45,823 40,253
(17,091) 7,214 7,793 19,344 19,658 17,578
(44,018) 17,559 18,542 32,517 26,165 22,675
(2.74) 1.09 1.10 1.79 1.38 1.20
0.59 0.71 0.67 0.63 0.59 0.55
22,759 24,070 24,077 23,405 22,098 17,903
13,605 16,160 19,946 22,645 18,464 25,239
6,389 5,699 259 503 581 3,451
80,427 87,570 78,346 92,530 109,063 103,416
2.2 to 1 2.4 to 1 2.1 to 1 2.4 to 1 2.6 to 1 2.9 to 1
321,981 307,088 292,708 279,927 266,543 254,276
132,579 143,635 141,639 143,180 144,829 144,107
307,296 338,982 338,279 357,751 367,473 341,210
38,029 9,356 9,087 9,547 10,333 8,270
34,946 26,673 21,076 29,908 25,481 26,563
162,264 215,891 211,769 232,840 242,673 234,725
10.10 13.43 13.10 13.49 13.17 12.48
16,069,615 16,077,723 16,166,611 17,262,311 18,431,703 18,815,799
3,116 3,446 3,820 4,014 4,212 4,522
1,943 2,079 2,160 2,602 2,564 2,266
Impairment and restructuring charges reduced net income by $30,751,000 in 1991
and $8,400,000 in 1989.
The cumulative effect of a change in accounting for postretirement benefits
reduced net income by $16,471,000 in 1991.
In December 1986, a business acquisition was made; the pro forma effect would
have increased 1986 net sales by $35,000,000.
CAPITAL EXPENDITURES
% OF SALES
1991
1992
1993
1994
1995
ANNUAL INVENTORY
TURNOVER
1991
1992
1993
1994
1995
GROSS MARGINS
1991
1992
1993
1994
1995
23
26
BRUSH WELLMAN INC.
DIRECTORS CORPORATE OFFICERS OFFICES AND FACILITIES
ALBERT C. BERSTICKER 2, 4, 5 GORDON D. HARNETT MANUFACTURING FACILITIES
President and Chief Executive Officer, Chairman of the Board Delta, Utah
Ferro Corporation President and Chief Executive Officer Elmore, Ohio
Reading, Pennsylvania
CHARLES F. BRUSH, III 3, 4, 5 ROBERT H. ROZEK Buffalo, New York
Personal Investments Senior Vice President Fremont, California
International Lincoln, Rhode Island
DAVID L. BURNER 1, 3 Newburyport, Massachusetts
President CARL CRAMER Tucson, Arizona
BF Goodrich Co. Vice President Finance
Chief Financial Officer RESEARCH FACILITIES AND
FRANK B. CARR 1, 2, 3, 4, ADMINISTRATIVE OFFICES
Managing Director, Corporate Finance, STEPHEN FREEMAN Cleveland, Ohio
McDonald & Company Securities, Inc. Vice President
Alloy Products SERVICE AND DISTRIBUTION CENTERS
GORDON D. HARNETT 2 Elmhurst, Illinois
Chairman of the Board CRAIG B. HARLAN Fairfield, New Jersey
President and Chief Executive Officer Vice President Torrance, California
International - Europe Warren, Michigan
WILLIAM P. MADAR 1, 2, 4, 5 Stuttgart, Germany
President and Chief Executive Officer, JOHN J. PALLAM Theale, England
Nordson Corporation Vice President Tokyo/Fukaya, Japan
General Counsel
GERALD C. MCDONOUGH 3, 4, 5 SUBSIDIARIES
Retired Chairman and Chief Executive Officer, ANDREW J. SANDOR Technical Materials, Inc.
Leaseway Transportation Corp. Vice President Lincoln, Rhode Island
Alloy Technology
ROBERT M. MCINNES 1, 2, 3, 5 Williams Advanced Materials Inc.
