BRUSH ENGINEERED MATERIALS INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period
from ________________ to ________________

Commission file number 1-15885

BRUSH ENGINEERED MATERIALS INC.
(Exact name of Registrant as specified in its charter)

OHIO 34-1919973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17876 ST. CLAIR AVENUE, CLEVELAND, OHIO 44110
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 216-486-4200

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------- ---------------------------------------------
Common Stock, no par value New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filed (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of Common Stock, no par value, held by
non-affiliates of the registrant (based upon the closing sale price on the New
York Stock Exchange) on June 27, 2003 was approximately $128,990,068.

As of March 5, 2004, there were 16,711,853 shares of Common Stock, no par
value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual report to shareholders for the year ended December
31, 2003 are incorporated by reference into Parts I, II and IV. Portions of the
proxy statement for the annual meeting of shareholders to be held on May 4, 2004
are incorporated by reference into Part III.

BRUSH ENGINEERED MATERIALS INC.

Index to Annual Report
On Form 10-K for
Year Ended December 31, 2003

PART I

Item 1. Business.................................................... 1

Item 2. Properties.................................................. 5

Item 3. Legal Proceedings........................................... 6

Item 4. Submission of Matters to a Vote of Security Holders......... 7

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 8

Item 6. Selected Financial Data..................................... 8

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 8

Item 8. Financial Statements and Supplementary Data................. 8

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 9

Item 9A. Controls and Procedures..................................... 9

PART III

Item 10. Directors and Executive Officers of the Registrant.......... 10

Item 11. Executive Compensation...................................... 10

Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 10

Item 13 Certain Relationships and Related Transactions.............. 10

Item 14. Principal Accounting Fees and Services...................... 10

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 11

Signatures.................................................. 16

PART I

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 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 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 and the cost and
availability of insurance;

- The uncertainties concerning the impact resulting from 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.

ITEM 1. BUSINESS

Brush Engineered Materials Inc., through its wholly owned subsidiaries, is
a leading manufacturer of high-performance engineered materials serving the
global telecommunications and computer, optical media, automotive electronics,
industrial components, aerospace and defense and appliance markets. As of
December 31, 2003 the Company had 1,833 employees.

The Company's subsidiaries are organized under two reportable segments: the
Metal Systems Group and the Microelectronics Group. The Metal Systems Group
includes Brush Wellman Inc. (Alloy Products and Beryllium Products) and
Technical Materials, Inc. (TMI). The Microelectronics Group includes Williams
Advanced Materials Inc. (WAM) and Electronic Products, which in turn, consists
of Zentrix Technologies Inc. (Zentrix) and Brush Ceramic Products Inc. (a wholly
owned subsidiary of Brush Wellman Inc.). Portions of Brush International, Inc.
are included in both segments. Included in "All Other" in the Company's
financial statements included later in this Form 10-K are the operating results
from BEM Services, Inc. and Brush Resources Inc., two wholly owned subsidiaries
of the Company. BEM Services charges a management fee for services, such as
administrative and financial oversight, to the other businesses within the
Company on a cost-plus basis. Brush Resources sells beryllium hydroxide produced
through its Utah operations to outside customers and to businesses within the
Metal Systems Group. As of December 31, 2003 BEM Services, Inc. and Brush
Resources Inc. had 156 employees.

METAL SYSTEMS GROUP

The Metal Systems Group is comprised of Alloy Products (primarily copper
beryllium), Beryllium Products and TMI. In 2003, 60% of the Company's sales were
from this segment (61% in 2002 and 63% in 2001). As of December 31, 2003 the
Metal Systems Group had 1,125 employees.

Alloy Products, the largest unit within the Company and this segment,
manufactures and sells copper and nickel-based alloy systems, the majority of
which also contains beryllium. These products are metallurgically tailored to
meet specific customer performance requirements. Copper beryllium alloys exhibit
high electrical and thermal conductivities, high strength and hardness, good
formability and excellent resistance to corrosion,

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wear and fatigue. These alloys, sold in strip and bulk form, are ideal choices
for demanding applications in the telecommunications and computer, automotive
electronics, aerospace, oil exploration, undersea housing for telecommunications
equipment, bushings, bearings, appliances and plastic mold tooling markets.
Alloy Products also manufactures non-beryllium-containing alloys including
Toughmet(R), a copper-nickel tin alloy. These alloys are corrosion and wear
resistant and have excellent lubricity properties and are used in plastic
tooling and heavy equipment product applications. Alloy products are sold
domestically through Brush distribution centers and internationally through
Company-owned and independent distribution centers and independent sales
representatives.

Beryllium Products manufactures products that include beryllium, AlBeMet(R)
and E-materials, serving the aerospace, defense, medical and industrial x-ray
equipment, optical scanning and high performance automation markets. Beryllium
is a lightweight metal possessing unique mechanical and thermal properties. Its
specific stiffness is much greater than other engineered structural materials
such as aluminum, titanium and steel. Beryllium is extracted from both
bertrandite and imported beryl ore. In 2001, the Company purchased land and
mineral rights that were previously leased by its mining operations in Utah.
Beryllium-containing products are sold throughout the world through a direct
sales organization and through Company-owned and independent distribution
centers.

