20
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 27, 1998
Commission File No. 1-10348
_______________________________________
Precision Castparts Corp.
An Oregon Corporation
IRS Employer Identification No. 93-0460598
4650 S.W. Macadam Avenue
Suite 440
Portland, Oregon 97201-4254
Telephone: (503) 417-4800
_______________________________________
Indicate by checkmark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares of Common Stock, no par value, outstanding
as of February 8, 1999: 24,465,426
Page 1 of 20 Pages
Note: This 10-Q was filed electronically via EDGAR with the
Securities and Exchange Commission.
</Page>
<PAGE>
Page 2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Precision Castparts Corp. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
___________________________
12/27/98 12/28/97
___________________________
<S> <C> <C>
Net Sales $ 361,200 $326,400
Cost of Goods Sold 277,300 255,000
Selling and Administrative Expenses 37,000 30,400
Interest Expense, Net 6,800 5,100
_________ _________
Income Before Provision for
Income Taxes 40,100 35,900
Provision for Income Taxes 14,400 14,300
_________ _________
Net Income $ 25,700 $ 21,600
========= =========
Net Income Per Common Share (Basic) $ 1.05 $ 0.89
========= =========
Net Income Per Common Share (Diluted) $ 1.05 $ 0.88
========= =========
</TABLE>
See Notes to the Interim Financial Statements on page 8.
</Page>
<PAGE>
Page 3
<TABLE>
<CAPTION>
Nine Months Ended
___________________________
12/27/98 12/28/97
___________________________
<S> <C> <C>
Net Sales $1,094,600 $961,500
Cost of Goods Sold 838,900 752,300
Selling and Administrative Expenses 112,400 91,300
Interest Expense, Net 20,700 14,600
_________ ________
Income Before Provision for
Income Taxes 122,600 103,300
Provision for Income Taxes 47,200 41,500
_________ ________
Net Income $ 75,400 $ 61,800
========= ========
Net Income Per Common Share (Basic) $ 3.10 $ 2.56
========= ========
Net Income Per Common Share (Diluted) $ 3.08 $ 2.54
========= ========
</TABLE>
See Notes to the Interim Financial Statements on page 8.
</Page>
<PAGE>
Page 4
Precision Castparts Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
12/27/98 3/29/98
________________________
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,800 $ 25,000
Receivables 250,400 208,600
Inventories 267,700 240,900
Prepaid expenses 6,700 7,100
Current deferred tax asset 31,800 29,200
__________ __________
Total current assets 560,400 510,800
__________ __________
Property, Plant and Equipment, at cost 545,000 490,200
Less -- Accumulated depreciation (224,100) (197,500)
__________ __________
Net property, plant and equipment 320,900 292,700
Goodwill, net of amortization 521,800 451,600
Other Assets, net 28,500 19,500
__________ __________
$1,431,600 $1,274,600
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable $ 18,700 $ 800
Current portion of long-term debt 24,000 24,400
Accounts payable 95,000 87,500
Accrued liabilities 130,500 123,700
Income taxes payable 33,700 28,400
__________ __________
Total current liabilities 301,900 264,800
__________ __________
Long-Term Debt, excluding
current portion 383,900 347,000
Deferred Tax Liability 23,200 23,200
Accrued Retirement Benefits Obligation 40,900 34,000
Other Long-Term Liabilities 14,000 10,300
__________ __________
Total liabilities 763,900 679,300
__________ __________
See Notes to the Interim Financial Statements on page 8.
</Page>
<PAGE>
Page 5
Shareholders' Investment:
Common stock 24,400 24,300
Paid-in capital 174,500 172,400
Retained earnings 470,700 399,700
Cumulative translation adjustment (1,900) (1,100)
__________ __________
Total shareholders' investment 667,700 595,300
__________ __________
$1,431,600 $1,274,600
========== ==========
</TABLE>
Precision Castparts Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
__________________________
12/27/98 12/28/97
__________________________
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 75,400 $ 61,800
Non-cash items included in income:
Depreciation and amortization 39,800 32,400
Deferred taxes (100) 1,800
Changes in operating working capital,
excluding effects of acquisitions:
Receivables (38,900) (27,500)
Inventories (27,100) 10,800
Payables, accruals & current taxes 4,500 (8,500)
Other operating activities, net 2,100 (300)
_________ ________
Net cash provided by operating
activities 55,700 70,500
_________ ________
Cash Flows from Investing Activities:
Business acquisitions, net of
cash acquired (76,100) (113,300
)
Acquisition of property, plant
and equipment (56,100) (51,100)
Other investing activities, net 5,200 8,500
_________ ________
_
Net cash used by investing
activities (127,000) (155,900
)
_________ _________
See Notes to the Interim Financial Statements on page 8.
</Page>
<PAGE>
Page 6
</TABLE>
<TABLE>
<S> <C> <C>
Cash Flows from Financing Activities:
Proceeds of long-term debt 60,500 245,000
Payment of long-term debt (25,400) (144,300
)
Proceeds(payment) of notes payable 17,900 (12,900
)
Proceeds from exercise of
stock options 2,200 7,400
Cash dividends (4,400) (4,400)
Other financing activities, net (700) (1,900)
_________ ________
Net cash provided by financing
activities 50,100 88,900
_________ ________
Net (Decrease)Increase in Cash and
Cash Equivalents (21,200) 3,500
Cash and Cash Equivalents at
Beginning of Period 25,000 10,100
_________ ________
Cash and Cash Equivalents at
End of Period $ 3,800 $ 13,600
========= ========
</TABLE>
See Notes to the Interim Financial Statements on page 8.
</Page>
<PAGE>
Page 7
Precision Castparts Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
_______________________
12/27/98 12/28/97
_______________________
<S> <C> <C>
Net income $ 25,700 $ 21,600
Other comprehensive income (expense):
Foreign currency translation
adjustments (1,900) 1,100
__________ _________
Total comprehensive income $ 23,800 $ 22,700
========== =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
_______________________
12/27/98 12/28/97
_______________________
<S> <C> <C>
Net income $ 75,400 $ 61,800
Other comprehensive income (expense):
Foreign currency translation
adjustments (800) (400)
__________ _________
Total comprehensive income $ 74,600 $ 61,400
========== =========
</TABLE>
See Notes to the Interim Financial Statements on page 8.
