Brush Engineered Materials Inc. (Brush) has reported net sales of $909.7 million for the year-end 2008, down 5%, compared with the net sales of $955.7 billion in the previous year-end. It has also reported a net income of $18.9 million, or $0.92 per diluted share, for the year-end 2008, compared with the net income of $53.3 million, or $2.59 per diluted share, in the previous year-end.

The sales for the quarter were $196.3 million. In the quarter, the company recorded a non-cash charge of $9.2 million pre-tax or about $0.30 per share after tax. The charge is related to an unprecedented decline in the market price of a key raw material. Including the charge, the company reported a net loss of $2.8 million or $0.14 per share diluted for the quarter. Excluding the charge, the operating run rate for the quarter was $0.16 per share, ahead of analyst expectations.

Fourth Quarter And 2008 Results:

Sales for the fourth quarter were $196.3 million, down 19% or $44.6 million, compared to fourth quarter 2007 sales of $240.9 million. Lower shipments of the company’s ruthenium-based materials for the media market negatively affected sales for the quarter by $26.7 million or 11% compared to the fourth quarter of the prior year. The lower shipments to the media market negatively affected sales for the year by $141.8 million or 15%. Stronger sales to the wireless photonics, medical, thin film services, solar, photovoltaic, undersea and oil and gas markets helped to offset the significant decline in media sales.

The reported net loss for the quarter was $2.8 million or $0.14 per share, which includes the aforementioned $9.2 million pre-tax or $0.30 per share after-tax charge. Net income for the fourth quarter of 2007 was $12.3 million or $0.60 per share. The fourth quarter of 2007 included the favorable settlement of a lawsuit resulting in an $8.7 million pre-tax gain or $0.27 per share.

The decline in net income as compared to the prior quarter and year is primarily due to the significant decline in sales of ruthenium-based materials to the media market.

Results for both 2008 and 2007 were affected by significant changes in the market price of ruthenium, a key raw material used in the production of the company’s products for the media market. The net income for 2008 was negatively impacted by a significant decline in the market price of ruthenium, which resulted in a non-cash charge of about $15.0 million pre-tax or $0.50 per share after tax. The prior year net income was favorably impacted by a significant increase in the market price of ruthenium that had been purchased earlier at a much lower price resulting in a cash and Income Statement benefit of about $23.0 million pre-tax or $0.70 per share after tax.

Balance Sheet:

The company’s balance sheet continued to strengthen in the quarter as cash flow from operations during the quarter remained strong. Debt, net of cash, decreased by $27.9 million in the quarter. Following an increase in debt in the first quarter of 2008 to support the $87.5 million acquisition of Techni-Met, Inc., cash generated in the second, third and fourth quarters of the year resulted in only a $6.3 million debt increase for the year. The company’s debt, net of cash, to capital ratio at the end of the fourth quarter was about 6%. The company has a $240.0 million revolving line of credit, of which $2.0 million in cash and $26.0 million in letters of credit were outstanding at December 31, 2008. The company is well positioned with its strong balance sheet and revolver capacity to operate in this severe economic environment and to take advantage of strategic opportunities as they arise.

Business Segment Reporting:

Advanced Material Technologies and Services:

The Advanced Material Technologies and Services’ segment sales for the fourth quarter of 2008 were $94.9 million compared to $136.9 million in the fourth quarter of the prior year. Sales for 2008 were $466.4 million compared to 2007 sales of $519.9 million. Operating loss for the fourth quarter was $6.4 million compared to an operating profit of $10.3 million for the fourth quarter of 2007. Operating profit for the year was $11.3 million, compared to $59.4 million for the same period last year.

The weaker sales throughout 2008 were driven primarily by lower sales of ruthenium-based perpendicular media materials for the data storage market. Sales for wireless photonics, LED’s, thin film, solar, photovoltaic and medical product applications helped offset the softer sales in media. In February of 2008, Williams Advanced Materials Inc. purchased the assets of Techni-Met, Inc. which supplies a wide range of high-end medical applications including the development of more accurate diagnostic devices for diabetes management. This acquisition, which was accretive in 2008, is making a significant contribution to the growth of our sales to the medical market. Although good progress continued to be made in the fourth quarter in the ongoing efforts to qualify materials for magnetic media applications, demand for media slowed as the economic downturn worsened, which in turn has also slowed the qualification process and ramp-up of our materials.

The operating loss for the fourth quarter was due primarily to the $9.2 million non-cash charge related to the adjustment for the carrying value of ruthenium owned by the company. The operating profit for the year was negatively impacted by the above charge and the loss of media sales as compared to 2007. Advanced Material Technologies and Services has taken actions to reduce 2009 overhead expense including a reduction of about 5% of the workforce.

Specialty Engineered Alloys:

Specialty Engineered Alloys’ sales for the fourth quarter were $68.0 million, down 3% compared to the fourth quarter 2007 sales of $69.7 million. Sales for 2008 of $299.9 million were up $9.9 million or 3% higher than sales of $290.0 million for 2007. The operating loss for the fourth quarter was $1.9 million versus an operating loss of $1.7 million for the fourth quarter of 2007. Operating profit for 2008 was $5.6 million compared to $7.6 million for 2007.

The increase in sales for the year 2008 is due primarily to higher selling prices, the pass through of higher base metal prices, particularly copper passed through to customers and a favorable translation effect of foreign sales. Specialty Engineered Alloys experienced strong demand from the oil and gas, aerospace, heavy equipment undersea and telecommunications infrastructure markets for the first half of the year. New products including ToughMet(R) continued to find their way into new application opportunities particularly in aerospace, oil and gas and heavy equipment markets. This strength, however, began to slow down toward the end of the third quarter and into the fourth quarter of 2008. Sales, particularly in consumer electronics and automotive, have been impacted by the severe economic downturn. Specialty Engineered Alloys also experienced a slowdown in the aerospace, heavy equipment and oil and gas markets during the fourth quarter.

The fourth quarter operating loss in this segment was due to lower sales and production levels. Specialty Engineered Alloys implemented cost reduction initiatives in the fourth quarter of 2008 and first quarter 2009 including a reduction in employment of about 15% of the workforce and other reductions in cost.

Richard Hipple, chairman, president and chief executive officer, said, While the recession is significantly impacting our customers and thus our demand globally, I am pleased with the fast response of the company’s leadership. The weakness in our markets was identified early and the appropriate contingency actions were taken expeditiously. We will continue to focus on both the top and bottom line as we navigate through these challenging times. The company today is in far better condition than in the period before the last significant recession with a strong balance sheet, more diverse markets, a broader geographic footprint, many new products and several new market opportunities. We are committed to leveraging our strengths and emerging from the current economic environment poised to take advantage of the opportunities that will be then before us.