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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 28, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 1-10348
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PRECISION CASTPARTS CORP.
(Exact name of registrant as specified in its charter)
OREGON 93-0460598
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
4650 S.W. MACADAM AVE., SUITE 440 97201-4254
PORTLAND, OR 97201 (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (503) 417-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK, NEW YORK STOCK EXCHANGE
WITHOUT PAR VALUE
SERIES A PREFERRED STOCK NEW YORK STOCK EXCHANGE
PURCHASE RIGHTS
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 16, 1999 was $1,032,922,463.
As of the close of business on June 16, 1999, Registrant had 24,484,088 shares
of Common Stock, without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 13, the "Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp." for the year ended March 28, 1999 is incorporated by
reference in Parts II and IV and appended hereto.
Portions of the Registrant's Proxy Statement dated June 28, 1999 in connection
with the 1999 Annual Meeting of Shareholders are incorporated by reference in
Part III.
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FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. BUSINESS......................................................................... 1
Products and Markets............................................................. 1
Sales and Distribution........................................................... 9
Major Customers.................................................................. 10
Backlog.......................................................................... 11
Competition...................................................................... 11
Research and Development......................................................... 11
Employees........................................................................ 12
Patents and Trade Secrets........................................................ 12
Materials and Supplies........................................................... 12
Government Regulations........................................................... 12
International Operations......................................................... 12
Environmental Compliance......................................................... 13
Forward Looking Statements....................................................... 14
Item 2. PROPERTIES....................................................................... 14
Item 3. LEGAL PROCEEDINGS................................................................ 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................. 15
Executive Officers of the Registrant............................................. 15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............ 17
Item 6. SELECTED FINANCIAL DATA.......................................................... 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................................... 17
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................... 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................... 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..................................................................... 18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................... 19
Item 11. EXECUTIVE COMPENSATION........................................................... 19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................... 19
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................... 19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.................. 20
Signatures....................................................................... 22
Financial Statement Schedule..................................................... 23
Report of Independent Accountants................................................ 24
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PART I
ITEM 1. BUSINESS
Precision Castparts Corp. ("PCC" or the "Company") 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 the
leading manufacturer of airfoil castings used in jet aircraft engines. In
addition, the Company has expanded into the industrial gas turbine ("IGT"),
structural airframe, fluid management, industrial metalworking tools and
machines and other metal products markets.
PRODUCTS AND MARKETS
The Company's manufacturing of complex metal components and products
includes operations in three principal business segments: Precision Alloy
Products, Fluid Management Products and Industrial Products.
PRECISION ALLOY PRODUCTS
The Precision Alloy Products segment includes PCC Structurals, Inc., PCC
Airfoils, Inc. and Advanced Forming Technology, Inc. (AFT). PCC Structurals and
PCC Airfoils manufacture investment castings for aircraft engines, IGT,
airframes, medical prostheses, and other industrial applications. AFT
manufactures metal-injection molded, metal-matrix-composite and Thixoformed-TM-
components for a wide variety of automotive, electronic, firearm, medical and
consumer applications.
INVESTMENT CASTINGS
The Company is the market leader in manufacturing large, complex structural
investment castings and is the leading manufacturer of airfoil castings used in
jet aircraft engines. The Company manufactures investment castings for every
available 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 electric power generation and is expanding into the
structural airframe market. In addition, the Company makes investment castings
for use in the automotive, medical prostheses, satellite launch vehicle and
general industrial markets.
Because of the complexity of the manufacturing process and the application
of proprietary technologies, the Company 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, to increase its
market share of IGT castings and to expand into the structural airframe 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; formation of a
ceramic shell around the wax pattern followed by removal of the wax from the
ceramic shell by melting and draining the wax; pouring of molten metal into the
ceramic shell; shell removal; and final processing and inspection.
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. However, during fiscal 1999, the Company experienced
softening in the commercial aerospace market as worldwide aircraft production
reached its peak, due in part
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to the decline in wide-body aircraft orders for the Asian market where depressed
economic conditions have curbed spending for new aircraft.
Large jet aircraft engines are manufactured by a small number of suppliers,
including General Electric ("GE"), Pratt & Whitney, Rolls-Royce ("R-R"), and
several joint ventures. 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. 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.
The following table identifies major jet aircraft engines currently in
production that incorporate investment castings produced by the Company.
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GE PRATT & WHITNEY R-R JOINT VENTURES
<S> <C> <C> <C> <C>
Boeing
717 BR715(1)
737-300/400/500 CFM56-3(2)
737-NG CFM56-7(2)
747-400 CF6-80C2 PW4000, 4168, RB211-524
4056, 4060
757-200/300 PW2000, 2040, RB211-535
2037, 2043
757-PF PW2040, 2042,
2043
767-200/300/400 ER CF6-80C2/A/C PW4000, 4168 RB211-524G
4173
777-200/300/X GE90 PW4000, 4084, Trent 800, 8104
4088, 4090, 4098
C-17 F117
F-15 F100
F-18 F404, F414
Airbus Industrie
A300-600/B2/B4 CF6-80C/C2 PW4000
A310-200/300 CF6-80A1/C2 PW4000
A319/A320/A321 CFM56-5A/B(2)
V2500, V2530,
V2533(3)
A330-200/300 CF6-80E1/E2 PW4168 Trent 700, 772
A340-200/300/800 CFM56-5C(2)
A340-500/600 Trent 500
Lockheed Martin
F-16 F100, F110 F100
F-22 F119
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(1) Represents engines produced by BMW Roll-Royce AeroEngines, a joint venture
of BMW and R-R.
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(2) Represents engines of CFM International ("CFMI"), a joint venture of GE and
Snecma, a major French aerospace company. CFMI has used the Company's
castings in its CFM56 jet engines for more than 20 years.
(3) Represents engines produced by International Aero Engines ("IAE"), a joint
venture of Pratt & Whitney, R-R, Motoren-und Turbinen-Union, Fiat Avio and
Japanese Aero Engine Corporation.
AEROSPACE STRUCTURAL CASTINGS
The Company's structural castings business includes the largest diameter
stainless steel, nickel-based superalloys 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 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 GE90 jet engine. PCC also manufactures, for the new
R-R Trent series of engines, the intermediate case and the tail bearing housing.
These are the largest structural investment castings for jet aircraft engines in
the world.
AEROSPACE AIRFOIL CASTINGS
The Company manufactures precision cast airfoils, which include 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.
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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 higher and blade life
is shorter than in commercial engines.
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 cast 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 turbine engines. 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 was principally serviced by a single
supplier. The Company's IGT products consist of airfoil castings used in large,
land-based gas turbines designed for electrical power generation. In addition,
the Company manufactures structural and airfoil castings for aircraft-derivative
gas turbine engines which are used for power generation as well as other land
and marine-based applications. Sales of aircraft-derivative gas turbine products
are reported in the general industrial and other market area and are not
combined with IGT product sales. See Sales and Distribution section of this
report.
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 blades and vanes which are 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.
Since industrial gas turbines are primarily used in electrical power
generation, 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. 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.
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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
in the automotive, medical prostheses, satellite and general industrial markets
by manufacturing such products as turbocharger wheels, artificial hips and
knees, parts for satellite launch vehicles and impellers for pumps and
compressors. The Company is also expanding into the structural airframes market.
Aircraft manufacturers have begun to show substantial interest in using
investment castings for airframe applications such as aileron and flap hinges,
pylons and wing spurs and ribs.
OTHER ALLOY PRODUCTS
The Company is the largest producer of powdered metal parts manufactured by
metal-injection-molding ("MIM"), and is a leading manufacturer of tungsten
carbide cutting tools and wear parts. In addition, the Company manufactures
advanced technology, lightweight, net-shape metal-matrix-composite parts that
are made by combining aluminum and silicon carbide ("AlSiC," a registered
trademark of the Company) using a patented
pressure-infiltration-casting-process. The Company has also expanded into
Thixoforming-TM-, an advanced technology alternative to conventional die casting
in which materials such as magnesium, aluminum and zinc are injected in a
semi-solid (thixotropic) state into a mold under vacuum conditions. The result
is a high-density, complex component with superior materials properties and
precise dimensional tolerances as compared to a die-cast part. 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.
The MIM 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.
Tungsten carbide cutting tools and wear parts, which are manufactured by the
Company using a powdered metal press and sinter process, are sold to various
industrial markets. Metal-matrix-composite parts, which have high thermal
conductivity and tightly controlled thermal expansion characteristics, are used
in electronic applications that require heat dissipation, such as automotive,
telecommunication, aerospace and computer products. Thixoformed-TM- components
are used in automotive, electronic and other consumer products. The Company
believes the broad range of products and highest standards of craftsmanship
offer growth opportunities in numerous industry applications.
Precision Alloy Products accounted for approximately 65 percent of the
Company's net sales in fiscal 1999, with a substantial majority of these
products sold to the aerospace market.
FLUID MANAGEMENT PRODUCTS
The Fluid Management Products segment includes all of the businesses within
PCC Flow Technologies, Inc. The Company entered the fluid management market in
July 1996 with the acquisition of the NEWFLO Corporation. Subsequent
acquisitions, which include Crown Pumps, OIC Valves, Baronshire Engineering,
Environment/One, TBV and Sterom, have enabled PCC Flow Technologies to further
expand its product lines and markets.
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, forging and fabricated steel parts. These products are sold worldwide
to a wide range of end-user markets under well-established brand names,
including: General Valve, NEWCO, TECHNO, Barber, Baronshire, TBV, OIC and Sterom
valves; Johnston, PACO, E/One and Crown pumps; and Water Specialties, Penberthy
and Gilco measuring instruments.
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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.
The Company uses its substantial knowledge of international 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,
four-way diverter valves and valve operators, stainless steel butterfly valves
and corrosion-resistant titanium ball valves. 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, Barber, Baronshire, TBV, OIC and Sterom. 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, residential 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 and grinder 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, PACO,
Crown and E/One. The Company believes its Johnston vertical turbine pumps, its
PACO booster systems and "Smart Pumps" and its E/One low pressure sewer systems
are among the leading products sold in the fluid handling market.
INSTRUMENTS
The Company manufactures, markets and distributes propeller 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 flow and high pressure) 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 are designed to
handle a wide range of
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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 1.5 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, Penberthy and Gilco. The Company believes its Water
Specialties line of propeller meters is one of the leading products in the fluid
measurement market primarily due to its superior product design and
manufacturing.
SERVICES
The Company maintains a number of service and repair facilities as well as
stocking warehouses in the U.S. and Canada which provide aftermarket
maintenance, repair, 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 approximately 43 percent of its sales of fluid management products are
derived from after-market service and repair activities.
Fluid management products accounted for approximately 21 percent of the
Company's net sales in fiscal 1999 and were sold primarily to the general
industrial and energy markets.
INDUSTRIAL PRODUCTS
The Industrial Products segment includes PCC Specialty Products, Inc. and
J&L Fiber Services, Inc. PCC Specialty Products manufactures a broad range of
cold-forming header and threader tools and gundrills, and manufactures machines
for vertical and horizontal boring, fastener production and gundrilling,
principally for automotive and other machine tool applications. The tooling
business includes product lines manufactured by Reed-Rico-Registered Trademark-,
Astro Punch-Registered Trademark- and Eldorado. The machines business includes
product lines manufactured by Olofsson, PCC Pittler,
Reed-Rico-Registered Trademark- and Eldorado. J&L Fiber Services produces
refiner plates and screen cylinders for use in the pulp and paper industry.
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. The
Company has since increased its presence in the industrial metalworking tools
and machines markets with three additional acquisitions since 1995. The
acquisitions of Olofsson and Astro Punch-Registered Trademark-, both acquired in
fiscal 1997, and PCC Pittler, acquired in fiscal 1998, complemented the
Company's capabilities as a leading manufacturer of highly engineered industrial
metalworking tools and machines. Also, in fiscal 1998, the Company acquired J&L
Fiber Services, Inc., a manufacturer of metal refiner plates and screen
cylinders for the pulp and paper industry.
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, brand name recognition and excellent customer service.
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-Registered Trademark- and Astro Punch-Registered Trademark- brand
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names. The Company's gundrilling tools, which are distributed under the Eldorado
brand name, are used to drill precision holes to very close tolerances in such
products as turbine engines, engine blocks, cylinder heads, transmission shafts,
connecting 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 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-Registered Trademark- and Hartford-Registered Trademark-
brand names. 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 and PCC
Pittler brand names.
REFINER PLATES AND SCREEN CYLINDERS
The Company is also the world leader in the design, manufacture and sale of
refiner plates to the pulp and paper production markets under the J&L Fiber
Services brand name. Refiner plates, which are highly engineered metal castings,
are an integral part of the wood pulping process. Refiner plates not only
transport pulp through the system, but also perform critical work on the pulp
that affects the ultimate quality of the paper produced. In addition, the
Company manufactures conventional and rebuildable screen cylinders which are
metal filtering devices inside pressure vessels that separate the usable wood
fiber from undesirable elements in the pulp slurry mix. Over 90% of J&L Fiber
Services' sales are used as replacement parts.
The Industrial Products segment accounted for approximately 14 percent of
the Company's net sales in fiscal 1999 and were sold primarily to the general
industrial, automotive and pulp and paper markets.
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SALES AND DISTRIBUTION
The Company sells its complex metal components and products into six major
market areas: aerospace, general industrial and other, energy, industrial gas
turbines, automotive, and pulp & paper. The relative size of sales to these
markets is shown below for fiscal years 1999, 1998 and 1997.
