SecProbe.io

CORRESP
1
filename1.htm

corresp

    Brush Engineered Materials Inc.

    6070 Parkland Boulevard.

    Mayfield Heights, OH 44124

    216-486-4200

    John D. Grampa

    Direct Dial: 216-383-4905

    Senior Vice President Finance

    and Chief Financial Officer

July 2, 2010

VIA EDGAR

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, DC 20549-4631

    Attention:

    Terence O’Brien

    Jenn Do

    Errol Sanderson

    John Coleman

              Re:

    Brush Engineered Materials Inc.

    Form 10-K for fiscal year ended December 31, 2009

    Filed March 8, 2010

    Definitive Proxy Statement on Schedule 14A filed March 25, 2010

    Form 10-Q for the period ended April 2, 2010

    File No. 1-15885

Ladies and Gentlemen:

          Brush Engineered Materials Inc., an Ohio corporation (the “Company” or “we,”
“us” or “our”), is submitting this letter in response to the comment letter from
the staff (the “Staff”) of the Securities and Exchange Commission
(the “Commission”), dated June 22, 2010 (the “Comment Letter”), with respect to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed March 8,
2010, the Definitive Proxy Statement on Schedule 14A, filed March 25, 2010 and Form 10-Q for the
period ended April 2, 2010.

          Below are the Company’s responses. For the convenience of the Staff, we have repeated each of
the Staff’s comments before the corresponding response.

Form 10-K for the year ended December 31, 2009

Management’s Discussion and Analysis, page 23

    1.

    We note your statement on page 9 that various projects including the F-22 fighter
aircraft have been canceled, which had and will have a negative impact on your sales.
Please revise MD&A in future filings as appropriate to disclose the impact

Securities and Exchange Commission

July 2, 2010

Page 2

    of such project cancellations on your operating results, liquidity and financial position for
the periods presented.

Response:

In future filings, we will disclose, as appropriate and to the extent estimable, the impact of
project cancellations, if any, that are material to our operating results, liquidity or financial
position for the periods presented.

Results of Operations, page 23

     2. We note the following quality and other issues and/or errors:

    •

    On page 24, a “manufacturing quality issue” related to the medical market
which is also discussed on page 29.

    •

    On page 25, margins were reduced $5.7 million in 2007 as a result of “quality
returns from a key customer and related rework and scrap costs.”

    •

    On page 30, a “quality issue and a change in material specifications” related
to media applications contributed to decreased sales in the second half of 2007.

    •

    On page 30, a “$2.6 million sales correction” made in the first quarter of
2008 for “an error from 2007.”

    •

    On page 17 of the April 2, 2010 Form 10-Q, margin in the Beryllium and
Beryllium Composites segment was lower in the first quarter 2010 despite a slight
increase in sales because of “yield issues on certain products.”

    In future filings, please better explain the nature of these issues, including how they
were identified and resolved, the period(s) they affected as well as their impact on your
operating results, liquidity and financial position.

Response:

In future filings, we will provide disclosure regarding the nature of any quality or other issues
disclosed, if applicable, including the period(s) they affected as well as their impact, to the
extent estimable, that are material to our operating results, liquidity or financial position.

Specialty Engineered Alloys, page 31

    3.

    For the basis of a materiality test, please forward to our engineer as supplemental
information and not as part of your filing, an estimate of your Utah assets associated
with the mining and milling of your bertrandite ore and internal and

Securities and Exchange Commission

July 2, 2010

Page 3

    external beryllium
hydroxide sales revenues. This information should encompass your assets from your mining
operation up to the point of your beryllium hydroxide sales.

Response:

Below is an estimate of our Utah assets associated with the mining and milling of our bertrandite
ore and internal and external beryllium sales revenues.

The following assets associated with mining and milling of bertrandite ore were in place at the
Company’s Utah operations as of December 31, 2009 (in thousands):

    Inventories

    $
    18,941

    PP&E – net

    6,774

    Mineral resources and
mine development – net

    3,508

    Other

    196

    Total

    $
    29,419

These assets, which account for less than 5% of the Company’s total assets, are deployed to mine
the ore and produce beryllium hydroxide.

Sales of beryllium hydroxide produced by these assets totaled $6.4 million in 2009 while
inter-company transfers of hydroxide totaled $7.7 million. Sales of beryllium hydroxide were less
than 1% of the Company’s total sales in 2009.

Financial Position, page 37

    4.

