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Rule 424(b)(4)
Registration No. 333-12971
PROSPECTUS
ISSUED NOVEMBER 21, 1996
3,300,000 SHARES
PRECISION CASTPARTS CORP.
COMMON STOCK
-----------------
OF THE 3,300,000 SHARES OF COMMON STOCK OFFERED, 2,500,000 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 800,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED ARE
BEING SOLD BY THE COMPANY. THE COMPANY'S COMMON STOCK IS
LISTED ON THE NEW YORK, PHILADELPHIA, MIDWEST AND
PACIFIC STOCK EXCHANGES. ON NOVEMBER 21,
1996, THE REPORTED LAST SALE PRICE
OF THE COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE
COMPOSITE TAPE WAS
$46 7/8.
SEE "RISK FACTORS" AT PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $46 1/2 A SHARE
-------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
---------------- --------------- ----------------
<S> <C> <C> <C>
PER SHARE............................................... $46.50 $2.09 $44.41
TOTAL (3)............................................... $153,450,000 $6,897,000 $146,553,000
</TABLE>
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(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $500,000.
(3) THE COMPANY HAS GRANTED TO THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
495,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC, LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $176,467,500, $7,931,550 AND $168,535,950, RESPECTIVELY.
SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS, AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS BY BROWN &
WOOD LLP, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT THE DELIVERY OF THE
SHARES WILL BE MADE ON OR ABOUT NOVEMBER 27, 1996, AT THE OFFICE OF MORGAN
STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN SAME DAY
FUNDS.
-------------------
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
INCORPORATED
NOVEMBER 21, 1996
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
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PAGE
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Available Information...................................................................................... 2
Incorporation of Certain Documents by Reference............................................................ 2
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 10
Price Range of Common Stock and Dividends.................................................................. 10
Capitalization............................................................................................. 11
Selected Historical Consolidated Financial Data............................................................ 12
Pro Forma Combined Financial Statements.................................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 21
Management................................................................................................. 32
Description of Capital Stock............................................................................... 34
Certain United States Tax Consequences to Non-United States Holders........................................ 35
Underwriters............................................................................................... 38
Legal Matters.............................................................................................. 40
Experts.................................................................................................... 40
</TABLE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
-------------------
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, New York, New York 10048; and Chicago Regional Office, 1400
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the aforementioned material can also be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005. The Commission maintains an Internet Web site at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, copies of which are available from the
Public Reference Section of the Commission at prescribed rates as described
above. Statements contained herein concerning the provisions of documents filed
with, or incorporated by reference in, the Registration Statement as exhibits
are necessarily summaries of such provisions and documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission by the Company, are
incorporated in this Prospectus by reference: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996; (ii) the Company's Quarterly
Reports on Form 10-Q for the quarters ended June 30, 1996 and September 29,
1996; (iii) the Company's Current Reports on Form 8-K dated May 31, 1996 (and
Amendment No. 1 thereto on Form 8-K/A), July 19, 1996 (and Amendment No. 1
thereto on
Form 8-K/A), July 31, 1996 (and Amendment No. 1 thereto on Form 8-K/A) and
October 14, 1996; and (iv) the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A filed under
Section 12 of the Exchange Act, including any amendment or report updating such
description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
written or oral request, a copy of any and all of the documents incorporated in
this Prospectus by reference, other than exhibits to such documents not
specifically incorporated by reference therein. Requests for such copies should
be directed to Precision Castparts Corp., at its principal executive offices
located at 4650 SW Macadam Avenue, Suite 440, Portland, Oregon 97201, Attention:
Director of Corporate Communications (telephone: (503) 417-4800).
2
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT INDICATES OTHERWISE, (I) THE INFORMATION CONTAINED IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED, (II) THE TERMS "COMPANY" AND "PCC" REFER TO PRECISION CASTPARTS CORP.
AND ITS CONSOLIDATED SUBSIDIARIES AND (III) THE TERMS "PRO FORMA" AND "ON A PRO
FORMA BASIS," WITH RESPECT TO THE FINANCIAL INFORMATION FOR THE COMPANY'S FISCAL
YEAR ENDED MARCH 31, 1996, MEAN SUCH INFORMATION AS ADJUSTED TO GIVE EFFECT TO
THE ACQUISITION BY THE COMPANY OF CARMET COMPANY ("CARMET"), THE OLOFSSON
CORPORATION ("OLOFSSON"), THE BUSINESS OF AE TURBINE COMPONENTS, LIMITED
("AETC"), NEWFLO CORPORATION ("NEWFLO" OR "PCC FLOW TECHNOLOGIES") AND BARBER
INDUSTRIES, INC. ("BARBER") (ACQUIRED BY NEWFLO). THE COMPANY'S FISCAL YEAR ENDS
ON THE SUNDAY CLOSEST TO MARCH 31. THE COMPANY'S LAST FIVE FISCAL YEARS ENDED ON
MARCH 29, 1992 ("FISCAL 1992"), MARCH 28, 1993 ("FISCAL 1993"), APRIL 3, 1994
("FISCAL 1994"), APRIL 2, 1995 ("FISCAL 1995") AND MARCH 31, 1996 ("FISCAL
1996"), AND THE COMPANY'S CURRENT FISCAL YEAR WILL END ON MARCH 30, 1997
("FISCAL 1997").
THE COMPANY
Precision Castparts Corp. is a worldwide manufacturer of complex metal
components and products. The Company is the market leader in manufacturing
large, complex structural investment castings and is a leading manufacturer of
airfoil castings used in jet aircraft engines. In addition, the Company has
expanded into the industrial gas turbine, fluid management, industrial
metalworking tools and machines, powdered metal and other metal products
markets. The Company has experienced a sales increase in its aerospace business
of approximately 20 percent in fiscal 1996 on a pro forma basis compared with
fiscal 1995 actual, and believes its focus on this business will allow it to
participate in current favorable trends in the commercial aerospace sector. The
Company also believes its new businesses will reduce its exposure to the
cyclicality of the aerospace industry and provide opportunities for profitable
growth.
COMPANY STRATEGY
The Company's goal is to generate profitable growth and to enhance
shareholder value from continued investment in its aerospace and other existing
businesses and through the acquisition of new businesses. PCC targets
acquisitions that (i) complement the Company's core competencies in metals,
precision metalworking and the management of complex manufacturing processes,
(ii) have strong growth prospects and higher operating margins than the
Company's traditional product lines and (iii) have leading positions in
established market niches. The Company's strategy consists of the following key
elements:
INCREASE OPERATING EFFICIENCY AND TECHNOLOGICAL ADVANTAGE. Since fiscal
1993, the Company has significantly reduced overhead costs, improved worker
productivity, shortened production cycle times and enhanced operating
margins. This has primarily been achieved by investing in new technologies
and developing more efficient manufacturing processes. The Company believes
it maintains a proprietary technological advantage in the high quality, high
volume manufacturing of complex metal components and products. In
particular, the Company believes it is currently the only manufacturer in
the world that can precision cast large, complex parts from a variety of
metals and alloys in the volumes and of the qualities that customers
require. The Company strives to maintain its advantage by investing in new
technologies and developing new proprietary manufacturing processes which
are difficult for competitors to duplicate.
DEVELOP NEW PRODUCTS AND MARKETS. PCC is aggressively pursuing new
product and market opportunities using the Company's existing metalforming
technologies. The Company has identified attractive markets, such as
industrial gas turbines ("IGT"), where it believes its skills developed in
precision casting can be leveraged to enhance its market share. In addition,
the Company is pursuing growth opportunities in the manufacture of metal
injection molded products for applications including medical, sporting
goods, electronics, hand tools and automotive parts. PCC is also focusing on
3
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expanding its international sales, particularly for its fluid management and
general industrial product lines. The Company's strategy is to continue to
identify new products and markets where it can become the leading supplier
by utilizing its core competencies in metals, precision metalworking and the
management of complex manufacturing processes.
PURSUE SYNERGISTIC ACQUISITIONS. PCC's strategy of acquiring businesses
which leverage the Company's core competencies has led to the completion of
seven acquisitions since March 1995. The Company seeks to acquire businesses
with established market niches, proprietary technology and the potential for
significant growth and higher operating margins than the Company's
traditional product lines. The Company expects that recent acquisitions,
such as PCC Specialty Products (formerly Quamco, Inc.) and PCC Flow
Technologies, will enhance financial results and reduce the Company's
exposure to the aerospace cycle. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Business Overview."
The Company intends to continue focusing on increasing PCC's operating
efficiencies and technological advantage, developing new products and markets,
and pursuing synergistic acquisitions. There is no assurance that the Company's
strategy or any element thereof will be implemented successfully.
PRODUCTS AND MARKETS
The Company's manufacturing of complex metal components and products
includes operations in four principal business areas: precision investment
castings, fluid management products, industrial metalworking tools and machines,
and powdered metal and other metal products.
PRECISION INVESTMENT CASTINGS
The Company is the market leader in manufacturing large, complex structural
investment castings and is a leading manufacturer of airfoil castings used in
jet aircraft engines. The Company manufactures investment castings for every
major jet aircraft engine program in production or under development by its key
customers. The Company is leveraging its experience and expertise in large,
complex structural and airfoil investment castings to manufacture castings for
IGT engines used for power generation. In addition, PCC makes investment
castings for use in the automotive, medical prostheses, sporting goods,
satellite launch vehicle and general industrial markets.
Because of the complexity of the manufacturing process and the application
of proprietary technologies, PCC believes it currently is the only manufacturer
that can consistently produce the largest complex structural investment castings
in quantities sufficient to meet its customers' quality and delivery
requirements. The Company's emphasis on low cost, high quality products and
timeliness of delivery has enabled it to become one of the leading suppliers of
structural and airfoil castings for jet aircraft engines and to increase its
market share of IGT airfoil castings. Investment castings accounted for
approximately 57 percent of the Company's net sales in fiscal 1996 on a pro
forma basis, and a majority of these products were sold to the aerospace market.
Trends in the commercial aerospace market are a critical determinant of
demand for the Company's precision investment casting products. Beginning in
1995, demand for investment castings strengthened, primarily due to increased
demand from the commercial aerospace industry, which had been in a cyclical
downturn since 1991. The Company believes the principal causes of the recent
increase in new aircraft orders include increased demand for air travel in Asia,
the recent profitability of U.S. commercial airlines, which is being driven by
increased load factors, and government Stage III noise regulations that require
airlines to modernize their fleets. Airlines are responding to these regulations
by retrofitting existing aircraft or purchasing new jets. For the six months
ended June 30, 1996, orders for The Boeing Company, McDonnell Douglas
Corporation and Airbus Industrie, the major U.S. and international aircraft
4
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manufacturers, were 385 commercial aircraft, compared to 216 commercial aircraft
for the same period in 1995, an increase of 78 percent as reported by THE
AIRLINE MONITOR (an aerospace industry publication).
In fiscal 1994, the Company began to focus on the manufacture of airfoil
castings for industrial gas turbines. The Company targeted this market because
it believes (i) the performance and reliability standards PCC has developed in
the manufacture of aerospace airfoil castings are applicable to the manufacture
of IGT airfoils, (ii) the worldwide market is large, approximately $500 million,
and (iii) the market is principally serviced by a single supplier. The Company's
IGT products consist primarily of airfoil castings for gas turbines used in
power generation and structural and airfoil castings for aircraft-derivative gas
turbine engines used for power generation and other land and marine-based
applications.
FLUID MANAGEMENT PRODUCTS
The Company designs, manufactures, markets and services a broad range of
high quality, precision industrial fluid management products, including fluid
handling industrial valves, industrial pumps and fluid measuring instruments.
The Company's finished fluid management products are manufactured primarily from
castings, forgings and fabricated steel parts. These products are sold worldwide
under well-established brand names, including "General Valve", "NEWCO", "TECHNO"
and "Barber" valves, "Johnston" and "PACO" pumps, and "Water Specialties" and
"Penberthy" measuring instruments, to a wide range of end-user markets.
The Company entered the fluid management market with the acquisition of PCC
Flow Technologies in July 1996. The Company believes this acquisition leverages
its core competencies into the fluid management market. The manufacturing
process for fluid management products requires knowledge of multiple
metalforming and processing technologies, including casting, machining, welding,
heat treating, assembly and processing of metal components. Testing procedures,
material management and traceability, and quality control are also important
aspects of the Company's operations. PCC Flow Technologies generated compound
annual revenue growth of approximately 31 percent from calendar years 1989
through 1995, primarily through acquisitions. The fluid management market is
highly fragmented, and the Company believes it can continue to improve its
market position through acquisitions and internal growth opportunities. Fluid
management products accounted for approximately 23 percent of the Company's net
sales in fiscal 1996 on a pro forma basis and were sold primarily to the general
industrial and energy markets.
INDUSTRIAL METALWORKING TOOLS AND MACHINES
The Company maintains the number one or two position in its served markets
for industrial metalworking tools, and has leading market positions in the
manufacture of metalworking machines for general industrial markets. The Company
entered these markets in March 1995 with the acquisition of Quamco, Inc.
("Quamco", now "PCC Specialty Products" or "SPD"). The Company has since
increased its presence in the industrial metalworking tools and machines markets
with two additional acquisitions since 1995. The acquisitions of Olofsson and
Astro Punch Corporation ("Astro Punch") complemented the Company's capabilities
as a leading manufacturer of highly engineered products. Industrial metalworking
tools and machines include machine systems used for boring and turning processes
primarily in the automotive and general industrial markets, cold forming dies
and related machinery primarily used in the fastener industry and other
metalworking tools and machinery for industrial manufacturers. The Company
believes it has been able to maintain its leading market positions due to the
quality of its products, the continued development of new technologies to enable
the high speed manufacture of high quality fasteners, brand name recognition and
excellent customer service. Industrial metalworking tools and machines accounted
for approximately 13 percent of the Company's net sales in fiscal 1996 on a pro
forma basis and were sold primarily to the automotive and general industrial
markets.