</Page>
<PAGE>
Page 8
Notes to the Interim Financial Statements
(1) Basis of Presentation
The consolidated interim financial statements have been
prepared by Precision Castparts Corp. (PCC or the
Company), without audit and subject to year-end
adjustment, in accordance with generally accepted
accounting principles, except that certain information
and footnote disclosures made in the latest annual
report have been condensed or omitted for the interim
statements. Certain costs are estimated for the full
year and allocated in interim periods based on
estimates of operating time expired, benefit received,
or activity associated with the interim period. The
consolidated financial statements reflect all
adjustments which are, in the opinion of management,
necessary for fair representation.
(2) Business Acquisitions
All acquisitions have been accounted for under the
purchase method. The results of operations of the
acquired businesses are included in the consolidated
financial statements from the dates of acquisition.
During the first quarter of fiscal 1999, PCC acquired
the stock of Environment/One Corporation (E/One), a
manufacturer of highly engineered equipment for low-
pressure sewer systems and other applications, for
$72.0 million. The excess of the purchase price over
the fair values of the net assets acquired was
approximately $62.3 million and has been recorded as
goodwill. E/One operates as part of PCC Flow
Technologies, Inc.
Also during the first quarter of fiscal 1999, the
Company acquired the assets of TBV, a manufacturer of
ball valves and pipeline instrumentation, for $9.8
million. The excess of the purchase price over the fair
values of the net assets acquired was approximately
$4.4 million and has been recorded as goodwill. TBV
operates as part of PCC Flow Technologies, Inc.
During the second quarter of fiscal 1998, the Company
acquired certain of the assets of Pittler GmbH of
Langen, Germany. In the third quarter of fiscal 1998,
the Company acquired J&L Fiber Services. In the fourth
quarter of fiscal 1998, the Company acquired Schlosser
Casting Company and Baronshire Engineering Limited.
</Page>
<PAGE>
Page 9
(3) Earnings Per Share
PCC's authorized common stock consisted of 100,000,000
shares having a stated value of $1.00 each.
Information related to the calculation of earnings per
share follows:
<TABLE>
<CAPTION>
Three Months Ended
________________________
12/27/98 12/28/97
______________________________________
Basic Diluted Basic Diluted
______________________________________
<S> <C> <C> <C> <C>
Net Income $ 25,700 $ 25,700 $ 21,600 $ 21,600
______________________________________
Average equivalent shares:
Average shares of
common stock
outstanding 24,400 24,400 24,200 24,200
Options and Employee
Stock Purchase Plan - 100 - 200
______________________________________
Total average
equivalent shares 24,400 24,500 24,200 24,400
______________________________________
Net income per common share $ 1.05 $ 1.05 $ 0.89 $ 0.88
======================================
</TABLE>
</Page>
<PAGE>
Page 10
<TABLE>
<CAPTION>
Nine Months Ended
________________________
12/27/98 12/28/97
______________________________________
Basic Diluted Basic Diluted
______________________________________
<S> <C> <C> <C> <C>
Net Income $ 75,400 $ 75,400 $ 61,800 $ 61,800
______________________________________
Average equivalent shares:
Average shares of
common stock
outstanding 24,300 24,300 24,100 24,100
Options and Employee
Stock Purchase Plan - 200 - 200
______________________________________
Total average
equivalent shares 24,300 24,500 24,100 24,300
______________________________________
Net income per common share $ 3.10 $ 3.08 $ 2.56 $ 2.54
======================================
</TABLE>
(4) Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, was adopted as of
March 30, 1998. Comprehensive income is net income,
plus certain other items that are recorded directly to
stockholders' equity. The only such item currently
applicable to PCC is foreign currency translation
adjustments. The adoption of this Statement had no
impact on the Company's net income, cash flow or
shareholders' investment.
(5) Long Term Debt
In December 1997, the Company completed a public
offering of $150.0 million of 6.75% notes due December
15, 2007, with interest to be paid semi-annually. The
Company used $105.3 million of the proceeds to repay
bank indebtedness originally incurred in connection
with redemption of the Company's $100.0 million
principal amount of 13.25% subordinated notes due 2002
issued by NEWFLO Corporation (the "NEWFLO Notes").
</Page>
<PAGE>
Page 11
The NEWFLO Notes were redeemed as of November 15, 1997.
The remainder of the proceeds were used to pay down
short-term debt.
(6) Shareholder Rights Plan
Effective December 3, 1998, PCC declared a dividend of
one preferred stock purchase right for each outstanding
share of common stock of the Company to shareholders of
record at the close of business on December 16, 1998.
Under certain conditions, each right may be exercised
to purchase 1/100 of a share of series A no par serial
preferred stock at a purchase price of $200, subject to
adjustment. The rights will be exercisable only (i) if
a person or group has acquired, or obtained the right
to acquire, 15 percent or more of the outstanding
shares of common stock, (ii) following the commencement
of a tender or exchange offer that would result in a
person or group beneficially owning 15 percent or more
of the outstanding shares of common stock, or (iii)
after the Board of Directors of PCC declares any person
who owns more than 10 percent of the outstanding common
stock to be an Adverse Person. Each right will entitle
its holder to receive, upon exercise, common stock of
the Company (or, in certain circumstances, cash,
property or other securities of PCC) having a value
equal to two times the exercise price of the right.
If the rights become exercisable, and (i) PCC is
acquired in a merger or other business combination in
which PCC does not survive or in which its common stock
is exchanged for stock or other securities or property,
or (ii) 50 percent or more of the Company's assets or
earning power is sold or transferred, each right will
entitle its holder to receive, upon exercise, common
stock of the acquiring company having a value equal to
two times the exercise price of the right. The rights
expire on December 16, 2008, and may be redeemed by PCC
for $0.001 per right at any time until a determination
is made that any person is an Adverse Person, or 10
days following the time that a person has acquired 15
percent or more of the outstanding common stock, or in
connection with certain transactions approved by the
Board of Directors. The rights do not have voting or
dividend rights and, until they become exercisable,
have no dilutive effect on the earnings of PCC.