NGK Insulators, Ltd. of Nagoya, Japan, with subsidiaries in the U.S. and
Europe, competes with beryllium alloy strip products and beryllium products.
Alloy Strip Products also competes with alloy systems manufactured by Olin
Corporation, Wieland Electric, Inc. and Stolberger Metallwerke GmbH, Nippon
Mining, PMX and also with other generally less expensive materials, including
phosphor bronze, stainless steel and other specialty copper and nickel alloys
which are produced by a variety of companies around the world. While Beryllium
Products is the only domestic producer of metallic beryllium, it competes with
other fabricators as well as with designs utilizing other materials. In the area
of beryllium alloy Bulk products (bar, plate, tube and rod), in addition to NGK
Insulators, Brush competes with several smaller regional producers such as
Freedom Alloys in the U.S., LaBronze Industriel in Europe, and Young II in Asia.

TMI manufactures engineered material systems which are combinations of
precious and non-precious metals in continuous strip form, and are used in
complex electronic and electrical components in telecommunications systems,
automotive electronics, semi-conductors and computers. TMI's products are sold
directly and through its sales representatives. TMI has limited competition in
the United States and several European manufacturers are competitors for the
sale of inlaid strip. Strip with selective electroplating is a competitive
alternative as are other design approaches.

METAL SYSTEMS GROUP -- SALES AND BACKLOG

The backlog of unshipped orders as of December 31, 2003, 2002 and 2001 was
$47,692,000, $35,064,000 and $60,945,000 respectively. Backlog is generally
represented by purchase orders that may be terminated under certain conditions.
The Company expects that substantially all of its backlog of orders for this
segment at December 31, 2003 will be filled during 2004.

Sales are made to approximately 1,700 customers. Government sales,
principally subcontracts, accounted for about 7.9% of Metal Systems Group sales
in 2003 as compared to 9.3% in 2002 and 3.3% in 2001. Sales outside the United
States, principally to Western Europe, Canada and the Pacific Rim, accounted for
approximately 42% of the Metal Systems Group sales in 2003, 35% in 2002 and 38%
in 2001. Other segment reporting and geographic information set forth on page 49
in Note M to the consolidated financial statements in the annual report to
shareholders for the year ended December 31, 2003 is incorporated herein by
reference.

METAL SYSTEMS GROUP -- RESEARCH AND DEVELOPMENT

Active research and development programs seek new product compositions and
designs as well as process innovations. Expenditures for research and
development amounted to $2,820,000 in 2003, $2,522,000 in 2002 and $4,679,000 in
2001. A staff of 21 scientists, engineers and technicians was employed in this
effort as of year end 2003. Some research and development projects, expenditures
for which are not material, were externally sponsored.

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MICROELECTRONICS GROUP

The Microelectronics Group is comprised of WAM and Electronic Products,
which consists of Zentrix and Brush Ceramic Products Inc. In 2003, 39% of the
Company's sales were from this segment (37% in 2002 and 36% in 2001). As of
December 31, 2003 the Microelectronics Group had 552 employees.

WAM manufactures and fabricates precious metal and specialty metal products
for the optical media, magnetic head, including magnetic resistive (MR) and
giant magnetic resistive (GMR) materials, electron tube, performance film and
the wireless, semiconductor, photonic and hybrid segments of the
microelectronics market. WAM's major product lines include vapor deposition
materials, clad and precious metals preforms, high temperature braze materials,
ultra fine wire, sealing lids for the semiconductor/hybrid markets and
restorative dental alloys.

WAM's products are sold directly from WAM's facilities in Buffalo, New
York; Brewster, New York; Wheatfield, New York; Singapore, Taiwan and the
Philippines, as well as through direct sales offices and independent sales
representatives throughout the world. Principal competition includes companies
such as Sumitomo Metals, Praxair, Inc., Honeywell International Inc. and a
number of smaller regional and national suppliers.

Zentrix produces electronic packaging and circuit products. Production
sites include Oceanside, California and Newburyport, Massachusetts. These
products are used in wireless telecommunication, fiberoptics, automotive and
defense applications. Zentrix's products are sold directly and through its sales
representatives. Zentrix competes with other electronic packaging and circuit
component suppliers such as Kyocera Corporation, Aeroflex, Inc. and Anaren
Microwave.

Brush Ceramic Products Inc., located in Tucson, Arizona, produces beryllia
ceramics used in wireless telecommunications, lasers, automotive and defense
product applications. Principal competitors include CBL Ceramics Ltd. and
American Beryllia, Inc. Competitive materials include aluminum nitride and metal
matrix composites.

MICROELECTRONICS GROUP -- SALES AND BACKLOG

The backlog of unshipped orders as of December 31, 2003, 2002 and 2001 was
$13,681,000, $19,833,000 and $20,458,000, respectively. Backlog is generally
represented by purchase orders that may be terminated under certain conditions.
The Company expects that substantially all of its backlog of orders for this
segment at December 31, 2003 will be filled during 2004.

Sales are made to approximately 1,700 customers. Government sales,
principally subcontracts, accounted for less than 1% of Microelectronics Group
sales in 2003 as compared to less than 1% in 2002 and 2.8% in 2001. Sales
outside the United States, principally to Western Europe, Canada and the Pacific
Rim, accounted for approximately 15% of Microelectronics Group sales in 2003,
18% in 2002 and 13% in 2001. Other segment reporting and geographic information
set forth on page 49 in Note M to the consolidated financial statements in the
annual report to shareholders for the year ended December 31, 2003 is
incorporated herein by reference.

MICROELECTRONICS GROUP -- RESEARCH AND DEVELOPMENT

Active research and development programs seek new product compositions and
designs as well as process innovations. Expenditures for research and
development amounted to $1,409,000 for 2003, $1,743,000 for 2002 and $1,648,000
in 2001. A staff of 6 scientists, engineers and technicians was employed in this
effort as of year end 2003.