5
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POWDERED METAL AND OTHER METAL PRODUCTS
The Company is the largest producer of metal parts manufactured by powdered
metal injection molding, and is a leading manufacturer of specialty metal gears
and tungsten carbide cutting tools and wear parts that are made using a powdered
metal compaction and sintering process. In addition, the Company manufactures
advanced technology, lightweight net shape metal-matrix composite parts using a
pressure infiltration casting process. The Company believes these businesses
have the potential for rapid growth and complement the Company's core
competencies in metals, precision metalworking and the management of complex
manufacturing processes. Powdered metal and other metal products accounted for
approximately 7 percent of the Company's net sales in fiscal 1996 on a pro forma
basis and were sold primarily to the general industrial and automotive markets.
FORWARD LOOKING STATEMENTS
The information set forth in this Prospectus under the captions "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Business Overview" and "Business" includes certain
forward looking statements which are necessarily subject to risk and
uncertainty. Factors that could cause results to differ materially from those
projected in the forward looking statements are set forth in "Risk Factors" and
"Business."
THE OFFERING
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Common Stock offered
United States offering............................. 2,500,000 shares
International offering............................. 800,000 shares
Total............................................ 3,300,000 shares
Common Stock to be outstanding after the offering.... 23,898,031 shares(1)
Use of proceeds...................................... To repay bank credit line debt and
for other general corporate
purposes. See "Use of Proceeds."
New York Stock Exchange ("NYSE") Symbol.............. PCP
</TABLE>
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(1) Does not include 2,027,000 shares reserved for issuance under the Company's
1994 Stock Incentive Plan, of which 811,000 shares were subject to
outstanding options at October 18, 1996 at a weighted average exercise price
of $23.97 per share.
6
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF EMPLOYEES)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEARS PRO FORMA ----------------------
----------------------------------------------------- FISCAL OCT. 1, SEPT. 29,
1992 1993 1994 1995 1996 1996(1) 1995 1996
--------- --------- --------- --------- --------- ----------- --------- -----------
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STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 583,300 $ 461,400 $ 420,400 $ 436,400 $ 556,800 $ 929,500 $ 271,200 $ 410,900
Cost of goods sold................. 488,000 393,100 351,700 359,500 446,100 726,000 216,300 327,300
Provision for:
Restructuring charges............ -- 27,200 -- -- -- -- -- --
Environmental charges............ -- 9,900 -- -- -- -- -- --
Facility closing and sale........ 2,700 -- -- -- -- -- -- --
Selling and administrative
expenses.......................... 38,300 31,900 30,200 31,600 46,900 99,500 22,800 36,000
Interest expense (income), net..... 1,000 (600) 1,100 (1,500) 100 27,400 200 5,800
--------- --------- --------- --------- --------- ----------- --------- -----------
Income (loss) before provision for
income taxes...................... 53,300 (100) 37,400 46,800 63,700 76,600 31,900 41,800
Provision (benefit) for income
taxes............................. 6,800 (1,900) 12,300 17,800 22,600 30,600 13,000 17,200
--------- --------- --------- --------- --------- ----------- --------- -----------
Income before cumulative effect of
accounting change................. 46,500 1,800 25,100 29,000 41,100 46,000 18,900 24,600
Cumulative effect of change in
accounting for postretirement
benefits other than pensions (net
of tax benefit of $1,800)......... -- -- (2,900) -- -- -- -- --
--------- --------- --------- --------- --------- ----------- --------- -----------
Net income......................... $ 46,500 $ 1,800 $ 22,200 $ 29,000 $ 41,100 $ 46,000 $ 18,900 $ 24,600
--------- --------- --------- --------- --------- ----------- --------- -----------
--------- --------- --------- --------- --------- ----------- --------- -----------
Income (charge) per share:
Before cumulative effect of
accounting change.............. $ 1.75 $ 0.07 $ 1.29 $ 1.45 $ 2.02 $ 2.25 $ 0.93 $ 1.19
Cumulative effect of change in
accounting for postretirement
benefits other than pensions... -- -- (0.15) -- -- -- -- --
--------- --------- --------- --------- --------- ----------- --------- -----------
Net income per common share(4)..... $ 1.75 $ 0.07 $ 1.14 $ 1.45 $ 2.02 $ 2.25 $ 0.93 $ 1.19
--------- --------- --------- --------- --------- ----------- --------- -----------
--------- --------- --------- --------- --------- ----------- --------- -----------
Shares used in per share
calculations(4)................... 26,600 26,800 19,500 20,000 20,400 20,400 20,300 20,600
<CAPTION>
PRO FORMA
SIX MONTHS
ENDED
SEPT. 29,
1996(2)
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STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 523,900
Cost of goods sold................. 411,000
Provision for:
Restructuring charges............ --
Environmental charges............ --
Facility closing and sale........ --
Selling and administrative
expenses.......................... 53,800
Interest expense (income), net..... 14,100
-----------
Income (loss) before provision for
income taxes...................... 45,000
Provision (benefit) for income
taxes............................. 19,200
-----------
Income before cumulative effect of
accounting change................. 25,800
Cumulative effect of change in
accounting for postretirement
benefits other than pensions (net
of tax benefit of $1,800)......... --
-----------
Net income......................... $ 25,800
-----------
-----------
Income (charge) per share:
Before cumulative effect of
accounting change.............. $ 1.25
Cumulative effect of change in
accounting for postretirement
benefits other than pensions... --
-----------
Net income per common share(4)..... $ 1.25
-----------
-----------
Shares used in per share
calculations(4)................... 20,600
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS AS ADJUSTED
ENDED SIX MONTHS
FISCAL YEARS ENDED -------------------- ENDED
----------------------------------------------------- OCT 1, SEPT 29, SEPT 29,
1992 1993 1994 1995 1996 1995 1996 1996(3)
--------- --------- --------- --------- --------- --------- --------- -----------
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BALANCE SHEET DATA:
Working capital....................... $ 187,100 $ 137,000 $ 125,700 $ 89,900 $ 125,800 $ 111,000 $ 211,300 $ 231,400
Total assets.......................... 422,600 424,300 342,900 406,700 450,500 412,500 1,010,700 1,016,900
Total debt............................ 26,200 19,400 15,700 26,000 13,900 15,200 440,300 300,400
Shareholders' investment.............. 315,400 199,900 222,800 258,400 303,100 279,500 328,200 474,300
OTHER DATA:
Capital expenditures.................. $ 28,800 $ 16,000 $ 7,400 $ 10,900 $ 19,700 $ 7,200 $ 16,800
Return on initial shareholders'
investment(5)........................ 17.4% 0.6% 11.1% 13.0% 16.6% 14.6% 20.8%
Sales per employee(5)................. $ 92 $ 106 $ 105 $ 104 $ 102 $ 106 $ 122
Number of employees at end of
period............................... 6,372 4,341 3,993 5,166 5,646 5,135 8,631
</TABLE>
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(1) Pro forma to reflect the acquisitions of Carmet, Olofsson, AETC and NEWFLO
(including Barber) as if they had occurred at the beginning of the period.
See "Pro Forma Combined Financial Statements."
(2) Pro forma to reflect the acquisitions of Olofsson, AETC and NEWFLO as if
they had occurred at the beginning of the period. See "Pro Forma Combined
Financial Statements."
(3) Adjusted to reflect the sale of 3,300,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
(4) Adjusted to reflect a 3-for-2 Common Stock split effected in August 1994. In
fiscal 1993, the Company repurchased 7,350,000 shares of Common Stock.
(5) The return on initial shareholders' investment and sales per employee
reflect annualized results for acquisitions made within the period.
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RISK FACTORS
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER THE SPECIFIC
FACTORS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS.
AEROSPACE AND OTHER INDUSTRY CYCLICALITY; CUSTOMER CONCENTRATION; REDUCED
GOVERNMENT PURCHASES
The commercial aerospace industry is cyclical in nature, and the demand by
commercial airlines for new aircraft historically has been closely related to
the state of the U.S. and world economies. The large number of aircraft
delivered in the early 1990s and the aerospace industry's widespread losses
created excess capacity in the air carrier system. During this period, airlines
and leasing companies deferred existing new aircraft orders and, to a lesser
degree, canceled orders. These deferrals and cancellations adversely affected
the volume and price of orders placed with the manufacturers of commercial
aircraft engine components, including the Company. Although the U.S. airline
industry has reported profits in 1994 and 1995, excess capacity has been reduced
and orders for new aircraft by major aircraft manufacturers have increased,
there is no assurance that the improved operating performance of the commercial
airlines will continue or that deliveries of large commercial aircraft will not
decline in the future. Any developments in the commercial aerospace market
resulting in a reduction in the rate of future aircraft deliveries, including
cancellations and deferrals of scheduled deliveries, could have a material
adverse effect on the Company.
A substantial portion of the Company's business is conducted with a
relatively small number of large aerospace customers, including General Electric
Company ("GE") and the Pratt & Whitney Aircraft operation of United Technologies
Corporation ("Pratt & Whitney"). GE accounted for approximately 22 percent (13
percent pro forma) of fiscal 1996 net sales, and Pratt & Whitney accounted for
approximately 16 percent (10 percent pro forma) of fiscal 1996 net sales. The
Company has made significant price concessions to aerospace customers in recent
years, and the Company expects customer pressure for pricing concessions will
continue.
U.S. military and defense contractor sales constituted approximately 18
percent (11 percent pro forma) of the Company's fiscal 1996 net sales. U.S.
defense spending in markets served by the Company has been declining since the
1980s, and continued reductions in defense budgets or military aircraft
procurement could adversely affect the Company.
AVAILABILITY AND COST OF RAW MATERIALS
The Company has no fixed price contracts or arrangements for some of the
supplies and raw materials it purchases, including certain metals and steel.
Commercial deposits of certain metals, such as cobalt, nickel, titanium, and
molybdenum, that are required for the alloys used in the Company's precision
castings, are found in only a few parts of the world. The availability and
prices of these metals may be influenced by private or governmental cartels,
changes in world politics, unstable governments in exporting nations and
inflation. Similarly, supplies of tool grade steel used by the Company may also
be subject to variation in availability and pricing. Shortages of, and price
increases for, certain raw materials used by the Company have occurred in the
past and may occur in the future. Future shortages or price fluctuations in raw
materials could have a material adverse effect on the Company.
RISKS ASSOCIATED WITH ACQUISITIONS; ENTRY INTO NEW MARKETS
Since March 1995, the Company has acquired seven businesses for aggregate
consideration of approximately $535 million. These acquisitions accounted for
approximately 50 percent of the Company's net sales in fiscal 1996 on a pro
forma basis. See "Pro Forma Combined Financial Statements." As a result of the
acquisitions, the Company added approximately 3,500 employees and 64 operating
locations. In addition, the Company has significantly increased the number of
markets it serves and has expanded the number of its customers from
approximately 300 to more than 2,000. The marketing efforts and strategies for
markets served by some of these acquired businesses are substantially different
than those associated with the Company's traditional businesses.
8
<PAGE>
While the Company's acquisition strategy places emphasis on the ability of
existing management of the acquired businesses to continue to operate
autonomously, certain changes may need to be made to integrate the acquired
businesses into the Company's operations, to assimilate many new employees and
to implement reporting, monitoring and forecasting procedures. In addition, the
integration of the acquired businesses into the operations of the Company may
divert management attention from the Company's existing businesses and may
result in additional administrative expense. Failure to successfully complete
this integration, assimilation or implementation could have a material adverse
effect on the Company's operations.
Most of the Company's acquisitions were stock purchase transactions. As a
result, PCC assumed all of the liabilities of these acquired businesses. There
is no assurance that the representations and warranties made by the sellers were
true and correct or that the Company's due diligence investigation discovered
all matters of a material nature relating to the acquisitions.
The Company is also seeking to expand into additional markets through the
development of new product applications based on its existing metalforming
technologies, including efforts to increase its presence in the industrial gas
turbine market. These efforts have required, and will continue to require,
substantial investments by the Company, including increased levels of research
and development expenditures and a significant amount of capital expenditures
for new, expanded or improved production facilities. There is no assurance the
Company will be able to successfully manage the expansion into new markets and
products or that these efforts will not have an adverse impact on the Company.
The Company continues to pursue and evaluate potential acquisitions as part
of its growth strategy. There is no assurance that the Company will complete any
additional acquisitions or that a future acquisition will not materially and
adversely affect the Company. See "Business -- Company Strategy."
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
Certain of the Company's products are manufactured and sold under U.S.
government contracts or subcontracts. Consequently, the Company is directly and
indirectly subject to various federal rules, regulations and orders applicable
to government contractors. Violation of applicable government rules and
regulations could result in civil liability, in cancellation or suspension of
existing contracts or in ineligibility for future contracts or subcontracts
funded in whole or in part with federal funds.
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other things, wastewater, air emissions, toxic use
reduction and hazardous materials disposal. The Company owns properties or
conducts or has conducted operations at properties, including certain of the
properties acquired in the recent acquisitions, which have been assessed as
contaminated with hazardous or other controlled substances or otherwise
requiring remedial action. At September 29, 1996, the Company's financial
statements reflected total reserves of $7.5 million to cover future costs
arising from environmental issues relating to these properties. The Company's
actual future expenditures, however, for installation of and improvements to
environmental control facilities, remediation of environmental conditions
existing at its properties, including remediation in connection with the removal
of properties from service, and other similar matters cannot be conclusively
determined.
Environmental legislation and regulations and related administrative
policies have changed rapidly in recent years. It is likely that the Company
will be subject to increasingly stringent environmental standards in the future
(including those under the Clean Air Act Amendments of 1990, the Clean Water Act
Amendments of 1990, stormwater permit program and toxic use reduction programs)
and will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis. Furthermore,
although the Company has established certain reserves for environmental
remediation, there is no assurance regarding the cost of remedial measures that
might eventually be required by environmental authorities, or that additional
environmental hazards, requiring further remedial expenditures, might not be
asserted by such authorities or private parties. Accordingly, the costs of
remedial measures may exceed the amounts reserved. In addition, the Company may
be subject to legal proceedings brought by private parties or governmental
agencies with respect to environmental matters.
9
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company is both a purchaser of products from, and a supplier to,
businesses located outside of the U.S. Certain risks are inherent in
international operations, including the risk of government financed competition,
changes in trade policies, tariff regulations and difficulties in obtaining U.S.
export and import licenses.
