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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-7006
BRUSH WELLMAN INC.
(Exact name of Registrant as specified in charter)
Ohio 34-0119320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17876 St. Clair Avenue, Cleveland, Ohio 44110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 216-486-4200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of April 30, 1996 there were 15,872,193 shares of Common Stock, par
value $1 per share, outstanding.
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PART I FINANCIAL INFORMATION
BRUSH WELLMAN INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
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The consolidated financial statements of Brush Wellman Inc. and its
subsidiaries for the quarter ended March 29, 1996 are as follows:
Consolidated Statements of Income -
Three months ended March 29, 1996 and April 2, 1995
Consolidated Balance Sheets -
March 29, 1996 and December 31, 1995
Consolidated Statements of Cash Flows -
Three months ended March 29, 1996 and April 2, 1995
Notes to consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
First Quarter Ended
March 29, April 2,
(Dollars in thousands except share and per share amounts) 1996 1995
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Net sales $93,801 $98,912
Cost of sales 69,008 71,540
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Gross Profit 24,793 27,372
Selling, administrative
and general expenses 15,480 15,507
Research and development
expenses 1,798 1,821
Other-net (125) 297
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Operating Profit 7,640 9,747
Interest expense 286 512
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Income before income taxes 7,354 9,235
Income taxes 2,199 2,447
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Net Income $5,155 $6,788
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Per Share of Common Stock: $ 0.32 $ 0.42
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Cash dividends per common share $ 0.10 $ 0.08
Weighted average number
of common shares outstanding 16,135,141 16,290,649
See notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
(Unaudited)
Mar. 29, Dec. 31,
(Dollars in thousands) 1996 1995
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ASSETS
Current Assets
Cash and cash equivalents $13,255 $29,553
Accounts receivable 61,131 52,532
Inventories 92,026 92,727
Prepaid expenses and other current assets 18,727 16,935
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Total Current Assets 185,139 191,747
Other Assets 19,437 18,912
Property, Plant and Equipment 379,768 374,367
Less allowances for depreciation,
depletion and impairment 258,526 253,173
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Property, Plant and Equipment -- net 121,242 121,194
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$325,818 $331,853
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $23,014 $22,757
Accounts payable 5,690 8,772
Other liabilities and accrued items 23,181 23,734
Dividends payable 1,621
Income taxes 11,234 9,707
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Total Current Liabilities 63,119 66,591
Other Long-Term Liabilities 4,261 4,148
Retirement and Post Retirement Benefits 41,453 41,297
Long-Term Debt 16,633 16,996
Deferred Income Taxes 2,341 2,519
Shareholders' Equity 198,011 200,302
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$325,818 $331,853
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See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 29, April 2,
(Dollars in thousands) 1996 1995
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Net Income $ 5,155 $ 6,788
Adjustments to Reconcile Net Income to Net Cash
Provided From Operating Activities:
Depreciation, depletion and amortization 4,946 5,130
Amortization of mine development 1,097
Decrease (Increase) in accounts receivable (9,059) (6,667)
Decrease (Increase) in Inventory 767 (1,663)
Decrease (Increase) in prepaid and other current assets (2,472) 97
Increase (Decrease) in accounts payable and accrued expenses (2,831) (2,623)
Increase (Decrease) in interest and taxes payable 1,351 2,217
Increase (Decrease) in deferred income tax (179) (642)
Other - net 51 23
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Net Cash Provided From Operating Activities (1,174) 2,660
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment (5,898) (3,741)
Payments for mine development (101) (312)
Proceeds from other investments 311 504
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Net Cash Used in Investing Activities (5,688) (3,549)
Cash Flows from Financing Activities:
Repayment of short-term debt - net 323 (4,013)
Repayment of long-term debt - net (342)
Issuance of Common Stock under stock option plans 1,040 29
Purchase of Common Stock for treasury (6,656)
Payments of dividends (3,197) (2,580)
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Net Cash Used in Financing Activities (8,832) (6,564)
Effects of Exchange Rate Changes (604) 855
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Net Change in Cash and Cash Equivalents (16,298) (6,598)
Cash and Cash Equivalents at Beginning of Period 29,553 20,441
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Cash and Cash Equivalents at End of Period $13,255 $13,843
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See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
MARCH 29, 1996
Note A - Accounting Policies
In management's opinion, the accompanying consolidated financial statements
contain all adjustments necessary to present fairly the financial position as of
March 29, 1996 and December 31, 1995 and the results of operations for the
three months ended March 29, 1996 and April 2, 1995.