</Page>
<PAGE>
Page 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Sales for the third quarter of fiscal 1999 were $361.2
million, up 11 percent from $326.4 million in the same
quarter last year. Net income was $25.7 million, or $1.05
per share (diluted), for the quarter, compared with net
income of $21.6 million, or $0.88 per share (diluted) in the
third quarter of fiscal 1998.
Results of Operations - Comparison Between Three Months
Ended December 27, 1998 and December 28, 1997
Sales increased $34.8 million as compared to the third
quarter a year ago, primarily due to acquisitions completed
in fiscal 1998 and the first half of fiscal 1999, coupled
with increased demand in the aerospace, gas turbine and
general valve markets.
Cost of goods sold as a percent of sales for the third
quarter of fiscal 1999 was 77 percent, an improvement from
the 78 percent reported in the third quarter last year.
This improvement came from leveraging higher sales, the
addition of acquisitions yielding higher margins, and
continued improvements in manufacturing processes.
Selling and administrative costs were $37.0 million for the
quarter, up $6.6 million from the $30.4 million a year ago.
The higher level of selling and administrative expenses
primarily reflects the addition of the new acquisitions
completed in fiscal 1998 and fiscal 1999.
Net interest expense in the third quarter of fiscal 1999 was
$6.8 million, as compared with $5.1 million in the third
quarter a year ago. The higher expense reflects higher debt
levels as a result of borrowings to fund the acquisitions
and debt assumed in connection with the acquisitions.
The effective tax rate in the third quarter of fiscal 1999
was 35.9 percent, compared to last year's effective tax rate
of 39.8 percent. The lower fiscal 1999 effective tax rate
primarily reflects higher estimated tax benefits related to
international sales.
</Page>
<PAGE>
Page 13
Results of Operations - Comparison Between Nine Months Ended
December 27, 1998 and December 28, 1997
Sales of $1,094.6 million for the first nine months of
fiscal 1999 increased $133.1 million, or 14 percent,
compared to the first nine months a year ago. The increase
reflects the acquisitions completed in fiscal 1998 and
fiscal 1999, and improved sales to the aerospace industry.
Cost of goods sold as a percent of sales for the first nine
months of fiscal 1999 was 77 percent, a slight improvement
from the 78 percent from the first nine months of last year.
This improvement came from leveraging higher sales, the
addition of acquisitions yielding higher margins and
continued improvements in manufacturing processes.
Selling and administrative costs were $112.4 million for the
first nine months, or 10 percent of sales, compared to $91.3
million or 9.5 percent of sales, a year ago. The increased
level of selling and administrative expenses primarily
reflects the acquisitions completed in fiscal 1998 and
fiscal 1999, which operate with higher selling expenses due
to their related advertising, trade show and sales
commission expenses.
Net interest expense in the first nine months of fiscal 1999
was $20.7 million, as compared with $14.6 million in the
first nine months a year ago. The higher expense reflects
higher debt levels as a result of borrowings to fund the
acquisitions and debt assumed in connection with the
acquisitions.
The effective tax rate for the first nine months of fiscal
1999 was 38.5 percent, compared to last year's effective tax
rate of 40.2 percent. The lower fiscal 1999 effective tax
rate primarily reflects higher estimated tax benefits
related to international sales.
Changes in Financial Condition and Liquidity
Total assets of $1,431.6 million at December 27, 1998,
represented a $157.0 million increase from the $1,274.6
million balance at March 29, 1998. This increase reflects
the acquisitions of E/One and TBV, coupled with an increase
in working capital and fixed assets, partially offset by a
decrease in cash.
</Page>
<PAGE>
Page 14
Total capitalization at December 27, 1998, was $1,094.3
million, consisting of $426.6 million of debt and $667.7
million of equity. The debt-to-capitalization ratio was 39
percent compared with 38 percent at the end of the prior
fiscal year.
Cash from earnings for the nine months ended December 27,
1998 of $115.1 million, plus $53.0 million of net borrowings
and $2.2 million from the sale of common stock through stock
option exercises, was less than cash requirements which
consisted of $76.1 million for the acquisitions of E/One and
TBV, $59.4 million for increased working capital, $56.1
million for capital expenditures and $4.4 million for
dividends. The net decrease in cash for the nine months
resulted in an ending cash balance of $3.8 million, down
$21.2 million from fiscal 1998 year end.
PCC believes that future capital requirements for property,
plant and equipment and cash dividends can be funded from
existing cash or additional borrowings. The Company
continues to evaluate potential acquisitions and believes
acquisition opportunities can be funded from cash,
additional borrowings and the issuance of stock.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (the Statement), which is required to
be adopted in years beginning after June 15, 1999. The
Company expects to adopt the Statement effective
April 3, 2000. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to
fair value through earnings. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the
change in fair value of the hedged asset, liability, or firm
commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.
Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of the
Statement will not have a significant effect on the
Company's results of operations or its financial position.
</Page>
<PAGE>
Page 15
Year 2000 Update
As many computer systems and other equipment with embedded
chips or processors use only two digits to represent the
calendar year, they may be unable to process accurately
certain data before, during or after the year 2000. As a
result, business entities are at risk for possible
miscalculations or systems failures causing disruptions in
their business operations. This is commonly known as the
Year 2000 (Y2K) issue. The Y2K issue can arise at any point
in the Company's supply, manufacturing, processing,
distribution, and financial chains.
The Company began addressing the Y2K issue in November 1997,
with the development of a standardized Year 2000 Plan
format. Prior to that time, many of the Company's
operations had already begun Y2K planning initiatives.
By March 1998 each of PCC's operating units had completed a
Year 2000 Plan that included the following components:
1) Inventory of all computing assets (both hardware
and software);
2) Assessment of Y2K compliance for all systems;
3) Determination of solutions for non-compliant
systems;
4) Development of a project schedule for non-
compliant systems, and
5) Contact with significant suppliers to determine
the sufficiency of their Year 2000 Plans.
The Company has prioritized projects on systems, that if not
corrected, have the potential of causing a material
disruption to the production process or financial and
accounting processes. The Company refers to these projects
as Critical Projects.