FISCAL 1999
Net Sales $1,471.9 million
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
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FISCAL 1999
<S> <C> <C>
Net Sales $1,471.9
million
Aerospace 51%
General Industrial and Other 23%
Energy 8%
Industrial Gas Turbine 7%
Automotive 6%
Pulp & Paper 5%
</TABLE>
51% Aerospace
23% General Industrial and Other
8% Energy
7% Industrial Gas Turbine
6% Automotive
5% Pulp & Paper
FISCAL 1998
Net Sales $1,316.7 million
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FISCAL 1998
<S> <C> <C>
Net Sales $1,316.7
million
Aerospace 53%
General Industrial and Other 24%
Energy 9%
Industrial Gas Turbine 5%
Automotive 7%
Pulp & Paper 2%
</TABLE>
53% Aerospace
24% General Industrial and Other
9% Energy
5% Industrial Gas Turbine
7% Automotive
2% Pulp & Paper
9
<PAGE>
FISCAL 1997
Net Sales $972.8 million
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FISCAL 1997
<S> <C> <C>
Net Sales $972.8
million
Aerospace 53%
General Industrial and Other 25%
Energy 8%
Industrial Gas Turbine 7%
Automotive 7%
Pulp & Paper 0%
</TABLE>
53% Aerospace
25% General Industrial and Other
8% Energy
7% Industrial Gas Turbine
7% Automotive
- % Pulp & Paper
The Company's sales to the aerospace market of $746.2 million in fiscal 1999
increased 8 percent from $693.8 million in fiscal 1998. Sales to the aerospace
market as a percentage of total net sales, however, declined slightly from 53
percent in fiscal 1998 to 51 percent in fiscal 1999, reflecting higher growth in
the IGT and pulp and paper markets. During the latter part of fiscal 1999, sales
of aircraft engine components for original equipment applications (OEM) declined
as the aerospace cycle moved towards its peak. The Company believes its
diversification into IGT, general industrial, energy, automotive and pulp and
paper markets will help mitigate the adverse impact of the current downturn in
the aerospace cycle. In addition, the Company's expansion into structural
airframe components and the expected growth in airfoil replacement parts to
support a larger worldwide fleet of aircraft is expected to mitigate the impact
of a soft aerospace market.
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 other metal products are sold by both the Company's
sales forces and sales representatives in the U.S., Europe, Asia and Latin
America. 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 and
modified products, and to provide other services that are necessary to obtain
new and repeat orders.
MAJOR CUSTOMERS
The Precision Alloy Products segment had net sales to General Electric and
Pratt & Whitney as follows (amounts in millions):
<TABLE>
<CAPTION>
FISCAL
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
General Electric..................................................................... $ 162.2 $ 159.2 $ 150.5
Pratt & Whitney...................................................................... $ 139.8 $ 152.8 $ 125.2
</TABLE>
10
<PAGE>
No other customer accounted for more than 10 percent of net sales.
BACKLOG
The backlog of unfilled orders believed to be firm at the end of each of the
Company's last three fiscal years was $719.9 million as of March 28, 1999,
$795.8 million as of March 29, 1998 and $739.0 million as of March 30, 1997. The
majority of the backlog is for sales to aerospace customers in the Precision
Alloy Product segment. The decrease in fiscal 1999 backlog is primarily due to
decreased orders from aerospace customers.
The majority of sales to customers are made on individual purchase orders.
Most of the Company's orders are subject to termination by the customer upon
payment of the cost of work in process plus a related profit factor.
Historically, the Company has not experienced significant order cancellations.
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 advantages to its customers, such
as high quality, competitive prices and physical properties that 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 Alloy Products segment, the Company's principal competitor
is Howmet International, Inc. ("Howmet"). Howmet produces stainless steel,
superalloy and titanium investment castings principally for the aerospace and
IGT markets. Although the Company is the market leader for cast airfoils used in
jet aircraft engines, Howmet is believed to hold in excess of 50 percent of the
total market for cast airfoils, principally due to its substantial position in
the industrial gas turbine market. 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 structural
castings as large and complex as those produced by the Company, should it decide
to do so. A large number of other companies throughout the world also produce
stainless steel, superalloy or titanium investment castings. Many of these
companies currently compete with the Company in the aerospace and other markets,
while others are capable of competing with the Company if they choose to do so.
In the Fluid Management Products and Industrial Products segments, 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, performance characteristics, pricing
and product availability.
RESEARCH AND DEVELOPMENT
The Company maintains separate research and development departments at PCC
Structurals, PCC Airfoils and PCC Flow Technologies. The research and
development effort at these locations is directed at the scientific aspects of
developing new and improved manufacturing processes. These research and
development expenditures amounted to $4.0 million in 1999, $2.9 million in 1998
and $2.6 million in
11
<PAGE>
1997, with the majority of the amounts attributable to the Precision Alloy
Products segment. A substantial amount of the Company's technological capability
is the result of engineering work and experimentation performed in connection
with process development and production of new parts. This engineering work and
experimentation is charged to the cost of production and is not included in
research and development expenditures.
EMPLOYEES
At March 28, 1999, the Company employed 12,335 people, including 7,632
people in the Precision Alloy Products segment, 3,312 people in the Fluid
Management Products segment, 1,369 people in the Industrial Products segment and
22 people in corporate functions. Approximately 32 percent of these employees
have union affiliation or are covered by collective bargaining agreements. The
Company is expected to negotiate four union contracts or collective bargaining
agreements affecting 16% of the workforce during fiscal 2000. Management
believes that labor relations in the Company have generally been satisfactory.
PATENTS AND TRADE SECRETS
From time to time the Company seeks U.S. and foreign patent protection on
certain of its processes and products. The Company has also federally registered
several of its trademarks in the U.S. The Company does not view patents or
trademarks as materially important to the Company's business as a whole. The
Company also has rights and obligations under various license agreements. The
Company receives no significant royalty income from patents.
MATERIALS & SUPPLIES
The Company uses a number of raw materials in its products, including
certain metals such as cobalt, titanium, nickel and molybdenum, which are found
in only a few parts of the world. These metals are required for the alloys used
in the Company's precision investment castings. The availability and costs 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 cost. The Company enters into option contracts
to hedge the price of nickel and has escalation clauses in certain of its
long-term contracts with major customers. 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.
GOVERNMENT REGULATIONS
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.
INTERNATIONAL OPERATIONS
The Company is both a purchaser of products from, and 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, the relative stability of certain
foreign currencies and difficulties in obtaining U.S. export and import
licenses. The Company has been expanding its international activities during the
past several years, primarily through acquisitions and the development of
foreign subsidiaries.
12
<PAGE>
ENVIRONMENTAL COMPLIANCE
The Company generates certain waste materials that must be disposed of,
including certain materials for which disposal requires compliance with
environmental protection laws and regulations. The Company conducts its
operations at industrial sites where hazardous materials have been managed for
many years, including periods before careful management of these materials was
required or generally believed to be necessary. Consequently, the Company is
subject to various environmental laws that impose compliance obligations and can
create liability for historical releases of hazardous substances.
During the period 1970-1973, the Company contracted for disposal of certain
industrial waste at the Pasco Landfill located near Pasco, Washington. The
Washington State Department of Ecology ("Ecology") notified the Company that it
had determined that the Company is a Potentially Liable Party ("PLP") for the
contamination at Pasco Landfill Superfund Site. The Company has joined with
other PLPs that sent industrial wastes to the site, as well as with the owners,
operators and other PLPs, to fund investigation of the site and development of a
remediation proposal. The Company is part of a group of industrial generators
who are negotiating settlement with other PLPs and Ecology to conduct remedial
action at the site. The Company's costs are currently being paid by its
insurers.
In 1989, the Oregon Health Division ("Health Division") alleged that the
Company discharged low level radioactive material to the Portland City sewer in
violation of the Company's radioactive materials license. The City of Portland
also has alleged that the discharges violated the Company's discharge permit.
Although the Company contested the alleged violations, it undertook extensive
cleaning of portions of the sewer system under a consent agreement with the City
and the Health Division. The extent to which other investigation or remedial
work may be necessary, however, is unknown.
As a result of inspections conducted in 1995 at the Company's former
Merriman operations, the Massachusetts Department of Environmental Protection
("MDEP") has taken enforcement action against PCC Specialty Products, Inc. for
alleged violations of certain environmental laws relating to waste management.
PCC Specialty Products, Inc. has negotiated a settlement with the MDEP for most
of the alleged violations and believes the outstanding alleged violations can be
settled for an immaterial amount. PCC Specialty Products, Inc. has entered an
Administrative Consent Order with the MDEP pursuant to which it is conducting
investigations of contamination of the Merriman facility. The extent to which
these investigations will lead to requirements for remedial action is not yet
known.
PCC Specialty Products, Inc. is investigating contamination at its facility
in Holden, Massachusetts. This investigation is proceeding under requirements of
Massachusetts law, and the MDEP has not taken any enforcement action. The extent
to which these investigations will lead to requirements for remedial action is
not yet known.
The Connecticut Department of Environmental Protection ("CDEP") has required
PCC Specialty Products, Inc. to undertake remedial action at its former
Contromatics facility. Remedial systems are in place and were supplemented in
1997 at CDEP's request. Whether or not additional remedial action is necessary
will depend upon pending evaluations of the new remedial systems.
In 1998, the Company successfully arbitrated and settled indemnity claims it
asserted against the former shareholders of Quamco, Inc. with respect to the PCC
Specialty Products, Inc. matters described above. The Company has established
reserves for matters described above with the settlement proceeds.
Carmet Company is investigating the extent of chlorinated solvents
contamination recently discovered in the soil and groundwater at its plant in
Bad Axe, Michigan. Whether or not remediation will be necessary is not yet
determined and Carmet may have defenses to liability contamination. The Company
has asserted an indemnity claim against the former shareholders of Carmet for
recovery from an escrow account for all, or a portion of the costs, associated
with this and certain other environmental matters. The former shareholders have
disputed this indemnity claim and the claim is unresolved.
13
<PAGE>
In 1998, the Company acquired Sterom, S.A., from the Romanian government. As
part of this acquisition, the Company committed to invest up to $3.6 million
over five years to investigate and cleanup contamination at the facility and to
improve environmental controls at Sterom. The Company obtained a purchase price
adjustment to fund a substantial portion of these commitments.
FORWARD-LOOKING STATEMENTS
Information included within this section relating to projected growth and
future results and events constitutes forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995. 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 of
production for industrial gas turbine and airframe components; 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; the relative stability of certain foreign currencies; 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. The Company
undertakes no obligation to publicly release any forward-looking information to
reflect anticipated or unanticipated events or circumstances after the date of
this document.
ITEM 2. PROPERTIES
The Company's manufacturing plants and administrative offices, along with
certain information concerning the products and facilities are as follows:
<TABLE>
<CAPTION>
BUILDING SPACE (SQ. FT.)
NO. OF ----------------------------------
DIVISION FACILITIES LEASED OWNED TOTAL
- ----------------------------------------------------------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Executive & Corporate Offices
Domestic....................................................... 1 7,500 -- 7,500
Foreign........................................................ -- -- -- --
Precision Alloy Products
Domestic....................................................... 26 388,200 2,040,200 2,428,400
Foreign........................................................ 4 153,000 326,000 479,000
Fluid Management Products
Domestic....................................................... 31 532,400 820,500 1,352,900
Foreign........................................................ 14 74,400 550,200 624,600
Industrial Products
Domestic....................................................... 18 257,000 755,300 1,012,300
Foreign........................................................ 3 253,100 -- 253,100
Total Company
Domestic....................................................... 76 1,185,100 3,616,000 4,801,100
Foreign........................................................ 21 480,500 876,200 1,356,700
--
---------- ---------- ----------
Total............................................................ 97 1,665,600 4,492,200 6,157,800
--
--
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company continues to expand its manufacturing capacity to meet
anticipated market demand for its products. See "Management's Discussion and
Analysis," in Exhibit 13, the "Financial Section of the 1999 Annual Report to
Shareholders of Precision Castparts Corp."
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
For a description of claims relating to environmental matters, see "Item 1.
Business--Environmental Compliance."
Various lawsuits arising during the normal course of business are pending
against the Company. In the opinion of management, the outcome of these lawsuits
will have no significant effect on PCC's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT (A)
<TABLE>
<CAPTION>
OFFICER POSITION HELD
NAME SINCE AGE WITH THE REGISTRANT
- --------------------------------------------------------- ---------- --- ------------------------------------
<S> <C> <C> <C>
William C. McCormick..................................... (b) 1985 65 Chairman and
Chief Executive Officer
William D. Larsson....................................... (c) 1980 54 Vice President and
Chief Financial Officer
Mark Donegan............................................. (d) 1992 42 Executive Vice President and
President--PCC Structurals, Inc.
Peter G. Waite........................................... (e) 1980 55 Executive Vice President and
President--PCC Airfoils, Inc.
David W. Norris.......................................... (f) 1996 47 Executive Vice President and
President--PCC Flow Technologies,
Inc.
Greg M. Delaney.......................................... (g) 1998 44 Executive Vice President and
President--PCC Specialty Products,
Inc.
Dennis L. Konkol......................................... (h) 1997 40 President--J&L Fiber Services, Inc.
Istvan F.K. Vamos........................................ (i) 1997 32 President--Advanced Forming
Technology, Inc.
James A. Johnson......................................... (j) 1996 58 Treasurer and
Assistant Secretary
Mark R. Roskopf.......................................... (k) 1999 37 Director of Corporate Taxes and
Assistant Secretary
Shawn R. Hagel........................................... (l) 1997 34 Corporate Controller and
Assistant Secretary
</TABLE>
- ------------------------
a) The officers serve for a term of one year and until their successors are
elected.
b) Elected Chairman in 1994, Chief Executive Officer in 1991 and Director in
1986.
c) Elected Vice President and Chief Financial Officer in 1993.
d) Elected Executive Vice President and President--PCC Structurals, Inc. in
1992.
e) Elected Executive Vice President and President--PCC Airfoils, Inc. in 1986.