Note B - Inventories
March 29, Dec. 31,
(Dollars in thousands) 1996 1995
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Principally average cost:
Raw materials and supplies $ 21,360 $ 19,719
In Process 54,822 57,012
Finished 42,647 42,223
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118,829 118,954
Excess of average cost over
LIFO inventory value 26,803 26,227
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$ 92,026 $ 92,727
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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RESULTS OF OPERATIONS
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Sales for the first quarter 1996 were $93.8 million, a 5% decline from the
record first quarter 1995 sales of $98.9 million. Weak demand in segments of
the telecommunications and defense markets was main causes of the decline.
International sales were $28 million and comprised 30% of total first quarter
1996 sales compared to $36 million or 36% of total sales in 1995. The decrease
in international sales was primarily in Alloy Products and was due to softening
economic conditions, principally in Germany, and the translation effects of a
stronger dollar.
Sales of Alloy Products were flat with the first quarter of last year, as
higher domestic sales offset the decline in international sales. Sales of bulk
products, which include rod, plate, ingot and tube, increased. These products
are used in the aerospace, welding, plastic tooling and consumer products
industries. Sales of precision strip, which is used in the telecommunications
and computer markets, were down from the prior year. The pass-through effect
of lower commodity costs, primarily copper, negatively impacted sales as
compared to last year.
Sales of Beryllium Products in the first quarter 1996 were lower than last year
due to weaker demand for pure beryllium metal in the defense market. Sales of
the Company's AlBeMet(R) rose slightly over the prior year. Encouraging test
results from investment casting have been achieved which could potentially lead
to an increase in applications for AlBeMet(R). The sales backlog at quarter end
improved from the year ago period.
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As previously reported in Part II, Item 7, of the Company's Form 10-K for the
fiscal year ended December 31, 1995, the Company filed a petition before the
U.S. Department of Commerce, International Trade Administration and the U.S.
International Trade Commission on March 14, 1996, requesting the imposition of
anti-dumping duties on imports of beryllium metal from Kazakhstan. On April 3,
1996, the U.S. Department of Commerce decided to initiate an anti-dumping
investigation, and on April 29, 1996, the U.S. International Trade Commission
found that there was a reasonable indication that imported beryllium from
Kazakhstan caused material injury to the U.S. beryllium industry. In view of
these favorable initial results, the Company expects that the anti-dumping
proceedings will continue.
Ceramic product sales in the first quarter 1996 were down significantly from
the first quarter 1995. Weak demand in telecommunication applications,
particularly cellular phones and base stations, was the main cause of the
decline, exacerbated by inventory adjustments at several major customers.
Direct bond copper sales were slightly higher than first quarter 1995 and,
while still not profitable, margins have recently been improved by the
automation equipment installed late last year.
Specialty Metal System sales increased in the first quarter 1996 as compared to
first quarter 1995. Automotive electronic shipments were delayed due to a
customer's strike during the current quarter, but strong demand in other
markets more than compensated for the loss in those sales. Overseas demand for
these products remains strong. Focused application development is the key for
growing these sales.
Precious Metal sales in the first quarter 1996 were less than in the comparable
period last year as a result of a customer's re-design of a major
microprocessor application in the second
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quarter of 1995. Growth in sales of new products, including vapor deposition
products and fine wire, offset a large portion of the lost sales.
Gross profit was $24.8 million or 26.4% of sales in the first quarter 1996
compared to $27.4 million or 27.7% of sales in the first quarter 1995. The
decline in the international sales, which tend to carry higher margins, coupled
with the stronger dollar, were the main reasons for the change. The product
mix also shifted towards lower margin products. Unplanned downtime on several
key pieces of equipment and weather-related issues contributed to slightly
higher manufacturing costs.
Selling, administrative and general expenses were $15.5 million or 16.2% of
sales in the first quarter 1996 compared to $15.5 million or 15.7% of sales
last year. Included in the 1995 expense total were non-continuing costs
associated with a process re-design effort and the start-up of a marketing
office in Singapore. Most expense categories are in line with the prior year
as a result of the Company's internal efforts to control costs. The management
incentive compensation expense is down due to lower earnings.
Research and Development (R&D) expenses of $1.8 million for the first quarter
1996 were flat with the comparable 1995 period. As a percent of sales, R&D
expenses increased slightly to 1.9%. A re-organization late in the quarter
resulted in additional resources being dedicated towards R&D efforts. Projects
currently being pursued include the continued development of a lower cost and
higher quality alloy strip product.
Other net income was $0.1 million in the first quarter 1996 compared to a net
expense of $0.3 million in the first quarter last year. This category includes
non-operating items such as
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amortization, currency gains and losses and interest income. The major change
from last year was an increase in currency gains.
Interest expense was lower in the first quarter 1996 compared to the first
quarter 1995 due to lower interest rates and an increase in capitalized
interest associated with long-term capital projects.