There are currently thirteen Critical Projects. Ten
Critical Projects involve replacement of accounting and
business systems, and the three remaining Critical Projects
involve compliance of manufacturing and production control
equipment. PCC management had set March 31, 1999, as the
revised target date for Y2K compliance on all Critical
Projects. Six of the Critical Projects have been completed,
six more will be completed during the fourth quarter, and
the remaining project is scheduled for completion by June
1999. Management is constantly monitoring the status of the
Critical Projects, and control mechanisms are in place to
identify and react to slippages in system remediation
schedules.
</Page>
<PAGE>
Page 16
In addition, the Company is developing contingency plans
intended to mitigate the possible disruption in business
operations that may result from the Y2K issue. Contingency
plans may include stockpiling necessary materials and
inventories, securing alternate sources of supply, adjusting
facility shut-down and start-up schedules, development of
manual procedures to execute transactions and complete
processes and other appropriate measures. Once developed,
contingency plans will be continually refined as additional
information becomes available.
PCC is a highly diversified company comprised of more than
one business segment. Each of these segments have multiple
operating units, resulting in twenty five separate Year 2000
Plans. PCC has not required standardized systems throughout
the Company. This diversification has allowed the Company
to spread the risk of Y2K failures, since no one system is
responsible for the entire financial or operational needs of
the Company. Also, with few exceptions, business systems
that are not compliant are being replaced with packaged
systems as opposed to in-house developed and maintained
systems.
New business systems being installed include Platinum, JD
Edwards, Frontier and MAPICS. These systems have all had
significant testing for Y2K compliance performed by the
manufacturer and user community.
In addition, all the systems will be tested in-house by a
two step process:
1) Primary Testing - each operating unit responsible
for installation is also required to apply tests to
determine Y2K compliance of the system in its
operating environment.
2) Secondary Testing - the Company has established an
incremental Y2K Internal Audit position to augment
the Internal Audit function. Internal Audit has
begun, and will continue to perform, Y2K testing on
selected systems. The scheduled completion date is
June 30, 1999.
</Page>
<PAGE>
Page 17
While the Company's diversification reduces the risk that a
material Y2K issue will affect the Company's performance,
this same diversification increases the possibility that Y2K
issues will occur since many more systems exist than in a
centralized environment. Management is addressing this
issue by:
(1) The development of a formal Year 2000 Plan for
each operating unit;
(2) Requiring frequent updates on the status of
Critical Projects;
(3) Development of a Year 2000 team which includes key
Information Systems managers within the divisions;
(4) Requiring primary and secondary testing of
systems, and
(5) Development of contingency plans for all critical
manufacturing and financial systems.
Costs
The total cost associated with the modifications and
replacement of systems to become Year 2000 compliant is not
expected to be material to the Company's financial position.
The estimated total cost of all Y2K projects is $5.4
million. The $5.4 million includes 113 systems identified
as requiring some cost for Y2K upgrades, and includes $2.0
million for systems that although not Year 2000 compliant
would have been replaced for other reasons by Year 2000 or
shortly thereafter.
The Company has spent $2.8 million on Year 2000 systems,
including $2.3 million to replace systems and $0.5 million
to upgrade or modify existing systems. Estimated future
costs of $2.6 million include $1.9 million to replace
systems and $0.7 million to upgrade or modify systems.
The Company has spent $2.2 million on the thirteen Critical
Projects, which are estimated to represent $3.6 million of
the $5.4 million estimated total cost of all Y2K projects.
All costs associated with these projects have been provided
for from existing operating budgets and are funded through
operating cash flow.
</Page>
<PAGE>
Page 18
Risks
The Company relies on third party suppliers for raw
materials, outside processing, utilities, transportation and
other key services. Interruption of supplier operations due
to Y2K issues could affect Company operations. PCC has
initiated efforts to evaluate the status of suppliers'
efforts and to determine alternatives and contingency plan
requirements. While approaches to reducing risks of
interruption due to supplier failures will vary by division
and operating unit, options include identification of
alternate suppliers and accumulation of inventory to assure
production capability where feasible or warranted. These
activities are intended to provide a means of managing risk,
but cannot eliminate the potential for disruptions due to
third party failure.
The Company is also dependent upon its customers for sales
and cash flow. Y2K interruptions in the Company's customers'
operations could result in reduced sales, increased
inventory or receivable levels and cash flow reductions.
While these events are possible, PCC's customer base is
broad enough to minimize the affects of a single occurrence.
The Company, however, is in communication with its major
customers with respect to Y2K issues, and not only has
received information indicating that they are developing and
monitoring their own plans, but that they are also
monitoring both their customers' and suppliers' plans.
The Year 2000 project is expected to significantly reduce
the Company's level of uncertainty about the Y2K problem.
The Company believes that, with the implementation of new
business systems and completion of the Critical Projects as
scheduled, the possibility of significant interruptions of
normal operations should be reduced.
In addition, failure to meet critical milestones identified
in the Company's Plan would provide advance notice, and
steps would be taken to prevent Y2K failures. Customers and
suppliers would also receive advance notice allowing them to
implement alternate plans. However, despite the Company's
activities in regards to the Year 2000 issue, there can be
no assurance that partial or total systems interruptions or
the costs necessary to update hardware and software would
not have a material adverse effect upon the Company's
business, financial condition, results of operations and
business processes.
</Page>
<PAGE>
Page 19
The Company's Year 2000 project is an ongoing process and
the estimates of costs and completion dates for various
components of Y2K readiness described above are subject to
change. Readers are cautioned that forward looking
statements contained in the Year 2000 discussion above
should be read in conjunction with the Company's disclosures
under the heading: "Forward Looking Statements" on page 20.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 3. Restated Articles of Incorporation of
Precision Castparts Corp. as
amended
Exhibit 11. Computation of Per
Share Earnings*
Exhibit 27. Financial Data Schedule
* Data required by Statement of Financial
Accounting Standards No. 128, Earnings per Share,
is provided in Note 3 to the Consolidated
Financial Statements in this Report.
b. Reports on Form 8-K
On December 3, 1998, the Company filed a current
report on Form 8-K reporting under Item 5
thereof the adoption of a shareholder rights
plan. See Note (6) to the Financial Statements
in Part I.
