<PAGE>   1
                     Brush Wellman Inc. 1998 Annual Report

                     A SOLID FOUNDATION. A STRONG FUTURE.

                                BRUSHWELLMAN(R)
                              ENGINEERED MATERIALS
<PAGE>   2
                          BUILDING a SOLID FOUNDATION
                              for a STRONG FUTURE.


                                    [PHOTO]
                                 Alloy Products
                                    [PHOTO]
                               Beryllium Products
                                    [PHOTO]
                        Advanced Packaging and Materials


Brush Wellman is a leading international producer and supplier of
high-performance engineered materials and is the only fully-integrated producer
of beryllium, beryllium-containing alloys, and beryllia ceramic in the world. In
addition, Brush Wellman produces Engineered Material Systems through Technical
Materials, Inc., and precious metal and specialty alloy products through
Williams Advanced Materials Inc., both wholly-owned subsidiaries.

Brush Wellman materials continue to find new applications in a widening array of
markets where superior performance and reliability are essential. Brush
Wellman's two primary business segments, Metal Systems Group and
Microelectronics Group, provide the products to meet these growing demands.

METAL SYSTEMS GROUP

Alloy Products are metallurgically tailored to meet specific customer
performance requirements. Copper beryllium alloys exhibit high electrical and
thermal conductivities, high strength and hardness, good formability, and
excellent resistance to corrosion, wear, and fatigue. These alloys, sold in
strip and bulk product form, are ideal choices for demanding applications in
computers,telecommunications, automotive electronics, energy systems, and
plastic molds.

Beryllium is a lightweight metal possessing unique mechanical and thermal
properties. Its specific stiffness is much greater than other engineered
structural materials such as aluminum, titanium, and steel. Beryllium Products,
including AlBeMet((R)), AlBeCast((R)), and E-materials are used in a variety of
high-performance applications, primarily, but not exclusively, in the defense
and aerospace markets.

Engineered Materials Systems, manufactured by Technical Materials, Inc., are
combinations of precious and non-precious metals in continuous strip form, and
are used in complex electronic and electrical components in telecommunications
systems, automobiles, and computers.

MICROELECTRONICS GROUP

Williams Advanced Materials Inc., (WAM) manufactures and markets materials of
unique value for the hybrid microelectronics, semiconductor, optical media,
electron tube, magnetic head including MR and GMR materials, crystal, aerospace,
and performance film industries. WAM's products consist primarily of pure metal
and specialty metal alloys fabricated to meet the exacting standards required in
high reliability applications.

Ceramic Products offer unique solutions for thermal and electrical problems that
exist in today's electronic marketplace. The combination of materials and
technologies in ceramics, powder metallurgy, thick film metalization, and
component assembly provides solutions to meet the cost and performance
requirements in the most demanding electronic applications. These products are
used in wireless communication, automotive, medical, and aerospace applications.

Brush Wellman Inc. is listed on the New York Stock Exchange under the symbol BW.


<PAGE>   3
<TABLE>
<CAPTION>

                              FINANCIAL HIGHLIGHTS

(Dollars in millions except per share amounts)                  1998            1997            1996
                                                                ----            ----            ----

<S>                                                        <C>              <C>             <C>      
Sales .....................................................$   409.9        $   433.8       $   376.3
Net Income (Loss) as reported .............................     (7.1)            25.6            24.5
   Excluding special charge ...............................      9.3             25.6            24.5
Net Income (Loss) per share (diluted) as reported .........     (0.44)            1.56            1.53
   Excluding special charge ...............................      0.57             1.56            1.53
Dividends per share .......................................      0.48             0.46            0.42
Shareholders' equity per share ............................     13.63            14.60           13.84

</TABLE>

<TABLE>
<CAPTION>

                                     REVENUE

  BY  SEGMENT                        BY  MARKET                BY  GEOGRAPHIC  REGION
  -----------                        ----------                ----------------------
 

<C>                                 <C>                               <C>          
72% Metal Systems Group             24% Telecommunications            69%  Domestic
26% Microelectronics Group          19% Other                         31%  International
 2% Other                           16% Automotive
                                    15% Computer
                                    12% Industrial Components
                                     6% Optical Media
                                     5% Aerospace/Defense
                                     3% Appliance
</TABLE>




                                       1
<PAGE>   4
[Photo]


Gordon D. Harnett
Chairman of the Board,
President, and
Chief Executive Officer

TO OUR SHAREHOLDERS


If nothing else, 1998 served to remind me that good plans don't always produce
results exactly as expected, especially results which correspond to 12-month
cycles associated with fiscal years and annual reports. Our plans are focused on
long-term opportunities and strategies designed to provide the basis for
long-term earnings improvement and increased shareholder returns, sometimes at
the expense of current earnings.

The financial results achieved this past year were clearly disappointing and
certainly did not meet my expectations. Throughout the year a number of factors
contributed to the decline in operating profit. However, the poor results do not
dampen my enthusiasm for our future prospects and the potential for significant
earnings growth created by the over $165 million in investments made over the
last few years. These investments are creating a very solid foundation for
future earnings growth and positive returns to Brush Wellman shareholders.

1998 FINANCIAL RESULTS

For the year 1998, Brush Wellman reported a net loss of $7.1 million, or $0.44
per share, diluted. This compares with net income of $25.6 million or $1.56 per
share, diluted, for 1997. The 1998 results were reduced by a previously
announced charge of $22.6 million, pretax. This charge related to write-downs in
the carrying value of various assets and the establishment of reserves
principally relating to a voluntary environmental remediation of a former
manufacturing site. Absent these items, the Company achieved net income of $9.3
million, or earnings of $0.57 per share, diluted. Sales during 1998 totaled $410
million, a 5% decrease from 1997 sales of $434 million. However, the Company's
revenues were negatively affected by lower metal prices, precious metal mix, and
the strength of the dollar relative to various foreign currencies. Net of these
factors, the actual level of business was up slightly. During the year, earnings
were adversely affected by foreign currency exchange rates, capacity constraints
in Alloy Products, the slow down in Asia and U.S. electronics markets, the
General Motors strike, business and product mix shifts, and start-up costs
associated with our alloy expansion.

                                        2
<PAGE>   5
Additional details of financial performance during 1998 are contained in the
Management's Discussion and Analysis beginning on page 28.

BUSINESS SEGMENT SUMMARY

Our various products are segmented into two major groups: the Metal Systems
Group and the Microelectronics Group.

METAL SYSTEMS GROUP

The Metal Systems Group represents approximately 72% of sales and includes Alloy
Products, Beryllium Products, and Engineered Material Systems produced by the
Company's subsidiary, Technical Materials, Inc. (TMI).

Alloy Products sales in 1998 declined due to lower copper prices, a shift in
product mix, and the strength of the dollar. Actual pounds shipped set a new
record with notable growth in bulk products and in Europe. Sales of Alloy
Products were also impacted in part by capacity constraints, which we expect to
have resolved upon the completion of our $117 million expansion and upgrading of
our alloy casting and strip capabilities in 1999. This Alloy Expansion Project
has taken longer than anticipated to bring on line and has resulted in added
expense and capacity constraints at a time of increasing demand for our Alloy
Products. Progress is being made and we expect the expansion to be fully
operational in the second half of 1999. The expansion will ultimately provide us
not only with increased capacity but also improved quality and reduced cost for
virtually all of our Alloy Products.

The opportunities for growth in Alloy Products remain very attractive and, in
the near term, upon completion of the Alloy Expansion Project, we expect to be
able to aggressively pursue them. In addition, new alloys have successfully been
developed that offer competitive advantages in targeted markets such as
automotive, telecommunications, computer, and appliance. In support of the
expansion of our Alloy manufacturing facilities and the introduction of

                                                                         [Photo]

                     Coils entering the pickling and annealing line at the Alloy
                                                              Expansion Project.


                                       3
<PAGE>   6
                                                                         [Photo]

                                                   TMI specialty strip products,
                             ideal for complex electronic/electrical components.




our new products, we have also reorganized our sales and marketing functions to
provide separate dedicated resources to focus on key markets and product
opportunities.

Sales of Beryllium Products had a second consecutive year of growth in 1998.
This past year also saw significant growth in AlBeMet((R)) sales and profit
contribution. AlBeMet((R)) has the potential to grow dramatically in the years
ahead as it meets the need for lighter and stiffer materials in markets such as
satellite structures.

TMI's sales declined slightly in 1998 due primarily to the impact of lower metal
prices and the General Motors strike. During 1998, TMI continued to invest in
its precious metal electroplating capabilities. The expansion of the
electroplating product line enables TMI to offer the industry's widest range of
advanced metallurgical joining, coating, and shape altering technologies for
reel-to-reel strip metal products. The precious metal electroplating technology
can be combined with TMI's clad metals, electron beam welding, multigauge
profiling, and reflow solder coating technologies to provide single-source
solutions for specialty strip metal applications. TMI has positioned itself to
capitalize on the high-growth markets such as automotive electronics,
telecommunications, and computer.

MICROELECTRONICS GROUP

The Microelectronics Group, comprising about 26% of sales, includes
Williams Advanced Materials Inc. (WAM), Ceramics, and Circuits Processing
Technology Inc. (CPT).

In spite of a general slowdown in the worldwide microelectronics industry, WAM
had a very successful year, achieving record value-added (revenue less the cost
of the metal) while continuing to diversify its business. In 1998, WAM
established a new business unit, WAM Specialty Alloys, that will focus on high
temperature braze materials and structural alloys used to build high-voltage
vacuum tubes for microwave, telecommunications, medical, and various commercial
applications.

                                       4
<PAGE>   7
During 1998, WAM continued to develop its Physical Vapor Deposition (PVD)
business with significant market growth in both optical media and the
performance films markets.

In July 1998, WAM acquired the assets of Pure Tech Inc., positioning itself as
the key fullyintegrated supplier of PVD materials supporting both precious and
non-precious materials and market applications.

While sales and earnings for Ceramic Products declined in 1998, the financial
results mask important progress in developing CuPack((R)) as a potential new
product line and the development of copper tungsten and related powder
metallurgy products as viable thermal management solutions in electronic
applications. CPT also made progress in qualifying its products in several new
high reliability military and commercial applications.

ORGANIZATION
A FOUNDATION OF GOOD PEOPLE

In 1998, Brush Wellman made a number of moves to strengthen our management team.

In June, William R. Seelbach was named President of Alloy Products, a newly
created position. As such, he is responsible for the growth and profitability of
our worldwide Alloy business. Bill had been Chairman and CEO of Inverness
Partners, an investment firm that acquired and grew several midwestern
manufacturing companies. Prior to his service with Inverness Partners, Bill was
a partner with McKinsey & Co., an international management consulting firm.

In October, John D. Grampa was named Vice President, Finance. His
responsibilities include achieving the desired improvements from our new
information systems, focusing our ongoing efforts to improve the financial
reporting process, and assisting in the implementation of our corporate
strategies.



                                                                         [Photo]
      WAM materials for hybrid microelectronics, semiconductor, and data-storage
                                                                   applications.


                                                                         [Photo]
                    Cupack((R)) Power RF Packages provide solutions for wireless
                                                                   applications.

                                       5
<PAGE>   8
<TABLE>
<CAPTION>

INTERNATIONAL SALES
(Dollars in millions)

 `94       `95       `96       `97       `98
 ---       ---       ---       ---       ---
<C>       <C>       <C>       <C>       <C>  
114.9     127.3     108.4     142.4     129.1
                      
</TABLE>



John had been Vice President, Finance for the worldwide Materials Business of
Avery Dennison Corporation. Prior to Avery Dennison, John held a number of
financial management positions at Diamond Shamrock, Inc.

In Alloy Products operations, Harold Wiegard was named the Plant Manager of the
Company's Elmore, Ohio facility. Harold was formerly the Plant Manager of the
Company's Reading, Pennsylvania facility. Greg Gregory was named Reading Plant
Manager. Greg had been the Plant Manager of Ethyl Corporation's Houston, Texas
Plant. In addition, Jim Feldhouse was named Lorain, Ohio Plant Manager. Jim
previously was Director of North American Operations for Crompton Modutec
Instruments, a division of British Tire and Rubber PLC.

Most recently, at the Board of Directors meeting in January 1999, Mr. David H.
Hoag was appointed as a Director. Mr. Hoag is the recently retired Chairman of
LTV Corporation and brings with him a wealth of experience in the metals
industry. I am looking forward to his future contributions as a Director of your
Company.

ENVIRONMENTAL HEALTH AND SAFETY

Brush Wellman continued to make progress in the area of beryllium health and
safety. In their most common solid form, beryllium and beryllium alloys pose no
special health risk. But, for fifty years, it has been known that the inhalation
of fine airborne particles of beryllium may cause a lung disorder known as
chronic beryllium disease (CBD). The risk of CBD is generally confined to work
places in which operations are performed that generate beryllium-containing dust
or fumes.

Brush Wellman has been, and remains, open and progressive in discussing the
hazards of beryllium and informing employees and customers of its dangers. We
also have aggressively led the way in reducing the health hazards associated
with the production and use of beryllium. This past year was no exception and
saw the Company make significant investments at our Elmore and Tucson plants to
further reduce and isolate areas of potential beryllium exposure. We also
continued to support and invest in testing and medical research into the
prevention and treatment of CBD.

                                        6

<PAGE>   9
Brush Wellman has gone and will continue to go the extra mile in reducing the
risks of working with beryllium to give our employees a safe and healthy place
to work.

OUTLOOK
A SOLID FOUNDATION FOR A STRONG FUTURE

Over the past three years, since Brush Wellman made the decision to make
significant investments in order to capitalize on identified opportunities and
to ensure future earnings growth, there has been an unfailing commitment
throughout the organization to reach our goals.

That commitment, while tested this past year, has never wavered. We remain
committed to our strategic plan of continued improvement in the base business,
becoming the global leader in non-ferrous specialty alloys, and building a
microelectronics business. We are encouraged by the opportunities we see in our
core markets and by the progress made, particularly considering the number and
magnitude of projects and changes we have undertaken. Our newly developed alloys
and products are targeted to take advantage of these market opportunities.

The investments Brush Wellman has made are now opening exciting and substantial
opportunities for its shareholders and employees. The $165 million in
investments, while largely focused on the Alloy business, in reality, involves
over twelve growth initiatives and will benefit each of our business units and
should provide the basis for overall corporate earnings growth and increased
shareholder returns.

Although our Alloy Expansion Project hit a few snags in 1998, our expectations
about its benefits and long-term opportunities remain strong.As a result of our
expanded manufacturing capabilities, newly developed products, and
organizational changes, we believe that we have built a solid foundation for
measurable improvement in our future long-term performance. During 1999, the
stage should be set for expanded sales, improved productivity, and higher
earnings.


