UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
þ
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended July 3, 2009
|
|
o
|
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
001-15885
BRUSH ENGINEERED MATERIALS
INC.
(Exact name of Registrant as
specified in charter)
|
|
|
Ohio
|
|
34-1919973
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
6070 Parkland Blvd., Mayfield Hts., Ohio
|
|
44124
|
(Address of principal executive
offices)
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|
(Zip Code)
|
Registrants telephone number,
including area code:
216-486-4200
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
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
o
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer
þ
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|
Accelerated
filer
o
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|
Non-accelerated
filer
o
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|
Smaller reporting
company
o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
As of July 24, 2009 there were 20,196,504 shares of
Common Stock, no par value, outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
BRUSH
ENGINEERED MATERIALS INC. AND SUBSIDIARIES
|
|
Item 1.
|
Financial
Statements
|
The consolidated financial statements of Brush Engineered
Materials Inc. and its subsidiaries for the second quarter and
first half ended July 3, 2009 are as follows:
1
Consolidated
Statements of Income
(Unaudited)
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|
|
|
|
|
|
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|
|
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|
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|
|
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Second Quarter Ended
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|
First Half Ended
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(Dollars in thousands except share and
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July 3,
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|
June 27,
|
|
|
July 3,
|
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|
June 27,
|
|
per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2009
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2008
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|
Net sales
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|
$
|
174,134
|
|
|
$
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246,584
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$
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309,493
|
|
|
$
|
472,931
|
|
Cost of sales
|
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|
152,000
|
|
|
|
201,945
|
|
|
|
272,757
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391,334
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Gross margin
|
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22,134
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|
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44,639
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|
36,736
|
|
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81,597
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|
Selling, general and administrative expense
|
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20,694
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28,294
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43,239
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|
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|
55,023
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|
Research and development expense
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1,526
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1,644
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|
3,220
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|
|
3,141
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Other-net
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|
1,474
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|
|
|
3,089
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|
|
|
3,230
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|
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3,850
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating (loss) profit
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|
(1,560
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)
|
|
|
11,612
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|
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(12,953
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)
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19,583
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|
Interest expense-net
|
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|
271
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|
|
|
649
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|
|
|
597
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|
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|
985
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|
|
|
|
|
|
|
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Income (loss) before income taxes
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|
(1,831
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)
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10,963
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|
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|
(13,550
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)
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18,598
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|
Income tax (benefit) expense
|
|
|
(1,046
|
)
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|
3,805
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(4,620
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)
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|
6,844
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|
|
|
|
|
|
|
|
|
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|
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Net (loss) income
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|
$
|
(785
|
)
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|
$
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7,158
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|
$
|
(8,930
|
)
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|
$
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11,754
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|
|
|
|
|
|
|
|
|
|
|
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|
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Per share of common stock: basic
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$
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(0.04
|
)
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$
|
0.35
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|
|
$
|
(0.44
|
)
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|
$
|
0.58
|
|
Weighted average number of common shares outstanding
|
|
|
20,186,000
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|
|
|
20,399,000
|
|
|
|
20,159,000
|
|
|
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20,394,000
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Per share of common stock: diluted
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|
$
|
(0.04
|
)
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|
$
|
0.35
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|
|
$
|
(0.44
|
)
|
|
$
|
0.57
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|
Weighted average number of common shares outstanding
|
|
|
20,186,000
|
|
|
|
20,653,000
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|
|
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20,159,000
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20,626,000
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|
See notes to consolidated financial statements.
2
Consolidated
Balance Sheets
(Unaudited)
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|
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July 3,
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|
|
Dec. 31,
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|
(Dollars in thousands)
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|
2009
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|
|
2008
|
|
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|
Assets
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|
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|
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Current assets
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|
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|
|
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Cash and cash equivalents
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$
|
21,042
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$
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18,546
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|
Accounts receivable
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74,114
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|
87,878
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Other receivables
|
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4,639
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|
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|
3,378
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|
Inventories
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132,939
|
|
|
|
156,718
|
|
Prepaid expenses
|
|
|
26,406
|
|
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|
23,660
|
|
Deferred income taxes
|
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|
8,120
|
|
|
|
4,199
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|
|
|
|
|
|
|
|
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Total current assets
|
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|
267,260
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|
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|
294,379
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|
Other assets
|
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32,228
|
|
|
|
34,444
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|
Related-party notes receivable
|
|
|
98
|
|
|
|
98
|
|
Long-term deferred income taxes
|
|
|
9,945
|
|
|
|
9,944
|
|
Property, plant and equipment
|
|
|
643,376
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|
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635,266
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Less allowances for depreciation, depletion and amortization
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438,412
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428,012
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|
|
|
|
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|
204,964
|
|
|
|
207,254
|
|
Goodwill
|
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35,778
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|
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|
35,778
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|
|
|
|
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|
Total Assets
|
|
$
|
550,273
|
|
|
$
|
581,897
|
|
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|
|
|
|
|
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|
|
Liabilities and Shareholders Equity
|
|
|
|
|
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Current liabilities
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|
|
|
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Short-term debt
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|
$
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26,869
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|
|
$
|
30,622
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|
Current portion of long-term debt
|
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|
600
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|
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|
600
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Accounts payable
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|
|
22,927
|
|
|
|
28,014
|
|
Other liabilities and accrued items
|
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|
30,658
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|
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|
45,131
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|
Unearned revenue
|
|
|
2,062
|
|
|
|
113
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|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
83,116
|
|
|
|
104,480
|
|
Other long-term liabilities
|
|
|
29,695
|
|
|
|
19,356
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|
Retirement and post-employment benefits
|
|
|
81,412
|
|
|
|
97,168
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|
Long-term income taxes
|
|
|
3,029
|
|
|
|
3,028
|
|
Deferred income taxes
|
|
|
770
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|
|
|
163
|
|
Long-term debt
|
|
|
10,905
|
|
|
|
10,605
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|
Shareholders equity
|
|
|
341,346
|
|
|
|
347,097
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|
|
|
|
|
|
|
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Total Liabilities and Shareholders Equity
|
|
$
|
550,273
|
|
|
$
|
581,897
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
3
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Net (loss) Income
|
|
$
|
(8,930
|
)
|
|
$
|
11,754
|
|
Adjustments to reconcile net (loss) income to net cash
provided from operating activities:
|
|
|
|
|
|
|
|
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Depreciation, depletion and amortization
|
|
|
14,455
|
|
|
|
14,508
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|
Amortization of mine costs
|
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|
1,896
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|
|
|
2,763
|
|
Amortization of deferred financing costs in interest expense
|
|
|
209
|
|
|
|
177
|
|
Derivative financial instrument ineffectiveness
|
|
|
|
|
|
|
163
|
|
Stock-based compensation expense
|
|
|
1,630
|
|
|
|
2,460
|
|
Changes in assets and liabilities net of acquired assets and
liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
12,446
|
|
|
|
(15,152
|
)
|
Decrease (increase) in other receivables
|
|
|
(1,261
|
)
|
|
|
11,263
|
|
Decrease (increase) in inventory
|
|
|
23,017
|
|
|
|
(9,710
|
)
|
Decrease (increase) in prepaid and other current assets
|
|
|
1,199
|
|
|
|
(1,455
|
)
|
Decrease (increase) in deferred income taxes
|
|
|
(3,405
|
)
|
|
|
14
|
|
Increase (decrease) in accounts payable and accrued expenses
|
|
|
(18,686
|
)
|
|
|
(8,166
|
)
|
Increase (decrease) in unearned revenue
|
|
|
1,950
|
|
|
|
(2,065
|
)
|
Increase (decrease) in interest and taxes payable
|
|
|
(314
|
)
|
|
|
(1,144
|
)
|
Increase (decrease) in long-term liabilities
|
|
|
(13,769
|
)
|
|
|
1,336
|
|
Other - net
|
|
|
1,286
|
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
|
|
|
11,723
|
|
|
|
6,180
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Payments for purchase of property, plant and equipment
|
|
|
(16,054
|
)
|
|
|
(14,637
|
)
|
Payments for mine development
|
|
|
(386
|
)
|
|
|
(152
|
)
|
Reimbursements for capital equipment under government contracts
|
|
|
10,169
|
|
|
|
4,125
|
|
Payments for purchase of business net of cash received
|
|
|
|
|
|
|
(87,462
|
)
|
Proceeds from sale of acquired inventory to consignment
|
|
|
|
|
|
|
24,325
|
|
Other investments - net
|
|
|
21
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(6,250
|
)
|
|
|
(73,735
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance (repayment) of short-term debt
|
|
|
(3,336
|
)
|
|
|
10,414
|
|
Proceeds from issuance of long-term debt
|
|
|
8,300
|
|
|
|
40,900
|
|
Repayment of long-term debt
|
|
|
(8,000
|
)
|
|
|
|
|
Issuance of common stock under stock option plans
|
|
|
157
|
|
|
|
174
|
|
Tax benefit from exercise of stock options
|
|
|
11
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided from financing activities
|
|
|
(2,868
|
)
|
|
|
51,516
|
|
Effects of exchange rate changes
|
|
|
(109
|
)
|
|
|
(528
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
2,496
|
|
|
|
(16,567
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
18,546
|
|
|
|
31,730
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
21,042
|
|
|
$
|
15,163
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
4
Notes to
Consolidated Financial Statements
(Unaudited)
|
|
Note A
|
Accounting
Policies
|
In managements opinion, the accompanying consolidated
financial statements contain all adjustments necessary to
present fairly the financial position as of July 3, 2009
and December 31, 2008 and the results of operations for the
second quarter and first half ended July 3, 2009 and
June 27, 2008. Sales and income before income taxes were
reduced in the first quarter 2008 by $2.6 million to
correct a billing error that occurred in 2007 that was not
material to the 2007 results. All other adjustments were of a
normal and recurring nature.
Management has evaluated subsequent events that occured through
August 11, 2009, the date the financial statements were
issued. During this period, there were no recognized subsequent
events requiring recognition in the financial statements and no
non-recognized subsequent events requiring disclosure.
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
Dec. 31,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Principally average cost:
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
35,052
|
|
|
$
|
41,468
|
|
Work in process
|
|
|
128,988
|
|
|
|
139,552
|
|
Finished goods
|
|
|
36,347
|
|
|
|
50,579
|
|
|
|
|
|
|
|
|
|
|
Gross inventories
|
|
|
200,387
|
|
|
|
231,599
|
|
Excess of average cost over LIFO inventory value
|
|
|
67,448
|
|
|
|
74,881
|
|
|
|
|
|
|
|
|
|
|
Net inventories
|
|
$
|
132,939
|
|
|
$
|
156,718
|
|
|
|
|
|
|
|
|
|
|
|
|
Note C
|
Pensions
and Other Post-retirement Benefits
|
As a result of a significant reduction in force, management
determined that there was a curtailment of the domestic defined
benefit pension plan in the first quarter 2009 in accordance
with Statement No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits.
The plan assets and liabilities were remeasured as of the
curtailment date of February 28, 2009. As part of the
remeasurement, management reviewed the key assumptions and
determined that the discount rate should be increased to 6.80%
from the 6.15% rate assumed at December 31, 2008. The
revised rate was determined using the same methodology as was
employed at year-end 2008. All other key assumptions, including
the expected rate of return on assets, remained unchanged from
December 31, 2008.
The curtailment reduced the annual expense for 2009 on the
domestic plan from a previously estimated $5.3 million to
$4.3 million. In addition, the curtailment resulted in the
recording of a $1.1 million one-time benefit in the first
quarter 2009 as a result of applying the percentage reduction in
the estimated future working lifetime of the plan participants
against the unrecognized prior service cost benefit. Cost of
sales was reduced by $0.8 million and selling, general and
administrative expense was reduced by $0.3 million from the
recording of the one-time benefit.
The Company made contributions totaling $14.0 million to
the defined benefit pension plan in the first half of 2009 as
expected.
5
The following is a summary of the second quarter and first half
2009 and 2008 net periodic benefit cost for the domestic
defined benefit pension plan and the domestic retiree medical
plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
Second Quarter Ended
|
|
|
Second Quarter Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,067
|
|
|
$
|
1,270
|
|
|
$
|
72
|
|
|
$
|
76
|
|
Interest cost
|
|
|
2,164
|
|
|
|
1,976
|
|
|
|
482
|
|
|
|
532
|
|
Expected return on plan assets
|
|
|
(2,445
|
)
|
|
|
(2,180
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
(135
|
)
|
|
|
(161
|
)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Amortization of net loss
|
|
|
375
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1,026
|
|
|
$
|
1,199
|
|
|
$
|
545
|
|
|
$
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
First Half Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,182
|
|
|
$
|
2,540
|
|
|
$
|
145
|
|
|
$
|
152
|
|
Interest cost
|
|
|
4,157
|
|
|
|
3,952
|
|
|
|
964
|
|
|
|
1,063
|
|
Expected return on plan assets
|
|
|
(4,617
|
)
|
|
|
(4,360
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
(278
|
)
|
|
|
(322
|
)
|
|
|
(18
|
)
|
|
|
(18
|
)
|
Amortization of net loss
|
|
|
809
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
Curtailment Gain
|
|
|
(1,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1,184
|
|
|
$
|
2,399
|
|
|
$
|
1,091
|
|
|
$
|
1,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brush Wellman Inc., one of the Companys wholly owned
subsidiaries, is a defendant in various legal proceedings where
the plaintiffs allege that they have contracted chronic
beryllium disease (CBD) or related ailments as a result of
exposure to beryllium. Management believes that the Company has
substantial defenses and intends to defend these suits
vigorously. The Company has recorded a reserve for CBD
litigation of $1.9 million as of July 3, 2009 and
$2.0 million as of December 31, 2008. This reserve
covers existing claims only and unasserted claims could give
rise to additional losses. Defense costs are expensed as
incurred. Final resolution of the asserted claims may be for
different amounts than currently reserved. One case was
dismissed and no settlement payments were made during the first
half of 2009.
All of the outstanding CBD cases as of July 3, 2009 are
third-party claims where the alleged exposure occurred prior to
December 31, 2007 and therefore, the indemnity, if any, and
the defense costs are covered by insurance subject to an annual
deductible of $1.0 million. Incurred costs were below the
deductible in the first half of 2009.
Williams Advanced Materials Inc. (WAM), one of the
Companys wholly owned subsidiaries, and a small number of
WAMs customers are defendants in a patent infringement
legal case. WAM has provided an indemnity agreement to certain
of those customers under which WAM will pay any damages awarded
by the court. WAM has not made any payments for damages on
behalf of any customer nor has it recorded a reserve for losses
under these agreements as of July 3, 2009. WAM believes it
has strong defenses applicable to both WAM and its customers and
is contesting this action. While WAM does not believe that a
loss is probable, should its defenses not prevail, the damages
to be paid may potentially be material to the Companys
results of operations in the period of payment.
The Company has an active environmental compliance program and
records reserves for the probable cost of identified
environmental remediation projects. The reserves are established
based upon analyses conducted by the
6
Companys engineers and outside consultants and are
adjusted from time to time based upon on-going studies and the
difference between actual and estimated costs. The reserves may
also be affected by rulings and negotiations with regulatory
agencies. The undiscounted reserve balance was $6.0 million
as of July 3, 2009 and $6.3 million as of
December 31, 2008. Environmental projects tend to be
long-term and the final actual remediation costs may differ from
the amounts currently recorded.
|
|
Note E
|
Comprehensive
Income
|
The reconciliation between net (loss) income and comprehensive
income (loss) for the second quarter and first half ended
July 3, 2009 and June 27, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Net (loss) income
|
|
$
|
(785
|
)
|
|
$
|
7,158
|
|
|
$
|
(8,930
|
)
|
|
$
|
11,754
|
|
Cumulative translation adjustment
|
|
|
1,460
|
|
|
|
(1,033
|
)
|
|
|
(1,126
|
)
|
|
|
1,731
|
|
Change in the fair value of derivative financial instruments,
net of tax
|
|
|
(984
|
)
|
|
|
2,030
|
|
|
|
340
|
|
|
|
(765
|
)
|
Pension and other retirement plan liability adjustments, net of
tax
|
|
|
373
|
|
|
|
123
|
|
|
|
2,125
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
64
|
|
|
$
|
8,278
|
|
|
$
|
(7,591
|
)
|
|
$
|
12,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note F
|
Segment
Reporting
|
Segment information for 2008 has been recast to include Zentrix
Technologies Inc. in the Advanced Material Technologies and
Services segment. Zentrixs results previously were
reported in All Other. Beginning in 2009, Zentrix is being
managed by Advanced Material Technologies and Services and is
included with that segments financial results in the
Companys internal reporting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material
|
|
|
Specialty
|
|
|
Beryllium
|
|
|
Engineered
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies
|
|
|
Engineered
|
|
|
and Beryllium
|
|
|
Material
|
|
|
|
|
|
All
|
|
|
|
|
(Dollars in thousands)
|
|
and Services
|
|
|
Alloys
|
|
|
Composites
|
|
|
Systems
|
|
|
Subtotal
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Second Quarter 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
112,273
|
|
|
$
|
41,239
|
|
|
$
|
13,123
|
|
|
$
|
7,499
|
|
|
$
|
174,134
|
|
|
$
|
|
|
|
$
|
174,134
|
|
Intersegment revenues
|
|
|
50
|
|
|
|
470
|
|
|
|
26
|
|
|
|
185
|
|
|
|
731
|
|
|
|
|
|
|
|
731
|
|
Operating profit (loss)
|
|
|
8,390
|
|
|
|
(9,280
|
)
|
|
|
1,035
|
|
|
|
(819
|
)
|
|
|
(674
|
)
|
|
|
(886
|
)
|
|
|
(1,560
|
)
|
Second Quarter 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
129,270
|
|
|
$
|
83,029
|
|
|
$
|
14,711
|
|
|
$
|
19,574
|
|
|
$
|
246,584
|
|
|
$
|
|
|
|
$
|
246,584
|
|
Intersegment revenues
|
|
|
503
|
|
|
|
1,125
|
|
|
|
170
|
|
|
|
416
|
|
|
|
2,214
|
|
|
|
|
|
|
|
2,214
|
|
Operating profit (loss)
|
|
|
5,048
|
|
|
|
4,750
|
|
|
|
2,346
|
|
|
|
2,003
|
|
|
|
14,147
|
|
|
|
(2,535
|
)
|
|
|
11,612
|
|
First Half 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
192,344
|
|
|
$
|
78,132
|
|
|
$
|
26,113
|
|
|
$
|
12,904
|
|
|
$
|
309,493
|
|
|
$
|
|
|
|
$
|
309,493
|
|
Intersegment revenues
|
|
|
175
|
|
|
|
1,275
|
|
|
|
78
|
|
|
|
543
|
|
|
|
2,071
|
|
|
|
|
|
|
|
2,071
|
|
Operating profit (loss)
|
|
|
9,095
|
|
|
|
(20,193
|
)
|
|
|
2,859
|
|
|
|
(3,450
|
)
|
|
|
(11,689
|
)
|
|
|
(1,264
|
)
|
|
|
(12,953
|
)
|
Assets
|
|
|
208,971
|
|
|
|
205,947
|
|
|
|
59,383
|
|
|
|
18,590
|
|
|
|
492,891
|
|
|
|
57,382
|
|
|
|
550,273
|
|
First Half 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
253,270
|
|
|
$
|
154,326
|
|
|
$
|
28,075
|
|
|
$
|
37,260
|
|
|
$
|
472,931
|
|
|
$
|
|
|
|
$
|
472,931
|
|
Intersegment revenues
|
|
|
897
|
|
|
|
3,194
|
|
|
|
293
|
|
|
|
751
|
|
|
|
5,135
|
|
|
|
|
|
|
|
5,135
|
|
Operating profit (loss)
|
|
|
10,520
|
|
|
|
5,454
|
|
|
|
2,573
|
|
|
|
3,365
|
|
|
|
21,912
|
|
|
|
(2,329
|
)
|
|
|
19,583
|
|
Assets
|
|
|
255,004
|
|
|
|
255,384
|
|
|
|
43,981
|
|
|
|
28,117
|
|
|
|
582,486
|
|
|
|
33,098
|
|
|
|
615,584
|
|
|
|
Note G
|
Stock-based
Compensation Expense
|
The Company granted approximately 145,000 shares of
restricted stock to certain employees in the first quarter 2009
at a fair value of $15.01 per share. The fair value was
determined using the closing price of the
7
Companys common stock on the grant date and will be
amortized over the vesting period of three years. The holders of
the restricted stock will forfeit their shares should their
employment be terminated prior to the end of the vesting period.
The Company granted approximately 350,000 stock appreciation
rights (SARs) to certain employees in the first quarter 2009 at
a strike price of $15.01 per share. The fair value of the SARs,
which was determined on the grant date using a Black-Scholes
model, was $7.83 per share and will be amortized over the
vesting period of three years. The SARs expire ten years from
the date of the grant.
The Company granted approximately 25,000 shares of
restricted stock to its non-employee directors in the second
quarter 2009 at a fair value of $18.27 per share. The fair value
was determined by using the closing price of the Companys
common stock on the grant date and will be amortized over the
vesting period of one year.
Total stock-based compensation expense for the above and
previously existing awards and plans was $1.0 million in
the second quarter 2009 and $1.2 million in the second
quarter 2008. For the first half of the year, stock-based
compensation totaled $1.6 million in 2009 and
$2.5 million in 2008.
The tax benefit of $1.0 million in the second quarter 2009
was calculated by applying a rate of 57.1% against the loss
before income taxes while the tax benefit in the first half of
2009 of $4.6 million was calculated by applying a rate of
34.1% against the loss before income taxes in that period. In
2008, a tax expense of $3.8 million was recorded in the
second quarter based upon an effective rate of 34.7% of income
before income taxes. In the first half of 2008, the tax expense
of $6.8 million was calculated based upon an effective rate
of 36.8% of the income before income taxes.
The impact of percentage depletion, foreign source income and
deductions and other factors were major causes of the
differences between the effective and statutory tax rates in all
periods presented. The production deduction was also a major
cause of the difference in 2008 and in the first quarter 2009.
The effective rate in the first half of 2008 was also impacted
by discrete events recorded in that period, including a deferred
tax adjustment. Discrete events had an immaterial impact on the
effective rate in the second quarter and first half of 2009. The
percentage impact on the effective rate of tax adjustments that
are relatively fixed in dollar terms will change due to
significant differences in the income or loss before income
taxes between periods.
The higher tax rate in the second quarter 2009 as compared to
the first quarter 2009 increased the tax benefit and decreased
the net loss in the second quarter 2009 by $0.5 million, or
$0.02 per share.
|
|
Note I
|
Fair
Value of Financial Instruments
|
The Company measures and records the outstanding foreign
currency derivative contracts at fair value in the accompanying
consolidated financials statements in accordance with Statement
No. 157, Fair Value Measurements. This
statement establishes a fair value hierarchy for those
instruments measured at fair value that distinguishes between
assumptions based on market data (observable inputs) and the
Companys assumptions (unobservable inputs). The hierarchy
consists of three levels:
Level 1 Quoted market prices in active markets
for identical assets and liabilities;
Level 2 Inputs other than Level 1 inputs
that are either directly or indirectly observable; and
Level 3 Unobservable inputs developed using
estimates and assumptions developed by the Company, which
reflect those that a market participant would use.