</Page>
<PAGE>
Page 20
Forward Looking Statements
Information included within this filing describing the
projected growth and future results and events constitutes
forward-looking statements. Actual results in future
periods may differ materially from the forward-looking
statements because of a number of risks and uncertainties,
including but not limited to fluctuations in the aerospace
and general industrial cycles; the relative success of the
Company's entry into new markets, including the rapid ramp-
up for industrial gas turbine component production;
competitive pricing; the availability and cost of materials
and supplies; relations with the Company's employees; the
Company's ability to manage its operating costs and to
integrate acquired businesses in an effective manner;
governmental regulations and environmental matters; risks
associated with international operations and world
economies; timely, effective and cost-efficient introduction
of hardware and software to address the Year 2000 issue; and
implementation of new technologies. Any forward-looking
statements should be considered in light of these factors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
PRECISION CASTPARTS CORP.
Registrant
DATE: February 10, 1999 /s/ W.D. LARSSON
______________________________
W.D. Larsson
Vice President-Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
</Page>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
December 27, 1998, financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000079958
<NAME> PRECISION CASTPARTS CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> DEC-27-1998
<CASH> 3800
<SECURITIES> 0
<RECEIVABLES> 253500
<ALLOWANCES> 3100
<INVENTORY> 267700
<CURRENT-ASSETS> 560400
<PP&E> 545000
<DEPRECIATION> 224100
<TOTAL-ASSETS> 1431600
<CURRENT-LIABILITIES> 301900
<BONDS> 383900
0
0
<COMMON> 24400
<OTHER-SE> 643300
<TOTAL-LIABILITY-AND-EQUITY> 1431600
<SALES> 1094600
<TOTAL-REVENUES> 1094600
<CGS> 838900
<TOTAL-COSTS> 838900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20700
<INCOME-PRETAX> 122600
<INCOME-TAX> 47200
<INCOME-CONTINUING> 75400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75400
<EPS-PRIMARY> 3.10
<EPS-DILUTED> 3.08
</TABLE>
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
PRECISION CASTPARTS CORP.,
AS AMENDED
ARTICLE I
The name of the corporation is Precision Castparts
Corp.
ARTICLE II
1. The aggregate number of shares which the
corporation shall have the authority to issue is one hundred
one million (101,000,000) shares, divided into one hundred
million (100,000,000) shares of Common Stock, without par
value, and one million (1,000,000) shares of No Par Serial
Preferred Stock, without par value.
2. The preference, limitations and relative rights of
the shares of each class shall be as follows:
(i) No Par Serial Preferred Stock.
(a) Determination of Terms of Class. The
corporation's board of directors is hereby expressly
granted authority to determine from time to time and to
the extent permitted by law the preferences,
limitations and relative rights of the No Par Serial
Preferred Stock.
(b) Division Into Series. The corporation's
board of directors is hereby expressly granted
authority to divide any or all shares of the
corporation's Preferred Stock into series designated
"Series ____ No Par Serial Preferred Stock" (inserting
in each case a distinguishing designation determined by
the board of directors for such series) and to fix and
determine from time to time and to the extent permitted
by law the preferences, limitations and relative rights
of the shares of each series. Failure of the board of
directors to specify any preferences and rights in the
resolution establishing any series of the Preferred
Stock shall be deemed a denial of any such preferences
and rights so omitted.
(ii) Common Stock. Subject to all the rights and
preferences of the Preferred Stock, the Common Stock shall
have the following rights and limitations:
</Page>
<PAGE>
(a) Dividends. Whenever there shall have
been paid or set aside for payment to the holders of
the outstanding shares of Preferred Stock and to the
holders of outstanding shares of any other class of
stock having preference over the Common Stock as to the
payment of dividends the full amount of dividends and
of sinking fund or purchase fund or other retirement
payments, if any, to which such holders are
respectively entitled in preference to the Common
Stock, then dividends may be paid on the Common Stock
and on any class of series of stock entitled to
participate therewith as to dividends, out of any
assets legally available for the payment of dividends,
but only when and as declared by the board of
directors, provided that dividends payable in Common
Stock or in any other class of stock ranking as to
dividends and assets subordinate to the Preferred Stock
may be paid without regard to the status of payments to
the holders of Preferred Stock or other classes of
stock.
(b) Voting Rights. Holders of Common Stock
shall be entitled to one vote per share on any matter
submitted to the shareholders.
(c) Liquidation Rights. In the event of any
liquidation, dissolution or winding up of the
corporation, after there shall have been paid to or set
aside for the holders of the shares of Preferred Stock
and any other class of stock having preference over the
Common Stock in the event of liquidation, the full
preferential amounts to which they are respectively
entitled, the holders of the Common Stock and of any
class or series of stock entitled to participate
therewith, in whole or in part, as to the distribution
of assets, shall be entitled to receive the remaining
assets of the corporation available for distribution.
3. The preemptive right of shareholders to acquire
additional or treasury shares of stock in this corporation
is expressly denied.
4. There is hereby created a series of No Par Serial
Preferred Stock of the corporation with the designation,
preferences, limitations and relative rights as follows:
(i) Designation and Amount. The shares of such
series shall be designated as "Series A No Par Serial
Preferred Stock" and the number of shares constituting such
series shall be 300,000.
</Page>
<PAGE>
(ii) Dividends and Distributions.
(a) The holders of shares of Series A No Par
Serial Preferred Stock shall be entitled to receive,
when and as declared by the board of directors, out of
funds legally available for the purpose, dividends in
an amount per share equal to, 100 (the "Adjustment
Number") multiplied by the aggregate per share amount
of all cash dividends, and the Adjustment Number
multiplied by the aggregate per share amount (payable
in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares
of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, without par
value, of the corporation (the "Common Stock") after
the first issuance of any share or fraction of a share
of Series A No Par Serial Preferred Stock.
(b) The corporation shall declare a dividend
or distribution on the Series A No Par Serial Preferred
Stock as provided in paragraph (a) above at the same
time that it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares
of Common Stock).
(c) Dividends shall not be cumulative.
Unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A No Par Serial Preferred
Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding.
(iii) Voting Rights. Except as otherwise
provided by law, each share of Series A No Par Serial
Preferred Stock shall be entitled to a number of votes equal
to the Adjustment Number on any matter submitted to the
shareholders and the Series A No Par Serial Preferred Stock,
any other series of Preferred Stock and the Common Stock
shall vote together as one class.