USE OF PROCEEDS
The net proceeds to the Company from the offering are approximately $146.1
million (approximately $168.0 million if the Underwriters' over-allotment option
is exercised in full). The Company expects to use the net proceeds to repay
amounts outstanding under its revolving bank credit line of approximately $134.0
million and approximately $9.0 million to repay an uncommitted line of credit,
and the remainder will be used for general corporate purposes. Pending such use,
the Company intends to invest the remainder of the proceeds in short-term
investments. Amounts outstanding under the revolving bank credit line currently
bear interest at approximately 6.2 percent per annum and are due in July 2001.
These bank borrowings were incurred by the Company in connection with recent
acquisitions. Amounts outstanding under the uncommitted credit line bear
interest at approximately 5.6 percent per annum. The Company is reducing its
bank borrowings to provide flexibility to fund general corporate needs,
including working capital, capital expenditures, potential future acquisitions
and the anticipated redemption of $100.0 million principal amount of 13 1/4%
Subordinated Notes due 2002 issued by NEWFLO and callable in November 1997.
Although future acquisitions are part of the Company's strategic plan for growth
and the Company is regularly engaged in discussions about and investigations of
possible acquisitions, the Company currently has no understandings, commitments
or agreements for the acquisition of any material businesses or assets.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the NYSE under the symbol "PCP." The following
table sets forth, for the periods indicated, the high and low per share sale
prices of the Common Stock as reported on the NYSE Composite Tape and the amount
of cash dividends declared.
<TABLE>
<CAPTION>
CASH DIVIDEND
HIGH LOW DECLARED
--------- --------- ----------------
<S> <C> <C> <C>
Fiscal 1997
Third Quarter (through November 21, 1996).................................... $ 50.63 $ 45.50 $ .06(1)
Second Quarter............................................................... 51.25 33.38 .06
First Quarter................................................................ 44.50 38.50 .06
Fiscal 1996
Fourth Quarter............................................................... 41.13 36.50 .06
Third Quarter................................................................ 40.00 34.25 .06
Second Quarter............................................................... 36.50 32.63 .06
First Quarter................................................................ 35.25 25.88 .06
Fiscal 1995
Fourth Quarter............................................................... 26.50 19.63 .06
Third Quarter................................................................ 27.50 18.00 .06
Second Quarter............................................................... 26.88 20.67 .06
First Quarter................................................................ 24.25 20.58 .04
</TABLE>
- ---------
(1) Payable January 6, 1997, to holders of record as of December 6, 1996.
As of October 18, 1996, there were 2,287 holders of record of the Common
Stock. A recent last reported sale price of the Common Stock on the NYSE
Composite Tape is set forth on the cover page of this Prospectus.
The Company has paid dividends on its Common Stock since fiscal 1978. The
amount of future dividends on the Common Stock will depend on the Company's
results of operations, capital requirements and financial condition and other
factors the Board of Directors deems relevant.
10
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
consolidated capitalization of the Company as of September 29, 1996, and as
adjusted to give effect to the issuance and sale of the 3,300,000 shares of
Common Stock offered hereby and the use of the net proceeds therefrom as set
forth under "Use of Proceeds." The table should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto
incorporated by reference into this Prospectus. See "Use of Proceeds," "Pro
Forma Combined Financial Statements" and "Selected Historical Consolidated
Financial Data."
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996
--------------------------
ACTUAL AS ADJUSTED
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable(1).................................................................... $ 14,300 $ 400
Current portion of long-term debt................................................... 12,500 12,500
---------- --------------
Total short-term debt............................................................. $ 26,800 $ 12,900
---------- --------------
---------- --------------
Long-term debt, excluding current portion:
Credit line......................................................................... $ 158,700 $ 32,700
Term debt........................................................................... 140,000 140,000
Subordinated debt................................................................... 100,000 100,000
Other debt.......................................................................... 14,800 14,800
---------- --------------
Total long-term debt.............................................................. 413,500 287,500
Shareholders' investment:
Preferred Stock, 1,000,000 shares authorized; no shares issued and outstanding...... -- --
Common Stock, 100,000,000 shares authorized; 20,598,031 shares issued and
outstanding; 23,898,031 shares issued and outstanding as adjusted................. 20,600 23,900
Additional paid-in capital.......................................................... 15,600 158,400
Retained earnings................................................................... 290,400 290,400
Cumulative translation adjustments.................................................. 1,600 1,600
---------- --------------
Total shareholders' investment.................................................... 328,200 474,300
---------- --------------
Total long-term debt and shareholders' investment................................. $ 741,700 $ 761,800
---------- --------------
---------- --------------
</TABLE>
- ---------
(1) On November 21, 1996, notes payable to be repaid totalled $17.0 million,
including $8.0 million of amounts outstanding under the credit line and $9.0
million of amounts outstanding under an uncommitted line of credit. See "Use
of Proceeds."
11
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data shown below for, and as
of the end of, each of the years in the five-year period ended March 31, 1996
have been derived from the audited consolidated financial statements of the
Company. The selected historical consolidated financial data shown below for,
and as of the end of, the six months ended October 1, 1995 and September 29,
1996 have been derived from the unaudited consolidated financial statements of
the Company which, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of such interim periods. The selected historical consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and the consolidated
financial statements of the Company incorporated by reference herein. The
results for the six months ended September 29, 1996 are not necessarily
indicative of results that may be expected for the year ending March 30, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS --------------------
----------------------------------------------------- OCT 1, SEPT 29,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF EMPLOYEES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 583,300 $ 461,400 $ 420,400 $ 436,400 $ 556,800 $ 271,200 $ 410,900
Cost of goods sold................................... 488,000 393,100 351,700 359,500 446,100 216,300 327,300
Provision for:
Restructuring charges.............................. -- 27,200 -- -- -- -- --
Environmental charges.............................. -- 9,900 -- -- -- -- --
Facility closing and sale.......................... 2,700 -- -- -- -- -- --
Selling and administrative expenses.................. 38,300 31,900 30,200 31,600 46,900 22,800 36,000
Interest expense (income), net....................... 1,000 (600) 1,100 (1,500) 100 200 5,800
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for income taxes...... 53,300 (100) 37,400 46,800 63,700 31,900 41,800
Provision (benefit) for income taxes................. 6,800 (1,900) 12,300 17,800 22,600 13,000 17,200
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of accounting
change.............................................. 46,500 1,800 25,100 29,000 41,100 18,900 24,600
Cumulative effect of change in accounting for
postretirement benefits other than pensions (net of
tax benefit of $1,800).............................. -- -- (2,900) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income........................................... $ 46,500 $ 1,800 $ 22,200 $ 29,000 $ 41,100 $ 18,900 $ 24,600
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income (charge) per share:
Before cumulative effect of accounting change...... $ 1.75 $ 0.07 $ 1.29 $ 1.45 $ 2.02 $ 0.93 $ 1.19
Cumulative effect of change in accounting for
postretirement benefits other than pensions...... -- -- (0.15) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income per common share(1)....................... $ 1.75 $ 0.07 $ 1.14 $ 1.45 $ 2.02 $ 0.93 $ 1.19
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in per share calculations(1)............. 26,600 26,800 19,500 20,000 20,400 20,300 20,600
BALANCE SHEET DATA:
Working capital...................................... $ 187,100 $ 137,000 $ 125,700 $ 89,900 $ 125,800 $ 111,000 $ 211,300
Total assets......................................... 422,600 424,300 342,900 406,700 450,500 412,500 1,010,700
Total debt........................................... 26,200 19,400 15,700 26,000 13,900 15,200 440,300
Shareholders' investment............................. 315,400 199,900 222,800 258,400 303,100 279,500 328,200
OTHER DATA:
Capital expenditures................................. $ 28,800 $ 16,000 $ 7,400 $ 10,900 $ 19,700 $ 7,200 $ 16,800
Return on initial shareholders' investment(2)........ 17.4% 0.6% 11.1% 13.0% 16.6% 14.6% 20.8%
Sales per employee(2)................................ $ 92 $ 106 $ 105 $ 104 $ 102 $ 106 $ 122
Number of employees at end of period................. 6,372 4,341 3,993 5,166 5,646 5,135 8,631
</TABLE>
- ------------
(1) Adjusted to reflect a 3-for-2 Common Stock split effected August 1994. In
fiscal 1993, the Company repurchased 7,350,000 shares of Common Stock.
(2) The return on initial shareholders' investment and sales per employee
reflect annualized results for acquisitions made within the period.
12
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
PRECISION CASTPARTS CORP.,
CARMET COMPANY, THE OLOFSSON CORPORATION,
AE TURBINE COMPONENTS, LIMITED, NEWFLO CORPORATION
(INCLUDING BARBER INDUSTRIES, INC.)
(UNAUDITED)
PCC acquired the following companies as of the dates indicated:
<TABLE>
<CAPTION>
COMPANY ACQUISITION DATE
- -------------------------------------------- --------------------
<S> <C>
Carmet February 21, 1996
Olofsson May 31, 1996
AETC July 19, 1996
NEWFLO (including Barber, which July 31, 1996
was acquired by NEWFLO before its
acquisition by PCC)
</TABLE>
Funding for the four acquisitions was provided by cash on hand and
borrowings in the aggregate amount of approximately $436.8 million.
Each of the acquisitions was accounted for using the purchase method of
accounting. All acquisitions are reflected in PCC's balance sheet as of
September 29, 1996; therefore, the adjusted balance sheet reflects only the
application of the proceeds from this offering. The unaudited pro forma combined
income statement for fiscal 1996 was prepared as if each of the listed
acquisitions had occurred at the beginning of that fiscal year. The unaudited
pro forma combined income statement for the six months ended September 29, 1996
was prepared as if the acquisitions of Olofsson, AETC, and PCC Flow Technologies
had occured at the beginning of that period. The financial information of
Olofsson, PCC Flow Technologies and Barber used in the preparation of the fiscal
1996 pro forma combined income statement described above is for the period ended
three months prior to the pro forma financial statement date. Data for AETC
included in the fiscal 1996 unaudited pro forma combined income statement is for
the period ended June 30, 1996. The financial information for Carmet included in
the pro forma combined income statement for the year ended March 31, 1996 is for
the period in fiscal 1996 prior to its acquisition by PCC. The pro forma
combined income statement for the six months ended September 29, 1996 reflects
the addition of each acquisition made after March 31, 1996 for the period from
April 1, 1996 until the date of the acquisition. The financial information of
the acquired entities contains certain reclassifications made to conform to
PCC's classifications. The pro forma financial statements do not reflect the
pre-acquisition results of two immaterial acquisitions made in the second
quarter of fiscal 1997.
These unaudited pro forma combined income statements are not necessarily
indicative of the actual results that would have occurred had the acquisitions
been completed in accordance with the assumptions set forth above; neither they
nor the adjusted balance sheet purport to indicate the future results of
operations or financial position of PCC.
These unaudited pro forma combined and adjusted financial statements should
be read in conjunction with the accompanying notes and the historical financial
statements and notes thereto of PCC, Olofsson, AETC and PCC Flow Technologies,
respectively, incorporated by reference in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
13
<PAGE>
ADJUSTED BALANCE SHEET
PRECISION CASTPARTS CORP.
SEPTEMBER 29, 1996
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
APPLICATION
OF
PCC PROCEEDS(1) AS ADJUSTED
------------ ------------ -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 12,000 $ 6,200 $ 18,200
Accounts receivable.................................................. 162,100 -- 162,100
Inventories.......................................................... 215,900 -- 215,900
Prepaid expenses and other........................................... 4,700 -- 4,700
Current deferred tax asset........................................... 21,500 -- 21,500
------------ ------------ -------------
Total current assets............................................. 416,200 6,200 422,400
Property, plant and equipment.......................................... 381,500 -- 381,500
Less -- accumulated depreciation....................................... (161,800) -- (161,800)
------------ ------------ -------------
Net property, plant and equipment.................................... 219,700 -- 219,700
Goodwill, net and other assets......................................... 374,800 -- 374,800
------------ ------------ -------------
$ 1,010,700 $ 6,200 $ 1,016,900
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Notes payable........................................................ $ 14,300 $ (13,900) $ 400
Current portion of long-term debt.................................... 12,500 -- 12,500
Accounts payable..................................................... 64,500 -- 64,500
Accrued liabilities.................................................. 95,200 -- 95,200
Income taxes payable................................................. 18,400 -- 18,400
------------ ------------ -------------
Total current liabilities........................................ 204,900 (13,900) 191,000
Long-term debt, excluding current portion.............................. 413,500 (126,000) 287,500
Deferred tax liability................................................. 8,600 -- 8,600
Accrued retirement benefits obligation................................. 21,600 -- 21,600
Other long-term liabilities............................................ 33,900 -- 33,900
Shareholders' investment:
Common stock......................................................... 20,600 3,300 23,900
Paid-in capital...................................................... 15,600 142,800 158,400
Retained earnings.................................................... 290,400 -- 290,400
Cumulative translation adjustment.................................... 1,600 -- 1,600
------------ ------------ -------------
Total shareholders' investment................................... 328,200 146,100 474,300
------------ ------------ -------------
$ 1,010,700 $ 6,200 $ 1,016,900
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
- ---------
(1) Adjustment includes 3,300,000 shares of Common Stock sold and the repayment
of $139.9 million outstanding under the revolving credit line and an
uncommitted line of credit. On November 21, 1996, long-term amounts to be
repaid under the credit line totalled $126.0 million and notes payable to be
repaid totalled $17.0 million, including $8.0 million of short-term amounts
outstanding under the revolving credit line and $9.0 million of amounts
outstanding under an uncommitted line of credit. See "Use of Proceeds."
14
<PAGE>
PRO FORMA COMBINED INCOME STATEMENT
FOR FISCAL 1996
PRECISION CASTPARTS CORP.