8
The following table summarizes the financial instruments
measured at fair value in the consolidated balance sheet as of
July 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting
|
|
|
|
|
|
|
Date Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
(Dollars in thousands)
|
|
July 3,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors deferred compensation investment
|
|
$
|
818
|
|
|
$
|
818
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
818
|
|
|
$
|
818
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
633
|
|
|
$
|
|
|
|
$
|
633
|
|
|
$
|
|
|
Directors deferred compensation liability
|
|
|
818
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,451
|
|
|
$
|
818
|
|
|
$
|
633
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses a market approach to value the assets and
liabilities for outstanding derivative contracts in the table
above. These contracts are valued using a market approach which
incorporates quoted market prices at the balance sheet date.
The carrying values of the other working capital items and debt
on the Companys balance sheet approximates their fair
values.
|
|
Note J
|
Derivative
Instruments and Hedging Activity
|
The Company adopted Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133, effective
January 1, 2009. The disclosure requirements of this
statement are contained in this note to the Companys
consolidated financial statements.
The Company sells products to overseas customers in their local
currencies, primarily the euro, sterling and yen. The Company
uses foreign currency derivatives, mainly forward contracts and
options, to hedge these anticipated sales transactions. The
purpose of the hedge program is to protect against the reduction
in dollar value of the foreign currency sales from adverse
exchange rate movements. Should the dollar strengthen
significantly, the decrease in the translated value of the
foreign currency sales should be partially offset by gains on
the hedge contracts. Depending upon the methods used, the hedge
contract may limit the benefits from a weakening
U.S. dollar.
The use of foreign currency derivative contracts is governed by
policies approved by the Board of Directors. A team consisting
of senior financial managers reviews the estimated exposure
levels, as defined by budgets, forecasts and other internal
data, and determines the timing, amounts and instruments to use
to hedge that exposure within the confines of the policy.
Management analyzes the effective hedged rates and the actual
and projected gains and losses on the hedging transactions
against the program objectives, targeted rates and levels of
risk assumed. Hedge contracts are typically layered in at
different times for a specified exposure period in order to
minimize the impact of rate movements.
The use of forward contracts locks in a firm rate and eliminates
any downside from an adverse rate movement as well as any
benefit from a favorable rate movement. The Company may from
time to time choose to hedge with options or a tandem of options
known as a collar. These hedging techniques can limit or
eliminate the downside risk but can allow for some or all of the
benefit from a favorable rate movement to be realized. Unlike a
forward, a premium is paid for an option; collars, which are a
combination of a put and call option, may have a net premium but
9
they can be structured to be cash neutral. The Company will
primarily hedge with forwards due to the relationship between
the cash outlay and the level of risk.
The Company will only enter into a derivative contract if there
is an underlying identified exposure. Contracts are typically
held until maturity. The Company does not engage in derivative
trading activities and does not use derivatives for speculative
purposes. The Company only uses currency hedge contracts that
are denominated in the same currency as the underlying exposure.
Under Statement No. 133, all derivatives are recorded on
the balance sheet at their fair values. If the derivative is
designated and effective as a hedge, depending upon the nature
of the hedge, changes in the fair value of the derivative are
either offset against the change in the fair value of the hedged
asset, liability or firm commitment through earnings or
recognized in other comprehensive income (OCI), a component of
shareholders equity, until the hedged item is recognized
in earnings. The ineffective portion of a derivatives
change in fair value, if any, is recognized in earnings
immediately. If a derivative is not a hedge, changes in the fair
value are adjusted through income.
The notional value of the outstanding foreign currency forward
contracts totaled $26.8 million as of July 3, 2009.
All of these derivatives were designated as and are effective as
cash flow hedges. The fair values of the outstanding derivatives
are recorded on the balance sheet as assets (if the derivatives
are in a gain position) or liabilities (if the derivatives are
in a loss position). The fair values will also be classified as
short-term or long-term depending upon their maturity dates.
There is no ineffectiveness associated with the outstanding
derivatives. Changes in the fair value of the outstanding
derivative contracts are recorded in OCI and are charged or
credited to income when the contracts mature and the underlying
anticipated sales transactions occur.
The balance sheet classification and the related fair values of
the outstanding foreign currency forward contracts as of
July 3, 2009 were as follows (dollars in thousands):
|
|
|
|
|
Liabilities
|
|
Classification
|
|
Fair Value
|
|
|
Other Liabilities and Accrued Items
|
|
$
|
633
|
|
A summary of the hedging relationships of the outstanding
derivative financial instruments as of July 3, 2009 and
June 27, 2008 and the amounts transferred into income for
the second quarter and first half then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Dollars in Thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Derivative in Cash Flow Hedging Relationship
|
|
|
Foreign Currency
Contracts
|
|
|
|
Foreign Currency
Contracts
|
|
|
|
Foreign Currency
Contracts
|
|
|
|
Foreign Currency
Contracts
|
|
Effective Portion of Hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI at the End of the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
$
|
(633
|
)
|
|
$
|
(1,433
|
)
|
|
|
|
|
|
|
|
|
Options (collars)
|
|
|
|
|
|
|
(637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(633
|
)
|
|
$
|
(2,070
|
)
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Reclassified from OCI into Income
|
|
|
Other-net
|
|
|
|
Other-net
|
|
|
|
Other-net
|
|
|
|
Other-net
|
|
Amount of Gain (Loss) Reclassified from OCI into Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
$
|
467
|
|
|
$
|
(1,298
|
)
|
|
$
|
267
|
|
|
$
|
(1,826
|
)
|
Options (collars)
|
|
|
|
|
|
|
(182
|
)
|
|
|
212
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
467
|
|
|
$
|
(1,480
|
)
|
|
$
|
479
|
|
|
$
|
(2,008
|
)
|
Ineffective Portion of Hedge and Amounts Excluded from
Effectiveness Testing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Income on Derivative
|
|
|
Other-net
|
|
|
|
Other-net
|
|
|
|
Other-net
|
|
|
|
Other-net
|
|
Amount of Gain (Loss) Recognized in Income on Derivative
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
10
The Company had an interest rate swap that was initially
designated as a cash flow hedge under Statement No. 133.
However, the underlying hedged item was terminated early and the
swap no longer qualified as a hedge under the statements
provisions. An immaterial gain was recorded in
other-net
on
the consolidated statement of income in the second quarter 2008
on this swap. A loss of $0.2 million was recorded on the
swap in the first half of 2008. The swap was terminated in the
fourth quarter 2008.
In 2007, the Company terminated early various commodity swaps
that were designated as cash flow hedges. The gains on the early
terminations were deferred into OCI until the original hedged
items, the purchases of copper, were acquired and then relieved
from inventory. During the first half of 2008, gains totaling
$0.2 million were relieved from OCI and credited to cost of
sales on the consolidated income statement. The deferred gains
on the commodity swaps were fully amortized out of OCI as of the
end of the second quarter 2008.
The Company expects to relieve $0.6 million from OCI and
charge
other-net
on
the consolidated income statement in the twelve month period
beginning July 4, 2009.
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are an integrated producer of high performance specialty
engineered materials used in a variety of electrical,
electronic, thermal and structural applications. Our products
are sold into numerous markets, including telecommunications and
computer, aerospace and defense, automotive electronics,
industrial components, appliance, medical and data storage.
Sales were $174.1 million in the second quarter 2009
compared to $246.6 million in the second quarter 2008 as
the impact of the global economic crisis and the related decline
in consumer spending, which began to affect us in the fourth
quarter 2008, continued to adversely affect the demand from many
of our key markets. Sales in the second quarter 2009, however,
were $38.7 million higher than sales of $135.4 million
in the first quarter 2009. We believe that the rate of decline
in our sales in the first quarter 2009 was greater than the
fall-off in consumer spending due to the excess inventory
positions throughout the supply chain and that a portion of the
improvement in sales in the second quarter over the first
quarter was due to the depletion of these excess inventories.
Sales were also lower in the second quarter and first half of
2009 than the respective periods of 2008 due to a lower average
metal price pass-through.
Margins and profitability declined due to the lower sales volume
in the second quarter and first half of 2009. An unfavorable
product mix shift and manufacturing inefficiencies as a result
of the lower production volumes also reduced profitability in
the current year.
In response to the weaker economic conditions, we took various
actions, including reducing headcount, freezing and then cutting
wages, reducing work hours, eliminating the 401(k) savings plan
match, cancelling or suspending lower priority programs,
reducing discretionary spending and other cost-saving
initiatives. These actions, net of the related severance costs
that were primarily recorded in the first quarter 2009, helped
mitigate the impact of the lower sales volume. The combination
of the cost initiatives and improved sales resulted in a loss of
$0.04 per share in the second quarter after a loss of $0.40 per
share in the first quarter 2009 and income of $0.35 per share in
the second quarter 2008.
Despite the net loss for the first half of 2009, debt declined
$3.4 million while cash increased $2.5 million. Cash
flow from operating activities was a solid $11.7 million in
the first six months of 2009, with the second quarter 2009 being
particularly strong. Capital spending, net of the reimbursement
from the government for the construction of a new primary
beryllium facility, continued to be managed to low levels and
has been reduced to high-priority and maintenance capital levels.
11
The
debt-to-debt-plus-equity
ratio as of the end of the second quarter 2009 was the lowest
level since the fourth quarter 2007, which was prior to the
$86.5 million acquisition of Techni-Met, Inc.
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Sales
|
|
$
|
174.1
|
|
|
$
|
246.6
|
|
|
$
|
309.5
|
|
|
$
|
472.9
|
|
Operating profit (loss)
|
|
|
(1.6
|
)
|
|
|
11.6
|
|
|
|
(13.0
|
)
|
|
|
19.6
|
|
Income (loss) before income taxes
|
|
|
(1.8
|
)
|
|
|
11.0
|
|
|
|
(13.6
|
)
|
|
|
18.6
|
|
Net income (loss)
|
|
|
(0.8
|
)
|
|
|
7.2
|
|
|
|
(8.9
|
)
|
|
|
11.8
|
|
Diluted earnings per share
|
|
$
|
(0.04
|
)
|
|
$
|
0.35
|
|
|
$
|
(0.44
|
)
|
|
$
|
0.57
|
|
Sales
of $174.1 million in the second quarter
2009 declined $72.5 million, or 29%, from sales of
$246.6 million in the second quarter 2008. For the first
six months of the year, sales of $309.5 million in 2009
were 35% lower than sales of $472.9 million in 2008.
Domestic sales declined 27% in the second quarter 2009 and 32%
in the first half of 2009 from the comparable periods in 2008.
International sales were 34% lower in the second quarter 2009
and 39% lower in the first half of 2009 than the same periods in
2008. International sales were 33% of total sales in the first
half of 2009 and 35% of sales in the first half of 2008.
Sales to all major international regions were lower in the
second quarter 2009 and the first half of 2009 than in the same
periods of the prior year. The impact of translating foreign
currency denominated sales was an unfavorable $0.6 million
in the second quarter 2009 as compared to the second quarter
2008 and an unfavorable $0.9 million in the first half of
2009 compared to the first half of 2008.
While sales were lower thus far in 2009 than the comparable
periods of 2008, sales in the second quarter 2009 improved
$38.7 million, or 29%, over sales in the first quarter
2009. Both domestic and international sales grew in the second
quarter over the first quarter, with the majority of the
international growth coming from Asia. The order entry rate also
improved in the second quarter over the first quarter 2009.
Demand from the telecommunications and computer market, our
largest market, and the automotive electronics, data storage and
other markets that are directly related to consumer spending
levels softened considerably due to the weak economic conditions
generally beginning in the fourth quarter 2008. The demand for
our products appears to have fallen at a greater rate than the
slowdown in consumer spending due to the high inventory
positions in the downstream supply chain. Our products are the
raw materials for the final product and there typically are a
number of fabricators, assemblers and distributors between the
end-use consumer and us. We believe that when the global
economic slowdown hit, these fabricators, assemblers and
distributors were holding significantly higher levels of
inventory than required to meet the then current demand. As a
result, these inventory levels need to be worked down throughout
the supply chain before our order entry level can rebound to
prior levels. We believe that a portion of the growth in sales
in the second quarter over the first quarter 2009 was due to
inventories in the supply chain being depleted and needing to be
replenished to meet the current consumer demand levels.
Demand from the defense market remained firm during the first
half of 2009. The demand from the medical market, which had been
strong, softened in the second quarter; we anticipate some
improvement in this market over the balance of the year.
We use ruthenium, gold, silver, platinum, palladium and copper
in the manufacture of various products. Our sales are affected
by the prices for these metals, as changes in our purchase price
are passed on to our customers in the form of higher or lower
selling prices. The average prices between periods for some
metals increased while others decreased during the second
quarter. The net impact of the change in metal prices was an
estimated $14.0 million reduction in sales in the second
quarter 2009 from the second quarter 2008 and an estimated
$29.1 million reduction in sales in the first half of 2009
from the first half of 2008.
12
We implemented various cost-saving initiatives beginning late in
the fourth quarter 2008 and throughout the first half of 2009 in
response to the weakening order entry rate at that time. By the
end of the second quarter, total manpower was reduced by 14%
from year-end 2008 levels and 17% from the end of the third
quarter 2008. Compensation levels have been frozen
and/or
reduced. Overtime in the plants was eliminated and regular work
hours were reduced in many cases. The Company match for the
401(k) savings plan was first reduced in half and then suspended
altogether for the majority of employees. Discretionary spending
has been reduced and various projects and initiatives have been
cancelled or delayed. These cost-saving initiatives favorably
impacted gross margins and selling, general and administrative
expenses in the second quarter and first half of 2009. We paid
approximately $1.0 million in severance benefits associated
with the headcount reductions, primarily during the first
quarter 2009.
Gross margin
was $22.1 million, or 13% of
sales, in the second quarter 2009 compared to
$44.6 million, or 18% of sales, in the second quarter 2008.
For the first six months of the year, gross margin was
$36.7 million, or 12% of sales, in 2009 and
$81.6 million, or 17% of sales, in 2008.
The $22.5 million reduction in the gross margin in the
second quarter and the $44.9 million reduction in the gross
margin for the first half of 2009 were largely due to the
decline in sales from the comparable periods in 2008.
Manufacturing inefficiencies, primarily due to the lower
production volumes and the related impact on manning levels and
utilization of equipment, also contributed to the margin decline
in 2009. The change in product mix was unfavorable in both the
second quarter and first half of 2009.
The cost-saving initiatives, including the manpower reductions,
pay cuts and other programs, helped to offset a portion of the
unfavorable impact these items had on gross margin.
The gross margin in the first half of 2009 was reduced by lower
of cost or market charges on ruthenium-based inventories of
$0.8 million and other net inventory valuation adjustments
totaling $0.6 million recorded in the first quarter 2009.
The gross margin in the second quarter 2008 was reduced by a
lower of cost of market charge on ruthenium-based inventories of
$6.0 million recorded in that period.
The reduction in gross margin as a percent of sales in both the
second quarter and first six months of 2009 from the comparable
periods in 2008 was partially due to certain manufacturing
overhead costs, including depreciation, rent, insurance and
other items, being relatively fixed in the short-term regardless
of the sales level.
In the first quarter 2009, we determined that the domestic
defined benefit pension plan was curtailed due to the
significant reduction in force. As a result of the curtailment
and the associated remeasurement, we recorded a
$1.1 million one-time benefit during the first quarter
2009, $0.8 million of which was recorded against cost of
sales and $0.3 million recorded against selling, general
and administrative expenses on the Consolidated Statements of
Income. The 2009 annual expense under the plan was also reduced
by $1.0 million from what it would have been had the plan
not been curtailed. See Critical Accounting Policies.
Selling, general and administrative (SG&A) expenses
totaled $20.7 million in the second quarter 2009
and were $7.6 million lower than the total expense of
$28.3 million in the second quarter 2008. SG&A
expenses of $43.2 million in the first six months of 2009
were $11.8 million lower than expenses of
$55.0 million in the first six months of 2008. SG&A
expenses were 14% of sales in the first six months of 2009 and
12% of sales in the first six months of 2008. The increased
percentage was due to sales being lower in the first six months
of 2009 than the first six months of 2008.
The lower SG&A expenses in both the second quarter and
first half of 2009 largely resulted from the cost-saving
initiatives previously referenced. Discretionary spending items
such as travel, dues and subscriptions and advertising were
lower in the second quarter and first half of 2009 than the
respective periods in 2008 while commissions were lower in 2009
as those expenses are a function of the sales volume.
Incentive compensation expense under cash-based plans was
$1.4 million lower in the second quarter 2009 than the
second quarter 2008 and $1.9 million lower in the first
half of 2009 than the first half of 2008 due to the lower levels
of profitability in the current year relative to the plan
targets. Share-based compensation expense was an additional
$0.2 million lower in the second quarter 2009 than the
second quarter 2008 and $0.8 million lower in the first
half of 2009 than the first half of 2008.
13
In addition to the lower expense from the curtailment of the
defined benefit pension plan, the expense on the supplemental
retirement plan for certain executives was $0.3 million
lower in the first six months of 2009 than in the first six
months of 2008.
International SG&A expenses, other than incentive
compensation, declined $1.7 million in the second quarter
2009 from the second quarter 2008 and $2.8 million in the
first half of 2009 from the first half of 2008. This decline
includes approximately $0.3 million in the second quarter
and $0.6 million in the first half of 2009 due to the
translation benefits from the movement in exchange rates between
periods.
Research and development (R&D) expenses
were
$1.5 million in the second quarter 2009 compared to
$1.6 million in the second quarter 2008. R&D expenses
were $3.2 million in the first half of 2009, a slight
increase over the expense of $3.1 million in the first half
of 2008. We continued to invest in process and product
improvement efforts during the second quarter and first half of
2009 in order to enhance long-term growth opportunities.
Other-net
expense
for the second quarter and first half of 2009
and 2008 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (expense)
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Exchange/translation gain
|
|
$
|
0.3
|
|
|
$
|
(1.5
|
)
|
|
$
|
0.6
|
|
|
$
|
(1.4
|
)
|
Amortization of intangible assets
|
|
|
(0.9
|
)
|
|
|
(0.2
|
)
|
|
|
(1.8
|
)
|
|
|
(0.4
|
)
|
Metal financing fees
|
|
|
(0.7
|
)
|
|
|
(1.2
|
)
|
|
|
(1.6
|
)
|
|
|
(2.0
|
)
|
Directors deferred compensation
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
Other items
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1.5
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
(3.2
|
)
|
|
$
|
(3.9
|
)
|
Exchange and translation gains and losses are a function of the
movement in the value of the U.S. dollar versus certain
other currencies and in relation to the strike prices in
currency hedge contracts.
The amortization of intangible assets was higher in the second
quarter and first half of 2009 than the same periods of 2008 due
to the finalization of the appraisal in the fourth quarter 2008
of the intangible assets acquired with Techni-Met, Inc. in
February 2008.
The metal financing fee was lower in the second quarter 2009
than the second quarter 2008; in the first quarter 2009, the fee
was slightly higher than the same quarter in the prior year. The
fee is a function of the quantity of metal on hand and the
average financing rate.
The income or expense on the directors deferred
compensation plan was a function of the outstanding shares in
the plan and the movement in the share price of our common
stock. In the first quarter 2009, the Board of Directors amended
the deferred compensation plan, eliminating the directors
ability to transfer their deferral balance between stock and
other investment options allowable under the plan. As a result
of the amendment, effective with the beginning of the second
quarter 2009, the shares being held are no longer
marked-to-market
against the income statement in accordance with accounting
guidelines.
Other-net
also includes bad debt expense, gains and losses on the disposal
of fixed assets, cash discounts and other non-operating items.
The
operating loss
was $1.6 million in the
second quarter 2009 and $13.0 million in the first six
months of 2009. In 2008, operating profit was $11.6 million
in the second quarter and $19.6 million in first six months
of the year. The decline in profitability in both the second
quarter and first half of 2009 was primarily due to the lower
margin generated by the significantly reduced sales volume and
other factors, offset in part by the various cost-saving
initiatives and lower
other-net
expenses.
Interest expense-net
of $0.3 million in the
second quarter 2009 was approximately half of the expense from
the second quarter 2008. The net interest expense was
$0.6 million in the first half of 2009 compared to
$1.0 million in the first half of 2008. The lower expense
was primarily due to lower outstanding debt levels in 2009. Debt
had
14
increased in the first quarter 2008 due to the Techni-Met
acquisition in that period, but the subsequent cash flow from
operations has allowed the debt balance to be reduced. The
effective borrowing rate was lower in the second quarter 2009
than the second quarter 2008 as well. These benefits were
partially offset by a slight reduction in the amounts
capitalized in association with capital projects.
The
loss before income taxes
was $1.8 million
in the second quarter 2009 and $13.6 million in the first
six months of 2009. In 2008, income before income taxes was
$11.0 million in the second quarter and $18.6 million
in the first six months of the year.
A
tax benefit
was calculated using an effective
rate of 57% of the loss before income taxes in the second
quarter 2009 and 34% of the loss before income taxes in the
first half of 2009. In 2008, a tax expense was calculated using
an effective rate of 35% of income before income taxes in the
second quarter and 37% in the first six months of the year.
The effects of percentage depletion, foreign source income and
other items were the major factors for the difference between
the effective and statutory rates in both the second quarter and
first six months of 2009 and 2008. The production deduction was
also a major factor affecting the rate in the second quarter and
first half of 2008. The impact of discrete events recorded in
the first quarter 2008 served to increase the effective rate in
that period while discrete events had a minor impact on the
effective rate in the second quarter and first six months of
2009. The percentage impact of tax adjustments that have a
relatively fixed dollar amount will also vary due to significant
movements in the level of the income or loss before income taxes.
The
net loss
was $0.8 million (or $0.04 per
share, diluted) in the second quarter 2009 compared to net
income of $7.2 million (or $0.35 per share, diluted) in the
second quarter 2008. For the first six months of the year, the
net loss was $8.9 million (or $0.44 per share, diluted) in
2009 versus net income of $11.8 million (or $0.57 per
share, diluted) in 2008.
Segment
Results
We have four reportable segments. Beginning in the first quarter
2009, the operating results for Zentrix Technologies Inc., a
small wholly owned subsidiary, are included in the Advanced
Material Technologies and Services segment. Previously, Zentrix
had been included with the corporate office as part of All
Other. We made this change because the Advanced Material
Technologies and Services segment management is now responsible
for Zentrix and this structure is consistent with our internal
reporting and how the Chairman of the Board evaluates the
operations. The results for the prior year have been recast to
reflect this change. See Note F to the Consolidated
Financial Statements.