15
<PAGE>
f) Elected Executive Vice President and President--PCC Flow Technologies, Inc.
in 1996.
g) Elected Executive Vice President and President--PCC Specialty Products, Inc.
in 1998.
h) Elected President--J&L Fiber Services, Inc. in 1997.
i) Elected President--Advanced Forming Technology, Inc. in 1997.
j) Elected Treasurer in 1993 and Assistant Secretary in 1996.
k) Elected Director of Corporate Taxes in 1999 and Assistant Secretary in 1999.
l) Elected Corporate Controller and Assistant Secretary in 1997.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of June 8, 1999 there were 3,800 shareholders of record of the Company's
common stock. The Company's common stock is listed on the New York Stock
Exchange under the symbol PCP. It is also traded on the Chicago Stock Exchange,
the Pacific Stock Exchange and the Philadelphia Stock Exchange. Additional
information with respect to Market for the Registrant's Common Stock and Related
Stockholder Matters, including dividends, is incorporated herein by reference to
the Five-Year Summary of Selected Financial Data and the Quarterly Financial
Information in Exhibit 13, the "Financial Section of the 1999 Annual Report to
Shareholders of Precision Castparts Corp." The Company expects to continue to
pay quarterly cash dividends, subject to its earnings, financial condition and
other factors.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data is incorporated herein
by reference to the "Five-Year Summary of Selected Financial Data" in Exhibit
13, the "Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information with respect to Management's Discussion and Analysis of
Financial Condition and Results of Operations is incorporated herein by
reference to "Management's Discussion and Analysis" in Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
Information included in "Management's Discussion & Analysis" in Exhibit 13,
the "Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp." describing the segments relating to projected growth and future
results and events constitutes forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995. 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 of production for
industrial gas turbine and airframe components; 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; the relative stability of certain foreign currencies; 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. The Company
undertakes no obligation to publicly release any forward-looking information to
reflect anticipated or unanticipated events or circumstances after the date of
this document.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At various times, the Company uses derivative financial instruments to limit
exposure to changes in foreign currency exchange rates, interest rates and
prices of strategic raw materials. Fluctuations in the market values of such
derivative instruments are generally offset by reciprocal changes in the
underlying economic exposures that the instruments are intended to hedge.
Because derivative instruments are used solely as hedges and not for speculative
trading purposes, they do not represent incremental risk to the Company. For
further discussion of derivative financial instruments, refer to the "SUMMARY
17
<PAGE>
OF SIGNIFICANT ACCOUNTING POLICIES," "FAIR VALUE OF FINANCIAL INSTRUMENTS,"
"FINANCING ARRANGEMENTS" and "SUBSEQUENT EVENTS" notes in Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
INTEREST RATE RISK
As discussed in the "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" and
"FINANCING ARRANGEMENTS" notes in Exhibit 13, the Company was committed to
interest rate swaps on a term loan and a revolving credit facility at March 28,
1999, as well as an interest rate cap at March 29, 1998. If market rates would
have averaged 10 percent higher than actual levels in either fiscal 1999 or
fiscal 1998, the effect on the Company's interest expense and net income, after
considering the effects of the interest rate swap contracts and interest rate
cap, would not have been material.
As discussed in the "SUBSEQUENT EVENTS" note in Exhibit 13, subsequent to
year end, the Company entered into a swap agreement to fix the borrowing rate on
approximately 50 percent of new committed bank facilities as well as an interest
rate lock contract to hedge the Treasury rate for the intended issue of
medium-term debt securities, all in conjunction with the pending acquisition of
Wyman-Gordon Company. The gain or loss on these contracts will be deferred and
recognized over the life of the debt issue. If the Company does not proceed with
the intended debt issue, the gain or loss on termination of the interest rate
lock contracts will be recognized in current period net income. The potential
loss in fair value on such financial instruments from a hypothetical 10 percent
adverse change in the respective interest rates would not be material to the
financial position of the Company.
FOREIGN CURRENCY RISK
The majority of the Company's revenue, expense and capital purchasing
activities are transacted in U.S. dollars, however, the Company is exposed to
fluctuations in foreign currencies for transactions denominated in other
currencies. As discussed in the "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES"
note, the Company had several foreign currency hedges in place at March 28, 1999
and March 29, 1998 to reduce such exposure. The potential loss in fair value on
such financial instruments from a hypothetical 10 percent adverse change in
quoted foreign currency exchange rates would not have been material to the
financial position of the Company as of the end of fiscal 1999 or fiscal 1998.
MATERIAL COST RISK
As discussed in the "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" note, the
Company had entered into agreements to hedge the purchase price of nickel metal
at March 28, 1999 and March 29, 1998. If market rates would have averaged 10
percent higher than actual levels in either fiscal 1999 or 1998, the effect on
the Company's cost of sales and net earnings, after considering the effects of
the hedge agreements, would not have been material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to Financial Statements and Supplementary Data is
incorporated herein by reference to pages 1 through 37 of Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated herein
by reference to "Proposal 1: Election of Directors" continuing through "Report
of the Compensation Committee on Executive Compensation" in the Company's Proxy
Statement dated June 28, 1999 for the 1999 Annual Meeting of Shareholders of the
Registrant. The information required by this item with respect to the Company's
executive officers follows Part I, Item 4 of this document.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated herein by
reference to "Compensation of Executive Officers" in the Proxy Statement dated
June 28, 1999 for the 1999 Annual Meeting of Shareholders of the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners
and Management is incorporated herein by reference to "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Directors and Executive
Officers" in the Proxy Statement dated June 28, 1999 for the 1999 Annual Meeting
of Shareholders of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions
is incorporated herein by reference to "Board Compensation, Attendance and
Committees" in the Proxy Statement dated June 28, 1999 for the 1999 Annual
Meeting of Shareholders of the Registrant.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following financial statements incorporated by reference from Exhibit
13, the "Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp." are filed as part of this report.
<TABLE>
<CAPTION>
PAGE IN EXHIBIT 13,
THE "FINANCIAL SECTION
OF THE 1999 ANNUAL REPORT
TO SHAREHOLDERS
OF PRECISION CASTPARTS
STATEMENT CORP."*
- ---------------------------------------------------------------- -----------------------------
<S> <C>
Consolidated Statements of Income............................... 11
Consolidated Balance Sheets..................................... 12
Consolidated Statements of Cash Flows........................... 13
Consolidated Statements of Shareholders' Investment............. 14
Consolidated Statements of Comprehensive Income................. 15
Notes to Financial Statements................................... 16
Report of Independent Accountants............................... 34
</TABLE>
(A)(2) FINANCIAL STATEMENT SCHEDULE
The following schedule is filed as part of this report:
Schedule II--Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statement Schedule
(A)(3) EXHIBITS
<TABLE>
<S> <C> <C>
(3)A -- Restated Articles of Incorporation of Precision Castparts Corp. as
amended (Incorporated herein by reference to Exhibit 3 in the Form
10-Q, Filed February 10, 1999.) (File number 1-10348)
(3)B -- Bylaws of Precision Castparts Corp. (Incorporated herein by reference
to Exhibit 3.2 in the Form 8A/A, Amendment No. 3, Filed September 27,
1996.) (File number 1-10348)
(4)A -- Indenture dated December 17, 1997 between the First National Bank of
Chicago as Trustee and Precision Castparts Corp. (Incorporated herein
by reference to Exhibit (4)A in the Form 10-K dated June 26, 1998.)
(File number 1-10348)
(10)A -- Precision Castparts Corp. Revised and Restated Stock Incentive Plan
as amended. (Incorporated herein by reference to Exhibit (10)A in the
Form 10-K dated April 3, 1994.) (File number 1-10348)
(10)B -- Precision Castparts Corp. Non-Employee Directors' Stock Option Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)B in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)C -- Precision Castparts Corp. 1994 Stock Incentive Plan. (Incorporated
herein by reference to Appendix A in Registrant's June 20, 1994 Proxy
Statement to Shareholders.) (File number 1-10348)
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
(10)D -- Precision Castparts Corp. Nonemployee Directors' Deferred
Compensation Plan dated January 1, 1995. (Incorporated herein by
reference to Exhibit (10)D in the Form 10-K dated April 2, 1995.)
(File number 1-10348)
(10)E -- Precision Castparts Corp. Executive Deferred Compensation Plan dated
January 1, 1995 (Incorporated herein by reference to Exhibit (10)E in
the Form 10-K dated April 2, 1995.) (File number 1-10348)
(10)F -- Bank of America Credit Agreement Dated July 31, 1996 among Precision
Castparts Corp.; Certain of its Subsidiaries; Bank of America
National Trust and Savings Association, as Agent; Letter of Credit
Issuing Bank; and The Other Financial Institutions Party Hereto
Arranged by BA Securities, Inc. (Incorporated herein by reference to
Exhibit (10)H in the Form 10-Q dated October 25, 1996.) (File number
1-10348)
(10)G -- Precision Castparts Corp. Executive Performance Compensation Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)G in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)H -- Compensation Arrangement between Precision Castparts Corp. and
Gregory M. Delaney. (Incorporated herein by reference to Exhibit
(10)H in the Form 10-K dated June 26, 1998.) (File number 1-10348)
(10)I -- Form of Change of Control Agreement and Indemnity Agreement for
Officers and Executives of Precision Castparts Corp. (Incorporated
herein by reference to Exhibit (10)I in the Form 10-K dated June 27,
1997.) (File number 1-10348)
(10)J -- Form of Employment Agreement, dated as of April 2, 1997 between
Precision Castparts Corp. and Steven C. Riedel. (Incorporated herein
by reference to Exhibit (10)J in the Form 10-K dated June 27, 1997.)
(File number 1-10348)
(10)K -- Precision Castparts Corp. Supplemental Executive Retirement Program
1998, dated January 1, 1998. (Incorporated herein by reference to
Exhibit (10)K in the Form 10-K dated June 26, 1998.) (File number
1-10348)
(10)L -- Precision Castparts Corp. 1998 Employee Stock Purchase Plan
(Incorporated herein by reference to Item 6(a), Exhibit (10)L in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(11) -- Calculation of Earnings Per Share for the Year Ended March 28, 1999*
(13) -- Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp. for the Year Ended March 28, 1999
(21) -- Subsidiaries of Precision Castparts Corp.
(23) -- Consent of Independent Accountants
(27) -- Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
The Company filed a Form 8-K dated December 3, 1998, regarding the
adoption of a shareholder rights plan.
(C) SEE (A)(3) ABOVE.
(D) SEE (A)(2) ABOVE.
- ------------------------
* Information required to be presented in Exhibit 11 is incorporated
herein by reference to the "EARNINGS PER SHARE" note in Exhibit 13, the
"Financial Section of the 1999 Annual Report to Shareholders of Precision
Castparts Corp."
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
PRECISION CASTPARTS CORP.
By: /s/ WILLIAM C. MCCORMICK
-----------------------------------------
William C. McCormick
CHAIRMAN OF THE BOARD, DIRECTOR AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
As officers or directors of
PRECISION CASTPARTS CORP.
/s/ WILLIAM C. MCCORMICK Chairman of the Board,
- ------------------------------ Director and Chief
William C. McCormick Executive Officer
Vice President and Chief
/s/ WILLIAM D. LARSSON Financial Officer
- ------------------------------ (Principal Financial and
William D. Larsson Accounting Officer)
/s/ PETER R. BRIDENBAUGH
- ------------------------------ Director
Peter R. Bridenbaugh
/s/ DEAN T. DUCRAY
- ------------------------------ Director
Dean T. DuCray
/s/ DON R. GRABER
- ------------------------------ Director
Don R. Graber
/s/ ROY M. MARVIN
- ------------------------------ Director
Roy M. Marvin
/s/ VERNON E. OECHSLE
- ------------------------------ Director
Vernon E. Oechsle
/s/ STEVEN G. ROTHMEIER
- ------------------------------ Director
Steven G. Rothmeier
</TABLE>
22
<PAGE>
SCHEDULE II
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
(000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN C
------------------------
COLUMN B ADDITIONS COLUMN E
----------- ------------------------ -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT
- --------------------------------------------------- BEGINNING COSTS AND BUSINESS ----------- END OF
CLASSIFICATION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Deducted from assets to which they apply:
Reserve for doubtful accounts:
March 30, 1997................................... $ 1,100 $ 900 $ 1,400 $ 800(1) $ 2,600
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 29, 1998................................... $ 2,600 $ 1,100 $ 700 $ 600(1) $ 3,800
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 28, 1999................................... $ 3,800 $ 500 $ 300 $ 1,200(1) $ 3,400
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Deferred tax asset valuation allowance:
March 30, 1997................................... $ 4,100 $ 500(2) $ 1,300 $ 2,400(3) $ 3,500
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 29, 1998................................... $ 3,500 $ -- $ -- $ 2,000(3) $ 1,500
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
March 28, 1999................................... $ 1,500 $ 1,200(2) $ -- $ -- $ 2,700
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Write off of bad debts.
(2) Establishment of valuation allowances on capital-loss carryforwards or
operating loss carryforwards.
(3) Utilization of tax benefits under capital-loss or operating loss
carryforwards.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Precision Castparts Corp.
Our audits of the consolidated financial statements referred to in our
report dated April 28, 1999 appearing on page 35 of the 1999 Annual Report to
Shareholders of Precision Castparts Corp. (which report and consolidated
financial statements are included as Exhibit 13 in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
<TABLE>
<S> <C>
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
April 28, 1999
</TABLE>
24
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<S> <C> <C>
(3)A -- Restated Articles of Incorporation of Precision Castparts Corp. as
amended (Incorporated herein by reference to Exhibit 3 in the Form
10-Q, Filed February 10, 1999.) (File number 1-10348)
(3)B -- Bylaws of Precision Castparts Corp. (Incorporated herein by reference
to Exhibit 3.2 in the Form 8A/A, Amendment No. 3, Filed September 27,
1996.) (File number 1-10348)
(4)A -- Indenture dated December 17, 1997 between the First National Bank of
Chicago as Trustee and Precision Castparts Corp. (Incorporated herein
by reference to Exhibit (4)A in the Form 10-K dated June 26, 1998.)
