Press Release Details

Brush Engineered Materials Inc. Reports Sales of $233.6 Million, Up 25%, and EPS of $0.38 for the Second Quarter of 2007

August 3, 2007

CLEVELAND, Aug 03, 2007 (BUSINESS WIRE) --

Brush Engineered Materials Inc. (NYSE:BW) today reported second quarter 2007 sales of $233.6 million, up $46.5 million, or 25%, compared to the second quarter of 2006. Net income for the second quarter was $7.9 million or $0.38 per share, diluted, compared to net income of $7.0 million or $0.35 per share, diluted, for the same quarter of the prior year.

Included in the results for the quarter was a charge of approximately $0.15 per share related to an isolated production ramp up quality issue with a new product, which has since been resolved. In addition, a significant decline in the market price of ruthenium occurred in the quarter leading to a non-cash lower of cost or market inventory charge of approximately $0.13 per share. Helping to offset the impact of the above two charges was an expected margin benefit of approximately $0.14 per share related to the sale of ruthenium inventory that was in the production system at the beginning of the year. These three factors combined, negatively affected earnings by approximately $4.3 million pretax or $0.14 per share after tax.

Second quarter sales were the second highest quarterly sales in the Company's history and the eighteenth consecutive quarter where sales were higher than the comparable quarter of the prior year. This sales growth was driven largely by stronger demand from the data storage market for the Company's new hard disk drive materials, growth in sales to the defense market, improved pricing and the pass through of higher precious metal prices. Metal prices accounted for approximately 3% of the sales increase in the quarter. The Company's organic sales growth was approximately 22%. International sales were 42% of total sales in the second quarter versus 33% for the second quarter of 2006. Most of the international growth was in Asia where the Company has continued to expand its presence in China, Japan, Korea and Singapore.

Gross margin as a percent of sales for the second quarter of 2007 was 18% versus 21% of sales for the second quarter of 2006. The isolated ramp up quality issue, lower cost of market inventory charge and the expected margin benefit related to the sale of ruthenium inventory, all noted above, combined to reduce margins by $4.3 million or approximately 2% of sales in the second quarter. In addition, the sales mix in the quarter and lower production in the Specialty Engineered Alloys segment negatively affected gross margins compared to the prior year.

Operating profit in the second quarter was $12.6 million or 5.4% of sales compared to $11.3 million or 6% of sales in the second quarter of 2006. The three items noted above that total $4.3 million, negatively affected operating profit as a percent of sales by 1.8 percentage points.

For the first six months of the year, sales were a record $483.9 million, up $129.1 million, or 36%, compared to the same period of the prior year. Sales growth net of metal prices was approximately 31%. The first half net income was $31.1 million or $1.50 diluted per share, up $18.9 million compared to net income of $12.2 million or $0.62 diluted per share for the first half of 2006.

BUSINESS SEGMENT REPORTING

Beginning with the fourth quarter of 2006, the Company changed its segment reporting to more closely align with the way the business is currently managed. Prior-year results have been adjusted for each segment to reflect the change.

Advanced Material Technologies and Services

The Advanced Material Technologies and Services segment consists of Williams Advanced Materials Inc. (WAM).

The Advanced Material Technologies and Services' segment sales for the second quarter of 2007 were up 46% to $121.3 million compared to $82.9 million in the second quarter of the prior year. Sales for the first six months of 2007 were $264.9 million, 67% above 2006 first half sales of $158.3 million. Precious metal prices accounted for approximately 8% of the sales growth in the second quarter and 10% in the first half. Operating profit for the second quarter was $4.9 million versus $9.6 million for the second quarter of 2006. Operating profit year to date was $36.8 million, up $18.2 million over the same period last year.

