PARTICIPANTS

Michael Hasychak, Vice President, Treasurer, and Secretary
Dick Hipple, President, Chairman, and Chief Executive Officer
John Grampa, Senior Vice President of Finance and Chief Financial Officer
Jim Marrotte, Vice President and Corporate Controller

Operator:

Greetings, ladies and gentlemen, and welcome to the Brush Engineered Materials fourth quarter 2006 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone key pad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Hasychak, Vice President, Treasurer, and Secretary of Brush Engineered Materials. Thank you, Mr. Hasychak, you may begin.

Michael Hasychak, Vice President, Treasurer, and Secretary

Good afternoon. With me today is Dick Hipple, President, Chairman, and Chief Executive Officer; John Grampa Senior Vice President of Finance and Chief Financial Officer; and Jim Marrotte, Vice President and Corporate Controller. Our format for today's conference call is as follows: John Grampa will comment on the fourth quarter and 2006 results and the outlook for 2007; Dick Hipple will give a market update; thereafter, we will open up the teleconference call for questions. A recorded playback of this call will be available until March 9, 2007 by dialing 877-660-6853 account number 286 and conference ID 229430. The call will also be archived on the Company's website beminc.com. To have access for replay, click on Quarterly Earnings Conference Call under the Investors page. The broadcast requires real player software which is available as a free download from the icon as indicated.

Any forward-looking statements made in this announcement, including those in the outlook section and during the question-and-answer portion, are based on current expectations. The Company's actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release issued this morning. Now, I will turn it over John Grampa for comments.

John Grampa, Senior Vice President of Finance and Chief Financial Officer  

Thank you, Mike. Good afternoon, everyone and welcome to our fourth quarter and year-end earnings teleconference. Thanks for joining us today. As in the past, I will review the quarter as well as the year and then comment on the outlook. Following my prepared comments, Dick Hipple will provide you with a market update and then we will open up the call for questions.

I will reinforce and expand on the key points made in the press release about the quarter and the year, especially those related to our sales growth and our margin growth. I will also review the effect that the announced reversal of the Company's domestic and foreign deferred tax asset allowance had on our results and the impact that it had on the year-over-year comparisons for both the quarter and the year.

Then I will review the outlook, including the factors behind the announced increase in our projections and the factors driving the increase for the first quarter and the full year 2007 numbers. Let's begin.

As you know, this morning we reported sales in earnings that were ahead of the expectations that we had coming into the quarter. Sales for the fourth quarter were up 48%, or about $57 million, to about $208 million which was a new quarterly high.  The previous quarterly high, was the most recent quarter of the third quarter of the year.

Net income, excluding the effect of the deferred tax asset allowance reversal was $0.44 a share, which compares to $0.10 a share reported in the fourth quarter of the prior year excluding the impact of the nonrecurring items booked in 2005.

I would like to call your attention once again to two important factors that effect the year-over-year comparisons. First, metal price inflation, or said differently, that portion of both precious and nonprecious metal prices that we were able to pass on to our customers in the fourth quarter had a similar effect on reported sales increase as it has had in recent periods. Approximately 12 percentage points of the reported 48% growth is metal price. Thus, real growth, including our acquisitions, was approximately 36% in the fourth quarter. This was the strongest real growth rate of the year. Organic growth, that is growth excluding both metal prices and the influence of acquisitions, was approximately 32% in the quarter, also the strongest organic growth quarter of the year.

The second factor is the change in income tax accounting, which as you know, effects our year-over-year comparisons considerably. In addition, in the fourth quarter of the prior year, the Company took a charge related to the prepayments of extensive subordinated debt. This, too, affects the year-over-year comparisons. A more appropriate measure of the Company's year-over-year performance improvement for the quarter is in pretax income. Pretax income, excluding the subdebt charge, grew almost six fold on the 36% real sales growth. We are pleased with that kind of sales-to-earnings leverage, the kind that we saw in the fourth quarter.

You will recall that we entered the fourth quarter with most of our markets having delivered strong overall order entry with our new products and our initiative to penetrate new products delivering solid top line benefits and our margins expanding in spite of the metal price pressures.  We expected that these conditions would help counter the lower seasonal demand that the Company often sees in the fourth quarter, and this in fact did occur with both our sales and our margin growth exceeding our expectations.