(File number 1-10348)
(10)A -- Precision Castparts Corp. Revised and Restated Stock Incentive Plan as
amended. (Incorporated herein by reference to Exhibit (10)A in the
Form 10-K dated April 3, 1994.) (File number 1-10348)
(10)B -- Precision Castparts Corp. Non-Employee Directors' Stock Option Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)B in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)C -- Precision Castparts Corp. 1994 Stock Incentive Plan. (Incorporated
herein by reference to Appendix A in Registrant's June 20, 1994 Proxy
Statement to Shareholders.) (File number 1-10348)
(10)D -- Precision Castparts Corp. Nonemployee Directors' Deferred Compensation
Plan dated January 1, 1995. (Incorporated herein by reference to
Exhibit (10)D in the Form 10-K dated April 2, 1995.) (File number
1-10348)
(10)E -- Precision Castparts Corp. Executive Deferred Compensation Plan dated
January 1, 1995 (Incorporated herein by reference to Exhibit (10)E in
the Form 10-K dated April 2, 1995.) (File number 1-10348)
(10)F -- Bank of America Credit Agreement Dated July 31, 1996 among Precision
Castparts Corp.; Certain of its Subsidiaries; Bank of America National
Trust and Savings Association, as Agent; Letter of Credit Issuing
Bank; and The Other Financial Institutions Party Hereto Arranged by BA
Securities, Inc. (Incorporated herein by reference to Exhibit (10)H in
the Form 10-Q dated October 25, 1996.) (File number1-10348)
(10)G -- Precision Castparts Corp. Executive Performance Compensation Plan.
(Incorporated herein by reference to Item 6(a), Exhibit (10)G in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(10)H -- Compensation Arrangement between Precision Castparts Corp. and Gregory
M. Delaney. (Incorporated herein by reference to Exhibit (10)H in the
Form 10-K dated June 26, 1998.) (File number 1-10348)
(10)I -- Form of Change of Control Agreement and Indemnity Agreement for
Officers and Executives of Precision Castparts Corp. (Incorporated
herein by reference to Exhibit (10)I in the Form 10-K dated June 27,
1997.) (File number 1-10348)
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
(10)J -- Form of Employment Agreement, dated as of April 2, 1997 between
Precision Castparts Corp. and Steven C. Riedel. (Incorporated herein
by reference to Exhibit (10)J in the Form 10-K dated June 27, 1997.)
(File number 1-10348)
(10)K -- Precision Castparts Corp. Supplemental Executive Retirement Program
1998, dated January 1, 1998. (Incorporated herein by reference to
Exhibit (10)K in the Form 10-K dated June 26, 1998.) (File number
1-10348)
(10)L -- Precision Castparts Corp. 1998 Employee Stock Purchase Plan
(Incorporated herein by reference to Item 6(a), Exhibit (10)L in the
Form 10-Q dated August 8, 1997.) (File number 1-10348)
(11) -- Calculation of Earnings Per Share for the Year Ended March 28, 1999*
(13) -- Financial Section of the 1999 Annual Report to Shareholders of
Precision Castparts Corp. for the Year Ended March 28, 1999
(21) -- Subsidiaries of Precision Castparts Corp.
(23) -- Consent of Independent Accountants
(27) -- Financial Data Schedule
</TABLE>
- ------------------------
* Information required to be presented in Exhibit 11 is incorporated herein by
reference to the "EARNINGS PER SHARE" note in Exhibit 13, the "Financial
Section of the 1999 Annual Report to Shareholders of Precision Castparts
Corp."
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS OVERVIEW
Fiscal 1999 was another record year for the Company. PCC not only achieved
record sales levels, despite soft market conditions in the aerospace and oil
and gas industries, but also experienced the sixth consecutive year of
improvements in gross margins and operating income as a percent of sales.
This was accomplished through continued focus on cost management throughout
the Company, coupled with significant manufacturing improvements at a number
of operations.
Total sales for fiscal 1999 reached a record $1,471.9 million, an increase of
12 percent from fiscal 1998 sales of $1,316.7 million. Fiscal 1999
acquisitions added $38.5 million of sales, while base business revenues
increased by $116.7 million, or 9 percent from fiscal 1998. The continued
growth of sales into the industrial gas turbine ("IGT") market, which was 53
percent higher than fiscal 1998, coupled with more modest growth of 8 percent
in the aerospace market, helped fuel this increase. Aerospace sales as a
percent of total sales decreased from 53 percent in fiscal 1998 to 51 percent
in fiscal 1999. The Company anticipates that the percentage of aerospace
sales in fiscal 2000 will again decline slightly from the level experienced
in fiscal 1999 excluding the impact of any fiscal 2000 acquisitions. This
decline is expected to be offset by sales increases in the IGT and general
industrial markets. Over the past three years, total sales have increased at
a compound annual growth rate of 38 percent.
Operating income before restructuring and other non-recurring charges for
fiscal 1999 also reached record levels, totaling $191.5 million, or 13.0
percent of sales, a 16 percent increase from fiscal 1998's operating income
before restructuring and other non-recurring charges of $164.6 million, or
12.5 percent of sales. Fiscal 1999 net income of $103.3 million was 20
percent higher than fiscal 1998 earnings of $86.1 million, and resulted in
record earnings per share of $4.22 (diluted), compared with $3.53 per share
(diluted) last year. Over the past three years, operating income before
restructuring charges and other non-recurring charges has increased at a
compound annual growth rate of 44 percent.
ACQUISITIONS
The Company completed three acquisitions during fiscal 1999 which
complemented existing business lines and provided access to new domestic and
international markets. Environment/One Corporation ("E/One"), located in New
York, and TBV, located in Massachusetts, were both acquired in the first
quarter of fiscal 1999. These acquisitions are included in the Fluid
Management segment. E/One, a manufacturer of equipment for low-pressure sewer
systems, is well positioned to capitalize on a rapidly growing industry, and
TBV, a manufacturer of corrosion-resistant titanium ball valves, complements
existing product lines in the Fluid Management segment. Sterom, S.A.,
acquired during the fourth quarter of fiscal 1999, is also included in the
Fluid Management segment. Located in Romania, Sterom manufactures
high-quality industrial valves and oilfield equipment. This business unit
enjoys a close relationship with the State of Romania energy company, Petrom,
and has built a good reputation in the former Soviet Union, Eastern Europe,
the Middle East and South America.
Subsequent to year end, through a wholly-owned subsidiary, PCC entered into a
definitive agreement to acquire 100 percent of the stock of Wyman-Gordon
Company in a cash tender offer valued at approximately $825.0 million,
including the assumption of $104.0 million of net debt. Upon completion of
the tender offer and subsequent merger, Wyman-Gordon will become a
wholly-owned subsidiary of the Company. The completion of the tender offer is
conditioned upon the tender of at least two-thirds of the outstanding shares
of Wyman-Gordon and certain other conditions, including compliance with the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Wyman-Gordon, headquartered in Grafton, Massachusetts, is the market leader
in high-quality, technologically advanced forgings for aircraft engine
components, and is also a leading manufacturer of investment castings for the
aerospace industry and forgings for the IGT and energy markets.
These acquisitions all fit with the Company's strategy of targeting
acquisitions that (i) complement the Company's core competencies in metals,
precision metalworking and the management of complex manufacturing process,
(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.
1
<PAGE>
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the fourth quarter of fiscal 1999, PCC recorded charges of $13.1
million related to restructuring and other non-recurring items. The
non-recurring charges occurred in all segments and related principally to the
write-down of inventory, and establishment of provisions for both loss
contracts and a product warranty dispute. The restructuring charge provided
for severance and other exit costs associated with the consolidation and
downsizing of operations within the Fluid Management segment. The
tax-effected impact of these charges totaled $7.8 million, or $0.32 per share.
OUTLOOK
PCC currently expects fiscal 2000 will have continued internal sales growth
and improved margins, although at lower growth rates than demonstrated over
the last several years. The downturn in the aerospace cycle, the overall
weakness in the oil and gas industries, and the weak Asian economy will
continue to represent challenges to the company, particularly during the
first half of fiscal 2000. Despite these poor economic conditions in key
markets, the Company will continue to expand aggressively into new products
such as IGT and structural airframe components as well as pursue aftermarket
opportunities, and expects to realize significant increases in these areas
during fiscal 2000. In addition, higher sales are anticipated in the
Industrial Products segment as a result of increased sales of Pittler
machines in Europe and more effective domestic and international sales
coverage at J&L Fiber Services.
2
<PAGE>
FINANCIAL RESULTS BY SEGMENT
Effective with this annual report, PCC will report its financial results by
segment in accordance with adoption of Statement of Financial Accounting
Standards 131, "Disclosures about Segments of an Enterprise and Related
Information." The Statement requires that the Company present segment data
based on the way that management organizes the businesses within the Company
for making operating decisions and assessing performance. The three segments,
based on product lines, are Precision Alloy Products, Fluid Management
Products and Industrial Products. Operating income amounts discussed below
exclude restructuring and other non-recurring charges.
PRECISION ALLOY PRODUCTS
The Precision Alloy Products segment includes PCC Structurals, Inc., PCC
Airfoils, Inc. and Advanced Forming Technology, Inc. (AFT). PCC Structurals
and PCC Airfoils manufacture investment castings for aircraft engines,
industrial gas turbines (IGT), airframes, medical prostheses, and other
industrial applications. AFT manufactures metal-injection-molded,
metal-matrix-composite, and Thixoformed-TM- components for a wide variety of
automotive, electronic, firearm, medical and consumer applications.
Fiscal 1999 compared with fiscal 1998
Precision Alloy Products reported fiscal 1999 sales of $961.4 million and
operating income of $147.0 million. Fiscal 1999 sales increased 10 percent
over last year's $877.4 million, and operating income improved by 13 percent
over last year's $130.1 million. Revenue growth was largely due to the
increased sales of replacement airfoils for commercial and military aircraft
engines, production of new airframe components and continued expansion into
the industrial gas turbine market. Sales of aircraft engine components for
original equipment applications (OEM) began to fall in the latter part of the
year as the aerospace cycle moved toward its peak. OEM orders are expected to
remain weak through fiscal 2000. In addition, AFT sales of
metal-injection-molded parts decreased because of slower-than-expected
qualifications for automotive customers and substantially lower demand for
electronic components. The higher operating income reflected leverage from
the higher sales volume and improved operating performance at PCC Structurals.
Fiscal 1998 compared with fiscal 1997
Fiscal 1998 sales for Precision Alloy Products totaled $877.4 million versus
$691.4 million in fiscal 1997, an increase of 27 percent. Operating income of
$130.1 million was $38.1 million, or 41 percent higher than fiscal 1997's
operating income of $92.0 million. The sales and operating income increases
were both positively affected by a full year of operations from the
acquisition of AETC in the second quarter of fiscal 1997. The segment
experienced strong demand from the aerospace industry, which also contributed
to the year over year improvements. Operating margins were favorably impacted
by the higher sales level coupled with significant improvements in
manufacturing performance.
3
<PAGE>
FLUID MANAGEMENT PRODUCTS
The Fluid Management Products segment includes all of the businesses within
PCC Flow Technologies, Inc. The businesses that comprise this segment
manufacture an extensive range of fluid management products, including PACO,
Johnston and Crown pumps for water and wastewater treatment, new
construction, energy, and other applications; E/One for low-pressure sewer
systems; Newman's, General, TBV, Techno, Barber, OIC, Baronshire and Sterom
valves for oil and gas, fuel distribution, food processing, severe services,
and other applications; and Penberthy and Water Specialties fluid measurement
devices for water and wastewater processing and other applications.
Fiscal 1999 compared with fiscal 1998
Fiscal 1999 sales for Fluid Management Products totaled $306.4 million, as
compared to $260.6 million in fiscal 1998, an increase of 18 percent. The
segment's operating income, however, saw some deterioration, falling to $33.8
million from last year's $34.9 million. The Fluid Management Products segment
is currently experiencing the effect of lower oil prices worldwide, which has
dramatically affected sales of its Barber Industries' wellhead equipment,
Penberthy jet products and sight gages, and its Newman's valve product line,
both domestically and internationally. In addition, the softness in the
chemical and petrochemical industries has negatively impacted the stainless
steel product line. The decline in these markets has not only caused a
substantial reduction in orders, but has also increased competitive pricing
pressures, which adversely affected normal margin opportunities during fiscal
1999.
Fiscal 1998 compared with fiscal 1997
The Fluid Management Products segment improved its sales by 61 percent, from
$161.8 million in fiscal 1997 to $260.6 million in fiscal 1998, and its
operating income by 87 percent, from $18.7 million to $34.9 million. The
majority of the increase in sales and operating income was due to a full
year's results from the acquisition of the NEWFLO Corporation during the
second quarter of fiscal 1997. In addition, sales of Barber Industries'
wellhead equipment and Johnston Pumps contributed to the increase. Operating
income was also positively impacted by a strong focus on cost management
throughout the year.
INDUSTRIAL PRODUCTS
The Industrial Products segment includes PCC Specialty Products, Inc. and J&L
Fiber Services, Inc. PCC Specialty Products manufactures a broad range of
cold-forming header and threader tools and gundrills, and manufactures
machines for vertical and horizontal boring, fastener production and
gundrilling, principally for automotive and other machine tool applications.
The tooling business includes product lines manufactured by Reed-Rico-R-,
Astro Punch-R- and Eldorado. The machines business includes product lines
manufactured by Olofsson, Pittler, Reed-Rico-R-, and Eldorado. J&L Fiber
Services produces refiner plates and screen cylinders for use in the pulp and
paper industry.
