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Brush Engineered Materials Reports Sales & Earnings for 2002 and the Fourth Quarter

02/06/2003

CLEVELAND, Feb 6, 2003 (BUSINESS WIRE) --

Brush Engineered Materials Inc. (NYSE:BW) today reported sales for 2002 of $372.8 million, a decline of 21% from 2001 sales of $472.6 million. Sales for the fourth quarter of 2002 were $89.0 million, down 4% from 2001 fourth quarter sales of $92.4 million. The decline in sales for the year and fourth quarter were due primarily to the softness in the overall economy and continued weakness in the Company's largest markets, telecommunications and computer. The overall softness in sales in these markets was partially offset by strong demand in the optical media, data storage, automotive and defense markets. The decline in sales is also partly due to a shift in metal mix.

For the year, the Company had a net loss of $35.6 million or $2.15 per share diluted. For the fourth quarter, the Company had a net loss of $26.8 million or $1.62 per share diluted. Earnings for the fourth quarter and the year were affected by a restructuring charge plus an impairment charge for certain operating assets and deferred taxes. These items in the aggregate negatively affected the fourth quarter and the year's results by $23.0 million, or $1.39 per share diluted. Excluding these charges, the fourth quarter net loss was $3.8 million or $0.23 per share diluted compared to a net loss of $10.0 million or $0.60 per share diluted in the prior year and the year's loss was $12.6 million or $0.76 per share diluted compared to a net loss of $10.3 million or $0.62 per share diluted in 2001.

Both the fourth quarter and full year were favorably affected by a reduction in previously recorded legal accruals due to favorable settlements and court rulings related to the Company's chronic beryllium disease litigation. The fourth quarter and full year pre-tax benefit was $1.8 million and $3.9 million respectively, or $0.06 and $0.14 per share diluted.

Confirmation of Previously Announced Items

In reporting its 2002 third quarter results on October 24, 2002 the Company commented on its plan to address three factors during the fourth quarter of 2002. These included a non-cash charge related to the impairment of the Company's net deferred tax asset, a non-cash charge related to the funding status of the Company's pension plan and a potential default of certain financial covenants under its bank agreements. These were resolved as follows:

First, as of the end of the third quarter of 2002, the Company reported a net deferred tax asset of $22.7 million. A substantial amount of the tax benefits that comprised this net asset do not expire for many years. However, due to the Company's recent financial performance this asset is considered impaired under accounting regulations and therefore a non-cash charge in the amount of $19.9 million or $1.20 per share diluted was recorded in the fourth quarter of 2002. The charge did not affect pre-tax earnings, cash flow or the ability to utilize the deferred asset to offset taxes in future periods.

Second, accounting regulations require the recognition of an additional liability when the market value of assets in a pension plan is less than the accumulated benefit obligation at the end of the year. As a result the Company was required to take a non-cash charge in the fourth quarter that reduced comprehensive income, a component of shareholders equity in the amount of $13.6 million. Under the Internal Revenue Code and ERISA the Company was not required to make a cash contribution to its pension fund in 2002 and will not be required to make a cash contribution in 2003 as well.

Finally, the Company has amended its Credit and Master Lease Agreements. Certain financial covenants have been waived through December 31, 2002 and additional security was provided to its creditors. The Company's current credit agreement expires in October 2003 and the Company is in discussions with its lenders to extend the agreement as well as revise its covenants.

BUSINESS SEGMENT REPORTING Metal Systems Group

The Metal Systems Group consists of Alloy Products, Technical Materials, Inc. (TMI) and Beryllium Products.

The Metal Systems Group's 2002 sales were $227.9 million, down 23% from 2001 sales of $295.7 million. Fourth quarter sales of $51.5 million were about flat with 2001 fourth quarter sales of $51.9 million. The 2002 operating loss for this segment was $37.7 million versus a loss of $20.1 million for 2001. The fourth quarter operating loss was $14.1 million versus an operating loss of $15.7 million for the fourth quarter of 2001.

