UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-5885
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
(Full Title of the Plan)
BRUSH ENGINEERED MATERIALS INC.
17876 St. Clair Avenue
Cleveland, Ohio 44110
(Name of issuer of the securities held
pursuant to the plan and the address
of its principal executive office.)
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
REQUIRED INFORMATION
--------------------
Page No.
Report of Independent Registered Public Accounting
Firm 1
Statements of Net Assets Available for Benefits -
December 31, 2003 and 2002 2
Statement of Changes in Net Assets Available for
Benefits - Year Ended December 31, 2003 3
Notes to Financial Statements 4-9
Schedule required to be filed under ERISA
a. Schedule H, Line 4i, Schedule of Assets (Held
at End of Year) 10
Exhibits
23.1 Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm 12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Plan Administrator
Brush Engineered Materials Inc.
Savings and Investment Plan
We have audited the accompanying statements of net assets available for benefits
of the Brush Engineered Materials Inc. Savings and Investment Plan as of
December 31, 2003 and 2002, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2003. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2003 and 2002, and the changes in its net assets available for
benefits for the year ended December 31, 2003, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2003, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Cleveland, Ohio
June 17, 2004
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31
2003 2002
------------ ------------
ASSETS
Investments $114,523,015 $ 87,962,949
Contribution receivables:
Employer 24,333 23,116
Participants 151,171 136,559
------------ ------------
Total contribution receivables 175,504 159,675
------------ ------------
Noninterest-bearing cash 105,779 15,788
interest receivable 693 580
Pending sales 104,585 22,829
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $114,909,576 $ 88,161,821
============ ============
See accompanying notes to financial statements.
2
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003
ADDITIONS
Net investment income:
Net appreciation in fair value of investments $ 25,161,673
Interest and dividends 1,494,443
------------
26,656,116
Contributions:
Participants 5,608,351
Employer 951,165
Employee PreTax Catch-up 67,503
Rollover 101,661
------------
6,728,680
------------
Total additions 33,384,796
DEDUCTIONS
Benefits paid directly to participants 6,621,286
Administration fee 15,755
------------
Total Deductions 6,637,041
------------
Net increase 26,747,755
Net assets available for benefits:
Beginning of year 88,161,821
------------
End of year $114,909,576
============
See accompanying notes to financial statements.
3
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
AND YEAR ENDED DECEMBER 31, 2003
NOTE A - DESCRIPTION OF THE PLAN
The following description of the Brush Engineered Materials Inc. Savings and
Investment Plan (Plan) provides only general information. Participants should
refer to the Summary Plan Description for a more complete description of the
Plan's provisions.
GENERAL
The Plan is a defined contribution plan that covers certain eligible employees
of Brush Engineered Materials Inc. (Company) and participating employers who
have adopted the Plan (Company reference includes participating employers where
appropriate). The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
CONTRIBUTIONS
The Plan provides for basic contributions by employees of up to 6% of their
earnings through either pre-tax (salary reduction) or after-tax contributions.
Currently, basic contributions are matched by the Company at the rate of 25% of
such contributions. The rate at which such basic contributions are matched by
the Company may be decreased or increased (up to a 100% rate) by action of the
Company's Board of Directors.
An employee who makes basic contributions of 6% of earnings may also make
supplemental contributions of up to 11% (44% for pay periods after February 13,
2004) of earnings which are not matched by Company contributions and which may
be made in any combination of pre-tax and/or after-tax contributions.
An employee's contributions made to the Plan on a pre-tax basis may not exceed
certain IRS maximum amounts. The maximum amount is $13,000 in 2004. If an
employee will be 50 or older by the end of the plan year, and is making the
maximum elective contribution for the year, he/she may make additional pre-tax
"catch-up" contributions of up to 17% (75% for pay periods ending after December
31, 2003) of earnings. In 2004, the maximum amount for a catch-up contribution
is $3,000. Catch-up contributions are not matched by Company contributions.
