Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
Brush Wellman Inc. ("Company") manufactures and sells engineered materials for use by manufacturers and others who perform further operations for eventual incorporation into capital, aerospace/defense or consumer products. These materials typically comprise a small portion of the final product's cost. They are generally premium priced and are often developed or customized for the customer's specific process or product requirements. The Company's product lines are supported by research and development activities, modern processing facilities and a global distribution network.
Customers include manufacturers of electrical/electronic connectors, communication equipment, computers, automobiles, lasers, appliances, spacecraft, aircraft, oil field instruments and equipment, sporting goods, and defense contractors and suppliers to all of the foregoing industries.
The Company operates in a single business segment with product lines comprised of beryllium-containing materials and other specialty materials.
The Company is a fully integrated producer of beryllium, beryllium alloys (primarily copper beryllium), and beryllia ceramic, each of which exhibits its own unique set of properties. The Company holds extensive mineral rights and mines the beryllium bearing ore, bertrandite, in central Utah. Beryllium is extracted from both bertrandite and imported beryl ore. In 1994, 70% of the Company's sales were of products containing the element beryllium (74% in 1993 and 80% in 1992). Beryllium-containing products are sold in competitive markets throughout the world through a direct sales organization and through owned and independent distribution centers. NGK Metals Corporation of Reading, Pennsylvania and NGK Insulators, Ltd. of Nagoya, Japan compete with the Company in the beryllium alloys field. Beryllium alloys also compete with other generally less expensive materials, including phosphor bronze, stainless steel and other specialty copper and nickel alloys. General Ceramics Inc. is a domestic competitor in beryllia ceramic. Other competitive materials include alumina, aluminum nitride and composites. While the Company is the only domestic producer of the metal beryllium, it competes with other fabricators as well as with designs utilizing other materials.
Sales of other specialty materials, principally metal systems and precious metal products, were 30% of total sales in 1994 (26% in 1993 and 20% in 1992). Precious metal products are produced by Williams Advanced Materials Inc. (hereinafter referred to as "WAM"), a subsidiary of the Company comprised of businesses acquired in 1986, 1989 and 1994. In October 1994, WAM acquired the assets of Hydrostatics Inc., located in Bethlehem, Pennsylvania. The Bethlehem facility produces ultra fine wire products for the semiconductor and electronics markets. WAM's major product lines include sealing lid assemblies, vapor deposition materials, contact ribbon products for various segments of the semiconductor markets, clad and precious metal preforms and restorative dental products. WAM also specializes in precious metal refining and recovery.
______________________________ As used in this report, except as the context otherwise requires, the term "Company" means Brush Wellman Inc. and its consolidated subsidiaries, all of which are wholly owned.
WAM's principal competitors are Semi-Alloys and Johnson Matthey in the sealing lid assembly business and Materials Research Corporation in the vapor deposition materials product line. The products are sold directly from WAM's facilities in Buffalo, New York, Bethlehem, Pennsylvania, and Singapore as well as through sales representatives.
Technical Materials, Inc. (hereinafter referred to as "TMI"), a subsidiary of the Company, produces specialty metal systems, consisting principally of narrow metal strip, such as copper alloys, nickel alloys and stainless steels into which strips of precious metal are inlaid. TMI also offers a number of other material systems, including electron beam welded dual metal, contour milling and skiving, thick and thin selective solder coatings, selective electroplated products and bonded aluminum strips on nickel-iron alloys for semiconductor leadframes. Divisions of Handy & Harman, Texas Instruments and Metallon are competitors for the sale of inlaid strip. Strip with selective electroplating is a competitive alternative as are other design approaches. The products are sold directly and through sales representatives.
Sales and Backlog
The backlog of unshipped orders as of December 31, 1994, 1993 and 1992 was $95,354,000, $86,531,000 and $90,201,000, respectively. Backlog is generally represented by purchase orders that may be terminated under certain conditions. The Company expects that, based on recent experience, substantially all of its backlog of orders at December 31, 1994 will be filled during 1995.
Sales are made to approximately 6,230 customers. Government sales, principally subcontracts, accounted for about 3.2% of consolidated sales in 1994 as compared to 6.1% in 1993 and 8.9% in 1992. Sales outside the United States, principally to Western Europe, Canada and Japan, accounted for approximately 33% of sales in 1994, 29% in 1993 and 27% in 1992. Financial information as to sales, identifiable assets and profitability by geographic area set forth on pages 16-17 in Note L to the consolidated financial statements in the annual report to shareholders for the year ended December 31, 1994 is incorporated herein by reference.
