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Brush Engineered Materials Inc. Reports First Quarter Sales up 4% and Net Income up 14% Compared to Prior Year

04/28/2005

CLEVELAND, Apr 28, 2005 (BUSINESS WIRE) -- Brush Engineered Materials Inc. (NYSE:BW) today reported first quarter net income of $4.3 million, up 14% compared to the first quarter 2004 net income of $3.8 million. Earnings per share diluted was $0.22, unchanged from the first quarter of 2004.

Sales were $130.4 million, up 4% compared to the first quarter 2004 sales of $125.9 million. Metal prices and currency accounted for approximately half of the sales increase. First quarter 2005 was the ninth consecutive quarter where sales were higher than the comparable quarter of the prior year.

The improvement in net income from the higher sales volume was partially offset by lower margins from an unfavorable product mix, higher copper prices and lower production levels compared to the prior year. In addition, the Company recorded a charge in the first quarter of 2005 of approximately $0.6 million, or $0.03 per share, for the unamortized financing costs associated with the prepayment of $18.6 million of term loans.

The increase in sales for the first quarter of 2005 was due to strength in the magnetic media, semiconductor and industrial component markets as well as sales of materials for the optical mirrors for NASA's James Webb Space Telescope. In addition, new product sales in the first quarter exceeded expectations. Sales were negatively impacted during the latter part of the quarter from weakness in the Company's largest markets, telecommunications and computer and automotive electronics.

Business Segment Reporting

Metal Systems Group:

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

The Metals Systems group now includes Brush Resources Inc., our Utah mine and mill, which previously was classified in Other. This reclassification better reflects how the operations are now managed. Brush Resources produces beryllium hydroxide, a raw material input for our beryllium businesses and for sale to external customers. Prior year results have been adjusted to reflect the change. Brush Resources Inc. did not have any third party sales in the first quarters of 2005 and 2004.

The Metal Systems Group's first quarter sales of $79.5 million were 5% higher than first quarter 2004 sales of $76.0 million. The first quarter operating profit of $2.6 million was flat with the first quarter of 2004.

Alloy Products' first quarter sales of $52.6 million were slightly above first quarter 2004 sales of $52.5 million. Alloy experienced strong growth during the quarter in its bulk form products which were up approximately 20%, driven by strength in the oil and gas, aerospace and heavy equipment markets. Much of this growth is from new products. This strength was offset by weakness, especially in the latter part of the quarter, from the telecommunications and computer and automotive electronics markets. Alloy Products' results were negatively impacted by higher copper prices and a weaker product mix as compared to the first quarter of 2004.

TMI's first quarter sales of $12.7 million were down 7% from first quarter 2004 sales of $13.7 million. The sales decrease is primarily due to the fall off in the telecommunications and computer and automotive electronics markets.

Beryllium Products' first quarter sales of $14.2 million increased 46% over first quarter 2004 sales of $9.7 million. The increase includes sales of material for the optical mirrors for NASA's James Webb Space Telescope, continued strength in defense and strong commercial sales from the Electrofusion Products business. It is anticipated that Beryllium Products' sales will slow in the second half of 2005.

Microelectronics Group:

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

The Microelectronics Group's first quarter 2005 sales of $50.9 million were 2% above the first quarter 2004 sales of $49.9 million. Operating profit of $3.7 million was down 33% from first quarter 2004 operating profit of $5.5 million.

WAM's first quarter sales of $44.2 million were 5% higher than first quarter 2004 sales of $42.1 million. The increase in sales was driven by strong demand from the magnetic media and semiconductor markets. This strength was partially offset by weakness in the wireless photonic handset market. The outlook for magnetic media, performance film and semiconductor product applications remains strong for the second quarter.

Electronic Products' first quarter 2005 sales of $6.7 million were down 14% from first quarter 2004 sales of $7.8 million. Sales were negatively affected by weakness in the wireless telecommunications market.

Operating profit in the segment, compared to prior year, was negatively affected by market shifts and related changes in mix which led to lower margins. In addition, operating profit was negatively affected by differences in inventory valuation adjustments between the two periods and increases in costs allocated by the corporate office.

Outlook

The Company began to experience weakness in its two largest markets, telecommunications and computer and automotive electronics, in the latter part of the first quarter. The market weakness has continued into the second quarter. The softness however is being offset in part by continued strength from the magnetic media, semiconductor and industrial component markets. New product growth is also helping to mitigate the weaker telecommunications and computer and automotive electronics market conditions. New product opportunities remain encouraging. Although lead times are short and forecasting in this market environment continues to be difficult, we currently expect the sales growth for the year to be in the 4 to 8% range. Second quarter 2005 sales are currently expected to be similar to the first quarter 2005 with an upside or downside potential of 5%. While earnings for the year are still expected to be up significantly compared to prior year, we currently expect that it will be below the $1.30 earnings per share low end of the previously announced range.