GENERAL

AVAILABILITY OF RAW MATERIALS

The principal raw materials used by the Company are beryllium (extracted
from both imported beryl ore and bertrandite mined from the Company's Utah
properties), copper, gold, silver, nickel, platinum, palladium and aluminum. Ore
reserve data in Management's Discussion and Analysis on pages 24 and 25 of the

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Company's annual report to shareholders for the year ended December 31, 2003 is
incorporated herein by reference. The Company has agreements to purchase stated
quantities of beryl ore, beryllium metal and beryllium-copper master alloy from
the Defense Logistics Agency of the U.S. Government. In addition, the Company
has a long-term supply arrangement with Ulba/Kazatomprom of the Republic of
Kazakhstan and its marketing representative, Nukem, Inc. of New York, to
purchase quantities of beryllium-copper master and beryllium vacuum cast billet.
The availability of these raw materials, as well as other materials used by the
Company, is adequate and generally not dependent on any one supplier.

PATENTS AND LICENSES

The Company owns patents, patent applications and licenses relating to
certain of its products and processes. While the Company's rights under the
patents and licenses are of some importance to its operations, the Company's
business is not materially dependent on any one patent or license or on all of
its patents and licenses as a group.

REGULATORY MATTERS

The Company is subject to a variety of laws which regulate the manufacture,
processing, use, handling, storage, transport, treatment, emission, release and
disposal of substances and wastes used or generated in manufacturing. For
decades the Company has operated its facilities under applicable standards of
inplant and outplant emissions and releases. The inhalation of airborne
beryllium particulate may present a health hazard to certain individuals. The
Occupational Safety and Health Administration ("OSHA") is currently reviewing
its beryllium standards.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table shows the name, age and position of each of our
executive officers as of December 31, 2003:

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ITEM 2. PROPERTIES

The material properties of the Company, all of which are owned in fee
except as otherwise indicated, are as follows:

MANUFACTURING FACILITIES

BREWSTER, NEW YORK -- A 35,000 square foot leased facility on a 6.0 acre
site for manufacturing services relating to non-precious metals.

BUFFALO, NEW YORK -- A complex of approximately 97,000 square feet on a 3.8
acre site providing facilities for manufacturing, refining and laboratory
services relating to high purity precious metals.

DELTA, UTAH -- An ore extraction plant consisting of 86,000 square feet of
buildings and large outdoor facilities situated on a 4,400 acre site. This plant
extracts beryllium from bertrandite ore from the Company's mines as well as from
imported beryl ore.

ELMORE, OHIO -- A complex containing approximately 856,000 square feet of
building space on a 439 acre plant site. This facility employs diverse chemical,
metallurgical and metalworking processes in the production of beryllium,
beryllium oxide, beryllium alloys and related products.

FREMONT, CALIFORNIA -- A 16,800 square foot leased facility for the
fabrication of precision electron beam welded, brazed and diffusion bonded
beryllium structures.

JUAB COUNTY, UTAH -- 7,500 acres with respective mineral rights from which
the beryllium-bearing ore, bertrandite, is mined by the open pit method. A
portion of the mineral rights is held under lease. Ore reserve data set forth on
pages 24 and 25 in the annual report to shareholders for the year ended December
31, 2003 is incorporated herein by reference.

LINCOLN, RHODE ISLAND -- A manufacturing facility consisting of 140,000
square feet located on 7.5 acres. This facility produces reel-to-reel strip
metal products which combine precious and non-precious metals in continuous
strip form and related metal systems products.

LORAIN, OHIO -- A manufacturing facility consisting of 55,000 square feet
located on 15 acres. This facility produces non-beryllium metal alloys in
electronic induction furnaces which are continually cast into bar stock and heat
treated.

NEWBURYPORT, MASSACHUSETTS -- A 30,000 square foot manufacturing facility
on a 4 acre site that produces alumina, beryllia ceramic and direct bond copper
products.

OCEANSIDE, CALIFORNIA -- Two leased facilities totaling 20,200 square feet
on 1.25 acres of leased land. Over three-quarters of these facilities are
comprised of clean rooms for the production of thick-film circuits and other
complex circuits.

SANTA CLARA, CALIFORNIA -- A 5,800 square foot leased facility that
provides bonding services relating to physical vapor deposition (PVD) materials.

SHOEMAKERSVILLE (READING), PENNSYLVANIA -- A 123,000 square foot plant on a
55 acre site that produces thin precision strips of copper beryllium and other
alloys and copper beryllium rod and wire.

SINGAPORE -- A 4,500 square foot leased facility for the assembly and sale
of precious metal hermetic sealing lids.

SUBIC BAY, PHILIPPINES -- A 5,000 square foot leased facility that
manufactures Combo-Lid(R) and performs preform assembly, inspection and
packaging.

TAIPEI, TAIWAN -- A 5,000 square foot leased service/bonding center
supporting the PVD product market in Asia.

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TUCSON, ARIZONA -- A complex containing approximately 63,000 square feet of
building space on a 10 acre site for the production of beryllium oxide ceramic
substrates.

WHEATFIELD, NEW YORK -- A 29,000 square foot facility on a 10.2 acre site
for manufacturing services relating to braze material and specialty alloys.

RESEARCH FACILITIES AND ADMINISTRATIVE OFFICES

CLEVELAND, OHIO -- A 110,000 square foot building on an 18 acre site
housing corporate and administrative offices, data processing and research and
development facilities.