                                                                         [Photo]
                        A copper beryllium coil is removed from the surface mill
                                                 at the Alloy Expansion Project.

                                                                         [Photo]
                Vertical casting of bronze alloys at the Brush Engineered Bronze
                                                                       facility.



                                       7

<PAGE>   10
<TABLE>
<CAPTION>

                                   DIVIDENDS
                                PER COMMON SHARE
(Dollars)

`94       `95       `96       `97       `98
---       ---       ---       ---       ---
<S>     <C>        <C>        <C>       <C>   
0.24     0.36      0.42       0.46      0.48
                      
               
</TABLE>


While this past year was one that did not produce satisfactory financial
results, I am confident that we are on the path to achieving attractive returns
on the investments we have made.

A strong foundation, critical for long-termsuccess, is now in place at Brush
Wellman - a dedicated workforce, committed management team, high-quality,
high-demand product line, state-of-the-art facilities, and a growth-oriented
customer and prospect base.

It is now up to all of us at Brush Wellman to set the wheels in motion and build
upon that foundation to create a successful future for our Company and
satisfactory returns for our shareholders. I speak for all employees of Brush
Wellman when I say we are eagerly looking forward to the next few years and the
results that we expect to produce.

Sincerely,

/s/ Gordon D. Harnett

Gordon D. Harnett
Chairman of the Board,
President, and
Chief Executive Officer

                                        8

<PAGE>   11
            FINANCIAL  INFORMATION

Selected Financial Data ................................................... 10

Consolidated Financial Statements ......................................... 12

Notes to Consolidated Financial Statements ................................ 16

Reports of Independent Auditors and Management ............................ 27

Management's Discussion and Analysis .......................................28

Brush Wellman Inc. Directors and Officers ..................................35

Corporate Data .............................................................36

                                        9

<PAGE>   12
<TABLE>
<CAPTION>

                                                       SELECTED FINANCIAL DATA

                                                 Brush Wellman Inc. and Subsidiaries
                                           (Dollars in thousands except per share amounts)

                                                                    1998          1997          1996          1995          1994
                                                                    ----          ----          ----          ----          ----

FOR THE YEAR

<S>                                                            <C>            <C>          <C>          <C>          <C>        
Net sales ...................................................  $    409,892   $   433,801  $   376,279  $   369,618  $   345,878
Cost of sales ...............................................       325,173       324,463      271,149      268,732      253,938
Gross profit ................................................        84,719       109,338      105,130      100,886       91,940
Operating profit (loss)  ....................................       (10,313)       36,024       34,305       29,086       25,098
Interest expense ............................................         1,249           553        1,128        1,653        2,071
Income (loss) from continuing operations
  Before income taxes .......................................       (11,562)       35,471       33,177       27,433       23,027
Income taxes (benefit)  .....................................        (4,430)        9,874        8,686        6,744        4,477
Net income (loss)  ..........................................        (7,132)       25,597       24,491       20,689       18,550
Earnings per share of common stock ..........................
     Basic net income (loss)  ...............................         (0.44)         1.58         1.55         1.28         1.15
     Diluted net income (loss)  .............................         (0.44)         1.56         1.53         1.27         1.15
Dividends per share of common stock .........................          0.48          0.46         0.42         0.36         0.26
Depreciation and amortization ...............................        24,589        19,329       22,954       20,911       19,619
Capital expenditures ........................................        36,732        53,155       26,825       24,244       17,214
Mine development expenditures ...............................           433         9,526        3,663          787          543

YEAR-END POSITION

Working capital .............................................       100,992       100,599      128,172      125,156      116,708
Ratio of current assets to current liabilities ..............      2.1 to 1      2.3 to 1     2.9 to 1     2.9 to 1     2.8 to 1
Property and equipment:
     At cost ................................................       421,467       463,689      404,127      374,367      350,811
     Cost less depreciation and impairment ..................       164,469       173,622      130,220      121,194      116,763
Total assets ................................................       403,690       383,852      355,779      331,853      317,133
Other long-term liabilities .................................        49,955        48,025       47,271       45,445       43,354
Long-term debt ..............................................        32,105        17,905       18,860       16,996       18,527
Shareholders' equity ........................................       221,811       236,813      219,257      200,302      186,940
Book value per share ........................................         13.63         14.60        13.84        12.40        11.61
Average number of shares of stock outstanding
     Basic ..................................................    16,267,804    16,214,718   15,846,358   16,159,508   16,102,350
     Diluted ................................................    16,267,804    16,429,468   15,980,481   16,289,795   16,156,159
Shareholders of record ......................................         2,313         2,329        2,407        2,351        2,521
Number of employees .........................................         2,187         2,160        1,926        1,856        1,833
</TABLE>

A special charge reduced net income by $16.5 million in 1998.

Impairment and restructuring charges reduced net income by $30.8 million in 1991
and $8.4 million in 1989. 

The cumulative effect of a change in accounting for postretirement benefits
reduced net income by $16.5 million in 1991.

See notes to consolidated financial statements.

                                       10

<PAGE>   13
<TABLE>
<CAPTION>


FOR THE YEAR                                              1993        1992          1991          1990          1989          1988
                                                          ----        ----          ----          ----          ----          ----

<S>                                                 <C>          <C>          <C>            <C>          <C>          <C>        
Net sales ......................................... $   295,478  $   265,034  $    267,473   $   297,390  $   317,828  $   345,838
Cost of sales .....................................     227,686      192,944       202,080       212,841      233,165      239,554
Gross profit ......................................      67,792       72,090        65,383        84,549       84,663      106,284
Operating profit (loss)  ..........................      10,658       16,949       (57,354)       28,132       29,195       54,704
Interest expense ..................................       2,952        3,206         3,755         3,359        2,860        2,843

Income (loss) from continuing operations
  Before income taxes .............................       7,706       13,743       (61,109)       24,773       26,335       51,861
Income taxes (benefit)  ...........................       1,248        3,243       (17,091)        7,214        7,793       19,344
Net income (loss)  ................................       6,458       10,500       (44,018)       17,559       18,542       32,517
Earnings per share of common stock ................
     Basic net income (loss)  .....................        0.40         0.65         (2.74)         1.09         1.10         1.79
     Diluted net income (loss)  ...................        0.40         0.65         (2.74)         1.09         1.10         1.79
Dividends per share of common stock ...............        0.20         0.26          0.59          0.71         0.67         0.63
Depreciation and amortization .....................      21,720       20,180        22,759        24,070       24,077       23,405
Capital expenditures ..............................      11,901       13,604        13,605        16,160       19,946       22,645
Mine development expenditures .....................         814          848         6,389         5,699          259          503

YEAR-END POSITION

Working capital ...................................     105,272       88,616        80,427        87,570       78,346       92,530
Ratio of current assets to current liabilities.....    3.1 to 1     2.5 to 1      2.2 to 1      2.4 to 1     2.1 to 1     2.4 to 1
Property and equipment:
     At cost ......................................     337,342      332,971       321,981       307,088      292,708      279,927
     Cost less depreciation and impairment ........     118,926      127,991       132,579       143,635      141,639      143,180
Total assets ......................................     293,372      310,039       307,296       338,982      338,279      357,751
Other long-term liabilities .......................      40,663       40,332        38,029         9,356        9,087        9,547
Long-term debt ....................................      24,000       33,808        34,946        26,673       21,076       29,908
Shareholders' equity ..............................     172,075      168,824       162,264       215,891      211,769      232,840
Book value per share ..............................       10.70        10.50         10.10         13.40        12.60        12.82
Average number of shares of stock outstanding
     Basic ........................................  16,087,250   16,080,554    16,069,902    16,108,479   16,805,701   18,159,338
     Diluted ......................................  16,093,696   16,111,090    16,080,568    16,116,210   16,820,735   18,173,092
Shareholders of record ............................       2,566        2,762         3,116         3,446        3,820        4,014
Number of employees ...............................       1,803        1,831         1,943         2,079        2,160        2,602
</TABLE>


                                       11
<PAGE>   14


<TABLE>
<CAPTION>
                                                  CONSOLIDATED STATEMENTS OF INCOME
                                                 Brush Wellman Inc. and Subsidiaries
                                            Years ended December 31, 1998, 1997, and 1996
                                           (Dollars in thousands except per share amounts)

                                                                                 1998             1997            1996
                                                                            ------------      -----------     ------------

<S>                                                                         <C>               <C>             <C>         
Net sales .............................................................     $    409,892      $   433,801     $    376,279
     Cost of sales ....................................................          325,173          324,463          271,149
                                                                            ------------      -----------     ------------
Gross margin ..........................................................           84,719          109,338          105,130
     Selling, administrative, and general expenses ....................           64,553           65,282           61,555
     Research and development expenses ................................            8,665            7,707            8,309
     Other -- net .....................................................           21,814              325              961
                                                                            ------------      -----------     ------------
Operating profit (loss) ...............................................          (10,313)          36,024           34,305
     Interest expense .................................................            1,249              553            1,128
                                                                            ------------      -----------     ------------
                                      INCOME (LOSS) BEFORE INCOME TAXES          (11,562)          35,471           33,177
                                                                            ------------      -----------     ------------

Income taxes (benefit):
     Currently payable ................................................            1,147            8,506            9,825
     Deferred .........................................................           (5,577)           1,368           (1,139)
                                                                            ------------      -----------     ------------
                                                                                  (4,430)           9,874            8,686
                                                                            ------------      -----------     ------------
                                                      NET INCOME (LOSS)     $     (7,132)     $    25,597     $     24,491
                                                                            ============      ===========     ============

Net income (loss) per share of common stock-- basic ...................     $      (0.44)     $      1.58     $       1.55
                                                                            ============      ===========     ============
Average number of shares of common stock outstanding-- basic ..........       16,267,804       16,214,718       15,846,358
Net income (loss) per share of common stock-- diluted .................     $      (0.44)     $      1.56     $       1.53
                                                                            ============      ===========     ============
Average number of shares of common stock outstanding-- diluted ........       16,267,804       16,429,468       15,980,481
</TABLE>

See notes to consolidated financial statements.


                                                                 12
<PAGE>   15
<TABLE>
<CAPTION>
                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 Brush Wellman Inc. and Subsidiaries
                                            Years ended December 31, 1998, 1997, and 1996
                                                       (Dollars in thousands)
                                                                                                 1998           1997          1996
                                                                                               --------      --------      --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                            <C>           <C>           <C>     
  Net income (loss) ......................................................................     $ (7,132)     $ 25,597      $ 24,491
  Adjustments to reconcile net income (loss) to net cash
     Provided from operating activities:
     Depreciation, depletion, and amortization ...........................................       21,535        18,695        18,537
     Amortization of mine development ....................................................        3,054           634         4,417
     Impairment of fixed assets and related intangibles ..................................       14,273          --            --
     Decrease (increase) in accounts receivable ..........................................        2,670       (12,652)         (557)
     Decrease (increase) in inventory ....................................................      (10,266)        3,653        (2,946)
     Decrease (increase) in prepaid and other current assets .............................       (8,969)       (4,001)         (460)
     Increase (decrease) in accounts payable and accrued expenses ........................        1,091        10,126         1,158
     Increase (decrease) in interest and taxes payable ...................................       (1,671)       (2,536)       (1,327)
     Increase (decrease) in deferred income tax ..........................................        3,490         1,466        (1,189)
     Increase (decrease) in other long-term liabilities ..................................        1,739           962         1,954
     Other-- net .........................................................................         (328)       (1,550)          966
                                                                                               --------      --------      --------
                                               NET CASH PROVIDED FROM OPERATING ACTIVITIES       19,486        40,394        45,044

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for purchase of property, plant, and equipment ................................      (36,732)      (53,155)      (26,825)
  Payments for mine development ..........................................................         (433)       (9,526)       (3,663)
  Payments for acquisition of business ...................................................      (12,376)         --            --
  Other investments-- net ................................................................        6,331        (1,686)       (4,909)
                                                                                               --------      --------      --------
                                                     NET CASH USED IN INVESTING ACTIVITIES      (43,210)      (64,367)      (35,397)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of short-term debt ..............................................       15,595         6,997           552
  Proceeds from issuance of long-term debt ...............................................       15,000          --           8,305
  Repayment of long-term debt ............................................................         (800)         (960)         (813)
  Repayment of short-term debt ...........................................................       (1,815)          (93)       (2,149)
  Purchase of treasury stock .............................................................       (5,349)       (4,927)       (6,656)
  Issuance of common stock under stock option plans ......................................        3,561         5,872         1,460
  Payments of dividends ..................................................................       (7,812)       (7,285)       (6,489)
                                                                                               --------      --------      --------
                                     NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES       18,380          (396)       (5,790)
Effects of exchange rate changes on cash & cash equivalents ..............................          112          (210)       (1,661)
                                                                                               --------      --------      --------
                                                   NET CHANGE IN CASH AND CASH EQUIVALENTS       (5,232)      (24,579)        2,196
                                            CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR        7,170        31,749        29,553
                                                                                               --------      --------      --------
                                                  CASH AND CASH EQUIVALENTS AT END OF YEAR     $  1,938      $  7,170      $ 31,749
                                                                                               ========      ========      ========
</TABLE>

See notes to consolidated financial statements.


