Brush Engineered Materials Inc. Reports Sales Up 39% and an EPS of $0.35 for the Second Quarter of 2006; Company Raises the Outlook for the Year

The strong sales growth in the second quarter continued to bedriven by a combination of increased demand from the Company's majormarkets, especially from the consumer electronics related markets,added sales from acquisitions made subsequent to the first quarter ofthe prior year and higher metal prices. Demand in the quarter wasstrong in the magnetic data storage, telecommunications and computer,and industrial component market segments. The growth was also drivenin part by solid performance from new product applications in themagnetic data storage, wireless photonics, handset, semiconductor, oiland gas, heavy equipment and aerospace markets. The 2005 and 2006acquisitions resulted in an additional $8.2 million of sales in thequarter. Approximately 45% or $23.0 million of the year-over-yearsales increase in the quarter was related to higher precious and basemetal prices. Sales growth net of metal prices was approximately 22%.The second quarter was a record sales quarter and the fourteenthconsecutive quarter where sales were higher than the comparablequarter of the prior year.

Gross margin was 21.3% in the quarter, an improvement ofapproximately 1.0 point compared to the first quarter 2006 grossmargin, and an improvement of approximately 2.0 points compared to thefourth quarter of 2005. The improvement in gross margin is driven bythe higher sales volume, profit contribution from the recentacquisitions and operating efficiencies. While gross margin improved,earnings during the quarter continued to be negatively impactedcompared to the prior year by higher base metal prices, primarilycopper. While the portion of sales of our copper-based materials thatinclude a copper price pass through continued to increase during thequarter, the Company was unable to pass through approximately $2.4million of the higher copper costs during the quarter. This negativelyimpacted gross margin percent by 1.3 points.

Income before income taxes was $10.2 million, up $4.4 million orapproximately 76% compared to the same period of last year. A 31.5%tax rate was applied to the second quarter income before income taxesversus 4.3% in the second quarter of 2005. The major differencebetween the two rates is that in 2005 the domestic federal tax expensewas offset by the reversal of a portion of the Company's deferred taxasset valuation allowance. Therefore, the second quarter 2006 earningsper share improvement of $0.06 per share is negatively affected byapproximately $0.08 per share due to the prior year having the lowereffective rate.

For the first six months of the year sales were $354.8 million, up34% compared to the same period of the prior year. Sales growth net ofmetal prices was approximately 22%. The first half net income was$12.2 million or $0.62 diluted per share, up $2.4 million compared tonet income of $9.8 million or $0.51 diluted per share for the firsthalf of 2005. A 31.7% tax rate was applied to the first six months'income before income taxes versus 7.2% for the same period last yearnegatively affecting earnings per share by approximately $0.13 due tothe prior year lower effective rate. On a pre-tax basis, year-to-dateearnings are $17.9 million compared to $10.6 million in the prioryear, an increase of 69%.

BUSINESS SEGMENT REPORTING

Microelectronics Group

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

The Microelectronics Group's sales for the second quarter of 2006were $90.4 million, 61% above second quarter 2005 sales of $56.1million. Sales for the first six months of 2006 were $171.9 million,61% above 2005 first half sales of $107.0 million. Operating profitfor the second quarter was $9.1 million, 90% above the second quarterof 2005. Operating profit year to date was $17.9 million, up $9.4million or more than double the first half 2005 operating profit of$8.5 million.

WAM's 2006 second quarter sales were $82.9 million, 66% abovesecond quarter 2005 sales of $49.8 million. WAM's sales for the firsthalf were $158.3 million, 68% above the same period last year.Approximately 45% of the growth in the second quarter and 33% of thegrowth year to date is due to higher precious metal prices which arepassed through to customers. The remainder of sales growth in thesecond quarter and the first half of 2006 is due to continued strongdemand and new product applications in magnetic data storage, wirelesshandset, photonics and semiconductor markets as well as added salesfrom acquisitions. Subsequent to the first quarter of 2005, WAMacquired OMC Scientific Holdings Limited, Thin Film Technology, Inc.and CERAC, incorporated. These three acquisitions added $8.2 millionor 25% of WAM's sales growth in the second quarter and $17.0 millionor 26% of the growth in the first half of 2006 versus the same periodslast year. WAM continues to make progress on expanding its geographicreach in Europe and Asia.