In the fourth quarter, the markets that we served that were stronger through most of the year continued to develop nicely. These are our fastest growing markets, much of which is driven by consumer electronics. They include magnetic medium, wireless photonics, handsets, semiconductor, industrial components, oil/gas, and heavy equipment. Again, we grew by approximately 48% compared to the fourth quarter of the prior year and again, net of metal prices, our growth in the quarter was in the 36% range. Our new product initiatives are important in the overall growth.

Coming into the latter part of 2006, we were pleased to see the continued improvement in the Company's gross margin. Gross margin as a percent of sales had improved by approximately three points compared to levels that we were operating at the end of 2005. The improvement that we were seeing was due to a combination of factors including better mix, better pricing, operating improvement, and real volume growth. The factors that helped drive gross margin up during the first half of the year haven't changed. These factors continue to yield solid benefits, actually increasing benefits, in the fourth quarter.

Although gross margin as a percent of sales continued to be negatively effected all year by higher precious and base-metal prices, we made good progress in our efforts to pass along a higher percentage of the material cost increases we had seen. The fourth quarter brought with it even more visible progress. In the fourth quarter, an increase pass-through level combined with our hedging programs, as well as more stable copper prices, eliminated the negative impact that copper had on our P&L. The compares to a negative impact of approximately $3.2 million in the first three quarters of the year. The good news is that we expected to be, and are now, over 90% effective with metal pass-through neutralizing the metal price risks to the Company's margins. Our gross margin for the fourth quarter was the highest of the year at 23.3 percentage points, an increase of 4.4 points compared to the prior year's fourth quarter. Net of metal price influences, the margin actually grew 5.5 points compared to the fourth quarter of the prior year.

As we announced in December of last year, an reinforced in several communications since, the Company is expected to record a higher provision for income tax in 2006. This, in fact, did occur. It negatively effects the quarterly earnings comparison to the prior year. This was due to a change in the accounting treatment of the Company's deferred tax asset allowance. It is important to note, and to continuously reinforce, that since the Company continues to have significant net operating loss carry-forward, the majority of the additional tax provision is noncash expense. Similarly, in the fourth quarter of 2006, the Company reversed its remaining domestic and foreign deferred tax evaluation allowance. This amounted to approximately $21.3 million and resulted in a noncash benefit of $1.04 per share for the quarter and $1.07 per share for the year. For the full year, sales hitting a record $763 million, up 41%. Excluding metal prices, sales were up 28%. The fourth quarter market factors I referenced earlier were factors that drove the full year's real growth as well.

Earnings for the year hit $2.45 per share. However, without the $1.07 per share impact of the reversal of the deferred tax asset allowance, earnings would have been $1.38 per share. While this compares to a reported $0.92 per share for the prior year, on the same basis, that is removing the effect of the prior year's deferred tax asset allowance accounting and a debt prepayment charge taken then, the $1.38 per share was compared to $0.52 per share.

The Company continued to strengthen its already strong balance sheet in 2006 and ended the year was significant financial flexibility. Net was reduced further during the year bringing debt-to-debt plus equity to approximately 15% from 21% at the beginning of the year. This was accomplished while investing over $26 million in an acquisition and approximately $57 million in inventory and receivables to support the substantial increase in our sales. During the year, we worked with our financial partners to add both scale and flexibility to our credit line to support our expected growth.

One final point before turning to the outlook. Beginning with the fourth quarter, the Company changed its segments to more closely align with the way that the Company is currently managed. As a result, there are now four segments being reported. Our larger segments, advanced materials technologies and services as well as specialty engineered alloys and two smaller segments, brillium and brillium composites, and engineered material systems. Now I will turn to the outlook.

As I have already summarized, most of our markets were much stronger than expected through 2006 and we made good progress with our new products, our efforts to penetrate new markets, our global expansion initiatives, and with our initiatives to improve margins. This brought significant growth in both sales and profits in 2006, especially in the second half of the year. We believe that the Company's global markets will continue to present double-digit, organic growth opportunities in 2007.