                                                                 13
<PAGE>   16
<TABLE>
<CAPTION>
                                                    CONSOLIDATED BALANCE SHEETS
                                                 Brush Wellman Inc. and Subsidiaries
                                                     December 31, 1998 and 1997
                                                       (Dollars in thousands)
ASSETS                                                                                                 1998            1997
                                                                                                       ----            ----
<S>                                                                                                 <C>             <C>      
CURRENT ASSETS
     Cash and cash equivalents .................................................................... $   1,938       $   7,170
     Accounts receivable (less allowance of $2,127 for 1998 and $1,059 for 1997) ..................    62,181          62,812
     Inventories ..................................................................................   103,108          90,714
     Prepaid expenses .............................................................................     7,210           7,195
     Deferred income taxes ........................................................................    20,087          11,020
                                                                                                    ---------       ---------
                                                                               TOTAL CURRENT ASSETS   194,524         178,911
OTHER ASSETS ......................................................................................    44,697          31,319

PROPERTY, PLANT, AND EQUIPMENT
     Land .........................................................................................     5,426           5,043
     Buildings ....................................................................................    88,912          85,721
     Machinery and equipment ......................................................................   282,492         312,088
     Construction in progress .....................................................................    10,694          26,735
     Allowances for depreciation ..................................................................  (236,520)       (272,192)
                                                                                                    ---------       ---------
                                                                                                      151,004         157,395
     Mineral resources ............................................................................     5,101           5,693
     Mine development .............................................................................    28,842          28,409
     Allowances for amortization and depletion ....................................................   (20,478)        (17,875)
                                                                                                    ---------       ---------
                                                                                                       13,465          16,227
                                                                                                    ---------       ---------
                                                               PROPERTY, PLANT, AND EQUIPMENT-- NET   164,469         173,622
                                                                                                    ---------       ---------
                                                                                                    $ 403,690       $ 383,852
                                                                                                    =========       =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
     Short-term debt .............................................................................. $  45,587       $  28,877
     Accounts payable .............................................................................    15,156          13,519
     Salaries and wages ...........................................................................     8,381          12,341
     Taxes other than income taxes ................................................................     3,196           2,611
     Other liabilities and accrued items ..........................................................    14,905          13,628
     Dividends payable ............................................................................     1,966           1,967
     Income taxes .................................................................................     4,341           5,369
                                                                                                    ---------       ---------
                                                                          TOTAL CURRENT LIABILITIES    93,532          78,312
OTHER LONG-TERM LIABILITIES .......................................................................    10,507           8,200
RETIREMENT AND POST-EMPLOYMENT BENEFITS ...........................................................    39,448          39,825
LONG-TERM DEBT ....................................................................................    32,105          17,905
DEFERRED INCOME TAXES .............................................................................     6,287           2,797
SHAREHOLDERS' EQUITY
     Serial preferred stock, no par value; 5,000,000 shares authorized, none issued ...............      --              --
     Common stock, $1 par value
       Authorized 45,000,000 shares; issued 22,481,321 shares (22,227,006 for 1997) ...............    22,481          22,227
     Additional paid-in capital ...................................................................    63,974          59,583
     Retained income ..............................................................................   239,230         254,174
                                                                                                    ---------       ---------
                                                                                                      325,685         335,984
     Common stock in treasury, 6,177,418 shares in 1998 (5,843,561 in 1997) .......................  (104,050)        (96,639)
     Other equity transactions ....................................................................       176          (2,532)
                                                                                                    ---------       ---------
                                                                         TOTAL SHAREHOLDERS' EQUITY   221,811         236,813
                                                                                                    ---------       ---------
                                                                                                    $ 403,690       $ 383,852
                                                                                                    =========       =========
</TABLE>

See notes to consolidated financial statements.

                                       14
<PAGE>   17
<TABLE>
<CAPTION>

                                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS ' EQUITY
                                                 Brush Wellman Inc. and Subsidiaries
                                            Years ended December 31, 1998, 1997, and 1996
                                           (Dollars in thousands except per share amounts)

                                                              Additional                 Common       Other
                                                    Common     Paid-In     Retained     Stock In   Comprehensive
                                                     Stock      Capital      Income     Treasury      Income     Other       Total
                                                   --------    --------    ---------    ---------    -------    -------    --------
<S>                                                <C>         <C>         <C>          <C>          <C>        <C>        <C>     
                      BALANCES AT JANUARY 1, 1996  $ 21,330    $ 45,658    $ 218,209    $ (84,701)   $  --      $  (194)   $200,302

Net income ......................................                             24,491                                         24,491
Foreign currency translation adjustment .........                                                        27                      27
                                                                                                                                 --
Comprehensive income ............................                                                                            24,518

Declared dividends $.42 per share ...............                             (6,657)                                        (6,657)
Proceeds from sale of 93,710 shares under
 Option plans ...................................        94       1,211                                                       1,305
Income tax benefit from employees' stock options                    155                                                         155
Purchase of business ............................       368       5,296                                                       5,664
Other equity transactions .......................       117       1,330                                            (821)        626
Purchase of shares for treasury .................                                          (6,656)                           (6,656)
                                                   --------    --------    ---------    ---------    -------    -------    --------

                   BALANCES AT DECEMBER 31, 1996     21,909      53,650      236,043      (91,357)        27     (1,015)    219,257

Net income ......................................                             25,597                                         25,597
Foreign currency translation adjustment .........                                                     (1,657)                (1,657)
                                                                                                                           -------- 
Comprehensive income ............................                                                                            23,940

Declared dividends $.46 per share ...............                             (7,463)                                        (7,463)
Proceeds from sale of 309,196 shares under
 Option plans ...................................       309       4,821                                                       5,130
Income tax benefit from employees' stock options                    742                                                         742
Other equity transactions .......................         9         370           (3)                               113         489
Forfeiture of restricted stock ..................                                            (355)                             (355)
Purchase of shares for treasury .................                                          (4,927)                           (4,927)
                                                   --------    --------    ---------    ---------    -------    -------    --------

                    BALANCES AT DECEMBER 31, 1997    22,227      59,583      254,174      (96,639)    (1,630)      (902)    236,813

Net loss ........................................                             (7,132)                                        (7,132)
Foreign currency translation adjustment .........                                                      1,563                  1,563
                                                                                                                           --------
Comprehensive loss ..............................                                                                            (5,569)

Declared dividends $.48 per share ...............                             (7,812)                                        (7,812)
Proceeds from sale of 179,101 shares under
 Option plans ...................................       179       2,875                                                       3,054
Income tax benefit from employees' stock options                    496                                                         496
Other equity transactions .......................        75       1,020                    (1,471)                1,145         769
Forfeiture of restricted stock ..................                                            (591)                             (591)
Purchase of shares for treasury .................                                          (5,349)                           (5,349)
                                                   --------    --------    ---------    ---------    -------    -------    --------

                    Balances at December 31, 1998  $ 22,481    $ 63,974    $ 239,230    $(104,050)   $   (67)   $   243    $221,811
                                                   ========    ========    =========    =========    =======    =======    ========
</TABLE>

See notes to consolidated financial statements 

                                       15
<PAGE>   18
                NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS
            Brush Wellman Inc. and Subsidiaries, December 31, 1998

NOTE A-SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION:The Company is a manufacturer of engineered materials used
primarily in the computer, telecommunications, and automotive electronics
markets. The Company also sells into the aerospace, appliance, optical media,
and industrial components markets. The majority of sales are to customers in
North America, Western Europe, and the Pacific rim. The Company's Metal Systems
Group produces Alloy Products, Beryllium Products, and Engineered Material
Systems while the Microelectronics Group produces precious and non-precious
metal materials including physical vapor deposition targets, speciality alloys,
ceramics, and thick film circuits. These two business segments are structured
based upon commonalities of the products manufactured and/or markets served. The
Company is vertically integrated and distributes its products through a
combination of Company-owned facilities and outside distributors and agents.

     USE OF ESTIMATES:The preparation of financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.

     CONSOLIDATION:The consolidated financial statements include the accounts of
Brush Wellman Inc. and its subsidiaries, all of which are wholly-owned.
Intercompany accounts and transactions are eliminated in consolidation.

     CASH EQUIVALENTS:All highly liquid investments with a put option or
maturity of three months or less when purchased are considered to be cash
equivalents.

     INVENTORIES:Inventories are stated at the lower of cost or market. The cost
of domestic inventories except ore and supplies is principally determined using
the last-in, first-out (LIFO) method. The remaining inventories are stated
principally at average cost.

     PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment is stated on
the basis of cost. Depreciation is computed principally by the straight-line
method, except certain facilities for which depreciation is computed by the
sum-of-the-years digits or units-of-production method. Depreciable lives that
are used in computing the annual provision for depreciation by class of asset
are as follows:


<TABLE>
<CAPTION>
                                                                    Years
                                                                    -----
<S>                                                                <C>  
Land improvements ......................................           5 to 25
Buildings ..............................................           10 to 40
Leasehold improvements .................................           Life of lease
Machinery and equipment ................................           3 to 15
Furniture and fixtures .................................           4 to 15
Automobiles and trucks .................................           2 to 8
Research equipment .....................................           6 to 12
Computer software and hardware .........................           3 to 10
</TABLE>

     Depreciation expense was $20,708,000 in 1998, $18,128,000 in 1997, and
$17,860,000 in 1996.

     MINERAL RESOURCES AND MINE DEVELOPMENT: Property acquisition costs and
mining costs associated with waste rock removal are recorded at cost and are
depleted or amortized by the units of production method based on recoverable
proven beryllium reserves. Exploration and pre-production mine development
expenses are charged to operations in the period in which they are incurred.

     INTANGIBLE ASSETS:The cost of intangible assets is amortized by the
straight-line method over the periods estimated to be benefited, which is
generally twenty years or less.

     ASSET IMPAIRMENT:In the event that facts and circumstances indicate that
the carrying value of long-lived and intangible assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future cash flow associated with the asset would be compared to
the asset's carrying amount to determine if a write-down may be required.

     DERIVATIVES:Forward foreign exchange currency contracts are
marked-to-market using the applicable rates, and any unrealized losses are taken
to income. Realized gains and losses on forward contracts and commodity swaps
and realized gains on foreign currency options are taken to income when the
financial instrument matures. Option premiums are classified as prepaid expenses
and amortized over the term of the option.

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined when it will adopt the Statement, nor has it
determined what the effect of the Statement will be on earnings and the
financial position of the Company.

     REVENUE RECOGNITION: The Company recognizes revenue when goods are shipped
and title passes to the customer.

     ADVERTISING COSTS: The Company expenses all advertising costs as incurred.
Advertising costs were immaterial for the years presented in the consolidated
financial statements.


                                       16
<PAGE>   19
     EXCHANGE GAIN (Loss): Included in Other-net in the Consolidated Statement
of Income is an exchange gain (loss) of ($1,752,000) in 1998, $2,275,000 in
1997, and $908,000 in 1996.

     INCOME TAXES: The Company uses the liability method as required by
Statement of Financial Accounting Standards (SFAS) No.109 in measuring the
provision for income taxes and recognizing deferred tax assets and liabilities
on the balance sheet. This Statement requires that deferred income taxes reflect
the tax consequences of currently enacted rates for differences between the tax
bases of assets and liabilities and their financial reporting amounts.

     RECLASSIFICATION: Certain amounts in prior years have been reclassified to
conform with the 1998 consolidated financial statement presentation.

     NET INCOME PER SHARE:The Company adopted SFAS No. 128, "Earnings per
Share", in 1997 as prescribed, replacing the presentation of primary and fully
diluted earnings per share (EPS) with a presentation of basic and diluted EPS.
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the assumed conversion of all dilutive common stock equivalents as
appropriate under the treasury stock method.

    NEW PRONOUNCEMENTS: The Company adopted SFAS No. 130, "Reporting
Comprehensive Income", in 1998. Comprehensive income is defined as the change in
equity from transactions and other events from non-owner sources. It includes
all changes in equity during a period except those resulting from investments by
or distributions to owners. Comprehensive income is reported as a component of
equity in the Consolidated Statement of Shareholders' Equity.

     The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", in 1998. This Statement requires selected
information on reportable segments to be included in the financial reports
issued to shareholders. It also establishes disclosure standards about products
and services, geographic areas, and major customers. See Note N to the
Consolidated Financial Statements.

     The Company also adopted SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits", in 1998. This Statement revised the
disclosure requirements about pension and other postretirement benefit plans,
but did not change the measurement or recognition of those plans. See Note L to
the Consolidated Financial Statements.


NOTE B-ACQUISITIONS

        At the end of the second quarter of 1998, the Company acquired certain
assets of Pure Tech Inc. for cash. In October 1996, the Company acquired the
Common Stock of Circuits Processing Technology Inc. for Company Common Stock.
These transactions were accounted for as purchases and did not have a material
impact on operations.

NOTE C-INVENTORIES

     Inventories in the consolidated balance sheets are summarized as follows:
<TABLE>
<CAPTION>

                                                               December 31,
                                                           1998           1997
                                                           ----           ----
(Dollars in thousands) 
<S>                                                     <C>             <C>     
Principally average cost:
  Raw materials and supplies ...................        $ 18,708        $ 17,331
  In process ...................................          60,919          58,666
  Finishedgoods ................................          42,021          37,008
                                                        --------        --------
                                                         121,648         113,005
Excess of average cost over LIFO
     inventory value ...........................          18,540          22,291
                                                        --------        --------
                                                        $103,108        $ 90,714
                                                        ========        ========
</TABLE>

     Average cost approximates current cost. Inventories aggregating $74,175,000
and $66,221,000 are stated at LIFO at December 31,1998 and 1997, respectively.

NOTE D-INTEREST

     Interest expense associated with active construction and mine development
projects is capitalized and amortized over the future useful lives of the
related assets. Interest paid was $2,732,000, $2,560,000, and $2,168,000 in
1998, 1997, and 1996, respectively. Interest costs capitalized and the amounts
amortized are as follows:
<TABLE>
<CAPTION>

                                                   1998         1997       1996
                                                   ----         ----       ----
(Dollars in thousands)
<S>                                               <C>        <C>         <C>
Interest incurred ..........................      $2,829      $2,371      $2,103
Less capitalized interest ..................       1,580       1,818         975
                                                  ------      ------      ------
                                                  $1,249      $  553      $1,128
                                                  ======      ======      ======
Amortization, included
  principally in cost of sales .............      $  697      $  600      $  573
                                                  ======      ======      ======
</TABLE>

     In 1986, the Company purchased company-owned life insurance policies
insuring the lives of certain United States employees. The contracts are
recorded at cash surrender value, net of policy loans, in other assets. The net
contract (income) expense, including interest expense recorded in Selling,
Administrative, and General expenses, was $580,000, $1,075,000, and ($190,000)
in 1998, 1997, and 1996, respectively. The related interest expense was
$2,966,000, $3,081,000, and $5,115,000, respectively.


                                       17
<PAGE>   20
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             Brush Wellman Inc. and Subsidiaries, December 31, 1998

NOTE E-DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>

                                                             December 31,
                                                         1998           1997
                                                         ----           ----
<S>                                                    <C>             <C>     
(Dollars in thousands)
9 68% medium-term notes,
  payable in 2000 ..............................       $  5,000        $  5,000
Variable rate demand bonds payable
  in installments beginning in 2005 ............          3,000           3,000
5 45%-6 45% industrial development
  revenue bonds payable in equal
  installments through 2000 ....................          1,600           2,400
Variable rate industrial development
  revenue bonds payable in 2016 ................          8,305           8,305
Revolving credit agreement .....................         15,000               0
                                                       --------        --------
                                                         32,905          18,705
Current portion of long-term debt ..............           (800)           (800)
                                                       --------        --------
                                                       $ 32,105        $ 17,905
                                                       ========        ========
</TABLE>

     Maturities on long-term debt instruments as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>

(Dollars in thousands)
<C>                     <C>    
1999 .................. $   800
2000 ..................  20,800
2001 ..................       0
2002 ..................       0
2003 ..................       0
Thereafter ............  11,305
                         ------
                        $32,905
                        =======
</TABLE>

     The Company has a revolving credit agreement with four banks which provides
a maximum availability of $55,000,000 through April 30, 2000. At December 31,
1998, there is $15,000,000 in borrowings outstanding against this agreement at a
rate of 5.59% that is fixed through February, 1999, at which time it will be
reset according to the terms and options available to the Company under the
agreement. The agreement allows the Company to borrow money at a premium over
LIBOR or prime rate at varying maturities.