The strong sales growth in the second quarter and first half was driven primarily by demand for WAM's new ruthenium-based magnetic media materials targeted for the data storage market. In addition, wireless telecommunications and photonics product applications also contributed to the strong sales growth throughout the first half of the year. As previously announced, WAM is in the process of expanding its Brewster, New York facility to support the growth of the data storage market and the related perpendicular magnetic recording opportunity. This facility is now operational and is in the ramp up stage of operation. New market segments related to energy, medical and new electronics devices continue to offer opportunities for the core product portfolio at WAM. In addition WAM continues to expand its geographic reach into Asia and Eastern Europe to support its critical customers and new markets. WAM recently announced the opening of a new wholly-owned subsidiary in the Czech Republic to provide manufacturing, distribution and chamber services for the central European markets. WAM is also in the process of constructing a new manufacturing facility in China.

Operating profit during the second quarter was negatively impacted by approximately $8.8 million due to the isolated ramp up quality issue of a new product and the lower cost of market charge related to ruthenium inventory noted above. The quality issue has been resolved and WAM has resumed shipping product. Operating profit during the second quarter was favorably affected by approximately $4.5 million from the margin benefit related to the sale of the ruthenium inventory that was in the production system at the beginning of the year.

Specialty Engineered Alloys

The Specialty Engineered Alloys segment consists of Alloy Products which includes bulk and strip form copper-based alloy products, hydroxide and the Company's line of ToughMet(R) materials.

Specialty Engineered Alloys' sales for the second quarter were $75.5 million, up approximately 10%, or $6.6 million, compared to the second quarter 2006 sales of $69.0 million. Year-to-date sales of $145.9 million were up $16.5 million or 13% higher than sales of $129.4 million in the first half of 2006. Operating profit for the second quarter was $1.4 million versus $1.5 million for the second quarter of 2006. Operating profit of $6.7 million for the first half of 2007 was $4.8 million higher than the first half 2006 operating profit of $1.9 million.

The increase in sales in the second quarter and first half is due to higher selling prices from the increased percentage of sales subject to the pass through of current base metal prices, particularly copper, favorable product mix and the sale of hydroxide. Alloy Products has continued strong demand from the North American oil and gas and aerospace markets, and strong European sales across all market segments. New products such as ToughMet continue to find their way into new application opportunities. The wireless handset market remained weaker throughout the first half due to customer inventory builds.

Operating profit benefited from a favorable product mix and higher prices associated with the pass through of base metal costs.

Beryllium and Beryllium Composites

The Beryllium and Beryllium Composites segment consists of Beryllium Products including beryllia ceramic manufactured by Brush Ceramic Products Inc.

Beryllium and Beryllium Composites' sales for the second quarter of 2007 was $16.5 million, up 29% or $3.7 million compared to the second quarter of 2006. Year-to-date sales of $31.7 million were up $8.5 million or 37% higher than the same period last year. Operating profit for the second quarter was $2.4 million, up $1.5 million versus $0.9 million for the second quarter of 2006. Operating profit for the first six months of 2007 was $4.6 million, up $3.5 million above operating profit of $1.1 million for the first half of 2006.

The Beryllium and Beryllium Composites double-digit sales growth for both the second quarter and first half of the year has been fueled by demand for defense and medical and industrial x-ray product applications. Also, sales for acoustic speaker applications contributed to the sales growth. Defense sales of AlBeMet(R) materials continued to show strength throughout the second quarter driven by tactical optics (including FLIR systems), airborne electronics and space systems.

The improvement in operating profit is due to the increase in sales volume.

Engineered Material Systems

The Engineered Material Systems segment is comprised of Technical Materials, Inc. (TMI).

Engineered Material Systems' sales for the second quarter of 2007 were $16.9 million, $1.1 million below the second quarter 2006 sales of $18.0 million. Sales for the first six months of 2007 were $33.6 million, down $2.3 million versus the first half sales of 2006. Operating profit in the second quarter was $0.7 million compared to an operating profit of $1.2 million for the second quarter of 2006. Operating profit for the first six months of 2007 was $1.3 million versus $2.6 million for the first half of 2006.