The year is off to a good start, stronger than we had been expecting. Inventory corrections in our markets have been mild thus far and our margin improvement gains appear to be holding. We are also seeing a significant ramp-up with our new products in the media market. In addition to these stable operating factors, the Company expects a sizable cash and earnings benefit in the early part of the year, from the sale of ruthinium inventory that was in our production system to support the developments of an initial ramp-up of new media-related products. This inventory was in our system to support our product launch efforts and do in large part to very low initial yields. In recent weeks, market prices have increased significantly, and as a result, the sales of this material will yield a benefit that we would not have normally expected. As a result of these factors, the Company at this time expects 2007 sales growth to be in the 25 to 30% range. Assuming no change in these trends, sales for 2007 would then be expected to be in the range of $950 million to $1 billion.

First quarter of 2007 will be positively effected by all of these factors, and we will see additional growth from the initial supply-chain ramp-up of the new products into the media markets. First quarter 2007 sales are currently expected to be in the range of $250 to $265 million, up 50% compared to the prior year. Excluding the additional benefit from the inventory that was in the production system, earnings for 2007 are currently expected to be in the range of $2.00 to $2.75 per share. Assuming current metal prices hold, the benefit for the year from the sale of the inventory, is estimated to be approximately $1.00 per share, which brings the full year 2007 to an estimated range of $3.00 to $3.75 per share.

For the first quarter, the Company currently expects earnings, excluding the inventory benefit, to be in the range of $0.60 to $0.75 per share. The higher margin on the inventory that was in the system at lower costs is expected to add approximately $0.75 per share to the first quarter earnings, bringing the total currently expected for the first quarter to the range of $1.35 to $1.50 per share.

It is important to note that the Company's sales and earnings estimate for both the first quarter and the full year are subject to significant variability based on metal prices and metal supply assumptions as well as significant fluctuations in demand levels driven by both inventory corrections and new product ramp-up rates in critical markets such as the magnetic media market. The outlook for the quarter and thus the year are based on the Company's best estimates at this time.

Now I will turn the call over to Dick Hipple.

Dick Hipple, President, Chairman, and Chief Executive Officer

Thank you, John. Before discussing our 2007 outlook and market update, I would like to make a few comments and highlight some factors from 2006. During the last several years, each business segment has set a course to further our capabilities to develop new products and to serve our global customer base. We are driven to extend our technology and capability to help our customers solve the most demanding material challenges. In 2006, this strategy was instrumental in supporting our strong, profitable, organic growth which is our highest priority. I am proud to summarize what the great team of dedicated employees have accomplished at Brush Engineered Materials in 2006.

It's a 28% year-over-year real growth, 16 consecutive quarters of sales growth, pretax earnings have tripled, position cash flow even after a significant working capital increase to support higher sales at a cash acquisition that occurred earlier in the year. Our international sales are up 47%, exceeding our domestic sales growth of 38%. International sales now represent approximately 35% of our sales. They also opened up 3 new international offices in Japan, Korea, and China to support the increasing global opportunity of Williams Advanced Materials. Our year-to-year margins expanded by 1% and 3% net of metal pricing supported by a better mix, higher volume, and copper costs being passed through at our alloy business.

Now that the door has been closed on 2006, we are very excited about our 2007 opportunities. Prospects are improving in all of our segments, provided that a good positive macro-economic conditions hold. A significant opportunity for us is William's progress in advancing its participation in the magnetic data storage market. The magnetic data storage market was targeted as a key long-term strategy initiative by Williams several years ago. We have invested in technical resources, research and development, invested capital, and invested and strategic alliances with several universities across the globe to earn our place in this new important market. Williams has made great stride in this market, but the combination of the dynamic factors of market ramp-up cycle, market share, and expansion start-up risks, risks are all factors contributing to our wide earnings forecast range.

I would also like to spend a few minutes discussing the subject of ruthinium, which is a major factor in our forecasted results particularly the one-time benefit expected in the first half of 2007. In the middle of last year, Williams began its ramp-up to produce the new PMR targets for the magnetic media market. As a reminder, PMR or perpendicular magnetic recording, is a new technology which dramatically increases storage capability and hard disc drive. These targets contain ruthinium which has remained at relatively stable prices during the last several years. However, in a matter of just eight weeks during November and December of last year, the price of ruthinium increased by a factor of three. Today, it is over $800 an ounce greater than the price of gold. During this time, Williams was in the middle of a ramp-up stage with excess ruthinium and our production process to allow for normal start-up issues such as higher yield losses. This material that was purchased earlier in 2006 will be sold at market prices during the first half of 2007 as targets are shipped. I would like to note that ruthinium is also used in the older LMR technology and in the magnetic media head business which we also participate in.