Research & Development
Active research and development programs seek new product compositions and designs as well as process innovations. Expenditures for research and development amounted to $8,754,000 in 1994, $7,121,000 in 1993 and $7,294,000 in 1992. A staff of 51 scientists, engineers and technicians was employed in this effort during 1994. Some research and development projects were externally sponsored and expenditures related to those projects (approximately $102,000 in 1994, $80,446 in 1993 and $217,000 in 1992) are excluded from the above totals.
Availability of Raw Materials
The more important raw materials used by the Company are beryllium (extracted from both imported beryl ore and bertrandite mined from the Company's Utah properties), copper, gold, silver, nickel and palladium. The availability of these raw materials, as well as other materials used by the Company, is adequate and generally not dependent on any one
supplier. Certain items are supplied by a preferred single source, but alternatives are believed readily available.
Patents and Licenses
The Company owns patents, patent applications and licenses relating to certain of its products and processes. While the Company's rights under the patents and licenses are of some importance to its operations, the Company's businesses are not materially dependent on any one patent or license or on the patents and licenses as a group.
Environmental Matters
The inhalation of excessive amounts of airborne beryllium particulate may present a health hazard to certain individuals. For decades the Company has operated its beryllium facilities under stringent standards of inplant and outplant discharge. These standards, which were first established by the Atomic Energy Commission over forty years ago, were, in general, subsequently adopted by the United States Environmental Protection Agency and the Occupational Safety and Health Administration. The Company's experience in sampling, measurement, personnel training and other aspects of environmental control gained over the years, and its investment in environmental control equipment, are believed to be of material importance to the conduct of its business.
Employees
As of December 31, 1994 the Company had 1,833 employees.
ITEM 2.



ITEM 2. PROPERTIES
The material properties of the Company, all of which are owned in fee except as otherwise indicated, are as follows:
Cleveland, Ohio - A structure containing 110,000 square feet on an 18 acre site housing corporate and administrative offices, data processing and research and development facilities.
Elmore, Ohio - A complex containing approximately 676,000 square feet of building space on a 385 acre plant site. This facility employs diverse chemical, metallurgical and metalworking processes in the production of beryllium, beryllium oxide, beryllium alloys and related products. Beryllium ore concentrate from the Delta, Utah plant is used in all beryllium-containing products.
Shoemakersville (Reading), Pennsylvania - A 123,000 square foot plant on a ten acre site that produces thin precision strips of beryllium copper and other alloys and beryllium copper rod.
Newburyport, Massachusetts - A 30,000 square foot manufacturing facility on a four acre site that produces alumina, beryllia ceramic and direct bond copper products.
Tucson, Arizona - A 45,000 square foot plant on a ten acre site for the manufacture of beryllia ceramic parts from beryllium oxide powder supplied by the Elmore, Ohio facility.
Delta, Utah - An ore extraction plant consisting of 86,000 square feet of buildings and large outdoor facilities situated on a two square mile site. This plant extracts beryllium from bertrandite ore from the Company's mines as well as from imported beryl ore.
Juab County, Utah - The Company holds extensive mineral rights in Juab County, Utah from which the beryllium bearing ore, bertrandite, is mined by the open pit method. A substantial portion of these rights is held under lease. Ore reserve data set forth on page 15 of this Form 10-K annual report for the year ended December 31, 1994 are incorporated herein by reference.
Fremont, California - A 49,000 square foot leased facility for the fabrication of precision electron beam welded, brazed and diffusion bonded beryllium structures. The lease expires in December 1995. The Company does not plan to renew the lease and is looking to lease space at a smaller facility.
Theale (Reading), England - A 19,700 square foot leased facility principally for distribution of beryllium alloys.
Stuttgart, West Germany - A 24,750 square foot leased facility principally for distribution of beryllium alloys.
Fukaya, Japan - A 35,500 square foot facility on 1.8 acres of land in Saitama Prefecture principally for distribution of beryllium alloys.
Lincoln, Rhode Island - A manufacturing facility consisting of 124,000 square feet located on seven and one-half acres. This facility produces metal strip inlaid with precious metals and related metal systems products.