The operating loss within All Other improved $1.6 million
in the second quarter 2009 from the second quarter 2008. The
improvement was due largely to the cost saving initiatives,
including wage and benefit reductions, and lower incentive
compensation expense. For the first half of the year, the
operating loss within All Other was $1.0 million better in
2009 than in 2008 as portions of the cost reduction benefits
were offset by a higher expense on the directors deferred
compensation plan and other factors.
Advanced
Material Technologies and Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Sales
|
|
$
|
112.3
|
|
|
$
|
129.3
|
|
|
$
|
192.3
|
|
|
$
|
253.3
|
|
Operating profit
|
|
$
|
8.4
|
|
|
$
|
5.0
|
|
|
$
|
9.1
|
|
|
$
|
10.5
|
|
Advanced Material Technologies and Services
manufactures precious, non-precious and specialty metal
products, including vapor deposition targets, frame lid
assemblies, clad and precious metal preforms, high temperature
braze materials, ultra-fine wire, specialty inorganic materials,
optics, performance coatings and microelectronic packages. Major
markets for these products include data storage, medical and the
wireless, semiconductor, photonic and hybrid sectors of the
microelectronics market. Advanced Material Technologies and
Services also has metal cleaning operations and an in-house
refinery that allow for the reclaim of precious metals
15
from its own or customers scrap. Due to the high cost of
precious metal products, we emphasize quality, delivery
performance and customer service in order to attract and
maintain applications. This segment has domestic facilities in
New York, California, Connecticut, Wisconsin and Massachusetts
and international facilities in Asia and Europe.
Sales from Advanced Material Technologies and Services declined
13% from $129.3 million in the second quarter 2008 to
$112.3 million in the second quarter 2009 while sales in
the first half of the year declined 24% from $253.3 million
in 2008 to $192.3 million in 2009.
While sales were lower in the second quarter and first six
months of 2009 than the respective periods of 2008, sales in the
second quarter 2009 were 40% higher than sales in the first
quarter 2009.
Advanced Material Technologies and Services adjusts its selling
prices daily to reflect the current cost of the precious and
certain other metals that are sold. The cost of the metal is
generally a pass-through to the customer and a margin is
generated on the fabrication efforts irrespective of the type or
cost of the metal used in a given application. Therefore, the
cost and mix of metals sold will affect sales but not
necessarily the margins generated by those sales. The net lower
average prices of gold, silver, platinum, palladium and
ruthenium accounted for an estimated $9.3 million of the
$17.0 million decline in sales in the second quarter and
$20.4 million of the $61.0 million decline in sales in
the first half of 2009 compared to the first half of 2008.
Sales of vapor deposition targets and other materials
manufactured at the Buffalo, New York facility were lower in the
second quarter 2009 than in the second quarter 2008, while sales
for the first half of 2009 were significantly lower than the
first half of 2008. The decline in sales in the second quarter
and first six months of 2009 was due to weak demand from the
wireless, photonic, microelectronic packaging and other market
segments due to the global economic conditions. With the
softening of these markets, refining business levels in turn
declined due to the lower quantities of materials available to
be processed. However, market conditions improved in the second
quarter 2009 and sales from the Buffalo facility grew in the
second quarter 2009 over the first quarter 2009 and were largely
responsible for the growth in total segment sales in the second
quarter over the first quarter 2009.
Sales from Techni-Met, a wholly owned subsidiary acquired early
in the first quarter 2008, declined 5% in the second quarter
2009 from the second quarter 2008, but for the first half of the
year, sales were still 15% higher in 2009 than in 2008. The
majority of Techni-Mets products are used in medical
applications and we believe that their shipment levels will
improve over the balance of 2009.
Sales from Thin Film Technology, Inc. (TFT) continued to be
strong in the second quarter 2009 and grew over 20% in the first
half of 2009 from the first half of 2008. This growth was due to
medical and defense applications and their sales backlog as of
the end of the second quarter was quite solid.
Sales of inorganic chemicals were lower in both the second
quarter and first half of 2009 than the comparable periods in
2008. Demand from the markets served by these products remained
soft during the first half of 2009 and we anticipate it will
remain soft during the second half of the year.
Sales of microelectronic packages from Zentrix were higher in
the second quarter 2009 than in the second quarter 2008 and were
essentially unchanged in the first six months of 2009 from the
first six months of 2008.
Total sales for media applications in the data storage market,
including sales of ruthenium-based targets from the Brewster,
New York facility, in the second quarter and first half of 2009
were very weak as they were for the majority of 2008. We have
made progress re-qualifying our materials with key customers;
certain materials have been re-qualified while the process is
continuing for others. Demand from the data storage market had
been depressed in the first quarter 2009 due to the lower
consumer spending levels and other factors; however, the market
appeared to be gaining some strength late in the second quarter
2009.
Sales for magnetic head applications from the Brewster facility
showed improvement in the second quarter 2009.
The gross margin on Advanced Material Technologies and
Services sales was $18.3 million in the second
quarter 2009, a $1.3 million increase over the
$17.0 million of margin generated in the second quarter
2008. The gross margin was 16% of sales in the second quarter
2009 and 13% of sales in the second quarter 2008. For the first
16
half of the year, gross margin was $30.0 million (16% of
sales) in 2009 compared to $33.6 million (13% of sales) in
2008.
The gross margin improved in the second quarter 2009 despite the
lower sales as a result of a $6.0 million lower of cost or
market charge recorded in the second quarter 2008. Manufacturing
overhead costs were also $0.3 million lower in the second
quarter 2009 than in the second quarter 2008 largely due to the
cost saving initiatives. The lower sales volume, an unfavorable
change in the product mix and other factors combined to reduce
margins by $5.0 million in the second quarter 2009 as
compared to the second quarter 2008.
In addition to the aforementioned $6.0 million lower of
cost or market charge, the gross margin comparison between the
first half of 2009 and the first half of 2008 was affected by
the margin lost due to the lower sales, a lower of cost or
market charge of $0.8 million recorded in the first quarter
2009 and an inventory valuation charge of $0.6 million
recorded in the first quarter 2009. In addition, manufacturing
overhead costs were $0.3 million higher in the first half
of 2009 than the first half of 2008 as the cost savings were
more than offset by owning Techni-Met for a full six months in
2009 and other factors.
Total SG&A, R&D and
other-net
expenses were $9.9 million (9% of sales) in the second
quarter 2009, a decline of $2.1 million from the expense
total of $12.0 million (9% of sales) in the second quarter
2008. These expenses totaled $20.9 million (11% of sales)
in the first half of 2009 and $23.1 million (9% of sales)
in the first half of 2008.
The lower expense in the second quarter 2009 was partially due
to the impact of the cost-saving initiatives implemented during
the first and second quarters of 2009. Selling-related expenses
and corporate allocations were also lower in the second quarter
and first six months of 2009 than in the comparable periods of
2008. Metal financing fees were lower in the second quarter 2009
than the second quarter 2008 after being slightly higher in the
first quarter 2009 than the first quarter 2008. These benefits
were partially offset by the increased amortization expense on
the intangible assets acquired with Techni-Met.
Operating profit from Advanced Material Technologies and
Services was $8.4 million in the second quarter 2009, a
$3.4 million improvement over the profit generated in the
second quarter 2008. The improvement was due to a combination of
the margin growth and the reduced SG&A, R&D and
other-net
expenses. For the first half of the year, operating profit was
$9.1 million (5% of sales) in 2009 and $10.5 million
(4% of sales) in 2008.
Specialty
Engineered Alloys
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Sales
|
|
$
|
41.2
|
|
|
$
|
83.0
|
|
|
$
|
78.1
|
|
|
$
|
154.3
|
|
Operating profit (loss)
|
|
$
|
(9.3
|
)
|
|
$
|
4.8
|
|
|
$
|
(20.2
|
)
|
|
$
|
5.5
|
|
Specialty Engineered Alloys
manufactures and sells
three main product families:
Strip products
, the larger of the product
families, include thin gauge precision strip and small diameter
rod and wire. These copper and nickel beryllium alloys provide a
combination of high conductivity, high reliability and
formability for use as connectors, contacts, switches, relays
and shielding. Major markets for strip products include
telecommunications and computer, automotive electronics,
appliance and medical;
Bulk products
are copper and nickel-based alloys
manufactured in plate, rod, bar, tube and other customized forms
that, depending upon the application, may provide superior
strength, corrosion or wear resistance, thermal conductivity or
lubricity. The majority of bulk products contain beryllium.
Applications for bulk products include plastic mold tooling,
bearings, bushings, welding rods, oil and gas drilling
components and undersea telecommunications housing equipment;
and,
Beryllium hydroxide
is produced by Brush Resources
Inc., a wholly owned subsidiary, at its milling operations in
Utah from its bertrandite mine and purchased beryl ore. The
hydroxide is used primarily as a raw material input for strip
and bulk products as well as by the Beryllium and Beryllium
Composites segment.
17
Strip and bulk products are manufactured at facilities in Ohio
and Pennsylvania and are distributed worldwide through a network
of company-owned service centers and outside distributors and
agents.
Sales by Specialty Engineered Alloys of $41.2 million in
the second quarter 2009 were less than half of the sales of
$83.0 million in the second quarter 2008. Sales of
$78.1 million in the first six months of 2009 were 49%
lower than sales of $154.3 million in the first six months
of 2008. Sales of strip and bulk products declined in the second
quarter and first six months of 2009 from the levels in the
comparable periods of 2008. Sales of hydroxide from the Utah
operations totaled $5.9 million in the second quarter 2009
and $3.3 million in the second quarter 2008. There were no
sales of beryllium hydroxide in either the first quarter 2009 or
2008.
Strip volumes shipped in the second quarter 2009 improved 13%
over the first quarter 2009 levels but were still 45% lower than
in the second quarter 2008. Volumes for the first six months of
2009 were 47% lower than the first six months of 2008.
The reduction in shipments in the quarter and first six months
of 2009 compared to last year was across both the higher and
lower beryllium-containing alloy product lines. Lower consumer
spending and excess inventories in the supply chain resulted in
weaker demand from the telecommunications and computer,
automotive electronics and other markets for strip products. The
improvement in strip sales in the second quarter over the first
quarter 2009 was partially due to increased orders for handset
applications, primarily in Asia.
Bulk product volumes shipped were down 55% in the second quarter
and 45% in the first six months of 2009 from the year-ago
periods. The decline in shipments was due to weak demand from
the oil and gas and aerospace markets coupled with high
downstream inventory positions within the supply chain. Bulk
product sales into the oil and gas market were weak as a result
of the soft demand for energy which is keeping the price of oil
below the level that would spur exploration and production
increases. Aerospace market sales were also soft due to ongoing
deferrals of new aircraft deliveries and decreased repair and
maintenance activities.
Lower metal prices accounted for an estimated $4.6 million
of the $41.8 million difference in sales between the second
quarter 2009 and the second quarter 2008 and $8.7 million
of the $76.2 million difference in sales between the first
six months of 2009 and the first six months of 2008.
The gross margin on Specialty Engineered Alloys sales was
$0.2 million in the second quarter 2009 and a negative
$1.1 million in the first six months of 2009. In 2008, the
gross margin was $19.1 million (23% of sales) in the second
quarter and $32.7 million (21% of sales) in the first six
months of the year.
The lower margin in both the second quarter and first six months
of 2009 versus the comparable periods in 2008 was largely due to
the significantly lower sales volume.
Margins were also hurt by manufacturing inefficiencies and
machine utilization rates as a result of lower production
volumes. The change in product mix was unfavorable in 2009 as
well. Headcount reductions, reduced work hours, wage cut-backs
and other cost-saving measures offset a portion of the negative
volume impact and inefficiencies.
Total SG&A, R&D and
other-net
expenses were $9.4 million (23% of sales) in the second
quarter 2009 and $14.4 million (17% of sales) in the second
quarter 2008. For the first half of the year, these expenses
totaled $19.0 million (24% of sales) in 2009 and
$27.3 million (18% of sales) in 2008 as expenses in 2009
have been reduced 30% from 2008 levels.
The expense reduction was due to a combination of the
cost-saving initiatives, lower incentive accruals, reduced
corporate charges and differences in exchange gains and losses
between periods. The cost-saving initiatives have resulted in
lower manpower, travel, advertising and other expenses. Outside
commissions were also significantly lower due to the lower sales.
Specialty Engineered Alloys generated an operating loss of
$9.3 million in the second quarter 2009 and
$20.2 million in the first half of 2009. In 2008, this
segment generated an operating profit of $4.8 million in
the second quarter and $5.5 million in the first half of
the year. The
year-to-date
operating loss in 2009 included severance costs of
$0.5 million recorded in the first quarter.
18
The recent global economic downturn has significantly affected
worldwide demand for Alloy strip products. Considering the
impact of the downturn and the ongoing efforts of the customer
base to replace our strip products with lower cost non-beryllium
alloys, it is not certain if or when demand levels will return
to the pre-downturn levels. As a result, we have taken
significant cost reduction actions and will continue to examine
alternatives to realign or restructure this business. In the
long-term, we anticipate that sales of bulk products will grow
as a result of improved market conditions and our continued
product application development and diversification efforts.
Beryllium
and Beryllium Composites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Sales
|
|
$
|
13.1
|
|
|
$
|
14.7
|
|
|
$
|
26.1
|
|
|
$
|
28.1
|
|
Operating profit
|
|
$
|
1.0
|
|
|
$
|
2.3
|
|
|
$
|
2.9
|
|
|
$
|
2.6
|
|
Beryllium and Beryllium Composites
manufactures
beryllium-based metals and metal matrix composites in rod,
sheet, foil and a variety of customized forms at the Elmore,
Ohio and Fremont, California facilities. These materials are
used in applications that require high stiffness
and/or
low
density and they tend to be premium priced due to their unique
combination of properties. This segment also manufactures
beryllia ceramics through our wholly owned subsidiary, Brush
Ceramic Products Inc., in Tucson, Arizona. Defense and
government-related applications, including aerospace, is the
largest market for Beryllium and Beryllium Composites, while
other markets served include medical, telecommunications and
computer, electronics (including acoustics), optical scanning
and general industrial products.
Sales by Beryllium and Beryllium Composites were
$13.1 million in the second quarter 2009, an 11% decrease
from sales of $14.7 million in the second quarter 2008.
Sales of $26.1 million in the first half of 2009 were 7%
lower than sales of $28.1 million in the first half of 2008.
Sales from the Elmore facility, primarily for defense-related
applications, grew in the second quarter and first half of 2009
over the comparable periods in 2008. The defense sector has
performed well in 2009, except for the unexpected delay and then
cancellation of the deployment of the U.S. missile defense
program in Eastern Europe.
The growth in defense-related sales, however, was more than
offset by the decline in sales in the other portions of this
segments business. Demand for beryllium products for
commercial applications was soft, while the demand for x-ray
window materials from the Fremont facility weakened considerably
in the second quarter 2009 after a soft first quarter of the
year. Sales of beryllia ceramics declined approximately 50% in
the second quarter 2009 and 38% in the first half of 2009
primarily due to an excess inventory position at our largest
customer for those materials. We do not anticipate sales of
beryllia ceramics to improve from the second quarter level until
late in the third quarter 2009.
The gross margin on Beryllium and Beryllium Composites
sales was $3.4 million, or 26% of sales, in the second
quarter 2009 compared to a gross margin of $5.1 million, or
35% of sales, in the second quarter 2008. The gross margin was
$8.1 million, or 31% of sales, in the first six months of
2009 and $8.4 million, or 30% of sales, in the first six
months of 2008.
The majority of the difference in gross margins between the
second quarter and first six months of 2009 with the respective
periods in the prior year was due to differences in the sales
volume. The change in the product mix was unfavorable in the
second quarter but favorable for the first six months of the
year. Manufacturing improvements at the Elmore facility,
including higher yields, greater efficiencies and scrap
utilization, primarily in the first quarter 2009, provided a
benefit to gross margin in the first six months of 2009 and
helped to offset the manufacturing inefficiencies due to the
lower production volumes at the other facilities.
SG&A, R&D and
other-net
expenses for Beryllium and Beryllium Composites totaled
$2.4 million, or 18% of sales, in the second quarter 2009
and $2.8 million, or 19% of sales, in the second quarter
2008. These expenses totaled $5.2 million, or 20% of sales,
in the first six months of 2009 and $5.8 million, or 21% of
sales, in the first six months of 2008. While this
segments sales and margins have not been as affected by
the global economic crisis as
19
the other segments, various measures were implemented to
maintain
and/or
reduce expense levels in light of the consolidated operating
loss.
Operating profit for Beryllium and Beryllium Composites was
$1.0 million in the second quarter 2009 compared to
$2.3 million in the second quarter 2008. For the first half
of the year, operating profit improved from $2.6 million in
2008 to $2.9 million in 2009. Operating profit was 11% of
sales in the first half of 2009 and 9% of sales in the first
half of 2008.
Engineered
Material Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Ended
|
|
|
First Half Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
(Millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Sales
|
|
$
|
7.5
|
|
|
$
|
19.6
|
|
|
$
|
12.9
|
|
|
$
|
37.3
|
|
Operating profit (loss)
|
|
$
|
(0.8
|
)
|
|
$
|
2.0
|
|
|
$
|
(3.5
|
)
|
|
$
|
3.4
|
|
Engineered Material Systems
includes clad inlay
and overlay metals, precious and base metal electroplated
systems, electron beam welded systems, contour profiled systems
and solder-coated metal systems. These specialty strip metal
products provide a variety of thermal, electrical or mechanical
properties from a surface area or particular section of the
material. Our cladding and plating capabilities allow for a
precious metal or brazing alloy to be applied to a base metal
only where it is needed, reducing the material cost to the
customer as well as providing design flexibility. Major
applications for these products include connectors, contacts and
semiconductors. The largest markets for Engineered Material
Systems are automotive electronics, telecommunications and
computer electronics and data storage, while the energy and
defense and medical electronic markets offer further growth
opportunities. Engineered Material Systems are manufactured at
our Lincoln, Rhode Island facility.
Sales from Engineered Material Systems of $7.5 million in
the second quarter 2009 were 62% lower than sales of
$19.6 million in the second quarter 2008, while sales for
the first half of 2009 of $12.9 million were 65% lower than
sales of $37.3 million in the first half of 2008.
The decline in sales in the second quarter and first half of
2009 was across all of this segments key markets and in
each of its major product families. The lower consumer spending
for electronics, automobiles and other items coupled with an
excess inventory position downstream in the supply chain
resulted in lower demand for products from Engineered Material
Systems.
While sales are behind last years pace, sales in the
second quarter 2009 did improve 39% over sales in the first
quarter 2009. Sales of disk drive arm materials, which were
immaterial in the first quarter 2009 after being one of the
segments largest applications in 2008, were largely
responsible for the growth in the second quarter over the first
quarter 2009.
The order entry rate also improved during the early portions of
the second quarter. However, after a spike in demand, partially
due to portions of the supply chain rebuilding inventory levels,
order rates softened late in the second quarter and early third
quarter as customers remain cautious about their level of
business.
The gross margin on Engineered Material Systems sales was
$0.5 million, or 7% of sales, in the second quarter 2009
and a negative $0.6 million in the first half of 2009. In
2008, the gross margin was $4.0 million, or 21% of sales,
in the second quarter and $7.4 million, or 20% of sales, in
the first six months of the year.
The decline in margins in both the second quarter and first half
of 2009 was due to the lower sales volume. Actions were taken to
lower costs, including manpower reductions, shortened work
hours, cancellation of programs and services, vendor push-backs
and other items. However, the impact of these items was not
enough to offset the lost margins due to the steep drop in
volumes. The change in product mix was unfavorable in the first
six months of 2009 as compared to the first six months of 2008
as well.
Total SG&A, R&D and
other-net
expenses of $1.4 million in the second quarter 2009 were
$0.7 million lower than the second quarter 2008 while the
expense total of $2.8 million in the first half of 2009 was
$1.2 million lower than the first half of 2008 as expenses
were reduced in light of the lower sales volumes. Lower
incentive compensation accounted for $0.3 million of the
reduced expense in the second quarter 2009 and $0.5 million
of the
20
reduced expense in the first half of 2009. Manpower costs,
travel, dues, advertising and other costs were also reduced in
the second quarter and first half of 2009.
The operating loss from Engineered Material Systems was
$0.8 million in the second quarter 2009 and
$3.5 million in the first half of 2009. In 2008, Engineered
Material Systems generated an operating profit of
$2.0 million in the second quarter and $3.4 million in
the first half of the year. The operating loss in the first half
of 2009 includes $0.3 million of one-time severance costs
recorded in the first quarter 2009. The operating results
improved each month during the second quarter 2009 due to higher
sales and the realization of the cost savings from the actions
taken to date.
Legal
One of our subsidiaries, Brush Wellman Inc., is a defendant in
proceedings in various state and federal courts brought by
plaintiffs alleging that they have contracted chronic beryllium
disease or other lung conditions as a result of exposure to
beryllium. Plaintiffs in beryllium cases seek recovery under
negligence 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.
The following table summarizes the associated activity with
beryllium cases.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
July 3,
|
|
|
Apr. 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Total cases pending
|
|
|
8
|
|
|
|
9
|
|
Total plaintiffs
|
|
|
29
|
|
|
|
37
|
|
Number of claims (plaintiffs) filed during period ended
|
|
|
0
|
(0)
|
|
|
0
|
(2)
|
Number of claims (plaintiffs) settled during period ended
|
|
|
0
|
(0)
|
|
|
0
|
(0)
|
Aggregate cost of settlements during period ended (dollars in
thousands)
|
|
$
|
0
|
|
|
$
|
0
|
|
Number of claims (plaintiffs) otherwise dismissed
|
|
|
1
|
(8)
|
|
|
0
|
(1)
|
Settlement payment and dismissal for a single case may not occur
in the same period.
Additional beryllium claims may arise. Management believes that
we have substantial defenses in these cases and intends to
contest the suits vigorously. Employee cases, in which
plaintiffs have a high burden of proof, have historically
involved relatively small losses to us. Third-party plaintiffs
(typically employees of 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.
Although it is not possible to predict the outcome of the
litigation pending against our subsidiaries and us, we provide
for costs related to these matters when a loss is probable and
the amount is reasonably estimable. Litigation is subject to
many uncertainties, and it is possible that some of these
actions could be decided unfavorably in amounts exceeding our
reserves. An unfavorable outcome or settlement of a pending
beryllium case or additional adverse media coverage could
encourage the commencement of additional similar litigation. We
are unable to estimate our potential exposure to unasserted
claims.
Based upon currently known facts and assuming collectibility of
insurance, we do not believe that resolution of the current and
future beryllium proceedings will have a material adverse effect
on our financial condition or cash flow. However, our results of
operations could be materially affected by unfavorable results
in one or more of these cases. As of July 3, 2009, two
purported class actions were pending.
The balances recorded on the Consolidated Balance Sheets
associated with beryllium litigation were as follows:
|
|
|
|
|
|
|
|
|
(Millions)
|
|
July 3,
|
|
|
December 31,
|
|
Asset (liability)
|
|
2009
|
|
|
2008
|
|
|
|
|
Reserve for litigation
|
|
$
|
(1.9
|
)
|
|
$
|
(2.0
|
)
|
Insurance recoverable
|
|
|
1.6
|
|
|
|
1.7
|
|
21
Regulatory Matters.