Electronic Products' second quarter sales were $7.5 million andfirst half sales were $13.6 million, up 19% and 5%, respectively, ascompared to the second quarter and first half of 2005.

Metal Systems Group

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

The Metal Systems Group's second quarter sales were $96.7 million,23% higher than second quarter 2005 sales of $78.5 million.Year-to-date sales of $182.9 million were 16% higher than sales of$158.0 million for the prior year.

The Metal Systems Group had a second quarter operating profit of$2.6 million, down 26% from the second quarter of 2005. The operatingprofit for the first half of 2006 was $4.6 million versus $6.1 millionfor the first half of 2005. Operating profit for the second quarterand the first half as compared to the same periods last year wasnegatively affected by higher base metal costs and SG&A expenses.

Alloy Products' 2006 second quarter sales of $69.0 million andfirst half sales of $129.3 million were up 35% and 25%, respectively,as compared to second quarter sales of $51.1 million and first halfsales of $103.7 million for 2005. A portion of the increase in AlloyProducts' sales was due to higher copper prices while Alloy's marginswere reduced, as all of the higher cost could not be passed through.However, Alloy continues to make progress to increase the portion ofits sales that include the metal price pass through. Over 40% of theAlloy Products' sales growth in the first half was from strong demandin Asia. Strip form products sales grew 27% in the second quarter and19% for the first six months of the year compared to the prior yearparticularly due to strong demand from the telecommunications handsetmarket segment and automotive electronics. Bulk form product saleswere up 46% in the second quarter and 35% year-to-date 2006. Alloybulk products continues to benefit from the acceptance of its newproducts, particularly, ToughMet(R), which grew 56% in the secondquarter and 50% in the first half of the year. Key ToughMetapplications include instrumentation housing for oil and gas productapplications and bushings and bearings in heavy equipment andaircraft. Although order entry has been strong, sales to theautomotive, telecommunications and computer markets are expected to beaffected by the normal third quarter domestic and European seasonalfactors which in turn will be partially offset by new product growth.

TMI's second quarter sales of $18.0 million were up 44% comparedto the second quarter of 2005. Sales of $35.9 million for the firsthalf of 2006 were up 42% compared to the first half of 2005. Thestronger sales growth in the second quarter and the first half hasbeen fueled by strong demand from computer and telecommunications andthe automotive electronics markets. New product growth, including diskdrive arms for computers and energy and medical product applications,has contributed to TMI's strong growth throughout the first half ofthe year.

Beryllium Products' second quarter sales were $9.7 million andfirst half sales were $17.7 million, down 17% and 32%, respectively,compared to the same periods of last year. The decline in sales duringthe second quarter and first half were a result of the absence ofsales of optical mirror materials for NASA's James Webb SpaceTelescope. These materials were delivered under a material supplycontract that was substantially completed in the second quarter of2005. Sales attributed to the Telescope project were $2.6 millionlower in the second quarter 2006 and $8.6 million lower in the firsthalf of 2006 as compared to the same periods of 2005. BerylliumProducts' sales in its other product lines were up 9% in the secondquarter and 3% for the first six months versus the same periods in2005. It is anticipated that sales related to defense will pick up inthe second half of this year.

Brush Resources supplies material input to businesses in the MetalSystems Segment as well as to one external customer. There were noexternal sales in the first half of 2006 versus $3.2 million in thesecond quarter of 2005. It is anticipated that there will be externalsales during the second half totaling slightly less than the 2005external annual sales.

OUTLOOK

Most of our markets have been stronger than expected through thefirst two quarters of the year and we continue to make good progresswith our new products and our efforts to penetrate new markets, bothdomestically and internationally. We are also making good progresswith our initiatives to improve margins and our acquisitions areadding to the growth in profits.

These positive factors are expected to continue throughout thethird quarter and will help to cushion the effect of the normalseasonal factors that usually result in lower revenues in the thirdand fourth quarters of the year relative to the first and secondquarters. At this time, we expect sales for the third quarter to be inthe range of $170.0 to $180.0 million, up approximately 25% to 33%compared to the same quarter of the prior year. Earnings are expectedto be in the range of $0.23 to $0.28 per share.

While we are seeing some overall seasonal softening of demand incertain segments of our markets and our markets are subject tounpredictable short-term effects on demand due to inventory swings, weare optimistic about the balance of the year.