     Included in short-term debt is $44,787,000 ($28,077,000 at December
31,1997) outstanding under lines of credit totaling $64,747,000 ($82,894,000 at
December 31, 1997). The $64,747,000 lines of credit consist of $20,000,000,
$37,903,000, and $6,844,000 of domestic, foreign, and precious metal (primarily
gold) denominated debt, respectively. The domestic and foreign lines are
uncommitted, unsecured, and renewed annually. The precious metal facility is
secured and renewed annually. Of the amount outstanding, $12,423,000 is under
the uncommitted domestic lines of credit, $25,544,000 is payable in foreign
currencies, and $6,820,000 is denominated in precious metal, primarily gold.
Also included in short-term debt is $800,000 representing the current maturity
of an industrial development revenue bond. The average interest rate on
short-term debt was 3.7% and 3.0% as of December 31,1998 and 1997, respectively.

     The Company has a private placement agreement whereby the Company can issue
up to an aggregate of $75,000,000 of medium-term notes ($5,000,000 outstanding
at December 31, 1998).The notes bear a fixed interest rate and may have
maturities from nine months to thirty years from date of issue as agreed upon in
each case by the purchaser and the Company.

     In November 1996, the Company entered into an agreement with the Lorain
Port Authority, Ohio to issue $8,305,000 in variable rate industrial revenue
bonds maturing in 2016. The variable rate ranged from 3.09% to 4.64% during 1998
and from 3.32% to 4.79% during 1997.

     In 1994, the Company re-funded its $3,000,000 industrial development
revenue bonds. The 7.25% bonds were re-funded into variable rate demand bonds.
The variable rate ranged from 2.95% to 4.45% during 1998 and from 3.15% to 4.65%
during 1997. In December 1995, the Company entered into an interest rate swap
agreement to manage its interest rate exposure on the $3,000,000 variable rate
demand bond. The Company converted the variable rate to a fixed rate of 6.03%
under the interest rate swap agreement that matures in 2002.

     The loan agreements include certain restrictive covenants covering the
incurrence of additional debt interest coverage, and maintenance of working
capital, tangible net worth (as defined), and debt to earnings ratio. The most
restrictive covenant is the funded debt to earnings before interest, taxes,
depreciation, and amortization (EBITDA) ratio. In January 1999, the Company
amended certain provisions of its revolving credit agreement and a master lease
agreement (see Note F to the Consolidated Financial Statements), including the
funded debt to EBITDA ratio.

NOTE F-LEASING ARRANGEMENTS

     The Company leases warehouse and manufacturing space and manufacturing and
computer equipment under operating leases with terms ranging up to 25 years.
Rent expense amounted to $6.8 million, $4.3 million, and $4.7 million during
1998, 1997, and 1996, respectively. The future estimated minimum lease payments
under non-cancelable operating leases with initial lease terms in excess of one
year at December 31, 1998 are as follows: 1999-$7.9 million; 2000-$7.7 million;
2001 -$7.4 million; 2002-$ 3.5 million; 2003-$3.3 million; and thereafter-$20.1
million.

     The Company has agreements for the construction and operating leases of a
production facility and certain equipment to be located in that facility. The
new facility and related equipment will be owned by third parties and have an
estimated cost of $79.7


                                       18
<PAGE>   21
million. Start-up of this facility began in the fourth quarter of 1997. Lease
payments for the facility continue through 2011 with options for renewal. Lease
payments of the related equipment commence in 1999 and continue through the
initial lease term expiring in 2001. The Company has options to renew the lease
of the equipment for seven one-year periods and to purchase the equipment for
its estimated fair value at the end of each term. The lease provides for a
substantial residual value guarantee by the Company at the termination of the
lease. The Company has guaranteed performance under the construction contracts
for the facility and equipment. The estimated minimum payments under these
leases are included in the preceding paragraph.

     The lease agreements include restrictive covenants covering certain
liquidity ratios, maintenance of tangible net worth (as defined), and maximum
rental expenses. In January 1999, the Company amended certain provisions of its
master lease agreement, including its covenant regarding the funded debt to
earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio.

NOTE G-DERIVATIVE FINANCIAL INSTRUMENTS
AND FAIR VALUE INFORMATION

FOREIGN EXCHANGE HEDGE CONTRACTS
     
     The Company has a program in place to manage foreign currency risk. As part
of that program, the Company has entered into forward and option contracts to
hedge anticipated foreign currency transactions, primarily foreign sales. The
purpose of the program is to protect against the reduction in value of foreign
currency transactions from adverse exchange rate movements. Should the U.S.
dollar strengthen significantly, the decrease in the value of the foreign
currency transactions will be partially offset bythe gains on the hedge
contracts. Depending upon the method used, the hedges may limit the benefits
from a weakening of the U.S. dollar.

     All hedge contracts mature in two years or less. The Company recorded an
unrealized loss of $738,000 on forward contracts as of December 31, 1998. The
contracted amounts of the Company's outstanding forward and "in-the-money"
option contracts as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>

                                                     FORWARD              OPTION
                                                   CONTRACTS            CONTRACTS
                                                   ---------            ---------
(Dollars in thousands)
Currency:
<S>                                                  <C>                 <C>    
Deutschmark ............................             $13,300             $ 9,800
Yen ....................................               7,800               4,200
Sterling ...............................               4,200                 -0-
                                                     -------             -------
          Total ........................             $25,300             $14,000
                                                     =======             =======
</TABLE>

     Option contracts which were "out-of-the-money" due to exchange rates at
year-end are excluded from the above tables.

COMMODITY SWAPS
     
     The Company purchases and manufactures products containing copper.
Purchases are exposed to price fluctuations in the copper market. However, for
the majority of its copper-based products, the Company will adjust its selling
prices to reflect the change in its copper purchase price. This program is
designed to be profit neutral, i.e. any changes in copper prices, either up or
down, will be directly passed on to the customer.

     The Company uses commodity swaps to hedge the copper purchase price for
those volumes where price fluctuations cannot be passed on to the customer.
Under these swaps, which are purchased from financial institutions, the Company
makes or receives payments based on a difference between a fixed price (as
specified in each individual contract) and the market price of copper. These
payments will offset the change in prices of the underlying purchases and
effectively fix the price of copper at the swap rate for the contracted volume.
By using swaps, the Company limits the opportunity to benefit from favorable
price movements.

     At December 31, 1998, the Company had outstanding contracts through the
year 2000 with a fair value of ($1,200,000) and a notional value of $8,100,000.
At December 31,1997, the fair value of the outstanding contracts was
($1,000,000) and the notional value was $12,900,000. The Company accounts for
these swaps as hedges.

     SFAS No.107 defines fair value as the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.

INTEREST RATE SWAP AGREEMENTS
     
     In December 1996, the Company entered into an interest rate swap agreement
to hedge the variable rate payments to be made during the initial term of an
equipment lease (see Note F to the Consolidated Financial Statements). The
Company has accounted for the swap as a hedge, effectively fixing the estimated
lease payments through the initial lease term. The maximum notional amount
covered by this contract is $60.9 million. The fair value of the contract as of
December 31, 1998 was ($2,418,000).

     In February 1998, the Company entered into an interest rate swap agreement
to hedge the variable rate payments on the equipment lease mentioned above for
the remaining terms of the lease through its expiration in 2008. The Company has
accounted for the swap as a hedge, effectively fixing the estimated lease
payments through the entire term of the lease. The maximum notional amount
covered by this contract is $54.8 million. The fair value of the contract as of
December 31,1998 was ($1,773,000).

     In December 1995, the Company entered into an interest rate swap,
converting to a fixed rate from a variable rate on a $3,000,000 industrial
revenue development bond. The fair value of this swap at December 31,1998 was
($117,000).

                                       19
<PAGE>   22
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             Brush Wellman Inc. and Subsidiaries, December 31, 1998

LONG AND SHORT-TERM DEBT
     
     The fair value of the Company's debt (which had a carrying value of
$77,703,000) at December 31,1998 was estimated at $78,090,000 using a discounted
cash flow analysis based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. At December 31,1997, the fair value
of the Company's $46,782,000 of debt was estimated at $44,289,000 using the same
procedure.

NOTE H-CAPITAL STOCK

     The Company has 5,000,000 shares of Serial Preferred Stock authorized (no
par value), none of which has been issued. Certain terms of the Serial Preferred
Stock, including dividends, redemption, and conversion, will be determined by
the Board of Directors prior to issuance.

     On January 27,1998, the Company's Board of Directors adopted a new share
purchase rights plan and declared a dividend distribution of one right for each
share of Common Stock outstanding as of the close of business on February 9,
1998. The plan allows for new shares issued after February 9, 1998 to receive
one right subject to certain limitations and exceptions. Each right entitles the
shareholder to buy one one-hundredth of a share of Serial Preferred Stock,
Series A, at an initial exercise price of $110. There are 450,000 unissued
shares of Serial Preferred Stock which will be designated as Series A Preferred
Stock. Each share of Series A Preferred Stock will be entitled to participate in
dividendson an equivalent basis with one hundred shares of Common Stock. Each
share of Series A Preferred Stock will be entitled to one vote. The rights will
not be exercisable and will not be evidenced by separate right certificates
until a specified time after any personor group acquires beneficial ownership of
20% or more (or announces a tender offer for 20% or more) of Brush Wellman
Common Stock. The rights expire on January 27, 2008 and can be redeemed for 1
cent per right under certain circumstances.

     In May 1997, the Company's Board of Directors authorized the purchase of up
to 1,000,000 shares of its Common Stock (not to exceed 250,000 shares per year)
over a four year period. Through December 31, 1998, the Company purchased
455,600 shares at a total cost of $10.3 million.

     In December 1995, the Company's Board of Directors authorized a purchase of
up to 1,000,000 shares of its Common Stock. Through December 31,1996, the
Company purchased 524,400 shares at a total cost of $9,481,000 under this
program. In May 1996, the Company's Board of Directors withdrew the authority
for additional share purchases.

     The amended 1995 Stock Incentive Plan authorizes the granting of five
categories of incentive awards: performance restricted shares, performance
shares, performance units, restricted shares, and option rights. In 1998, a
total of 60,450 performance restricted shares, 30,225 performance shares, and
16,900 special restricted shares (1,000 were subsequently forfeited) were
granted to certain employees. In 1997, a total of 9,000 special restricted
shares (2,000 were subsequently forfeited) were granted to certain employees. In
1996, a total of 116,653 performance restricted shares and 118,127 performance
shares were granted to certain employees. The market value of the performance
restricted shares and the performance shares is adjusted for management's
expectation of reaching the Management Objectives as outlined in the plan
agreement, and the related dividends on the performance restricted shares have
been recorded as deferred compensation-restricted stock and are a component of
other equity transactions of shareholders' equity. Deferred compensation is
amortized over the vesting period and amounted to $1,394,000 and $270,000 in
1998 and 1997, respectively.

     Option rights entitle the optionee to purchase common shares at a price
equal to or greater than market value on the date of grant. Option rights
outstanding under the amended 1995 Stock Incentive Plan and previous plans
generally become exercisable over a four-year period and expire ten years from
the date of the grant. In 1995, the Company's right to grant options on a total
of 228,565 shares (under the Company's 1979, 1984, and 1989 stock option plans)
were terminated upon shareholder approval of the amended 1995 Stock Incentive
Plan. No further stock awards will be made under the Company's 1979, 1984, and
1989 stock option plans except to the extent that shares become available for
grant under these plans by reason of termination of options previously granted.

     The 1990 Stock Option Plan for Non-Employee Directors (the "1990 Plan") was
terminated effective May 7, 1998. The 1997 Stock Incentive Plan for Non-Employee
Directors replaced the 1990 Plan and provided for a one-time grant of 5,000
options to up to six new non-employee directors who have not yet received
options under the 1990 Plan, at an option price equal to the fair market value
of the shares at the date of the grant. Options are non-qualified and become
exercisable six months after the date of grant. The options generally expire ten
years after the date they were granted.

     The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation", but applies APB Opinion No. 25 and
related interpretation in accounting for its stock incentive plans. If the
Company had elected to recognize compensation expense for its stock incentive
plan awards based on the estimated fair value of the awards on the grant dates,
consistent with the method prescribed by SFAS

                                       20
<PAGE>   23
No. 123 by amortizing the expense over the options' vesting
period, the pro forma net income and earnings per share (E.P.S.)
would have been as noted below:
<TABLE>
<CAPTION>

                                     1998       1997      1996
                                     ----       ----      ----
(Dollars in thousands except per
share amounts)
<S>                               <C>       <C>       <C>      
Net income (loss)     As reported  $ (7,132) $  25,597 $  24,491
                        Pro Forma  $ (7,973) $  25,113 $  24,048
Basic E.P.S.         As reported   $  (0.44) $    1.58 $    1.55
                        Pro Forma  $  (0.49) $    1.55 $    1.52
Diluted E.P.S.        As reported  $  (0.44) $    1.56 $    1.53
                        Pro Forma  $  (0.49) $    1.53 $    1.50
</TABLE>

Note: The pro forma disclosures shown are not representative of the
effects on net income and earnings per share in future years.