Standards for
exposure to beryllium are under review by the United States
Occupational Safety and Health Administration and by other
governmental and private standard-setting organizations. One
result of these reviews will likely be more stringent worker
safety standards. Some organizations, such as the California
Occupational Health and Safety Administration and the American
Conference of Governmental Industrial Hygienists, have adopted
standards that are more stringent than the current standards of
OSHA. The development, proposal or adoption of more stringent
standards may affect the buying decisions by the users of
beryllium-containing products. If the standards are made more
stringent
and/or
our
customers or other downstream users decide to reduce their use
of beryllium-containing products, our operating results,
liquidity and financial condition could be materially adversely
affected. The impact of this potential adverse effect would
depend on the nature and extent of the changes to the standards,
the cost and ability to meet the new standards, the extent of
any reduction in customer use and other factors. The magnitude
of this potential adverse effect cannot be estimated.
Financial
Position
Net cash from operating activities
was
$11.7 million in the first half of 2009 as the effects of
depreciation and a net reduction in working capital items more
than offset the net loss. Net cash from operations in the second
quarter 2009 alone was $25.8 million, a significant
improvement over the first quarter of 2009 when cash used in
operations totaled $14.1 million.
Cash
balances stood at $21.0 million as of
the end of the second quarter 2009, an increase of
$2.5 million from year-end 2008 as the cash flow from
operations was more than sufficient to fund capital expenditures
and a reduction of debt.
Accounts receivable
totaled $74.1 million as
of the end of the second quarter 2009, a decrease of
$13.8 million, or 16%, from December 31, 2008. The
decline in receivables is due to sales in the second quarter
2009 being lower than sales in the fourth quarter 2008 and a
reduction in the average collection period.
We continued to aggressively monitor and manage our credit
exposures in light of the current economic climate. The bad debt
expense for the first half of 2009 was immaterial. While there
were no significant accounts written off during the first half
of 2009, the depth and breadth of the current economic crisis
has resulted in the rapid deterioration in the financial
condition of numerous companies.
Other receivables
totaling $4.6 million as of
the end of the second quarter primarily represented amounts
outstanding for reimbursement of equipment purchased under a
government contract. Outstanding receivables as of
December 31, 2008 from the government under this contract
totaled $2.0 million. The $3.4 million balance as of
December 31, 2008 also included $1.4 million due from
escrow as a result of the finalization of the purchase price for
the Techni-Met acquisition that was collected in full during the
first quarter 2009.
Inventories
of $132.9 million as of
July 3, 2009 were $23.8 million, or 15%, lower than
the balance as of December 31, 2008. Due to the continued
inventory reductions and the improved sales in the second
quarter as compared to the first quarter, the inventory turnover
ratio, a measure of how quickly inventory is sold on average,
was essentially unchanged as of the end of the second quarter
from the year-end 2008 level.
The majority of the decline in inventory levels was in Specialty
Engineered Alloys. In addition to a 17% reduction in pounds
during the first half of 2009 due to the lower level of
business, the value declined from a shift in the inventory
make-up
as
the quantity of the higher valued finished goods inventory
decreased by more than the lower valued feedstocks and
work-in-process.
Inventories at Engineered Material Systems declined
approximately 19% in response to the lower level of business.
Inventories at Advanced Material Technologies and Services were
slightly lower at the end of the second quarter 2009 than
year-end 2008. Inventories within Beryllium and Beryllium
Composites increased due to their business levels and other
factors.
We use the last in, first out (LIFO) method for valuing a large
portion of our domestic inventories. By so doing, the most
recent cost of various raw materials, including gold, copper and
nickel, is charged to cost of sales in the current period. The
older, and often times lower, costs are used to value the
inventory on hand. Therefore, current
22
changes in the cost of raw materials subject to the LIFO
valuation method have only a minimal impact on changes in the
inventory carrying value.
Prepaid expenses
totaled $26.4 million as of
the end of the second quarter 2009, an increase of
$2.7 million from year-end 2008. The change in the balance
was partially due to recording an income tax benefit as a result
of the operating loss in the first half of 2009. The balances
for other miscellaneous prepaids, including insurance and
manufacturing supplies, changed due to the timing of payments.
Other assets
were $32.2 million at the end of
the second quarter 2009 and $34.4 million at the end of
2008. This $2.2 million reduction was largely due to the
amortization of intangible assets, including deferred financing
costs.
Capital expenditures
for property, plant and
equipment and mine development totaled $16.4 million in the
first half of 2009.
Capital spending in the first half of 2009 included
$11.1 million for the design and development of the new
facility for the production of primary beryllium under a
Title III contract with the U.S. Department of Defense
(DoD). The total cost of the project is estimated to be
approximately $90.4 million; we will contribute land,
buildings, research and development, technology and ongoing
operations valued at approximately $23.3 million to the
project. The DoD will reimburse us for the balance of the
project cost. Reimbursements from the DoD are recorded as
unearned income and included in other long-term liabilities on
the Consolidated Balance Sheets. We anticipate the facility will
be completed in the fourth quarter 2010.
The remaining $5.3 million of spending in the first half of
2009 was on small, isolated projects across the organization.
Spending by Advanced Material Technologies and Services was
$2.1 million and included spending on a micro-slitter and
clean room at Techni-Met. Spending by Specialty Engineered
Alloys was $1.0 million. The balance of the spending was
divided among the other two reportable segments and the
corporate office, which included spending on computer software
implementations.
The spending rate, exclusive of the amounts reimbursed by the
government, was lower than the first half of 2008 and the total
depreciation and amortization level for the first half of 2009
as we reduced the spending rate due to the operating losses
being generated. Capital expenditures are generally limited to
high priority
and/or
maintenance capital levels only.
Other liabilities and accrued items
were
$30.7 million at the end of the second quarter 2009 and
$45.1 million at the end of 2008. The majority of this
decline was due to the payment of the 2008 incentive
compensation during the first quarter 2009. The liability for
the fair value of outstanding derivative contracts also declined
during the first half of 2009 due to changes in the market
exchange rates relative to the contract rates. Other accruals,
including accruals for utilities and fringe benefits, declined
by more minor amounts as well.
Unearned revenue,
which is a liability
representing products invoiced to customers but not shipped, was
$2.1 million as of July 3, 2009 versus
$0.1 million as of December 31, 2008. Revenue and the
associated margin will be recognized for these transactions when
the goods ship, title passes and all other revenue recognition
criteria are met. Invoicing in advance of the shipment, which is
only done in certain circumstances, allows us to collect cash
sooner than we would otherwise.
Other long-term liabilities
were
$29.7 million as of the end of the second quarter 2009
compared to $19.4 million as of year-end 2008. This
increase was primarily due to payments received from the
government under the contract for the design of the new
beryllium production facility in 2009. These payments are
classified as a long-term unearned income liability. The
liability will be relieved to income over the life of the
facility once it is built and placed into service.
The
retirement and post-employment benefit
balance
totaled $81.4 million at the end of the second quarter
2009, a decline of $15.8 million from the balance at
December 31, 2008. This balance represents the liability
under our domestic defined benefit pension plan, the retiree
medical plan and other retirement plans and post-employment
obligations.
23
The main cause for the decline was contributions totaling
$14.0 million to the domestic pension plan during the first
half of 2009; we anticipate making additional contributions
totaling an estimated $3.8 million in the second half of
the year. The pension liability was also affected by the
curtailment and the associated remeasurement, other
comprehensive income adjustments and the quarterly expense. The
movement in the liability due to the expense on the retiree
medical plan and the other retirement plans was generally offset
by the cash paid.
Debt
totaled $38.4 million at the end of the
second quarter 2009, a decrease of $3.4 million from the
total debt of $41.8 million at the end of 2008. Debt had
increased $10.9 million in the first quarter 2009 as a
result of the $12.1 million pension plan contribution and
the net loss offset in part by changes in working capital and
other factors in that period. Debt then declined
$14.3 million in the second quarter 2009 as a result of the
strong cash flow from operating activities and limited capital
expenditures during the quarter.
Short-term debt, which included foreign currency denominated
loans and a gold-denominated loan, was $26.9 million as of
the end of the second quarter 2009. The current portion of
long-term debt was $0.6 million, while long-term debt was
$10.9 million. We were in compliance with all of our debt
covenants as of the end of the second quarter 2009.
Shareholders equity
of $341.3 million
at the end of the second quarter 2009 was $5.8 million
lower than the balance of $347.1 million as of year-end
2008. The decline was primarily due to the comprehensive loss of
$7.6 million (see Note E to the Consolidated Financial
Statements). Equity was also affected by stock compensation
expense, the exercise of options and other factors.
Prior
Year Financial Position
Net cash from operating activities was $6.2 million in the
first half of 2008 as net income and the benefits of
depreciation and amortization more than offset the net increase
in working capital, including increases in trade receivables and
inventory. Receivables grew $22.7 million due to higher
sales in the second quarter 2008 than the fourth quarter 2007, a
slower collection period and the acquisition of Techni-Met. The
other receivable of $11.3 million as of December 31,
2007 representing the amount due under a legal settlement with
our former insurers was collected in full in the first quarter
2008. Inventories increased $15.9 million, or 10%, in the
first half of 2008 due to a slower inventory turnover, increased
mining activity in Utah and the Techni-Met acquisition and in
support of the higher level of anticipated business within the
Advanced Material Technologies and Services segment. Other
liabilities and accrued items declined $11.3 million in the
first half of 2008 largely as a result of the payment of the
2007 incentive compensation to employees. Capital expenditures
were $14.8 million in the first half of 2008, which was
below the level of depreciation and amortization.
We used a combination of cash and additional borrowings to fund
the $86.5 million acquisition of Techni-Met. In addition,
immediately after the acquisition, we sold its precious metal
inventory for its fair value of $22.9 million and consigned
it back under existing lines. Outstanding debt totaled
$87.1 million at the end of the first half of 2008, an
increase of $51.6 million from year-end 2007. The cash
balance stood at $15.2 million, a decline of
$16.6 million from December 31, 2007.
Off-Balance
Sheet Arrangements and Contractual Obligations
We maintain the majority of our precious metal inventories on a
consignment basis in order to reduce our exposure to metal price
movements and to reduce our working capital investment. The
balance outstanding under the off-balance sheet precious metal
consigned inventory arrangements totaled $85.5 million at
the end of the second quarter 2009, a decrease of
$18.7 million from year-end 2008 as the quantities on hand
decreased in response to the lower business levels.
The quantity impact on the balance outstanding was offset in
part by the metal price impact as prices increased in the first
half of 2009 over the year-end 2008 prices.
There have been no substantive changes in the summary of
contractual obligations under long-term debt agreements,
operating leases and material purchase commitments as of
July 3, 2009 from the year-end 2008 totals as disclosed on
page 40 of our Annual Report on
Form 10-K
for the year ended December 31, 2008.
24
Liquidity
We believe funds from operations plus the available borrowing
capacity and the current cash balance are adequate to support
operating requirements, capital expenditures, projected pension
plan contributions, strategic acquisitions and environmental
remediation projects. The total
debt-to-debt-plus-equity
ratio, a measure of balance sheet leverage, was 10% as of the
end of the second quarter 2009 compared to 13% as of the end of
the first quarter 2009. The ratio was also lower than any
quarter-end since the fourth quarter 2007, which was prior to
the acquisition of Techni-Met.
Despite the net loss in the first half of 2009, debt declined by
$3.4 million while cash increased $2.5 million. The
total debt balance of $38.4 million was the lowest
quarterly balance since year-end 2007 while the cash balance of
$21.0 million was the highest since year-end 2007 as well.
There are no mandatory long-term debt repayments to be made in
the second half of 2009.
We had approximately $116.9 million of available borrowing
capacity under the existing lines of credit as of July 3,
2009. A covenant in the revolving credit agreement limits the
available borrowing capacity under that agreement based upon the
latest twelve months of earnings, interest, taxes, depreciation,
amortization and other factors. Depending upon the final
operating results for the third quarter 2009, the available
borrowing capacity under the revolving credit agreement as of
the end of the third quarter 2009 may be significantly
lower than it was as of the end of the second quarter 2009 as a
result of this covenant, but we anticipate that the available
capacity should still be in excess of the levels needed to fund
current operations.
The available and unused capacity under the metal financing
lines totaled approximately $79.8 million as of
July 3, 2009.
Critical
Accounting Policies
Pensions.
In accordance with accounting
guidelines, we determined that we had a curtailment of the
domestic defined benefit pension plan in the first quarter 2009
due to a significant reduction in employment. As a result, the
pension plan liability was remeasured as of February 28,
2009 (the curtailment date) using revised participant data,
updated asset values and other factors. The various assumptions
used to value the plan, including the discount rate and the
expected rate of return on plan assets, were reviewed to
determine if any revisions were warranted. Based upon our
review, the discount rate used to measure the plan liability as
of February 28, 2009 and the expense for the year from that
date forward, was increased to 6.80% from 6.15% as of
December 31, 2008. The rate increase was due to changes in
the market conditions as we used the same process used to
develop the discount rate assumption as of February 28,
2009 as we did at year-end 2008. We determined that revisions to
the expected rate of return on plan assets and other key
assumptions were not warranted as of February 28, 2009.
As a result of the curtailment, the 2009 annual expense for the
plan was reduced from $5.3 million as estimated previously
to $4.3 million after the impact of the curtailment. In
addition, we recorded a one-time curtailment gain in the first
quarter 2009 of $1.1 million due to the recognition of a
portion of the previously unrecognized prior service cost
benefit. Therefore, the net all-in expense for 2009 is projected
to be $3.2 million after the curtailment. The 2008 expense
was $4.8 million.
For additional information regarding critical accounting
policies, please refer to pages 42 to 45 of our Annual Report on
Form 10-K
for the year ended December 31, 2008. Except as set forth
above, there have been no material changes in our critical
accounting policies since the inclusion of this discussion in
our Annual Report on
Form 10-K.
Market
Risk Disclosures
For information regarding market risks, please refer to pages 45
to 47 of our Annual Report on
Form 10-K
for the year ended December 31, 2008. There have been no
material changes in our market risks since the inclusion of this
discussion in our Annual Report on
Form 10-K.
Outlook
We believe that the majority of the fall-off in our sales in
2009 from the 2008 levels was due to the global economic crisis
and not due to a loss of applications; we believe a portion of
the improvement in sales in the second
25
quarter 2009 over the first quarter 2009 resulted from a
reduction in the inventory overhang in the supply chain that was
built-up
prior to the beginning of the crisis. We also believe that as
the general economy starts to recover, our sales, particularly
into those markets directly driven by changes in consumer
spending, will generally improve as well. The sales order entry
rate improved during the second quarter 2009 over the first
quarter 2009 level. While this is encouraging, given the breadth
and depth of the economic crisis, it is too difficult to know
whether these improvements are significant enough to signal that
the crisis has indeed bottomed out.
Our sales into the defense and medical markets had remained firm
during the early portions of the economic crisis. However,
although medical sales softened during the second quarter 2009,
we believe they will improve in the second half of 2009 over the
second quarter level. Late in the second quarter 2009, we
started to see delays and push outs of defense orders in
portions of our business for the second half of 2009. On the
positive side, there were not significant order cancellations
and the 2010 outlook for defense orders remains solid.
In addition, we continued our new application development work,
recognizing that, even in down markets, there are opportunities
to expand our market share or develop new platforms to better
position ourselves for when the economy improves.
We remain committed to the cost-saving initiatives that were
implemented in the first half of 2009 as they had a significant
favorable impact on our operating results. Resources will only
be added back in a controlled manner and when justified by
growth in volumes
and/or
profitability.
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 elsewhere herein:
|
|
|
|
|
The global economy, including the uncertainties related to the
impact of the current global economic crisis;
|
|
|
|
The condition of the markets in 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,
appliance and medical;
|
|
|
|
Changes in product mix and the financial condition of customers;
|
|
|
|
Actual sales, operating rates and margins for the third quarter
and the year 2009;
|
|
|
|
The successful implementation of cost reduction initiatives;
|
|
|
|
Our success in developing and introducing new products and new
product
ramp-up
rates, especially for media applications in the data storage
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 and/or fees;
|
|
|
|
Other financial factors, including cost and availability of raw
materials (both base and precious metals), metal financing fees,
tax rates, exchange rates, pension costs and required cash
contributions and other employee benefit costs, energy costs,
regulatory compliance costs, the cost and availability of
insurance and the impact of the Companys stock price on
the cost of incentive plans;
|
|
|
|
The uncertainties related to the impact of war and terrorist
activities;
|
26
|
|
|
|
|
Changes in government regulatory requirements and the enactment
of new legislation that impacts our obligations and operations;
|
|
|
|
The conclusion of pending litigation matters in accordance with
our expectation that there will be no material adverse
effects; and
|
|
|
|
The risk factors set forth in Part 1, Item 1A of our
Annual Report on
Form 10-K
for the year ended December 31, 2008.
|
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
For information about our market risks, please refer to our
annual report on
Form 10-K
to shareholders for the period ended December 31, 2008.
|
|
Item 4.
|
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 July 3, 2009 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.
In the second quarter 2009, the Company implemented SAP (an
information technology system for accounting, sales and
manufacturing) at one of its domestic facilities. SAP was
implemented in part to improve internal control over financial
reporting at this facility. This change in systems was subject
to thorough testing and review by internal and external parties
both before and after final implementation. SAP had previously
been implemented at a significant number of the Companys
other facilities. The Company continually strives to improve its
internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with GAAP.
Except as set forth above, there have been no changes in our
internal control over financial reporting identified in
connection with the evaluation required by
Rule 13a-15
under the Securities Exchange Act of 1934, as amended, that
occurred during the quarter ended July 3, 2009 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
27
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Our subsidiaries and our holding company are subject, from time
to time, to a variety of civil and administrative proceedings
arising out of our 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
As of July 3, 2009, our subsidiary, Brush Wellman Inc., was
a defendant in eight proceedings in various state and federal
courts brought by plaintiffs alleging that they have 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
negligence and various other legal theories and seek
compensatory and punitive damages, in many cases of an
unspecified sum. Spouses of some plaintiffs claim loss of
consortium.
During the second quarter of 2009, the number of beryllium cases
decreased from nine (involving 37 plaintiffs) as of
April 3, 2009 to eight cases (involving 29 plaintiffs) as
of July 3, 2009. In one case, in which the trial court
granted summary judgment in favor of the Company on
October 30, 2007, and which was affirmed on appeal on
January 13, 2009, the time for filing a writ of certiorari
with the U.S. Supreme Court has passed, and the case is
finally resolved and dismissed. No cases were filed or settled
during the quarter.
The eight pending beryllium cases as of July 3, 2009 fall
into two categories: Six cases involving third-party individual
plaintiffs, with 16 individuals (and one spouse who has filed a
claim as part of his spouses case and two children who
have filed claims as part of their parents case) and two
purported class actions, involving ten named plaintiffs, as
discussed more fully below. Claims brought by third-party
plaintiffs (typically employees of our customers or contractors)
are generally covered by varying levels of insurance.
The first purported class action is Manuel Marin, et al. v.
Brush Wellman Inc., filed in Superior Court of California, Los
Angeles County, case number BC299055, on July 15, 2003. The
named plaintiffs are Manuel Marin, Lisa Marin, Garfield Perry
and Susan Perry. The defendants are Brush Wellman, Appanaitis
Enterprises, Inc., and Doe Defendants 1 through 100. A First
Amended Complaint was filed on September 15, 2004, naming
five additional plaintiffs. The five additional named plaintiffs
are Robert Thomas, Darnell White, Leonard Joffrion, James Jones
and John Kesselring. The plaintiffs allege that they have been
sensitized to beryllium while employed at the Boeing Company.
The plaintiffs wives claim loss of consortium. The
plaintiffs purport to represent two classes of approximately 250
members each, one consisting of workers who worked at Boeing or
its predecessors and are beryllium sensitized and the other
consisting of their spouses. They have brought claims for
negligence, strict liability design defect, strict
liability failure to warn, fraudulent concealment,
breach of implied warranties, and unfair business practices. The
plaintiffs seek injunctive relief, medical monitoring, medical
and health care provider reimbursement, attorneys fees and
costs, revocation of business license, and compensatory and
punitive damages. Messrs. Marin, Perry, Thomas, White,
Joffrion, Jones and Kesselring represent current and past
employees of Boeing in California; and Ms. Marin and
Ms. Perry are spouses. Defendant Appanaitis Enterprises,
Inc. was dismissed on May 5, 2005. Plaintiffs motion
for class certification, which the Company opposed, was heard by
the court on February 8, 2008, and the motion was denied by
the court on May 7, 2008. Plaintiffs filed a notice of
appeal on May 20, 2008.
The second purported class action is Gary Anthony v. Small
Tube Manufacturing Corporation d/b/a Small Tube Products
Corporation, Inc., et al., filed in the Court of Common Pleas of
Philadelphia County, Pennsylvania, case number 000525, on
September 7, 2006. The case was removed to the
U.S. District Court for the Eastern District of
Pennsylvania, case number 06-CV-4419, on October 4, 2006.
The only named plaintiff is Gary Anthony. The defendants are
Small Tube Manufacturing Corporation, d/b/a Small Tube Products
Corporation, Inc.; Admiral Metals Inc.; Tube Methods, Inc.; and
Cabot Corporation. The plaintiff purports to sue on behalf of a
class of current and former employees of the U.S. Gauge
facility in Sellersville, Pennsylvania who have ever been
exposed to beryllium for a period of at least one month while
employed at U.S. Gauge. The plaintiff has brought claims
for negligence. Plaintiff seeks the establishment of a medical
monitoring trust fund, cost of publication of approved
28
guidelines and procedures for medical screening and monitoring
of the class, attorneys fees and expenses. Defendant Tube
Methods, Inc. filed a third-party complaint against Brush
Wellman Inc. in that action on November 15, 2006. Tube
Methods alleges that Brush supplied beryllium-containing
products to U.S. Gauge, and that Tube Methods worked on
those products, but that Brush is liable to Tube Methods for
indemnification and contribution. Brush moved to dismiss the
Tube Methods complaint on December 22, 2006. On
January 12, 2007, Tube Methods filed an amended third-party
complaint, which Brush moved to dismiss on January 26,
2007; however, the Court denied the motion on September 28,
2007. Brush filed its answer to the amended third-party
complaint on October 19, 2007. On November 14, 2007,
two of the defendants filed a joint motion for an order
permitting discovery to make the threshold determination of
whether plaintiff is sensitized to beryllium. On
February 29, 2008, Brush filed a motion for summary
judgment based on plaintiffs lack of any substantially
increased risk of CBD. Oral argument on this motion took place
on June 13, 2008. On September 30, 2008, the court
granted the motion for summary judgment in favor of all of the
defendants and dismissed plaintiffs class action
complaint. On October 29, 2008, plaintiff filed a notice of
appeal. The Court of Appeals has granted a motion to stay the
appeal due to the bankruptcy of one of the appellees, Millennium
Petrochemicals. On April 3, 2009, Small Tube Manufacturing
filed a motion for relief in bankruptcy court from the automatic
stay, asking that the bankruptcy court modify the stay to allow
Small Tube Manufacturings indemnification claim against
Millennium Petrochemicals and the Anthony case to proceed to
final judgment, including all appeals. On May 14, 2009, the
bankruptcy court approved a stipulation and order modifying the
automatic stay to permit Millennium Petrochemicals and Small
Tube Manufacturing to participate in the appeal. On May 27,
2009, Small Tube Manufacturing filed an unopposed motion with
the Court of Appeals to lift the stay, which the court granted
on June 22, 2009.