</Page>
<PAGE>
(iv) Certain Restrictions.
(a) Whenever dividends or distributions
payable on the Series A No Par Serial Preferred Stock
as provided in Section (ii) have not been declared or
paid for any fiscal year, until all such dividends and
distributions for such fiscal year on shares of
Series A No Par Serial Preferred Stock outstanding
shall have been declared and paid in full, the
corporation shall not in such fiscal year:
(i) declare or pay dividends on or make
any other distributions on any shares of stock
ranking junior or on a parity (either as to
dividends or upon liquidation, dissolution or
winding up) to the Series A No Par Serial
Preferred Stock except dividends paid ratably on
the Series A No Par Serial Preferred Stock and all
such parity stock on which dividends are payable
in proportion to the total amounts to which the
holders of all such shares are then entitled and
dividends or distributions payable in Common
Stock;
(ii) purchase or otherwise acquire for
consideration any shares of Series A No Par Serial
Preferred Stock or any shares of stock ranking on
a parity with the Series A No Par Serial Preferred
Stock, except in accordance with a purchase offer
made in writing or by publication (as determined
by the board of directors) to all holders of such
shares upon such terms as the board of directors,
after consideration of the respective dividend
rates and other relative rights and preferences of
the respective series and classes, shall determine
in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The corporation shall not permit any
subsidiary of the corporation to purchase or otherwise
acquire for consideration any shares of stock of the
corporation unless the corporation could, under
paragraph (a) of this Section (iv), purchase or
otherwise acquire such shares at such time and in such
manner.
</Page>
<PAGE>
v. Restriction on Issuance of Shares; Reacquired
Shares. The corporation shall not issue any shares of
Series A No Par Serial Preferred Stock except upon exercise
of rights (the "Rights") issued pursuant to the Rights
Agreement dated as of December 3, 1998, between the
corporation and The Bank of New York (the "Rights
Agreement"), a copy of which is on file with the secretary
of the corporation at its principal executive office and
shall be made available to stockholders of record without
charge upon written request. Any shares of Series A No Par
Serial Preferred Stock purchased or otherwise acquired by
the corporation in any manner whatsoever may be restored to
the status of authorized but unissued shares after the
acquisition thereof. All such shares shall upon any such
restoration become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by the board of directors,
subject to the conditions and restrictions on issuance set
forth herein.
vi. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation (voluntary or
otherwise), dissolution or winding up of the
corporation, no distribution shall be made to the
holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding
up) to the Series A No Par Serial Preferred Stock
unless, prior thereto, the holders of shares of
Series A No Par Serial Preferred Stock shall have
received the Adjustment Number multiplied by the per
share amount to be distributed to holders of Common
Stock, plus an amount equal to declared and unpaid
dividends and distributions thereon to the date of such
payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the
Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of
Series A No Par Serial Preferred Stock.
(b) In the event that there are not
sufficient assets available to permit payment in full
of the Series A Liquidation Preference and the
liquidation preferences of all other series of
Preferred Stock, if any, which rank on a parity with
the Series A No Par Serial Preferred Stock, then such
remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their
respective liquidation preferences.
</Page>
<PAGE>
vii. Consolidation, Merger, etc. In case the
corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any
such case the shares of Series A No Par Serial Preferred
Stock shall at the same time be similarly exchanged or
changed in an amount per share equal to the Adjustment
Number multiplied by the aggregate amount of stock,
securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
viii. Anti-Dilution Adjustments to Adjustment
Number. In the event the corporation shall at any time
after December 3, 1998 (the "Rights Declaration Date")
(i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the
Adjustment Number for all purposes of this subparagraph viii
of Article II shall be adjusted by multiplying the
Adjustment Number then in effect by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event. In the event the
corporation shall at any time after the Rights Declaration
Date, fix a record date for the issuance of rights, options
or warrants to all holders of Common Stock entitling them
(for a period expiring within 45 calendar days after such
record date) to subscribe for or purchase Common Stock or
securities convertible into Common Stock at a price per
share of Common Stock (or having a conversion price per
share, if a security convertible into Common Stock) less
than the then Current Per Share Market Price of the Common
Stock (as defined in Section 11(d) of the Rights Agreement)
on such record date, then in each such case the Adjustment
Number for all purposes of this Article II(4) shall be
adjusted by multiplying the Adjustment Number then in effect
by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on such record date plus
the number of additional shares of Common Stock to be
offered for subscription or purchase (or into which the
convertible securities so to be offered are initially
convertible) and the denominator of which shall be the
number of shares of Common Stock outstanding on such record
date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of
</Page>
<PAGE>
Common Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be
offered) would purchase at such Current Per Share Market
Price (as defined in Section 11(d) of the Rights Agreement).
In case such subscription price may be paid in a
consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be as
determined in good faith by the board of directors. Common
Stock owned by or held for the account of the corporation
shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that
such rights, options or warrants are not so issued, the
Adjustment Number shall be readjusted as if such record date
had not been fixed; and to the extent such rights, options
or warrants are issued but not exercised prior to their
expiration, the Adjustment Number shall be readjusted to be
the number which would have resulted from the adjustment
provided for in this subparagraph viii if only the rights,
options or warrants that were exercised had been issued.
ix. No Redemption. The shares of Series A No Par
Serial Preferred Stock shall not be redeemable at the option
of the corporation or any holder thereof. Notwithstanding
the foregoing sentence, the corporation may acquire shares
of Series A No Par Serial Preferred Stock in any other
manner permitted by law.
x. Amendment. Subsequent to the Distribution
Date (as defined in the Rights Agreement) these Articles of
Incorporation shall not be further amended in any manner
which would materially alter or change the preferences,
limitations and relative rights of the Series A No Par
Serial Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority of
the outstanding shares of Series A No Par Serial Preferred
Stock, voting separately as a class.
xi. Fractional Shares. Series A No Par Serial
Preferred Stock may be issued in fractions of a share in
integral multiples of one one-hundredth of a share, which
shall entitle the holder, in proportion to such holders'
fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A No Par
Serial Preferred Stock.