    We note your statement on page 41 that you were in compliance with all of your debt
covenants as of December 31, 2009. If it is reasonably likely that you will not meet your
financial covenants, please disclose in future filings the required minimum/maximum ratios
or amounts for each of your financial covenants and the actual ratios or amounts achieved
for each financial covenant as of the most recent balance sheet date. This disclosure will
allow an investor to easily understand your current status in meeting your financial
covenants. Refer to Sections 501.13.b.2 and 501.13.c of the Financial Reporting
Codification for guidance. Also, disclose any known future changes to each covenant, and
state whether you expect to be in compliance when such changes come into effect.

Response:

As of December 31, 2009 and as of the filing date of our Form 10-K for the year ended December 31,
2009, we did not believe that we were reasonably likely to be in breach of our debt covenants and
there were no known pending changes to our debt covenants. In

Securities and Exchange Commission

July 2, 2010

Page 4

future filings, we will disclose
further details on our debt covenants, including actual amounts versus required minimum/maximum
ratios or amounts, if we are, or believe we are reasonably likely to be, in breach of our debt
covenants. We will disclose, to the extent applicable, any known future changes to each covenant
and whether we expect to be in compliance when such changes come into effect.

Ore Reserves, page 44

    5.

    In your discussion of ore reserves we note you define a probable reserve as ‘‘the
estimated quantities of ore known to exist, principally at greater depths, but prospects
for commercial recovery are undeterminable.” Please revise your disclosure to incorporate
a probable reserve as defined by Section (A) (3) of Industry Guide 7.

Response:

Our probable reserves as disclosed in our Form 10-K for the year ended December 31, 2009 were
determined in accordance with Industry Guide 7. In future filings, we will change the disclosed
definition of probable reserves to incorporate the definition of “probable reserves” included in
Industry Guide 7.

Quantitative and Qualitative Disclosures About Market Risk, page 48

    6.

    Please revise future filings to disclose your strategies employed to manage exposure
related to the price of natural gas and electricity. In this regard, we note your
disclosures on page 12.

Response:

In future filings, we will disclose our strategies employed to manage exposure related to the price
of natural gas and electricity, which disclosure we expect will include a discussion of the use of
fixed price contracts.

Consolidated Statements of Income. page 54

    7.

    We note the net loss incurred in 2009. As such, in future filings please revise the
title of these statements accordingly.

Response:

In future filings, we will revise the title of our consolidated statement of income to reflect a
loss, if applicable.

Securities and Exchange Commission

July 2, 2010

Page 5

Consolidated Statements of Shareholders’ Equity, page 57

    8.

    Please revise future filings to clarify the nature of the line item/column ‘‘Other
equity transactions.” Provide quantification of material items therein.

Response:

For the periods presented, “Other equity transactions” consisted largely of transactions associated
with our directors’ deferred compensation plan. In future filings, we will clarify the nature of
the line/item column “Other equity transactions” by identifying and quantifying material items
contained therein, as necessary.

Note G- Leasing Arrangements, page 67

    9.

    Please revise future filings to disclose whether you are in compliance with the
restrictive covenants under your facility lease.

Response:

As of December 31, 2009 and as of the filing date of our Form 10-K for the year ended December 31,
2009, we were in compliance with the restrictive covenants under our facility lease. In future
filings, we will disclose whether we are in compliance with the restrictive covenants under our
facility lease.

Other

    10.

    You disclose on page 15 that as a holding company, you are dependent upon dividends
or other intercompany transfers of funds from your subsidiaries and that the payment of
dividends and other payments to you by your subsidiaries may be restricted by, among other
things, applicable corporate and other laws and regulations, agreements of the
subsidiaries and the terms of our current and future indebtedness. Please tell us how you
considered the requirements under Rule 5-04 to provide Schedule I condensed parent only
financial statements. Refer to Rule 4-08(e)(3) for a discussion of the computation of
restricted net assets and an illustration of its application.

Response:

Rule 5-04 of Regulation S-X requires a financial statement schedule containing condensed parent
company data to be filed when the restricted net assets of consolidated subsidiaries exceed 25% of
consolidated net assets as of the end of the most recently completed fiscal year. Pursuant to Rule
4-08(e)(3) of Regulation S-X, “restricted net assets” is defined as the “amount of the registrant’s
proportionate share of net assets (after intercompany eliminations) reflected in the balance sheets
of its consolidated and unconsolidated subsidiaries as of the end of the most recent fiscal year
which may not be transferred to the parent company in the form of loans, advances or cash dividends
by the

Securities and Exchange Commission

July 2, 2010

Page 6

subsidiaries without the consent of a third party (i.e., lender, regulatory agency, foreign
government, etc.).” Where restrictions on the amount of funds which may be loaned or advanced
differ from the amount restricted as to transfer in the form of cash dividends, the amount least
restrictive to the subsidiary shall be used.