Buffalo, New York - A complex of approximately 97,000 square feet on a 3.8 acre site providing facilities for manufacturing, refining and laboratory services relating to high purity precious metals.
Syracuse, New York - A 14,000 square foot leased portion of a multi-story facility for the sale of direct bond copper products.
Singapore, Singapore - A 4,500 square foot leased facility for the assembly and sale of precious metal hermetic sealing lids.
Bethlehem, Pennsylvania - A 6,000 square foot leased facility for the production and sales of ultra fine wire. The Company plans to close this facility by the end of 1995. Production will be moved to and absorbed in both the Buffalo, New York and Singapore facilities.
Production capacity is believed to be adequate to fill the Company's backlog of orders and to meet the current level of demand. However, the Company is currently re-
evaluating production capacity in light of anticipated sales increases from development of new applications for the Company's products and expanding international presence.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time a defendant in various civil and administrative proceedings that relate to the ordinary course of its operating business. These proceedings include environmental, health and safety related actions and other matters relating to the Company's present and former operations. Included in such proceedings are the matters discussed below.
(a) Environmental Proceedings.
In April 1993, the Company learned that the Ohio Environmental Protection Agency ("the Ohio EPA") had referred it to the Ohio Attorney General's Office (the "OAG") for consideration of initiation of enforcement proceedings against the Company with respect to alleged violations of various environmental laws at its facility in Elmore, Ohio. On October 19, 1994, the Court of Common Pleas for Ottawa County, Ohio entered a consent decree resolving alleged violations relating to air emission standards. Pursuant to the terms of the consent decree, the Company paid a total of $47,000. Negotiations between the OAG and the Company regarding alleged hazardous waste and solid waste violations, including matters discovered during the course of such negotiations, have resulted in a preliminary agreement pursuant to which a consent decree would be entered providing that the Company would pay a total of $227,000 and undertake a specific pollution prevention project in lieu of paying additional penalties. This resolution requires the OAG and the Company to finalize the language of a consent decree to be approved and entered by the Court of Common Pleas for Ottawa County, Ohio.
On or about September 25, 1992, the Company was served with a third-party complaint alleging that the Company, along with 159 other third-party defendants, were jointly and severally liable under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sections 9607(a) and 9613(b), for response costs incurred in connection with the clean-up of hazardous substances in soil and groundwater at the Douglassville Site (the "Site") located in Berks County, Pennsylvania. United States of America v. Berks Associates, Inc., et al. v. Aamco Transmissions, et al., United States District Court for the Eastern District of Pennsylvania, Case No. 91-4968. Prior to the commencement of litigation, the Company responded to a request for information from the United States Environmental Protection Agency (the "United States EPA") by denying that it arranged to send any substances to the Site. Although the Company has no documents in its own files relating to the shipment of any waste to the Site, documents maintained by third-party plaintiffs suggest that 8,344 gallons of waste oil from the Company may have been taken there. According to a consultant retained by third-party plaintiffs, approximately 153 million gallons of waste were sent to the Site. It has been reported by counsel for the third-party plaintiffs that the United States claims that it has spent $17 million in remediating the Site. The Company denies liability. Defendants and some third-party defendants have spent approximately $2 million on studies and preliminary clean-up. Consultants have estimated that the total clean-up costs could range from $25-100
million, depending on the type of remedy ultimately implemented. An alternate remedy being presented by the Berks Associates PRP Group is estimated by its consultants to cost approximately $30 million. The Company has been participating in court-ordered settlement proceedings, which have resulted in a de minimis settlement offer by the United States. The Company has accepted the offer and is awaiting notice from the government showing the final settlement calculation.
On July 26, 1994, the Company received a complaint, service of which was waived on September 29, 1994, in Glidden Company et al. v. American Color and Chemical, et al., No. 94-C3970, filed in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs are five companies which, pursuant to orders issued by the United States EPA under CERCLA, have been spending funds to secure, maintain and conduct an investigation of the Berks Landfill in Sinking Springs, Pennsylvania. The plaintiffs are alleged to have had their wastes disposed of at the landfill, which operated from 1950 through October 1, 1986. The 18 defendants consist of former owners or operators of the site and alleged transporters and/or generators of waste disposed of at the site. It is believed that hundreds of other entities disposed of waste at the site during its long period of operation. The plaintiffs seek to recover their past and future costs pursuant to rights of contribution under CERCLA and the Pennsylvania Hazardous Sites Cleanup Act. Plaintiffs allege that, as of September 1994, they had spent $355,000 to secure and maintain the site and that they expected to spend $1.7 million for a remedial investigation/feasibility study and a risk assessment. A proposed case management order has been submitted to the court.