The dynamics of the market have changed rapidly and we have now shifted our business model in the magnetic beta storage area like our other precious metal business areas where our customers pay what we pay for the precious metal. It is not our intention to be subject to wild earning swings caused by fluctuating metal prices. Going forward, we do not expect similar circumstances of the one-time forecast inventory benefits that John discussed. It is also important to note that we focused on making ruthinium based magnetic media market successful. We are dedicating many resources to working with our customers to reduce costs, to mitigate the escalating prices of ruthinium. We are working on techniques and technology to improve yields, reduce cycle times, improve product performance, and to use less expensive metal constituent.

I have not spent a lot of time in the magnetic media market area, but felt it was important to do so, because it is a major factor driving our results and opportunities. Williams is also in the process of starting a new facility for Chamber Services in the Czech Republic and a new factory in Sutcho, China in the first half of 2007. We are excited about expanding our international footprint our ability to expand our services to our customers. Also, our Brewster expansion for the magnetic data storage market will be completed in the second quarter.

Moving to our other businesses and the outlook for 2007, we are also very excited about their prospects. Our alloy division continues to improve product performance to help our customers in consumer electronics to continue to advance designs for miniaturization. The challenges for smaller connectors continues to advance. The oil/gas, aerospace, and heavy mining equipment markets continue to expand, and our sales increases in this area are also driven by many new applications or new product development.

It is also interesting to note that last year, our alloy business had over 50% of its sales overseas. As John mentioned, a big factor for the financial turnaround and alloy was changing the business model to allow for pass-through copper pricing. The amazing multi-year advances and better yields and productivity continued last year in alloy and the alloy team is committed to continue the solid track record. We look forward to alloy continuing to advance in its profitability contribution to the corporation. Our BE products group, after a slow start in 2006, came on strong in the fourth quarter with record high shipments of over $20 million. Project shipments for an experimental fusion reactor called JET were the key contributors. More exciting is the high backlog of orders we have as we enter 2007. Defence bookings are strong and are being helped by a multi-year effort to create a new business model in BE products.

Today, instead of selling blocks of metal, we are helping our customers by selling finished, fully-engineered components. This model is broadening the base of applications and our future growth potential. TMI has also been re-engineering its business model towards new product generation. In addition to the historic automotive and telecom markets, TMI is now a leader at providing claden metal to produce disc drive arms for the latest generation of PMR disc drives. New opportunities are also evolving in medical and global automotive connectors. Later this year, new capacity will be added at TMI to provide both lighter gauge and enhanced bonding capabilities.

As you can tell, we are very excited about 2007. As I have mentioned before, the secret of ongoing success is our business model, which is geared toward creating our own future growth to creating enabling materials.

Mike, I will turn it back to you as I think we may have a few questions.

Michael Hasychak, Vice President, Treasurer, and Secretary

Operator, let's open it up for questions please.

Operator:

Thank you. Ladies and gentlemen, at this time, we will now be conducting our question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may necessary to pick up your handset before pressing the * key. One moment please while we poll for questions.

Our first question comes from the line of Charles Murphy with Sedoti & Company. Please proceed with your question.

<Q>:  Good afternoon, guys. It's quite some numbers that you put up today. Just wondering, most of the hard drive companies are expecting kind of the mid-to-high teens type growth and Williams has been doing, obviously, much higher than that. I was wondering if it's a matter of you guys getting into new applications before everyone else or is it the application that you are already selling, selling more? If you could just elaborate a little bit on that.

<A>: Good question, Chuck. What's going on is that we are really entering a new market area for us. Williams historically has participated in the media head business, on the head side of the disc drives, and now we are in the recording disc side of the media market. That is why the growth rate is greater than the market growth rate just because it is a whole new market area for us. As we grow there, we are growing our marketshare in a growing market.