Assuming no change in the factors noted above and no significantchange in overall market conditions, whether driven by macro economicconditions or the uncertainties caused by the conflict in the Mideast,we are raising our outlook for the year. At this time, we expect salesfor the year to be in the range of $690.0 to $710.0 million, upapproximately 28% to 31%. Earnings for the year are now expected to bein the range of $1.09 to $1.17 compared to the previous estimate of$0.95 to $1.10 per share.

CHAIRMAN'S COMMENTS

Commenting on the results, Dick Hipple, Chairman, President andCEO, stated, "I am pleased to report the record sales quarter and thesubstantial improvement in earnings for the second quarter. Wecontinue to be encouraged with the acceptance of our new products inthe marketplace, international growth and opportunity, progress onoperational improvements and our success with niche acquisitions. Welook forward to the continued progress for the remainder of the year."

CONFERENCE CALL

Brush Engineered Materials will conduct a teleconference inconjunction with today's release. The teleconference begins at 2:00p.m. Eastern Time, July 27, 2006. The conference call will beavailable via webcast through the Company's website at www.beminc.comor 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 notstatements of historical or current facts are forward-lookingstatements. Our actual future performance may materially differ fromthat contemplated by the forward-looking statements as a result of avariety of factors. These factors include, in addition to thosementioned 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, magnetic and optical 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 remainder of 2006;

-- Our success in developing and introducing new products and applications;

-- 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., commemorating its 75th year in2006, is headquartered in Cleveland, Ohio. The Company, through itswholly-owned subsidiaries, supplies worldwide markets with berylliumproducts, alloy products, electronic products, precious metalproducts, and engineered material systems.

Brush Engineered Materials Inc.

Digest of Earnings

June 30, 2006


2006 2005
------------- -------------

Second Quarter

Net Sales $187,078,000 $134,651,000

Net Income $ 6,968,000 $ 5,530,000

Share Earnings - Basic $ 0.36 $ 0.29

Average Shares - Basic 19,593,000 19,224,000

Share Earnings - Diluted $ 0.35 $ 0.29

Average Shares - Diluted 19,865,000 19,352,000


Year-to-date

Net Sales $354,801,000 $265,023,000

Net Income $ 12,195,000 $ 9,817,000

Share Earnings - Basic $ 0.63 $ 0.51

Average Shares - Basic 19,428,000 19,211,000

Share Earnings - Diluted $ 0.62 $ 0.51

Average Shares - Diluted 19,680,000 19,374,000



Consolidated Balance Sheets
(Unaudited)

June 30, Dec. 31,
(Dollars in thousands) 2006 2005
----------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 12,591 $ 10,642
Accounts receivable 87,586 69,938
Inventories 131,904 104,060
Prepaid expenses 18,500 14,417
Deferred income taxes 1,137 1,118
--------- ---------
Total current assets 251,718 200,175

Other assets 18,256 8,252
Related-party notes receivable 98 358
Long-term deferred income taxes - 4,109

Property, plant and equipment 556,224 540,420
Less allowances for depreciation,
depletion and impairment 377,005 363,358
--------- ---------
179,219 177,062

Goodwill 15,369 12,746
--------- ---------
$464,660 $402,702
========= =========


Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $ 24,798 $ 23,634
Current portion of long-term debt 632 636
Accounts payable 23,546 20,872
Other liabilities and accrued items 45,208 38,522
Unearned revenue 1,174 254
Income taxes 755 726
--------- ---------
Total current liabilities 96,113 84,644

Other long-term liabilities 7,761 8,202
Retirement and post-employment benefits 68,023 65,290
Deferred income taxes 1,296 172
Long-term debt 53,882 32,916

Shareholders' equity 237,585 211,478
--------- ---------
$464,660 $402,702
========= =========

See notes to consolidated financial statements.