Proceedings Concluded Since the End of Third Quarter 1994. On November 1, 1989, the Company appealed to the Ohio Environmental Board of Review to vacate or modify certain conditions in an NPDES wastewater discharge permit issued by the Ohio EPA for the Company's Elmore, Ohio facility. The Company challenged these conditions on several bases, including technical infeasibility and economic unreasonableness. Settlement discussions resulted in an agreement pursuant to which the Ohio EPA modified the permit and the Company dismissed its appeal.
(b) Beryllium Exposure Claims
The inhalation of excessive amounts of airborne beryllium particulate may present a health hazard to certain individuals. For decades the Company has operated its beryllium facilities under stringent standards of inplant and outplant discharge. These standards, which were first developed by the Atomic Energy Commission over forty years ago, were, in general, substantially adopted by the United States EPA and the Occupational Safety and Health Administration.
Pending Claims. The Company is currently a defendant in the following product liability actions where the plaintiffs allege injury resulting from exposure to beryllium and beryllium-containing materials and are claiming recovery based on various legal theories. The Company believes that resolution of these cases will not have a material adverse effect on the Company.
Defense for each of the cases identified above is being conducted by counsel selected by the Company and retained, with certain reservations of rights, by the Company's insurance carriers.
The Company is also a defendant in separate suits filed on June 10, 1994 by six Company employees and their spouses against the Company and certain Company employees in the Superior Court of Pima County, Arizona. The plaintiffs claim that, during their employment with the Company, they contracted chronic beryllium disease as a result of exposure to beryllium and beryllium- containing products. The plaintiffs seek compensatory and punitive damages of an unspecified amount based on allegations that the Company intentionally misrepresented the potential danger of exposure to beryllium and breached an agreement to pay certain benefits in the event the plaintiffs contracted chronic beryllium disease. Defense of this case is being conducted by counsel retained by the Company, and the Company's insurance carrier is investigating its liability for these claims. The Company believes that resolution of these cases will not have a material adverse effect on the Company.
Recent Developments Relating to Pending Claims. David Taggart and his spouse filed suit against WAM on October 2, 1992 in the Court of Common Pleas of Chester County, Pennsylvania. Mr. Taggart claimed that he was exposed to beryllium-containing materials manufactured, distributed or sold by WAM during his employment. Mrs. Taggart claimed loss of consortium. The complaint sought damages in excess of $25,000 under various theories. On August 3, 1994, the plaintiffs dismissed their complaint against WAM for lack of product involvement so that the Company remains a party only as a defendant to remaining cross-claims by other defendants.
(c) Asbestos Exposure Claims
A subsidiary of the Company (the "Subsidiary") is a co-defendant in thirty cases making claims for asbestos-induced illness allegedly relating to the former operations of the Subsidiary, then known as The S. K. Wellman Corp. All of these cases have been reported in prior filings with the S.E.C. The Subsidiary is one of a large number of defendants in each case. The plain- tiffs seek compensatory and punitive damages, in most cases of unspecified sums. Each case has been referred to a liability insurance carrier for defense. With respect to those referrals on which a carrier has acted to date, a carrier has accepted the defense of the actions, without admitting or denying liability. Two hundred and ten 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. Certain expenses of handling the cases are also subject to a limited, separate reimbursement agreement with Pneumo Abex Corporation. In eleven of the pending cases, both expenses of defense and payment of settlements and/or judgments are subject to a limited, separate reimbursement agreement with MLX Corp., the parent of the company that purchased the Subsidiary's operating assets in 1986.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Executive Officers of the Registrant
The following table provides information as to the executive officers of the Company.
Mr. Harnett was elected Chairman of the Board, President, Chief Executive Officer and Director of the Company effective January 22, 1991. He had served as a Senior Vice President of The B. F. Goodrich Company from November 1988.
Mr. Cramer was elected Vice President Finance and Chief Financial Officer in December 1994. Prior to that, he served as President of U.S. Operations and Director for the Americas and Australasia for the Swedish multinational, Esselte Meto.