4
<PAGE>
Fiscal 1999 compared with fiscal 1998
The Industrial Products segment's sales increased by 14 percent, from $178.7
million in fiscal 1998 to $204.1 million in fiscal 1999, and its operating
income increased by 94 percent, from $10.9 million to $21.1 million. The
significant increase in sales and operating income was due to a full year's
results from the acquisition of J&L Fiber Services in the third quarter of
fiscal 1998. Operating income was also positively impacted by improved
manufacturing performance at Reed-Rico-R-.
Fiscal 1998 compared with fiscal 1997
Fiscal 1998 sales for the Industrial Products segment totaled $178.7 million,
as compared to $119.6 million in fiscal 1997, an increase of 49 percent. The
segment's operating income, however, deteriorated, declining to $10.9 million
from fiscal 1997's $12.7 million. The Industrial Products segment experienced
significant declines in margin, due to manufacturing problems and poor
quoting at the Olofsson operation, where sales to the automotive industry
were lower than anticipated. Operating income was also reduced by slower than
anticipated start-up of a new product line at the Eldorado operation. During
the fourth quarter of fiscal 1998, a restructuring charge was established
principally to provide for severance and other exit costs associated with the
consolidation of operations within PCC Specialty Products to help create a
stronger, more cost-effective platform for growth, while eliminating
redundant overhead expenses and leveraging its manufacturing know-how and
technical expertise.
INTEREST AND TAXES
Net interest expense in fiscal 1999 was $27.6 million, as compared with $20.7
million in fiscal 1998. The higher expense reflects higher debt levels as a
result of borrowings to fund the fiscal 1998 and 1999 acquisitions and debt
assumed in connection with those acquisitions.
The effective tax rate for the year was 32 percent, compared with 36 percent
in the prior year. The reduction in the rate was due to the favorable impact
of tax benefits recognized in the third and fourth quarters of the year,
relating to favorable resolution of an IRS tax issue, higher than anticipated
tax benefits associated with international sales, and reversal of reserves
for state and foreign taxes no longer required. The impact of the reduction
in the effective tax rate increased earnings by $8.9 million, or $0.35 per
share in the fourth quarter. The Company's normalized tax rate prior to the
above reductions was 38 percent.
5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total capitalization at March 28, 1999 was $1,123.3 million, consisting of
$425.9 million of debt and $697.4 million of equity. The
debt-to-capitalization ratio was 37.9 percent compared with 38.5 percent at
the end of the prior fiscal year.
Cash requirements for the year included $77.7 million for acquisitions, $74.8
million for capital expenditures, $74.1 million of working capital increases
and $5.9 million for dividends. These requirements were partially funded from
cash generated by earnings of $164.9 million and $6.2 million from the sale
of common stock through the employee stock purchase plan and stock option
exercises. The cash shortfall was funded from $52.2 million of net
borrowings, resulting in a net decrease to cash of $10.2 million from the
fiscal 1998 ending balance. An existing committed line of credit facilitated
borrowings during the year. Borrowing capacity under the Company's credit
agreement was $81.1 million at fiscal year end.
Capital spending in fiscal 1999 of $74.8 million principally provided for
increased IGT capacity and for completion of a new manufacturing facility for
AFT. Fiscal 2000's capital spending, which is expected to be approximately 25
percent lower than fiscal 1999's, principally provides for further increases
in IGT capacity and the development of an aftermarket structure at PCC Flow
Technologies, as well as for other normal requirements to maintain
production, provide for cost reductions and maintain safety.
Subsequent to year end, the Company obtained committed bank facilities
totaling $1,250.0 million to finance the acquisition of the Wyman-Gordon
Company and to refinance the Company's current facilities in conjunction with
this acquisition. The committed bank facilities include a $550.0 million term
loan facility, a $300.0 million interim term loan facility and a $400.0
million revolving credit facility. Subsequent to closing of the acquisition,
the Company is planning to issue $300.0 million of medium-term debt
securities, which will replace the interim term loan facility. In addition, a
portion of the revolving credit facility will be used to finance a cash
tender offer for Wyman-Gordon's 8% $150,000,000 Senior Notes due December 15,
2007. On June 4, 1999, the Company entered into a swap agreement to fix the
borrowing rate on approximately 50 percent of the bank borrowing under the
committed bank facilities. In addition, the Company entered into a hedge to
fix the underlying 10 year Treasury rate for the $300.0 million of
medium-term debt securities to be issued.
Management believes that the Company can fund the requirements for capital
spending, cash dividends and potential acquisitions from cash balances,
borrowing from existing or new bank credit facilities, issuance of public or
privately placed debt securities, or the issuance of stock.
6
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This Statement requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 is not expected to have a material impact on the
Company's consolidated financial statements. This Statement is effective for
fiscal years beginning after June 15, 2000. The Company will adopt this
accounting standard as required by fiscal 2002.
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 accurately process 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 and development of a
project schedule for non-compliant systems, and
4) 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
the 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 set June 30, 1999, as the revised target date for
Y2K compliance on all Critical Projects. Eleven of the thirteen critical
projects have been completed, the remaining two projects are scheduled for
completion by June 30, 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.
7
<PAGE>
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
shutdown 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 three business segments.
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 have been, or will be tested in-house by a
two-step process:
PRIMARY TESTING -- each operating unit of the Company is required to
apply tests to determine Y2K compliance of its systems.
SECONDARY TESTING -- Internal Audit has begun, and will continue to
perform, Y2K testing on selected systems. The scheduled completion date is
August 1999.
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 operating units;
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 $5.5
million. The $5.5 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.
8
<PAGE>
The Company has spent $3.6 million on Year 2000 systems, including $2.7
million to replace systems and $0.9 million to upgrade or modify existing
systems. Estimated future costs of $1.9 million include $1.3 million to
replace systems and $0.6 million to upgrade or modify systems.
The Company has spent $2.7 million on the thirteen Critical Projects, which
are estimated to represent $3.4 million of the $5.5 million estimated total
cost of all Y2K projects. All costs associated with these projects have been
provided for from existing operating budgets and have been or will be funded
through operating cash flow.
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
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 customer 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 effects of
a single occurrence. The Company, however, has communicated with its major
customers with respect to Y2K issues, and has received information indicating
that they are developing and monitoring their own plans, as well as
monitoring 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 and modified 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.
9
<PAGE>
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."
FORWARD-LOOKING STATEMENTS
Information included within this annual report describing the projected
growth and future results and events constitutes forward-looking statements,
within the meaning of the Private Securities Litigation Reform Act of 1995.
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 of production for industrial gas turbine
and airframe components; 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; the
relative stability of certain foreign currencies; 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. The Company undertakes no
obligation to publicly release any forward-looking information to reflect
anticipated or unanticipated events or circumstances after the date of this
document.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Years Ended
March 28, 1999 March 29, 1998 March 30, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,471,900 $1,316,700 $ 972,800
Cost of goods sold 1,134,000 1,025,100 765,500
Provision for restructuring and other 13,100 8,600 3,400
Selling and administrative expenses 146,400 127,000 91,500
Interest expense, net 27,600 20,700 16,700
- ----------------------------------------------------------------------------------------------------
Income before provision for income taxes 150,800 135,300 95,700
Provision for income taxes 47,500 49,200 39,200
- ----------------------------------------------------------------------------------------------------
Net income $ 103,300 $ 86,100 $ 56,500
- ----------------------------------------------------------------------------------------------------
Net income per common share (basic) $ 4.23 $ 3.56 $ 2.59
Net income per common share (diluted) $ 4.22 $ 3.53 $ 2.57
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 16 THROUGH 33.
11
<PAGE>
CONSOLIDATED BALANCE SHEETS
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 28, 1999 March 29, 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 14,800 $ 25,000
Receivables, net of reserves of $3,400 in 1999 and $3,800 in 1998 255,100 208,600
Inventories 253,600 240,900
Prepaid expenses 7,300 7,100
Deferred income taxes 26,100 29,200
- ----------------------------------------------------------------------------------------------------------------
Total current assets 556,900 510,800
- ----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 16,500 16,400
Buildings and improvements 111,800 91,800
Machinery and equipment 400,300 338,000
Construction in progress 34,000 44,000
- ----------------------------------------------------------------------------------------------------------------
562,600 490,200
Less - accumulated depreciation (231,200) (197,500)
- ----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 331,400 292,700
- ----------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $34,000 in 1999 and $20,800 in 1998 525,900 451,600
Other assets 35,400 19,500
- ----------------------------------------------------------------------------------------------------------------
$ 1,449,600 $ 1,274,600
- ----------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current liabilities:
Notes payable $ 17,200 $ 800
Current portion of long-term debt 39,000 24,400
Accounts payable 102,100 87,500
Accrued liabilities 137,100 123,700
Income taxes payable 9,200 28,400
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 304,600 264,800
- ----------------------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion 369,700 347,000
Deferred income taxes 25,100 23,200
Accrued retirement benefits obligation 39,200 34,000
Other long-term liabilities 13,600 10,300
Shareholders' investment:
Common stock, $1 stated value, shares authorized 1999 and 1998 - 100,000,000;
issued and outstanding 1999 - 24,465,910;
1998 - 24,300,657 24,500 24,300
Paid-in capital 178,400 172,400
Retained earnings 497,100 399,700
Cumulative translation adjustments (2,600) (1,100)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' investment 697,400 595,300
- ----------------------------------------------------------------------------------------------------------------
$ 1,449,600 $ 1,274,600
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 16 THROUGH 33.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 28, 1999 MARCH 29, 1998 MARCH 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 103,300 $ 86,100 $ 56,500
Non-cash items included in income:
Depreciation and amortization 54,100 43,500 35,200
Deferred income taxes 7,500 4,100 (3,700)
Changes in operating working capital, excluding effects of acquisitions:
Receivables (40,900) (16,100) (37,100)
Inventories (9,500) 19,100 (30,500)
Payables, accruals and current taxes (14,400) 16,500 36,600
Other operating activities, net (9,300) (5,700) (11,100)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 90,800 147,500 45,900
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (77,700) (139,100) (329,100)
Capital expenditures (74,800) (82,900) (52,800)
Other investing activities, net 500 16,300 1,100
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (152,000) (205,700) (380,800)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings 16,300 (18,500) 16,600
Proceeds from issuance of debt 61,700 247,700 312,400
Payments on debt (25,800) (160,100) (153,800)
Sale of common stock 6,200 11,900 150,400
Cash dividends (5,900) (5,800) (4,000)
Other financing activities, net (1,500) (2,100) (2,800)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 51,000 73,100 318,800
- ----------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (10,200) 14,900 (16,100)
Cash and cash equivalents at beginning of year 25,000 10,100 26,200
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 14,800 $ 25,000 $ 10,100
- ----------------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 27,700 $ 21,900 $ 23,700
Income taxes, net of refunds received $ 57,900 $ 30,100 $ 29,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 16 THROUGH 33.
13
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
OUTSTANDING PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996 20,500 $ 20,500 $ 13,900 $ 266,900 $ 1,800
Net income - - - 56,500 -
Cash dividends - - - (4,000) -
Sale of common stock 3,500 3,500 146,900 - -
Translation adjustments - - - - (1,600)
- ---------------------------------------------------------------------------------------------------
Balance at March 30, 1997 24,000 24,000 160,800 319,400 200
Net income - - - 86,100 -
Cash dividends - - - (5,800) -
Sale of common stock 300 300 11,600 - -
Translation adjustments - - - - (1,300)
- ---------------------------------------------------------------------------------------------------
Balance at March 29, 1998 24,300 24,300 172,400 399,700 (1,100)
Net income - - - 103,300 -
Cash dividends - - - (5,900) -
Sale of common stock 200 200 6,000 - -
Translation adjustments - - - - (1,500)
- ---------------------------------------------------------------------------------------------------
Balance at March 28, 1999 24,500 $ 24,500 $ 178,400 $ 497,100 $ (2,600)
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 16 THROUGH 33.
14
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
(IN THOUSANDS) MARCH 28, 1999 MARCH 29, 1998 MARCH 30, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 103,300 $ 86,100 $ 56,500
Other comprehensive loss:
Foreign currency translation adjustments (1,500) (1,300) (1,600)
- ---------------------------------------------------------------------------------------------------------
Total comprehensive income $ 101,800 $ 84,800 $ 54,900
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 16 THROUGH 33.
15
<PAGE>
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of Precision
Castparts Corp. ("PCC" or "the Company") and its wholly-owned subsidiaries after
elimination of intercompany accounts and transactions. PCC's fiscal year is
based on a 52-53 week year ending the Sunday closest to March 31.
Cash and cash equivalents
Cash and cash equivalents include short-term investments with an original
maturity of three months or less. These investments are available-for-sale with
market values approximating cost.
Valuation of inventories
The LIFO inventory cost method is utilized for work in process and metal
inventories at the majority of domestic operations. The average inventory cost
method is utilized for all other inventories. Costs utilized for inventory
valuation purposes include labor, material and manufacturing overhead.
Inventories valued at current replacement cost would have been $2,400, $4,000,
and $4,300 higher than those reported at March 28, 1999, March 29, 1998 and
March 30, 1997, respectively. PCC uses the single pool dollar value method for
computing LIFO inventories; therefore, it is not possible to present the
breakdown of inventories between work in process and raw materials.
Depreciation and capitalization
Depreciation of plant and equipment is computed on the straight-line or
declining balance method based on the estimated service lives. Estimated lives
used are 20-30 years for buildings and improvements and 5-15 years for machinery
and equipment.
Additions are recorded at cost. Expenditures for maintenance, repairs and minor
improvements are charged to expense. Major improvements and additions are added
to the property accounts. When property is sold or retired, the cost and
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
Goodwill
Goodwill is computed on the straight-line method and is generally amortized over
40 years. The future profitability and cash flow of the operations to which it
relates are reevaluated annually. These factors, along with management's plans
with respect to the operations, are considered in assessing the recoverability
of goodwill.