Consolidated Statements of Income
(Unaudited)


(Dollars in
thousands except
share and per Second Quarter Ended First Half Ended
share June 30, July 1, June 30, July 1,
amounts) 2006 2005 2006 2005
----------------------------------------------------------------------

Net sales $ 187,078 $ 134,651 $ 354,801 $ 265,023
Cost of sales 147,259 105,545 280,839 207,340
------------ ------------ ------------ ------------
Gross margin 39,819 29,106 73,962 57,683
Selling, general
and
administrative
expense 27,194 18,933 51,103 37,634
Research and
development
expense 954 1,295 2,035 2,536
Other-net 377 1,453 702 3,664
------------ ------------ ------------ ------------
Operating profit 11,294 7,425 20,122 13,849
Interest
expense 1,125 1,646 2,267 3,268
------------ ------------ ------------ ------------
Income before
income taxes 10,169 5,779 17,855 10,581

Income taxes 3,201 249 5,660 764
------------ ------------ ------------ ------------

Net income $ 6,968 $ 5,530 $ 12,195 $ 9,817
============ ============ ============ ============

Per share of
common stock:
basic $ 0.36 $ 0.29 $ 0.63 $ 0.51

Weighted average
number of common
shares
outstanding 19,593,000 19,224,000 19,428,000 19,211,000


Per share of
common stock:
diluted $ 0.35 $ 0.29 $ 0.62 $ 0.51

Weighted average
number of common
shares
outstanding 19,865,000 19,352,000 19,680,000 19,374,000

See notes to consolidated financial statements.



Consolidated Statements of Cash Flows
(Unaudited)
First Half Ended
June 30, July 1,
(Dollars in thousands) 2006 2005
----------------------------------------------------------------------

Net income $ 12,195 $ 9,817
Adjustments to reconcile
net income to net cash
provided from
(used in) operating activities:
Depreciation, depletion and
amortization 11,818 10,680
Amortization of deferred
financing costs in
interest expense 301 579
Derivative financial instrument
ineffectiveness (426) (94)
Stock-based compensation expense 255 -
Decrease (increase) in accounts
receivable (13,443) (8,785)
Decrease (increase) in inventory (22,190) (7,541)
Decrease (increase) in prepaid
and other current assets (2,972) 1,359
Decrease (increase) in deferred
income taxes 4,383 -
Increase (decrease) in accounts
payable and accrued expenses 4,761 (7,894)
Increase (decrease) in unearned
revenue 920 (7,789)
Increase (decrease) in interest
and taxes payable 773 (1,969)
Increase (decrease) in other
long-term liabilities 2,162 1,348
Other - net 6,579 984
----------------- ----------------
Net cash provided from
(used in) operating
activities 5,116 (9,305)


Cash flows from investing
activities:
Payments for purchase of
property, plant and
equipment (5,978) (4,860)
Payments for mine development (46) -
Purchase of equipment previously
held under operating lease - (448)
Payments for purchase of
business net of cash
received (25,694) (3,982)
Proceeds from sale of property,
plant and equipment - 45
Other investments - net 33 (11)
----------------- ----------------
Net cash used in investing
activities (31,685) (9,256)

Cash flows from financing
activities:
Proceeds from issuance/
(repayment) of short-
term debt 864 (673)
Proceeds from issuance of
long-term debt 26,000 -
Repayment of long-term debt (5,033) (18,607)
Issuance of common stock under
stock option plans 6,960 364
----------------- ----------------
Net cash provided from
(used in) financing
activities 28,791 (18,916)
Effects of exchange rate changes (273) (960)
----------------- ----------------
Net change in cash and
cash equivalents 1,949 (38,437)
Cash and cash equivalents
at beginning of period 10,642 49,643
----------------- ----------------
Cash and cash equivalents
at end of period $ 12,591 $ 11,206
================= ================

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 30, 2006 and December 31, 2005 and the
results of operations for the second quarter and first half ended
June 30, 2006 and July 1, 2005. All of the adjustments were of a
normal and recurring nature.


Note B - Inventories


June 30, Dec. 31,
(Dollars in thousands) 2006 2005
----------------------------------------------------------------------

Principally average cost:
Raw materials and supplies $ 28,539 $ 24,050
Work in process 109,179 88,480
Finished goods 45,412 30,553
--------- ---------
Gross inventories 183,130 143,083

Excess of average cost over LIFO inventory value 51,226 39,023
--------- ---------
Net inventories $131,904 $104,060
========= =========


Note C - Pensions and Other Post-retirement Benefits


Pension Benefits Other Benefits
--------------------- ---------------------
Second Quarter Ended Second Quarter Ended
June 30, July 1, June 30, July 1,
(Dollars in thousands) 2006 2005 2006 2005
---------- -------- ------------ -------