Dr. Brophy was elected Vice President Technology effective March 31, 1988. Prior to that, he was Vice President of Engineering, Engine and General Components Group, Automotive Sector of TRW Inc.
Mr. Freeman was elected Vice President Alloy Products effective February 7, 1995. He had served as Vice President Sales and Marketing since August 3, 1993. He had served as Vice President Sales and Marketing-Alloy Products since July, 1992. Prior to that, he had served as Management Consultant for Adastra, Inc.
Mr. Harlan was elected Vice President International-Europe effective June 7, 1994. He had served as Vice President Business Development since August, 1993. He had served as Senior Vice President, Sales and Marketing since October, 1991. He had served as Vice President/General Manager, Alloy Division since January 1, 1987.
Mr. Rozek was elected Senior Vice President International and Beryllium Products on March 7, 1995. He had served as Vice President International effective October 1991. He had served as Vice President, Corporate Development effective February 27, 1990. He was elected Vice President, Governmental and Environmental Affairs in April 1989.
Mr. Sandor was elected Vice President Operations in October 1991. He had served as Senior Vice President since September 1989. He was appointed Vice President/General Manager, Material Systems Division effective January 1, 1988.
Mr. Skoch was elected Vice President Human Resources in July 1991. Prior to that he was Corporate Director - Personnel.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange. As of March 7, 1995, there were 2,519 shareholders of record. Information as to stock price and dividends declared set forth on page 17 in Note M to the consolidated financial statements in the annual report to shareholders for the year ended December 31, 1994 is incorporated herein by reference. The Company's ability to pay dividends is generally unrestricted, except that it is obligated to maintain a specified level of tangible net worth pursuant to an existing credit facility.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on pages 22 and 23 of the annual report to shareholders for the year ended December 31, 1994 is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Worldwide sales in 1994 were $346 million compared to $295 million in 1993 and $265 million in 1992. 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. On the economic front, beryllium alloys were supported by a strong U.S. economy, continued 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. Looking further out, efforts in marketing, research and manufacturing are devoted to developing materials and applications for
aerospace and avionics markets where evolving needs for high performance materials are strong.
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. New applications with long- term growth potential are being developed with recently introduced products derived from beryllia tape and direct bond copper. Prospects for growth are promising in automotive electronics and wireless communications.
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 set in motion in 1992 and 1993. 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. In 1995, these combined efforts will continue, along with a strong emphasis on the manufacturing and engineering areas.
Precious metal products also showed a significant increase in 1994 over 1993. Continued high demand and increased market share for frame 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, Williams Advanced Materials purchased the assets, including net working capital, of Hydrostatics Inc., a small manufacturer of precious metal ultra-fine wire produced using an innovative technology. This product fills an identified need to support markets in the semiconductor and hybrid microelectronics industries. The transaction was completed in October, 1994. Sales in 1995 are expected to be adversely affected by technology changes that impact the frame lid assembly volume. However, the newly acquired fine wire product will be introduced to their customer base throughout 1995.
International sales were $115 million in 1994, $86 million in 1993 and $71 million in 1992. 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. International sales in 1995 will probably not match the 1994 growth rate, due to anticipated lower sales of frame lid assemblies.
The Company's increased sales in 1993 as compared to 1992 involved all five product lines. A significant increase in precious metal products, AlBeMet(R) sales for the disk drive application and higher beryllium alloy sales in the U.S. and Asia accounted for most of the increase. Key growth markets were automotive electronics, computers, semiconductors and telecommunications.
Gross margin (sales less cost of sales) was 26.6%, 22.9% and 27.2% of sales in the years 1994, 1993 and 1992, respectively. A major portion of the $2.6 million of provisions taken in 1994 was included in cost of sales. A provision of $2 million was reserved for downsizing the Applications Development Center in Fremont, California and a charge of $0.6 million was made in the ceramic product line 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 has also been experiencing lower unit costs from the higher throughput and has benefitted from manufacturing improvements, especially in strip products. In the beryllium product line, margins recovered 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.
The lower gross margin in 1993 compared to 1992 was caused by a product mix shift to lower margin products, particularly those with a high precious metal content, and manufacturing problems associated with the AlBeMet(R) disk drive component.