AND ACQUISITIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PCC FLOW PRO FORMA NOTE
PCC TECHNOLOGIES BARBER AETC OLOFSSON CARMET ADJUSTMENTS REFERENCE
--------- ------------ --------- --------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 556,800 $ 199,800 $ 16,300 $ 73,100 $ 64,500 $ 21,700 $ (2,700) (1)
Cost of goods sold.............. 446,100 133,900 11,600 59,700 52,900 16,700 5,100 (1),(2),(3)
--------- ------------ --------- --------- ----------- --------- -------------
Gross margin.................. 110,700 65,900 4,700 13,400 11,600 5,000 (7,800)
Selling and administrative
expenses....................... 46,900 40,200 2,200 7,400 4,000 1,700 (2,900) (1),(3)
Interest expense, net........... 100 17,600 900 6,600 2,700 200 (700) (4),(5)
--------- ------------ --------- --------- ----------- --------- -------------
Income before provision for
income taxes................ 63,700 8,100 1,600 (600) 4,900 3,100 (4,200)
Provision for income taxes...... 22,600 2,400 700 (200) 2,000 1,200 1,900 (6)
--------- ------------ --------- --------- ----------- --------- -------------
Net income.................. $ 41,100 $ 5,700 $ 900 $ (400) $ 2,900 $ 1,900 $ (6,100)
--------- ------------ --------- --------- ----------- --------- -------------
--------- ------------ --------- --------- ----------- --------- -------------
Net income per common share..... $ 2.02
---------
---------
Average number of common shares
outstanding.................... 20,400
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Net sales....................... $ 929,500
Cost of goods sold.............. 726,000
-----------
Gross margin.................. 203,500
Selling and administrative
expenses....................... 99,500
Interest expense, net........... 27,400
-----------
Income before provision for
income taxes................ 76,600
Provision for income taxes...... 30,600
-----------
Net income.................. $ 46,000
-----------
-----------
Net income per common share..... $ 2.25
-----------
-----------
Average number of common shares
outstanding.................... 20,400
</TABLE>
- ------------
(1) Adjustment to reflect change in accounting from percentage of completion on
certain Olofsson contracts to completed contract for all Olofsson contracts.
This change reduced pro forma net sales, cost of goods sold, and selling and
administrative expenses by $2.7 million, $1.3 million, and $0.1 million,
respectively.
(2) Adjustment to add $6.3 million for amortization of intangibles as a result
of PCC's purchase price allocation. Goodwill arising from the acquisitions
is amortized over forty years, and other intangibles acquired are amortized
over their remaining useful lives.
(3) Adjustments to cost of goods sold to reflect the elimination of $1.3 million
of non-recurring transactions which had reduced cost of goods sold and $1.2
million to reflect elimination of redundant operating costs as a result of
the acquisitions. Similar adjustments made to reduce selling and
administrative expenses for $0.6 million of non-recurring expenses and $2.2
million for changes resulting from the acquisitions.
(4) Adjustment to remove $20.3 million of interest expense incurred by the
acquired companies related to debt which was not acquired by PCC or which
was retired upon acquisition.
(5) Adjustment to add $19.6 million estimated interest expense related to debt
incurred on borrowings used to fund the acquisitions. This adjustment
assumes all cash held by PCC was expended and debt incurred as necessary.
The interest expense was calculated based upon the nature of borrowings used
by PCC to fund the acquisitions, adjusted to reflect prevailing interest
rates during the period. The following annual interest rates were used: 6.9
percent for PCC Flow Technologies, 6.6 percent for AETC and 6.0 percent for
Olofsson.
(6) Adjustment to provision for income taxes based on the pro forma changes
above.
15
<PAGE>
PRO FORMA COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED SEPTEMBER 29, 1996
PRECISION CASTPARTS CORP.
AND ACQUISITIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PCC FLOW PRO FORMA NOTE
PCC TECHNOLOGIES AETC OLOFSSON ADJUSTMENTS REFERENCE
--------- ------------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................................... $ 410,900 $ 81,500 $ 19,700 $ 11,800 $ --
Cost of goods sold............................ 327,300 57,200 15,500 10,000 1,000 (1),(2)
--------- ------------- --------- ----------- -------------
Gross margin................................ 83,600 24,300 4,200 1,800 (1,000)
Selling and administrative expenses........... 36,000 15,500 1,900 1,000 (600) (2)
Interest expense, net......................... 5,800 5,700 1,600 400 600 (3),(4)
--------- ------------- --------- ----------- -------------
Income before provision for income taxes...... 41,800 3,100 700 400 (1,000)
Provision for income taxes.................... 17,200 1,400 200 200 200 (5)
--------- ------------- --------- ----------- -------------
Net income................................ $ 24,600 $ 1,700 $ 500 $ 200 $ (1,200)
--------- ------------- --------- ----------- -------------
--------- ------------- --------- ----------- -------------
Net income per common share................... $ 1.19
---------
---------
Average number of common shares outstanding... 20,600
<CAPTION>
PRO FORMA
COMBINED
----------
<S> <C>
Net sales..................................... $ 523,900
Cost of goods sold............................ 411,000
----------
Gross margin................................ 112,900
Selling and administrative expenses........... 53,800
Interest expense, net......................... 14,100
----------
Income before provision for income taxes...... 45,000
Provision for income taxes.................... 19,200
----------
Net income................................ $ 25,800
----------
----------
Net income per common share................... $ 1.25
----------
----------
Average number of common shares outstanding... 20,600
</TABLE>
- ------------
(1) Adjustment to increase amortization of intangibles $1.8 million as a result
of PCC's purchase price allocation. Goodwill arising from the acquisitions
is amortized over forty years, and other intangibles acquired are amortized
over their remaining useful lives.
(2) Adjustment to reflect the elimination of $0.1 million non-recurring selling
and administrative expenses and to reflect a decrease of $0.8 million in
cost of goods sold and a decrease of $0.5 million in selling and
administrative expenses to eliminate redundant costs.
(3) Adjustment to remove $5.6 million of interest expense incurred by acquired
companies related to debt which was not assumed by PCC or was retired upon
acquisition.
(4) Adjustment to add $6.2 million estimated interest expense related to debt
incurred on borrowings used to fund the acquisitions. This adjustment
assumes all cash held by PCC was expended and debt was acquired as
necessary. The interest expense was calculated based upon the nature of
borrowings used by PCC to fund the acquisitions, adjusted to reflect
prevailing interest rates during the period. The following annual interest
rates were used: 6.8 percent for PCC Flow Technologies, 6.6 percent for AETC
and 6.0 percent for Olofsson.
(5) Adjustment to provision for income taxes based on the pro forma changes
above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
In fiscal 1996 and the first six months of fiscal 1997, PCC experienced
substantial growth in sales and profits from the prior year. This growth
resulted from the strong performance of the Company's existing aerospace
business and from one acquisition at the end of fiscal 1995, one acquisition in
the last quarter of fiscal 1996, one acquisition in the first quarter of fiscal
1997 and four acquisitions in the second quarter of fiscal 1997.
PCC's aerospace business improved during fiscal 1996 and the first six
months of fiscal 1997 due to stronger demand for new aircraft components and
spares, reflecting a general recovery in the aerospace industry. With 68 percent
of fiscal 1996 sales coming from aerospace, PCC historically has been exposed to
the cyclical nature of this market. During the aerospace downturn which began in
1991, the Company undertook major efforts to increase manufacturing efficiencies
and lower costs in its core aerospace businesses. In addition, it began to
diversify its operations by expanding the product lines manufactured with its
existing metalforming technologies and by acquiring businesses that complement
the Company's core competencies in metals, precision metalworking and the
management of complex manufacturing processes. The Company has looked for
synergistic acquisitions that have strong growth prospects, leading positions in
established market niches and higher operating margins than the Company's
traditional product lines. The Company believes these initiatives will enhance
its prospects as the aerospace cycle strengthens and will mitigate the impact of
future downturns. There is no assurance, however, that these initiatives will
have these results.
The Company acquired Quamco (now "PCC Specialty Products" or "SPD") in March
1995, Carmet in February 1996 and Olofsson in May 1996. Both Carmet and Olofsson
operate as part of SPD. In July 1996, the Company acquired Balo Precision Parts,
Inc. ("Balo"), AETC, Astro Punch and NEWFLO. Each of these acquisitions
leverages PCC's core competencies in manufacturing complex metal components and
products. Although a portion of AETC's business is subject to the aerospace
cycle, the markets served by the other acquired businesses are subject to
different business cycles, which tend to be less pronounced and are often
counter to the aerospace cycle. See "Pro Forma Combined Financial Statements."
As part of its product diversification initiative, the Company has
undertaken to significantly increase its market share in industrial gas
turbines. This business, which is based on investment casting technology,
provides opportunities for both new parts and spares sales to a large customer
base. The Company expects further growth from investment casting operations to
come from applications in medical prostheses, sporting goods and other
industrial markets.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 29, 1996 COMPARED WITH THE SIX MONTHS ENDED OCTOBER
1, 1995
Sales of $410.9 million for the first six months of fiscal 1997 increased
$139.7 million, or 52 percent, compared to the first six months a year ago. The
increase was due to improved sales in nearly all business areas and the impact
from the acquisitions made in the last year. Excluding the effects of
acquisitions in fiscal 1995 and 1996, sales increased $44.2 million, or 19
percent. The most significant sales increase was to aerospace customers,
reflecting the upswing in that industry's cycle.
Cost of goods sold as a percent of sales for the first half of fiscal 1997
was 80 percent, unchanged from the first half of last year. Reflected in the
fiscal 1997 results are higher margins contributed by the acquisitions made in
the year, offset by higher costs in the traditional operations due to costs
associated with IGT development programs and training costs from the addition of
new employees to support increased demand for the Company's aerospace products.
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Selling and administrative expenses were $36.0 million for the first six
months, or 8.8 percent of sales, compared to $22.8 million, or 8.4 percent of
sales, a year ago. This increase reflects the effect of fiscal year 1997
acquisitions which operate with higher selling costs due to their related
advertising, trade show and sales commission costs and reflects increased
expenses relating to the Company's successful efforts against union organizing
activities at its Oregon operations.
Net interest expense in the first half of fiscal 1997 was $5.8 million, as
compared with $0.2 million in the first half a year ago. The increase reflects
the lower cash balances and higher debt this year compared with a year ago, due
to the acquisitions of Carmet in the fourth quarter of fiscal 1996, Olofsson in
the first quarter of fiscal 1997, and Balo, AETC, Astro Punch and PCC Flow
Technologies in the second quarter of fiscal 1997.
The effective tax rate in the first six months of fiscal 1997 was 41.1
percent approximating last year's effective tax rate of 40.8 percent.
FISCAL 1996 COMPARED WITH FISCAL 1995
Sales of $556.8 million for fiscal 1996 increased $120.4 million, or 28
percent, from the prior year. Excluding the effects of SPD, sales increased
$39.1 million or 9 percent. Aerospace and aircraft gas turbine engines
represented 68 percent, or $376.0 million of total sales in fiscal 1996 compared
to 79 percent, or $343.0 million, of total sales in fiscal 1995. The lower
percentage of aerospace sales reflects the addition of SPD's sales volume in
fiscal 1996. Sales to United States government end-users were 18 percent of
total sales in 1996, slightly lower than the 19 percent in the prior year,
reflecting the impact of SPD, which has minimal sales to governmental end-users.
Cost of goods sold as a percentage of sales improved from 82 percent in
fiscal 1995 to 80 percent in fiscal 1996. This improvement came from the
addition of SPD, which generates higher margins compared with other PCC
operations.
Selling and administrative costs increased to 8 percent of sales in fiscal
1996 from 7 percent of sales in the prior year. This increase was due to the
addition of SPD, which operates with higher selling costs due to advertising,
trade shows and sales commissions compared with other Company operations.
For the year, the effective tax rate was 35 percent, compared to 38 percent
in fiscal 1995. The reduction was due to the favorable impact of $2.6 million of
non-recurring tax adjustments recorded in the third quarter. These benefits
included the settlement of a state tax issue for $2.2 million and $0.4 million
from research and development tax credits. The effective tax rate in fiscal 1997
is expected to increase, reflecting non-deductible goodwill amortization from
acquisitions and the absence of non-recurring adjustments which provided tax
benefits in fiscal 1996.
Net income in fiscal 1996 of $41.1 million was 42 percent higher than fiscal
1995's earnings of $29.0 million and resulted in earnings per share of $2.02
based on 20.4 million average shares outstanding, compared to $1.45 per share
based on 20.0 million average shares outstanding in fiscal 1995. Excluding the
impact of the non-recurring tax adjustments, net income in fiscal 1996 increased
30 percent to $1.89 per share.
FISCAL 1995 COMPARED WITH FISCAL 1994
Sales of $436.4 million for fiscal 1995 increased $16.0 million, or 4
percent, from the prior year. Nearly half of the increase in sales resulted from
the acquisitions of PCC Composites in April 1994 and SPD in March 1995.
Aerospace and aircraft gas turbine sales represented 79 percent of total sales,
down $9.4 million compared with fiscal 1994, while sales of other industrial and
commercial products increased by $25.4 million, or 37 percent, reflecting the
Company's continued diversification into non-aerospace markets. Sales to U.S.
government end-users were 19 percent of sales in 1995 and 21 percent in fiscal
1994.
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<PAGE>
This decline reflects both the impact of lower military spending levels and the
increasing diversification of PCC's customer base.
Cost of goods sold as a percentage of sales improved to 82 percent in 1995
from 84 percent in the prior year. This improvement came largely from the higher
volume of sales to non-aerospace markets, which yield relatively higher margins.
These higher margins were partially offset by increased manufacturing costs
related to development of new parts for industrial gas turbine applications,
metal-matrix composite applications, and turbocharger wheels for the trucking
industry.
Selling and administrative costs remained constant at 7 percent of sales in
fiscal 1995.
In fiscal 1995, the effective tax rate was 38 percent as compared with an
effective tax rate of 33 percent in 1994. The fiscal 1994 effective tax rate
included a 6 percentage point reduction, reflecting the net effect of a $2.7
million benefit for research and development tax credits, partially offset by
$0.6 million of tax expense related to adjustment of deferred taxes to reflect
the increase in federal tax rates from 34 percent to 35 percent.
Net income of $29.0 million in fiscal 1995 was 31 percent higher than the
$22.2 million earned in the prior year. Income in fiscal 1994 reflected the $2.9
million after tax expense due to the effect of the accounting change for
postretirement benefits. Earnings per share in fiscal 1995 were $1.45 based on
20.0 million shares outstanding compared to $1.14 based on 19.5 million shares
outstanding in the prior year. These earnings per share results reflect a
three-for-two stock split effective in August 1994.