Components of net
periodic benefit
cost

Service cost $ 1,254 $ 1,206 $ 74 $ 64
Interest cost 1,743 1,398 475 493
Expected return on plan
assets (2,079) (2,205) - -
Amortization of prior
service cost (178) (484) (9) (15)
Amortization of net
loss/(gain) 516 425 - (90)
---------- -------- ------------ -------
Net periodic benefit cost $ 1,256 $ 340 $ 540 $ 452
========== ======== ============ =======

Pension Benefits Other Benefits
--------------------- ---------------------
First Half Ended First Half Ended
June 30, July 1, June 30, July 1,
(Dollars in thousands) 2006 2005 2006 2005
---------- -------- ------------ -------

Components of net
periodic benefit
cost

Service cost $ 2,507 $ 2,374 $ 148 $ 150
Interest cost 3,485 3,231 951 1,122
Expected return on plan
assets (4,157) (4,377) - -
Amortization of prior
service cost (356) (337) (18) (43)
Amortization of net
loss/(gain) 1,033 642 - -
---------- -------- ------------ -------
Net periodic benefit cost $ 2,512 $ 1,533 $ 1,081 $1,229
========== ======== ============ =======


The Company amended its domestic defined benefit pension plan
effective in the second quarter 2005. The amendment revised the
pension benefit payout formula for the majority of the plan
participants and various other aspects of the plan as well. The
amendment was deemed to be a significant event and therefore the plan
assets, liabilities and net periodic cost were remeasured in
accordance with Statement No. 87, "Employers' Accounting for
Pensions". As part of the remeasurement process, management reviewed
the key valuation assumptions and made adjustments as warranted.
As a result of the remeasurement, the prior service cost asset of
$5.0 million, previously recorded in other assets on the consolidated
balance sheet, was charged off against other comprehensive income, a
component of shareholders' equity. The minimum pension liability,
which is included in retirement and post-employment benefits on the
consolidated balance sheet, increased $6.1 million as a result of the
remeasurement, primarily due to the lower discount rate and the change
in asset values. The increase to the minimum pension liability was
also charged against other comprehensive income.



Notes to Consolidated Financial Statements
(Unaudited)


Note D - Comprehensive Income (Loss)

The reconciliation between net income and comprehensive income (loss)
for the second quarter and first half ended June 30, 2006 and
July 1, 2005 is as follows:


Second Quarter Ended First Half Ended
June 30, July 1, June 30, July 1,
(Dollars in thousands) 2006 2005 2006 2005
----------------------------------------------------------------------

Net income $ 6,968 $ 5,530 $12,195 $ 9,817

Cumulative translation
adjustment 383 (123) 490 (997)

Change in the fair value of
derivative
financial instruments 4,319 2,389 5,765 5,649

Minimum pension liability - (11,138) - (11,138)
--------- ----------- -------- ---------

Comprehensive income (loss) $ 11,670 $ (3,342) $18,450 $ 3,331
========= =========== ======== =========


The $11.1 million charge to comprehensive loss in the second quarter
2005 for the minimum pension liability resulted from the remeasurement
of the domestic defined benefit pension plan as described in Note C to
the Consolidated Financial Statements.


Note E - Segment Reporting


(Dollars in Metal Micro- Total All
thousands) Systems Electronics Segments Other Total
----------------------------------------------------------------------
Second Quarter 2006
--------------------
Revenues from
external
customers $ 96,684 $ 90,394 $187,078 $ - $187,078

Intersegment
revenues 1,102 737 1,839 - 1,839

Operating profit
(loss) 2,562 9,144 11,706 (412) 11,294


Second Quarter 2005
--------------------
Revenues from
external
customers $ 78,503 $ 56,148 $134,651 $ - $134,651

Intersegment
revenues 630 543 1,173 - 1,173

Operating profit
(loss) 3,490 4,766 8,256 (831) 7,425


First Half 2006
--------------------
Revenues from
external
customers $182,893 $ 171,908 $354,801 $ - $354,801

Intersegment
revenues 2,040 1,368 3,408 - 3,408

Operating profit
(loss) 4,600 17,887 22,487 (2,365) 20,122


First Half 2005
--------------------
Revenues from
external
customers $157,984 $ 107,039 $265,023 $ - $265,023

Intersegment
revenues 1,221 773 1,994 - 1,994

Operating profit
(loss) 6,108 8,462 14,570 (721) 13,849