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 relates to an alloy business process redesign effort. A group of employees and consultants have been charged with reviewing/analyzing specific activities in the Company to find opportunities for improvement. This process redesign effort will continue throughout 1995.
Selling, administrative and general expenses in 1993 increased from 1992. The increase in marketing, selling and customer service activities was partially offset by a reduction in administrative and general expenses which included lower incentive compensation.
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 are 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. R&D expenses in 1995 are expected to be in the $8 million range. In 1992, R&D expenses were $7.3 million.
Interest expense was $2.1 million in 1994, $3.0 million in 1993 and $3.2 million in 1992. All amounts are net of interest capitalized on active construction and mine development projects. Lower average debt reduced interest costs in 1994. Lower interest rates and less debt, on average, favorably impacted interest costs in 1993 as compared to 1992.
Other-net expense was $2.6 million in 1994, $2.2 million in 1993 and $1.3 million in 1992. This category included such expenses as amortization of goodwill and other intangibles, the effect of currency exchange and translation and other non- operating items. Included in all three 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. Included in 1993 and 1992, respectively, were $0.7 million and $1.4 million of nonrecurring gains.
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. In 1993, pre-tax income of $7.7 million was significantly lower than the 1992 pre-tax income of $13.7 million. The reduction was due to the lower gross margin, owing principally to manufacturing problems with the disk drive component and lower sales of beryllium for defense-related applications.
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. In 1992, an effective rate of 23.6% of pre-tax income was utilized.
Comparative earnings per share were $1.14 in 1994, $0.40 in 1993 and $0.65 in 1992.
FINANCIAL POSITION CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operating activities totaled $35.2 million in 1994. Cash balances increased by $12.7 million while total debt decreased by $1.1 million. During 1994, accounts receivable increased $5.8 million or 13%, which is slightly above the 12% year-on-year increase in fourth quarter sales. Total inventories increased $7.1 million. The beryllium product line invento- ries have been reduced to correspond to lower sales. The beryllium alloy product line inventories grew in line with the higher sales levels.
Capital expenditures for property, plant and equipment amounting to $17 million in 1994 were for upgrades and additions to improve quality and productivity. Expenditures in 1994 included a project to extend the life and capacity of the waste disposal pond at the Company's Utah extraction facility. Capital expenditures in 1995 will probably exceed the $17 million spent in 1994.
Long-term financial resources available to the Company include $60 million of medium-term notes and $50 million under a bank credit agreement (unused at December 31, 1994). Long-term debt at December 31, 1994 was $18.5 million or 9% of total capital.
Short-term debt at December 31, 1994 was $20.6 million, of which $5 million represents the current maturity of a medium-term note, and the remainder is denominated principally in gold and yen to provide hedges against assets so denominated. In addition, credit lines amounting to $59.8 million are available.
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 1993 was $18 million. The Company borrowed the $15 million cash surrender value from a group of Company-owned life insurance policies. The proceeds were used to repay all borrowings under the bank credit agreement. Total debt was reduced $13.4 million while capital expenditures for property, plant and equipment totaled $11.9 million and dividends totalled $4.2 million. Long-term debt at December 31, 1993 was 12% of total capital.
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.
INFLATION AND CHANGING PRICES
The prices of major raw materials, such as copper, nickel and gold, purchased by the Company were up during 1994. 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 $3.8 million at December 31, 1994 ($4.4 million at December 31, 1993). This reserve covers existing or currently foreseen projects.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and the following consolidated financial statements of the Company included in the annual report to shareholders for the year ended December 31, 1994 are incorporated herein by reference:
Consolidated Balance Sheets - December 31, 1994 and 1993.
Consolidated Statements of Income - Years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Shareholders' Equity - Years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Statements.
Report of Independent Auditors.
Quarterly Data on page 17 of the annual report to shareholders for the years ended December 31, 1994 and December 31, 1993 and Ore Reserves on page 15 of this Form 10-K annual report for the year ended December 31, 1994 are incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under Election of Directors on pages 2 through 5 of the Proxy Statement dated March 13, 1995 is incorporated herein by reference. Information with respect to Executive Officers of the Company is set forth earlier on pages 9 and 10 of this Form 10-K annual report.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information under Executive Officer Compensation on pages 8 through 16 of the Proxy Statement dated March 13, 1995 is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under Common Stock Ownership of Certain Beneficial Owners and Management on pages 6 and 7 of the Proxy Statement dated March 13, 1995 is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under Compensation Committee Interlocks and Insider Participation and Related Party Transactions on page 16 of the Proxy Statement dated March 13, 1995 is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements and Supplemental Information
Included in Part II of this Form 10-K annual report by reference to the annual report to shareholders for the year ended December 31, 1994 are the following consolidated financial statements:
Consolidated Balance Sheets - December 31, 1994 and 1993.