SERVICE AND DISTRIBUTION CENTERS

ELMHURST, ILLINOIS -- A 28,500 square foot leased facility principally for
distribution of copper beryllium alloys.

FAIRFIELD, NEW JERSEY -- A 24,500 square foot leased facility principally
for distribution of copper beryllium alloys.

FUKAYA, JAPAN -- A 35,500 square foot facility on 1.8 acres of land in
Saitama Prefecture principally for distribution of copper beryllium alloys.

SINGAPORE -- A 2,500 square foot leased sales office that houses employees
of Alloy Products and WAM Far East.

STUTTGART, GERMANY -- A 24,750 square foot leased facility principally for
distribution of copper beryllium alloys.

THEALE, ENGLAND -- A 19,700 square foot leased facility principally for
distribution of copper beryllium alloys.

WARREN, MICHIGAN -- A 34,500 square foot leased facility principally for
distribution of copper beryllium alloys.

ITEM 3. LEGAL PROCEEDINGS

The Company and its subsidiaries are subject, from time to time, to a
variety of civil and administrative proceedings arising out of their normal
operations, including, without limitation, product liability claims, health,
safety and environmental claims and employment-related actions. Among such
proceedings are the cases described below.

BERYLLIUM CLAIMS

There are claims pending in various state and federal courts against Brush
Wellman, one of the Company's subsidiaries, by some of its employees or former
employees and by third party individuals (typically employees of customers or of
independent contractors) alleging that they contracted, or have been placed at
risk of contracting, chronic beryllium disease or other lung conditions as a
result of exposure to beryllium. Plaintiffs in beryllium cases seek recovery
under theories of intentional tort and various other legal theories and seek
compensatory and punitive damages, in many cases of an unspecified sum. Spouses,
if any, claim loss of consortium.

During 2003, the number of beryllium cases decreased from 33 (involving 70
plaintiffs), as of December 31, 2002 to 15 cases (involving 33) plaintiffs as of
December 31, 2003. During 2003, an aggregate of 24 cases involving 47 plaintiffs
were settled. Five cases involving 12 plaintiffs were voluntarily dismissed by
the plaintiffs. Eleven cases involving 22 plaintiffs were filed in 2003.

The 15 pending beryllium cases fall into three categories: one "employee
case" involving one former employee; 12 cases involving third-party individual
plaintiffs, with 12 individuals (and five spouses who have

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filed claims as part of their spouse's case, and five children who have filed
claims as part of their parent's case); and two purported class actions,
involving 10 individuals, as discussed more fully below. Employee cases, in
which plaintiffs have a high burden of proof, have historically involved
relatively small losses to the Company. Third-party plaintiffs (typically
employees of our customers or contractors) face a lower burden of proof than do
employees or former employees, but these cases are generally covered by varying
levels of insurance.

In one purported class action in which Brush Wellman is seeking review of
the appellate court's reversal of the trial court's denial of class
certification, the named plaintiffs allege that past exposure to beryllium has
increased their risk of contracting chronic beryllium disease and possibly
cancer, although they do not claim to have actually contracted any disease. They
seek medical monitoring funds to be used to detect medical problems that they
believe may develop as a result of their exposure, and seek punitive damages.
This purported class action was brought by named plaintiffs on behalf of
tradesmen who worked in one of Brush Wellman's facilities as employees of
independent contractors.

In the second purported class action that is pending against Brush Wellman,
the named plaintiffs allege that they were exposed to beryllium in the course of
their employment with a customer of Brush Wellman, and that they are sensitized
to beryllium. They seek medical monitoring funds to be used to detect medical
problems that they believe may develop as a result of their exposure, and seek
punitive damages. This purported class action was brought by named plaintiffs on
behalf of employees who worked in the state of California at the facilities of
one of Brush Wellman's customers, and the spouses of those workers.

From January 1, 2004 to March 8, 2004, Brush Wellman was served with a
third purported class action, in which the named plaintiffs allege that they
were exposed to beryllium in the course of their employment with a customer of
Brush Wellman. They seek medical monitoring funds to be used to detect medical
problems that they believe may develop as a result of their exposure, and seek
punitive damages. This purported class action was brought on behalf of current
and former employees who worked at the Marietta, Georgia facility of one of
Brush Wellman's customers, and their spouses. One third-party case (involving
one plaintiff) was filed. Two third-party cases (involving seven plaintiffs)
were voluntarily dismissed by the plaintiffs. The settlement amounts in five
third-party cases (involving 14 plaintiffs) that were settled and dismissed in
2003 have been paid to the plaintiffs. One employee case (involving one
plaintiff) was settled and dismissed.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is traded on the New York Stock Exchange. As of
March 5, 2003 there were 1,738 shareholders of record. Information as to stock
price and dividends declared set forth on page 51 in Note P to the consolidated
financial statements in the annual report to shareholders for the year ended
December 31, 2003 is incorporated herein by reference. The Company's ability to
pay dividends is restricted as provided in its subordinated term loan agreement
dated December 4, 2003.

In connection with the debt refinancing completed on December 4, 2003, the
Company issued warrants to purchase 115,000 shares of the Company's common stock
to its subordinated lenders as part of the consideration for a $35 million
subordinated loan, in reliance upon applicable exemptions from registration
under federal and state securities laws.