Other
Claims
One of our subsidiaries, Williams Advanced Materials Inc. (WAM),
is a party to patent litigation in the U.S. involving
Target Technology Company, LLC of Irvine, California (Target).
The litigation involves patents directed to technology used in
the production of DVD-9s, which are high storage capacity DVDs,
and other optical recording media. The patents at issue
primarily concern certain silver alloys used to make the
semi-reflective layer in DVD-9s, a thin metal film that is
applied to a DVD-9 through a process known as sputtering. The
raw material used in the sputtering process is called a target.
Target alleges that WAM manufactures and sells infringing
sputtering targets to DVD manufacturers.
In the first action, filed in April 2003 by WAM against Target
in the U.S. District Court, Western District of New York
(case
no. 03-CV-0276A
(SR)) (the NY Action), WAM had asked the Court for a judgment
declaring certain Target patents invalid
and/or
unenforceable and awarding WAM damages. Target counterclaimed
alleging infringement of those patents and seeking a judgment
for infringement, an injunction against further infringement and
damages for past infringement. Following certain proceedings in
which WAM was denied an injunction to prevent Target from suing
and threatening to sue WAMs customers, Target filed an
amended counterclaim and a third-party complaint naming certain
of WAMs customers and other entities as parties to the
case and adding related other patents to the NY Action. The
action temporarily was stayed pending resolution of the
ownership issue in the CA Action (defined below), as discussed
more fully below. On January 26, 2009, the Court in the CA
Action ordered that the case and remaining issues be transferred
to the Court in the NY Action. As a result, the stay in the NY
Action has been lifted, and the Court in the NY Action has
consolidated the CA Action with the NY Action. With the parties
having resumed pre-trial proceedings, Target had moved the Court
to further amend its counts for infringement to include only
certain claims of six of the patents claimed to be owned by
Target. If granted, Targets counts for infringement of
other claims in those patents and six other patents claimed to
be owned by Target would be removed from the NY Action. WAM had
opposed the motion to the extent Target seeks dismissal without
prejudice of the counts for infringement of the other claims and
other patents. Following a Court hearing on Targets motion
to amend its pleadings and upon agreement of the parties, Target
further amended its counts for infringement to include a total
of nine U.S. patents and withdrawing four other patents. In
response to Targets amendment of its pleadings, WAM moved
for (a) dismissal of Targets counts for lack of
jurisdiction on the basis that Target did not own the patents,
(b) terminating sanctions on the basis of litigation
misconduct by Target, and (c) a stay of discovery pending a
decision by the Court on the first two WAM motions, all of which
motions are pending. WAM continues to dispute Targets
claims of ownership of all of the patents and denies both
validity and infringement of the patent claims. A trial
currently is expected to be held in 2010.
29
Target in September 2004 filed in the U.S. District Court,
Central District of California (case
no. SAC04-1083
DOC (MLGx)), a separate action for infringement of one of the
same patents named in the NY Action (the CA Action), naming as
defendants WAM and certain of WAMs customers who purchase
certain WAM sputtering targets. Target sought a judgment that
the patent is valid and infringed by the defendants, a permanent
injunction, a judgment on ownership of certain Target patents,
damages adequate to compensate Target for the infringement,
treble damages and attorneys fees and costs. In April
2007, Sony DADC U.S., Inc. among other Sony companies (Sony) had
intervened in the CA Action claiming ownership of that patent
and others of the patents that Target is seeking to enforce in
the NY Action. Sonys claim was based on its prior
employment of the patentee and Targets founder, Han H. Nee
(Nee), and had included a demand for damages against both Target
and Nee. WAM on behalf of itself and its customers has a
paid-up
license from Sony under any rights that Sony has in those
patents. Although trial of the CA Action had been scheduled for
March 2009, in December 2008, a confidential settlement
agreement was reached between Target and Sony, as well as a
partial settlement agreement between Target and WAM releasing
WAM and its customers from infringement of the one named patent.
As a result, the issues not subject to any settlement were
(1) a remaining count in which the Target parties had
requested a judgment declaring that Target is the owner of
certain of the Target patents and (2) WAMs request
for sanctions against Target. Pursuant to various stipulations
filed by the parties, the Court on January 6, 2009 ordered
a dismissal with prejudice of all of the respective intervention
claims and counterclaims between the Target parties and the Sony
companies, and a dismissal without prejudice of the
counterclaims by WAM and its defendant customers, the exception
being the remaining declaratory judgment count on patent
ownership. Following motions filed by the parties, the Court on
January 26, 2009 ordered that the case and remaining issues
be transferred to the Court in the NY Action.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
During the three months ended July 3, 2009, we purchased
common shares for directors who elected to defer their annual
director fees and are held in a rabbi trust established under
our 2006 Non-employee Directors Equity Plan as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
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|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Maximum
|
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|
|
|
|
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Purchased as
|
|
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Number of
|
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Part of Publicly
|
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|
Shares that May
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Announced
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Yet Be Purchased
|
|
|
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Total Number of
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Average Price
|
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Plans or
|
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Under the Plans
|
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Period
|
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Shares Purchased
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
or Programs
|
|
|
April 1 through 30, 2009
|
|
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2,080
|
|
|
$
|
15.26
|
|
|
|
|
|
|
|
|
|
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
(a) The Companys Annual Meeting of Shareholders for
2009 was held on May 6, 2009.
(b) The first matter was the election of Directors. Four
directors were elected to serve for a term of three years by the
following vote:
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|
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|
|
|
|
|
|
|
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Shares
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|
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|
Shares Voted
|
|
|
Shares Voted
|
|
|
Shares Voted
|
|
|
Non-
|
|
|
|
For
|
|
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Against
|
|
|
Abstaining
|
|
|
Voted
|
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|
Richard J. Hipple
|
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16,789,758
|
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368,571
|
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25,350
|
|
|
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|
William B. Lawrence
|
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16,744,144
|
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410,301
|
|
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29,235
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William M. Madar
|
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16,584,313
|
|
|
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568,262
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|
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31,104
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|
|
|
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Craig S. Shular
|
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16,968,336
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|
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184,739
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|
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30,604
|
|
|
|
|
|
The following directors continued their term of office after the
meeting: Albert C. Bersticker, Joseph P. Keithley,
Vinod M. Khilnani, William B. Lawrence, William Pryor, N. Mohan
Reddy, William R. Robertson and John Sherwin, Jr.
30
(c) The second matter was a vote to approve the amendment
to the Companys Code of Regulations to allow the Board of
Directors to amend the Code of Regulations to the extent
permitted by Ohio law. The tabulation of votes for the approval
of the amendment, is as follows:
|
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For
|
|
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15,400,551
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Against
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1,650,404
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Abstain
|
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132,724
|
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Broker Non-votes
|
|
|
0
|
|
(d) The third matter was a vote to ratify the appointment
of Ernst & Young LLP as Brush Engineered
Materials auditors for the fiscal year ending
December 31, 2009. The tabulation of votes for the
appointment, which was ratified, is as follows:
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For
|
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16,723,707
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Against
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421,197
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Abstain
|
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38,776
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Broker Non-votes
|
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0
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Item 5.
|
Other
Information
|
On August 5, 2009, the Compensation Committee of the Board
of Directors approved the Second Amendment to the Brush
Engineered Materials Inc. Amended and Restated Executive
Deferred Compensation Plan II (EDCP II). This
amendment reflects changes with the trusteeship of the related
grantor trust and provides additional administrative provisions
and protections in the event of a change of control of the
Company.
|
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|
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3
|
|
|
Amended and Restated Code of Regulations
|
|
10
|
.1
|
|
Form of Trust Agreement between the Company and Fidelity
Management Trust Company
|
|
10
|
.2
|
|
Second Amendment to the Amended and Restated Executive Deferred
Compensation Plan II
|
|
11
|
|
|
Statement regarding computation of per share earnings
|
|
31
|
.1
|
|
Certification of Chief Executive Officer required by
Rule 13a-14(a)
or 15d-14(a)
|
|
31
|
.2
|
|
Certification of Chief Financial Officer required by
Rule 13a-14(a)
or 15d-14(a)
|
|
32
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
31
SIGNATURES
Pursuant to the requirements 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.
BRUSH ENGINEERED MATERIALS INC.
John D. Grampa
Senior Vice President Finance
and Chief Financial Officer
Dated: August 11, 2009
32
EXHIBIT INDEX
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|
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|
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3
|
|
|
Amended and Restated Code of Regulations
|
|
10
|
.1
|
|
Form of Trust Agreement between the Company and Fidelity
Management Trust Company
|
|
10
|
.2
|
|
Second Amendment to the Amended and Restated Executive Deferred
Compensation Plan II.
|
|
11
|
|
|
Statement regarding computation of per share earnings
|
|
31
|
.1
|
|
Certification of Chief Executive Officer required by
Rule 13a-14(a)
or 15d-14(a)
|
|
31
|
.2
|
|
Certification of Chief Financial Officer required by
Rule 13a-14(a)
or 15d-14(a)
|
|
32
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
Exhibit 3
AMENDED
AND RESTATED CODE OF REGULATIONS
OF
BRUSH ENGINEERED MATERIALS INC.
Shareholder Meetings
1. Time And Place Of Meetings. All
meetings of the shareholders for the election of directors or
for any other purpose will be held at such time and place,
within or without the State of Ohio, as may be designated by the
Board of Directors or, in the absence of a designation by the
Board of Directors, the Chairman of the Board of Directors, if
any (the Chairman), the President, the Secretary or
any other individual entitled to give notice pursuant to
Regulation 4. The time of the meeting shall be stated in
the notice of meeting. The Board of Director may postpone and
reschedule any previously scheduled annual or special meeting of
the shareholders.
2. Annual Meeting. An annual meeting of
the shareholders will be held at such time and place as may be
designated pursuant to Regulation 1, at which meeting the
shareholders will elect directors to succeed those directors
whose terms expire at such meeting and will transact such other
business as may be brought properly before the meeting in
accordance with Regulation 9. If the annual meeting is not
held or if the number of directors elected thereat is not
sufficient to replace the directors whose terms expire at that
meeting and to fill all other vacancies, directors may be
elected at a special meeting called for the purpose of electing
directors.
3. Special Meetings. (a) Special
meetings of shareholders may be called by the Chairman, by the
President, by a Vice President, by a majority of the Board of
Directors acting with or without a meeting or by any person or
persons who hold not less than 50% of all the shares outstanding
and entitled to be voted on any proposal to be submitted at the
meeting to be called. Special meetings of the holders of shares
that are entitled to call a special meeting by virtue of any
Preferred Stock Designation may call such meetings in the manner
and for the purposes provided in the applicable terms of such
Preferred Stock Designation. For purposes of this Amended and
Restated Code of Regulations, Preferred Stock
Designation means the express terms of shares of any class
or series of capital stock of the Corporation, whether now or
hereafter issued, with rights to distributions senior to those
of the Common Stock including, without limitation, any relative,
participating, optional or other special rights and privileges
of, and any qualifications or restrictions on, such shares.
(b) Upon written request by any person or persons entitled
to call a meeting of shareholders delivered in person or by
registered mail to the President or the Secretary, such officer
shall forthwith cause notice of the meeting to be given to the
shareholders entitled to notice of such meeting in accordance
with Regulation 4. If such notice shall not be given within
60 days after the delivery or mailing of such request, the
person or persons requesting the meeting may fix the time of the
meeting and give, or cause to be given, notice in the manner
provided in Regulation 4.
4. Notice Of Meetings. Written notice of
every meeting of the shareholders called in accordance with
these Regulations (including any postponed and rescheduled
meeting), stating the time, place and purposes for which the
meeting is called, will be given by or at the direction of the
President, a Vice President, the Secretary or an Assistant
Secretary (or in case of their refusal to give notice by the
person or persons entitled to call the meeting under
Regulation 3). Such notice mill be given by personal
delivery, by mail or by electronic medium not fewer than 7 nor
more than 60 calendar days before the date of the meeting to
each shareholder of record entitled to notice of such meeting.
If such notice is mailed, it shall be addressed to the
shareholders at their respective addresses as they appear on the
records of the Corporation, and notice shall be deemed to have
been given on the day so mailed. Notice of adjournment of a
meeting need not be given if the time and place to which it is
adjourned are fixed and announced at such meeting.
5. Inspectors. Inspectors of election may
be appointed to act at any meeting of shareholders in accordance
with Ohio law.
6. Shareholder Lists. At any meeting of
shareholders, an alphabetically arranged list, or classified
lists, of the shareholders of record as of the applicable record
date who are entitled to vote, showing their respective
addresses and the number and classes of shares held by each,
shall be produced on the request of any shareholder.
7. Quorum. To constitute a quorum at any
meeting of shareholders, there shall be present, in person or by
proxy, shareholders of record entitled to exercise not less than
a majority of the voting power of the Corporation in respect of
any one of the purposes for which the meeting is called, unless
a greater or lesser number is expressly provided for with
respect to a particular class or series of capital stock by the
terms of any applicable Preferred Stock Designation. Except as
may be otherwise provided in any Preferred Stock Designation,
the holders of a majority of the voting power of the Corporation
represented in person or by proxy at a meeting of shareholders,
whether or not a quorum be present, may adjourn the meeting from
time to time. For purposes of this Amended and Restated Code of
Regulations, voting power of the Corporation means
the aggregate voting power of (a) all the outstanding
shares of Common Stock of the Corporation and (b) all the
outstanding shares of any class or series of capital stock of
the Corporation that has (i) rights to distributions senior
to those of the Common Stock including, without limitation, any
relative, participating, optional or other special rights and
privileges of, and any qualifications or restrictions on, such
shares and (ii) voting rights entitling such shares to vote
generally in the election of directors.
8. Voting. Except as otherwise expressly
required by law, the Amended and Restated Articles of
Incorporation or this Amended and Restated Code of Regulations,
at any meeting of shareholders at which a quorum is present, a
majority of the votes cast, whether in person or by proxy, on
any matter properly brought before such meeting in accordance
with Regulation 9 will be the act of the shareholders. An
abstention shall not represent a vote cast. A shareholder may
revoke any proxy that is not irrevocable by attending the
meeting and voting in person or by filing with the Secretary
written notice of revocation or a later appointment. The vote
upon any question brought before a meeting of the shareholders
may be by voice vote, unless otherwise required by law, the
Amended and Restated Articles of Incorporation or this Amended
and Restated Code of Regulations or unless the presiding officer
otherwise determines. Every vote taken by written ballot will be
counted by the inspectors of election, if inspectors of election
are appointed.
9. Order Of Business. (a) The
Chairman, or such other officer of the Corporation as is
designated by a majority of the total number of directors that
the Corporation would have if there were no vacancies on the
Board of Directors (such number being referred to as the
Whole Board), will call meetings of shareholders to
order and will act as presiding officer thereof. Unless
otherwise determined by the Board of Directors prior to the
meeting, the presiding officer of the meeting of shareholders
will also determine the order of business and have the authority
in his or her sole discretion to regulate the conduct of any
such meeting, including, without limitation, (i) by
imposing restrictions on the persons (other than shareholders of
the Corporation or their duly appointed proxies) who may attend
any such shareholders meeting, (ii) by ascertaining
whether any shareholder or his proxy may be excluded from any
meeting of shareholders based upon the presiding officers
determination that any such person has unduly disrupted or is
likely to disrupt the proceedings of the meeting and
(iii) by determining the circumstances in which and time at
which any person may make a statement or ask questions at any
meeting of shareholders.
(b) At an annual meeting of the shareholders, only such
business will be conducted or considered as is properly brought
before the meeting. To be properly brought before an annual
meeting, business must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction
of the President, a Vice President, the Secretary or an
Assistant Secretary in accordance with Regulation 4,
(ii) otherwise properly brought before the meeting by the
presiding officer or by or at the direction of a majority of the
Whole Board or (iii) otherwise properly requested to be
brought before the meeting by a shareholder of the Corporation
in accordance with Regulation 9(c).
(c) For business to be properly requested by a shareholder
to be brought before an annual meeting, the shareholder must
(i) be a shareholder of the Corporation of record at the
time of the giving of the notice for such annual meeting as
provided for in this Amended and Restated Code of Regulations,
(ii) be entitled to vote at such meeting and
(iii) have given timely written notice of the request to
the Secretary. To be timely, a shareholders notice must be
delivered to or mailed and received at the principal executive
offices of the Corporation not fewer than 60 nor more than 90
calendar days prior to the annual meeting; provided, however,
that in the event public announcement of the date of the
annual meeting is not made at least 75 calendar days prior to
the date of the annual meeting and the annual meeting is held on
a date more than ten calendar days before or after the first
anniversary of the date on which the prior years annual
meeting was held, notice by the shareholder, to be timely, must
be so received not later than the close of business on the
10th calendar day following the day on which public announcement
is first made of the date of the annual meeting. A
shareholders notice to the Secretary must set forth as to
each matter the shareholder proposes to bring before the annual
meeting (A) a description in reasonable detail of the
business desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting,
(B) the name and address, as they appear on the
Corporations books, of the shareholder proposing such
business and of the beneficial owner, if other than the
shareholder, on whose behalf the proposal is made, (C) the
class and number of shares of the
2
Corporation that are owned
beneficially and of record by the shareholder proposing such
business and by the beneficial owner, if other than the
shareholder, on whose behalf the proposal is made and
(D) any material interest of the shareholder proposing such
business and the beneficial owner, if other than the
shareholder, on whose behalf the proposal is made in such
business. Notwithstanding the foregoing provisions of this
Amended and Restated Code of Regulations, a shareholder must
also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this
Regulation 9(c). For purposes of this Regulation 9(c)
and Regulation 14, public announcement means
disclosure in a press release reported by the Dow Jones News
Service, Associated Press, or comparable national news service
or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended,
or publicly filed by the Corporation with any national
securities exchange or quotation service through which the
Corporations stock is listed or traded, or furnished by
the Corporation to its shareholders. Nothing in this
Regulation 9(c) will be deemed to affect any rights of
shareholders to request inclusion of proposals in the
Corporations proxy statement pursuant to
Rule 14a-8
under the Securities Exchange Act of 1934, as amended.
(d) At a special meeting of shareholders, only such
business may be conducted or considered as is properly brought
before the meeting. To be properly brought before a special
meeting, business must be (i) specified in the notice of
the meeting (or any supplement thereto) given by or at the
direction of the President, a Vice President, the Secretary or
an Assistant Secretary (or in case of their failure to give any
required notice, the other persons entitled to give notice) in
accordance with Regulation 4 or (ii) otherwise brought
before the meeting by the presiding officer or by or at the
direction of a majority of the Whole Board.
(e) The determination of whether any business sought to be
brought before any annual or special meeting of the shareholders
is properly brought before such meeting in accordance with this
Regulation 9 will be made by the presiding officer of such
meeting. If the presiding officer determines that any business
is not properly brought before such meeting, he or she will so
declare to the meeting and any such business will not be
conducted or considered.
10. Report To Shareholders. At the annual
meeting, or at the meeting held in lieu thereof, the officers of
the Corporation shall lay before the shareholders a financial
statement as required by statute.
11. Action Without A Meeting. Any action
that may be authorized or taken at a meeting of the shareholders
may be authorized or taken without a meeting in a writing or
writings signed by all of the shareholders who would be entitled
to notice of a meeting for such purpose, which writing or
writings shall be filed with or entered upon the records of the
Corporation.
DIRECTORS
12. Function. Except where the law, the
Amended and Restated Articles of Incorporation or this Amended
and Restated Code of Regulations requires action to be
authorized or taken by the shareholders, all of the authority of
the Corporation shall be exercised by or under the direction of
the Board of Directors.
13. Number, Terms And Election Of
Directors. (a) The directors of the
corporation, other than those who may be expressly elected by
virtue of the terms of any Preferred Stock Designation, shall be
classified with respect to the rime for which they severally
hold office into three classes. Except as may be otherwise
provided in any Preferred Stock Designation, each class will
consist of not less than three directors, unless and until the
number of directors of any such class is changed in accordance
with this Regulation 13. The number of directors of any
class will be determined from time to time by (i) the
affirmative vote of the holders of a majority of the voting
power of the Corporation, voting together as a single class, or
(ii) a vote of a majority of the Whole Board, provided that
the number of directors of any class changed by a vote of a majority
of the Whole Board shall not differ by more than one from the
number of directors of such class as last fixed by the
shareholders.
(b) The directors first appointed to Class I will hold
office for a term expiring at the annual meeting of shareholders
to be held in 2001; the directors first appointed to
Class II will hold office for a term expiring at the annual
meeting of shareholders to be held in 2002; and the directors
first appointed to Class III will hold office for a term
expiring at the annual meeting of shareholders to be held in
2003. The members of each class will hold office until their
successors are elected. At each annual meeting beginning in
2001, directors will be elected for a term of three years from
the date of their election and until the election of their
successors.
(c) At each annual meeting of the shareholders of the
Corporation, the successors to the directors whose terms expire
at that meeting shall be elected by a plurality of all the votes
cast at such meeting. Cumulative voting in the election of
directors shall
3
be permitted as provided by statute. Election of
directors of the Corporation need not be by written ballot
unless requested by the presiding officer or by the holders of a
majority of the voting power of the Corporation present in
person or represented by proxy at a meeting of the shareholders
at which directors are to be elected. Directors may also be
elected by a majority of the votes cast at a special meeting
called for the purpose of electing directors or as may otherwise
be provided by any Preferred Stock Designation.
14. Newly Created Directorships And
Vacancies. Except as may be otherwise provided in
any Preferred Stock Designation, any vacancy (including newly
created directorships resulting from any increase in the number
of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal, or
other cause) may be filled by (i) the affirmative vote of a
majority of the remaining directors then in office, even though
less than a quorum of the Board of Directors, (ii) sole
remaining director or (iii) the affirmative vote of the
holders of a majority of the Voting Power of the Corporation,
voting together as a single class, after a vote to increase the
number of directors at a meeting called for that purpose in
accordance with this Amended and Restated Code of Regulations.
Any director elected in accordance with this Regulation 14,
any Preferred Stock Designation or applicable statute will hold
office for the remainder of the full term of the class of
directors in which the new directorship was created or the
vacancy occurred and until such directors successor has
been elected.
15. Removal. Except as may otherwise be
provided by any Preferred Stock Designation, all Directors, for
whatever terms elected, shall hold office subject to applicable
statutory provisions as to the creation of vacancies and
removal. No decrease in the number of directors constituting the
Board of Directors may shorten the term of any incumbent
director.