     The weighted average fair value of the Company's stock options used to
compute the pro forma net income and earnings per share disclosures is $7.13,
$4.99, and $5.96 for 1998, 1997, and 1996, respectively. The fair value is the
estimated present value at grant date using the Black-Scholes option-pricing
model with the following weighted average assumptions for the various grants in
1998, 1997, and 1996:
<TABLE>
<CAPTION>

                                                 1998          1997          1996
                                                 ----          ----          ----

<S>                                           <C>           <C>           <C>  
Risk-free interest rate ..............            5.65%         6.15%         6.88%
Dividend yield .......................            2.33%         2.00%         2.03%
Volatility of stock ..................           31.60%        29.90%        29.35%
Expected life of option ..............          4 years       4 years       10 years
</TABLE>

     A summary of option activity during the years 1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>

                                                                         Weighted
                                                                          Average
                                                        Range of         Exercise
                                      Shares          Option Price        Price
                                      ------          ------------        -----
<S>                              <C>             <C>                  <C>      
Outstanding at
  December 31, 1995 .........       1,661,740       $11.81 to $38.94      $   18.32
Granted .....................          35,000       $18.63 to $19.06      $   18.69
Exercised ...................         (93,710)      $12.00 to $15.75      $   13.93
Canceled ....................         (58,460)      $12.00 to $38.94      $   30.98
                                    ---------
Outstanding at
  December 31, 1996 .........       1,544,570       $11.81 to $38.94      $   18.12
Granted .....................         217,550       $18.13 to $23.78      $   18.39
Exercised ...................        (309,696)      $12.00 to $22.06      $   16.65
Canceled ....................        (107,040)      $13.56 to $38.94      $   28.79
                                    ---------
Outstanding at
  December 31, 1997 .........       1,345,384       $11.81 to $29.94      $   17.62
Granted .....................         200,650       $16.06 to $26.72      $   26.30
Exercised ...................        (179,101)      $12.00 to $25.50      $   17.35
Canceled ....................         (92,890)      $13.56 to $29.94      $   24.18
                                    ---------
Outstanding at
  December 31, 1998 .........       1,274,043       $11.81 to $28.38      $   18.57
                                    =========
</TABLE>

     At December 31, 1998, options for 1,070,653 shares (1,141,774 shares at
December 31,1997) were exercisable with a weighted average remaining life of 5.6
years and 5.5 years for 1998 and 1997, respectively, and a weighted average
exercise price of $17.85 and $17.58 for 1998 and 1997, respectively. The
outstanding options as of December 31,1998 may be divided into the following
ranges:
<TABLE>
<CAPTION>

                                                         Weighted
     Range of                                             Average
   Option Prices       Outstanding     Exercisable     Remaining Life
   -------------       -----------     -----------     --------------
<S>                <C>              <C>               <C> 
 $11.81 to $17.69       677,243          655,133          4.86
 $18.13 to $23.78       407,450          327,020          5.06
 $26.72 to $28.38       189,350           88,500          9.25
                      ---------        ---------             
                      1,274,043        1,070,653
                      =========        =========
</TABLE>

     As of December 31,1998, there were 897,297 shares (194,757 at December
31,1997) available for future grants.

NOTE I-SPECIAL CHARGE

     The Company recorded a special charge totaling $22.6 million pre-tax and
$16.5 million after tax in 1998, primarily for write-downs of property, plant,
and equipment, inventory, and goodwill, and increases to environmental reserves.
Of the $22.6 million, $5.6 million was charged to Cost of sales and $17.0
million was charged to Other-net in the Consolidated Income Statement for the
year ended December 31, 1998. The Company recorded $21.8 million of the pre-tax
charge in the second quarter with the balance recorded in the third and fourth
quarters.

     In analyzing the strategic plans for each of the Company's business units,
management determined that the carrying value of certain assets within its
Microelectronics and Metal Systems Groups were impaired based upon current cash
flow projections. Property, plant and equipment and related intangibles with a
carrying value of $19.6 million were written down by $14.3 million to their
estimated fair market value in the second quarter 1998. The fair market value
was determined by a discounted cash flow analysis using the Company's estimated
pre-tax weighted average cost of capital. The impaired assets may be held for
future use. The $14.3 million impairment is included in Other-net on the
Consolidated Income Statement.

     An increase in the environmental reserve of $2.1 million was recorded as a
long-term liability recognizing the Company's plan to pursue a voluntary
remediation program of a former manufacturing site of a subsidiary. Payments of
less than $0.1 million were made against this reserve in 1998. The allowance for
doubtful accounts was increased by $0.6 million although the Company continues
to pursue collection of this receivable. The remaining $5.6 million of the
charge was for inventory write-downs resulting from reduced growth expectations
and current market conditions, accelerated depreciation and amortization of
fixed assets and associated prepaid manufacturing expenses for items to be taken
out of service as a result of new investments or other changes in operations.


                                       21
<PAGE>   24
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             Brush Wellman Inc. and Subsidiaries, December 31, 1998

NOTE J-INCOME TAXES
     Income (loss) before income taxes and income taxes (benefit) are comprised
of the following components, respectively:
<TABLE>
<CAPTION>

                                             1998         1997          1996
                                             ----         ----          ----
(Dollars in thousands) 
<S>                                        <C>            <C>          <C>     
Income(loss) before income taxes:
  Domestic ..........................      $(12,730)      $30,993      $ 28,750
  Foreign ...........................         1,168         4,478         4,427
                                           --------       -------      --------
    Total before income taxes .......      $(11,562)      $35,471      $ 33,177
                                           ========       =======      ========
Income taxes(benefit):
  Current income taxes:
    Domestic ........................      $    442       $ 5,982      $  7,736
    Foreign .........................           705         2,524         2,089
                                           --------       -------      --------
      Total current .................         1,147         8,506         9,825
  Deferred income taxes:
    Principally domestic ............        (5,577)        1,368        (1,139)
                                           --------       -------      --------
      Total income taxes ............      $ (4,430)      $ 9,874      $  8,686
                                           ========       =======      ========
</TABLE>

     A reconciliation of the federal statutory and effective income tax rates
follows:
<TABLE>
<CAPTION>

                                                     1998        1997       1996
                                                     ----        ----       ----

<S>                                                <C>          <C>         <C>  
Federal statutory rate .....................       (34.0)%      35.0%       35.0%
State and local income taxes,
 net of federal tax effect .................         1.3         1.7         1.1
Effect of excess of percentage
 depletion over cost depletion .............       (14.7)       (5.5)       (4.9)
Company-owned life insurance ...............        (4.3)       (1.5)       (3.6)
Difference due to book and tax
 and tax basis of assets of
 acquired businesses .......................        14.2         0.4         1.1
Taxes on foreign income-net ................        (3.6)       (1.2)       (1.2)
Other items ................................         2.8        (1.1)       (1.3)
                                                   -----        ----        ---- 
  Effective tax rate .......................       (38.3)%      27.8%       26.2%
                                                   =====        ====        ==== 
</TABLE>

     Included in income taxes currently payable, as shown in the Consolidated
Statements of Income, are $234,000, $935,000, and $585,000 of state and local
income taxes in 1998, 1997, and 1996, respectively.

     The Company made domestic and foreign income tax payments, net of refunds,
of $1,650,000, $10,507,000, and $11,144,000 in 1998, 1997, and 1996,
respectively.

     Under Statement 109, deferred tax assets and liabilities are determined
based on temporary differences between the financial reporting bases and the tax
bases of assets and liabilities. Deferred tax assets and (liabilities) recorded
in the Consolidated Balance Sheets consist of the following at December 31:
<TABLE>
<CAPTION>

                                                        1998             1997
                                                        ----             ----
<S>                                                   <C>              <C>     
(Dollars in thousands)
Postretirement benefits other
  than pensions ..............................        $ 12,476         $ 12,455
Alternative minimum tax credit ...............          11,691            5,582
Other reserves ...............................           8,094            7,095
Environmental reserves .......................           2,684            1,666
Inventory ....................................           1,893             --
Miscellaneous ................................             265              652
                                                      --------         --------
Total deferred tax assets ....................          37,103           27,450
Depreciation .................................         (14,562)          (9,765)
Pensions .....................................          (3,968)          (3,946)
Mine development .............................          (3,444)          (4,139)
Capitalized interest expense .................          (1,329)          (1,179)
Inventory ....................................            --               (198)
                                                      --------         --------
Total deferred tax liabilities ...............         (23,303)         (19,227)
                                                      --------         --------
Net deferred tax asset .......................        $ 13,800         $  8,223
                                                      ========         ========
</TABLE>

NOTE K-EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share (E.P.S.):
<TABLE>
<CAPTION>

                                             1998         1997        1996
                                             ----         ----        ----
<S>                                    <C>             <C>           <C>        
Numerator for basic 
 and diluted E.P.S.:
  Net income (loss) ................   $ (7,132,000)   $25,597,000   $24,491,000
Denominator:
 Denominator for basic E P S
  Weighted-average shares
     outstanding ...................     16,267,804     16,214,718    15,846,358
 Effect of dilutive securities:
  Employee stock options ...........           --          194,189       112,440
  Performance restricted
     stock .........................           --           18,680        12,857
  Special restricted stock .........           --            1,881         8,826
                                       ------------    -----------   -----------
  Diluted potential
     common shares .................           --          214,750       134,123
                                       ------------    -----------   -----------
Denominator for diluted E P S
 Adjusted weighted-average
  shares outstanding ...............     16,267,804     16,429,468    15,980,481
                                       ============    ===========   ===========
Basic E.P.S ........................   $      (0.44)   $      1.58   $      1.55
                                       ============    ===========   ===========
Diluted E.P.S ......................   $      (0.44)   $      1.56   $      1.53
                                       ============    ===========   ===========
</TABLE>

     Under SFAS No. 128, "Earnings per Share", no potential common shares shall
be included in the computation of any diluted per-share amount when a loss from
continuing operations exists. Accordingly, dilutive securities totaling
approximately 157,000 shares have been excluded from the 1998 diluted E.P.S.
calculation.


                                       22
<PAGE>   25
NOTE L-PENSIONS AND OTHER POSTRETIREMENT BENEFITS

<TABLE>
<CAPTION>
                                                                                 PENSION BENEFITS               OTHER BENEFITS
                                                                                 ----------------               --------------
                                                                                1998          1997            1998           1997
                                                                                ----          ----            ----           ----
<S>                                                                       <C>              <C>            <C>            <C>
(dollars in thousands)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at end of prior year ...............................     $  71,668       $ 69,187       $ 30,775       $ 31,843
Service cost ..........................................................         3,063          2,434            345            312
Interest cost .........................................................         5,154          4,916          2,122          2,174
Amendments ............................................................         5,025            924           --             --
Actuarial (gain) loss .................................................         3,552         (1,902)           274         (1,493)
Benefit payments ......................................................        (3,668)        (3,891)        (2,186)        (2,061)
                                                                            ---------       --------       --------       --------
Benefit obligation at end of year .....................................        84,794         71,668         31,330         30,775
                                                                            ---------       --------       --------       --------

CHANGE IN PLAN ASSETS
Fair value of plan assets at end of prior year ........................        96,372         84,819           --             --
Actual return on plan assets ..........................................        17,316         15,433           --             --
Employer contributions ................................................            17             11          2,186          2,061
Plan participants contributions .......................................          --             --             --             --
Benefit payments ......................................................        (3,668)        (3,891)        (2,186)        (2,061)
                                                                            ---------       --------       --------       --------
Fair value of plan assets at end of year ..............................       110,037         96,372           --             --
                                                                                                           --------       --------

Funded status .........................................................        25,243         24,704        (31,330)       (30,775)
Unrecognized net actuarial (gain) loss ................................       (19,989)       (13,811)        (5,386)        (5,875)
Unrecognized prior service cost .......................................         7,984          3,182           --             --
Unrecognized initial net (asset) obligation ...........................        (2,601)        (3,308)          --             --
                                                                            ---------       --------       --------       --------
Net amount recognized .................................................     $  10,637       $ 10,767       $(36,716)      $(36,650)
                                                                            ---------       --------       --------       --------

AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET CONSIST OF:
Prepaid benefit cost ..................................................        12,988         12,615           --             --
Accrued benefit liability .............................................        (2,351)        (1,848)       (36,716)       (36,650)
                                                                            ---------       --------       --------       --------
Net amount recognized .................................................     $  10,637       $ 10,767       $(36,716)      $(36,650)
                                                                            ---------       --------       --------       --------

WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate .........................................................          7.00%          7.25%          7.00%          7.25%
Expected return on plan assets ........................................          9.00%          9.00%           N/A            N/A
Rate of compensation increase .........................................          5.00%          5.00%           N/A            N/A
</TABLE>

     For measurement purposes, a 6.75 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.0 percent for 2002 and remain at that level
thereafter.

<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC BENEFIT COST
<S>                                                                      <C>              <C>              <C>              <C>    
Service cost
Interest cost ..................................................         $ 3,063          $ 2,434          $   345          $   312
Expected return on plan assets .................................           5,154            4,916            2,122            2,174
Amortization of prior service cost .............................          (7,589)          (7,082)            --               --
Amortization of initial net (asset) obligation .................             340              258             --               --
Recognized net actuarial (gain) loss ...........................            (707)            (707)            --               --
Net periodic benefit cost ......................................               3                2             (215)            (230)
                                                                         -------          -------          -------          -------
                                                                         $   264          $  (179)         $ 2,252          $ 2,256
                                                                         =======          =======          =======          =======
</TABLE>

     The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $1,275,000, $852,000, and $0, respectively, as of
December 31, 1998, and $1,003,000, $639,000, and $0, respectively, as of
December 31, 1997.


                                       23
<PAGE>   26
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             Brush Wellman Inc. and Subsidiaries, December 31, 1998

     Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>

                                              1-PERCENTAGE     1-PERCENTAGE
                                                  POINT           POINT
                                                 INCREASE         DECREASE
                                                 --------         --------
<S>                                               <C>            <C>     
(Dollars in thousands)
Effect on total of service and
 interest cost components ......................  $  104         $   (92)
Effect on postretirement benefit
 obligation ....................................   1,638          (1,402)
</TABLE>

     The Company also has accrued unfunded retirement arrangements for certain
directors. At December 31,1998, the projected benefit obligation was $239,000
($1,038,000 in 1997). A corresponding accumulated benefit obligation of $239,000
($995,000 in 1997) has been recognized as a liability in the balance sheet and
is included in retirement and post-employment benefits. Certain foreign
subsidiaries have funded and accrued unfunded retirement arrangements which are
not material to the consolidated financial statements.

     The Company also sponsors a defined contribution plan available to
substantially all U.S. employees. Company contributions to the plan are based on
matching a percentage of employee savings up to a specified savings level. The
Company's contributions were $2,291,000 in 1998, $2,207,000 in 1997, and
$1,844,000 in 1996.

NOTE M-CONTINGENCIES AND COMMITMENTS

     The Company is, from time to time, involved in various legal and other
proceedings that relate to the ordinary course of operating its business,
including, but not limited to: employment-related actions, product liability
claims, and workers' compensation claims.

     While the Company is unable to predict the outcome of current proceedings,
based upon currently known facts, the Company does not believe that resolution
of these proceedings will have a material adverse effect on the financial
condition or operations of the Company.