ITEM 6. SELECTED FINANCIAL DATA

Selected Financial Data on pages 52 and 53 of the annual report to
shareholders for the year ended December 31, 2003 is incorporated herein by
reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The management's discussion and analysis of financial condition and results
of operations on pages 14 through 28 of the annual report to shareholders for
the year ended December 31, 2003 is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk disclosures on pages 27 and 28 of the annual report to
shareholders for the year ended December 31, 2003 are incorporated herein by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of independent auditors and the following consolidated financial
statements of the Company included in the annual report to shareholders for the
year ended December 31, 2003 are incorporated herein by reference:

Consolidated Balance Sheets -- December 31, 2003 and 2002.

Consolidated Statements of Income -- Years ended December 31, 2003, 2002
and 2001.

Consolidated Statements of Shareholders' Equity -- Years ended December 31,
2003, 2002 and 2001.

Consolidated Statements of Cash Flows -- Years ended December 31, 2003,
2002 and 2001.

Notes to Consolidated Financial Statements.

Quarterly Data on page 51 in Note P to the consolidated financial
statements in the annual report to shareholders for the years ended December 31,
2003 and 2002 is incorporated herein by reference.

8

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with participation
of management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2003 pursuant to Rule 13a-15(b) under
the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective as of the
evaluation date.

There have been no changes in our internal controls over financial
reporting that occurred during the year ended December 31, 2003 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information under Election of Directors on pages 2 through 4 of the
Proxy Statement dated March 15, 2004, as filed with the Securities and Exchange
Commission pursuant to Regulation 14A, is incorporated herein by reference. The
information required by this item relating to our executive officers is included
under the caption "Executive Officers of the Registrant" in Part I of this
report and is incorporated by reference into this section. The information
required by Item 10 with respect to directors, the Audit Committee of the Board
of Directors and Audit Committee financial experts is incorporated herein by
reference in the section entitled "Corporate Governance; Committees of the Board
of Directors" on pages 5 and 6 of the Proxy Statement dated March 15, 2004.

The Company has adopted a Policy Statement on Significant Corporate
Governance Issues and a Code of Business Conduct and Ethics that applies to our
chief executive officer, chief operating officer and senior financial officers,
including the principal financial and accounting officer, controller and other
persons performing similar functions in compliance with applicable New York
Stock Exchange and Securities and Exchange Commission requirements. These
materials, along with the charters of the Audit, Governance, Organization and
Compensation and Retirement Plan Review Committees of the Company's Board of
Directors, which also comply with applicable requirements, are available on the
Company's website at www.beminc.com, and copies are also available upon request
by any shareholder to Michael C. Hasychak, Secretary, Brush Engineered Materials
Inc., 17876 St. Clair Avenue, Cleveland, Ohio 44110. The Company makes its
reports on Forms 10-K, 10-Q and 8-K available on its website, free of charge, as
soon as reasonably practicable after these reports are filed with the Securities
and Exchange Commission, and any amendments or waivers to the Company's Code of
Business Conduct and Ethics and Policy Statement on Significant Corporate
Governance Issues will also be made available on the Company's website. The
information on our website is not incorporated by reference into this annual
report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this heading is incorporated by reference
from pages 11 and 12 of the Proxy Statement dated March 15, 2004, as filed with
the Securities and Exchange Commission pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this heading is incorporated by reference
from pages 9 and 10 and the "Equity Compensation Plan Information" on page 12 of
the Proxy Statement dated March 15, 2004, as filed with the Securities and
Exchange Commission pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required under this heading is incorporated by reference on
page 19 of the Proxy Statement dated March 15, 2004, as filed with the
Securities and Exchange Commission pursuant to Regulation 14A.

10

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION

Included in Part II of this Form 10-K annual report by reference to the

annual report to shareholders for the year ended December 31, 2003 are the
following consolidated financial statements:

Consolidated Balance Sheets -- December 31, 2003 and 2002.

Consolidated Statements of Income -- Years ended December 31, 2003, 2002
and 2001.

Consolidated Statements of Shareholders' Equity -- Years ended December 31,
2003, 2002 and 2001.

Consolidated Statements of Cash Flows -- Years ended December 31, 2003,
2002 and 2001.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.

(a) 2. FINANCIAL STATEMENT SCHEDULES

The following consolidated financial information for the years ended
December 31, 2003, 2002 and 2001 is submitted herewith:

Schedule II -- Valuation and qualifying accounts.

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.

(a) 3. EXHIBITS

(2) Agreement of Merger, dated as of May 17, 2000, by and among
Brush Merger Co., Brush Wellman Inc. and Brush Engineered
Materials Inc. (filed as Annex A to the Registration
Statement on Form S-4 filed by the Company on February 1,
2000, Registration No. 333-95917), incorporated herein by
reference.
(3a) Amended and Restated Articles of Incorporation of Brush
Engineered Materials Inc. (filed as Annex B to the
Registration Statement on Form S-4 filed by the Company on
February 1, 2000, Registration No. 333-95917), incorporated
herein by reference.
(3b) Amended and Restated Code of Regulations of Brush Engineered
Materials Inc. (filed as Exhibit 4(b) to the Current Report
on Form 8-K filed by Brush Wellman Inc. on May 16, 2000),
incorporated herein by reference.
(4a) Rights Agreement, dated as of May 10, 2000, by and between
Brush Engineered Materials Inc. and National City Bank, N.A.
as Rights Agent (filed as Exhibit 4(a) to the Current Report
on Form 8-K filed by Brush Engineered Materials Inc. on May
16, 2000), incorporated herein by reference.
(4b) Indenture Modification between Toledo-Lucas Port Authority,
dated as of May 30, 2003 (filed as Exhibit 4 to the
Quarterly Report on Form 10-Q filed by Brush Engineered
Materials Inc. on August 11, 2003), incorporated herein by
reference.
(4c) Lease Modification from National City Bank, Trustee as
Lessor to Brush Wellman, Inc. as Lessee, dated as of May 30,
2003 (filed as Exhibit 4.1 to the Quarterly Report on Form
10-Q filed by Brush Engineered Materials Inc. on August 11,
2003), incorporated herein by reference.
(4d) Pursuant to Regulation S-K, Item 601 (b)(4), the Company
agrees to furnish to the Commission, upon its request, a
copy of the instruments defining the rights of holders of
long-term debt of the Company that are not being filed with
this report.