Derivative financial instruments
At various times, the Company uses derivative financial instruments to limit
exposure to changes in foreign currency exchange rates, interest rates and
prices of strategic raw materials. Gains or losses on these contracts, which are
designed as hedge transactions, are measured upon settlement. The Company has
controls in place that limit the use of derivative financial instruments and
ensure that all such transactions receive appropriate management attention.
16
<PAGE>
As discussed in the "FINANCING ARRANGEMENTS" note, the Company was committed to
interest rate swaps on a term loan and a revolving credit facility at March 28,
1999. (See "SUBSEQUENT EVENTS" note regarding acquisition financing.) Other
immaterial instruments in place at year end included several foreign currency
hedges and no-cost collars for nickel metal, a commodity which is utilized in
production at the Company's investment casting facilities. At March 28, 1999,
and March 29, 1998, there was no material off-balance-sheet risk from derivative
financial instruments. The Company does not hold or issue financial instruments
for trading purposes.
Certain risks and uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenues when product is shipped, or when title is passed
to the customer.
Environmental costs
Environmental liabilities are accrued when the Company determines its
responsibility for cleanup costs and such amounts are reasonably estimable. When
only a range of amounts is established, and no amount within the range is better
than another, the minimum amount of the range is recorded. The Company does not
anticipate and record recoveries from insurance or indemnity agreements before
collection is probable.
Foreign currency translation
The financial statements of foreign subsidiaries are translated into U.S.
dollars at year-end exchange rates for assets and liabilities and at monthly
weighted average rates for income and expenses. Unrealized currency translation
adjustments are deferred and included in the shareholders' investment section of
the balance sheets, whereas transaction gains and losses are recognized
currently in the statements of income.
ACQUISITIONS
The following acquisitions were accounted for by the purchase method of
accounting and, accordingly, the results have been included in the consolidated
financial statements since the acquisition dates. Pro forma information is
required for certain fiscal 1997 acquisitions only.
17
<PAGE>
Fiscal 1999
During the first quarter, PCC acquired substantially all shares of common stock
of Environment/One Corporation ("E/One"), a manufacturer of highly engineered
equipment for low-pressure sewer systems and other applications, for $72,000.
The excess of the purchase price over the fair values of the net assets acquired
was $62,300 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years. E/One operates as part of PCC Flow
Technologies.
Also during the first quarter, PCC acquired the assets of TBV, a manufacturer of
titanium ball valves and pipeline instrumentation, for $9,800. The excess of the
purchase price over the fair values of the net assets acquired was $4,400 and
has been recorded as goodwill, which is being amortized on a straight-line basis
over 40 years. TBV operates as part of PCC Flow Technologies.
During the fourth quarter, PCC acquired 70 percent of the stock of Sterom S.A.
("Sterom"), a Romanian manufacturer of high-quality industrial valves and
oilfield equipment for $1,600. As part of the transaction, PCC guaranteed
investments for capital improvements, the payment of tax liabilities and
environmental remediation efforts. The transaction generated goodwill of $6,500,
which is being amortized on a straight-line basis over 40 years.
Sterom operates as part of PCC Flow Technologies.
Fiscal 1998
During the second quarter, PCC acquired certain assets of Pittler GmbH ("PCC
Pittler") located in Germany. PCC Pittler is a manufacturer of
computer-controlled metalworking machine systems that operates as part of PCC
Specialty Products, Inc. The purchase price of $5,300 yielded negative goodwill
of $3,600.
During the third quarter, PCC acquired 100 percent of the stock of J&L Fiber
Services ("J&L"). J&L is a manufacturer of refiner plates and screen cylinders
for the pulp and paper industry. The purchase price of $109,400 resulted in
$78,800 of goodwill.
During the fourth quarter, PCC acquired the assets of Schlosser Casting Company
("PCC Schlosser"). PCC Schlosser is a titanium investment casting foundry that
operates as part of PCC Structurals, Inc. The purchase price of $19,400 resulted
in $11,700 of goodwill.
Also during the fourth quarter, PCC acquired the stock of Baronshire Engineering
Limited ("Baronshire") located in Scotland for $7,000 including acquired debt.
Baronshire, which manufactures stainless steel butterfly valves for the food and
pharmaceutical industries, operates as part of PCC Flow Technologies, Inc. The
purchase price generated goodwill of $4,700.
18
<PAGE>
Fiscal 1997
During the first quarter, PCC purchased the stock of The Olofsson Corporation, a
manufacturer of computer-controlled metalworking machine systems. The purchase
price of $52,200 included the assumption of debt. Goodwill of $30,600 was
recorded for the difference between the acquisition cost and the fair value of
net assets and liabilities assumed. The business operates as part of PCC
Specialty Products, Inc.
During the second quarter, PCC purchased substantially all of the assets of AE
Turbine Components Limited ("AETC"), which operates as part of PCC Airfoils,
Inc. AETC, which is located in the United Kingdom, is a manufacturer of
investment castings for the aircraft engine and industrial gas turbine markets.
The purchase price was $63,400, and resulted in $24,600 of goodwill and other
intangible assets.
Also during the second quarter, PCC purchased the outstanding stock of the
NEWFLO Corporation ("NEWFLO"). NEWFLO, which is operated as PCC Flow
Technologies, Inc., is a designer and manufacturer of high quality
niche-oriented industrial fluid management products. The transaction, valued at
$300,000, included the assumption of $100,000 of registered subordinated notes
and resulted in $227,800 of goodwill and other intangible assets.
The following represents the pro forma results of operations of the Company
including the fiscal 1997 acquisitions of NEWFLO, AETC and Olofsson for the year
ended March 30, 1997, assuming the acquisitions had taken place at the beginning
of fiscal 1997.
<TABLE>
<CAPTION>
(Unaudited)
Fiscal 1997
----------
<S> <C>
Net sales $1,085,800
Net income $ 57,700
Net income per common share (basic) $ 2.65
Net income per common share (diluted) $ 2.62
----------
</TABLE>
The pro forma presentation is not necessarily indicative of either the results
of operations that would have occurred had the acquisitions taken place at the
beginning of fiscal 1997 or of future results of the combined companies. The
Company had four additional immaterial acquisitions during fiscal 1997 that are
not included in the pro forma results presented above.
PROVISION FOR RESTRUCTURING AND OTHER
During the fourth quarter of fiscal 1999, the Company recorded pretax charges
totaling $13,100 related to restructuring and other non-recurring items.
Non-recurring charges of $11,900 related principally to the write-down of
inventory, and establishment of provisions for both loss contracts and a product
warranty dispute. A restructuring charge was established for severance and other
exit costs associated with the consolidation and downsizing of operations within
PCC Flow Technologies. The tax effected impact of these charges totaled $7,800,
or $0.32 per share (diluted).
19
<PAGE>
During the fourth quarter of fiscal 1998, a restructuring charge of $8,600 was
established principally for severance and other exit costs associated with the
consolidation of operations within PCC Specialty Products. The Company also
recorded certain non-recurring costs associated with the write-off of inventory
related to the machine tool business of PCC Specialty Products. The tax effected
impact of the provision totaled $6,100 or $0.25 per share (diluted). In fiscal
1999, the Company closed its machine tool manufacturing facility in Oscoda,
Michigan, and consolidated operations into its West Branch, Michigan, facility.
Tooling operations in Gaffney, South Carolina, and Santa Fe Springs, California,
were relocated and consolidated into the header tooling facilities in Bristol,
Rhode Island. In addition, the Company closed its tungsten carbide plant in
Gainesville, Georgia, and consolidated those operations into its Duncan, South
Carolina, facility. The restructuring efforts were substantially completed in
fiscal 1999, and an immaterial reserve remains at March 28, 1999.
During the fourth quarter of fiscal 1997, the Company recorded a provision for
restructuring of $3,400 related to the consolidation of PCC Composites and AFT.
The tax effected impact of the provision totaled $2,000 or $0.09 per share
(diluted). The restructuring efforts were substantially completed in fiscal
1998, and an immaterial reserve remains at March 28, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, receivables, payables, accrued liabilities and
short-term borrowings are reflected in the financial statements at cost, which
equals fair value because of the short-term maturity of these instruments.
The fair value of long-term debt was estimated using the Company's year-end
incremental borrowing rate for similar types of borrowing arrangements. The
amounts reported in the consolidated balance sheets for long-term debt
approximate fair value. The fair value of the interest rate protection related
to the long-term debt was immaterial.
CONCENTRATION OF CREDIT RISK
Approximately 51 percent of PCC's business activity in fiscal year 1999 was with
companies in the aerospace industry. Accordingly, PCC is exposed to a
concentration of credit risk for this portion of receivables. The Company has
long-standing relationships with its aerospace customers and management
considers the credit risk to be low.
20
<PAGE>
ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
Mar. 28, 1999 Mar. 29, 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Salaries and wages payable $ 63,000 $ 60,800
Other accrued liabilities 74,100 62,900
- ------------------------------------------------------------------------------
$137,100 $123,700
</TABLE>
FINANCING ARRANGEMENTS
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
Mar. 28, 1999 Mar. 29, 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
6.75% Notes due fiscal 2008 $150,000 $150,000
Term Loan, fixed rate of 6.6% under a swap
agreement, payable quarterly in various
amounts through fiscal 2002 95,000 117,500
Revolving Credit Facility, fixed rate of 6.1%
under a swap agreement at March 28, 1999,
variable rate of 5.7% at March 29,
1998 (based on LIBOR subject to a 7.0% cap
arrangement), expiring fiscal 2002 -- 90,000
Commercial paper backed by Revolving
Credit Facility payable fiscal 2002, 5.1%
rate at March 28, 1999 151,700 --
Industrial Development Revenue Bonds
and other, variable interest rates, 3.0% to
5.0% at March 28, 1999, payable annually
through fiscal 2001 12,000 13,900
- ------------------------------------------------------------------------------
408,700 371,400
Less current portion 39,000 24,400
- ------------------------------------------------------------------------------
$369,700 $347,000
- ------------------------------------------------------------------------------
</TABLE>
The Company has a $400,000 credit agreement (the "Credit Agreement") with banks
expiring in fiscal 2002. The Credit Agreement includes two facilities: an
amortizing term loan facility in the principal amount of $150,000 (the "Term
Loan") and a revolving credit facility in the principal amount of $250,000 (the
"Credit Line"). There was $81,100 of unused capacity under the Credit Agreement
at March 28, 1999. Borrowings under the Term Loan and the Credit Line both
include a margin based on the Company's leverage ratio. The Credit Agreement
contains various standard financial covenants, including maintenance of minimum
net worth, fixed charge coverage ratio and leverage ratio. Under the minimum net
worth restriction, $201,400 of retained earnings was available for dividends at
March 28, 1999. In fiscal 1999, the Company started issuing commercial paper
backed by the Credit Line.
21
<PAGE>
The 6.75% Notes contain various standard financial covenants in addition to the
covenants under the Credit Agreement. The Company's debt agreements contain
cross default provisions. At March 28, 1999, the Company was in compliance with
all restrictive provisions of its loan agreements.
Long-term debt is payable as follows: $39,000 in 2000, $55,400 in 2001, $164,300
in 2002, $0 in 2003 and 2004, and $150,000 thereafter.
Notes payable primarily represents short-term borrowings with foreign banks at
March 28, 1999. The weighted average interest rate on short-term borrowings at
March 28, 1999 was 5.7 percent.
INCOME TAXES
Income before provision for income taxes was:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $130,300 $104,100 $80,300
Foreign 20,500 31,200 15,400
- -------------------------------------------------------------------------------------------
Total pretax income $150,800 $135,300 $95,700
- -------------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $ 40,100 $ 38,200 $ 32,000
Foreign 6,900 8,900 4,600
State 5,500 7,000 7,000
- -------------------------------------------------------------------------------------------
52,500 54,100 43,600
Change in deferred income taxes (5,000) (4,900) (4,400)
- -------------------------------------------------------------------------------------------
Provision for income taxes $ 47,500 $ 49,200 $ 39,200
- -------------------------------------------------------------------------------------------
</TABLE>
United States income taxes have not been provided on undistributed earnings of
international subsidiaries. The Company's intention is to reinvest these
earnings and repatriate the earnings only when it is tax effective to do so.
Accordingly, the Company believes that any United States tax on repatriated
earnings would be substantially offset by foreign tax credits.
Certain acquisitions yielded nondeductible goodwill which is reflected in the
tax rate reconciliation below and the tax impact of purchase accounting
adjustments is reflected in deferred taxes.
During the fourth quarter of fiscal 1999, the effective tax rate was
significantly reduced from a normal rate of approximately 38 percent to 1
percent principally as a result of a favorable resolution of an IRS tax issue,
tax benefits relating to higher than anticipated international sales and
reversal of reserves for state and foreign taxes no longer required. The tax
effected impact of the aforementioned items totaled $8,900 or $0.35 per share
(diluted).
22
<PAGE>
During the fourth quarter of fiscal 1998, the effective tax rate was
significantly reduced from a normal rate of approximately 40 percent to 24
percent as a result of revised estimates of tax benefits relating to higher than
anticipated international sales in fiscal 1997 and 1998. In addition, higher
state tax business incentives and other tax benefits contributed to the
reduction in the quarter's effective tax rate. The tax effected impact of the
aforementioned items totaled $6,100 or $0.25 per share (diluted).
A reconciliation of the United States federal statutory rate to the effective
income tax rate follows:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate 35% 35% 35%
Effect of:
State taxes, net of federal benefit 3 4 4
Amortization of goodwill 2 3 3
Foreign Sales Corporation tax benefit (4) (4) (1)
Resolution of an IRS tax issue (2) -- --
Reversal of state and foreign tax
reserves no longer required (3) -- --
Valuation allowance 1 (2) (1)
Other, net -- -- 1
- ------------------------------------------------------------------------------------
Effective rate 32% 36% 41%
- ------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes result from temporary differences in the recognition of
income and expenses for financial and income tax reporting purposes, and
differences between the fair value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future tax benefits or
costs to be recognized when those temporary differences reverse.