The decline in TMI sales for both the second quarter and first half of the year is due to softer demand from the automotive electronics market offset in part by strength from the new disk drive materials. New products accounted for 28% of TMI sales in the second quarter of 2007. The sales order entry rate strengthened late in the second quarter.

Lower volume and unfavorable product mix negatively affected operating profit for both the second quarter and first half.

OUTLOOK

Beginning in the first quarter of the year, the Company operated within softer than expected market conditions in automotive and certain segments of consumer electronics. These conditions continued into the second quarter and inventory corrections in these markets negatively affected demand. While the second quarter was weaker than expected, due largely to these same factors, as well as a weaker media market and the factors identified that should not recur, the Company remains optimistic about the balance of the year.

The Company is currently seeing improvement in conditions in the markets that were weaker earlier and, while cautious, expects this momentum, plus the continued ramp up in demand for the new ruthenium-based media materials to help overcome the effect of the normal seasonal factors that can lead to lower revenues in the third and fourth quarters of the year compared to the first and second quarters. The improvement in market conditions and the continued ramp up of media materials are currently expected to lead to a sequential improvement in sales as the year progresses. Based on this, the Company at this time expects sales for the third quarter to be in the $240.0 to $250.0 million range, up approximately 20% to 25% compared to same quarter of the prior year. Earnings are expected to be in the range of $0.45 to $0.55 per share.

It is important to continue to reiterate that the Company's sales and earnings estimates are subject to significant variability, such as that demonstrated in the most recent quarter. Metal prices and supply conditions as well as fluctuations in demand levels driven by inventory swings in the market, and new product ramp up rates in critical markets such as the media market can each have a significant effect on actual results. The outlook for the quarter is based on the Company's best estimates at this time and are subject to significant fluctuations due to these factors.

CHAIRMAN'S COMMENTS

Commenting on the results, Dick Hipple, Chairman, President and CEO, stated "I am disappointed by the market conditions and operating performance that led to the weaker than expected results in the second quarter, however I am confident that internally we have taken the appropriate corrective operational actions and performance will be on track for the second half of the year. I am encouraged with the continued double-digit sales growth and the strong increase in international sales that we have experienced during the first half of 2007. We are well positioned with our recently completed Brewster, New York facility expansion to accommodate the anticipated future growth in the disk drive media market. We have continued to invest in Asia and Europe to broaden our geographic reach and are actively introducing new products and services to grow existing and new markets."

CONFERENCE CALL

Brush Engineered Materials will conduct a teleconference in conjunction with today's release. The teleconference begins at 1:00 p.m. Eastern Time, August 3, 2007. The conference call will be available via webcast through the Company's website at www.beminc.com or through www.InvestorCalendar.com. By phone, please dial (877) 407-0782, callers outside the U.S. can dial (201) 689-8567.

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. Our 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 herein:

-- The global and domestic economies;

-- The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments being telecommunications and computer, data storage, aerospace and defense, automotive electronics, industrial components and appliance;

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

-- Actual sales, operating rates and margins for the year 2007;

-- Our success in developing and introducing new products and new product ramp up rates, including the actual ramp up of the perpendicular media market;

-- Our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values;

-- Our success in integrating newly acquired businesses;

-- Our success in implementing our 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 and other employee benefit 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 our obligations; and

-- The conclusion of pending litigation matters in accordance with our 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

                            June 29, 2007


                                                 2007         2006
                                             ------------ ------------

Second Quarter

   Net Sales                                 $233,563,000 $187,078,000

   Net Income                                  $7,939,000   $6,968,000

   Share Earnings - Basic                           $0.39        $0.36

   Average Shares - Basic                      20,351,000   19,593,000

   Share Earnings - Diluted                         $0.38        $0.35

   Average Shares - Diluted                    20,736,000   19,865,000


Year-to-date

   Net Sales                                 $483,877,000 $354,801,000

   Net Income                                 $31,053,000  $12,195,000

   Share Earnings - Basic                           $1.53        $0.63

   Average Shares - Basic                      20,254,000   19,428,000

   Share Earnings - Diluted                         $1.50        $0.62

   Average Shares - Diluted                    20,709,000   19,680,000

Consolidated Balance Sheets
(Unaudited)