11

(4e) Credit Agreement dated December 4, 2003 among Brush
Engineered Materials Inc. and other borrowers and Bank One,
N.A, acting for itself and as agent for certain other
banking institutions as lenders (filed as Exhibit 99.1 to
the Company's Form 8-K on December 5, 2003), incorporated
herein by reference.
(4f) First Amendment to Credit Agreement dated March 1, 2004
among Brush Engineered Materials Inc. and other borrowers
and Bank One, N.A., acting for itself and as agent for
certain other banking institutions as lenders.
(4g) Loan Agreement dated December 4, 2003 among Brush Engineered
Materials Inc. and other borrowers party hereto and
Guggenheim Corporate Funding, LLC, as Collateral Agent
(filed as Exhibit 99.1 to the Company's Form 8-K on December
16, 2003), incorporated herein by reference.
(4h) Warrant dated December 4, 2003 to purchase 78,571 shares of
Common Stock of Brush Engineered Materials Inc. between
Brush and Upper Columbia Capital Company, LLC.
(4i) Warrant dated December 4, 2003 to purchase 20,000 shares of
Common Stock of Brush Engineered Materials Inc. between
Brush and H/Z Acquisition Partners LLC.
(4j) Warrant dated December 4, 2003 to purchase 16,429 shares of
Common Stock of Brush Engineered Materials Inc. between
Brush and Bank One, NA.
(10a)* Form of Indemnification Agreement entered into by the
Company and its executive officers (filed as Exhibit 10g to
the Company's Form 10-K Annual Report for the year ended
December 31, 1994, Commission File No. 1-7006), incorporated
herein by reference.
(10b)* Form of Indemnification Agreement entered into by the
Company and its directors (filed as Exhibit 10h to the
Company's Form 10-K Annual Report for the year ended
December 31, 1994, Commission File No. 1-7006), incorporated
herein by reference.
(10c)* Form of Severance Agreement entered into by the Company and
Messrs. Gordon D. Harnett, Daniel S. Skoch and John D.
Grampa dated October 8, 2001 (filed as Exhibit 10-f to the
Company's Form 10-K Annual Report for the year ended
December 31, 1994, Commission File No. 1-7006), incorporated
herein by reference.
(10d)* Form of Executive Insurance Agreement entered into by the
Company and certain employees dated January 2, 2002. (filed
as Exhibit 10-g to the Company's Form 10-K Annual Report for
the year ended December 31, 1994, Commission File No.
001-7006) incorporated herein by reference.
(10e)* Form of Trust Agreement between the Company and Key Trust
Company of Ohio, N.A. (formerly Ameritrust Company National
Association) on behalf of the Company's executive officers
(filed as Exhibit 10e to the Company's Form 10-K Annual
Report for the year ended December 31, 1994, Commission File
No. 1-7006), incorporated herein by reference.
(10f)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.) Deferred Compensation Plan for Non-employee Directors
effective January 1, 1992 (filed as Exhibit I to the Proxy
Statement dated March 6, 1992, filed by Brush Wellman Inc.,
Commission File No. 1-7006), incorporated herein by
reference.
(10g)* Amendment, dated May 17, 2000, to the Brush Engineered
Materials Inc. Deferred Compensation Plan for Non-employee
Directors (filed as Exhibit 4b to Post-Effective Amendment
No. 1 to Registration Statement No. 333-63353), incorporated
herein by reference.
(10h)* First Amendment to the Deferred Compensation Plan for
Non-employee Directors as amended through September 11, 2001
(filed as Exhibit 4c to Post-Effective Amendment No. 1 to
Registration Statement No. 333-74296), incorporated herein
by reference.
(10i)* Form of Trust Agreement between the Company and National
City Bank, N.A. dated January 1, 1992 on behalf of
Non-employee Directors of the Company (filed as Exhibit 10k
to the Company's Form 10-K Annual Report for the year ended
December 31, 1992, Commission File No. 1-7006), incorporated
herein by reference.