The Company concluded that Schedule I under Rule 5-04 of Regulation S-X was not required to be
included in the Form 10-K for the period ended December 31, 2009 based on the following
considerations:

    •

    The requirements of Rule 5-04 of Regulation S-X are triggered only if third-party
consent is required for an upstream movement of assets from the relevant consolidated
subsidiary to the parent.

    •

    As of the end of each of the periods covered in the Form 10-K, the Company’s
consolidated subsidiaries were not subject to any restrictions that prevented them from
transferring funds in the form of loans, advances or cash dividends to the Company without
the consent of a foreign government, regulatory agency, lender or other third party.

    •

    Accordingly, the Company confirms that as of the end of each of the periods covered in
the Form 10-K, the restricted net assets of consolidated subsidiaries did not exceed 25%
of consolidated total assets.

The risk factor on page 15 was intended to highlight the fact that, due to its status as a holding
company, the Company conducts all of its operations through subsidiaries and that, accordingly, its
ability to pay cash dividends to shareholders depends on the results of operations and financial
condition of its subsidiaries and the ability of its subsidiaries to make dividend payments or
other cash distributions; as the Company’s subsidiaries are located in a variety of jurisdictions,
the Company can give no assurances that its subsidiaries will not face transfer restrictions in the
future.

Consent

    11.

    Please amend your Form 10-K to provide a signed auditors’ consent. We note the
current Exhibit 23 does not contain a conformed EDGAR signature. Please ensure the amended
Form 10-K contains a prominent explanatory note in the forepart, clearly explaining the
reason for the amendment.

Response:

We acknowledge the Staff’s comment and will ensure that our auditor’s consents are signed in future
filings. The signature was inadvertently omitted from the final draft of the auditor’s consent
filed with our Form 10-K for the year ended December 31, 2009. We respectfully request to provide
to the Staff a copy of the original signed auditor’s

Securities and Exchange Commission

July 2, 2010

Page 7

consent on a supplemental basis and to not amend our Form 10-K for the year ended December 31, 2009.

Definitive Proxy Statement on Schedule 14A

    12.

    We note your disclosure in response to Item 402(s) of Regulation S-K. Please describe
the process you undertook to reach the conclusion that disclosure is not necessary.

Response:

In 2009, at the direction of our Board of Directors and the Compensation Committee, management
conducted a comprehensive review and evaluation of the risks arising from the compensation polices
and practices applicable to all of our executive and non-executive employees. The assessment was
conducted under the Company’s overall enterprise-wide risk management process and included a
detailed qualitative and quantitative analysis of the risks related to the compensation policies
and practices for all of our executive and non-executive employees.

Under the enterprise-wide risk management process, each element of the Company’s compensation
policies and practices was analyzed for risks related to such element of compensation, including
any links between behaviors and/or decisions driving compensation amounts and changes in the
Company’s risk profile. Further, each element was reviewed to identify controls and/or attributes
mitigating or aggravating such risks. Risk mitigating controls and attributes identified during the
risk assessment included both entity level risk controls (such as corporate governance structure,
approval authority guidelines and risk authority guidelines) and compensation risk controls and
attributes (such as the oversight of the executive compensation programs by the Compensation
Committee, the mixture of annual and long-term incentives, the use of performance-based annual and
long-term incentives, the use of multiple performance measures in both the annual and long-term
incentive programs, the mix of financial and non-financial measurements and targets in the
Management Performance Compensation Plan, Compensation Committee discretion (including negative
discretion) regarding targets and payouts, and recoupment). Finally, the likelihood and potential
impact of the compensation risk were assessed.

Based on its review of the results of this compensation risk assessment, and after being updated on
the new disclosure requirements under Item 402(s) of Regulation S-K, the Compensation Committee and
management concluded that no disclosure was required under Item 402(s) of the Regulation S-K for
the Company’s 2010 proxy statement. As part of the 2010 enterprise risk management review, the
Compensation Committee and management will review our c