                                                     June 29, Dec. 31,
(Dollars in thousands)                                 2007     2006
----------------------------------------------------------------------
Assets
Current assets
   Cash and cash equivalents                          $12,074  $15,644
   Accounts receivable                                114,097   86,461
   Inventories                                        163,192  151,950
   Prepaid expenses                                    15,262   13,988
   Deferred income taxes                                3,255    3,541
                                                     -------- --------
        Total current assets                          307,880  271,584

Other assets                                           12,886   13,577
Related-party notes receivable                             98       98
Long-term deferred income taxes                         9,785   15,575

Property, plant and equipment                         569,298  557,861
   Less allowances for depreciation,
     depletion and amortization                       388,142  381,932
                                                     -------- --------
                                                      181,156  175,929

Goodwill                                               21,782   21,843
                                                     -------- --------
                                                     $533,587 $498,606
                                                     ======== ========


Liabilities and Shareholders' Equity
Current liabilities
   Short-term debt                                    $30,718  $28,076
   Current portion of long-term debt                      631      632
   Accounts payable                                    37,340   30,744
   Other liabilities and accrued items                 51,471   52,161
   Unearned revenue                                     1,683      314
   Income taxes                                         3,696    4,515
                                                     -------- --------
        Total current liabilities                     125,539  116,442

Other long-term liabilities                             9,515   11,642
Retirement and post-employment benefits                57,251   59,089
Long-term income taxes                                  4,331        -
Deferred income taxes                                     128      151
Long-term debt                                         10,246   20,282

Shareholders' equity                                  326,577  291,000
                                                     -------- --------
                                                     $533,587 $498,606
                                                     ======== ========


See notes to consolidated financial statements.

Consolidated Statements of Income
(Unaudited)

                           Second Quarter Ended    First Half Ended
                            June 29,   June 30,   June 29,   June 30,
(Dollars in thousands         2007       2006       2007       2006
 except share and per share
 amounts)
------------------------------------------------ ---------------------

Net sales                    $233,563   $187,078   $483,877   $354,801
     Cost of sales            191,782    147,259    372,712    280,839
                           ---------- ---------- ---------- ----------
Gross margin                   41,781     39,819    111,165     73,962
     Selling, general and
      administrative
      expense                  26,564     27,194     55,234     51,103
     Research and
      development expense       1,275        954      2,601      2,035
     Other-net                  1,325        377      3,858        702
                           ---------- ---------- ---------- ----------
Operating profit               12,617     11,294     49,472     20,122
     Interest expense             571      1,125      1,254      2,267
                           ---------- ---------- ---------- ----------
Income before income taxes     12,046     10,169     48,218     17,855

     Income taxes               4,107      3,201     17,165      5,660
                           ---------- ---------- ---------- ----------

Net income                     $7,939     $6,968    $31,053    $12,195
                           ========== ========== ========== ==========

Per share of common stock:
 basic                          $0.39      $0.36      $1.53      $0.63

Weighted average number of
 common shares outstanding 20,351,000 19,593,000 20,254,000 19,428,000


Per share of common stock:
 diluted                        $0.38      $0.35      $1.50      $0.62

Weighted average number of
 common shares outstanding 20,736,000 19,865,000 20,709,000 19,680,000


See notes to consolidated financial statements.