12

(10j)* Incentive Compensation Plan adopted December 16, 1991,
January 1, 1992 (filed as Exhibit 10l to the Company's Form
10-K Annual Report for the year ended December 31, 1991,
Commission File No. 1-7006), incorporated herein by
reference.
(10k)* Supplemental Retirement Plan as amended and restated
December 1, 1992 (filed as Exhibit 10n to the Company's Form
10-K Annual Report for the year ended December 31, 1992,
Commission File No. 1-7006), incorporated herein by
reference.
(10l)* Amendment Number 2, adopted January 1, 1996, to Supplemental
Retirement Benefit Plan as amended and restated December 1,
1992 (filed as Exhibit 10o to the Company's Form 10-K Annual
Report for the year ended December 31, 1995, Commission File
No. 1-7006), incorporated herein by reference.
(10m)* Amendment Number 3, adopted May 5, 1998, to Supplemental
Retirement Benefit Plan as amended and restated December 1,
1992 (filed as Exhibit 10s to the Company's Form 10-K Annual
Report for the year ended December 31, 1998), incorporated
herein by reference.
(10n)* Amendment Number 4, adopted December 1, 1998, to
Supplemental Retirement Benefit Plan as amended and restated
December 1, 1992 (filed as Exhibit 10t to the Company's Form
10-K Annual Report for the year ended December 31, 1998),
incorporated herein by reference.
(10o)* Amendment Number 5, adopted December 31, 1998, to
Supplemental Retirement Benefit Plan as amended and restated
December 1, 1992 (filed as Exhibit 10u to the Company's Form
10-K Annual Report for the year ended December 31, 1998),
incorporated herein by reference.
(10p)* Amendment Number 6, adopted September, 1999, to Supplemental
Retirement Benefit Plan as amended and restated December 1,
1992. (filed as Exhibit 10u to the Company's Form 10-K
Annual Report for the year ended December 31, 2000,
Commission File No. 1-7006), incorporated herein by
reference.
(10q)* Amendment Number 7, adopted May, 2000, to Supplemental
Retirement Benefit Plan as amended and restated December 1,
1992. (filed as Exhibit 10v to the Company's Form 10-K
Annual Report for the year ended December 31, 2000,
Commission File No. 1-7006), incorporated herein by
reference.
(10r)* Amendment Number 8, adopted December 21, 2001, to
Supplemental Retirement Benefit Plan as amended and restated
December 1, 1992. (filed as Exhibit 10-u to the Company's
Form 10-K Annual Report for the year ended December 31,
1994, Commission File No. 1-7006), incorporated herein by
reference.
(10s)* Amendment Number 9, adopted December 22, 2003, to
Supplemental Retirement Benefit Plan as amended and restated
December 1, 1992.
(10t)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.) Key Employee Share Option Plan (filed as Exhibit 4.1
to the Registration Statement on Form S-8 filed by Brush
Wellman Inc. on May 5, 1998), incorporated herein by
reference.
(10u)* Amendment No. 1 to the Brush Engineered Materials Inc. Key
Employee Share Option Plan dated May 17, 2000 (filed as
Exhibit 4b to Post-Effective Amendment No. 1 to Registration
Statement No. 333-52141), incorporated herein by reference.
(10v)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.) 1979 Stock Option Plan, as amended pursuant to
approval of shareholders on April 21, 1982 (filed by Brush
Wellman Inc. as Exhibit 15A to Post-Effective Amendment No.
3 to Registration Statement No. 2-64080), incorporated
herein by reference.
(10w)* Amendment, dated May 17, 2000, to the Brush Engineered
Materials Inc. 1979 Stock Option Plan (filed as Exhibit 4b
to Post-Effective Amendment No. 5 to Registration Statement
No. 2-64080), incorporated herein by reference.
(10x)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.) 1984 Stock Option Plan as amended by the Board of
Directors on April 18, 1984 and February 24, 1987 (filed by
Brush Wellman Inc. as Exhibit 4.4 to Registration Statement
No. 33-28605), incorporated herein by reference.

13

(10y)* Amendment, dated May 17, 2000, to the Brush Engineered
Materials Inc. 1984 Stock Option Plan (filed as Exhibit 4b
to Post-Effective Amendment No. 1 to Registration Statement
No. 2-90724), incorporated herein by reference.
(10z)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.)1989 Stock Option Plan (filed by Brush Wellman Inc. as
Exhibit 4.5 to Registration Statement No. 33-28605),
incorporated herein by reference.
(10aa)* Amendment, dated May 17, 2000, to the Brush Engineered
Materials Inc. 1989 Stock Option Plan (filed as Exhibit 4b
to Post- Effective Amendment No. 1 to Registration Statement
No. 33-28605), incorporated herein by reference.
(10bb)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.) 1995 Stock Incentive Plan as Amended March 3, 1998
(filed by Brush Wellman Inc. as Exhibit A to the Company's
Proxy Statement dated March 16, 1998, Commission File No.
1-7006), incorporated herein by reference.
(10cc)* Amendment, dated May 17, 2000, to the Brush Engineered
Materials Inc. 1995 Stock Incentive Plan (filed as Exhibit
4b to Post-Effective Amendment No. 1 to Registration
Statement No. 333-63357), incorporated herein by reference.
(10dd)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.) 1997 Stock Incentive Plan for Non-employee Directors
(filed by Brush Wellman Inc. as Exhibit B to the Company's
Proxy Statement dated March 16, 1998, Commission File No.
1-7006), incorporated herein by reference.
(10ee)* Amendment, dated May 17, 2000, to the Brush Engineered
Materials Inc. 1997 Stock Incentive Plan for Non-employee
Directors (filed as Exhibit 4b to Post-Effective Amendment
No. 1 to Registration Statement No. 333-63355), incorporated
herein by reference.
(10ff)* Brush Engineered Materials Inc. (formerly Brush Wellman
Inc.) 1997 Stock Incentive Plan for Non-employee Directors
(filed as Appendix B to the Company's Proxy Statement dated
March 18, 2001, Commission File No. 1-7006), incorporated
herein by reference.
(10gg)* Amendment No. 1 to the Brush Engineered Materials Inc. 1997
Stock Incentive Plan for Non-employee Directors.
(10hh)* Brush Engineered Materials Inc. Executive Deferred
Compensation Plan (2000 Restatement).(filed as Exhibit 10jj
to the Company's Form 10-K Annual Report for the year ended
December 31, 2000), incorporated herein by reference.
(10ii)* Trust Agreement for Brush Engineered Materials Inc.
(formerly Brush Wellman Inc.) Executive Deferred
Compensation Plan, dated September 14, 1999 (filed as
Exhibit 10hh to the Company's Form 10-K Annual Report for
the year ended December 31, 1999), incorporated herein by
reference.
(10jj) Lease dated as of October 1, 1996, between Brush Wellman
Inc. and Toledo-Lucas County Port Authority (filed as
Exhibit 10v to the Company's Form 10-K Annual Report for the
year ended December 31, 1996), incorporated herein by
reference.
(10kk) Brush Engineered Materials Inc. Restated Pension Plan, dated
June 1, 2000 (filed as Exhibit 10qq to the Company's Form
10-K Annual Report for the year ended December 31, 2002),
incorporated herein by reference.
(10ll) Amendment No. 1 dated as of February 26, 2003 to the Brush
Engineered Materials Inc. Restated Pension Plan dated June
1, 2000 (filed as Exhibit 10rr to the Company's Form 10-k
Annual Report for the year ended December 31, 2002),
incorporated herein by reference.
(10mm) Amended and Restated Inducement Agreement with the
Prudential Insurance Company of America dated May 30, 2003
(filed as Exhibit 10 to the Company's Form 10-Q Quarterly
Report for the quarter ended June 27, 2003), incorporated
herein by reference.