16. Nominations Of Directors;
Election. (a) Except as may be otherwise
provided in any Preferred Stock Designation, only persons who
are nominated in accordance with this Regulation 16 will be
eligible for election at a meeting of shareholders to be members
of the Board of Directors of the Corporation.
(b) Nominations of persons for election as directors of the
Corporation may be made only at a meeting of shareholders
(i) by or at the direction of the Board of Directors or a
committee thereof or (ii) by any shareholder who is a
shareholder of record at the time of giving of notice provided
for in this Regulation 16, who is entitled to vote for the
election of directors at such meeting, and who complies with the
procedures set forth in this Regulation 16. All nominations
by shareholders must be made to the Secretary in proper written
form and must be timely.
(c) To be timely, a shareholders notice must be
delivered to or mailed and received at the principal executive
offices of the Corporation, in the case of a special meeting of
the shareholders, at the time the meeting request is made in
accordance with Regulation 3, or, in the case of an annual
meeting, not fewer than 60 nor more than 90 calendar days prior
to such annual meeting; provided, however, that in the
event that public announcement of the date of the annual meeting
is not made at least 75 calendar days prior to the date of the
annual meeting and the annual meeting is held on a date more
than one week before or after the first anniversary of the date
on which the prior years annual meeting, was held, notice
by the shareholder to be timely must be so received not later
than the close of business on the 10th calendar day
following the day on which public announcement is first made of
the date of the annual meeting.
(d) To be in proper written form, such shareholders
notice must set forth or include:
(i) the name and address, as they appear on the
Corporations books, of the shareholder giving the notice
and of the beneficial owner, if any, on whose behalf the
nomination is made;
(ii) a representation that the shareholder giving the
notice is a holder of record of stock of the Corporation
entitled to vote at such annual meeting and intends to appear in
person or by proxy at the annual meeting to nominate the person
or persons specified in the notice;
(iii) the class and number of shares of stock of the
Corporation owned beneficially and of record by the shareholder
giving the notice and by the beneficial owner, if any, on whose
behalf the nomination is made;
(iv) a description of all arrangements or understandings
between or among any of (A) the shareholder giving the
notice, (B) the beneficial owner on whose behalf the notice
is given, (C) each nominee and (D) any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder
giving the notice;
4
(v) such other information regarding each nominee proposed
by the shareholder giving the notice as would be required to be
included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, by the Board of
Directors; and
(vi) the signed consent of each nominee to serve as a
director of the Corporation if so elected.
(e) The presiding officer of any annual meeting may, if the
facts warrant, determine that a nomination was not made in
accordance with this Regulation 16, and if he or she should
so determine, he or she will so declare to the meeting, and the
defective nomination will be disregarded. Notwithstanding the
foregoing provisions of this Regulation 16, a shareholder
must also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in
this Regulation 16.
17. Resignation. Any director may resign
at any time by giving written notice of his resignation to the
Chairman or the Secretary. Any resignation will be effective
upon actual receipt by any such person or, if later, as of the
date and time specified in such written notice.
18. Regular Meetings. Regular meetings of
the Board of Directors shall be held immediately after the
annual meeting of the shareholders and at such other time and
place either within or without the State of Ohio as may from
time to time be determined by a majority of the Whole Board.
Notice of regular meetings of the Board of Directors need not be
given.
19. Special Meetings. Special meetings of
the Board of Directors may be called by the Chairman, by the
President, by a Vice President, by the Secretary or by any two
directors. Notice of special meetings, stating the place, date
and hour, shall be given to each director by whom such notice is
not waived. Notice must be given either personally or by mail,
telephone, telegram, telex, facsimile or similar medium of
communication not less than twenty- four hours before the
designated hour for such meeting. Special meetings of the Board
of Directors may be held at such time and place either within or
without the State of Ohio as is determined by a majority of the
Whole Board or specified in the notice of any such meeting.
20. Quorum And Vote. At all meetings of
the Board of Directors, a majority of the total number of
directors then in office will constitute a quorum for the
transaction of business. Except as may be otherwise provided in
any Preferred Stock Designation or by this Amended and Restated
Code of Regulations, the act of a majority of the directors
present at any meeting at which a quorum is present will be the
act of the Board of Directors. If a quorum is not present at any
meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time to another time or
place, without notice other than announcement at the meeting,
until a quorum is present.
21. Action Without A Meeting. Any action
that may be authorized or taken at a meeting of the Board of
Directors may be authorized or taken without a meeting in a
writing or writings signed by all the directors, which writing
or writings shall be filed with or entered upon the records of
the Corporation.
22. Participation In Meetings By Communications
Equipment. Meetings of the Board of Directors or
of any committee of the Board of Directors may be held through
any means of communication equipment if all persons
participating can hear each other, and such participation will
constitute presence in person at such meeting,.
23. Committees. The Board of Directors
may from time to time create an executive committee or any other
committee or committees of directors to act in the intervals
between meetings of the Board of Directors and may delegate to
such committee or committees any of its authority other than
that of filling vacancies among the Board of Directors or in any
committee of the Board of Directors. Each committee shall
consist of one or more directors. The Board of Directors may
appoint one or more directors as alternate members of any such
committee to take the place of absent committee members at
meetings of such committee. Unless otherwise ordered by the
Board of Directors, a majority of the members of any committee
appointed by the Board of Directors pursuant to this
Regulation 23 shall constitute a quorum at any meeting
thereof, and the act of a majority of the members present at a
meeting at which a quorum is present shall be the act of such
committee. Action may be taken by any such committee without a
meeting by a writing or writings signed by all of its members.
Any such committee shall prescribe its own rules for calling and
holding meetings and its method of procedure, subject to any
rules prescribed by the Board of Directors, and will keep a
written record of all action taken by it.
24. Compensation. The Board of Directors
may establish the compensation and expense reimbursement
policies for directors in exchange for service on the Board of
Directors and on committees of the Board of Directors, for
attendance at
5
meetings of the Board of Directors or committees
of the Board of Directors, and for other services by directors
to the Corporation or any of its subsidiaries.
25. Bylaws. The Board of Directors may
adopt Bylaws for the conduct of its meetings and those of any
committees of the Board of Directors that are not inconsistent
with the Amended and Restated Articles of Incorporation or this
Amended and Restated Code of Regulations.
OFFICERS
26. Generally. The Corporation may have a
Chairman, elected by the directors from among their number, and
shall have a President, who shall also be a director, a
Secretary and a Treasurer. The Corporation may also have one or
more Vice Presidents and such other officers and assistant
officers as the Board of Directors may deem appropriate. If the
Board of Directors so desires, it may elect a Chief Executive
Officer to manage the affairs of the Corporation, subject to the
direction and control of the Board of Directors. All of the
officers shall be elected by the Board of Directors.
Notwithstanding the foregoing, by specific action, the Board of
Directors may authorize the Chairman or the President to appoint
any person to any office other than Chairman, President,
Secretary or Treasurer. Any number of offices may be held by the
same person, and no two offices must be held by the same person.
Any of the offices, other than the office of President,
Secretary and Treasurer, may be left vacant from time to time as
the Board of Directors may determine. In case of the absence or
disability of any officer of the Corporation or for any other
reason deemed sufficient by a majority of the Board of
Directors, the Board of Directors may delegate the absent or
disabled officers powers or duties to any other officer or
to any director.
27. Authority And Duties Of Officers. The
officers of the Corporation shall have such authority and shall
perform such duties as are customarily incident to their
respective offices, or as may be specified from time to time by
the Board of Directors, regardless of whether such authority and
duties are customarily incident to such office.
28. Compensation. The compensation of all
officers and agents of the Corporation who are also members of
the Board of Directors of the Corporation will be fixed by the
Board of Directors or by a committee of the Board of Directors.
The Board of Directors may fix the compensation of the other
officers and agents of the Corporation, or delegate the power to
fix such compensation, to the Chief Executive Officer or any
other officer of the Corporation.
29. Succession. The officers of the
Corporation will hold office until their successors are elected
pursuant to Regulation 26. Any officer may be removed at any
time by the affirmative vote of a majority of the Whole Board.
Any vacancy occurring in any office of the Corporation may be
filled by the Board of Directors or by the Chairman or President
as provided in Regulation 26.
STOCK
30. Transfer And Registration Of
Certificates. The Board of Directors shall have
authority to make such rules and regulations as it deems
expedient concerning the issuance, transfer and registration of
certificates for shares and the shares represented thereby and
may appoint transfer agents and registrars thereof.
31. Substituted Certificates. Any person
claiming a certificate for shares to have been lost, stolen or
destroyed (i) shall make an affidavit or affirmation of
that fact, (ii) shall give the Corporation and its
registrar or registrars and its transfer agent or agents a bond
of indemnity satisfactory to the Board of Directors or a
committee thereof or to the President or a Vice President and
the Secretary or the Treasurer and (iii) shall, if required
by the Board of Directors or a committee thereof or the officers
named in this Regulation 31, advertise the fact that the
certificate has been lost, stolen or destroyed, whereupon a new
certificate may be executed and delivered of the same tenor and
for the same number of shares as the one alleged to have been
lost, stolen or destroyed.
32. Voting Of Shares Held By The
Corporation. Unless otherwise ordered by the
Board of Directors, the President, in person or by proxy or
proxies appointed by him, shall have full power and authority on
behalf of the Corporation to vote, act and consent with respect
to any shares issued by other corporations and owned by the
Corporation.
33. Record Dates And Owners. (a) In
order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or to designate an agent to act on
behalf of the shareholders to call a special meeting of
shareholders, or to take any other collective action on behalf
of the shareholders, the Board of
6
Directors may fix a record
date, which will not be fewer than 7 nor more than 60 calendar
days before the date of such meeting. If no record date is fixed
by the Board of Directors, the record date for determining
shareholders entitled to notice of or to vote at a meeting of
shareholders will be the date next preceding the day on which
notice is given, or, if notice is waived, the date next
preceding the day on which the meeting is held.
(b) The Corporation will be entitled to treat the person in
whose name shares are registered on the books of the Corporation
as the absolute owner thereof, and will not be bound to
recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the
Corporation has knowledge or notice of the claim or interest,
except as expressly provided by applicable law.
INDEMNIFICATION
AND INSURANCE
34. Indemnification.
(a) The Corporation shall indemnify, to the full extent
then permitted by law, any director or officer or former
director or officer of the Corporation who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he
is or was a member of the Board of Directors or an officer,
employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The Corporation shall pay,
to the full extent then required by law, expenses, including
attorneys fees, incurred by a member of the Board of
Directors in defending any such action, suit or proceeding as
they are incurred, in advance of the final disposition thereof.
(b) To the full extent then permitted by law, the
Corporation may indemnify employees, agents and other persons
and may pay expenses, including attorneys fees, incurred
by any employee, agent or other person in defending any action,
suit or proceeding as such expenses are incurred, in advance of
the final disposition thereof.
(c) The indemnification and payment of expenses provided by
this Regulation 34 shall not be exclusive of, and shall be
in addition to, any other rights granted to any person seeking
indemnification under any law, the Amended and Restated Articles
of Incorporation, any agreement, vote of shareholders or
disinterested members of the Board of Directors, or otherwise,
both as to action in official capacities and as to action in
another capacity while he or she is a member of the Board of
Directors or an officer, employee or agent of the Corporation,
and shall continue as to a person who has ceased to be a member
of the Board of Directors, trustee, officer, employee or agent
and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
35. Insurance. The Corporation may, to
the full extent then permitted by law and authorized by the
Board of Directors, purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds,
letters of credit or self-insurance, on behalf of or for any
persons described in Regulation 34 against any liability
asserted against and incurred by any such person in any such
capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify such person
against such liability. Insurance may be purchased from or
maintained with a person in which the Corporation has a
financial interest.
36. Agreements. The Corporation, upon
approval by the Board of Directors, may enter into agreements
with any persons who the Corporation may indemnify under this
Amended and Restated Code of Regulations or under law and may
undertake thereby to indemnify such persons and to pay the
expenses incurred by them in defending any action, suit or
proceeding against them, whether or not the Corporation would
have the power under law or this Amended and Restated Code of
Regulations to indemnify any such person.
GENERAL
37. Fiscal Year. The fiscal year of the
Corporation will end on the thirty-first day of December in each
calendar year or such other date as may be fixed from time to
time by the Board of Directors.
38. Seal. The seal of the Corporation
shall be circular in form with the name of the Corporation
stamped around the margin and the word Seal stamped
across the center.
39. Amendments. Except as otherwise
provided by law or by the Amended and Restated Articles of
7
Incorporation or this Amended and Restated Code of Regulations,
these Regulations or any of them may be amended in any respect
or repealed at any time, either (i) by the affirmative vote
of the holders of a majority of the voting power of the
Corporation, voting together as a single class, or (ii) to
the extent as may be permitted by Chapter 1701 of the Ohio
Revised Code in effect from time to time, by the Board of
Directors.
8
Exhibit 10.1
TRUST AGREEMENT
Between
BRUSH ENGINEERED MATERIALS INC.
And
FIDELITY MANAGEMENT TRUST COMPANY
BRUSH ENGINEERED MATERIALS INC. EXECUTIVE DEFERRED
COMPENSATION PLAN II
TRUST
Dated as of June 25, 2009
Confidential
Information
Plan 20804
TABLE OF
CONTENTS
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Section 1.
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Definitions
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2
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Section 2.
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Trust
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6
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(a)
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Establishment
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6
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(b)
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Grantor Trust
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6
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(c)
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Trust Assets
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6
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(d)
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Non-Assignment
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6
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Section 3.
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Payments to Sponsor
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7
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Section 4.
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Disbursements
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7
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(a)
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Directions from Administrator
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7
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(b)
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Limitations
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7
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Section 5.
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Investment of Trust
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7
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(a)
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Selection of Investment Options
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7
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(b)
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Available Investment Options
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7
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(c)
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Investment Directions
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8
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(d)
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Unfunded Status of Plan
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8
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(e)
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Mutual Funds
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8
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(i) Execution of Purchases and Sales
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8
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(ii) Voting
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8
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(f)
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Trustee Powers
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9
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Section 6.
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Recordkeeping and Administrative Services to Be Performed
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10
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(a)
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General
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10
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(b)
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Accounts
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10
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(c)
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Inspection and Audit
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11
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(d)
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Notice of Plan Amendment
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11
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(e)
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Returns, Reports and Information
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12
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Section 7.
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Compensation and Expenses
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12
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Section 8.
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Directions and Indemnification
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12
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(a)
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Identity of the Sponsor and the Administrator
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12
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(b)
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Directions from the Sponsor and the Administrator
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13
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(c)
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Directions from Participants
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13
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(d)
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Indemnification
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13
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(e)
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Survival
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13
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Section 9.
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Resignation or Removal of Trustee
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13
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(a)
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Resignation and Removal
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13
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(b)
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Termination
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13
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(c)
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Notice Period
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13
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(d)
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Transition Assistance
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13
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(e)
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Failure to Appoint Successor
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13
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Section 10.
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Successor Trustee
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13
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(a)
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Appointment
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13
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(b)
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Acceptance
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13
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(c)
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Corporate Action
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13
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Section 11.
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Resignation, Removal, and Termination Notices
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14
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Section 12.
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Duration
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14
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Section 13.
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Insolvency of Sponsor
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15
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Section 14.
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Amendment or Modification
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15
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Section 15.
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Electronic Services
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16
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Section 16.
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Assignment
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16
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Section 17.
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Force Majeure
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16
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Section 18.
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Confidentiality; Safeguarding of Data
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18
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Section 19.
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General
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18
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(a)
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Performance by Trustee, its Agents or Affiliates
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18
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(b)
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Entire Agreement
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18
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(c)
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Waiver
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18
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Confidential
Information
i
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(d)
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Successors and Assigns
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18
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(e)
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Partial Invalidity
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19
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(f)
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Section Headings
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19
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(g)
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Communications
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19
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(h)
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Survival
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19
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Section 20.
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Authorization To Make Available Fidelity Personal Guidance
Offerings
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19
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Section 21.
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Situs of Trust Assets
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20
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Section 22.
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Governing Law
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20
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(a)
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Massachusetts Law Controls
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20
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(b)
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Trust Agreement Controls
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20
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SCHEDULES
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Schedule A
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Recordkeeping and Administrative Services
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Schedule B
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Fee Schedule
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Schedule C
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Investment Options
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Schedule D
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Operational Guidelines for Non-Fidelity Mutual Funds
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Confidential
Information
ii
TRUST AGREEMENT
, dated as of the twenty-fifth day of
June, 2009 (Effective Date), between Brush
Engineered Materials Inc., an Ohio corporation, having an office
at 6070 Parkland Boulevard, Mayfield Heights, OH 44124 (the
Sponsor), and
FIDELITY MANAGEMENT
TRUST COMPANY
, a Massachusetts trust company, having an
office at 82 Devonshire Street, Boston, Massachusetts 02109 (the
Trustee).
WITNESSETH:
WHEREAS
, the Sponsor is the sponsor of the Brush
Engineered Materials Inc. Executive Deferred Compensation
Plan II (the Plan); and
WHEREAS
, each Employer has adopted the Plan and has
incurred or expects to incur liability under the Plan with
respect to its employees participating in the Plan; and
WHEREAS
, the Sponsor wishes to establish an irrevocable
trust (the Trust) with regard to the Plan and to
have each Employer contribute to the Trust assets that shall be
held therein subject to the claims of each Employers
creditors in the event of such Employers Insolvency, as
herein defined, until paid to such Employers Participants
and their beneficiaries in such manner and at such times as
specified in the Plan; and
WHEREAS
, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and shall not
affect the status of the Plan as an unfunded plan maintained for
the purpose of providing deferred compensation for a select
group of management or highly compensated employees for purposes
of Title I of the Employee Retirement Income Security Act
of 1974 (ERISA); and
WHEREAS
, it is the intention of each Employer to make
contributions to the Trust to provide itself with a source of
funds to assist it in the meeting of its liabilities under the
Plan; and
WHEREAS
, the Trustee is willing to hold and invest the
aforesaid plan assets in trust among several investment options
selected by the Sponsor; and
WHEREAS
, the Sponsor also wishes to have the Trustee
perform certain ministerial recordkeeping and administrative
functions under the Plan; and
WHEREAS
, the Trustee is willing to perform recordkeeping
and administrative services for the Plan if the services are
ministerial in nature and are provided within a framework of
plan provisions, guidelines and interpretations conveyed in
writing to the Trustee by the Administrator (as defined herein).
NOW, THEREFORE
, in consideration of the foregoing
premises and the mutual covenants and agreements set forth
below, the Sponsor and the Trustee agree as follows:
Section
1. Definitions.
The following terms as used in this Trust Agreement have
the meaning indicated unless the context clearly requires
otherwise:
(a) Administrator
Administrator shall mean the Plan
Administrator identified in the Plan document.
2
(b) Agreement
Agreement shall mean this
Trust Agreement, and the Schedules
and/or
Exhibits attached hereto, as the same may be amended and in
effect from time to time.
(c) Business Day
Business Day shall mean each day the NYSE is
open. The closing of a Business Day shall mean the NYSEs
normal closing time of 4:00 p.m.(ET), however, in the event
the NYSE closes before such time or alters its closing time, all
references to the NYSE closing time shall mean the actual or
altered closing time of the NYSE.
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(d) Code
Code shall mean the Internal Revenue Code of
1986, as it has been or may be amended from time to time.
(e) EDT
EDT shall mean electronic data transfer.
(f) Electronic Services
Electronic Services shall mean communication
and services made available via electronic media.
(g) Employer
Employer shall mean the Sponsor and any other
corporation in a controlled group of corporations (under Code
Section 414(b)) of which the Sponsor is a member which
adopts the Plan for the benefit of its employees as provided in
the Plan.
(h) ERISA
ERISA shall mean the Employee Retirement
Income Security Act of 1974, as it has been or may be amended
from time to time.
(i) External Account Information
External Account Information shall mean
account information, including retirement savings account
information, from third party websites or other websites
maintained by Fidelity or its affiliates.
(j) Fidelity Mutual Fund
Fidelity Mutual Fund shall mean any
investment company advised by Fidelity Management &
Research Company or any of its affiliates.
(k) FIIOC
FIIOC shall mean Fidelity Investments
Institutional Operations Company, Inc.
(l) In Good Order
In Good Order shall mean in a state or condition
acceptable to the Trustee in its sole discretion, which the
Trustee determines is reasonably necessary for accurate
execution of the intended transaction.
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(m) Insolvency
Insolvency shall mean with respect to an
Employer that (i) such Employer is unable to pay its debts
as they become due, or (ii) such Employer is subject to a
pending proceeding as a debtor under the United States
Bankruptcy Code.
(n) Insolvent
Insolvent shall mean with respect to an
Employer that (i) such Employer is unable to pay its debts
as they become due, or (ii) such Employer is subject to a
pending proceeding as a debtor under the United States
Bankruptcy Code.
(o) Losses
Losses shall mean any and all loss, damage,
penalty, liability, cost and expense, including without
limitation, reasonable attorneys fees and disbursements.
(p) Mutual Fund
Mutual Fund shall refer both to Fidelity
Mutual Funds and Non-Fidelity Mutual Funds.
(q) NAV
NAV shall mean Net Asset Value.
(r) NFSLLC
NFSLLC shall mean National Financial Services
LLC.
(s) Non-Fidelity Mutual Fund
Non-Fidelity Mutual Fund shall mean certain
investment companies not advised by Fidelity
Management & Research Company or any of its affiliates.
(t) NYSE
NYSE shall mean the New York Stock Exchange.
(u) Participant
Participant shall mean, with respect to the
Plan, any employee (or former employee) with an account under
the Plan, which has not yet been fully distributed
and/or
forfeited, and shall include the designated beneficiary(ies)
with respect to the account of any deceased employee (or
deceased former employee) until such account has been fully
distributed
and/or
forfeited.
(v) Participant Recordkeeping Reconciliation
Period
Participant Recordkeeping Reconciliation Period
shall mean the period beginning on the date of the initial
transfer of assets to the Trust and ending on the date of the
completion of the reconciliation of Participant records.
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(w) Person
Person shall mean any corporation, joint
stock company, limited liability company, association,
partnership, joint venture, organization, individual, business
or other trust or any other entity or organization of any kind
or character, including a court or other governmental authority.
(x) PIN
PIN shall mean personal identification number.
(y) Plan
Plan shall mean the Brush Engineered
Materials Inc. Executive Deferred Compensation Plan II.
(z) Plan Administration Design &
Discovery Document
Plan Administration Design & Discovery
Document shall mean the document which sets forth the
administrative and recordkeeping duties and procedures to be
followed by the Trustee in administering the Plan, as such
document may be amended and in effect from time to time during
the initial implementation of the Plan onto the Fidelity
Participant Recordkeeping System (FPRS). This
document is an interim document and shall be superseded by the
approved Plan Administration Manual.