Alloy Products 2002 sales of $151.9 million and fourth quarter sales of $34.8 million were down 30% and 3%, respectively compared to the same period last year. Alloy's 2002 sales were substantially impacted by the continued weakness in the tele-communications and computer markets. Fourth quarter sales were impacted by a slow ramp up by customers following the customary third quarter manufacturing maintenance shutdowns. Alloy Products is currently very well positioned to capitalize on a resumption of telecommunications and computer demand. In addition, Alloy has been broadening and diversifying its product lines to include new alloys for the electronics sector, strip form materials for oil and gas applications and non-beryllium spinodal alloys used in bearing and other industrial components. Alloy Products also has continued to reduce costs, improve working capital requirements, manufacturing efficiencies and equipment utilization rates. Alloy Products has recently been experiencing an increase in order entry rates especially in Asia.

TMI 2002 sales of $44.4 million and fourth quarter sales of $9.6 million were down 12% and up 7% respectively, compared to the same periods last year. TMI experienced firm automotive sales throughout 2002; however, this strength was offset by the weakness in the telecommunications and computer markets. In spite of the lower sales volume, TMI remained profitable in 2002.

Beryllium Products 2002 sales of $31.6 million were up 14% over 2001 sales of $27.7 million. Fourth quarter sales of $7.1 million were flat with 2001 fourth quarter sales. This strength in sales is driven by defense applications and should continue into the first quarter of 2003. This unit was an important profit contributor throughout the year.

Microelectronics Group

The Microelectronics Group includes Williams Advanced Materials Inc. (WAM) and Electronic Products.

Microelectronics 2002 sales were $139.2 million, down 18% compared to $169.6 million in 2001. Fourth quarter sales of $36.9 million were down 5% over fourth quarter 2001 sales of $38.7 million. The majority of the fourth quarter and year-over-year revenue drop in this segment is due to metal mix shifts, not volumes. Operating profit was $3.8 million for 2002 versus $4.6 million for 2001. The Microelectronics Group reported an operating loss of $1.2 million for the fourth quarter of 2002 versus an operating profit of $1.0 million for the fourth quarter of 2001. The fourth quarter segment loss was due to charges taken, as outlined below.

WAM 2002 sales were $109.1 million versus $135.3 million for 2001. Fourth quarter sales were $29.0 million versus $33.4 million for the same period last year. The majority of the sales decline in 2002 was due to a mix shift away from precious metals. WAM has continued to experience strength in optical media and magnetic storage product applications.

Electronics Products sales for 2002 of $30.1 million were 12% lower than 2001 sales of $34.3 million. Fourth quarter sales of $7.9 million were up 46% over 2001 fourth quarter sales of $5.4 million. To better realign its cost structure with current revenues, the Company recently reorganized and restructured this business. The related severance and asset impairment costs totaled $2.0 million and were recorded in the fourth quarter. It is anticipated that these actions will reduce overhead expense by approximately $2.0 million in 2003.

Outlook

Commenting on the outlook, John D. Grampa, Vice President, Finance and Chief Financial Officer, stated, "Even though weak conditions in our largest market, computer and telecommunications, continued to present a challenging operating environment, we ended 2002 having made significant progress in a number of important areas. Overheads were down over $35.0 million versus prior year, margins were up over 5 percentage points in the second half of the year and total debt, including off-balance sheet leases, was reduced by approximately $35.0 million or 18%. In addition, our lean and six sigma productivity improvement programs are having an impact in reducing costs and we have launched a number of new products. All of the above is encouraging and provides promise for 2003 and beyond.

"While we remain very cautious about the near-term outlook, we do expect improvements in 2003 based on the progress made in 2002. We expect higher sales and earnings improvement in the first quarter and for the full year. The forecast for the first quarter of 2003 is for revenue to improve by 5-10% over the prior year's first quarter and pre-tax results to improve 25-35% over the prior year's first quarter."

Chairman's Comments

Commenting on the results, Gordon D. Harnett, Chairman, President and Chief Executive Officer, stated "We continued to be challenged in 2002 by a weak global economy and continued softness in the telecommunications and computer equipment markets. Although we were disappointed in revenues during 2002 we made significant progress in overhead reduction, manufacturing effectiveness and in the development and introduction of new competitive products to broaden our markets. In addition, we have announced and completed a restructuring of the Electronics Products business unit. As a result, we have continued to reduce our breakeven point and add to our market and product breadth. We are also well positioned to take advantage of an economic recovery."