<Q>:  How do you take marketshare from the companies that were already selling the metals for the platters?

<A>:  Well, we believe that it is really driven by our IP processes. There is a whole new portfolio of products required and so we have been working very hard from a technology standpoint to providing improved product and we've done an excellent service package. So as products change, and you leave some historic markets, it provides some opportunities for new entrance. We targeted that several years ago, as I pointed out, and we've positioned ourselves to really satisfy the customer base with a terrific product and a terrific service package.

<Q>:  Okay. My other question was, I believe that you said before that the Brewster construction has kind of impacted Williams margins and I was just kind of wondering when you expected Williams margins to kind of get back to their norm?

<A>:  Again, that is one factor of it. We had more of an impact really later last year as we were going through the product development cycle so we are not expecting that to repeat as go forward. Again, there is always some risk as you continue to ramp-up to higher volumes.

<Q>:   Okay. I will turn it over to someone else. Thanks.

Operator:

Our next question comes from the line of Bob Shenolsky with Jeffries & Company. Please proceed with your question.

<Q>:  Thanks. Good afternoon.

<A>:  Good afternoon.

<Q>:  John, first a couple of housecleaning things for you. What should we be using for 2007 for both the cash and the book tax rate?

<A>:  The book tax rate about 34% and the cash tax rate, Bob, it's difficult depending upon what level of total performance we get, but anywhere from... I'm going to give you a wide range, anywhere from 12 to 18%.

<Q>:  Okay, great. What about capital expenditure for next year, for 2007?

<A>: Cap ex is about $25 to $30 million and then there will be some money from mine development. An effective range might be 27 to 35.

<Q>:  Okay. Then finally on the housekeeping depreciation?

<A>:  Depreciation around $25 million.

<Q>:   Okay, great. Then, for you John or for Dick, given the balance sheet with your inventories coming down on the sales plus getting your accounts receivable and accounts payable more in balance, what do you anticipate doing with the cash? Are there any acquisitions that are getting potentially closer to fruition? Anything you might do with shareholders?  What's the direction?

<A>:  Well, as the year unfolds, we will determine what the best use of our cash will be and certainly everything is on the table. With respect to acquisitions, we are actively pursuing acquisitions at this time. It's a part of our anatomy at this point, and we do feel there are some interesting candidates out there, however, there is nothing pending at this particular moment.

<Q>:  Okay. Dick, I would guesstimate that they will be very similar to what you have done recently?

<A>:  Yes. It all depends. In general, they all have the same characteristics.

<Q>:   Okay, great. Just to be clear on the sales figures. The number that you just talked about for both the first quarter as well as full year 2007, do those include or exclude the inventory sales?

<A>:  They include.

<Q>:  Okay. Can you give us a sense of the size there, John?

<A>:  The inventory piece of it is approximately $20 million.

<Q>:   Okay, great. We want to keep that as a one-time item. So I wanted to get that number. Then, just two final things. One, you have talked about in previous quarters, and quite successfully in terms of new products and the percent of growth that have accounted for. Dick, you were a perfect conservative going into last quarter and you had such a great quarter for 4th Q, can you give us any sense in terms of what you are talking about in the 25 to 30% growth number of what the potential could be in terms of if being allocated towards new products?

<A>: We track it, like for example, last year as we looked at the number, about 25% of our sales have been introduced in less than 5 years and that is kind of a broad brush. We are generating brand new products at least at the rate of 5% a year so that is a good rule of thumb. Currently it is about 25% of our total  sales and our recently introduced products. We are trying to keep that up.

<Q>:  Right. So with that 5% each year, it should be maintained at about a 25% clip.

<A>:  Yes, 25 to 30% clip.

<Q>:  Okay, finally, I just wanted to clear up one point. You mentioned auto and that's always an area of concern for investors. Can you just give us some color on your auto business and how big it is now? I know it's gotten smaller at a percent. How much of it is big-three and how much of it could potentially be a risk if we see a big decline in the big-three this year?

<A>:  The automotive market is one of our smaller markets, fortunately, and it represents approximately 10% of our sales. It's not going to be a big factor if the automotive market declines by 10%. You can see that it's not a big factor, although we will get caught in some of those inventory swings that might have a little larger impact, but overall it's a smaller piece of our pie. The automotive markets does not go through two cyclical swings that drive our numbers.