Currently, participants can direct, in increments of 1%, their basic,
supplemental, rollover, catch-up, Company matching, and transfer contributions
(as described in the Plan) to be invested in any of the fund options offered by
the Plan, in increments of 1%. Participants can also transfer amounts between
fund options on each investment change date.
4
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS - CONTINUED
PAYSOP FEATURE
The Plan includes a Payroll Stock Ownership Plan (PAYSOP) feature that applied
through 1986. Under the PAYSOP, the Company made contributions based upon a
percentage of payroll and was afforded an additional credit against federal
income tax up to the amount allowable by the Internal Revenue Code. The PAYSOP
contribution by the Company, which could be in Common Stock of the Company or
cash used to purchase Common Stock of the Company, was a percentage of the
compensation paid to all employees who made salary reduction contributions to
the Plan at any time during the year and who were members of the Plan as of the
last pay period of such year. The shares of Common Stock of the Company
contributed or purchased were allocated equally to all eligible participants.
VESTING
All employee and Company matching contributions are fully vested at all times.
PARTICIPANT LOANS
A participant may borrow funds from his account, excluding his interest in the
PAYSOP Fund, provided such loan is secured by 50% of the value of the
participant's account immediately prior to the loan and evidenced by a
promissory note executed by the participant.
PAYMENT OF BENEFITS
At retirement, death or other termination, a participant (or his death
beneficiary) is eligible to receive a distribution of all employee, Company
matching and PAYSOP contributions credited to the employee's account plus or
minus any net gain or loss thereon.
The value of distributions and withdrawals is based on the value of a
participant's account on the valuation date immediately preceding the date of
distribution or withdrawal and is deducted from the participant's account as of
such valuation date.
Distribution to a participant or a person designated by the participant as his
death beneficiary is made under one or more (as applicable) of the following
methods as elected by the participant (or in certain cases the death
beneficiary):
(i) Lump sum payment in cash;
(ii) Lump sum payment in cash, except that a participant's interest
in the Company Stock Fund and the PAYSOP contributions account
will be paid in full shares of Common Stock of the Company,
with any fractional shares being paid in cash; and
(iii) Periodic distributions, not more frequently than monthly, of
at least $200.
5
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS - CONTINUED
INSURANCE POLICIES
Prior to June 1, 1989, participants who were employees of Williams Advanced
Materials Inc. could have directed a portion of their contributions to be used
to purchase insurance policies that were excluded from the former Williams
Advanced Materials Inc. Savings and Investment Plan assets. Life insurance
policies on the lives of participants, purchased under the former Williams
Advanced Materials Inc. Savings and Investment Plan prior to July 1, 1989, may
continue to be held.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan have been prepared on the accrual basis of
accounting.
INVESTMENT VALUATION
Investments are stated at fair value. Investment in the company stock fund is
valued based on the latest reported closing price of the stock component and the
actual cash held in the fund. The shares of registered investment companies are
valued at quoted market prices that represent the net asset values of shares
held by the Plan at the latest closing price. Investment in participation units
of the money market funds are stated at fair value as determined by Fidelity
Management Trust Company, the Trustee. Participant loans are valued at their
outstanding balances, which approximate fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
and dividend income is recorded on the accrual basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
6
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE C - INVESTMENTS
During 2003, the Plan's investments (including investments purchased, sold as
well as held during the year) appreciated in fair value as determined by quoted
market prices as follows:
Net Realized
and Unrealized
Appreciation in
Fair Value of
Investments
-----------
Brush Engineered Materials Inc. Common Stock $ 9,495,826
Shares of registered investment companies 15,665,846
-----------
$25,161,673
===========
Investments that represent 5% or more of fair value of the Plan's net assets are
as follows:
December 31
2003 2002
----------- -----------
Vanguard Asset Allocation Fund $10,522,477 $ 8,357,221
PIMCO Total Return Fund 10,514,486 9,970,018
Brush Engineered Materials Inc. Common Stock 13,856,637 5,782,563
TORRAY Fund 10,911,297 8,475,838
Fidelity Blue Chip Growth Fund 21,940,540 17,769,424
Fidelity Diversified International Fund 9,280,584 6,300,497
Fidelity Money Market Trust: Retirement
Money Market Portfolio 9,062,757 10,374,145
Spartan U.S. Equity Index Fund 16,177,286 12,310,311
7
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500 at December 31, 2003 and 2002:
December 31,
----------------------------
2003 2002
------------ ------------
Net assets available for benefits per
the financial statements $114,909,576 $ 88,161,821
Amounts allocated to withdrawn participants 0 (3,592)
----------- ------------
Net assets available for benefits per Form 5500 $114,909,576 $ 88,158,229
=========== ============
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31, 2003:
Benefits paid to participants per the
financial statements $6,621,286
Less: amounts allocated on Form 5500 to withdrawn
participants at December 31, 2002 (3,592)
--------------------
Benefits paid to participants per the Form 5500 $6,617,694
====================
Amounts allocated to withdrawn participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to year
end but not yet paid.