Chairman's Comments

Commenting on the results, Gordon D. Harnett, President, Chairman and CEO, stated, "While I am pleased with the continued growth in revenue and net income for the first quarter of 2005, results were below my expectations. Although conditions in some of our key markets appear to have weakened, we remain optimistic about conditions in our other markets and our ability to grow our new products which are targeted at broadening and diversifying our base. We remain committed to strong organic growth and continuing to improve our operations, reducing costs and growing shareholder value."

Forward-looking Statements

Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. 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, in addition to those mentioned elsewhere herein:

-- The global economy;

-- The condition of the markets the Company serves, whether defined geographically or by segment, with the major market segments being telecommunications and computer, automotive electronic, magnetic and optical data storage, aerospace and defense, industrial components, and appliance;

-- Changes in product mix and the financial condition of customers;

-- The Company's success in implementing its strategic plans and the timely and successful completion of any capital projects;

-- The availability of adequate lines of credit and the associated interest rates;

-- Other financial factors, including cost and availability of materials, tax rates, exchange rates, pension costs, energy costs, regulatory compliance costs, and the cost and availability of insurance;

-- The uncertainties related to the impact of war and terrorist activities;

-- 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.

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.

Brush Engineered Materials Inc.

                          Digest of Earnings

                            April 1, 2005


                                               2005          2004
                                           ------------- -------------

First Quarter

   Net Sales                               $130,372,000  $125,862,000


   Net Income                                $4,286,000    $3,754,000


   Share Earnings  - Basic                        $0.22         $0.23

   Average Shares - Basic                    19,197,476    16,618,565

   Share Earnings  - Diluted                      $0.22         $0.22

   Average Shares - Diluted                  19,411,560    16,980,786


Consolidated Balance Sheets
(Unaudited)

                                               Apr. 1,      Dec. 31,
(Dollars in thousands)                           2005         2004
----------------------------------------------------------------------
Assets
Current assets
   Cash and cash equivalents                 $     9,677  $    49,643
   Accounts receivable                            65,863       59,229
   Inventories                                    99,650       95,271
   Prepaid expenses                                7,617        8,348
   Deferred income taxes                              24          275
                                              -----------  -----------
        Total current assets                     182,831      212,766

Other assets                                      14,172       14,876
Long-term deferred income taxes                      925          928

Property, plant and equipment                    542,768      540,937
   Less allowances for depreciation,
     depletion and impairment                    368,088      363,318
                                              -----------  -----------
                                                 174,680      177,619

Goodwill                                           7,992        7,992
                                              -----------  -----------
                                             $   380,600  $   414,181
                                              ===========  ===========


Liabilities and Shareholders' Equity
Current liabilities
   Short-term debt                           $    10,948  $    11,692
   Current portion of long-term debt                 636       19,209
   Accounts payable                               16,345       13,234
   Other liabilities and accrued items            32,105       50,452
   Unearned revenue                                2,537        7,789
   Income taxes                                    1,415        1,591
                                              -----------  -----------
        Total current liabilities                 63,986      103,967

Other long-term liabilities                        9,789       10,798
Retirement and post-employment benefits           50,370       49,729
Long-term debt                                    41,515       41,549

Shareholders' equity                             214,940      208,138
                                              -----------  -----------
                                             $   380,600  $   414,181
                                              ===========  ===========


See notes to consolidated financial statements.


Consolidated Statements of Income
(Unaudited)

                                                First Quarter Ended
(Dollars in thousands except share and per     April 1,     April 2,
 share amounts)                                  2005         2004
----------------------------------------------------------------------

Net sales                                    $   130,372  $   125,862
     Cost of sales                               101,795       96,285
                                              -----------  -----------
Gross margin                                      28,577       29,577
     Selling, general and administrative
      expense                                     18,701       19,048
     Research and development expense              1,241        1,268
     Other-net                                     2,211        3,190
                                              -----------  -----------
Operating profit                                   6,424        6,071
     Interest expense                              1,622        2,218
                                              -----------  -----------
Income before income taxes                         4,802        3,853

     Income taxes                                    516           99
                                              -----------  -----------

Net income                                   $     4,286  $     3,754
                                              ===========  ===========

Per share of common stock:    basic          $      0.22  $      0.23

Weighted average number
     of common shares outstanding             19,197,476   16,618,565


Per share of common stock:    diluted        $      0.22  $      0.22

Weighted average number
     of common shares outstanding             19,411,560   16,980,786


See notes to consolidated financial statements.