LIQUIDITY AND CAPITAL RESOURCES
Total assets of $1,010.7 million at September 29, 1996 represented a $560.2
million increase from the $450.5 million balance at March 31, 1996. The
acquisitions since the beginning of fiscal year 1997 accounted for nearly all of
the increase. Total capitalization at September 29, 1996 was $768.5 million,
consisting of $440.3 million of debt and $328.2 million of equity. The
debt-to-capitalization ratio was 0.57 compared with 0.04 at the end of the prior
fiscal year. The Company's debt-to-capitalization ratio is 0.39, reflecting the
sale of 3,300,000 shares of Common Stock and the application of the net
proceeds.
Cash from earnings for the six months ended September 29, 1996 of $33.9
million, plus cash of $1.8 million from the sale of Common Stock through stock
option exercises was less than cash requirements which consisted of $316.4
million for the acquisitions of Olofsson, Balo, AETC, PCC Flow Technologies and
Astro Punch, $30.0 million of increased working capital, $16.8 million of
capital expenditures and $1.2 million of cash dividends. The cash flow shortfall
was funded from $315.2 million of net borrowings and $14.2 million of available
cash. At September 29, 1996, cash and cash equivalents were $12.0 million.
For fiscal 1996, earnings generated $65.1 million of cash, and working
capital reductions provided an additional $6.9 million. Capital expenditures
totaled $19.7 million, and $21.2 million was spent for the acquisition of
Carmet. The sale of $9.0 million of Common Stock through the exercise of stock
options was more than offset by cash dividends of $4.9 million and debt
repayments of $12.1 million.
In fiscal 1996, PCC obtained a five-year $200.0 million committed line of
credit from a syndicate of nine banks. There were no borrowings outstanding on
this line as of March 31, 1996. In July 1996, the Company entered into an
amended and restated credit agreement ("Credit Agreement") with Bank of America
National Trust & Savings Association ("Bank of America") that was later
syndicated to twelve commercial banks. The Credit Agreement replaced the $200.0
million line of credit and includes two facilities: an amortizing term loan
facility in the principal amount of $150.0 million (the "Term Loan") and a
revolving credit facility in the amount of $250.0 million (the "Credit Line").
The Credit Agreement contains various standard financial covenants, including
maintenance of minimum net worth, fixed charge coverage ratio and leverage
ratios.
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<PAGE>
In July 1996, the full $150.0 million was borrowed under the Term Loan, and
the Company entered into a fixed rate swap agreement for the entire term of the
loan, resulting in an interest rate of 6.6 percent per annum plus a margin based
on the Company's leverage ratio. The Term Loan has a five year maturity, and the
principal amount is repayable quarterly commencing in March 1997. The Term Loan
may be prepaid, in whole or in part, at any time.
The Company may borrow up to $250.0 million under the Credit Line, and
amounts outstanding bear interest at a fluctuating rate based on Bank of
America's reference rate or LIBOR, plus in each case a margin based on the
Company's leverage ratio. The Credit Line matures in July 2001. The Company has
obtained interest rate protection through a cap arrangement for up to $160.0
million of borrowings under the Credit Line for the first two years of the
facility. At September 29, 1996, $171.4 million principal amount was outstanding
under the Credit Line.
PCC Flow Technologies, acquired by PCC in July 1996, has outstanding, in
addition to other indebtedness, $100.0 million principal amount of NEWFLO
13 1/4% Subordinated Notes due 2002 (the "Notes"). The Notes are redeemable at
the option of the Company, in whole or in part, at any time on or after November
15, 1997 at redemption prices declining from 105.25 percent of the stated
principal amount. The indenture governing the Notes limits, among other things,
the ability of PCC Flow Technologies and certain of its subsidiaries to (i)
incur additional indebtedness, (ii) pay dividends and other distributions,
including dividends and distributions to PCC, and make certain investments and
(iii) pledge their assets.
The five acquisitions completed in fiscal 1997 were financed with cash on
hand, borrowings of $301.1 million under the Credit Agreement and $100.0 million
principal amount of the Notes.
Capital spending in fiscal 1997 is expected to be approximately $70 million,
which is significantly higher than prior years. This amount includes capital
spending requirements related to acquisitions made in the year. The majority of
the anticipated expenditures is for capacity expansion to accommodate expected
growth in aerospace and industrial gas turbine markets. The Company believes it
can fund the requirements for capital spending, cash dividends, and potential
acquisitions from cash balances, the existing Credit Line, additional borrowings
and the net proceeds of this offering.
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<PAGE>
BUSINESS
INTRODUCTION
Precision Castparts Corp. is a worldwide manufacturer of complex metal
components and products. The Company is the market leader in manufacturing
large, complex structural investment castings and is a leading manufacturer of
airfoil castings used in jet aircraft engines. In addition, the Company has
expanded into the industrial gas turbine, fluid management, industrial
metalworking tools and machines, powdered metal and other metal products
markets. The Company has experienced a sales increase in its aerospace business
of approximately 20 percent in fiscal 1996 on a pro forma basis compared with
fiscal 1995 actual, and believes its focus on this business will allow it to
participate in current favorable trends in the commercial aerospace sector. The
Company also believes its new businesses will reduce its exposure to the
cyclicality of the aerospace industry and provide opportunities for profitable
growth.
COMPANY STRATEGY
The Company's goal is to generate profitable growth and to enhance
shareholder value from continued investment in its aerospace and other existing
businesses and through the acquisition of new businesses. PCC targets
acquisitions that (i) complement the Company's core competencies in metals,
precision metalworking and the management of complex manufacturing processes,
(ii) have strong growth prospects and higher operating margins than the
Company's traditional product lines and (iii) have leading positions in
established market niches. The Company's strategy consists of the following key
elements:
INCREASE OPERATING EFFICIENCY AND TECHNOLOGICAL ADVANTAGE. Since fiscal
1993, the Company has significantly reduced overhead costs, improved worker
productivity, shortened production cycle times and enhanced operating
margins. This has primarily been achieved by investing in new technologies
and developing more efficient manufacturing processes. The Company believes
it maintains a proprietary technological advantage in the high quality, high
volume manufacturing of complex metal components and products. In
particular, the Company believes it is currently the only manufacturer in
the world that can precision cast large, complex parts from a variety of
metals and alloys in the volumes and of the qualities that customers
require. The Company strives to maintain its advantage by investing in new
technologies and developing new proprietary manufacturing processes which
are difficult for competitors to duplicate.
DEVELOP NEW PRODUCTS AND MARKETS. PCC is aggressively pursuing new
product and market opportunities using the Company's existing metalforming
technologies. The Company has identified attractive markets, such as
industrial gas turbines ("IGT"), where it believes its skills developed in
precision casting can be leveraged to enhance its market share. In addition,
the Company is pursuing growth opportunities in the manufacture of metal
injection molded products for applications including medical, sporting
goods, electronics, hand tools and automotive parts. PCC is also focusing on
expanding its international sales, particularly for its fluid management and
general industrial product lines. The Company's strategy is to continue to
identify new products and markets where it can become the leading supplier
by utilizing its core competencies in metals, precision metalworking and the
management of complex manufacturing processes.
PURSUE SYNERGISTIC ACQUISITIONS. PCC's strategy of acquiring businesses
which leverage the Company's core competencies has led to the completion of
seven acquisitions since March 1995. The Company seeks to acquire businesses
with established market niches, proprietary technology and the potential for
significant growth and higher operating margins than the Company's
traditional product lines. The Company expects that recent acquisitions,
such as PCC Specialty Products and PCC Flow Technologies, will enhance
financial results and reduce the Company's exposure to the aerospace cycle.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Business Overview."
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<PAGE>
The Company intends to continue focusing on increasing PCC's operating
efficiencies and technological advantage, developing new products and markets,
and pursuing synergistic acquisitions. There is no assurance that the Company's
strategy or any element thereof will be implemented successfully.
PRODUCTS AND MARKETS
The Company's manufacturing of complex metal components and products
includes operations in four principal business areas: precision investment
castings, fluid management products, industrial metalworking tools and machines,
and powdered metal and other metal products.
PRECISION INVESTMENT CASTINGS
The Company is the market leader in manufacturing large, complex structural
investment castings and is a leading manufacturer of airfoil castings used in
jet aircraft engines. The Company manufactures investment castings for every
major jet aircraft engine program in production or under development by its key
customers. The Company is leveraging its experience and expertise in large,
complex structural and airfoil investment castings to manufacture castings for
IGT engines used for power generation. In addition, PCC makes investment
castings for use in the automotive, medical prostheses, sporting goods,
satellite launch vehicle and general industrial markets.
Because of the complexity of the manufacturing process and the application
of proprietary technologies, PCC believes it currently is the only manufacturer
that can consistently produce the largest complex structural investment castings
in quantities sufficient to meet its customers' quality and delivery
requirements. The Company's emphasis on low cost, high quality products and
timeliness of delivery has enabled it to become one of the leading suppliers of
structural and airfoil castings for jet aircraft engines and to increase its
market share of IGT airfoil castings. Investment castings accounted for
approximately 57 percent of the Company's net sales in fiscal 1996 on a pro
forma basis, and a majority of these products were sold to the aerospace market.
The Company's investment casting technology involves a technical, multi-step
process that uses ceramic molds in the manufacture of metal components with more
complex shapes, closer tolerances and finer surface finishes than parts
manufactured using other casting methods. The investment casting process
involves the creation of a wax pattern of the part to be cast along with
pathways through which molten metal flows into the ceramic mold (Figure 1);
formation of a ceramic shell around the wax pattern (Figure 2) followed by
removal of the wax from the ceramic shell by melting and draining the wax;
pouring of molten metal into the ceramic shell (Figure 3); shell removal (Figure
4); and final processing and inspection (Figure 5).
[GRAPH]
[Five schematic drawings illustrating the investment casting process]
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Trends in the commercial aerospace market are a critical determinant of
demand for the Company's precision investment casting products. Beginning in
1995, demand for investment castings strengthened, primarily due to increased
demand from the commercial aerospace industry, which had been in a cyclical
downturn since 1991. The Company believes the principal causes of the recent
increase in new aircraft orders include increased demand for air travel in Asia,
the recent profitability of U.S. commercial airlines, which is being driven by
increased load factors, and government Stage III noise regulations that require
airlines to modernize their fleets. Airlines are responding to these regulations
by retrofitting existing aircraft or purchasing new jets. For the six months
ended June 30, 1996, orders for The Boeing Company, McDonnell Douglas
Corporation and Airbus Industrie, the major U.S. and international aircraft
manufacturers, were 385 commercial aircraft, compared to 216 commercial aircraft
for the same period in 1995, an increase of 78 percent as reported by THE
AIRLINE MONITOR (an aerospace industry publication).
Large jet aircraft engines are manufactured by a small number of suppliers,
including GE, Pratt & Whitney, Rolls-Royce ("R-R") and CFM International, a
joint venture of GE and Snecma of France ("CFMI"). As a result, the Company
believes a high level of customer service and strong long-term customer
relationships will continue to be important to achieving its goals. The Company
has been supplying castings for jet engines to GE for more than 25 years, and
has been supplying Pratt & Whitney with castings for more than 20 years for its
military jet engines and more than 15 years for its commercial jet engines. In
addition, the Company has supplied small structural investment castings to R-R
for more than 10 years, and has more recently begun supplying R-R with large,
structural castings for use in its new Trent series of aircraft jet engines.
CFMI has used the Company's castings in its CFM56 jet engines for more than 20
years. As the Company has been able to cast larger and more complex parts,
manufacturers of large jet aircraft engines have made increasing use of the
Company's structural castings.
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The following table identifies major jet aircraft engines currently in
production that incorporate investment castings produced by the Company. In
addition to the items shown below, PCC manufactures investment castings for the
V2500 engine program produced by International Aero Engines ("IAE") for use on
Airbus Industrie's A319/A320/A321 aircraft and for the McDonnell Douglas MD-90
aircraft.
<TABLE>
<CAPTION>
GE CFMI PRATT & WHITNEY R-R
<S> <C> <C> <C> <C>
BOEING
737-300/400/500 CFM56-3
737-600/700/800 CFM56-7
747-400 CF6-80C2 PW4000 RB211-524
757 PW2037 RB211-535
767-300/300ER CF6-80C2 PW4000 RB211-524
777 GE90 PW4084, 4090, 4098 Trent 800
AIRBUS INDUSTRIE
A300-600 CF6-80C2 PW4000
A310-300 CF6-80C2 PW4000
A319/A320/A321 CFM56-5A/B
A330 CF6-80E1 PW4000 Trent 700
A340 CFM56-5C
MCDONNELL DOUGLAS
MD-80 Series JT8D
MD-11 CF6-80C2 PW4000
C-17 F117
F-15 F100
LOCKHEED MARTIN
F-16 F110 F100
F-22 F119
NORTHROP GRUMMAN
F/A-18 A/B F404
F/A-18 E/F F414
B-2 F118
</TABLE>
AEROSPACE STRUCTURAL CASTINGS. The Company's large, complex structural
castings include the largest diameter steel and titanium investment castings
in the world, as well as a variety of smaller structural castings. These
castings are stationary components that form portions of the fan,
compressor, combustion and turbine sections of the jet aircraft engine,
where strength and structural integrity are critical. Structural investment
castings are sold primarily as original equipment to jet aircraft engine
manufacturers.
The Company believes that trends in the manufacturing of aircraft jet
engines will continue to increase PCC's revenues per engine. As the design
of new generation aircraft engines has emphasized increased thrust, higher
fuel efficiency and reduction of noise and exhaust emissions, engine
operating temperatures and pressures have increased. These conditions
require the use of engine parts made of alloys that are able to withstand
these extreme operating conditions and provide an optimum strength-to-weight
ratio. Many of these alloys are particularly suited to investment casting.