Consolidated Statements of Cash Flows
(Unaudited)
                                                     First Half Ended
                                                     June 29, June 30,
(Dollars in thousands)                                 2007     2006
----------------------------------------------------------------------

Net income                                           $31,053  $12,195
Adjustments to reconcile net income to net cash
 used in operating activities:
  Depreciation, depletion and amortization            11,928   11,818
  Amortization of deferred financing costs in
   interest expense                                      215      301
  Derivative financial instrument ineffectiveness        (72)    (426)
  Stock-based compensation expense                     1,932      696
  Decrease (increase) in accounts receivable         (27,752) (13,443)
  Decrease (increase) in inventory                   (12,859) (22,190)
  Decrease (increase) in prepaid and other current
   assets                                               (999)  (2,972)
  Decrease (increase) in deferred income taxes        (3,672)   4,383
  Increase (decrease) in accounts payable and
   accrued expenses                                    2,069    4,761
  Increase (decrease) in unearned revenue              1,369      920
  Increase (decrease) in interest and taxes payable    7,960      773
  Increase (decrease) in other long-term
   liabilities                                           478    2,162
  Other - net                                           (202)   6,138
                                                     -------- --------
                    Net cash provided from
                     operating activities             11,448    5,116


Cash flows from investing activities:
  Payments for purchase of property, plant and
   equipment                                         (11,156)  (5,978)
  Payments for mine development                       (6,195)     (46)
  Payments for purchase of business net of cash
   received                                                -  (25,694)
  Proceeds from sale of business                       2,150        -
  Proceeds from sale of property, plant and
   equipment                                              51        -
  Other investments - net                                 42       33
                                                     -------- --------
                    Net cash used in investing
                     activities                      (15,108) (31,685)

Cash flows from financing activities:
  Proceeds from issuance (repayment) of short-term
   debt                                                2,591      864
  Proceeds from issuance of long-term debt            15,747   26,000
  Repayment of long-term debt                        (25,793)  (5,033)
  Issuance of common stock under stock option plans    4,864    6,960
  Tax benefit from exercise of stock options           2,716        -
                                                     -------- --------
                    Net cash provided from
                     financing activities                125   28,791
Effects of exchange rate changes                         (35)    (273)
                                                     -------- --------
                    Net change in cash and cash
                     equivalents                      (3,570)   1,949
                    Cash and cash equivalents at
                     beginning of period              15,644   10,642
                                                     -------- --------
                    Cash and cash equivalents at
                     end of period                   $12,074  $12,591
                                                     ======== ========


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 June 29, 2007 and December 31, 2006 and the
 results of operations for the second quarter and first half ended
 June 29, 2007 and June 30, 2006. All of the adjustments were of a
 normal and recurring nature.


Note B - Inventories

                                                   June 29,  Dec. 31,
(Dollars in thousands)                               2007      2006
----------------------------------------------------------------------

Principally average cost:
  Raw materials and supplies                        $35,214   $36,390
  Work in process                                   138,472   124,670
  Finished goods                                     51,333    56,721
                                                   --------- ---------
     Gross inventories                              225,019   217,781

Excess of average cost over LIFO inventory value     61,827    65,831
                                                   --------- ---------
   Net inventories                                 $163,192  $151,950
                                                   ========= =========




Note C - Pensions and Other Post-retirement Benefits

                                Pension Benefits     Other Benefits
                               ------------------- -------------------
                                  Second Quarter     Second Quarter
                                       Ended              Ended
                                June 29,  June 30, June 29,  June 30,
(Dollars in thousands)            2007      2006     2007      2006
                               ---------- -------- --------- ---------

Components of net periodic benefit cost

Service cost                      $1,161   $1,254       $75       $74
Interest cost                      1,851    1,743       477       475
Expected return on plan assets    (2,156)  (2,079)        -         -
Amortization of prior service
 cost                               (164)    (178)       (9)       (9)
Amortization of net loss/(gain)      436      516         -         -
                               ---------- -------- --------- ---------
Net periodic benefit cost         $1,128   $1,256      $543      $540
                               ========== ======== ========= =========