First quarter 1996 income before income taxes decreased to $7.4 million from
$9.2 million in the first quarter 1995. Lower sales volume and the resulting
reduction in gross margin accounted for the decline. Income taxes were
provided at an effective rate of 30.1% of pre-tax income for the first quarter
1996 compared to 26.5% in the first quarter 1995. The higher rate results from
an increase in the effective foreign tax rates and other book versus tax
adjustments to income. First quarter earnings per share were $0.32 in 1996 and
$0.42 in 1995.
FINANCIAL CONDITION
Net cash used in operating activities was $1.2 million during the first quarter
1996 compared to net cash provided from operating activities of $2.7 million
during the first quarter 1995. Accounts receivable increased $8.6 million from
year end 1995, primarily due to an increase in sales late in the first quarter.
Inventories remained essentially flat.
Capital expenditures for property, plant and equipment totaled $5.9 million
during the first quarter 1996. The Company recently announced plans to spend
on the order of $100 million to modernize its Alloy manufacturing operations.
The project is designed to improve quality and the level of customer service,
reduce costs and increase capacity. It is expected that the
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funds will be spent over three years. The project may be funded by a
combination of debt, leases and future cash flow.
The Company purchased 359,000 shares of its Common Stock at a cost of $6.7
million during the quarter under a program approved by the Board of Directors
late last year. Dividends paid were $3.2 million in the first quarter 1996.
Total debt was unchanged from year end 1995, although there was a slight shift
from long-term to short-term debt. The short-term debt is primarily
denominated in foreign currencies and gold and is used as a hedge against those
asset values. Long-term debt at the end of first quarter 1996 was 8% of total
capital.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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(a) BERYLLIUM EXPOSURE CLAIMS
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CLAIMS INITIATED SINCE THE END OF FISCAL YEAR 1995. The Company and
certain of its present and past Directors are defendants in a class action suit
filed on April 2, 1996 in the Court of Common Pleas for Cuyahoga County, Ohio,
by Christine A. Toth, a former employee of the Company, and her husband on
behalf of a putative class of all current and former employees of the Company
from 1949 to date of the suit. The plaintiffs claim, INTER ALIA that defendants
committed an intentional tort by misleading the Company's employees and the
public about the efficacy and adequacy of the standard adopted by the
Occupational Safety and Health Administration (OSHA) with respect to exposure to
airborne beryllium to protect employees from chronic beryllium disease and by
making misrepresentations to employees and the public about the risks of such
exposure in the work place. Plaintiffs have also alleged that defendants have
deliberately withheld or concealed material information about the effects of
such exposure to airborne beryllium. Plaintiffs seek compensatory damages in
the amount of $100 million and punitive damages in the amount of $200 million
together with certain injunctive relief. Defense of this case is being
conducted by counsel retained by the Company. The Company intends to contest
the claims vigorously.
(b) ASBESTOS EXPOSURE CLAIMS
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A subsidiary of the Company (the "Subsidiary") is a co-defendant in
twenty-seven cases making claims for asbestos-induced illness allegedly relating
to the former operations of the Subsidiary, then known as The S. K. Wellman
Corp. twenty-seven of these cases have been reported in prior filings with the
S.E.C. In all but a small portion of these cases, the Subsidiary is one of a
large number of defendants in each case. The plaintiffs seek
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compensatory and punitive damages, in most cases of unspecified sums.
Each case has been referred to a liability insurance carrier for defense. With
respect to those referrals on which a carrier has acted to date, a carrier has
accepted the defense of the actions, without admitting or denying liability.
Two hundred twenty-six similar cases previously reported have been dismissed or
disposed of by pre-trial judgment, one by jury verdict of no liability and ten
others by settlement for nominal sums. The Company believes that resolution of
the pending cases referred to above will not have a material effect upon the
Company.
The Subsidiary has entered into an agreement with the predecessor owner of
its operating assets, Pneumo Abex Corporation (formerly Abex Corporation), and
five insurers, regarding the handling of these cases. Under the agreement, the
insurers share expenses of defense, and the Subsidiary, Pneumo Abex Corporation
and the insurers share payment of settlements and/or judgments. In ten of
the pending cases, both expenses of defense and payment of settlements and/or
judgments are subject to a limited, separate reimbursement agreement with MLX
Corp., the parent of the company that purchased the Subsidiary's operating
assets in 1986.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) EXHIBITS
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11. Statement re: computation of per share earnings.
27. Financial Data Schedule.
99. Management Performance Compensation Plan
(b) REPORTS ON FORM 8-K
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There have been no reports on Form 8-K during the quarter ended
March 29, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRUSH WELLMAN INC.
Dated:
/s/ Carl Cramer
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Carl Cramer
Vice President Finance and
Chief Financial Officer
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