<Q>:   Right. With the exposure to the European business, that usually effects the big-three as well correct?

<A>:  That's correct. One of our major strategic objectives was not to be so reliant upon the big-three and so from an alloy business, we are very global across the world on automotive and at our smaller division at TMI, it's been a very big strategic initiative of theirs just to broaden their base into the transplant business, which they have found pretty effectively and that's an ongoing effort.

<Q>:  Right. So it has basically become an nonevent in the P&L to a great degree?

<A>:  I would never call anything a nonevent.

<Q>:  Well not exactly.  Negatively moved the needle in the face of average growth.  How's that? Okay. Thanks for your time.

Operator:

Our next question comes from the line of Oganash Comp with Canacort Adams. Please proceed with your question.

<Q>:  Good afternoon, Dick and John.

<A>:  Good afternoon.

<Q>:  I was just trying to understand, and you were talking about this additional revenue and earnings in the first two quarter's from the sale of ruthinium. What I did not understand was that is this sale of ruthinium-based targets, are you also going to be sending the ruthinium as the metal?

<A>:  No, it's the target. We're not selling the metal.

<Q>:   So, just say the targets are shipped now and you had a very small base, so you are getting the gain now.

<A>:  That is correct.

<Q>:  So, of course your margins are going to be very high at this time around on this product going forward.  What kind of margins should we expect in this product on an ongoing basis?

<A>:  We don't disclose, as you know, Oganash, margins product-by-product. I would say that you can expect that segment, which has Williams in it, the advanced material segment margins would be largely in the aggregate unaffected over time by this launch. It's about the same margin level once we are through with the initial benefit.

<Q>:  I was wondering, I don't know how to deal with this, should we keep this as an extraordinary item other or not, because you are actually selling the product at a high margin?

<A>:  You should keep the $0.75 and the $1.00 that we referenced in the press release as an extraordinary item going forward. It will not repeat. Again, this was inventory that was in our production system during the ramp-up and prior to using the production ramp-up during the research and development phase of this product launch. That material was purchased at extremely low costs and eventually recovered and recycled and refined by us and is now being used for a product being sold.

<Q>:  So, in that case, for Q1, what kind of margin should we model? If we take this as an extraordinary item, what should we do?

<A>: I would take it out of the numbers from modeling a margin and I would use a margin for 2007. In the aggregate to be slightly stronger than the fourth quarter of 2006 margin. Then if you take this and put this in, the new media volumes in, you will get a margin decline year-over-year, because you are putting more precious metal into the top line.

<Q>:  I see what you are saying. Excluding these, the margins will still improve for the Q4 2006 efforts?

<A>:  Sure. That's correct.

<Q>:  My other question is that, of course the price of ruthinium has gone up significantly. Is there a point that it becomes less and less attractive to the media area? I mean to say, do they have another choice?

<A>: Well, I think, there is always a point. I personally don't know where that point is. You are in a consumer-driven market so pricing is always a big sensitivity. That's why I had mentioned earlier that we are working very hard to reduce the impact. There are lots of things we can do to  help our customer base and there is a move to use thinner layers of ruthinium, try to figure out how to use less of it to improve recoveries and recycle strains and things like that. We are working on all those initiatives to help them out in a longer term basis. There are other plots about other material sets. For us, that's okay because we should be there as the technology advances if things over time are made different targets made out of different material bases. We are going to be there because we are on the forefront of those technology developments.

<Q>:  So, in the near term, it does not look like there is another material?

<A>:  That's correct. Not to my knowledge.

<Q>:   Okay. Thank you so much.

Operator:

Our next question comes from the line of Anthony Sorrentino with Sorrentino Metals. Please proceed with your question.

<Q>:  Good afternoon, everyone.

<A>:  Good afternoon.

<Q>:  Would you give a breakdown of your capital expenditure for 2007, how much will be maintenance capital, how much will be growth capital, and if possible break down the growth capital by project or by facility.

<A>: We are not going to break it down by project or by facility, Anthony. It's about half maintenance and about half growth.