Forward-looking Statements

Any forward-looking statements in this announcement, including those in the Outlook Section, are based on current expectations. The Company's actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include: the global and domestic economy, the condition of the markets which the Company serves, whether defined geographically or by segment, with the major market segments being telecommunications and computer, optical media, automotive electronics, industrial components, aerospace and defense, and appliance; changes in product mix and the financial condition of particular customers; the Company's success in implementing its strategic plans and the timely and successful completion of pending capital expansion projects; the availability of adequate lines of credit and the associated interest rates; other financial factors, including tax rates, exchange rates, pension costs, energy costs and the cost and availability of insurance; changes in government regulatory requirements and the enactment of new legislation that impacts the Company's obligations; and, the conclusion of pending litigation matters in accordance with the Company's expectation that there will be no material adverse effects and other matters referred to in the Company's Securities and Exchange Commission filings.

Brush Engineered Materials Inc. is headquartered in Cleveland, Ohio. The Company, through its wholly-owned subsidiaries, supplies worldwide markets with beryllium products, alloy products, electronic products, precious metal products, and engineered material systems.

Consolidated Statements of Income
(Unaudited)
(Dollars in thousands   Fourth Quarter Ended        Year Ending
 except share and per   Dec. 31,    Dec. 31,    Dec. 31,     Dec. 31,
 share amounts)           2002        2001        2002         2001
----------------------------------------------------------------------
Net sales              $   89,017  $   92,395  $  372,829  $  472,569
 Cost of sales             78,459      89,263     324,932     404,574
                       ----------- ----------- ----------- -----------
Gross Margin               10,558       3,132      47,897      67,995
  Selling, general and
   administrative
   expenses                15,160      17,339      61,293      75,315
  Research and
   development
   expenses                 1,087       1,352       4,265       6,327
  Other-net                 5,164         523       5,184         422
                       ----------- ----------- ----------- -----------
Operating Profit (Loss)   (10,853)    (16,082)    (22,845)    (14,069)
  Interest expense            734         821       3,010       3,327
                       ----------- ----------- ----------- -----------
Income (Loss) before
 income taxes             (11,587)    (16,903)    (25,855)    (17,396)
  Income taxes             15,228      (6,915)      9,749      (7,122)
                       ----------- ----------- ----------- -----------
Net Income (Loss)      $  (26,815) $   (9,988) $  (35,604) $  (10,274)
                       =========== =========== =========== ===========
Per Share of Common
 Stock:   Basic        $    (1.62) $    (0.60) $    (2.15) $    (0.62)
Weighted average
 number of common
 shares outstanding    16,558,417  16,548,410  16,557,388  16,518,691
Per Share of Common
 Stock:   Diluted      $    (1.62) $    (0.60) $    (2.15) $    (0.62)
Weighted average
 number of common
 shares outstanding    16,558,417  16,548,410  16,557,388  16,518,691
Cash dividends per
 common share          $      -    $      -    $      -    $     0.24
                    Brush Engineered Materials Inc.
                          Digest of Earnings
                           December 31, 2002
                                              2002           2001
                                          -------------  -------------
Fourth Quarter
--------------
   Net Sales                               $89,017,000    $92,395,000
   Net (Loss) Income                      ($26,815,000)   ($9,988,000)
   Share Earnings  - Basic                      ($1.62)        ($0.60)
   Average Shares - Basic                   16,558,417     16,548,410
   Share Earnings  - Diluted                    ($1.62)        ($0.60)
   Average Shares - Diluted                 16,558,417     16,548,410
Year-to-date
------------
   Net Sales                              $372,829,000   $472,569,000
   Net (Loss) Income                      ($35,604,000)  ($10,274,000)
   Share Earnings  - Basic                      ($2.15)        ($0.62)
   Average Shares - Basic                   16,557,388     16,518,691
   Share Earnings  - Diluted                    ($2.15)        ($0.62)
   Average Shares - Diluted                 16,557,388     16,518,691
Brush Engineered Materials Inc.
Investors: Michael C. Hasychak, 216/383-6823
Media: Patrick S. Carpenter, 216/383-6835
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