In addition, titanium, a metal with a lower melting temperature than
stainless steel or superalloys, is used in all but the hottest parts of the
engine because of the considerable weight savings. Titanium is an
exceptionally difficult metal to cast because of its reactivity to other
elements. The Company, however, has
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developed the necessary technology and manufacturing processes to cast
large, complex investment castings in titanium alloys. Many of these new
generation engines, which are expected to be built through the next decade
and beyond, make significantly greater use of the Company's products than
did prior engine designs. The Company manufactures structural investment
castings for all three jet aircraft engines used on the newer Boeing 777
aircraft and is the sole supplier of structural investment castings for the
new GE90 jet engine. PCC also manufactures the intermediate case and the
tail bearing housing for the new R-R Trent series of engines, which are the
largest structural investment castings in the world for aircraft jet
engines.
AEROSPACE AIRFOIL CASTINGS. The Company manufactures precision cast
airfoils, including the stationary vanes and rotating blades used in the
turbine section of aircraft jet engines. This engine section is considered
the "hot" section, where temperatures may exceed 2,400 degrees Fahrenheit.
These conditions require use of superalloys and special casting techniques
to manufacture airfoil castings with internal cooling passageways that
provide both high performance and longer engine life.
The Company uses various casting technologies to produce its turbine
airfoils. Conventional casting processes are employed to produce equiaxed
airfoil castings, in which the metal grains are oriented randomly throughout
the casting. A more advanced process enables the Company to produce
directionally solidified ("DS") airfoil castings, in which the metal grains
are aligned longitudinally. This alignment decreases the internal stress on
the weakest portion of a metal part where the various grains adjoin, thereby
providing increased strength and improved efficiencies in engine performance
over equiaxed parts. An even more advanced process enables the Company to
produce single crystal ("SX") airfoil castings, which consist of one large
superalloy crystal without grain boundaries. SX castings provide greater
strength and performance characteristics than either equiaxed or DS
castings, as well as longer engine life.
As engine sizes grow to generate greater thrust for larger aircraft, and
the turbine sections of these engines must work harder and burn hotter, the
major aircraft engine manufacturers have increasingly been designing their
engines with DS and SX blades. The DS and SX cast airfoils, with their
complex cooling passages, have been instrumental in enabling these engines
to operate at gas temperatures frequently in excess of 2,400 degrees
Fahrenheit. SX cast airfoils are used both in new and redesigned engines,
particularly in jet engines used in military applications where performance
requirements are highest and blade life is shorter than in commercial
engines. To manage the increased demand for DS and SX cast airfoils, the
Company is installing five new furnaces during fiscal 1997 with DS and SX
casting capability.
The demand for aerospace airfoil castings is determined primarily by the
number and type of engines required for new jet aircraft, the frequency of
engine repairs and the inventory levels of replacement parts maintained by
the principal jet aircraft engine manufacturers and repair centers. A jet
engine's airfoil components have shorter useful lives than structural
investment castings and are replaced periodically during engine maintenance.
As a result, the Company's sales of aerospace airfoil castings are less
affected by the cyclical patterns of the aerospace industry than are the
Company's sales of structural investment castings. The replacement market
for aerospace airfoil castings principally depends on the engine's time in
service and the expected life of the airfoil casting. Based upon estimates
provided by its major customers, the Company believes that approximately 50
percent of its sales of airfoils are used as replacement parts.
INDUSTRIAL GAS TURBINES. In fiscal 1994, the Company began to focus on
the manufacture of airfoil castings for industrial gas turbines ("IGT"). The
Company targeted this market because it believes (i) the performance and
reliability standards PCC has developed in the manufacture of aerospace
airfoil castings are applicable to the manufacture of IGT airfoils, (ii) the
worldwide market is large, approximately $500 million, and (iii) the market
is principally serviced by a single supplier. The Company's IGT products
consist primarily of airfoil castings for gas turbines used in power
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<PAGE>
generation and structural and airfoil castings for aircraft-derivative gas
turbine engines used for power generation and other land and marine-based
applications.
IGT manufacturers have significantly improved the efficiency and reduced
the pollution profiles of industrial gas turbines, principally by
incorporating component-level advances which are included not only in new
engines but also in the refurbishing and upgrading of existing turbines. PCC
has leveraged its DS and SX airfoil casting knowledge from the aerospace
market into the IGT market to produce IGT airfoil blades and vanes better
able to withstand the extreme heat and stresses of the new
higher-temperature gas turbines. IGT engines are built with investment
castings that are similar, but generally larger, than blades and vanes
manufactured by the Company for the aerospace market. Because of their size,
IGT airfoils are more difficult to cast than smaller aerospace airfoils with
the same properties.
The Company is working with several major manufacturers, including ASEA
Brown Boveri, GE Power Systems, Nuovo Pignone, Siemens, European Gas Turbine
and Westinghouse, to develop the components necessary to meet their
efficiency and environmental standards. The Company believes its success
with IGT customers will be built largely on the combination of its
traditional investment casting skills and with new technology such as its
proprietary thermally controlled solidification furnace. The Company is
experiencing more demand for airfoil castings for industrial gas turbines
than its current production facilities can supply and is therefore adding
93,000 square feet to its production facilities.
Since industrial gas turbines are primarily used in electrical power
generation, airfoil casting sales for new industrial gas turbine engines are
tied to the growth of global electricity consumption, while demand for
replacement parts depends on the size and usage rate of the installed base.
Between 1982 and 1994, the net installed capacity of electric generating
plants increased worldwide by 2.6 percent on an annual basis, while
worldwide electricity consumption grew at 3.4 percent annually. Industrial
gas turbines represent a significant portion of electricity generating
capacity additions, constituting 23 percent of capacity added worldwide from
1992 to 1994. Although overall electrical generating capacity grew at an
annual rate of only 0.6 percent in the mature U.S. market from 1988 to 1994,
industrial gas turbine electrical generating capacity in the U.S. grew at
3.8 percent annually. Gas turbine power generation has several advantages
over other power-generation methods, such as coal and nuclear-powered
facilities, including lower average capital cost, shorter installation and
regulatory approval time, ease of adding a new industrial gas turbine engine
to an existing power plant to increase output and the clean-burning
characteristics of natural gas. The Company believes these advantages have
led to increased demand for gas turbine engines.
OTHER INVESTMENT CASTING PRODUCTS. The Company's strategy for
profitable growth also includes the pursuit of new opportunities for the
Company's existing investment casting technology. The Company has been
expanding the application of its investment casting technology to the
automotive, medical prostheses, sporting goods, satellite and general
industrial markets by manufacturing such products as turbocharger wheels,
artificial hips and knees, titanium golf club heads, parts for satellite
launch vehicles and impellers for pumps and compressors. Some components of
the Company's fluid management products are manufactured using investment
casting as well as other casting technologies.
FLUID MANAGEMENT PRODUCTS
The Company designs, manufactures, markets and services a broad range of
high quality, precision industrial fluid management products, including fluid
handling industrial valves, industrial pumps and fluid measuring instruments.
The Company's finished fluid management products are manufactured primarily from
castings, forgings and fabricated steel parts. These products are sold worldwide
under well-established brand names, including "General Valve," "NEWCO," "TECHNO"
and "Barber" valves,
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<PAGE>
"Johnston" and "PACO" pumps, and "Water Specialties" and "Penberthy" measuring
instruments, to a wide range of end-user markets.
The Company entered the fluid management market with the acquisition of PCC
Flow Technologies in July 1996. The Company believes this acquisition leverages
its core competencies into the fluid management market. The manufacturing
process for fluid management products requires knowledge of multiple
metalforming and processing technologies, including casting, machining, welding,
heat treating, assembly and processing of metal components. Testing procedures,
material management and traceability, and quality control are also important
aspects of the Company's operations. PCC Flow Technologies generated compound
annual revenue growth of approximately 31 percent from calendar years 1989
through 1995, primarily through acquisitions. The fluid management market is
highly fragmented, and the Company believes it can continue to improve its
market position through acquisitions and internal growth opportunities. Fluid
management products accounted for approximately 23 percent of the Company's net
sales in fiscal 1996 on a pro forma basis and were sold primarily to the general
industrial and energy markets.
The Company uses its substantial knowledge of fluid management technologies,
complex metal component manufacturing and its end-user markets to develop
engineered valves, pumps and instruments that the Company believes provide
customer benefits superior to those of other manufacturers. Many of the products
offered by the Company are customized to end-user requirements or designed for
specialized applications. The Company's maintenance, repair and service centers,
extensive distribution network and inventory of products enable it to provide
responsive service and timely deliveries to customers, thereby enhancing the
marketability of the Company's products. The Company believes its brand names,
quality products and responsive service network also lead to repeat orders,
stable demand and customer loyalty.
VALVES. The Company manufactures and markets specialty industrial and
general purpose valves, fittings and flanges principally for the chemical,
refining, energy, pulp and paper and marine markets. The Company's valve
products consist primarily of multi-turn industrial valves, check valves,
quarter turn industrial ball and plug valves, double block and bleed dual
expanding plug valves and four-way diverter valves and valve operators. Many
of the Company's valves are manufactured under contract by ISO
9001-qualified overseas suppliers to precise industry and end-user standards
and specifications. The valve designs are developed and modified by the
Company's engineering staff for particular applications as determined by
market conditions and end-user specification. The Company markets its valve
products under several brand names, including "General Valve," "NEWCO,"
"TECHNO" and "Barber." The Company believes its General Valve positive
shut-off, double block and bleed valve and its Technocheck hinged check
valves are among the most technologically advanced products sold in the
fluid control market.
PUMPS. The Company manufactures and markets a complete line of general
purpose and specialty pumps for power, cogeneration, geothermal, municipal
and industrial (including petroleum, chemical, mining, marine and pulp and
paper) applications. The Company also supplies repair parts and service for
pumps. The Company's pump products consist primarily of single and double
suction centrifugal pumps, submersible and non-clog pumps, booster pump
systems, vertical turbine, mixed flow and axial flow pumps. The Company is
one of the few pump manufacturers that produces large vertical pumps over 36
inches in diameter. The capacities of certain of the Company's pumps extend
up to heads of 3,400 feet and flows up to 230,000 gallons per minute. The
Company markets its pump products under several brand names, including
"Johnston Pump" and "PACO Pumps." The Company believes its Johnston vertical
turbine pumps and its PACO booster systems and "Smart Pumps" are among the
leading products sold in the fluid handling market.
INSTRUMENTS. The Company manufactures, markets and distributes
propeller meters, turbine meters and fluid measurement equipment for the
municipal, irrigation and industrial markets. The Company manufactures five
types of propeller meters (main line, low pressure, open flow, vertical
27
<PAGE>
flow and high pressure), turbine meters and three general types of
measurement devices that are used to read, record and transmit data
generated by the meters. The Company's meters and fluid measurement devices
meter a wide range of fluids, such as fresh or salt water, treated waste
water, diesel and jet fuel, bore hole slurry, light oils, food processing
fluids and slurries and other liquid and chemical applications. Meters are
sold in 44 different models varying in size from 1 1/2 inches to 120 inches,
in service pressures up to 3,000 pounds per square inch, in flow rates from
4 to 300,000 gallons per minute and in operating temperature ranges from 35
to 350 degrees Fahrenheit. The Company markets its fluid measurement
products under several brand names, including "Water Specialties" and
"Penberthy." The Company believes its Water Specialties line of propeller
meters is one of the leading lines of propeller meters in the U.S.,
primarily due to its superior product design and manufacturing.
SERVICES. The Company maintains 19 service, repair and modification
facilities and 12 stocking warehouses in the U.S. and Canada which provide
aftermarket maintenance, repair and pre-sale modification services and
inventory availability for the Company's large installed base of fluid
management products, as well as repair and replacement of fluid management
products of other manufacturers. The market for replacement units, repair
parts and repair services generally offers the Company higher margins and is
less dependent on industry economic conditions than the market for equipment
for new industrial facilities. The Company believes its emphasis on
providing end-users with comprehensive and responsive maintenance,
modification and repair services and inventory availability enhances the
Company's reputation and creates customer loyalty. In calendar 1995,
approximately 50 percent of the Company's net sales of fluid management
products and services were derived from its aftermarket sales of replacement
units, repair parts, service, modification and rental activities.
INDUSTRIAL METALWORKING TOOLS AND MACHINES
The Company maintains the number one or two position in its served markets
for industrial metalworking tools, and has leading market positions in the
manufacture of metalworking machines for general industrial markets. The Company
entered these markets in March 1995 with the acquisition of SPD. The Company has
since increased its presence in the industrial metalworking tools and machines
markets with two additional acquisitions since 1995. The acquisitions of
Olofsson and Astro Punch complemented the Company's capabilities as a leading
manufacturer of highly engineered products. Industrial metalworking tools and
machines include machine systems used for boring and turning processes primarily
in the automotive and general industrial markets, cold forming dies and related
machinery primarily used in the fastener industry and other metalworking tools
and machinery for industrial manufacturers. The Company believes it has been
able to maintain its leading market positions due to the quality of its
products, the continued development of new technologies to enable the high speed
manufacture of high quality fasteners, brand name recognition and excellent
customer service. Industrial metalworking tools and machines accounted for
approximately 13 percent of the Company's net sales in fiscal 1996 on a pro
forma basis and were sold primarily to the automotive and general industrial
markets.
METALWORKING TOOLS. The Company designs, manufactures and distributes a
wide variety of precision metalworking tools to industrial companies that
serve the automotive, appliance, construction, farm equipment, medical and
aerospace industries. The Company's industrial metalworking tools consist
primarily of heading, threading and gundrilling tools. The Company markets
its heading and threading tools, which are used to form a variety of
fasteners and threaded parts, under the "Reed-Rico" and "Astro Punch" brand
names. The Company's gundrilling tools, which are distributed under the
"Eldorado" brand name, are used to drill high quality holes to very close
tolerances in such products as turbine engines, engine blocks, cylinder
heads, transmission shafts, connection rods and medical prostheses.
METALWORKING MACHINES. The Company designs, manufactures and
distributes several types of metalworking machines primarily for the
automotive industry. The Company's industrial
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<PAGE>
metalworking machines include threading machines and attachments,
gundrilling machines and computer-controlled specialized machine systems for
boring and turning applications. The Company markets its threading machines
and attachments, which are used to form a variety of threaded parts and
fasteners, under the "Reed-Rico" brand name. The Company's gundrilling
machines, like its gundrilling tools, are distributed under the "Eldorado"
brand name. The Company's specialized machine systems for boring and turning
processes are sold under the "Olofsson" brand name.