<Q>:  Okay. Fine. With regard to the alloy products facility, will fuller capacity utilization of the alloy products facility lead to further improvements in yield and productivity in 2007?

<A>:  Absolutely. That's ongoing and we are continuing to improve productivity and yields every year.

<Q>:  Okay. Thank you and congratulations on the great results.

<A>:  Thank you.

Operator:

Our next question comes from the line of Mark Parr with Keybank Capital Markets. Please proceed with your question.

<Q>:  Good afternoon. Can I hire you guys to run my metals portfolio? That was a joke. Sorry. Congratulations on the great results. I had a couple of questions. Dick, one of the things you had talked about as far as growth is the media portion of the storage device. Could you give us some sense of what your penetration in this side of the device is compared to what your penetration is for the heads or penetration on this new side relative to where you think it could be in 12 to 18 months?

<A>: That is one of the big variables. We are not going to reveal what we think our specific marketshares are in these niche products. That is really competitive information, but I will say is that in the head business, which is our historic business, we do have a very strong marketshare position and on the media side, we basically came from a zero position. We are aggressively trying to grow that side of the business and we are being very successful, and as I mentioned, some of the range of these earnings forecast is a function of how strong can we grow the marketshare within these segments and it's still a little bit too early to tell although we are being very successful.

<Q>:  Is the competitive profile on the two sides relatively similar?

<A>:  Yes.

<Q>:   Okay. Is it fair to say that on the head side that you would be a leader?

<A>:  Yes.

<Q>:   Can you tell us who the leaders are on the other side?

<A>:   I prefer not to talk about our competitors.

<Q>:  Okay. I don't blame you. I was just asking.

<A>:  That's fine.

<Q>:  If I could just carry this growth discussion another step, in looking into 2007 and 2008, we have talked about this optical media, could you talk about say, what are another four or five other growth opportunities that you have identified that could really look great for 2007?

<A>:  We have talked about these before. We are still growing very strongly with the new product that we introduced several years ago because the product derivatives continue to increase and the top net product line in alloy is continuing to grow at a very rapid pace. We've got new products back in the Williams. We've got a lot of new products in the wireless area which is different than the media area. We expect to see some strong growth there. I had mentioned earlier in the call that we've got some really nice growth platforms going on both in our TMI business and the Brilliant products business. That is our mantra is really to continue to come up with new ideas and new products to broaden this application base that we have.

<Q>:  Okay. What's the current capacity utilization of AEP right now?

<A>:  Well, the AEP is interesting. It's probably at a lower utilization rate. We have a higher utilization rate at our Reading facility. The AEP, which is really a direct ship area, we still have some nice capacity left within that facility even in spite of the growth that we are seeing both with the primary and in the direct ship.  Since you are familiar with that facility.

<Q>:  Okay. All right. Congratulations on all the progress. One other question, if I could. It sounds like your capital expenditure plans, you have given the magnitude of growth remains fairly modest, are we getting near a point where the Company is going to have to undertake some significantly more meaningful capital projects?

<A>:  I think it's important, we've got a very tight discipline on the capital spending and we do spend it where we need to address our capacity, I think we have kind of a unique business model right now to where the alloy and the Brilliant businesses are high capital intensity businesses, and as we continue to grow these businesses, we are not facing any of what I call a big blow-out type of expenditures we had for the AEP. We are able to continue these expansions with a very modest capital. We don't see any major expansions required there. On the other major side of the house in Williams, it's another business model where we can for a very, very small capital, increase capacity significantly so it's really more IP driven versus equipment driven. For example, we are expanding our Brewster facility by a factor of two right now as we speak, and that was done for very low capital.

<Q>:  Okay, terrific. Just one more thing if I could. Could you give us an update of the status of the new hydroxide operation that you are in discussions with with the government and then I will pass it on. Thanks again and congratulations.

<A>:  We are still proceeding on the detail engineering of that facility and we are finalizing the cost estimate and so we are still negotiating the government to work on the final release on the construction side.

<Q>:  Okay. Thanks a lot.

Operator:

Our next question comes from the line of Paul Kriger with Dennis Investment Management. Please proceed with your question.

<Q>:  I am still a little bit confused about this ruthinium issue. You talked about selling about $20 million worth of excess metal and you are also using metal in the recording heads. How much of the value of the recording head is being inflated by the metal price being higher? Roughly, in aggregate how large is this business?