Consolidated Statements of Income - Years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Shareholders' Equity - Years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Statements.
Report of Independent Auditors.
(a) 2. Financial Statement Schedules
The following consolidated financial information for the years 1994, 1993 and 1992 is submitted herewith:
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(a) 3. Exhibits
(3a) Articles of Incorporation of the Company as amended February 28, 1989.
(3b) Regulations of the Company as amended April 25, 1989 and further amended April 27, 1993.
(4a) Credit Agreement dated as of December 13, 1994 between the Company and National City Bank acting for itself and as agent for three other banking institutions.
(4b) Rights Agreement between the Company and Society National Bank (formerly Ameritrust Company National Association) as amended February 28, 1989.
(4c) Issuing and Paying Agency Agreement dated as of February 1, 1990, including a specimen form of a medium term note issued thereunder, between the Company and First Trust N.A. (formerly with Morgan Guaranty Trust Company of New York).
(4d) Pursuant to Regulation S-K, Item 601 (b)(4), the Company agrees to furnish to the Commission, upon its request, a copy of the instruments defining the rights of holders of long-term debt of the Company that are not being filed with this report.
(10a) * Employment Agreement entered into by the Company and Mr. Gordon D. Harnett on March 20, 1991 (filed as Exhibit 10a to the Company's Form 10-K Annual Report for the year ended December 31, 1990), incorporated herein by reference.
(10b) * Form of Employment Agreement entered into by the Company and Messrs. Brophy, Hanes, Harlan, Rozek and Sandor on February 20, 1989.
(10c) * Form of Amendment to the Employment Agreement (dated February 20, 1989) entered into by the Company and Messrs. Brophy, Hanes, Harlan, Rozek and Sandor dated February 28, 1991 (filed as Exhibit 10c to the Company's Form 10-K Annual Report for the year ended December 31, 1990), incorporated herein by reference.
(10d) * Form of Employment Agreement entered into by the Company and Mr. Daniel A. Skoch on January 28, 1992, Mr. Stephen Freeman dated August 3, 1993, and Mr. Carl Cramer dated December 6, 1994 (filed as Exhibit 10d to the Company's Form 10-K Annual Report for the year ended December 31, 1991), incorporated herein by reference.
*Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 14(c) of this Report.
(10e) * Form of Trust Agreement between the Company and Key Trust Company of Ohio, N.A. (formerly Ameritrust Company National Association) on behalf of Messrs. Waite, Brophy, Hanes, Harlan, Rozek and Sandor dated February 20, 1989, Mr. Harnett dated March 20, 1991 and Mr. Skoch dated January 28, 1992, Mr. Stephen Freeman dated August 3, 1993, and Mr. Carl Cramer dated December 6, 1994.
(10f) Form of Indemnification Agreement entered into by the Company and Mr. C. G. Waite on June 27, 1989 and Mr. G. D. Harnett on March 20, 1991.
(10g) Form of Indemnification Agreement entered into by the Company and Messrs. J. H. Brophy, A. J. Sandor, C. B. Harlan, H. D. Hanes, and R. H. Rozek on June 27, 1989, Mr. D. A. Skoch on January 28, 1992, Mr. Stephen Freeman dated August 3, 1993, and Mr. C. Cramer on December 6, 1994.
(10h) Form of Indemnification Agreement entered into by the Company and Messrs. C. F. Brush, F. B. Carr, W. E. MacDonald, J. L. McCall, W. P. Madar, G. C. McDonough, R. M. McInnes, H. G. Piper and J. Sherwin Jr. on June 27, 1989 and Mr. A. C. Bersticker on April 27, 1993.
(10i) * Directors' Retirement Plan as amended January 26, 1993 (filed as Exhibit 10i to the Company's Form 10-K Annual Report for the year ended December 31, 1992), incorporated herein by reference.