(aa) Plan Administration Manual
Plan Administration Manual shall mean the
document which sets forth the administrative and recordkeeping
duties and procedures to be followed by the Trustee in
administering the Plan, as such document may be amended and in
effect from time to time. This definition shall include the Plan
Administration Design & Discovery Document from the
implementation process until the full Plan Administration Manual
can be generated and approved.
(bb) Plan Sponsor Webstation
Plan Sponsor Webstation shall mean the
graphical windows based application that provides current Plan
and Participant information including indicative data, account
balances, activity and history.
(cc) Reporting Date
Reporting Date shall mean the last day of
each fiscal quarter of the Plan and, if not on the last day of
fiscal quarter, the date as of which the Trustee resigns or is
removed pursuant to this Agreement or the date as of which this
Agreement terminates pursuant to Section 9 hereof.
(dd) SEC
SEC shall mean the Securities and Exchange
Commission.
(ee) Sponsor
Sponsor shall mean Brush Engineered Materials
Inc., an Ohio corporation, or any successor to all or
substantially all of its businesses which, by agreement,
operation of law or otherwise, assumes the responsibility of the
Sponsor under this Agreement.
(ff) Trust
Trust shall mean the Brush Engineered
Materials Inc. Executive Deferred Compensation Plan II
Trust, being the trust established by the Sponsor and the
Trustee pursuant to the provisions of this Agreement.
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(gg) Trustee
Trustee shall mean Fidelity Management
Trust Company, a Massachusetts trust company and any
successor to all or substantially all of its trust business as
described in Section 10. The term Trustee shall also
include any successor trustee appointed pursuant to
Section 10 to the extent such successor agrees to serve as
Trustee under this Agreement.
(hh) VRS
VRS shall mean Voice Response System.
Section
2.
Trust
.
(a)
Establishment
.
The Sponsor hereby establishes the Trust with the Trustee. The
Trust shall consist of an initial contribution of money or other
property acceptable to the Trustee in its sole discretion, made
by an Employer or transferred from a previous trustee under the
Plan, such additional sums of money as shall from time to time
be delivered to the Trustee under the Plan, all investments made
therewith and proceeds thereof, and all earnings and profits
thereon, less the payments that are made by the Trustee as
provided herein, without distinction between principal and
income. The Trustee hereby accepts the Trust on the terms and
conditions set forth in this Agreement. In accepting this Trust,
the Trustee shall be accountable for the assets received by it,
subject to the terms and conditions of this Agreement.
(b)
Grantor Trust
.
The Trust is intended to be a grantor trust, of which the
Sponsor is the grantor, within the meaning of subpart E,
part I, subchapter J, chapter 1, subtitle A of the
Code, as amended, and shall be construed accordingly.
(c)
Trust Assets
.
The principal of the Trust contributed by each Employer, and any
earnings thereon, shall be held in a
sub-trust
separate and apart from other funds of the Employer and shall be
used exclusively for the uses and purposes of Participants with
respect to such Employer and general creditors of such Employer
as herein set forth. Participants and their beneficiaries shall
have no preferred claim on, or any beneficial ownership interest
in, any assets of the Trust. Any rights created under the Plan
and this Agreement shall be mere unsecured contractual rights of
Participants and their beneficiaries against an Employer. Any
assets held by the Trust in a
sub-trust
with respect to an Employer will be subject to the claims of
such Employers general creditors under federal and state
law in the event of Insolvency of such Employer.
(d)
Non-Assignment
.
Benefit payments to Participants and their beneficiaries funded
under this Trust may not be anticipated, assigned (either at law
or in equity), alienated, pledged, encumbered, or subjected to
attachment, garnishment, levy, execution, or other legal or
equitable process. Notwithstanding anything in this Agreement to
the contrary, the Sponsor can direct the Trustee to disperse
monies pursuant to a domestic relations order as defined in Code
section 414(p)(1)(B) in accordance with Section 4(a).
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Section
3.
Payments
to Sponsor
.
Except as provided under this Agreement, the Sponsor shall have
no right to retain or divert to others any of the Trust assets
before all payment of benefits have been made to Participants
pursuant to the terms of the Plan. Notwithstanding the
foregoing, in the event that the Administrator determines that
the amount of assets held in the Trust with reference to a
particular Participant exceeds the obligation of the
Participants Employer to such Participant under the Plan,
the Trustee shall disburse such excess amount to the
Administrator as directed by the Administrator. The Trustee
shall have no responsibility for determining the accuracy of the
Administrators calculations of such excess amounts.
Section
4.
Disbursements
.
(a)
Directions from Administrator
.
The Trustee shall disburse monies to the Administrator for
benefit payments in the amounts that the Administrator directs
from time to time in writing. The Trustee shall have no
responsibility to ascertain whether the Administrators
direction complies with the terms of the Plan or any applicable
law. The Trustee shall not be responsible for: (i) making
benefit payments to Participants under the Plan, (ii) any
Federal, State or local income tax reporting or withholding with
respect to such Plan benefits, and (iii) FICA (Social
Security and Medicare) or any Federal or State unemployment tax
with respect to Plan distributions.
(b)
Limitations
.
The Trustee shall not be required to make any disbursement in
excess of the net realizable value of the assets of the Trust at
the time of the disbursement. The Trustee shall make all
disbursements in cash to the Administrator.
Section
5.
Investment
of Trust
.
(a)
Selection of Investment Options
.
The Trustee shall have no responsibility for the selection of
investment options under the Trust and shall not render
investment advice to any person in connection with the selection
of such options.
(b)
Available Investment Options
.
The Sponsor shall direct the Trustee as to what investment
options the Trust shall be invested in (i) during the
Participant Recordkeeping Reconciliation Period, and
(ii) following the Participant Recordkeeping Reconciliation
Period, subject to the following limitations. The Sponsor may
determine to offer as investment options only Mutual Funds;
provided, however, that the Trustee shall not be considered a
fiduciary with investment discretion. The Sponsor may add or
remove investment options with the consent of the Trustee, which
consent will not be unreasonably withheld to reflect
administrative concerns and upon mutual amendment of this
Agreement and the Schedules thereto, to reflect such additions.
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(c)
Investment Directions
.
The Sponsor shall direct the Trustee as to how to invest the
assets held in the Trust. In order to provide for an
accumulation of assets comparable to the contractual liabilities
accruing under the Plan, the Sponsor may direct the Trustee in
writing to invest the assets held in the Trust to correspond to
the hypothetical investments made for Participants in accordance
with their direction under the Plan. In such cases, Participants
may provide directions with respect to their hypothetical
investments under the Plan by use of the system maintained for
such purposes by the Trustee or its agents, as may be agreed
upon from time to time by the Sponsor and the Trustee, and shall
be
processed in accordance with the fund exchange provisions set
forth in the Plan Administration Manual. The Trustee shall not
be liable for any loss or expense that arises from a
Participants exercise or non-exercise of rights under this
Section 5 over the assets in the Participants
accounts. In the event that the Trustee fails to receive a
proper direction, the assets in question shall be invested in
the investment option set forth for such purpose on Schedule
C until the Trustee receives a proper direction.
(d)
Unfunded Status of Plan
The Sponsors designation of available investment options,
the maintenance of accounts for each Participant, the crediting
of investments gains (or losses) to such accounts, and the
exercise by Participants of any powers relating to investments
under this Agreement are solely for the purpose of providing a
mechanism for measuring the obligation of an Employer to any
particular Participant under the applicable Plan. As provided in
this Agreement, no Participant will have any preferential claim
to or beneficial ownership interest in any asset or investment
held in the Trust, and the rights of any Participant under the
applicable Plan and this Agreement are solely those of an
unsecured general creditor of the Employer with respect to the
benefits of the Participant under the Plan.
(e)
Mutual Funds
.
On the effective date of this Agreement, in lieu of receiving a
printed copy of the prospectus for each Fidelity Mutual Fund
selected by the Sponsor as a Plan investment option or
short-term investment fund, the Sponsor hereby consents to
receiving such documents electronically. The Sponsor shall
access each prospectus on the internet after receiving notice
from the Trustee that a current version is available online at a
website maintained by the Trustee or its affiliate. Trustee
represents that on the effective date of this Agreement, a
current version of each such prospectus is available at
https://www.fidelity.com
or such successor website as
Trustee may notify the Sponsor of in writing from time to time.
The Sponsor represents that it has accessed/will access each
such prospectus as of the effective date of this Agreement at
https://www.fidelity.com
or such successor website as
Trustee may notify the Sponsor of in writing from time to time.
Transactions involving Non-Fidelity Mutual Funds shall be
executed in accordance with the operational guidelines set forth
in Schedule D attached hereto. Trust investments in
Mutual Funds shall be subject to the following limitations:
(i) Execution of Purchases and Sales.
Purchases and sales of Mutual Funds (other than for exchanges)
shall be made on the date on which the Trustee receives from the
Sponsor In Good Order all information and documentation
necessary to accurately effect such transactions and (if
applicable) wire transfer of funds. Exchanges of Mutual Funds
shall be processed in accordance with the fund exchange
provisions set forth in the Plan Administration Manual.
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(ii) Voting.
The Sponsor directs the Trustee to vote the shares of Mutual
Funds held in the Trust in the same manner as directed by
Participants for the corresponding hypothetical shares of Mutual
Funds credited to Participants accounts under the Plan. At
the time of mailing of notice of each annual or special
stockholders meeting of any Mutual Fund, the Trustee shall
send a copy of the notice and all proxy solicitation materials
to each Participant who has hypothetical shares of such Mutual
Fund credited to the Participants account, together with a
voting direction form for return to the Trustee or its designee.
The Participant shall have the right to direct the Trustee as to
the manner in which the Trustee is to vote the hypothetical
shares credited to the Participants account. The Trustee
shall vote the shares held in the Trust in a manner which
corresponds to Participant directions with respect to the
hypothetical shares credited to the Participants Plan
account. The Trustee shall not vote shares for which it has
received no corresponding directions from the Participant.
During the Participant Recordkeeping Reconciliation Period, the
Sponsor shall have the right to direct the Trustee as to the
manner in which the Trustee is to vote the shares of the Mutual
Funds in the Trust, including Mutual Fund shares held in any
short-term investment fund for liquidity reserve. Following the
Participant Recordkeeping Reconciliation Period, the Sponsor
shall continue to have the right to direct the Trustee as to the
manner in which the Trustee is to vote any Mutual Funds shares
held in a short-term investment fund for liquidity reserve. The
Trustee shall not vote any such Mutual Fund shares for which it
has received no directions from the Sponsor.
With respect to all rights other than the right to vote, the
Trustee shall follow the directions of the Sponsor. The Trustee
shall have no further duty to solicit directions from the
Sponsor or Participants.
(f)
Trustee Powers
.
The Trustee shall have the following powers and authority:
(i) Subject to this Section 5, to sell, exchange,
convey, transfer, or otherwise dispose of any property held in
the Trust, by private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the
application of the purchase money or other property delivered to
the Trustee or to inquire into the validity, expediency, or
propriety of any such sale or other disposition.
(ii) To cause any securities or other property held as part
of the Trust to be registered in the Trustees own name, in
the name of one or more of its nominees, or in the
Trustees account with the Depository Trust Company of
New York and to hold any investments in bearer form, but the
books and records of the Trustee shall at all times show that
all such investments are part of the Trust.
(iii) To keep that portion of the Trust in cash or cash
balances as the Sponsor or Administrator may, from time to time,
deem to be in the best interest of the Trust.
(iv) To make, execute, acknowledge, and deliver any and all
documents of transfer or conveyance and to carry out the powers
herein granted.
(v) To borrow funds from a bank or other financial
institution not affiliated with the Trustee in order to provide
sufficient liquidity to process Plan transactions in a timely
fashion, provided that the cost of borrowing shall be allocated
in a reasonable fashion to the investment fund(s) in need of
liquidity. The Sponsor acknowledges that it has received the
disclosure on the Trustees line of credit program and
credit allocation policy and a copy of the text of Prohibited
Transaction
Exemption 2002-55
prior to executing this Agreement if applicable.
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(vi) To settle, compromise, or submit to arbitration any
claims, debts, or damages due to or arising from the Trust; to
commence or defend suits or legal or administrative proceedings;
to represent the Trust in all suits and legal and administrative
hearings; and to pay all reasonable expenses arising from any
such action, from the Trust if not paid by the Sponsor.
(vii) With the consent of the Sponsor which shall not be
unreasonably withheld, the Trustee can employ legal, accounting,
clerical, and other assistance as may be required in carrying
out the provisions of this Agreement and to pay their reasonable
expenses and compensation from the Trust if not paid by the
Sponsor.
(viii) To do all other acts, although not specifically
mentioned herein, as the Trustee may deem necessary to carry out
any of the foregoing powers and the purposes of the Trust.
Notwithstanding any powers granted to Trustee pursuant to this
Agreement or to applicable law, Trustee shall not have any power
that could give this Trust the objective of carrying on a
business and dividing the gains therefrom, within the meaning of
Section 301.7701-2
of the Procedure and Administrative Regulations promulgated
pursuant to the Code. The Trustee will file an annual fiduciary
return to the extent required by law.
Section
6.
Recordkeeping
and Administrative Services to Be Performed
.
(a)
General
.
The Trustee shall perform those recordkeeping and administrative
functions described in Schedule A attached hereto.
These recordkeeping and administrative functions shall be
performed within the framework of the Administrators
written directions regarding the Plans provisions,
guidelines and interpretations. The Sponsor acknowledges that
the Trustee does not provide legal or tax advice, and that the
Sponsor must obtain its own legal and tax counsel for advice on
the plan design appropriate for its specific situation and on
legal and tax issues pertaining to the administration of the
Plan. The Sponsor further acknowledges that the Trustee has no
continuing responsibility to be aware of and responsive to IRS
guidance provided under Section 409A of the Code as the
Trustee is not the responsible party for (a) ensuring that
the Administrators or Sponsors direction to the
Trustee
conforms with that guidance, and (b) the payment of all
taxes and penalties associated with a failure to maintain such
compliance.
(b)
Accounts
.
The Trustee shall keep accurate accounts of all investments,
receipts, disbursements, and other transactions hereunder, and
shall report the value of the assets held in the Trust as of the
last day of each Reporting Date. Within thirty (30) days
following each Reporting Date or within sixty (60) days in
the case of a Reporting Date caused by the resignation or
removal of the Trustee, or the termination of this Agreement,
the Trustee shall file with the Administrator a written account
setting forth all investments, receipts, disbursements, and
other transactions effected by the Trustee between the Reporting
Date and the prior Reporting Date, and setting forth the value
of the Trust as of the Reporting Date. The Administrator shall
use all reasonable efforts to bring to the Trustees
attention, as soon as possible, any concerns or objections it
may have relating to the accounts. Notwithstanding the previous
sentence, and except as otherwise required under applicable law,
upon the expiration of twelve (12) months from the date of
filing such account, the Trustee shall have no liability or
further accountability to anyone with respect to the propriety
of its acts or transactions shown in such account, except with
respect to such acts or transactions as to which a written
objection shall have been filed with the Trustee within such
twelve (12) month period.
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(c)
Inspection and Audit
.
Upon the resignation or removal of the Trustee or the
termination of this Agreement, the Trustee shall provide to the
Sponsor, at no expense to the Sponsor, in the format regularly
provided to the Sponsor, a statement of each Participants
account as of the resignation, removal, or termination, and the
Trustee shall provide to the Sponsor or the Plans new
recordkeeper such further records as are reasonable, at the
Sponsors expense.
The Trustee will provide to auditors (including third-party
auditors and Sponsors internal audit staff) as Sponsor may
designate in writing, access to any Trustee owned or managed
facility at which the services are being performed, to
appropriate Trustee management personnel, and to the data and
records (and other documentation reasonably requested by the
Sponsor) maintained by the Trustee with respect to the services
solely for the purpose of examining (i) transactional books
and records maintained by the Trustee in order to provide the
services, (ii) documentation of service level performance,
and (iii) invoices to the Sponsor. Any such audits will be
conducted at the Sponsors expense. The Sponsor and its
auditors will first look to the most recent Type II Service
Auditors Report (Type II SAR) before
conducting further audits. Type II SARs are reports
issued by the Trustees or its affiliates independent
public accounting firm in accordance with Statement on Auditing
Standard No. 70 (SAS 70). If a matter is not
covered in such Type II SAR, then the Sponsor will provide
the Trustee with a proposed detailed scope and timeframe of the
audit requested by the Sponsor in writing at least sixty
(60) days prior to date of the audit. The Sponsor will
provide the Trustee with not less than ninety (90) days
prior written notice of an audit, excepting audit requests from
governmental or regulatory agencies. The Sponsor and its
auditors will conduct such audits in a manner that will result
in a minimum of inconvenience and disruption to the
Trustees operations. Audits may be conducted only during
normal business hours and no more frequently than annually
unless otherwise required as a matter of law or for compliance
with regulatory or contractual requirements. Any audit
assistance provided by the Trustee in excess of the number of
audit hours per annum referenced in the fee schedule shall be
provided on a
fee-for-service
basis. The Sponsor and its auditors will not be entitled to
review or audit (i) data or information of other customers
or clients of the Trustee, (ii) any of Trustees
proprietary data, or (iii) any other Confidential
Information of the Trustee that is not relevant for the purposes
of the audit. The Sponsor and its auditors will not be entitled
to logical access to the Trustees networks and systems,
nor unrestricted physical access to Trustees facilities
and personnel. Reviews of processes, controls, and support
documentation will be facilitated with appropriate
Trustees personnel. The Trustee will use commercially
reasonable efforts to cooperate in the audit, will make
available on a timely basis the information reasonably required
to conduct the audit and will assist the designated employees of
the Sponsor or its auditors as reasonably necessary. The Sponsor
will reimburse the Trustee for any costs incurred by the Trustee
in connection with an audit conducted pursuant to this section.
To the maximum extent possible, audits will be designed and
conducted (in such manner and with such frequency) so as not to
interfere with the provision of the services. The Sponsor will
not use any competitors of the Trustee (or any significant
subcontractor of Trustee under this Agreement) to conduct such
audits. The auditors and other
representatives of the Sponsor will execute and deliver such
confidentiality and non-disclosure agreements and comply with
such security and confidentiality requirements as the Trustee
may reasonably request in connection with such audits.
(d)
Notice of Plan Amendment
.
The Trustees provision of the recordkeeping and
administrative services set forth in this Section shall be
conditioned on the Sponsor delivering to the Trustee a copy of
any amendment to the Plan impacting the services to be provided
under this Agreement as soon as administratively feasible
following the amendments adoption, and on the
Administrator providing the Trustee, on a timely basis, with all
the information the Trustee deems necessary for the Trustee to
perform the recordkeeping and administrative services and such
other information as the Trustee may reasonably request.
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(e)
Returns, Reports and Information
.
Except as set forth in the Plan Reporting section of Schedule
A, the Administrator shall be responsible for the
preparation and filing of all returns, reports, and information
required of the Trust or Plan by law. The Trustee shall provide
the Administrator with such information as the Administrator may
reasonably request to make these filings. The Administrator
shall also be responsible for making any disclosures to
Participants required by law.
Section
7.
Compensation
and Expenses
.
Sponsor shall pay to Trustee, within thirty (30) days of
receipt of the Trustees bill, the fees for services in
accordance with Schedule B. Fees for services are
specifically outlined in Schedule B and are based on
any assumptions identified therein. In the event that the Plan
characteristics referenced in the assumptions outlined in
Schedule B change significantly by either falling
below or exceeding current or projected levels, such fees may be
subject to revision, upon mutual renegotiation. To reflect
increased operating costs, Trustee may once each calendar year
amend Schedule B without the Sponsors consent
upon one hundred and twenty (120) days prior notice to the
Sponsor.
All reasonable expenses of Plan administration as shown on
Schedule B attached hereto, as amended from time to
time, shall be a charge against and paid from the appropriate
Participant-related accounts, except to the extent such amounts
are paid by the Sponsor in a timely manner.
All expenses of the Trustee relating directly to the acquisition
and disposition of investments constituting part of the Trust,
and all taxes of any kind whatsoever that may be levied or
assessed under existing or future laws upon or in respect of the
Trust or the income thereof, shall be a charge against and paid
from the appropriate Participant-related accounts.
Section
8.
Directions
and Indemnification
.
(a)
Identity of the Sponsor and the
Administrator
.
The Trustee shall be fully protected in relying on the fact that
the Sponsor and the Administrator under the Plan are the
individual or persons named as such above or such other
individuals or persons as the Sponsor may notify the Trustee in
writing.
(b)
Directions from the Sponsor and the
Administrator
.
Whenever the Sponsor or the Administrator provides a direction
to the Trustee, the Trustee shall not be liable for any loss or
expense arising from the direction if the direction is contained
in a writing provided by any individual whose name has been
submitted (and not withdrawn) in writing to the Trustee by the
Sponsor or the Administrator unless it is clear on the
directions face that the actions to be taken under the
direction would be contrary to the terms of this Agreement. The
Trustee may rely without further duty of inquiry on the
authority of any such individual to provide direction to the
Trustee on behalf of the Sponsor.
For purposes of this Section, such direction may also be made
via EDT, facsimile or such other secure electronic means in
accordance with procedures agreed to by the Sponsor and the
Trustee and, in any such case the Trustee shall be fully
protected in relying on such direction as if it were a direction
made in writing by the Sponsor.
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(c)
Directions from Participants
.
The Trustee shall not be liable for any loss which arises from
any Participants exercise or non-exercise of rights under
the Plan over the assets in the Participants hypothetical
accounts.
(d)
Indemnification
.
The Sponsor shall indemnify the Trustee against, and hold the
Trustee harmless from, any and all Losses that may be incurred
by, imposed upon, or asserted against the Trustee by reason of
any claim, regulatory proceeding, or litigation arising from any
act done or omitted to be done by any individual or person with
respect to the Plan or Trust, excepting only any and all Losses
arising solely from the Trustees breach of this Agreement,
negligence, bad faith or willful misconduct.
The Trustee shall indemnify the Sponsor against, and hold the
Sponsor harmless from, any and all Losses that may be incurred
by, imposed upon, or asserted against the Sponsor by reason of
any claim, regulatory proceeding, or litigation arising from
Trustees breach of this Agreement, negligence, bad faith
or willful misconduct.
The Trustee shall also indemnify the Sponsor against and hold
the Sponsor harmless from any and all such Losses that may be
incurred by, imposed upon, or asserted against the Sponsor
solely as a result of: i) any defects in the investment
methodology embodied in the target asset allocation or model
portfolio provided through Portfolio Review, except to the
extent that any such Losses arise from information provided by
the Participant, the Sponsor or third parties; or ii) any
prohibited transactions resulting from the provision of
Portfolio Review by the Trustee.
(e)
Survival
.
The provisions of this Section shall survive the termination of
this Agreement.
Section
9.
Resignation
or Removal of Trustee
.
(a)
Resignation and Removal
.
The Trustee may resign at any time in accordance with the notice
provisions set forth below. The Sponsor may remove the Trustee
at any time in accordance with the notice provisions set forth
below.
(b)
Termination
.