14

(10nn) Amended and Restated Supply Agreement between RWE Nukem,
Inc. and Brush Wellman Inc. for the sale and purchase of
beryllium products (filed as Exhibit 10 to the Company's
Form 10-Q Quarterly Report for the quarter ended September
26, 2003), incorporated herein by reference.
(13) Annual report to shareholders for the year ended December
31, 2003
(21) Subsidiaries of the Registrant
(23) Consent of Ernst & Young LLP
(24) Power of Attorney
(31) Certification of Chief Executive Officer and Chief Financial
Officer required by rule 13a-14(a) or 15d-14(a)
(32) Certification of Chief Executive Officer and Chief Financial
Officer required by 18 U.S.C. Section 1350

- ---------------

* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 15(c) of this Report.

(b) REPORTS ON FORM 8-K

In a report on Form 8-K filed October 23, 2003, Brush Engineered Materials
Inc. incorporated in Item 12 its July October 23 press release, reporting
on its earnings for the third quarter of 2003.

In a report on Form 8-K filed October 29, 2003, Brush Engineered Materials
Inc. announced that the "Current Investor" section of its website had been
updated.

In a report on Form 8-K filed December 5, 2003, Brush Engineered Materials
Inc. issued a press release announcing it had completed the refinancing of
its bank revolving credit and term loan.

In a report on Form 8-K filed December 16, 2003, Brush Engineered Materials
Inc. filed the Guggenheim Corporate Funding, LLC credit document.

15

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

March 15, 2004

BRUSH ENGINEERED MATERIALS INC.

/s/ GORDON D. HARNETT By: /s/ JOHN D. GRAMPA
- ------------------------------------------- -------------------------------------------
Gordon D. Harnett John D. Grampa
Chairman of the Board, President Vice President Finance
and Chief Executive Officer and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

/s/ GORDON D. HARNETT* Chairman of the Board, President, March 15, 2004
- ------------------------------------------------ Chief Executive Officer and Director
Gordon D. Harnett* (Principal Executive Officer)

/s/ JOHN D. GRAMPA Vice President Finance and Chief Financial March 15, 2004
- ------------------------------------------------ Officer (Principal Financial and Accounting
John D. Grampa Officer)

/s/ ALBERT C. BERSTICKER* Director March 15, 2004
- ------------------------------------------------
Albert C. Bersticker

/s/ DAVID H. HOAG* Director March 15, 2004
- ------------------------------------------------
David H. Hoag*

/s/ JOSEPH P. KEITHLEY* Director March 15, 2004
- ------------------------------------------------
Joseph P. Keithley*

/s/ WILLIAM B. LAWRENCE* Director March 15, 2004
- ------------------------------------------------
William B. Lawrence*

/s/ WILLIAM P. MADAR* Director March 15, 2004
- ------------------------------------------------
William P. Madar*

/s/ WILLIAM G. PRYOR* Director March 15, 2004
- ------------------------------------------------
William G. Pryor*

/s/ N. MOHAN REDDY* Director March 15, 2004
- ------------------------------------------------
N. Mohan Reddy*

/s/ WILLIAM R. ROBERTSON* Director March 15, 2004
- ------------------------------------------------
William R. Robertson*

/s/ JOHN SHERWIN, JR.* Director March 15, 2004
- ------------------------------------------------
John Sherwin, Jr.*

16

*The undersigned, by signing his name hereto, does sign and execute this
report on behalf of each of the above-named officers and directors of Brush
Engineered Materials Inc., pursuant to Powers of Attorney executed by each such
officer and director filed with the Securities and Exchange Commission.

By: /s/ JOHN D. GRAMPA March 15, 2004
-------------------------------------------
John D. Grampa
Attorney-in-Fact

17

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

BRUSH ENGINEERED MATERIALS INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

Note A -- Bad debts written-off, net of recoveries.

Note B -- Inventory write-off.

18