     The Company has an active program for environmental compliance which
includes the identification of environmental projects and estimating their
impact on the Company's financial performance and available resources.
Environmental expenditures that relate to current operations, such as wastewater
treatment and control of airborne emissions, are either expensed or capitalized
as appropriate. For projects involving remediation, estimates of the probable
costs are made and the Company established undiscounted reserves of $7.9 million
at December 31, 1998 ($5.1 million at December 31, 1997). These reserves cover
existing or currently foreseen projects. Expenditures are charged to the reserve
which is adjusted from time to time as additional projects are identified and
for which probable costs of remediation can be estimated. The current portion of
the reserve is included in the balance sheet as Other liabilities and accrued
items while the long-term portion is included under Other long-term liabilities.


                                       24
<PAGE>   27
NOTE N-SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

     Selected financial data by business segment as prescribed by SFAS No. 131,
"Disclosures about segments of an Enterprise and Related Information", for 1998,
1997 and 1996 are as follows.

<TABLE>
<CAPTION>
                                                                      Metal             Micro-           All
                                                                    Systems          Electronics         Other               Total
                                                                    -------          -----------         -----               -----
(Dollars in thousands)
1998
----
<S>                                                                 <C>              <C>                <C>               <C>      
Revenues from external customers ..........................         $295,705         $ 106,347          $  7,840          $ 409,892
Intersegment revenues .....................................              482             1,145              --                1,627
Special charge ............................................             --                --              22,572             22,572
Depreciation, depletion and amortization ..................           15,716             2,283             6,590             24,589
Segment profit (loss) before taxes ........................           27,897             2,120           (40,330)           (10,313)
Segment assets ............................................          262,847            51,052            89,791            403,690
Expenditures for long-lived assets ........................           21,054             7,432             8,679             37,165

1997
----
Revenues from external customers ..........................          302,403           124,418             6,980            433,801
Intersegment revenues .....................................            1,616               773              --                2,389
Special charge ............................................             --                --                --                 --
Depreciation, depletion and amortization ..................           12,870             2,543             3,916             19,329
Segment profit (loss) before taxes ........................           51,024             2,860           (17,860)            36,024
Segment assets ............................................          253,462            48,000            82,390            383,852
Expenditures for long-lived assets ........................           42,302             2,502            17,877             62,681

1996
----
Revenues from external customers ..........................          292,479            76,900             6,900            376,279
Intersegment revenues .....................................             --               1,184              --                1,184
Special charge ............................................             --                --                --                 --
Depreciation, depletion and amortization ..................           12,866             2,376             7,712             22,954
Segment profit (loss) before taxes ........................           56,305            (1,700)          (20,300)            34,305
Segment assets ............................................          220,585            43,458            91,736            355,779
Expenditures for long-lived assets ........................           17,974             3,144             9,370             30,488
</TABLE>

     All Other includes corporate and certain unallocated costs, non-operating
items of Other income/expense, and the revenues and related costs from one
manufacturing facility. Segments are evaluated using earnings before interest
and taxes. In 1998, the Company recorded a special charge of $22.6 million (see
Note I to the Consolidated Financial Statements). While this charge included
write-downs of assets of the Metal Systems and Microelectronics Groups, it was
not recorded against their profits asmanagement evaluates the profitability of
those groups exclusive of the special charge. Assets shown in All Other include
cash, computer hardware and software, deferred taxes, capitalized interest, and
the operating assets for one manufacturing facility. Inventories for Metal
Systems and Microelectronics are shown at their FIFO values with the LIFO
reserve included under the All Other column. Intersegment revenues are
eliminated in consolidation. The revenues from external customer totals are
presented net of the Intersegment revenues.

     The Company's sales from U.S. operations to external customers, including
exports, were $327,927,000 in 1998, $345,100,000 in 1997, and $301,451,000 in
1996. Revenues attributed to countries based upon the location of customers and
long-lived assets deployed by the Company, by country, are as follows:

<TABLE>
<CAPTION>

                                          1998            1997            1996
                                          ----            ----            ----
(Dollars in thousands)
<S>                                     <C>             <C>             <C>     
Revenues
--------
United States ..................        $280,830        $291,378        $267,877
All Other ......................         129,062         142,423         108,402
                                        --------        --------        --------
Total ..........................        $409,892        $433,801        $376,279

Long-Lived Assets
-----------------
United States                         $166,979         $172,623         $128,304
All Other                                6,283            6,128            7,390
                                      --------         --------         --------
Total                                 $173,262         $178,751         $135,694
</TABLE>

     No individual country, other than the United States, or customer accounted
for 10% or more of the Company's revenues for the years presented. Revenues from
outside the U.S. are primarily from Europe and Asia.



                                       25
<PAGE>   28
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             Brush Wellman Inc. and Subsidiaries, December 31, 1998

NOTE O-QUARTERLY DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
                                                                                               1998
                                                           ------------------------------------------------------------------------
                                                            First         Second          Third           Fourth
                                                           Quarter        Quarter         Quarter         Quarter            Total
                                                           -------        -------         -------         -------            -----

<S>                                                    <C>             <C>             <C>            <C>              <C>        
Net sales .........................................    $   114,181     $   102,992     $    96,240    $    96,479      $   409,892
Gross profit ......................................         28,029          17,516          19,416         19,758           84,719
  Percent of sales ................................           24.5%           17.0%           20.2%          20.5%            20.7%
Net income (loss) .................................          6,162         (13,084)             98           (308)          (7,132)
Earnings (loss) per share of common stock:
  Basic ...........................................           0.38           (0.80)           0.01          (0.02)           (0.44)
  Diluted .........................................           0.37           (0.80)           0.01          (0.02)           (0.44)
Dividends per share of common stock ...............           0.12            0.12            0.12           0.12             0.48
Stock price range
  High ............................................          28.50           29.69           22.75          17.44
  Low .............................................          22.94           19.13           13.81          11.94
</TABLE>

Included in the second quarter of 1998 is $15.9 million of the $16.5 million
after tax special charge.
<TABLE>
<CAPTION>

                                                                                           1997
                                                        ---------------------------------------------------------------------------
                                                          First          Second            Third           Fourth
                                                         Quarter         Quarter          Quarter          Quarter            Total
                                                         -------         -------          -------          -------            -----

<S>                                                 <C>              <C>              <C>              <C>              <C>        
Net sales ......................................    $    99,688      $   113,374      $   109,073      $   111,666      $   433,801
Gross profit ...................................         24,782           28,866           26,292           29,398          109,338
  Percent of sales .............................           24.9%            25.5%            24.1%            26.3%            25.2%
Net income .....................................          6,490            7,489            3,989            7,629           25,597
Earnings per share of common stock:
  Basic ........................................           0.40             0.46             0.25             0.47             1.58
  Diluted ......................................           0.40             0.46             0.24             0.46             1.56
Dividends per share of common stock ............           0.11             0.11             0.12             0.12             0.46
Stock price range
  High .........................................          19.25            22.13            26.81            25.87
  Low ..........................................          16.25            17.75            20.94            23.06
</TABLE>


                                       26
<PAGE>   29
                 REPORTS OF INDEPENDENT AUDITORS AND MANAGEMENT

REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Brush Wellman Inc.

     We have audited the accompanying consolidated balance sheets of Brush
Wellman Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position of Brush Wellman
Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.


/s/ Ernst & Young LLP
Cleveland, Ohio
January 26, 1999




REPORT OF MANAGEMENT

     The management of Brush Wellman Inc. is responsible for the contents of the
financial statements, which are prepared in conformity with generally accepted
accounting principles. The financial statements necessarily include amounts
based on judgements and estimates. Financial information elsewhere in the annual
report is consistent with that in the financial statements.

     The Company maintains a comprehensive accounting system, which includes
controls designed to provide reasonable assurance as to the integrity and
reliability of the financial records and the protection of assets. However,
there are inherent limitations in the effectiveness of any system of internal
controls and, therefore, it provides only reasonable assurance with respect to
financial statement preparation. An internal audit staff is employed to
regularly test and evaluate both internal accounting controls and operating
procedures, including compliance with the Company's statement of policy
regarding ethical and lawful conduct. The role of the independent auditors is to
provide an objective review of the financial statements and the underlying
transactions in accordance with generally accepted auditing standards.

     The Audit Committee of the Board of Directors, comprised solely of
Directors who are not members of management, meets regularly with management,
the independent auditors, and the internal auditors to ensure that their
respective responsibilities are properly discharged. The independent auditors
and the internal audit staff have full and free access to the Audit Committee.


/s/ Johb D. Grampa
John D. Grampa
Vice President, Finance

                                       27
<PAGE>   30
                     MANAGEMENT 'S DISCUSSION AND ANALYSIS

FORWARD-LOOKING INFORMATION

     Portions of the narrative set forth in this document that are not
historical in nature are forward-looking statements. The Company's actual future
performance may 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 condition of the markets which the Company
serves (especially as impacted by events in particular markets including
telecommunications, automotive, and computer, or in particular geographic
regions, such as Asia), the success of the Company's strategic plans, the timely
and successful completion of pending capital expansions and Year 2000
remediation projects, and the conclusion of pending litigation matters in
accordance with the Company's expectation that there will be no materially
adverse effects.

RESULTS OF OPERATIONS
1998 TO 1997 COMPARISON

     Worldwide sales of $409.9 million in 1998 were 6% lower than the record
$433.8 million of sales in 1997. Sales and profits from both the Metal Systems
Group and Microelectronics Group declined in 1998 from 1997. The Company also
recorded a $22.6 million special charge (see Note I to the Consolidated
Financial Statements) to write-down certain assets and establish various
reserves. This resulted in a per share loss of $0.44 in 1998 compared to net
income per share of $1.56 in 1997. Absent the special charge, earnings per share
would have been $0.57 in 1998.

     Metal Systems Group sales were $295.7 million in 1998 compared to $302.4
million in 1997. Products sold by the Metal Systems Group include Alloy Products
(primarily copper-beryllium), Engineered Material Systems, and Beryllium
Products. These products are used in a wide variety of applications where
superior electrical conductivity, formability, wear resistance, high strength,
or hardness characteristics may be required. They are sold into the
telecommunications, computer, automotive, aerospace/defense, plastic molds, and
appliance markets. Copper is a large component of these sales and changes in the
market price of raw copper generally are passed through to the Company'sdomestic
customers. Average copper prices were lower in 1998 than 1997 thereby reducing
reported revenues but not margins. The U.S. dollar strengthened in 1998 compared
to 1997 and, as a result, the translated value of Metal Systems' foreign
currency denominated sales declined. Had copper prices and exchange rates in
1998 been equal to 1997 (andassuming no other changes to 1998's volumes and
prices), Metal Systems' sales would have been slightly higher than last year.

     The Company has an active sales, marketing, and distribution program
designed to develop and penetrate new markets and applications while servicing
current customer needs. Demand from the aerospace and plastic mold markets
remained strong in 1998. However, a general softness in the telecommunications
and computer markets beginning in the second quarter and the General Motors
strike during the second and third quarters negatively impacted sales volumes.
Sales into the defense market, which is a considerably smaller market for the
Company compared to a decade ago, were solid in the first half of the year but
slowed down in the second half. European sales of Metal Systems products
increased over last year, but the weak economic conditions in Asia caused a
decline of sales in that region. Prior to this year, sales of alloy strip and
bulk products through the Company's Japanese subsidiary had increased every year
since its formation in the mid-1980s.

     Worldwide sales of alloy strip and bulk products in pounds were 6% higher
than 1997 and a new record high. Shipments from the new facility in Lorain, Ohio
that produces afamily of non-beryllium containing alloys were a minor
contributor to this increase. Engineered Material Systems revenues declined 3%
in 1998 from 1997 after five straight years of growth.

     Capacity and material flow issues at the Company's Elmore, Ohio facility
constrained the growth of Metal Systems sales and, in particular, alloy strip
products. The construction of the $117 million Alloy Expansion Project continued
and the new cast shop portion of the project has been placed in service.
However, start-up costs and yield problems were worse than anticipated. The
lower yields were caused by casting issues, which at times were not detectable
until further processing in the strip mill. The strip mill needed to operate at
full capacity with high quality input material in order to satisfy current
customer demand, and the lower yield reduced the mill's output. Casting quality
and flow of material did improvein the latter part of the year. The balance of
the Alloy Expansion Project,the new strip mill, has also been installed and is
undergoing testing and qualification. Portions of the equipment are being used
to produce salable product in early 1999 with the full line anticipated to be
integrated into full


                                       28
<PAGE>   31
production in the third quarter of 1999. The start-up costs and inefficiencies
from the Alloy Expansion Project were approximately $4.0 million higher than in
1997 and served to reduce margins earned on Metal Systems sales. It is
anticipated that start-up costs in 1999 associated with the strip mill will be
less than the 1998 start-up costs.

     Microelectronics Group sales were $106.3 million in 1998 compared to $124.4
million in 1997. Markets served by this group include telecommunications,
automotive, optical media, aerospace, and medical. The major product forms
manufactured and sold are precious and non-precious metal physical vapor
deposition (PVD) targets, beryllium ceramics, direct bond copper, copper
tungsten, and thick film circuits. The decline in sales from 1997 is primarily a
result of a planned substitution of silver for gold in PVD applications. Under
this program the customer receives the benefits of a high quality product but at
a significantly lower cost as the cost of the precious metal is a straight pass
through. While the reported revenue from PVD is lower, the actual number of
targets and the resulting value added (revenue less the cost of the metal) were
higher in 1998 than 1997. At the end of the second quarter 1998, the Company
acquired the assets of Pure Tech Inc., a manufacturer of non-precious metal PVD
targets. The Company also undertook a capital investment program to expand these
operations and augment its current product offerings.

     Sales of Ceramic Products declined slightly from the prior year as the
softness in the telecommunications market and the General Motors strike also
negatively impacted these sales. The Company expanded its Tucson, Arizona plant
and created a separate facility dedicated to the development and manufacture of
copper tungsten products. These products will be sold into the markets currently
served by Ceramics. Direct bond copper sales were disappointing in 1998 and the
high manufacturing costs caused by poor yields prevented the Company from
achieving reasonable margins on these products. Production processes were
revised, and by year-end 1998, yield rates had improved significantly. Sales of
thick film circuits, manufactured at the Oceanside, California facility, were
flat with the prior year and remain a small portion of the Company's total
revenue.

     Sales from international operations were $82.0 million in 1998 compared to
$88.7 million in 1997. International operations consist of distribution centers
in Germany, England, Japan, and Singapore, as well as a precious metal finishing
operation in Singapore. The Company also has a network of independent agents and
distributors throughout the world. The international markets served are
essentially the same as in the U.S. The distribution centers typically price in
their local currency and face competition based in that country. Since the
majority of the product cost is incurred in U.S. dollars, a strengthening of the
U.S. dollar reduces the translated value of sales and the resulting margins.
Direct exports to unaffiliated customers were $47.1 million in 1998 and $53.7
million in 1997. These sales are denominated in U.S. dollars. Approximately 80%
of total international sales (sales by international operations and direct
exports) are from the Metal Systems Group.