This Agreement may be terminated in full, or with respect to
only a portion of the Plan (i.e. a partial
deconversion) at any time by the Sponsor upon prior
written notice to the Trustee in accordance with the notice
provisions set forth below.
(c)
Notice Period
.
In the event either party desires to terminate this Agreement or
any Services hereunder, the party shall provide at least sixty
(60) days prior written notice of the termination date to
the other party; provided, however, that the receiving party may
agree, in writing, to a shorter notice period.
(d)
Transition Assistance
.
In the event of termination of this Agreement, if requested by
Sponsor, the Trustee shall assist Sponsor in developing a plan
for the orderly transition of the Plan data, cash and assets
then constituting the Trust and services provided by the Trustee
hereunder to Sponsor or its designee. The Trustee shall provide
such assistance for a period not extending beyond sixty
(60) days from the termination date of this Agreement. The
Trustee shall provide to Sponsor, or to any person designated by
Sponsor, at a mutually agreeable time, one file of the Plan data
prepared and maintained by the Trustee in the ordinary course of
business, in the Trustees format. The Trustee may provide
other or additional transition assistance as mutually determined
for additional fees, which shall be due and payable by the
Sponsor prior to any termination of this Agreement.
(e)
Failure to Appoint Successor
.
If, by the termination date, the Sponsor has not notified the
Trustee in writing as to the individual or entity to which the
assets and cash are to be transferred and delivered, the Trustee
may bring an appropriate action or proceeding for leave to
deposit the assets and cash in a court of competent
jurisdiction. The Trustee shall be reimbursed by the Sponsor for
all costs and expenses of the action or proceeding including,
without limitation, reasonable attorneys fees and
disbursements.
Section
10.
Successor
Trustee
.
(a)
Appointment
.
If the office of Trustee becomes vacant for any reason, the
Sponsor may in writing appoint a successor trustee under this
Agreement. The successor trustee shall have all of the rights,
powers, privileges, obligations, duties, liabilities, and
immunities granted to the Trustee under this Agreement. The
successor trustee and predecessor trustee shall not be liable
for the acts or omissions of the other with respect to the Trust.
(b)
Acceptance
.
As of the date the successor trustee accepts its appointment
under this Agreement, title to and possession of the Trust
assets shall immediately vest in the successor trustee without
any further action on the part of the predecessor trustee,
except as may be required to evidence such transition. The
predecessor trustee shall execute all instruments and do all
acts that may be reasonably necessary and requested in writing
by the Sponsor or the successor trustee to vest title to all
Trust assets in the successor trustee or to deliver all Trust
assets to the successor trustee.
(c)
Corporate Action
.
Any successor of the Trustee or successor trustee, either
through sale or transfer of the business or trust department of
the Trustee or successor trustee, or through reorganization,
consolidation, or merger, or any similar transaction of either
the Trustee or successor trustee, shall, upon consummation of
the transaction, become the successor trustee under this
Agreement.
Section
11.
Resignation,
Removal, and Termination Notices
.
All notices of resignation, removal, or termination under this
Agreement must be in writing and mailed to the party to which
the notice is being given by certified or registered mail,
return receipt requested, to the Sponsor
c/o Director
Treasury Operations, Brush Engineered Materials Inc., 6070
Parkland Boulevard, Mayfield Heights, OH 44124, and to the
Trustee c/o Fidelity
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Investments, Contracts Development & Negotiation,
82 Devonshire Street, MM1M, Boston, Massachusetts 02109, or
to such other addresses as the parties have notified each other
of in the foregoing manner.
Section
12.
Duration
.
This Trust shall continue in effect without limit as to time,
subject, however, to the provisions of this Agreement relating
to amendment, modification, and termination thereof.
Section
13.
Insolvency
of Sponsor
.
(a) Trustee shall cease disbursement of funds for payment
of benefits to Participants with respect to an Employer if the
Employer is Insolvent, and shall cease disbursement of funds for
payment of benefits if the Sponsor is Insolvent.
(b) All times during the continuance of this Trust, the
principal and income of a
sub-trust
with respect to an Employer shall be subject to claims of
general creditors of such Employer under federal and state law
as set forth below.
(i) The Board of Directors and the Chief Executive Officer
of the Sponsor and the highest ranking officer of the Employer
shall have the duty to inform Trustee in writing of such
Employers Insolvency. If a person claiming to be a
creditor of the Employer alleges in writing to Trustee that such
Employer has become Insolvent, Trustee shall
determine whether the Employer is Insolvent and, pending such
determination, Trustee shall discontinue disbursements for
payment of benefits to Participants of such Employer (if the
Employer is the Sponsor, the Trustee shall discontinue
disbursements for payment of all benefits to all Participants).
(ii) Unless Trustee has actual knowledge of the
Employers Insolvency, or has received notice from Sponsor
or such Employer or a person claiming to be a creditor alleging
that such Employer is Insolvent, Trustee shall have no duty to
inquire whether an Employer is Insolvent. Trustee may in all
events rely on such evidence concerning an Employers
solvency as may be furnished to Trustee and that provides
Trustee with a reasonable basis for making a determination
concerning such Employers solvency.
(iii) If at any time Trustee has determined that an
Employer is Insolvent, Trustee shall discontinue disbursements
for payments to such Employers Participants (if the
Employer is the Sponsor, the Trustee shall discontinue
disbursements for payment of benefits to all Participants) and
shall hold the assets of the
sub-trust
with respect to such Employer for the benefit of such
Employers general creditors. Nothing in this Agreement
shall in any way diminish any rights of Participants to pursue
their rights as general creditors of the Employer (and/or the
Sponsor) with respect to benefits due under the Plan or
otherwise.
(iv) Trustee shall resume disbursement for the payment of
benefits to Participants in accordance with this Agreement only
after Trustee has determined that the Employer (and/or Sponsor)
is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to
(a) hereof and subsequently resumes such payments, the
first payment following such discontinuance shall include the
aggregate amount of all payments due to Participants under the
terms of the Plan for the period of such discontinuance, less
the aggregate amount of any payments made to Participants by the
Employer or Sponsor in lieu of the payments provided for
hereunder during any such period of discontinuance.
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Section
14.
Amendment
or Modification
.
This Agreement may be amended or modified at any time and from
time to time only by an instrument executed by both the Sponsor
and the Trustee. The individuals authorized to sign such
instrument shall be those authorized by the Sponsor and the
Trustee respectively. Notwithstanding the foregoing, but subject
to Section 7, the Trustee reserves the right to
unilaterally amend this Agreement to update services and
procedures and to revise the fee schedule upon 120 days
notice to the Sponsor.
Section
15.
Electronic
Services
.
(a) The Trustee may provide communications and Electronic
Services via electronic media, including, but not limited to
NetBenefits, eWorkplace and Fidelity Plan Sponsor WebStation.
The Sponsor agrees to use such Electronic Services only in the
course of reasonable administration of or participation in the
Plan and to keep confidential and not alter, publish, copy,
broadcast, retransmit, reproduce, frame-in, link to,
commercially exploit or otherwise redisseminate the Electronic
Services, any content associated therewith, or any portion
thereof (including, without limitation, any trademarks and
service marks associated therewith), without the written consent
of the Trustee. Notwithstanding the foregoing, the Trustee
acknowledges that certain Electronic Services may, by their
nature, be intended for non-commercial, personal use by
Participants or their beneficiaries, with respect to their
participation in the Plan, or for their other retirement or
employee benefit planning purposes, and certain content may be
intended or permitted to be modified by the Sponsor in
connection with the administration of the Plan. In such cases,
the Trustee will notify the Sponsor of such fact, and any
requirements or guidelines associated with such usage or
modification no later than the time of initial delivery of such
Electronic Services. To the extent permission is granted to make
Electronic Services available to administrative personnel
designated by the Sponsor, it shall be the responsibility of the
Sponsor to keep the Trustee informed as to which of the Sponsor
personnel are authorized to have such access. Except to the
extent otherwise specifically agreed by the parties, the Trustee
reserves the right, upon notice when reasonably feasible, to
modify or discontinue Electronic Services, or any portion
thereof, at any time.
(b) Without limiting the responsibilities of the Trustee or
the rights of the Sponsor stated elsewhere in this Agreement,
Electronic Services shall be provided to the Sponsor without
acceptance of legal liability related to or arising out of the
electronic nature of the delivery or provision of such Services.
To the extent that any Electronic Services utilize Internet
services to transport data or communications, the Trustee will
take, and the Sponsor agrees to follow, reasonable security
precautions. However, the Trustee disclaims any liability for
interception of any such data or communications. The Trustee
reserves the right not to accept data or communications
transmitted electronically or via electronic media by the
Sponsor or a third party if it determines that the method of
delivery does not provide adequate data security, or if it is
not administratively feasible for the Trustee to use the data
security provided. The Trustee shall not be responsible for, and
makes no warranties regarding access, speed or availability of
Internet or network services, or any other service required for
electronic communication, nor does the Trustee make any
warranties, express or implied, and specifically disclaims all
warranties of merchantability, fitness for a particular purpose,
or non-infringement. The Trustee shall not be responsible for
any loss or damage related to or resulting from any changes or
modifications to the Electronic Services made in violation of
this Agreement.
(c) The Sponsor acknowledges that certain web sites through
which the Electronic Services are accessed may be protected by
passwords or require a login and the Sponsor agrees that neither
the Sponsor nor, where applicable, Participants, will obtain or
attempt to obtain unauthorized access to such Services or to any
other protected materials or information, through any means not
intentionally made available by the Trustee for the specific use
of the Sponsor. To the extent that a PIN is necessary for access
to the Electronic Services, the Sponsor
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15
and/or
its
Participants, as the case may be, are solely responsible for all
activities that occur in connection with such PINs.
(d) The Trustee will provide to Participants the
FullView
sm
service via NetBenefits, through which Participants may elect to
consolidate and manage any retirement account information
available through NetBenefits as well as External Account
Information. To the extent not provided by the Trustee or its
affiliates, the data aggregation service will be provided by
Yodlee.com, Inc. or such other independent provider as the
Trustee may select, pursuant to a contract that requires the
provider to take appropriate steps to protect the privacy and
confidentiality of information furnished by users of the
service. The Sponsor acknowledges that Participants who elect to
use
FullView
sm
must provide passwords and PINs to the provider of data
aggregation services. The Trustee will use External Account
Information to furnish and support
FullView
sm
or other services provided pursuant to this Agreement, and as
otherwise directed by the Participant. The Trustee will not
furnish External Account Information to any third party, except
pursuant to subpoena or other applicable law. The Sponsor agrees
that the information accumulated through
FullView
sm
shall not be made available to the Sponsor, provided, however,
that the Trustee shall provide to the Sponsor, upon request,
aggregate usage data that contains no personally identifiable
information.
Section
16.
Assignment
.
This Agreement, and any of its rights and obligations hereunder,
may not be assigned by any party without the prior written
consent of the other party(ies), and such consent may be
withheld in any partys sole discretion. Notwithstanding
the foregoing, Trustee may assign this Agreement in whole or in
part, and any of its rights and obligations hereunder, to a
subsidiary or affiliate of Trustee without consent of the
Sponsor. All provisions in this Agreement shall extend to and be
binding upon the parties hereto and their respective successors
and permitted assigns.
Section
17.
Force
Majeure
.
No party shall be deemed in default of this Agreement to the
extent that any delay or failure in performance of its
obligation(s) results, without its fault or negligence, from any
cause beyond its reasonable control, such as acts of God, acts
of civil or military authority, acts of terrorism, whether
actual or threatened, quarantines, embargoes, epidemics, war,
riots, insurrections, fires, explosions, earthquakes, floods,
unusually severe weather conditions, power outages or strikes.
This clause shall not excuse any of the parties to the Agreement
from any liability which results from failure to have in place
reasonable disaster recovery and safeguarding plans adequate for
protection of all data each of the parties to the Agreement are
responsible for maintaining for the Plan.
Section
18.
Confidentiality;
Safeguarding of Data
.
(a)
Confidential Information
. In
connection with this Agreement, each of the parties has
disclosed and may continue to disclose to the other party
information that relates to the disclosing partys business
operations, financial condition, employees, former employees,
eligible dependents and beneficiaries of such employees and
former employees, customers, business associates, products,
services or technical knowledge. Except as otherwise
specifically agreed in writing by the parties, Trustee and
Sponsor each agree that from and after the Effective Date
(i) all information communicated to it before or after the
Effective Date by the other and identified as confidential or
proprietary, (ii) all information identified as
confidential or proprietary to which it has access in connection
with the services, whether such access was before or after the
Effective Date, (iii) all information communicated to it
that reasonably should have been understood by the receiving
party to be proprietary and confidential to the disclosing party
including without limitation
Confidential
Information
16
technical, trade secret or business
information, financial information, business or marketing
strategies or plans, product development or customer
information, and (iv) the terms and conditions of this
Agreement (collectively, the Confidential
Information) will be used only in accordance with this
Agreement.
(b)
Ownership of Information/Safeguarding
Information
. Each partys Confidential
Information will remain the property of that party except as
otherwise expressly provided in this Agreement. Each party will
use at least the same degree of care to safeguard and to prevent
disclosing to third parties the Confidential Information of the
other as it employs to avoid unauthorized disclosure or
publication of its own information (or information of its
customers) of a similar nature, and in any event, no less than
reasonable care. Each party may use and disclose relevant
aspects of the other partys Confidential Information to
its employees, affiliates, subcontractors and agents to the
extent such disclosure is reasonably necessary for the
performance of its obligations under this Agreement or the
enforcement of its rights under this Agreement; provided,
however, that the disclosing party shall ensure that such
parties agree to be bound by confidentiality provisions at least
as restrictive as those set forth in this Section 18; and
provided further, however, that in no event shall Sponsor
disclose such Confidential Information to direct competitors of
the Trustee. Each party will be responsible for any improper
disclosure of Confidential Information by such partys
employees, affiliates, subcontractors or agents. Neither party
will (i) make any use or copies of the Confidential
Information of the other except as contemplated by this
Agreement, or (ii) sell, assign, lease or otherwise
commercially exploit the Confidential Information (or any
derivative works thereof) of the other party. Neither party will
withhold the Confidential Information of the other party
(including in the case of the Sponsor, the Personal Data) or
refuse for any reason (including due to the other partys
actual or alleged breach of this Agreement) to promptly return
to the other party its Confidential Information (including
copies thereof) if requested to do so.
(c)
Return of Information
. Upon
expiration or any termination of this Agreement and completion
of a partys obligations under this Agreement, each party
will return or destroy, as the owner may direct, all
documentation in any medium that contains or refers to the other
partys Confidential Information; however, each party may
retain copies of Confidential Information of the other party
solely to the extent required for compliance with applicable
professional standards and applicable law.
(d)
Exceptions to Confidential
Treatment
. Sections 18(a), (b) and
(c) shall not apply to any particular information that
either party can demonstrate (i) was, at the time of
disclosure to it (a) already known to the receiving party
(and not subject to a pre-existing confidentiality agreement) or
(b) publicly known; (ii) after disclosure to it,
becomes publicly known through no fault of the receiving party;
(iii) was received after disclosure to it from a third
party who did not indicate that the information was to be
treated as confidential in connection with the
disclosure or (iv) was independently developed by the
receiving party without use of the Confidential Information of
the disclosing party. In addition, a party will not be
considered to have breached its obligations under this
Section 18 for disclosing Confidential Information of the
other party to the extent required to satisfy any valid
subpoena, court order, litigation or regulatory request, or any
other legal requirement of a competent governmental authority,
provided that following receipt of any such request, or making a
determination that disclosure is legally required, and to the
extent that it may legally do so, such party advises the other
party prior to making such disclosure in order that the other
party may object to such disclosure, take action to ensure
confidential
treatment of the Confidential Information, or take such other
action as it considers appropriate to protect the Confidential
Information. In addition, Trustee will not be considered to have
breached its obligations under this Section 18 for using or
disclosing Confidential Information to the extent Trustee or an
affiliate of the Trustee is specifically authorized by an
individual to use that individuals personal information
(including plan-related and account-related information
applicable to that individual) in connection with any other
Trustee products or services.
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Information
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(e)
No Duty to Disclose
. Nothing
contained in this Section 18 will be construed as
obligating a party to disclose its Confidential Information to
the other party, or as granting to or conferring on a party,
expressly or impliedly, any rights or license to the
Confidential Information of the other party provided that
Trustee shall be excused from its obligations to perform
hereunder to the extent Sponsor fails to provide any such
information as is reasonably necessary for Trustee to perform
the services and otherwise meet its obligations hereunder.
(f)
Personal Data
. In order to
fulfill its obligations under this Agreement, Trustee may
receive in connection with this Agreement or the services
provided hereunder personal data, including compensation,
benefits, tax, marital/family status and other similar
information about participants (Personal Data).
Trustee acknowledges that it is receiving Personal Data only in
connection with the performance of the services and Trustee will
not use or disclose Personal Data without the permission of the
Sponsor for any purpose other than as permitted in this
Agreement and in fulfilling its obligations under this
Agreement, unless disclosure is required or permitted under this
Agreement or by applicable law. With respect to Personal Data it
receives under this Agreement, Trustee agrees to
(i) safeguard Personal Data in accordance with its privacy
policy, and (ii) exercise at least the same standard of
care in safeguarding such Personal Data that it uses to protect
the personal data of its own employees. Nothing in this
Agreement shall affect in any way other product or service
arrangements entered into separately by Trustee or its
affiliates and the Sponsor
and/or
participants.
(g)
Foreign Data Protection
Laws
. Sponsor is responsible for any and all
activities necessary to ensure compliance with applicable laws
regarding data protection outside of the United States and for
ensuring that the transfer of Personal Data to Trustee is in
compliance with such laws. Sponsor will not transfer any
Personal Data to Trustee unless Sponsor has satisfied such laws,
such as through the use of consents. Trustee will be entitled to
presume that, unless notified to the contrary by Sponsor,
activities necessary to ensure compliance with such laws have
been satisfied by Sponsor with respect to all Personal Data
furnished to Trustee hereunder. Trustee will have no obligation
to process any Personal Data if Trustee is on notice that
compliance with such laws has not been met.
Section
19.
General
.
(a)
Performance by Trustee, its Agents or
Affiliates
.
The Sponsor acknowledges and authorizes that the services to be
provided under this Agreement shall be provided by the Trustee,
its agents or affiliates, and that certain of such services may
be provided pursuant to one or more other contractual agreements
or relationships.
(b)
Entire Agreement
.
This Agreement, together with the Schedules referenced herein,
contains all of the terms agreed upon between the parties with
respect to the subject matter hereof. This Agreement supersedes
any and all other agreements, written or oral, made by the
parties with respect to the services.
(c)
Waiver
.
No waiver by either party of any failure or refusal to comply
with an obligation hereunder shall be deemed a waiver of any
other obligation hereunder or subsequent failure or refusal to
comply with any other obligation hereunder.
(d)
Successors and Assigns
.
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The stipulations in this Agreement shall inure to the benefit
of, and shall bind, the successors and assigns of the respective
parties.
(e)
Partial Invalidity
.
If any term or provision of this Agreement or the application
thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or
the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to
the fullest extent permitted by law.
(f)
Section Headings
.
The headings of the various sections and subsections of this
Agreement have been inserted only for the purposes of
convenience and are not part of this Agreement and shall not be
deemed in any manner to modify, explain, expand or restrict any
of the provisions of this Agreement.
(g)
Communications
.
In the event that the Sponsor retains any responsibility for
delivering Participant communications to some or all
Participants and beneficiaries, the Sponsor agrees to furnish
the communications to such Participants in a timely manner as
determined under applicable law.
The provisions of this Agreement shall apply to all information
provided and all Participant communications prepared and
delivered by the Sponsor or the Trustee during the
implementation period prior to the execution date of this
Agreement and throughout the term set forth in this Agreement.
(h)
Survival
.
Trustees and Sponsors respective obligations under
this Agreement, which by their nature would continue beyond the
termination of this Agreement, including but not limited to
those contained in Sections titled Inspection and Audit,
Indemnification, Confidentiality; Safeguarding of Data, shall
survive any termination of the Agreement.
Section
20.
Authorization
To Make Available Fidelity Personal Guidance Offerings
.
Notwithstanding any provision of the Agreement to the contrary,
Sponsor hereby authorizes Trustee, Fidelity Employer Services
Company LLC, Fidelity Brokerage Services LLC, and other
affiliates of the Trustee, throughout the term of this Agreement
and any extensions thereto, to provide
and/or
offer
personal
and/or
workplace services, programs, and products (collectively,
Personal Guidance Offerings) to any and all Persons
with respect to whom the Trustee receives any information
hereunder, including Personal Guidance Offerings unrelated to
retirement or employment, and the Trustee may use for such
purpose any information received hereunder or otherwise related
to the Plan or Sponsor. Such information shall be treated in
accordance with Fidelity Investments privacy policy. Any
information collected by the Trustee in the course of providing
Personal Guidance Offerings may be retained and used by the
Trustee, Fidelity Employer Services Company LLC, Fidelity
Brokerage Services LLC, or affiliates of the Trustee after the
termination of this Agreement. Persons who request that the
Trustee discontinue communications related to Personal Guidance
Offerings other than workplace-related offerings shall be
permitted to do so in accordance with industry rules and
practices and through various means that may be specific by
communication medium. Trustee agrees to defend, indemnify and
hold harmless the Sponsor against any Losses, brought against
the Sponsor by any individual who is contacted by the Trustee or
any of its affiliates pursuant to the Sponsors
authorizations in
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Section 20 where such claims or Losses
allege that actions taken by Trustee or its affiliates in the
marketing, sale or servicing of any product were
(i) negligent, fraudulent, misleading, or inaccurate,
(ii) in violation of applicable law, or (iii) in
breach of the terms of any agreement(s) entered into between
such individual and Trustee (or its affiliate) with respect to
such products. Sponsor shall be solely responsible for ensuring
that its authorizations in Section 20 comply with all laws,
policies and contracts to which the Sponsor is subject.
Section
21.
Situs
of Trust Assets
.
The Sponsor and the Trustee agree that no assets of the Trust
shall be located or transferred outside of the United States.
Section
22.
Governing
Law
.
(a)
Massachusetts Law Controls
.
This Agreement is being made in the Commonwealth of
Massachusetts, and the Trust shall be administered as a
Massachusetts trust. The validity, construction, effect, and
administration of this Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of
Massachusetts.
(b)
Trust Agreement Controls
.
The Trustee is not a party to the Plan, and in the event of any
conflict between the provisions of the Plan and the provisions
of this Agreement, the provisions of this Agreement shall
control.
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IN WITNESS WHEREOF,
the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of
the day and year first above written. By signing below, the
undersigned represent that they are authorized to execute this
Agreement on behalf of the respective parties. Each party may
rely without duty of inquiry on the foregoing representation.
BRUSH ENGINEERED MATERIALS INC.
Authorized Signatory
Name:
Title:
Date:
FIDELITY MANAGEMENT TRUST COMPANY
FMTC Authorized Signatory
Name:
Date:
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