Significant components of the Company's deferred tax assets and liabilities were
as follows:
<TABLE>
<CAPTION>
Mar. 28, 1999 Mar. 29, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets arising from:
Expense accruals $39,500 $35,900
Inventory reserves 5,100 8,500
Post-retirement benefits other than pensions 3,900 5,100
Foreign operations 2,000 500
Other 1,700 1,100
Valuation allowances (2,700) (1,500)
- ------------------------------------------------------------------------------------------
Gross deferred tax assets 49,500 49,600
- ------------------------------------------------------------------------------------------
Deferred tax liabilities arising from:
Depreciation/amortization 32,200 30,200
Inventory basis differences 11,400 11,400
Foreign operations 3,300 2,000
Other 1,600 --
- ------------------------------------------------------------------------------------------
Gross deferred tax liabilities 48,500 43,600
- ------------------------------------------------------------------------------------------
Net deferred tax asset $ 1,000 $ 6,000
- ------------------------------------------------------------------------------------------
</TABLE>
The Company has provided valuation allowances for domestic and foreign net
operating and capital loss carryforwards to reduce the related future income tax
benefits to zero.
23
<PAGE>
EARNINGS PER SHARE
The Company reports earnings per share in accordance with Statement No. 128,
"Earnings per Share". Basic earnings per share have been computed based on
the weighted average number of common shares outstanding during the periods.
Diluted earnings per share also consider common shares issuable under an
employee stock purchase plan and stock option plans.
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
Basic Diluted Basic Diluted Basic Diluted
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $103,300 $103,300 $86,100 $86,100 $56,500 $56,500
Average shares
outstanding 24,400 24,400 24,200 24,200 21,800 21,800
Common shares
issuable - 100 - 200 - 200
- ------------------------------------------------------------------------
Average shares
outstanding
assuming
dilution 24,400 24,500 24,200 24,400 21,800 22,000
- ------------------------------------------------------------------------
Net income
per common
share $ 4.23 $ 4.22 $ 3.56 $ 3.53 $ 2.59 $ 2.57
- ------------------------------------------------------------------------
</TABLE>
COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted Statement No. 130, "Reporting
Comprehensive Income". In accordance with this Statement, Consolidated
Statements of Comprehensive Income are included in the consolidated financial
statements to present all changes in Shareholders' investment in the periods
presented other than changes resulting from transactions relating to the
Company's stock.
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
PCC has defined benefit pension plans covering substantially all domestic
employees. Benefits provided by these plans generally are based on years of
service and compensation. PCC's funding policy is to satisfy the funding
requirements of the Employee Retirement Income Security Act. PCC also
provides postretirement medical benefits for certain eligible employees who
have satisfied plan eligibility provisions, which include age and/or service
requirements.
In fiscal 1999, the Company adopted Statement No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits", which revises
disclosures about pension and other postretirement benefits. The following
information is provided in accordance with the the requirements of this
Statement for the plans discussed above.
24
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
Fiscal 1999 1998 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in plan assets:
Beginning fair value of
plan assets $156,900 $136,700 $ 300 $ 100
Actual return on
plan assets 14,600 22,700 - -
Company contributions 900 1,000 1,300 1,200
Plan participants'
contributions 700 800 - -
Benefits paid (6,300) (4,300) (1,000) (1,000)
- ----------------------------------------------------------------------------
Ending fair value
of plan assets $166,800 $156,900 $ 600 $ 300
- ----------------------------------------------------------------------------
Change in benefit
obligations:
Beginning benefit
obligations $184,800 $149,800 $ 17,000 $ 15,800
Service cost 9,600 7,100 300 300
Interest cost 13,200 11,100 1,200 1,200
Plan participants'
contributions 700 700 - -
Amendments 1,200 12,000 - -
Actuarial losses (gains) 5,000 8,400 (600) 700
Benefits paid (6,300) (4,300) (1,000) (1,000)
- ----------------------------------------------------------------------------
Ending benefit
obligations $208,200 $184,800 $ 16,900 $ 17,000
- ----------------------------------------------------------------------------
Reconciliation to
balance sheet amounts:
Fair value of plan
assets less than
benefit obligations $(41,400) $(27,900) $(16,300) $(16,700)
Unrecognized net
loss (gain) 4,400 300 (800) (200)
Unrecognized prior
service cost 12,400 12,000 - -
Unrecognized asset
at transition (1,100) (1,500) - -
- ----------------------------------------------------------------------------
Accrued benefit cost $(25,700) $(17,100) $(17,100) $(16,900)
- ----------------------------------------------------------------------------
Amounts recognized
in the balance sheets:
Accrued liabilities $ (3,300) $ - $ (300) $ -
Accrued retirement
benefits obligation (22,400) (17,100) (16,800) (16,900)
- ----------------------------------------------------------------------------
Accrued benefit cost $(25,700) $(17,100) $(17,100) $(16,900)
- ----------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Assets of the pension plans are invested primarily in equities and fixed
income investments. Included in the aggregated data in the above tables are
amounts applicable to the Company's pension plans with accumulated benefit
obligations in excess of plan assets. Amounts related to such plans were as
follows:
<TABLE>
<CAPTION>
Fiscal 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $(34,400) $(28,800)
Accumulated benefit obligation $(30,700) $(26,100)
Fair value of plan assets $ 16,800 $ 15,900
</TABLE>
26
<PAGE>
The assumptions used in determining the benefit obligations in 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
- -------------------------------------------------------------------------------------
Fiscal 1999 1998 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return on
plan assets 9.00% 9.00% - -
Rate of compensation
increase 5.00% 5.00% - -
- -------------------------------------------------------------------------------------
</TABLE>
The health care cost trend rate to be used in fiscal 2000 is 8 percent. The
rate will gradually decline to 5 percent over a 5-year period. A
one-percentage-point change in assumed health care cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
1 percentage 1 percentage
point increase point decrease
- -------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost
components $ 200 $ (200)
Effect on postretirement benefit obligation $ 2,000 $(1,700)
- -------------------------------------------------------------------------------------
</TABLE>
The net cost for the Company's pension plans consisted of the following
components:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 9,600 $ 7,100 $ 6,800
Interest cost 13,200 11,100 10,000
Expected return on plan assets (14,000) (12,100) (14,800)
Net amortization 500 (300) 3,300
- -------------------------------------------------------------------------------------
Net pension cost $ 9,300 $ 5,800 $ 5,300
- -------------------------------------------------------------------------------------
</TABLE>
The cost of postretirement benefits other than pensions consisted of the
following components:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 300 $ 300 $ 300
Interest cost 1,200 1,200 1,000
- -------------------------------------------------------------------------------------
Postretirement benefit cost $1,500 $1,500 $1,300
</TABLE>
A matching contribution feature was added to the Company's 401(k) savings
plan during 1998. The cost of the Company's contributions to the matching
savings plan were $3,800 and $800 in 1999 and 1998, respectively.
COMMITMENTS AND CONTINGENCIES
Various lawsuits arising during the normal course of business are pending
against PCC. In the opinion of management, the outcome of these lawsuits will
have no material effect on PCC's consolidated financial position.
27
<PAGE>
SHAREHOLDERS' INVESTMENT
Authorized shares of common stock without par value consisted of 100,000,000
shares at March 28, 1999, March 29, 1998, and March 30, 1997. Authorized and
unissued series A no par serial preferred stock consisted of 1,000,000 shares
at March 28, 1999, March 29, 1998, and March 30, 1997.
In November 1996, the Company sold 3,300,000 shares of common stock in a
secondary stock offering at a price of $46.50 per share. The net proceeds to
the Company totaled $146,100.
STOCK-BASED COMPENSATION PLANS
PCC has stock incentive plans for certain officers, key salaried employees
and directors. The officer and employee stock incentive plans allow for the
grant of stock options, stock bonuses, stock appreciation rights, cash bonus
rights and sale of restricted stock. Awards under the officer and employee
stock incentive plans are determined by the Compensation Committee of the
Board of Directors. The time limit within which options may be exercised, and
other exercise terms are fixed by the Committee. The directors' plan grants
options for 1,000 shares annually to each outside director. Option prices of
the plans to date have been at the fair market value on the date of grant.
Options become exercisable in installments from one to four years from the
date of grant and generally expire seven to ten years from the date of grant.
Summarized information relative to the Company's stock incentive plans is as
follows:
<TABLE>
<CAPTION>
Average
Shares Price1
- -------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at March 31, 1996 826,000 $22.31
Granted 251,000 45.91
Exercised (152,000) 19.19
Expired or cancelled (20,000) 32.88
- -------------------------------------------------------------------------------------
Outstanding at March 30, 1997 905,000 29.20
Granted 419,000 59.46
Exercised (231,000) 19.80
Expired or cancelled (58,000) 43.89
- -------------------------------------------------------------------------------------
Outstanding at March 29, 1998 1,035,000 42.81
Granted 543,000 46.35
Exercised (60,000) 24.74
Expired or cancelled (104,000) 52.61
- -------------------------------------------------------------------------------------
Outstanding at March 28, 1999 1,414,000 $44.21
- -------------------------------------------------------------------------------------
Exercisable at March 30, 1997 393,000 $19.61
Exercisable at March 29, 1998 349,000 $25.84
Exercisable at March 28, 1999 503,000 $34.69
- -------------------------------------------------------------------------------------
</TABLE>
1 WEIGHTED AVERAGE EXERCISE PRICE.
The outstanding options for stock incentive plan shares have expiration dates
ranging from fiscal 2000 to fiscal 2009. At March 28, 1999, 1,729,000 stock
incentive plan shares were available for future grants.
28
<PAGE>
Summarized information about stock options outstanding and exercisable at
March 28, 1999 is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
- -------------------------------------------------------------------------------------
Exercise Price Average Average Average
Range Shares Life1 Price2 Shares Price2
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $15 47,000 0.6 $11.58 47,000 $11.58
$15 to $30 184,000 4.0 21.40 181,000 21.28
$30 to $45 184,000 7.2 38.06 102,000 37.17
$45 to $60 919,000 9.0 50.19 152,000 52.63
Over $60 80,000 8.2 61.35 21,000 61.36
- -------------------------------------------------------------------------------------
1,414,000 7.8 $44.21 503,000 $34.69
- -------------------------------------------------------------------------------------
</TABLE>
1 WEIGHTED AVERAGE CONTRACTUAL LIFE REMAINING IN YEARS.
2 WEIGHTED AVERAGE EXERCISE PRICE.
PCC also has an employee stock purchase plan whereby the Company is
authorized to issue shares of common stock to its full-time employees, nearly
all of whom are eligible to participate. Under the terms of the plan,
employees can choose to have up to 10 percent of their annual base earnings
withheld to purchase the Company's common stock. The purchase price of the
stock is the lower of 85 percent of the fair market value of the stock on the
date of grant or on the date purchased.
Disclosures required by Statement No. 123, "Accounting for Stock-Based
Compensation", are as follows:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average fair value
of grants:
- Per option1 $ 11.54 $ 19.29 $ 15.10
- Per purchase right1,2 $ 9.34 $ 11.87 $ 10.64
Valuation assumptions:
Risk-free interest rate 4.5% 5.9% 6.3%
Dividend yield 0.6% 0.6% 0.6%
Volatility 29.6% 25.5% 25.5%
Expected life (years) 5 5 5
Pro forma effects3
Net income $100,300 $83,900 $55,900
Net income per common
share (basic) $ 4.11 $ 3.47 $ 2.56
Net income per common
share (diluted) $ 4.09 $ 3.44 $ 2.54
- -------------------------------------------------------------------------------------
</TABLE>
1 ESTIMATED USING BLACK-SCHOLES OPTION PRICING MODEL
2 PURCHASE RIGHTS GRANTED UNDER EMPLOYEE STOCK PURCHASE PLAN
3 NET INCOME IN THOUSANDS; PER-SHARE AMOUNTS IN DOLLARS
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
29
<PAGE>
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.
SEGMENT INFORMATION
In fiscal 1999, the Company adopted Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which revises reporting
and disclosure requirements for operating segments. The Statement requires
that the Company present segment data based on the way that management
organizes the businesses within the Company for making operating decisions
and assessing performance. The three segments, based on product lines, are
Precision Alloy Products, Fluid Management Products and Industrial Products.
Precision Alloy Products
The Precision Alloy Products Segment includes PCC Structurals, Inc., PCC
Airfoils, Inc. and Advanced Forming Technology, Inc. (AFT). PCC Structurals
and PCC Airfoils manufacture investment castings for aircraft engine,
industrial gas turbine (IGT), airframe, medical prostheses and other
industrial applications. AFT manufactures metal-injection-molded,
metal-matrix-composite, and Thixoformed-TM- components for a wide variety of
applications.
Fluid Management Products
The Fluid Management Products segment includes all of the businesses within
PCC Flow Technologies, Inc. The businesses that comprise this segment
manufacture an extensive range of fluid management products, including pumps
for water and wastewater treatment, low pressure sewer systems, new
construction, processing, energy, and other applications; valves for oil and
gas, fuel distribution, food processing, severe services and other
applications; and fluid measurement devices for water and wastewater
processing and other applications.
30
<PAGE>
Industrial Products
The Industrial Products segment includes PCC Specialty Products, Inc. and J&L
Fiber Services. PCC Specialty Products manufactures a broad range of
cold-forming header and threader tools and gundrills, and manufactures
machines for vertical and horizontal boring, fastener production and
gundrilling, principally for automotive, and other machine tool applications.