(10j) * Deferred Compensation Plan for Nonemployee Directors effective January 1, 1992 (filed as Exhibit I to the Company's Proxy Statement dated March 6, 1992), incorporated herein by reference.
(10k) * Form of Trust Agreement between the Company and National City Bank dated January 1, 1992 on behalf of Nonemployee Directors of the Company (filed as Exhibit 10k to the Company's Form 10- K Annual Report for the year ended December 31, 1992), incorporated herein by reference.
(10l) * Incentive Compensation Plan adopted December 16, 1991, effective January 1, 1992 (filed as Exhibit 10l to the Company's Form 10-K Annual Report for the year ended December 31, 1991), incorporated herein by reference.
*Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 14(c) of this Report.
(10m) * Management Performance Compensation Plan adopted February 22, 1993, effective January 1, 1993 (filed as Exhibit 10m to the Company's Form 10-K Annual Report for the year ended December 31, 1992), incorporated herein by reference.
(10n) * Supplemental Retirement Plan as amended and restated December 1, 1992 (filed as Exhibit 10n to the Company's Form 10-K Annual Report for the year ended December 31, 1992), incorporated herein by reference.
(10o) * Amendment Number 3, adopted February 8, 1995, to Supplemental Retirement Benefit Plan as amended and restated December 1, 1992.
(10p) * Form of Trust Agreement between the Company and Key Trust Company of Ohio, N.A. (formerly Society National Bank) dated January 8, 1993 pursuant to the December 1, 1992 amended Supplemental Retirement Benefit Plan (filed as Exhibit 10p to the Company's Form 10-K Annual Report for the year ended December 31, 1992), incorporated herein by reference.
(10q) * Management Performance Compensation Plan adopted February 7, 1995, effective January 1, 1995.
(10r) * 1979 Stock Option Plan, as amended pursuant to approval of shareholders on April 21, 1982 (filed as Exhibit 15A to Post-Effective Amendment No. 3 to Registration Statement No. 2- 64080), incorporated herein by reference.
(10s) * 1984 Stock Option Plan as amended by the Board of Directors on April 18, 1984 and February 24, 1987 (filed as Exhibit 4.4 to Registration Statement No. 33-28605), incorporated herein by reference.
(10t) * 1989 Stock Option Plan (filed as Exhibit 4.5 to Registration Statement No. 33-28605), incorporated herein by reference.
(10u) * 1990 Stock Option Plan for Nonemployee Directors (filed as Exhibit 4.6 to Registration Statement No. 33-35979), incorporated herein by reference.
(10v) * 1977 Stock Appreciation Rights Plan (filed as Exhibit 4.6 to Registration Statement No. 33- 28605), incorporated herein by reference.
*Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 14(c) of this Report.
(10w) * 1995 Stock Incentive Plan subject to approval by shareholders at the Company's annual meeting to be held on May 2, 1995 (filed as Exhibit A to the Proxy Statement dated March 13, 1995), incorporated herein by reference.
(11) Statement re: calculation of per share earnings for the years ended December 31, 1994, 1993 and 1992.
(13) Portions of the Annual Report to shareholders for the year ended December 31, 1994.
(21) Subsidiaries of the registrant.
(23) Consent of Ernst & Young LLP.
(24) Power of Attorney.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of the year ended December 31, 1994.
*Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 14(c) of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 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.
March 22, 1995 BRUSH WELLMAN INC.
By: /s/Gordon D. Harnett By: /s/Carl Cramer ------------------------------------- --------------------------- Gordon D. Harnett Carl Cramer Chairman of the Board, Vice President and President and Chief Executive Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
*The undersigned, by signing his name hereto, does sign and execute this report on behalf of each of the above-named officers and directors of Brush Wellman Inc., pursuant to Powers of Attorney executed by each such officer and director filed with the Securities and Exchange Commission.
By: /s/Carl Cramer ---------------------- Carl Cramer March 22, 1995 Attorney-in-Fact
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
BRUSH WELLMAN AND SUBSIDIARIES
Years ended December 31, 1994, 1993 and 1992
Note A - Bad debts written off.
Note B - The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. Under Statement 109, a deferred tax asset of $1,540,000 was recorded for net operating loss carryforwards. Since it was unknown as to whether the deferred tax asset would be utilized, a valuation allowance was recorded to offset the asset.
Note C - Inventory written off.
Note D - Net operating loss carryforwards utilized or expired.