POWDERED METAL AND OTHER METAL PRODUCTS
The Company is the largest producer of metal parts manufactured by powdered
metal injection molding, and is a leading manufacturer of specialty metal gears
and tungsten carbide cutting tools and wear parts that are made using a powdered
metal compaction and sintering process. In addition, the Company manufactures
advanced technology, lightweight net shape metal-matrix composite parts using a
pressure infiltration casting process. The Company believes these businesses
have the potential for rapid growth and complement the Company's core
competencies in metals, precision metalworking and the management of complex
manufacturing processes. Powdered metal and other metal products accounted for
approximately 7 percent of the Company's net sales in fiscal 1996 on a pro forma
basis and were sold primarily to the general industrial and automotive markets.
The powdered metal injection molding process is particularly well-suited to
high volume production of small, complicated metal parts for numerous
industries, including computer peripherals, medical, electronics, automotive,
power tools and firearms. The Company believes it can apply its powdered metal
injection molding process to new market opportunities, including specialty hand
tools and bicycle parts and further penetration of the automotive industry. In
addition, the Company manufactures helical gears and tungsten carbide cutting
tools and wear parts using a powdered metal compaction and sintering process for
various industrial markets. The Company also manufactures advanced technology,
lightweight net shape metal-matrix composite parts using a pressure infiltration
casting process. Metal-matrix composite parts have high thermal conductivity and
tightly controlled thermal expansion characteristics, and are used in electronic
applications that require heat dissipation, such as automotive,
telecommunication, aerospace and computer products. The Company also supplies
permanently lubricated metal bearings, bushings and radius plates under the
"Lubrite" brand name for offshore drilling, hydroelectric, bridge, construction
and marine applications. The Company believes the broad range of products and
highest standards of craftsmanship offer it growth opportunities in the numerous
industry applications.
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<PAGE>
SALES AND DISTRIBUTION
The Company sells its metal components and products into five major market
areas: aerospace, general industrial, power generation and energy, automotive
and other markets, including medical, firearms, ordnance and sporting goods. The
relative size of sales to these markets is shown below for fiscal 1995, 1996,
and 1996 pro forma.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA
POINTS USED IN PRINTED GRAPHIC
FISCAL 1995 ACTUAL
<C> <C> <C>
Net Sales $436.4 million
Aerospace 79%
Power Generation and Energy 5%
General Industrial 1%
Automotive 7%
Other 8%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FISCAL 1996 ACTUAL
<S> <C>
Net Sales $556.8 million
Aerospace 68%
Power Generation and Energy 6%
General Industrial 6%
Automotive 13%
Other 7%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FISCAL 1996 PRO FORMA
<S> <C>
Net Sales $929.5 million
Aerospace 45%
Power Generation and Energy 3%
General Industrial 9%
Automotive 25%
Other 18%
</TABLE>
The Company's dollar volume of sales to the aerospace market increased in
fiscal 1996 on a pro forma basis to $410.5 million from $343.0 million in fiscal
1995 actual, an increase of approximately 20 percent. Sales to the aerospace
market as a percentage of net sales, however, declined from 79 percent in fiscal
1995 to 45 percent in fiscal 1996 on a pro forma basis, primarily as a result of
the Company's acquisitions. The Company continues to benefit from the strength
of the commercial aerospace sector and sales to this industry remain
significant; however, the Company believes its diversification into the power
generation and energy, general industrial and automotive markets will mitigate
the impact to the Company during cyclical downturns in the aerospace industry.
The Company's sales of investment castings are made through a relatively
small number of direct sales personnel located in each business operation and
through field sales representatives located at U.S. and international locations
near the Company's major customers. Industrial metalworking tools, industrial
metalworking machines and powdered metal parts are sold by both the Company's
sales forces and sales representatives in the U.S., Europe and Southeast Asia.
The Company's fluid management products and services are also sold by a direct
sales and marketing staff, and through a worldwide network of independent sales
representatives and distributors. Due to the sophisticated nature of the
Company's products, the Company's sales efforts require technical personnel to
work closely with customers to identify and assist in the development of new
products and product modifications and to provide other services that are
necessary to obtain new and repeat production orders.
Sales to GE accounted for approximately 23 percent, 21 percent, 22 percent
and 13 percent of the Company's net sales in fiscal 1994, 1995, 1996 and 1996 on
a pro forma basis, respectively. Sales to Pratt & Whitney accounted for
approximately 23 percent, 17 percent, 16 percent and 10 percent of the Company's
net sales in fiscal 1994, 1995, 1996 and 1996 on a pro forma basis,
respectively. See "Risk Factors -- Aerospace and Other Industry Cyclicality;
Customer Concentration; Reduced Government Purchases."
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<PAGE>
COMPETITION
The Company is subject to substantial competition in all of the markets it
serves. Components and products similar to those made by the Company can be made
by competitors using either the same types of manufacturing processes or other
forms of manufacturing. Although the Company believes its manufacturing
processes, technology and experience provide its customers advantages, such as
high quality, competitive prices and physical properties which often meet more
stringent demands, alternative forms of manufacturing can be used to produce
many of the components and products made by the Company. Despite intense
competition, the Company believes it is the number one or two supplier in most
of its principal markets. Several factors, including long-standing customer
relationships, technical expertise, state-of-the-art facilities and dedicated
employees, aid the Company in maintaining its competitive advantages.
In its precision casting business, the Company's principal competitor is the
Howmet Corporation ("Howmet"). Howmet, which is a joint venture owned by Thiokol
Corporation and The Carlyle Group, has traditionally supplied blades, vanes and
other airfoil castings for aircraft jet engines and industrial gas turbines, and
is believed to hold in excess of 50 percent of the total market for cast
airfoils. Howmet also manufactures steel and titanium structural investment
castings. The Company believes that Howmet is capable of producing structural
castings comparable to all but the largest and most complex of the Company's
structural investment castings. The Company also believes Howmet has the
financial and technical resources to produce castings as large and complex as
those produced by the Company should it decide to do so. The Company's
competitors for large structural castings also include companies engaged in
manufacturing parts through metal forgings, machining and fabrication methods.
Investment casting produces many types of parts at significantly lower cost than
do these alternate production methods.
In its other major business areas, which include fluid management products,
industrial metalworking tools and machines, powdered metal and other metal
products, the Company generally competes with a large number of companies in
each of the markets served. The major competitive factors affecting these other
business areas include product design and quality, product performance, pricing
and product availability.
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<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
William C. McCormick................... 63 Chairman, President and Chief Executive Officer
William D. Larsson..................... 51 Vice President and Chief Financial Officer
Mark Donegan........................... 40 Executive Vice President, President -- PCC Structurals, Inc.
Peter G. Waite......................... 52 Executive Vice President, President -- PCC Airfoils, Inc.
J. Jack Watson......................... 68 Executive Vice President, President -- PCC Flow Technologies, Inc.
John M. Prosser........................ 57 Executive Vice President, President -- PCC Speciality Products,
Inc.
Robert P. Reed......................... 39 President -- Advanced Forming Technology, Inc.
Ty W. Eggemeyer........................ 37 President -- PCC Composites, Inc.
Karen K. Clark......................... 36 Corporate Controller
James A. Johnson....................... 55 Treasurer
Don R. Graber.......................... 52 Director
Roy M. Marvin.......................... 65 Director
Dean T. DuCray......................... 55 Director
Dwight A. Sangrey...................... 56 Director
Peter R. Bridenbaugh................... 56 Director
Steven G. Rothmeier.................... 49 Director
</TABLE>
WILLIAM C. MCCORMICK joined the Company in 1985 as its President and Chief
Operating Officer. He became Chief Executive Officer in 1991 and Chairman in
1994. Prior to joining the Company, Mr. McCormick served in various management
positions with GE.
WILLIAM D. LARSSON has served as Vice President and Chief Financial Officer
of the Company since 1993. He joined the Company in 1980 as Vice President --
Finance. Mr. Larsson was previously employed by the American Motors Corporation
and the Ford Motor Company.
MARK DONEGAN is Executive Vice President of the Company and President of PCC
Structurals, Inc. Mr. Donegan manages the Company's structural aerospace and
certain other investment casting operations in the U.S. and in France. Mr.
Donegan joined the Company in 1985. He was previously employed by GE.
PETER G. WAITE is Executive Vice President of the Company and President of
PCC Airfoils, Inc. Mr. Waite manages the Company's airfoils and certain other
investment casting operations in the U.S. and in England. Mr. Waite joined the
Company in 1980. He was previously employed by AETC in Leeds, UK.
J. JACK WATSON is Executive Vice President of the Company and President of
PCC Flow Technologies, Inc. Mr. Watson manages the Company's fluid management
operations. Mr. Watson served as Chairman, President and Chief Executive Officer
of NEWFLO until its acquisition by the Company in July 1996.
JOHN M. PROSSER is Executive Vice President of the Company and President of
PCC Specialty Products, Inc. Mr. Prosser manages the Company's operations in
industrial metalworking tools and machines, and certain powdered metal
operations. Mr. Prosser served as President of Quamco, Inc. from 1988 until its
purchase by the Company in March 1995.
ROBERT P. REED is President of Advanced Forming Technology, Inc. ("AFT"),
the Company's metal injection molding operation. Before Mr. Reed joined AFT in
1991, he was employed in the Company's structural castings business operations.
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<PAGE>
TY W. EGGEMEYER is President of PCC Composites, Inc., the Company's metal
matrix composite operation. Before assuming this position in 1995, Mr. Eggemeyer
served as the Company's Corporate Director of Business Development.
KAREN K. CLARK joined the Company in 1994 as Corporate Controller. Prior to
her employment by the Company, Ms. Clark served as corporate planning manager at
Tektronix, Inc.
JAMES A. JOHNSON has been employed by the Company since 1986, first as
Manager of Accounting and Taxation and since 1993 as Treasurer.
DON R. GRABER has served as a director since 1995 and is President and Chief
Operating Officer of Huffy International. Until July 1996, he was President of
Worldwide Household Products Group of The Black & Decker Corporation.
ROY M. MARVIN has served as a director of the Company since 1967. Mr. Marvin
was Vice President -- Administration of the Company from 1980 until his
retirement in June 1996.
DEAN T. DUCRAY has served as a director since 1996 and is Vice President and
Chief Financial Officer of York International Corporation, a manufacturer of
heating, air conditioning, ventilation and refrigeration equipment.
DWIGHT A. SANGREY has served as a director since 1990 and is President and
Chief Executive Officer of Fraction Biologies, L.L.C., a manufacturer and
distributor of pharmaceutical products. Mr. Sangrey is also a director of
Northwest Natural Gas Company.
PETER R. BRIDENBAUGH has served as a director since 1995 and is Executive
Vice President -- Automotive of Aluminum Co. of America, an integrated producer
of aluminum and other products for the packaging, aerospace, automotive,
building and construction, and commercial and industrial markets.
STEVEN G. ROTHMEIER has served as a director since 1994 and is Chairman and
Chief Executive Officer of Great Northern Capital, a private investment and
merchant banking firm. Mr. Rothmeier is also a director of Honeywell, Inc., E.W.
Blanch Holdings, Inc. and Department 56, Inc.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock and 1,000,000 shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends as may from time
to time be declared by the Board of Directors of the Company out of funds
legally available therefor. See "Price Range of Common Stock and Dividends."
Holders of Common Stock are entitled to one vote per share on all matters on
which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Holders of Common Stock have no preemptive,
conversion, redemption or sinking fund rights. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share equally and ratably in the assets of the Company, if any, remaining
after the payment of all liabilities of the Company and the liquidation
preference of any outstanding class or series of Preferred Stock. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company hereby when issued will be, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to any
series of Preferred Stock that the Company may issue in the future, as described
below. The Company's Restated Articles of Incorporation limit the personal
liability of a director to the Company or its shareholders for monetary damages
for conduct as a director, except such limitation does not apply to (i) any
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) any unlawful distribution or (iv) any
transaction from which the director derived an improper personal benefit.
PREFERRED STOCK
The Board of Directors has the authority to issue Preferred Stock in one or
more series and to fix the number of shares constituting any such series and the
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by the shareholders of the Company.
The issuance of Preferred Stock by the Board of Directors could adversely affect
the rights of holders of Common Stock.
The potential issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock. The Company has no plans to issue shares of Preferred
Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the Bank of New
York.
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<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person or entity (a "Non-U.S.
Holder"). For purposes of this discussion, a "Non-U.S. Holder" is any person or
entity that is, as to the United States, a foreign corporation, a non-resident
alien individual, a foreign estate or trust, or a foreign partnership. An alien
individual is treated as a resident of the United States during a calendar year
if the individual (i) is a lawful permanent resident of the United States at any
time during the calendar year, (ii) meets the substantial presence test, or
(iii), if certain conditions are satisfied, elects to be treated as a resident.
The substantial presence test is met if an individual is present in the United
States on at least 31 days in the calendar year and for an aggregate of at least
183 days during the current calendar year and the two preceding calendar years
(counting for such purposes all of the days present in the United States during
the current year, one-third of the days present in the United States during the
immediately preceding year, and one-sixth of the days present in the United
States during the second preceding year). Resident aliens are subject to United
States federal tax as if they were United States citizens.
This discussion does not address all aspects of United States federal income
and estate taxes or consider any specific facts or circumstances that may apply
to a particular Non-U.S. Holder. This discussion does not take into account
provisions of income tax treaties that may be applicable in certain
circumstances, nor does it deal with foreign, state and local consequences that
may be relevant to Non-U.S. Holders. Furthermore, this discussion is based on
current provision of the Internal Revenue Code of 1986, as amended (the "IRC"),
existing and proposed regulations promulgated thereunder, and public
administrative and judicial interpretations thereof, all of which are subject to
changes, which could be applied retroactively. Each prospective purchaser of
Common Stock is advised to consult a tax advisor with respect to current and
possible future tax consequences of acquiring, holding and disposing of Common
Stock.