<A>: Ask the first question.

<Q>:  It seems like there are soon to be two pieces here. You say we are selling excess inventory.

<A>:  No, we are not selling excess inventory.

<Q>:  I thought it was raw material inventory.

<A>:  No, that is not correct. John, do you want to...

<A>:  We were referencing the increase in the value of the metal that was in the production system.

<Q>:   Okay.

<A>:  That has an impact as it turns on the revenue stream, certainly, but it is not the sale of excess material. It's the increase in the value of that material.

<Q>:  How much of an inflation in this revenue stream in aggregate will there be? You threw out a $20 million number but I thought that was a separate issue.

<A>:  That's a separate issue. The inflation in the value of the material Dick had referenced that ruthinium increased in value over three fold since the beginning of November. While ruthinium earlier in 2006 would have been less than $200 an ounce, it's presently over $800 an ounce.

<Q>:  Okay.

<A>: While we have a low base to compare to year-over-year  in our total revenue, what is hitting our revenue line in 2007 is based on a much higher per ounce value of ruthinium so we've got the growth in what we are shipping and a higher value of the metal. I don't know that we can relate to that total as a growth, because clearly we didn't have the ounces in the prior year.

<Q>:  So if I look from the December to the March quarter, you are roughly talking about $40 million plus revenue increase. How much of that would be attributed just to the specific issue?

<A>:  From the two quarters? Comparing the fourth quarter to the first quarter of 2007?

<Q>:   Yes.

<A>: Is that what you are asking? I would say that, let me give you sort of a rough estimate for the entire year. This, I think, will help everyone. When we look at the year-over-year growth, the nonmedia related markets in revenue, we believe are going to grow at 8 to 12%. The remaining growth in the Company would therefore be in the business unit that has the media related products in it. That number would be north of 60% year-over-year.

<Q>:  All right that does help. Separate question. The industry experienced a similar inventory correction back in 2004. This time around you kind of just blew through it. What's been different between the two?

<A>:  Well, I think the market was coming from, in 2004, the market was coming from what I call the telethon crash where the market, you know the bottom fell out in 2001 to 2003 standpoint. As the market started to pick up and the whole business cycle turned around, there was a huge increase in that particular cycle, and so that kind of got carried away. Then it softened up in 2005. At this point in time, I think we are not coming from an extremely low level and the market has continued to be robust so we haven't seen that big correction from a massive inventory bill so it's a little different kind of a cycle but at the same time, we've also grown the business from a market and geographical reach. Hopefully, we are a little less subject to the cycles going forward.

<Q>:  Thank you.

Operator:

Our next question is a follow-up question from the line of Charles Murphy. Please proceed with your question.

<Q>:  I know you have kind of switched around the way you were reporting different segments. I was just wondering if it would be possible to get the operating profit numbers on the metal systems versus microelectronic faces?

<A>:  That would not be appropriate. We also do not have them with us.

<Q>:  Okay. Are you going to be seeing any revenue from the JET project in the first quarter?

<A>:   Very insignificant.

<Q>:   Okay. I am imagining that the JET did help, though, the margins in the fourth quarter, correct?

<A>:  Yes it did.

<Q>:  All right. Thank you.

Operator:

Our next question comes from the line of James Gulick who is a private investor. Please proceed with your question.

<Q>:  Dick and gentlemen, I am a private investor and a retired employee of Brush Welman. I simply would like to congratulate the new management team.  It appears like you are finally going to have the opportunity to capitalize on all the assets and the opportunities of those assets, and it looks like an exciting outlook for Brush Welman, keep up the good work and good luck to you.

<A>:  Thank you.

<A>:  Thank you.

Operator:

Ladies and gentlemen, as a reminder, if you would like to as a question, please press *1.

Gentlemen there are no further questions in the queue. Do you have any closing remarks?

Michael Hasychak, Vice President, Treasurer, and Secretary

Sure, this is Mike Hasychak. We would like to thank all of you for participating on the call this afternoon. I will be around for the remainder of the afternoon to answer any further questions. My direct dial number is 216-383-6823. Thank you very much.

Operator:

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.