Retired Chairman and Chief Executive Officer, DANIEL A. SKOCH Buffalo, New York
Pickands Mather & Co. Vice President Singapore
Administration and Human Resources
HENRY G. PIPER Brush Wellman GmbH
Retired Chairman, MICHAEL C. HASYCHAK Stuttgart, Germany
President and Chief Executive Officer Treasurer and Secretary
Brush Wellman Inc. Brush Wellman Limited
JAMES P. MARROTTE Theale, England
JOHN SHERWIN, Jr.1, 2, 3 Controller
President, Brush Wellman (Japan), Ltd.
Mid-Continent Ventures, Inc. WILLIAM M. CHRISTOFF Tokyo, Japan
Assistant Treasurer - Taxes,
1 Audit Committee Assistant Secretary Brush Wellman (Singapore) Pte Ltd.
2 Executive Committee Singapore
3 Finance Committee
4 Nominating Committee
5 Organization and Compensation Committee
24
27
CORPORATE DATA
ENVIRONMENTAL POLICY
Brush Wellman Inc. considers Environmental, Health and Safety an
integral parts of our business strategy and necessary for our success. It is the
policy of Brush Wellman to design, manufacture and distribute all products and
to manage and dispose of all materials in a safe, environmentally sound manner.
We are committed to utilizing our resources and technical capabilities to their
fullest extent to protect the health and safety of our employees, our
customers, the general public and the environment.
The health and safety of our employees are of paramount importance. No
operation or task will be conducted unless it can be performed in a safe
manner.
Through education and training, we shall promote a culture that
establishes individual ownership of environmental, health, and safety
responsibility throughout the organization and empowers everyone to
continuously improve all working conditions. Each employee will maintain an
awareness of safe work practices and endeavor to prevent conditions which may
result in an unsafe situation or harm the environment. It is the responsibility
of each employee to promptly notify management of any adverse situation.
We shall make every effort to minimize, to the lowest feasible level,
occupational and environmental exposure to all potentially hazardous materials.
We will go beyond regulatory compliance, striving for continuous
improvement in all our environmental, health and safety control efforts.
The Company will provide medical surveillance and preventive health
maintenance programs for the early detection of occupational diseases.
The Management Team at each location will diligently respond to
employee concerns and is directly responsible for developing and implementing
programs for ensuring that their operations comply with this policy. The
Environmental, Health and Safety staff provides support by:
- maintaining liaison with appropriate government agencies and interpreting
and communicating regulations;
- providing technical guidance and assisting in the development of policies
and performance standards; and
- conducting independent review and assessment of all operations to audit
compliance with environmental, safety and health policies.
All employees are expected to follow the intent and spirit of this
policy and incorporate sound health, safety and environmental practices in the
conduct of their jobs.
This policy applies to all Brush Wellman business units worldwide.
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on May 7, 1996 at 11:00 a.m. at
The Forum, One Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio
INVESTOR INFORMATION
Brush Wellman maintains an active program of communication with shareholders,
securities analysts and other members of the investment community. Management
makes regular presentations in major financial centers around the world. To
obtain:
- additional copies of the Annual Report
- SEC Form 10K/10Q
- product Literature,
please contact:
Timothy Reid
Vice President, Corporate Communications
Corporate Headquarters.
Brush Wellman press releases are available on the World Wide Web through
Business Wire, at: http://www.businesswire.com/cnn/bw.htm
DIVIDEND REINVESTMENT PLAN
Brush Wellman has a plan for its shareholders which provides automatic
reinvestment of dividends toward the purchase of additional shares of the
Company's common stock. For a brochure describing the plan please contact the
Vice President, Corporate Communications, at the Corporate Headquarters.
AUDITORS
Ernst & Young LLP
1300 Huntington Building
Cleveland, Ohio 44115
TRANSFER AGENT AND REGISTRAR
KeyCorp Shareholder Services, Inc.
4900 Tiedeman Road
Cleveland, Ohio 44101
For shareholder inquiries, call: 1-800-542-7792
STOCK LISTING
New York Stock Exchange / Symbol: BW
CORPORATE HEADQUARTERS
Brush Wellman Inc.
17876 St. Clair Ave.
Cleveland, Ohio 44110
(216) 486-4200 - Facsimile: (216) 383-4091
25
28
BRUSH WELLMAN
ENGINEERED MATERIALS
17876 St. Clair Avenue
Cleveland, Ohio 44110
216/486-4200