DIVIDENDS
Except as described below, dividends paid to a Non-U.S. Holder of Common
Stock will be subject to withholding of United States federal income tax at a 30
percent rate or such lower rate as may be specified by an applicable income tax
treaty, unless the dividends are effectively connected with the conduct of a
trade or business by the Non-U.S. Holder within the United States. If the
dividend is effectively connected with the conduct of a trade or business of the
Non-U.S. Holder within the United States, the dividend generally will be subject
to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates and will be exempt from the 30 percent
withholding tax described above (assuming the necessary certification and
disclosure requirements are met). Any such effectively connected dividends
received by a foreign corporation may, in certain circumstances, be subject to
an additional "branch profits tax" at a 30 percent rate or such lower rate as
may be specified by an applicable income tax treaty. If a dividend is
effectively connected with conduct of a trade or business by a nonpublicly
traded partnership, and any portion of the dividend is allocable under IRC
Section 704 to a foreign partner, United States federal income tax is withheld
at the highest individual rate (if the foreign partner is not a corporation) and
at the highest corporate rate (if the foreign partner is a corporation),
regardless of whether the dividend is distributed to the foreign partner. A
publicly traded partnership is required to withhold tax on such a dividend only
upon actual distribution to a foreign partner, unless it elects to be subject to
the withholding rules applicable to nonpublicly traded partnerships.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country (i) for purposes of the withholding discussed
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<PAGE>
above (unless the payor has knowledge to the contrary), and (ii), under the
current interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United States
Treasury regulations not currently in effect, however, a Non-U.S. Holder of
Common Stock who wishes to claim the benefit of an applicable treaty rate would
be required to file certain forms and meet other certification requirements.
A Non-U.S. Holder of Common Stock who is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate, timely claim for
refund with the United States Internal Revenue Service ("Service").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) subject to the exception discussed below, the Company is or has been
a "United States real property holding corporation" (a "USRPHC") within the
meaning of IRC Section 897(c)(2) at any time within the shorter of the five-year
period preceding such disposition or the period during which such Non-U.S.
Holder held the Common Stock (the "Required Holding Period"), (ii) the gain is
effectively connected with the conduct of a trade or business within the United
States of the Non-U.S. Holder and, if a tax treaty applies, attributable to a
permanent establishment maintained by the Non-U.S. Holder, (iii) the Non-U.S.
Holder is an individual who holds the share of Common Stock as a capital asset
and is present in the United States for 183 days or more in the taxable year of
the disposition and either (a) such individual has a "tax home" (as defined for
United States federal income tax purposes) in the United States or (b) the gain
is attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iv) the Non-U.S. Holder is subject to tax
pursuant to the Code provisions applicable to certain United States expatriates.
If an individual Non-U.S. Holder falls under clause (ii) or (iv) above, he or
she will be taxed on his or her net gain derived from the sale under regular
United States federal income tax rates. If the individual Non-U.S. Holder falls
only under clause (iii) above, he or she will be subject to a flat 30 percent
tax on the gain derived from the sale which may be offset by losses, allocable
to sources within the United States, from sale or exchange of capital assets at
any time during the year (notwithstanding the fact that he or she is not
considered a resident of the United States). If a Non-U.S. Holder that is a
foreign corporation falls under clause (ii) above, it will be taxed on its gain
under regular graduated United States federal income tax rates and, in addition,
will under certain circumstances be subject to the branch profits tax equal to
30 percent of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50 percent of the sum of the
fair market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. The Company believes that it is not
currently a USRPHC; however, even if the Company met the test for a USRPHC, a
Non-U.S. Holder would generally not be subject to tax, or withholding in respect
of such tax, on gain from a sale or other disposition of Common Stock solely by
reason of the Company's USRPHC status if the Common Stock is regularly traded on
an established securities market ("regularly traded") during the calendar year
in which such sale or disposition occurs, provided that such holder does not
own, actually or constructively, Common Stock with a fair market value in excess
of 5 percent of the fair market value of all Common Stock outstanding at any
time during the Required Holding Period. The Company believes that the Common
Stock will be treated as regularly traded.
If the Company is or has been a USRPHC within the required Holding Period,
and if a Non-U.S. Holder owns or, at any time during the Required Holding
Period, owned in excess of 5 percent of the fair market value of Common Stock
(as described in the preceding paragraph), such Non-U.S. Holder of Common Stock
would be subject to United States federal income tax at regular graduated rates
under certain rules ("FIRPTA tax") on gain recognized on a sale or other
disposition of such Common Stock. In
36
<PAGE>
addition, if the Company is or has been a USRPHC within the Required Holding
Period and if the Common Stock is not treated as regularly traded, a Non-U.S.
Holder (without regard to its ownership percentage) would be subject to
withholding in respect to FIRPTA tax at a rate of 10 percent of the amount
realized on a sale or other disposition of Common Stock and would be further
subject to FIRPTA tax in excess of the amounts withheld. Any amount withheld
pursuant to such withholding tax would be creditable against such Non-U.S.
Holder's United States federal income tax liability. Non-U.S. Holders are urged
to consult their tax advisors concerning the potential applicability of these
provisions.
FEDERAL ESTATE TAXES
Common Stock owned, or treated as owned, by an individual Non-U.S. Holder at
the time of his or her death will be included in such holder's gross estate for
United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S. Holder
of the amount of dividends paid to such holder and the tax withheld with respect
to such dividends. These information reporting requirements apply regardless of
whether withholding is required. Copies of the information returns reporting
such dividends and the withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder resides under the
provisions of an applicable income tax treaty or other agreement with the tax
authorities in that country.
Backup withholding of United States federal income tax (which, in general,
is a withholding tax imposed at the rate of 31 percent on certain payments to
persons that fail to furnish certain information under the United States
information requirements) generally will not apply to (i) the payment of
dividends paid on Common Stock to a Non-U.S. Holder at an address outside the
United States or (ii) the payment of the proceeds of the sale of Common Stock to
or through the foreign office of a broker. Under temporary regulations, backup
withholding is not required with respect to payment of proceeds from a sale of
Common Stock through a foreign office of a broker that is a United States person
or a "U.S. related person," although, the Service has issued proposed
regulations that appear to require backup withholding unless the broker is not
required to file an information return with respect to the payment. In the case
of the payment of proceeds from a sale of Common Stock through a foreign office
of a broker that is a United States person or a "U.S. related person,"
information reporting is required with respect to the payment unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder (and
has no actual knowledge to the contrary) and certain other requirements are met
or the holder otherwise establishes an exemption. As used above, a "U.S. related
person" is (i) a "controlled foreign corporation" for United States federal
income tax purposes, or (ii) a foreign person 50 percent or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. The payment of
the proceeds of a sale of shares of Common Stock to or through a United States
office of a broker is subject to information reporting and possible backup
withholding unless the owner certifies its Non-U.S. Holder status under
penalties of perjury or otherwise establishes an exemption. Any amounts withheld
under the backup withholding rules from a payment to a Non-U.S. Holder will be
allowed as a refund or a credit against such Non-U.S. Holder's United States
federal income tax liability, provided that the required information is
furnished to the Service.
These information reporting and backup withholding rules are under review by
the United States Treasury, and their application to the Common Stock could be
changed prospectively by future regulations.
37
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, the U.S. Underwriters named below have severally agreed
to purchase, and the Company has agreed to sell to them, and the International
Underwriters named below have severally agreed to purchase, and the Company has
agreed to sell to them, the respective number of shares of the Company's Common
Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................................. 675,000
Goldman, Sachs & Co............................................................ 675,000
Donaldson, Lufkin & Jenrette Securities Corporation............................ 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............................. 100,000
PaineWebber Incorporated....................................................... 100,000
Ragen MacKenzie Incorporated................................................... 100,000
Robertson, Stephens & Company LLC.............................................. 100,000
Salomon Brothers Inc........................................................... 100,000
Schroder Wertheim & Co. Incorporated........................................... 100,000
Cowen & Company................................................................ 50,000
Furman Selz LLC................................................................ 50,000
Gabelli & Company, Inc......................................................... 50,000
Jensen Securities Co........................................................... 50,000
C.L. King & Associates......................................................... 50,000
McDonald & Company Securities, Inc............................................. 50,000
Pacific Crest Securities....................................................... 50,000
Sutro & Co. Incorporated....................................................... 50,000
H.C. Wainwright & Co., Inc..................................................... 50,000
----------
Subtotal..................................................................... 2,500,000
International Underwriters:
Morgan Stanley & Co. International Limited..................................... 320,000
Goldman Sachs International.................................................... 320,000
ABN AMRO Rothschild............................................................ 32,000
Commerzbank Aktiengesellschaft................................................. 32,000
Credit Commercial de France.................................................... 32,000
Robert Fleming & Co. Limited................................................... 32,000
Societe Generale............................................................... 32,000
----------
Subtotal..................................................................... 800,000
----------
Total........................................................................ 3,300,000
----------
----------
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below)
if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and
38
<PAGE>
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any U.S. Shares or distribute any prospectus relating to the U.S.
Shares outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Agreement Between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions, (i) it is not purchasing any International
Shares (as defined below) for the account of any United States or Canadian
Person and (ii) it has not offered or sold, and will not offer or sell, directly
or indirectly, any International Shares or distribute any prospectus relating to
the International Shares within the United States or Canada or to any United
States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International Underwriter, the foregoing representations and
agreements (i) made by it in its capacity as a U.S. Underwriter shall apply only
to shares of Common Stock purchased by it in its capacity as a U.S. Underwriter,
(ii) made by it in its capacity as an International Underwriter shall apply only
to shares of Common Stock purchased by it in its capacity as an International
Underwriter and (iii) shall not restrict its ability to distribute any
prospectus relating to the shares of Common Stock to any person. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or any political subdivision thereof (other than
a branch located outside the United States and Canada of any United States or
Canadian Person) and includes any United States or Canadian branch of a person
who is otherwise not a United States or Canadian Person. All shares of Common
Stock to be purchased by the U.S. Underwriters and the International
Underwriters are referred to herein as the U.S. Shares and the International
Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency of any shares sold shall be the Price to Public set forth on the cover
page hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
any province or territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the securities laws
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made, and that such dealer will
deliver to any other dealer to whom it sells any of such Common Stock a notice
to the foregoing effect.
Each International Underwriter has agreed that: (i) it has not offered or
sold and will not offer or sell any shares of Common Stock to persons in the
United Kingdom ("U.K.") except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the U.K.
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the
39
<PAGE>
Common Stock in, from or otherwise involving the U.K.; and (iii) it has only
issued or passed on, and will only issue or pass on, to any person in the U.K.
any document received by it in connection with the issue of the Common Stock, if
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom the document may otherwise lawfully be issued or passed on.
The Underwriters propose to offer part of the Common Stock directly to the
public at the Price to Public set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of $1.25
per share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 a share to other
Underwriters or to certain dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of the Prospectus,
to purchase up to 495,000 additional shares of Common Stock at the Price to
Public set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option to purchase solely
for the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common Stock offered hereby. To the extent such option
is exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such U.S. Underwriter's name in the
proceeding table bears to the total number of U.S. Shares as offered hereby.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Company and directors and executive officers of the Company have agreed
in the Underwriting Agreement, with certain exceptions, not to (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, except for the shares to be sold in the
offerings, for a period of at least 90 days from the date of this Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated, on
behalf of the several Underwriters. If any such consent is given it would not
necessarily be preceded or followed by a public announcement thereof.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby will be passed upon for the Company by Stoel Rives LLP, Portland, Oregon.
Brown & Wood LLP, San Francisco, California, will act as counsel for the
Underwriters.
EXPERTS
The consolidated financial statements of the Company incorporated in this
prospectus by reference to the Annual Report on Form 10-K of Precision Castparts
Corp. for the year ended March 31, 1996 have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of The Olofsson Corporation and
subsidiaries as of December 31, 1995, and for the year ended December 31, 1995
included in Amendment No. 1 to the Current Report on Form 8-K/A of PCC dated May
31, 1996 and incorporated by reference in this Prospectus and Registration
Statement of which this Prospectus is a part have been incorporated by
40
<PAGE>
reference herein and therein in reliance on the report of KPMG Peat Marwick LLP,
independent certified public accountants, given on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements of NEWFLO Corporation at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, included in Amendment No. 1 to the Current Report on Form 8-K/A of PCC
dated July 31, 1996 and incorporated by reference in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon, incorporated by reference
herein, and are incorporated by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The balance sheet as of June 30, 1996 and the statements of income and cash
flows for the year then ended of AE Turbine Components, Limited incorporated in
this Prospectus by reference to Amendment No. 1 to the Current Report on Form
8-K/A of Precision Castparts Corp. dated July 19, 1996 have been so incorporated
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
41
<PAGE>
[LOGO]
<PAGE>
Rule 424(b)(4)
Registration No. 333-12971
PROSPECTUS
ISSUED NOVEMBER 21, 1996
3,300,000 SHARES
PRECISION CASTPARTS CORP.
COMMON STOCK
-----------------
OF THE 3,300,000 SHARES OF COMMON STOCK OFFERED, 800,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND 2,500,000 SHARES ARE BEING OFFERED INITIALLY IN THE
UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED ARE
BEING SOLD BY THE COMPANY. THE COMPANY'S COMMON STOCK
IS LISTED ON THE NEW YORK, PHILADELPHIA, MIDWEST
AND PACIFIC STOCK EXCHANGES. ON NOVEMBER 21,
1996, THE REPORTED LAST SALE PRICE
OF THE COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE
COMPOSITE TAPE WAS
$46 7/8.
SEE "RISK FACTORS" AT PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $46 1/2 A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
---------------- --------------- ----------------
<S> <C> <C> <C>
PER SHARE............................................... $46.50 $2.09 $44.41
TOTAL (3)............................................... $153,450,000 $6,897,000 $146,553,000
</TABLE>
- ------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $500,000.
(3) THE COMPANY HAS GRANTED TO THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
495,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC, LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $176,467,500, $7,931,550 AND $168,535,950, RESPECTIVELY.
SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS, AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS BY BROWN &
WOOD LLP, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT THE DELIVERY OF THE
SHARES WILL BE MADE ON OR ABOUT NOVEMBER 27, 1996, AT THE OFFICE OF MORGAN
STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN SAME DAY
FUNDS.
-------------------
MORGAN STANLEY & CO. GOLDMAN SACHS INTERNATIONAL
INTERNATIONAL
<PAGE>
NOVEMBER 21, 1996