Consolidated Statements of Cash Flows
(Unaudited)
                                                 Three Months Ended
                                                April 1,    April 2,
(Dollars in thousands)                            2005        2004
----------------------------------------------------------------------

Net income                                     $    4,286  $    3,754
Adjustments to reconcile net income to net cash
 used in operating activities:
  Depreciation, depletion and amortization          5,343       5,396
  Amortization of deferred financing costs in
   interest expense                                   304         362
  Derivative financial instrument
   ineffectiveness                                   (510)        482
  Decrease (increase) in accounts receivable       (7,059)    (12,121)
  Decrease (increase) in inventory                 (5,024)     (7,684)
  Decrease (increase) in prepaid and other
   current assets                                     941        (290)
  Increase (decrease) in accounts payable and
   accrued expenses                               (11,413)      2,437
  Increase (decrease) in unearned revenue          (5,252)          -
  Increase (decrease) in interest and taxes
   payable                                         (1,600)     (1,147)
  Increase (decrease) in other long-term
   liabilities                                        949      (1,128)
  Other - net                                         826         800
                                                ----------  ----------
          Net cash used in operating activities   (18,209)     (9,139)


Cash flows from investing activities:
  Payments for purchase of property, plant and
   equipment                                       (2,179)     (1,356)
  Payments for mine development                         -         (90)
  Purchase of equipment previously held under
   operating lease                                   (448)          -
  Proceeds from sale of property, plant and
   equipment                                           25          15
  Other investments - net                             (16)         39
                                                ----------  ----------
          Net cash used in investing activities    (2,618)     (1,392)

Cash flows from financing activities:
  Proceeds from issuance/(repayment) of short-
   term debt                                         (717)      8,983
  Proceeds from issuance of long-term debt              -          24
  Repayment of long-term debt                     (18,607)        (60)
  Issuance of common stock under stock option
   plans                                              249       1,883
                                                ----------  ----------
          Net cash provided from (used in)
           financing activities                   (19,075)     10,830
Effects of exchange rate changes                      (64)        (23)
                                                ----------  ----------
                  Net change in cash and cash
                   equivalents                    (39,966)        276
              Cash and cash equivalents at
               beginning of period                 49,643       5,062
                                                ----------  ----------
                Cash and cash equivalents at
                 end of period                 $    9,677  $    5,338
                                                ==========  ==========


See notes to consolidated financial statements.



Notes to Consolidated Financial Statements
(Unaudited)

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 April 1, 2005 and December 31, 2004 and the
results of operations for the three month periods ended April 1, 2005
and April 2, 2004. All of the adjustments were of a normal and
recurring nature. Certain items in the prior year have been
reclassified to conform to the 2005 consolidated financial statement
presentation.


Note B - Inventories

                                   Apr. 1,     Dec. 31,
(Dollars in thousands)              2005        2004
---------------------------------------------------------

Principally average cost:
  Raw materials and supplies        $25,825      $22,705
  Work in process                    75,805       77,438
  Finished goods                     30,135       27,538
                                 ----------- ------------
     Gross inventories              131,765      127,681

Excess of average cost over LIFO
   Inventory value                   32,115       32,410
                                 ----------- ------------
   Net inventories                  $99,650      $95,271
                                 =========== ============


Notes to Consolidated Financial Statements
(Unaudited)


Note C -  Comprehensive Income

The reconciliation between net income and comprehensive income for the
three month periods ended April 1, 2005 and April 2, 2004 is as
follows:


                                    First Quarter Ended
                                   Apr. 1,      Apr. 2,
(Dollars in thousands)              2005         2004
----------------------------------------------------------

 Net income                           $4,286       $3,754

 Cumulative translation
  adjustment                            (874)         225

 Change in the fair value of
  derivative financial
  instruments                          3,261          928
                                 ------------ ------------

 Comprehensive income                 $6,673       $4,907
                                 ============ ============



Note D - Segment Reporting

Effective January 1, 2005, the operating results of Brush Resources
Inc. are included as part of the Metal Systems Group. Previously, the
operating results of Brush Resources were included as part of All
Other in the segment disclosures. Brush Resources sells beryllium
hydroxide, produced through its Utah operations, to outside customers
and to businesses within the Metal Systems Group. This change is more
reflective of how the Company's businesses are evaluated. The 2004
amounts presented below have been reclassified to reflect this change.




                       Metal     Micro-      Total     All
 (Dollars in          Systems  Electronics  Segments  Other    Total
  thousands)
----------------------------------------------------------------------
 First Quarter 2005
---------------------
 Revenues from
  external customers $79,481      $50,891  $130,372      $-  $130,372

 Intersegment
  revenues               591          230       821       -       821

 Operating profit      2,618        3,696     6,314     110     6,424


 First Quarter 2004
---------------------
 Revenues from
  external customers $75,958      $49,904  $125,862      $-  $125,862

 Intersegment
  revenues             1,214          296     1,510       -     1,510

 Operating profit
  (loss)               2,598        5,489     8,087  (2,016)    6,071

SOURCE: Brush Engineered Materials Inc.

Brush Engineered Materials Inc.
Investors: Michael C. Hasychak, 216-383-6823
Media: Patrick S. Carpenter, 216-383-6835
http://www.beminc.com

Copyright Business Wire 2005

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