J&L Fiber Services produces refiner plates and screen cylinders for use in
the pulp and paper industry.
The following table summarizes segment information:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Precision Alloy Products $ 961,400 $ 877,400 $ 691,400
Fluid Management Products 306,400 260,600 161,800
Industrial Products 204,100 178,700 119,600
- ------------------------------------------------------------------------------
Consolidated net sales $1,471,900 $1,316,700 $ 972,800
- ------------------------------------------------------------------------------
Operating income
Precision Alloy Products $ 147,000 $ 130,100 $ 92,000
Fluid Management Products 33,800 34,900 18,700
Industrial Products 21,100 10,900 12,700
Corporate expense (10,400) (11,300) (7,600)
- ------------------------------------------------------------------------------
Operating income 191,500 164,600 115,800
Restructuring and other charges (13,100) (8,600) (3,400)
Interest expense, net (27,600) (20,700) (16,700)
- ------------------------------------------------------------------------------
Consolidated income before
provision for income taxes $ 150,800 $ 135,300 $ 95,700
- ------------------------------------------------------------------------------
Total assets
Precision Alloy Products $ 589,600 $ 528,100 $ 471,100
Fluid Management Products 479,500 381,700 398,100
Industrial Products 332,900 305,600 191,800
Corporate1 47,600 59,200 9,100
- ------------------------------------------------------------------------------
Consolidated total assets $1,449,600 $1,274,600 $1,070,100
- ------------------------------------------------------------------------------
Depreciation and amortization
expense
Precision Alloy Products $ 29,200 $ 25,500 $ 22,200
Fluid Management Products 13,400 10,000 6,600
Industrial Products 10,100 7,700 6,200
Corporate 1,400 300 200
- ------------------------------------------------------------------------------
Consolidated depreciation and
amortization expense $ 54,100 $ 43,500 $ 35,200
- ------------------------------------------------------------------------------
Capital expenditures
Precision Alloy Products $ 44,900 $ 70,000 $ 45,700
Fluid Management Products 12,000 6,400 2,400
Industrial Products 17,900 6,400 3,900
Corporate - 100 800
- ------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
Consolidated capital
expenditures $ 74,800 $ 82,900 $ 52,800
- ------------------------------------------------------------------------------
</TABLE>
1 CORPORATE ASSETS CONSIST PRINCIPALLY OF CASH AND CASH EQUIVALENTS, DEFERRED
INCOME TAXES AND OTHER ASSETS.
32
<PAGE>
Precision Alloy Products had net sales to General Electric and Pratt &
Whitney as follows:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
General Electric $162,200 $159,200 $150,500
Pratt & Whitney $139,800 $152,800 $125,200
- -------------------------------------------------------------------------------
</TABLE>
No other customer accounted for more than 10 percent of net sales.
Net sales are attributed to geographic areas based on the location of the
assets producing the revenues. Information concerning principal geographic
areas is as follows:
<TABLE>
<CAPTION>
Fiscal 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $1,221,000 $1,106,600 $ 842,800
Europe 219,900 170,900 104,700
Other foreign 31,000 39,200 25,300
- -------------------------------------------------------------------------------
Net sales $1,471,900 $1,316,700 $ 972,800
- -------------------------------------------------------------------------------
United States $1,221,500 $1,096,900 $ 924,400
Europe 198,500 145,500 113,000
Other foreign 29,600 32,200 32,700
- -------------------------------------------------------------------------------
Total assets $1,449,600 $1,274,600 $1,070,100
- -------------------------------------------------------------------------------
</TABLE>
SUBSEQUENT EVENTS
Subsequent to year end, through a wholly-owned subsidiary, PCC entered into a
definitive agreement to acquire 100 percent of the stock of Wyman-Gordon
Company in a cash tender offer valued at approximately $825,000, including
the assumption of $104,000 of net debt. Upon completion of the tender offer
and subsequent merger, Wyman-Gordon will become a wholly-owned subsidiary of
the Company. The completion of the tender offer is conditioned upon the
tender of at least two-thirds of the outstanding shares of Wyman-Gordon and
certain other conditions, including compliance with the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Wyman-Gordon,
headquartered in Grafton, Massachusetts, is the market leader in
high-quality, technologically advanced forgings for aircraft engine
components, and is also a leading manufacturer of investment castings for the
aerospace industry and forgings for the IGT and energy markets.
The Company has also obtained committed bank facilities totaling $1,250,000
to finance the acquisition of the Wyman-Gordon Company and to refinance the
Company's current facilities in conjunction with this acquisition. The
facilities include a $550,000 term loan facility, a $300,000 interim term
loan facility and a $400,000 revolving credit facility. Subsequent to closing
of the acquisition, the Company is planning to issue $300,000 of medium-term
debt securities, which will replace the interim term loan facility. In
addition, a portion of the revolving credit facility will be used to finance
a cash tender offer for Wyman-Gordon's 8% $150,000 Senior Notes due December
15, 2007. On June 4, 1999, the Company entered into a swap agreement to fix
the borrowing rate on approximately 50 percent of the bank borrowing under
the committed bank facilities. In addition, the Company entered into a hedge
to fix the underlying 10 year Treasury rate for the $300,000 of medium-term
debt securities to be issued.
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Precision Castparts Corp.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, cash flows, shareholders' investment and
comprehensive income present fairly, in all material respects, the financial
position of Precision Castparts Corp. and its subsidiaries at March 28, 1999
and March 29, 1998, and the results of their operations and their cash flows
for each of the three years in the period ended March 28, 1999, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- --------------------------------
PricewaterhouseCoopers LLP
Portland, Oregon
April 28, 1999
34
<PAGE>
REPORT OF MANAGEMENT
The management of PCC has prepared the consolidated financial statements and
related financial data contained in this Annual Report. The financial
statements were prepared in accordance with generally accepted accounting
principles appropriate in the circumstances and reflect judgments and
estimates with appropriate consideration to materiality. Management is
responsible for the integrity and objectivity of the financial statements and
other financial data included in the report.
PCC maintains a system of internal accounting controls to provide reasonable
assurance that assets are safeguarded and that transactions are properly
executed and recorded. The system includes policies and procedures, internal
audits and reviews by Company officers.
PricewaterhouseCoopers LLP, independent accountants, provide an objective,
independent review of management's discharge of its obligation related to the
fairness of reporting operating results and financial condition.
PricewaterhouseCoopers LLP performs auditing procedures necessary in the
circumstances to render an opinion on the financial statements contained in
this report.
The Audit Committee of the Board of Directors is composed solely of outside
directors. The Committee meets periodically and, when appropriate,
separately with representatives of the independent accountants and the
internal auditors to monitor the activities of each.
/s/ William C. McCormick /s/ William D. Larsson
- ---------------------------- ---------------------------
Chairman and Chief Vice President and
Executive Officer Chief Financial
Officer
35
<PAGE>
Five-Year Summary of Selected Financial Data
The Selected Financial Data have been restated, as appropriate, to reflect the
three-for-two stock split, effective August, 1994.
<TABLE>
<CAPTION>
(Unaudited)
(In thousands, except employee and per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,471,900 $1,316,700 $ 972,800 $ 556,800 $ 436,400
Net income $ 103,300 $ 86,100 $ 56,500 $ 41,100 $ 29,000
Return on sales 7.0% 6.5% 5.8% 7.4% 6.6%
Return on beginning shareholders'
investment 17.4% 17.1% 18.6% 15.9% 13.0%
Net income per common share (basic) $ 4.23 $ 3.56 $ 2.59 $ 2.02 $ 1.45
Net income per common share (diluted) $ 4.22 $ 3.53 $ 2.57 $ 2.00 $ 1.44
Cash dividends declared per common share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.22
Average shares of common stock
outstanding 24,400 24,200 21,800 20,400 20,000
Working capital $ 252,300 $ 246,000 $ 205,200 $ 125,800 $ 89,900
Total assets $1,449,600 $1,274,600 $1,070,100 $ 450,500 $ 406,700
Total debt $ 425,900 $ 372,200 $ 300,500 $ 13,900 $ 26,000
Total equity $ 697,400 $ 595,300 $ 504,400 $ 303,100 $ 258,400
Total debt as a percent of total debt
and equity 37.9% 38.5% 37.3% 4.4% 9.1%
Book value per share $ 28.50 $ 24.50 $ 21.03 $ 14.76 $ 12.80
Capital expenditures $ 74,800 $ 82,900 $ 52,800 $ 19,700 $ 10,900
Number of employees 12,335 10,367 9,280 5,646 5,166
Number of shareholders of record 3,800 3,715 2,267 2,327 2,480
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
Quarterly Financial Information
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1999
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 370,000 $ 363,400 $ 361,200 $ 377,300
Gross profit $ 85,600 $ 86,200 $ 83,900 $ 82,200
Net income $ 24,400 $ 25,300 $ 25,700 $ 27,900
Net income per
common share(1):
Basic $ 1.00 $ 1.05 $ 1.05 $ 1.14
Diluted $ 1.00 $ 1.03 $ 1.05 $ 1.14
Cash dividends per share $ 0.06 $ 0.06 $ 0.06 $ 0.06
Common stock prices:
High $ 64.25 $ 56.50 $ 46.81 $ 45.88
Low $ 51.38 $ 37.00 $ 32.63 $ 34.13
End $ 53.00 $ 42.00 $ 40.88 $ 38.31
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1998
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter(3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 317,000 $ 318,100 $ 326,400 $ 355,200
Gross profit $ 67,900 $ 69,900 $ 71,400 $ 82,400
Net income $ 19,500 $ 20,700 $ 21,600 $ 24,300
Net income per
common share(1):
Basic $ 0.81 $ 0.86 $ 0.89 $ 1.00
Diluted $ 0.80 $ 0.86 $ 0.88 $ 0.99
Cash dividends per share $ 0.06 $ 0.06 $ 0.06 $ 0.06
Common stock prices:
High $ 63.88 $ 67.69 $ 67.50 $ 61.69
Low $ 51.00 $ 59.63 $ 57.00 $ 47.63
End $ 60.00 $ 66.75 $ 58.75 $ 57.50
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Net income per common share is computed independently by quarter, so the
four quarters may not sum to the amount for the year.
(2) During the fourth quarter of fiscal 1999, the Company recorded charges
related to restructuring and other non-recurring items. The non-recurring
charge related principally to the write-off of inventory, establishment of
a provision for loss contracts and a product warranty dispute. The
restructuring charge was principally established to provide for costs
associated with the consolidation of operations within PCC Flow
Technologies. The tax effected impact of these charges totaled $7,800, or
$0.32 per share (diluted). Reduction in the Company's effective tax rate in
the fourth quarter was principally due to a favorable resolution of an IRS
tax issue, higher than anticipated tax benefits related to foreign sales,
and reversal of reserves for state and foreign taxes no longer required.
The impact of reduction in the effective tax rate increased earnings by
$0.35 per share (diluted).
(3) During the fourth quarter of fiscal 1998, the Company recorded charges
related to restructuring and other non-recurring items. The restructuring
charge was principally established to provide for costs associated with
the consolidation of operations within PCC Specialty Products. The
non-recurring charge related principally to the write-off of inventory
of the machine tool business of PCC Specialty Products. The tax effected
impact of these charges totaled $6,100, or $0.25 per share (diluted).
Reduction in the Company's effective tax rate in the fourth quarter was
principally due to a revised estimates of tax benefits relating to higher
than anticipated foreign sales in fiscal 1997 and 1998. The impact of
reduction in the effective tax rate increased earnings by $0.25 per share
(diluted).
37
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF PRECISION CASTPARTS CORP.
<TABLE>
<CAPTION>
State or
Approximate Percentage Jurisdiction of
of Voting Securities Incorporation
Name of Subsidiary Owned or Organization
- ---------------------------------------------------------------------------
<S> <C> <C>
PCC Structurals, Inc. 100% Oregon
PCC Airfoils, Inc. 100% Ohio
PCC Flow Technologies, Inc. (1) 100% Delaware
PCC Specialty Products, Inc. (2) 100% Delaware
J&L Fiber Services, Inc. 100% Wisconsin
Advanced Forming Technology, Inc. 100% Colorado
AETC Limited 100% United Kingdom
PCC France, S.A 100% France
TBV Newmans, Inc. 100% Delaware
Environment-One Corporation 100% New York
PCC Pittler Maschinenfabrik GmbH 100% Germany
</TABLE>
(1) Engaged in fluid management business. 13 U.S. subsidiaries, 6 foreign
subsidiaries.
(2) Engaged in industrial products business. 1 U.S. subsidiary.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 333-41275
and No. 33-32367) and to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-65479, No. 333-42899, No. 333-14577 and
No. 33-40559) of our report dated April 28, 1999 appearing on page 35 of the
Annual Report to Shareholders of Precision Castparts Corp., which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears in Item 14(a)2 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
June 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> MAR-28-1999
<CASH> 14,800
<SECURITIES> 0
<RECEIVABLES> 258,500
<ALLOWANCES> 3,400
<INVENTORY> 253,600
<CURRENT-ASSETS> 556,900
<PP&E> 562,600
<DEPRECIATION> 231,200
<TOTAL-ASSETS> 1,449,600
<CURRENT-LIABILITIES> 304,600
<BONDS> 369,700
0
0
<COMMON> 24,500
<OTHER-SE> 672,900
<TOTAL-LIABILITY-AND-EQUITY> 1,449,600
<SALES> 1,471,900
<TOTAL-REVENUES> 1,471,900
<CGS> 1,134,000
<TOTAL-COSTS> 1,134,000
<OTHER-EXPENSES> 13,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,600
<INCOME-PRETAX> 150,800
<INCOME-TAX> 47,500
<INCOME-CONTINUING> 103,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,300
<EPS-BASIC> 4.23
<EPS-DILUTED> 4.22
</TABLE>