     Gross margin was $84.7 million or 20.7% of sales in 1998 compared to $109.3
million or 25.2% of sales in 1997. Included in cost of sales and serving to
reduce 1998's margin is $5.6 million of the special charge. The charge will be
described below. In addition to the start-up costs and currency effect, 1998
margins were reduced by approximately $5.0 million in higher fixed costs
associated with the recent capital investments (i.e. depreciation, lease
charges, taxes, and insurance). These costs are anticipated to increase again in
1999 as lease payments for the new strip mill equipment in Elmore will begin in
March 1999. The decline in gross margin, other than the special charge, is in
the Metal Systems Group. The Microelectronics Group gross margin was level with
the prior year. Prices in general were stable, but there was a slight mix shift
towards lower priced, but not necessarily lower margin percent, products.

     Selling, administrative, and general expenses declined to $64.6 million in
1998 from $65.3 million in 1997. Lower incentive compensation expenses and
planning and development work for the new Lorain facility incurred in 1997, but
not 1998, were the main reasons for the lower expenses. In addition, the
stronger U.S. dollar reduced the translated value of the international
operations' expenses by $0.5 million compared to the prior year.

     Research and development (R&D) expenses were $8.7 million, or 2.1% of sales
in 1998, versus $7.7 million, or 1.8% of sales in 1997. The majority of R&D
expense supports the Metal Systems Group sales. The major increase was for
development of alloys to be produced at the Company's Lorain facility.
Additional research dollars were also invested to support casting techniques and
processes.

                                       29
<PAGE>   32
               MANAGEMENT 'S DISCUSSION AND ANALYSIS (CONTINUED)

     Other-net expense includes $17.0 million of the $22.6 million special
charge in 1998. The charge includes the write-down of certain fixed assets and
related intangibles in the Microelectronics and Metal Systems Groups to their
estimated fair market values in accordance with SFAS No. 121. The Company's
current long-term strategic plans anticipate only modest growth from certain
operations, and the projected cash flows were not sufficient to support the
carrying value of these assets. The written-down assets were generally not taken
out of service. Charges were also recorded for assets that will no longer be in
service as a result of new capital investments. A reserve for environmental
expenses was recorded in support of a plan to pursue a voluntary remediation
program of a former manufacturing site of a subsidiary under the State of Ohio's
Voluntary Action Program. The special charge is consistent with the Company's
long-term goals and objectives and does not suggest any plans to exit any of the
Company's current businesses at the present time.

     Absent the special charge, Other-net was $4.8 million in 1998 compared to
$0.3 million in 1997. Exchange gains/losses account for $4.0 million of this
difference. Interest income was $0.7 million lower in 1998 than 1997 due to the
decrease in cash balances.

     The 1998 operating loss was $10.3 million compared to a profit of $36.0
million in 1997. Excluding the special charge, the 1998 operating profit would
have been $12.3 million. Metal Systems' operating profit decreased from $51.0
million in 1997 to $27.9 million in 1998 because of the start-up costs and yield
issues in Elmore, the higher fixed costs from new investments, and the
unfavorable currency effect. Microelectronics' operating profit of $2.1 million
is down slightly from the prior year. The special charge was recorded centrally
and not charged back against either group's profits.

     Interest expense was $1.2 million in 1998 and $0.6 million in 1997. These
figures are net of capitalized interest of $1.6 million in 1998 and $1.8 million
in 1997 associated with long-term capital projects. Debt levels increased
significantly throughout 1998 and the average debt level was higher in 1998 than
1997. The average borrowing rate was 0.5% lower in 1998 than 1997.

     Income taxes were provided at a rate of 38.3% of the loss before income
taxes in 1998 and 27.8% of the income before income taxes in 1997. Adjustments
to the statutory tax rate are detailed in Note J to the Consolidated Financial
Statements. The diluted loss per share was $0.44 in 1998 compared to diluted
earnings per share of $1.56 in 1997.

     The Company is subject to litigation involving claims relating to product
liability and other claims relating to alleged beryllium disease exposure (see
"Legal Proceedings" in the Company's Annual Report on Form 10-K). Management
believes that the Company has substantial defenses and intends to vigorously
contest such suits. However, the Company's results of operations could be
materially affected by unfavorable results in one or more of these cases. Based
on information known to the Company and assuming collectibility of insurance on
covered claims, management believes the outcome of the Company's pending
litigation should not have a material adverse effect upon the consolidated
financial position, results of operations, or the cash flow of the Company.

1997 TO 1996 COMPARISON

     Sales in 1997 were a record $433.8 million, a 15% improvement over 1996
sales of $376.3 million, and an increase for the fifth consecutive year. Diluted
earnings per share grew to $1.56 in 1997 from $1.53 in 1996.

     Metal Systems sales were $302.4 million in 1997 compared to $292.5 million
in 1996. Alloy Products strip sales posted significant gains in 1997 over 1996
in the domestic and international markets. Pounds shipped increased at a higher
rate than the sales value as a large portion of the additional sales were in
relatively lower priced alloys. The translation rate differences also adversely
affected international sales. Strip production was near capacity for most of the
year. The new casting facility in Elmore, Ohio, part of the three year $117
million alloy expansion project, started up on schedule late in the fourth
quarter of 1997. Alloy Products bulk sales declined year over year due to lower
sales to the recreation and leisure market, while bulk product sales to other
markets increased slightly in 1997 over 1996. To augment the markets served by
its traditional beryllium alloy bulk products, the Company completed
construction of a new facility in Lorain, Ohio. Production in limited quantities
began in the fourth quarter 1997. Sales of Engineered Material Systems grew to
record levels once again. Engineered Material Systems includes clad inlay or
overlay metals, contour profiling of metals, electron beam welded metal systems,
precious and base metal electroplating, and solder-coated metal systems, or any
combinations of these systems. Beryllium Products sales also grew in 1997 from
1996. AlBeMet((R)) sales, while still relatively small, increased in 1997.
Investment cast products also offer an opportunity for growth. Beryllium metal
sales, primarily for defense applications, were flat year over year.

                                       30
<PAGE>   33
     Sales of Microelectronics Group products increased dramatically to $124.4
million in 1997 from $76.9 million in 1996. The majority of the sales growth was
in precious metals, primarily physical vapor deposition targets used in the
optical data storage and hybrid electronic markets. Revenues from the Company's
gold refining operations increased in 1997 as well. Because of the high precious
metal content, the cost of which is passed through to customers, these sales
have a lower margin percent than the average margins earned on the Company's
other products. While profitable, the large increase in precious metal sales has
the effect of lowering the Company's overall gross margin percent.

     Ceramic Products sales were higher in 1997 than 1996 on the strength of
additional base beryllia ceramic sales to the telecommunications market. Direct
bond copper sales increased slightly. Thick film circuits were a minor
contributor to the increased sales in 1997 from 1996.

     Sales by international operations totaled $88.7 million in 1997 compared to
$74.8 million in 1996. Direct exports were $53.7 million in 1997 and $33.6
million in 1996.

     Gross margin was $109.3 million in 1997, a gain of $4.2 million from 1996.
However, the margin percentage declined to 25.2% of sales from 27.9%. The two
major causes for the decline in the percentage were the effects of the stronger
U.S. dollar and the mix effect of higher Microelectronics Group sales that carry
smaller margins as previously discussed. Capacity constraints at several
facilities within the Metal Systems Group created additional cost pressures
(increased overtime, limited availability of the optimal equipment, etc.). The
cost of copper, typically passed through to customers, was essentially flat year
on year. Selling prices in general were fairly stable during 1997.

     Selling, administrative, and general expenses were $65.3 million or 15.1%
of sales in 1997 compared to $61.6 million or 16.4% of sales in 1996. Costs
associated with the start-up of the new facility in Lorain and charges for the
company-owned life insurance program were two main causes for the increase. The
expense portion of the new computer based information system project, begun in
1996, continued into 1997.

     R&D expenses were $7.7 million or 1.8% of sales in 1997, a decline from
$8.3 million or 2.2% of sales in 1996. Expenses were lower in 1997, in part,
because of reimbursements for R&D work performed under government contracts.
Additionally, two major initiatives in 1996 achieved their objectives in early
1997 and, therefore, caused a reduction in expenditures.

     Other-net expense was $0.3 million in 1997 and $1.0 million in 1996.
Foreign currency hedge gains were higher in 1997 than 1996 while goodwill
expense was lower in 1997. Partially offsetting these benefits was an increase
in the cost of financing the consigned platinum and palladium inventory that
support a portion of the precious metal business. Major disruptions to the
supply of metal in the international markets in the summer of 1997 caused the
higher consignment rates. By the end of 1997, these rates had significantly
declined, although they still were higher than the typically nominal rates of
prior years. The Company has taken additional measures to reduce its exposures.

     Operating profit for Metal Systems was $51.0 million in 1997, a 10%
decrease from 1996 while Microelectronics' profit improved to $2.9 million after
posting a loss of $1.7 million in 1996.

     Interest expense was $0.6 million in 1997 versus $1.1 million in 1996, net
of capitalized interest associated with long-term capital projects of $1.8
million in 1997 and $1.0 million in 1996. The higher incurred interest expense
in 1997 was the result of increased borrowings, however, the weighted average
interest rate declined slightly in 1997 from 1996.

     Income before income taxes was $35.5 million in 1997, an increase of $2.3
million from 1996. As explained above, this improvement was due to higher sales
volume generating an increase in margin that was partially offset by an
unfavorable currency effect and higher expenses.

     The Company's effective tax rate was 27.8% of pre-tax earnings in 1997
compared to 26.2% in 1996. Higher earnings and a decreased tax benefit from the
company-owned life insurance program caused the increase in the rate.
Adjustments to the statutory tax rate are detailed in Note J to the Consolidated
Financial Statements.

     Comparative basic earnings per share were $1.58 in 1997 and $1.55 in 1996.
Diluted earnings per share were $1.56 in 1997 and $1.53 in 1996.


                                       31
<PAGE>   34
               MANAGEMENT 'S DISCUSSION AND ANALYSIS (CONTINUED)

FINANCIAL POSITION
     
     Cash flow from operations was $19.5 million in 1998 versus $40.4 million in
1997. The main differences are the lower net income in 1998, absent the special
charge, and an increase in inventories. The recording of the special charge had
no effect on cash flow in 1998. Cash balances at the end of 1998 were $1.9
million compared to $7.2 million at year-end 1997.

     Inventories increased by $12.4 million during 1998. A portion of this
increase is in work-in-process at the Elmore facility. The Company attempts to
recycle as much of its beryllium containing scrap as feasible. The abnormally
low yield rate caused by the casting process in 1998 produced higher levels of
scrap. This scrap is maintained in inventory at the appropriate input feed value
and is available for remelting and reprocessing into good product. The start-up
of manufacturing operations at the Lorain facility and the acquisition of the
assets of Pure Tech Inc. also contributed to the inventory increase.

     Capital expenditures for property, plant, and equipment and mine
development expenditures were $37.2 million in 1998. Expenditures incurred by
Metal Systems totaled $21.1 million and included a portion of the payments for
the Alloy Expansion Project in Elmore, Ohio and new plating lines and rolling
mills for the Lincoln, Rhode Island facility. The $117 million Alloy Expansion
Project began in 1995 and is expected to be completed in 1999. It is being
financed, in part, by two operating leases totaling approximately $79.7 million.
Payments under the facility lease began in December 1997, and payments under the
equipment lease will begin in 1999. The equipment lease payments are graduated
and will increase over time. Capital expenditures for Microelectronics were $7.4
million in 1998, with the mainprojects being the expansion of precious and
nonprecious metal capabilities, and the new copper tungsten facility.

     The Company is also undertaking several major capital investments to
replace a large portion of its legacy computer systems while other systems are
undergoing major upgrades. One of the benefits from these system replacements
and upgrades is mitigating the need to make numerous legacy systems Year 2000
compliant. The Company currently is actively addressing the Year 2000 issues for
both information technology equipment and non-information technology equipment
(i.e., manufacturing and other support machinery). The related expense for this
activity was approximately $1.0 million in 1998 with a smaller but undetermined
amount expected to be expended in 1999. Outside consultants have been contracted
to assist in assessing the Company's exposure and costs. The majority of the
sales, financial, and payroll information technology systems either already are
or anticipated to be Year 2000 compliant by early 1999. The Company is still in
the assessment phase relative to remediation of any Year 2000 issues with its
non-information technology equipment, although, some equipment is known to be or
has been made Year 2000 compliant. If required modifications and conversions are
not made on a timely basis, the Year 2000 issue could have a material adverse
effect on the Company's operations. The Company can provide no assurance that
Year 2000 compliance plans will be successfully completed by suppliers and
customers on a timely basis, nor has the Company been able to assess the
potential impact of noncompliance by any customer or supplier. While the Company
is attempting to resolve its Year 2000 issues to the best of its understanding,
given the complexity of the issue and the potential costs, the Company cannot
provide absolute assurance that this issue will not have any impact on the
Company's future cash flows or results of operations. The Company anticipates
developing contingency plans as warranted.

     The assets of Pure Tech Inc. were acquired by Williams Advanced Materials
Inc., a wholly-owned subsidiary of the Company, for $12.4 million in cash late
in the second quarter 1998. The acquisition was accounted for as a purchase.

     Short-term debt was $45.6 million at December 31, 1998, an increase of
$16.7 million from the prior year-end. Included in this amount is $25.5 million
of foreign currency loans and $6.8 million denominated in precious metals.
Long-term debt on the balance sheet was $32.1 million at year-end 1998 compared
to $17.9 million at year-end 1997. Unused lines of credit totaled $113.0 million
at December 31, 1998. In January 1999, the Company amended certain provisions of
its revolving credit agreement and master lease agreement including a covenant
limiting the amount of outstanding debt to a multiple of earnings before
interest, taxes, depreciation, and amortization (funded debt/EBITDA ratio).

     The Company purchased 250,000 shares of its Common Stock at a cost of $5.3
million and paid dividends totaling $7.8 million in 1998.

                                       32
<PAGE>   35

     Funds being generated from operations, plus the available borrowing
capacity, are believed to be adequate to support operating requirements, capital
expenditures, remediation projects, and dividends. Excess cash, if any, is
invested in money market or other high quality investments.