</Page>
<PAGE>
ARTICLE III
Vacancies created on the board of directors by
reason of an increase in the number of directors may be
filled by affirmative vote of a majority of the directors
holding office at the time the increase is made effective,
provided however, that not more than one such vacancy may be
so filled in any calendar year.
ARTICLE IV
All or any number of the directors of the
corporation may be removed without cause at a meeting of
shareholders called expressly for that purpose, by the vote
of the holders of 75 percent of the shares then entitled to
vote at an election of directors. This provision shall not
affect any right of the shareholders to remove a director
for cause. This provision may not be amended, altered,
changed or repealed in any respect unless such action is
approved by the affirmative vote of the holders of not less
than 75 percent of the shares then entitled to vote at an
election of directors.
ARTICLE V
No director of the corporation shall be personally
liable to the corporation or its shareholders for monetary
damages for conduct as a director; provided that this
Article V shall not eliminate the liability of a director
for any act or omission for which such elimination of
liability is not permitted under the Oregon Business
Corporation Act. No amendment to the Oregon Business
Corporation Act that further limits the acts or omissions
for which elimination of liability is permitted shall affect
the liability of a director for any act or omission which
occurs prior to the effective date of such amendment.
ARTICLE VI
The corporation may indemnify to the fullest
extent permitted by law any person who is made, or
threatened to be made, a party to an action, suit or
proceeding, whether civil, criminal, administrative,
investigative, or otherwise (including an action, suit or
proceeding by or in the right of the corporation) by reason
of the fact that the person is or was a director or officer
of the corporation or a fiduciary within the meaning of the
Employee Retirement Income Security Act of 1974 with respect
</Page>
<PAGE>
to any employee benefit plan of the corporation, or serves
or served at the request of the corporation as a director or
officer, or as a fiduciary of an employee benefit plan, of
another corporation, partnership, joint venture, trust or
other enterprise. This Article shall not be deemed
exclusive of any other provisions for indemnification of
directors, officers and fiduciaries that may be included in
any statute, bylaw, agreement, resolution of shareholders or
directors or otherwise, both as to action in any official
capacity and action in another capacity while holding
office.
ARTICLE VII
The corporation's board of directors shall have
the power to amend or repeal any of the bylaws of the
corporation or adopt new bylaws. Any shareholder proposal
to amend or repeal any of the bylaws shall require the
affirmative vote of the holders of (i) 75 percent of the
votes cast on the proposal at a meeting of shareholders at
which a quorum is present, and (ii) 51 percent of the shares
then entitled to vote at an election of directors. This
provision may not be amended, altered, changed or repealed
in any respect unless such action is approved by the same
affirmative vote set forth in the preceding sentence.
ARTICLE VIII
1. Whether or not a vote of stockholders is otherwise
required, the affirmative vote of the holders of not less
than 80 percent of the outstanding shares of "Voting Stock"
(as hereinafter defined) of the corporation shall be
required for the approval or authorization of any "Business
Combination" (as hereinafter defined) with any "Substantial
Shareholder" (as hereinafter defined) or any Business
Combination in which a Substantial Shareholder has an
interest (except proportionately as a stockholder of the
corporation); provided, however, that the 80 percent voting
requirement shall not be applicable if either:
(i) The "Continuing Directors" (as hereinafter
defined) of the corporation by at least a two-thirds vote
(a) have expressly approved in advance the acquisition of
the outstanding shares of Voting Stock that caused such
Substantial Shareholder to become a Substantial Shareholder,
or (b) have expressly approved such Business Combination; or
</Page>
<PAGE>
(ii) The cash or fair market value (as determined
by at least a majority of the Continuing Directors) of the
property, securities or other consideration to be received
per share by holders of Voting Stock of the corporation
(other than the Substantial Shareholder) in the Business
Combination is not less than the "Highest Per Share Price"
or the "Highest Equivalent Price" (as those terms are
hereinafter defined) paid by the Substantial Shareholder
involved in the Business Combination in acquiring any of its
holdings of the corporation's Voting Stock acquired in the
last two years.
2. For purposes of this Article VIII:
(i) The term "Business Combination" shall
include, without limitation, (a) any merger, exchange or
consolidation of the corporation, or any entity controlled
by or under common control with the corporation, with or
into any Substantial Shareholder, or any entity controlled
by or under common control with such Substantial
Shareholder, (b) any merger, exchange or consolidation of a
Substantial Shareholder, or any entity controlled by or
under common control with such Substantial Shareholder, with
or into the corporation or any entity controlled by or under
common control with the corporation, (c) any sale, lease,
exchange, transfer or other disposition (in one transaction
or a series of transactions), including without limitation a
mortgage or any other security device, of all or any
"Substantial Part" (as hereinafter defined) of the property
and assets of the corporation, or any entity controlled by
or under common control with the corporation, to a
Substantial Shareholder, or any entity controlled by or
under common control with such Substantial Shareholder,
(d) any purchase, lease, exchange, transfer or other
acquisition (in one transaction or a series of
transactions), including without limitation a mortgage or
any other security device, of all or any Substantial Part of
the property and assets of a Substantial Shareholder or any
entity controlled by or under common control with such
Substantial Shareholder, by the corporation, or any entity
controlled by or under common control with the corporation,
(e) any recapitalization of the corporation that would have
the effect of increasing the voting power of a Substantial
Shareholder, (f) the issuance, sale, exchange or other
disposition of any securities of the corporation, or of any
entity controlled by or under common control with the
corporation, by the corporation or by any entity controlled
</Page>
<PAGE>
by or under common control with the corporation, (g) any
liquidation, spinoff, splitoff, splitup or dissolution of
the corporation, and (h) any agreement, contract or other
arrangement providing for any of the transactions described
in this definition of Business Combination.
(ii) The term "Substantial Shareholder" shall mean
and include (a) any "Person" (as that term is defined in
Section 2(2) of the Securities Act of 1933, as in effect on
May 10, 1983) which, together with its "Affiliates" (as
hereinafter defined) and "Associates" (as hereinafter
defined), "Beneficially Owns" (as defined in Rule 13d-3 of
the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect at May 10, 1983) in the
aggregate 15 percent or more of the outstanding Voting Stock
of the corporation, and (b) any Affiliate or Associate
(other than the corporation or a wholly owned subsidiary of
the corporation) of any such Person. Two or more Persons
acting in concert for the purpose of acquiring, holding or
disposing of Voting Stock of the corporation shall be deemed
a "Person."