NOTE E - INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated July 25, 2002, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code (Code) and, therefore, the related trust is exempt
from taxation. Subsequent to the issuance of the determination letter, the Plan
was amended. Once qualified, the Plan is required to operate in conformity with
the Code to maintain its qualification. The Plan Administrator believes the Plan
is being operated in compliance with the applicable requirements of the Code
and, therefore, believes that the Plan, as amended, is qualified and the related
trust is tax exempt.
NOTE F - TRANSACTIONS WITH PARTIES-IN-INTEREST
All legal, accounting, and administrative expenses of the Plan are paid by the
Company. Other than as described above or pursuant to the trust agreement, the
Plan did not have any agreements or transactions with parties-in-interest.
During 2003, the Plan had the following transactions related to shares of Brush
Engineered Materials Inc. Common Stock:
Purchases $5,731,918
Sales 6,670,792
8
NOTE G - RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in the statements of net
assets available for benefits.
9
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
EIN: 34-1919973 PLAN NUMBER - 003
SCHEDULE H, LINE 4i
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
DESCRIPTION CURRENT
IDENTITY OF ISSUE OF INVESTMENT VALUE
----------------- ------------- -----
Brush Engineered Materials Inc. Common Stock * 905,071.000 shares $13,856,637
Shares of registered investment companies:
Vanguard Asset Allocation Fund 466,421.833 shares 10,522,477
PIMCO Total Return Fund 981,744.687 shares 10,514,486
Franklin Small-Mid Cap Growth Fund 95,891.958 shares 2,897,855
MSI Small Company Growth Fund 91,163.804 shares 951,750
TORRAY Fund 272,918.896 shares 10,911,297
Fidelity Blue Chip Growth Fund* 553,634.632 shares 21,940,540
Fidelity Diversified International Fund* 384,767.179 shares 9,280,584
Fidelity Freedom Income Fund* 38,494.677 shares 426,906
Fidelity Freedom 2000 Fund* 44,983.568 shares 529,906
Fidelity Freedom 2010 Fund* 82,229.748 shares 1,070,631
Fidelity Freedom 2020 Fund* 118,754.36 shares 1,546,182
Fidelity Freedom 2030 Fund* 47,345.085 shares 613,119
Fidelity Freedom 2040 Fund* 58,011.942 shares 438,570
Spartan U.S. Equity Index Fund* 410,486.818 shares 16,177,286
-------------------
87,821,590
Money market funds:
Fidelity Employee Benefits Money Market Fund* 795,326.000 units 795,326
Fidelity Money Market Trust: Retirement Money
Market Portfolio* 9,062,757.31 shares 9,062,757
-------------------
9,858,083
Participant Promissory Notes * 1.66% - 5.69%
with maturity dates
through 2018 2,986,705
-------------------
$114,523,015
===================
* Party-in-interest to the Plan.
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
BRUSH ENGINEERED MATERIALS INC.
SAVINGS AND INVESTMENT PLAN
By /s/ Michael C. Hasychak
Vice President, Treasurer and Secretary
Brush Engineered Materials Inc.
Date: June 28, 2004
11