     Cash flow from operations was $40.4 million in 1997. Cash balances declined
to $7.2 million from $31.7 million during 1997 while total balance sheet debt
increased by $2.2 million. Capital expenditures were $53.2 million in 1997. The
Company purchased 205,600 shares of stock at a cost of $4.9 million and paid
$7.3 million of dividends in 1997.

ORE RESERVES
     
     The Company's reserves of beryllium-bearing bertrandite ore are located in
Juab County, Utah. An ongoing drilling program has generally added to proven
reserves. Proven reserves are the measured quantities of ore commercially
recoverable through the open pit method. Probable reserves are the estimated
quantities of ore known to exist, principally at greater depths, but prospects
for commercial recovery are indeterminable. Ore dilution that occurs during
mining approximates 7%. About 87% of beryllium in ore is recovered in the
extraction process. The Company augments its proven reserves of bertrandite ore
through the purchase of imported beryl ore (approximately 4% beryllium) which is
also processed at the Utah extraction plant.

     Beginning in 1998, updated computer models are being used to estimate ore
reserves which are subject to economic and physical evaluation. Development
drilling has affected the total ore reserves to some degree. The requirement
that reserves pass an economic test causes open-pit mineable ore to be found in
both proven and probable geologic settings. Although both the proven ore
reserves and the open-pit mining depths have increased, the probable reserves
have substantially decreased. Based upon 1998 production levels, proven reserves
would last sixty years or more.
<TABLE>
<CAPTION>

                                      1998          1997         1996         1995          1994
                                      ----          ----         ----         ----          ----
<S>                                   <C>           <C>           <C>          <C>          <C>  

Proven bertrandite
  ore reserves at
  year-end (thousands
  of dry tons) ...................    7,747         6,924         6,763        6,927        6,747

Grade beryllium ..................    0.259%        0.249%        0.249%       0.249%       0.251%

Probable bertrandite
  ore reserves at
  year-end (thousands
  of dry tons) ...................    3,535         6,750         7,432        7,346        7,559

Grade beryllium ..................    0.210%        0.277%        0.281%       0.281%       0.279%

Bertrandite ore
  processed
  (thousands of dry
  tons, diluted) .................      113           110            97           96           79

Grade beryllium,
  diluted ........................    0.234%        0.229%        0.236%       0.232%       0.240%
</TABLE>

INFLATION AND CHANGING PRICES

     The prices of certain major raw materials, including copper, nickel, gold,
silver, and other precious metals purchased by the Company, fluctuate during a
given year. Such changes in costs are generally reflected in selling price
adjustments. The prices of labor and other factors of production generally
increase with inflation. Additions to capacity, while more expensive over time,
usually result in greater productivity or improved yields. However, market
factors, alternative materials, and competitive pricing affect the Company's
ability to offset wage and benefit increases. The Company employs the last-in,
first-out (LIFO) inventory valuation method domestically to more closely match
current costs with revenues.

ENVIRONMENTAL MATTERS

     As indicated in Note M to the Consolidated Financial Statements, the
Company maintains an active program of environmental compliance. For projects
involving remediation, estimates of the probable costs are made and the Company
has reserved $7.9 million at December 31, 1998 ($5.1 million at December 31,
1997). This reserve covers existing and currently foreseen projects.



                                       33
<PAGE>   36
               MANAGEMENT 'S DISCUSSION AND ANALYSIS (CONTINUED)

MARKET RISK DISCLOSURES

     The Company is exposed to commodity price, interest rate, and foreign
exchange rate differences. The Company attempts to minimize the effects of these
exposures through a combination of natural hedges and the use of derivatives.
See Note G to the Consolidated Financial Statements.

     The Company uses gold and other precious metals in manufacturing various
Microelectronics and Metal Systems products. To minimize exposure to market
price changes, precious metals are maintained on a consigned inventory basis.
The metal is purchased out of consignment when it is ready to ship to a customer
as a finished product. The Company's purchase price forms the basis for the
price charged to the customer for the precious metal content and, therefore, the
current cost is matched to the price. The Company does maintain a certain level
of gold in its own inventory, but this is typically balanced out by having a
loan denominated in gold for the same number of ounces. Any change in the market
price of gold will result in an equal change in the book value of the asset and
liability.

     The Company is charged a consignment fee by the financial institutions that
actually own the gold. This fee, along with the interest charged on the gold
loan, is partially a function of the market price of gold. The fee, but not the
interest on the loan, can be charged to customers on a case by case basis.
Should the market price of precious metals used by the Company increase by 15%
from the levels on December 31, 1998, the additional pre-tax cost to the Company
on an annual basis would be approximately $0.1 million. This calculation assumes
no changes in the quantity of inventory or the underlying fee and interest rates
and that none of the additional fee is charged to customers.

     The Company also uses base metals, primarily copper, in its production
processes. Fluctuations in the market price of copper are passed on in the form
of price adders (or as price reductions) to customers for the majority of the
copper sales volumes. However, when the Company cannot pass through the price of
copper, margins can be reduced by increases in the market price of copper. To
hedge this exposure, the Company enters into copper swaps with financial
institutions that exchange a variable price of copper for a fixed price. By so
doing, the difference between the Company's purchase price and selling price of
copper will be a known, fixed value for the quantities covered by the swaps.
Based upon copper swaps outstanding at December 31, 1998 that will mature during
1999, management estimates a 10% decrease in the price of copper from the
December 31, 1998 level will increase the loss on these contracts and decrease
pre-tax income by approximately $1.9 million. This calculation excludes the
additional profit that the Company anticipates it will make by selling copper at
a fixed price that cost 10% less than it does on December 31, 1998.

     The Company is exposed to changes in interest rates on its debt and cash.
This interest rate exposure is managed by maintaining a combination of
short-term and long-term debt and variable and fixed rate instruments. The
Company also uses interest rate swaps to fix the interest rate on variable debt
obligations as it deems appropriate. Excess cash, if any, is typically invested
in high-quality instruments that mature in seven days or less. If interest rates
were to increase 200 basis points (2%) from the December 31, 1998 rates, and
assuming no changes in debt or cash from the December 31, 1998 levels, the
additional annual net expense would be approximately $0.9 million on a pre-tax
basis.

     The Company sells products in foreign currencies, mainly the deutschmark,
yen, and sterling. The majority of these products' costs are incurred in U.S.
dollars. The Company is exposed to currency movements in that if the U.S. dollar
strengthens, the translated value of the foreign currency sale and the resulting
margin will be reduced. The Company does not change the price of its products
for short-term exchange rate movements because of its local competition. To
minimize this exposure, the Company purchases foreign currency forward contracts
and options. Should the U.S. dollar strengthen, the decline in margins should be
offset by a gain on the contract. A decrease in the value of the U.S. dollar
would result in larger margins but potentially a loss on the contract, depending
upon the method used to hedge. If the U.S. dollar weakened 10% against all
currencies from the December 31, 1998 exchange rates, the additional loss on the
outstanding contracts as of December 31, 1998 would reduce pre-tax profits by
approximately $2.6 million. This calculation does not take into account the
increase in margins as a result of translating foreign currency sales at the
more favorable exchange rate.



                                       34
<PAGE>   37
                   BRUSH WELLMAN INC. DIRECTORS AND OFFICERS

BOARD OF DIRECTORS

ALBERT C. BERSTICKER(2, 3, 4)
Chairman
Ferro Corporation

CHARLES F. BRUSH, III(1, 4)
Personal Investments

DAVID L. BURNER(1, 4)
Chairman, President, and
Chief Executive Officer
BF Goodrich Co.

GORDON D. HARNETT(2)
Chairman of the Board,
President, and
Chief Executive Officer
Brush Wellman Inc.

DAVID H. HOAG(3, 4)
Retired Chairman
The LTV Corp.

JOSEPH P. KEITHLEY(3, 4)
Chairman, President, and
Chief Executive Officer
Keithley Instruments, Inc.

WILLIAM P. MADAR(1, 2, 3, 4)
Chairman
Nordson Corporation

ROBERT M. MCINNES(2, 3, 4)
Retired President and
Chief Executive Officer,
Pickands Mather & Co.

WILLIAM R. ROBERTSON(1, 4)
Managing Partner
Kirtland Capital Partners

JOHN SHERWIN, Jr.(1, 2, 4)
President,
Mid-Continent Ventures, Inc.

1  Audit Committee
2  Executive Committee
3  Governance Committee
4  Organization and Compensation Committee

OFFICERS

GORDON D. HARNETT(1, 2)
Chairman of the Board,
President, and
Chief Executive Officer

BRIAN J. DERRY(1, 2)
Vice President, Operations

STEPHEN FREEMAN(1, 2)
Vice President, Alloy Products

JOHN D. GRAMPA(1, 2)
Vice President, Finance

WILLIAM R. SEELBACH(1, 2)
President, Alloy Products

DANIEL A. SKOCH(1, 2)
Vice President
Administration and Human Resources

MICHAEL D. ANDERSON(2)
Vice President, Beryllium Products

JORDAN P. FRAZIER(2)
General Manager, Ceramic Products

MICHAEL C. HASYCHAK(1, 2)
Treasurer and Secretary

ALFONSO T. LUBRANO(2)
President, Technical Materials, Inc.

JOHN J. PASCHALL(2)
President, Williams Advanced Materials Inc.

ANDREW J. SANDOR(1, 2)
Vice President, Alloy Technology

WILLIAM M. CHRISTOFF(1)
Assistant Treasurer - Taxes, Assistant Secretary

DAVID C. DEUBNER(1)
Vice President, Occupational Medicine

JAMES P. MARROTTE(1)
Controller

JOHN J. PALLAM(1)
Vice President, General Counsel

1  Corporate Officers
2  Executive Officers


OFFICES AND FACILITIES

MANUFACTURING FACILITIES
Buffalo, New York
Carmel, New York
Delta, Utah
Elmore, Ohio
Fremont, California
Lincoln, Rhode Island
Lorain, Ohio
Newburyport, Massachusetts
Oceanside, California
Reading, Pennsylvania
Tucson, Arizona
Wheatfield, New York

RESEARCH FACILITIES AND
ADMINISTRATIVE OFFICES

Cleveland, Ohio

SERVICE AND DISTRIBUTION CENTERS

Elmhurst, Illinois
Fairfield, New Jersey
Singapore
Stuttgart, Germany
Theale, England
Tokyo/Fukaya, Japan
Torrance, California
Warren, Michigan

SUBSIDIARIES

Brush Wellman GmbH,
         Stuttgart, Germany

Brush Wellman Limited,
         Theale, England

Brush Wellman (Japan), Ltd,
         Tokyo, Japan

Brush Wellman (Singapore) Pte Ltd,
         Singapore

Circuits Processing Technology Inc.
         Oceanside, California

Technical Materials, Inc.
         Lincoln, Rhode Island

Williams Advanced Materials Inc.
         Buffalo, New York,
         Singapore



                                       35
<PAGE>   38
CORPORATE  DATA

ENVIRONMENTAL POLICY

     Brush Wellman Inc. considers Environmental, Health, and Safety as integral
parts of our business strategy and necessary for our success. It is the policy
of Brush Wellman to design, manufacture, and distribute all products and to
manage and dispose of all materials in a safe, environmentally sound manner. We
are committed to utilizing our resources and technical capabilities to their
fullest extent to protect the health and safety of our employees, our customers,
the general public, and the environment.

     The health and safety of our employees is of paramount importance. No
operation or task will be conducted unless it can be performed in a safe manner.

     Through education and training, we shall promote a culture which
establishes individual ownership of Environmental,Health, and Safety
responsibility throughout the organization and empowers everyone to continuously
improve all working conditions. Each employee will maintain an awareness of safe
work practices and endeavor to prevent conditions which may result in an unsafe
situation or harm the environment. It is the responsibility of each employee to
promptly notify management of any adverse situation.

     We shall make every effort to minimize, to the lowest feasible level,
occupational and environmental exposure to all potentially hazardous materials.

     We will go beyond regulatory compliance, striving for continuous
improvement in all our Environmental, Health, and Safety control efforts.

     The Company will provide medical surveillance and preventive health
maintenance programs for the early detection of occupational diseases.

     The Management Team at each location will diligently respond to employee
concerns and is directly responsible for developing and implementing programs
for ensuring that their operations comply with this policy. The
Environmental Health and Safety staff provides support by:

     - maintaining liaison with appropriate government agencies
       and interpreting and communicating regulations;
     - providing technical guidance and assisting in the
       development of policies and performance standards; and
     - conducting independent review and assessment of all operations to audit
       compliance with environmental, safety, and health policies.

     All employees are expected to follow the intent and spirit of this policy
and incorporate sound health, safety, and environmental practices in the conduct
of their jobs.

     This policy applies to all Brush Wellman business units worldwide.

ANNUAL MEETING

     The Annual Meeting of Shareholders will be held on May 4, 1999 at 11:00
a.m. at The Forum, One Cleveland Center, 1375 East Ninth Street, Cleveland,
Ohio.

INVESTOR INFORMATION

     Brush Wellman maintains an active program of communication with
shareholders, securities analysts and other members of the investment community.
Management makes regular presentations in major financial centers around the
world. To obtain:
     - additional copies of the Annual Report 
     - SEC Form 10K/10Q 
     - product literature please contact:
           Michael C. Hasychak
           Treasurer and Secretary

WEB SITE

     Brush Wellman maintains a site on the World Wide Web. The web site, which
can be accessed via the internet at http://www.brushwellman.com is designed to
provide useful, timely information about Brush Wellman to customers, potential
customers, investors, employees, and the general public.

DIVIDEND REINVESTMENT PLAN

     Brush Wellman has a plan for its shareholders which provides automatic
reinvestment of dividends toward the purchase of additional shares of the
Company's common stock. For a brochure describing the plan please contact our
transfer agent, National City Bank, at 1-800-622-6757.

AUDITORS
Ernst & Young LLP
1300 Huntington Building
Cleveland, Ohio 44115

TRANSFER AGENT AND REGISTRAR
National City Bank
Corporate Trust Operations

P.O. Box 92301
Cleveland, OH 44193-0900
For shareholder inquiries, call: 1-800-622-6757

STOCK LISTING
New York Stock Exchange/Symbol: BW

CORPORATE HEADQUARTERS
Brush Wellman Inc.
17876 St. Clair Ave.
Cleveland, Ohio 44110
(216) 486-4200 o Facsimile: (216) 383-4091


                                       36
<PAGE>   39



                                  BRUSHWELLMAN
                              ENGINEERED MATERIALS

                             17876 St. Clair Avenue
                             Cleveland, Ohio 44110
                                  216/486-4200