(iii) Without limitation, any share of Voting Stock
of the corporation that any Substantial Shareholder has the
right to acquire at any time (notwithstanding that Rule
13d-3 deems such shares to be beneficially owned if such
right may be exercised within 60 days) pursuant to any
agreement, contract, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or
otherwise, shall be deemed to be Beneficially Owned by such
Substantial Shareholder and to be outstanding for purposes
of subparagraph (ii) above.
(iv) For the purposes of subparagraph (ii) of
paragraph 1 of Article VIII, the term "other consideration
to be received" shall include, without limitation, Common
Stock or other capital stock of the corporation retained by
its existing shareholders, other than any Substantial
Shareholder or other Person who is a party to such Business
Combination, in the event of a Business Combination in which
the corporation is the survivor.
(v) The term "Voting Stock" shall mean all of the
outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors,
considered as one class, and each reference to a proportion
of shares of Voting Stock shall refer to such proportion of
the votes entitled to be cast by such shares.
</Page>
<PAGE>
(vi) The term "Continuing Director" shall mean a
director of the corporation who served as a director on
June 28, 1983 or who was a member of the board of directors
of the corporation immediately prior to the time that the
Substantial Shareholder involved in a Business Combination
became a Substantial Shareholder.
(vii) A Substantial Shareholder shall be deemed to
have acquired a share of the Voting Stock of the corporation
at the time when such Substantial Shareholder became the
Beneficial Owner thereof. With respect to the shares owned
by Affiliates, Associates or other Persons whose ownership
is attributed to a Substantial Shareholder under the
foregoing definition of Substantial Shareholder, if the
price paid by such Substantial Shareholder for such shares
is not determinable by a majority of the Continuing
Directors, the price so paid shall be deemed to be the
higher of (a) the price paid upon the acquisition thereof by
the Affiliate, Associate or other Person or (b) the market
price of the shares in question at the time when such
Substantial Shareholder became the Beneficial Owner thereof.
(viii) The terms "Highest Per Share Price" and
"Highest Equivalent Price" as used in this Article VIII
shall mean the following: If there is only one class of
capital stock of the corporation issued and outstanding, the
Highest Per Share Price shall mean the highest price that
can be determined to have been paid at any time by the
Substantial Shareholder involved in the Business Combination
for any share or shares of that class of capital stock. If
there is more than one class of capital stock of the
corporation issued and outstanding, the Highest Equivalent
Price shall mean, with respect to each class and series of
capital stock of the corporation, the amount determined by a
majority of the Continuing Directors, on whatever basis they
believe is appropriate, to be the highest per share price
equivalent to the highest price that can be determined to
have been paid at any time by the Substantial Shareholder
for any share or shares of any class or series of capital
stock of the corporation. The Highest Per Share Price and
the Highest Equivalent Price shall include any brokerage
commissions, transfer taxes and soliciting dealers' fees
paid by a Substantial Shareholder with respect to the shares
of capital stock of the corporation acquired by such
Substantial Shareholder. In the case of any Business
Combination with a Substantial Shareholder, the Continuing
Directors shall determine the Highest Per Share Price or the
Highest Equivalent Price for each class and series of the
capital stock of the corporation. The Highest Per Share
</Page>
<PAGE>
Price and Highest Equivalent Price shall be appropriately
adjusted to reflect the occurrence of any reclassification,
recapitalization, stock split, reverse stock split or other
readjustment in the number of outstanding shares of capital
stock of the corporation, or the declaration of a stock
dividend thereon, between the last date upon which the
Substantial Shareholder paid the Highest Per Share Price of
Highest Equivalent Price and the effective date of the
merger or consolidation or the date of distribution to
stockholders of the corporation of the proceeds from the
sale of all or substantially all of the assets of the
corporation.
(ix) The term "Substantial Part" shall mean
15 percent or more of the fair market value of the total
assets of the Person in question, as reflected on the most
recent balance sheet of such Person existing at the time the
stockholders of the corporation would be required to approve
or authorize the Business Combination involving the assets
constituting any such Substantial Part.
(x) The term "Affiliate," used to indicate a
relationship with a specified Person, shall mean a Person
that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the Person specified.
(xi) The term "Associate," used to indicate a
relationship with a specified Person, shall mean (a) any
entity of which such specified Person is an officer or
partner or is, directly or indirectly, the beneficial owner
of 10 percent or more of any class of equity securities,
(b) any trust or other estate in which such specified Person
has a substantial beneficial interest or as to which such
specified Person serves as trustee or in a similar fiduciary
capacity, (c) any relative or spouse of such specified
Person, or any relative of such spouse, who has the same
home as such specified Person or who is a director or
officer of the corporation or any of its subsidiaries, and
(d) any Person who is a director or officer of such
specified entity or any of its parents or subsidiaries
(other than the corporation or an entity controlled by or
under common control with the corporation).
3. For the purposes of this Article VIII, a majority
of the Continuing Directors shall have the power to make a
good faith determination, on the basis of information known
to them, of: (i) the number of shares of Voting Stock that
</Page>
<PAGE>
any Person Beneficially Owns, (ii) whether a Person is an
Affiliate or Associate of another, (iii) whether a Person
has an agreement, contract, arrangement or understanding
with another as to the matters referred to in paragraph
(2)(i)(h) or (2)(iii) hereof, (iv) whether the assets
subject to any Business Combination constitute a Substantial
Part, (v) whether any Business Combination is one in which a
Substantial Shareholder has an interest (except
proportionately as a stockholder of the corporation), and
(vi) such other matters with respect to which a
determination is required under this Article VIII.
4. The provisions set forth in this Article VIII may
not be amended, altered, changed or repealed in any respect
unless such action is approved by the affirmative vote of
the holders of not less than a majority of the outstanding
shares of Voting Stock (as defined in this Article VIII) of
the corporation at a meeting of the shareholders duly called
for the consideration of such amendment, alteration, change
or repeal; provided, however, that if there is a Substantial
Shareholder who is not a Continuing Director, such action
must also be approved by the affirmative vote of the holders
of not less than 80 percent of the outstanding shares of
Voting Stock.
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