                                Pension Benefits     Other Benefits
                               ------------------- -------------------
                                First Half Ended    First Half Ended
                                June 29,  June 30, June 29,  June 30,
(Dollars in thousands)            2007      2006     2007      2006
                               ---------- -------- --------- ---------

Components of net periodic benefit cost

Service cost                      $2,314   $2,507      $150      $148
Interest cost                      3,689    3,485       955       951
Expected return on plan assets    (4,297)  (4,157)        -         -
Amortization of prior service
 cost                               (327)    (356)      (18)      (18)
Amortization of net loss/(gain)      869    1,033         -         -
                               ---------- -------- --------- ---------
Net periodic benefit cost         $2,248   $2,512    $1,087    $1,081
                               ========== ======== ========= =========

Notes to Consolidated Financial Statements
(Unaudited)


Note D - Segment Reporting

 Beginning in the fourth quarter 2006 and due largely because the
  Company has a new chief operating decision maker, the operating
  segments will no longer be aggregated and the Company will report
  its four material segments separately. WAM is reported as Advanced
  Material Technologies and Services, Alloy Products reported as
  Specialty Engineered Alloys, Beryllium Products is now Beryllium and
  Beryllium Composites and Technical Materials Inc. is Engineered
  Material Systems. Brush Ceramic Products, a wholly owned subsidiary
  that formerly was part of Electronic Products, has been merged into
  Beryllium and Beryllium Composites. The remaining portions of
  Electronic Products, due to their insignificance, are reported in
  the reconciling All Other column in the table below.


(Dollars in thousands)            Advanced                 Beryllium
                                  Material     Specialty      and
                                 Technologies Engineered   Beryllium
                                 and Services   Alloys     Composites
----------------------------------------------------------------------
 Second Quarter 2007
-------------------------------
 Revenues from external
  customers                         $121,277   $ 75,546       $16,480

 Intersegment revenues                 1,172       (381)          236

 Operating profit                      4,855      1,390         2,425


 Second Quarter 2006
-------------------------------
 Revenues from external
  customers                         $ 82,880   $ 68,954       $12,745

 Intersegment revenues                 1,140        608           193

 Operating profit (loss)               9,635      1,468           947


 First Half 2007
------------------------------
 Revenues from external
  customers                         $264,934   $145,910       $31,658

 Intersegment revenues                 2,473      3,068           543

 Operating profit                     36,830      6,692         4,558

 Assets                              187,819    237,841        37,891


 First Half 2006
------------------------------
 Revenues from external
  customers                         $158,285   $129,364       $23,142

 Intersegment revenues                 2,071      3,290           362

 Operating profit (loss)              18,592      1,946         1,097

 Assets                              132,534    228,041        32,786

(Dollars in thousands)           Engineered
                                  Material             All
                                  Systems   Subtotal  Other    Total
----------------------------------------------------------------------
 Second Quarter 2007
--------------------------------
 Revenues from external customers   $16,864 $230,167 $ 3,396  $233,563

 Intersegment revenues                  675    1,702      12     1,714

 Operating profit                       726    9,396   3,221    12,617


 Second Quarter 2006
--------------------------------
 Revenues from external customers   $18,018 $182,597 $ 4,481  $187,078

 Intersegment revenues                  946    2,887       1     2,888

 Operating profit (loss)              1,164   13,214  (1,920)   11,294


 First Half 2007
-------------------------------
 Revenues from external customers   $33,613 $476,115 $ 7,762  $483,877

 Intersegment revenues                1,465    7,549      12     7,561

 Operating profit                     1,306   49,386      86    49,472

 Assets                              27,136  490,687  42,900   533,587


 First Half 2006
-------------------------------
 Revenues from external customers   $35,938 $346,729 $ 8,072  $354,801

 Intersegment revenues                1,393    7,116       2     7,118

 Operating profit (loss)              2,564   24,199  (4,077)   20,122

 Assets                              29,172  422,533  42,127   464,660

SOURCE: Brush Engineered Materials Inc.

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

Copyright Business Wire 2007

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