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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended July 2, 2000
Commission File No. 1-10348
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Precision Castparts Corp.
An Oregon Corporation
IRS Employer Identification No. 93-0460598
4650 S.W. Macadam Avenue
Suite 440
Portland, Oregon 97201-4254
Telephone: (503) 417-4800
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Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares of Common Stock, no par value, outstanding as of August 7,
2000: 24,747,681
Page 1 of 16 Pages
Note: This 10-Q was filed electronically via EDGAR with the Securities and
Exchange Commission.
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Page 2
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
Precision Castparts Corp. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
(In millions, except per share data) 7/2/00 6/27/99
---------------------------
<S> <C> <C>
Sales $ 549.5 $ 359.0
Cost of goods sold 427.6 279.1
Selling and administrative expenses 54.1 37.4
Interest expense, net 20.6 6.8
------- -------
Income before provision for
income taxes 47.2 35.7
Provision for income taxes 18.9 13.4
------- -------
Net income $ 28.3 $ 22.3
======= =======
Net income per common share (Basic) $ 1.15 $ 0.91
======= =======
Net income per common share (Diluted) $ 1.13 $ 0.91
======= =======
</TABLE>
See Notes to the Interim Financial Statements on page 7.
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Precision Castparts Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In millions) 7/2/00 4/2/00
(Unaudited)
----------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 27.7 $ 17.6
Receivables 336.8 330.7
Inventories 354.9 337.3
Prepaid expenses 24.7 23.7
Deferred income taxes 42.5 42.6
-------- --------
Total current assets 786.6 751.9
-------- --------
Property, plant and equipment,
at cost 782.3 763.8
Less - Accumulated depreciation (278.1) (264.5)
-------- --------
Net property, plant and equipment 504.2 499.3
Goodwill, net 1,078.3 1,059.6
Deferred income taxes 33.9 33.9
Other assets 70.1 71.0
-------- --------
$2,473.1 $2,415.7
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term borrowings $ 151.5 $ 143.5
Long-term debt currently due 55.3 40.2
Accounts payable 163.1 152.8
Accrued liabilities 206.2 212.3
Income taxes payable 37.1 42.7
-------- --------
Total current liabilities 613.2 591.5
-------- --------
</TABLE>
See Notes to the Interim Financial Statements on page 7.
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Page 4
<TABLE>
<S> <C> <C>
Long-term debt 894.3 884.5
Pension and other postretirement
benefit obligations 115.5 113.9
Other long-term liabilities 54.3 51.9
-------- --------
Total liabilities 1,677.3 1,641.8
-------- --------
Shareholders' investment:
Common stock 24.7 24.6
Paid-in capital 183.0 182.2
Retained earnings 603.4 576.5
Cumulative translation adjustments (15.3) (9.4)
-------- --------
Total shareholders' investment 795.8 773.9
-------- --------
$2,473.1 $2,415.7
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</TABLE>
Precision Castparts Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In millions)
Three Months Ended
---------------------------
7/2/00 6/27/99
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28.3 $ 22.3
Non-cash items included in income:
Depreciation and amortization 26.0 14.9
Deferred income taxes 0.1 --
Changes in operating working capital, excluding effects of acquisitions:
Receivables 3.1 2.2
Inventories (12.0) (1.7)
Payables,accruals and current taxes (14.5) (17.1)
Other 2.9 4.2
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Net cash provided by
operating activities 33.9 24.8
------- -------
</TABLE>
See Notes to the Interim Financial Statements on page 7.
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Page 5
<TABLE>
<S> <C> <C>
Cash flows from investing activities:
Business acquisitions, net of
cash acquired (37.7) --
Capital expenditures (14.5) (9.5)
Other 4.0 2.0
------ ------
Net cash used by investing
activities (48.2) (7.5)
------ ------
Cash flows from financing activities:
Net change in short-term borrowings 8.0 1.0
Issuance of long-term debt 23.3 --
Repayment of long-term debt (0.5) (13.7)
Proceeds from exercise of
stock options 0.9 0.4
Cash dividends (1.4) (1.5)
Other (5.9) (1.7)
------ ------
Net cash provided by (used by)
financing activities 24.4 (15.5)
------ ------
Net increase in cash and
cash equivalents 10.1 1.8
Cash and cash equivalents at
beginning of period 17.6 14.8
------ ------
Cash and cash equivalents at
end of period $ 27.7 $ 16.6
====== ======
</TABLE>
See Notes to the Interim Financial Statements on page 7.
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Page 6
Precision Castparts Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
(In millions) 7/2/00 6/27/99
-----------------------
<S> <C> <C>
Net income $28.3 $22.3
Other comprehensive income (expense):
Foreign currency translation
adjustments (5.9) (1.7)
----- -----
Total comprehensive income $22.4 $20.6
===== =====
</TABLE>
See Notes to the Interim Financial Statements on page 7.
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Page 7
Notes to the Interim Financial Statements
(In millions, except per share data)
(1) Basis of Presentation
The consolidated interim financial statements have been prepared by
Precision Castparts Corp. ("PCC" or the "Company"), without audit and
subject to year-end adjustment, in accordance with generally accepted
accounting principles, except that certain information and footnote
disclosures made in the latest annual report have been condensed or
omitted for the interim statements. Certain costs are estimated for the
full year and allocated in interim periods based on estimates of
operating time expired, benefit received, or activity associated with
the interim period. The consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a
fair representation of the results for the interim periods. Certain
reclassifications have been made to prior year amounts to conform to
the current year presentation.
(2) Acquisitions and Dispositions of Businesses
Acquisitions
The following acquisitions were accounted for by the purchase method of
accounting and, accordingly, the results of operations have been
included in the Consolidated Statements of Income since the acquisition
dates. All of the acquisitions were cash transactions. Pro forma
information is provided for the fiscal 2000 Wyman-Gordon acquisition
due to its size.
Fiscal 2001
The Company completed three acquisitions during the first quarter.
Fastener Engineering Group, of Rockford, Illinois, a designer and
manufacturer of wire-processing equipment, is operated as part of the
Industrial Products segment. The purchase price of $5.3 million
generated $1.1 million of goodwill, which is being amortized on a
straight-line basis over 40 years.
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Page 8
ConVey Engineering, located in Germany, is a manufacturer of
double-eccentric heavy-duty valves which was acquired as a
complementary line of the Fluid Management Products segment. The
purchase price of $0.5 million generated $0.5 million of goodwill,
which is being amortized on a straight-line basis over 40 years.
Aero, the aerospace division of United Engineering Forgings, is located
in Lincoln, England. Aero, a manufacturer of aircraft engine discs,
shafts and engine-mounting brackets has been renamed Wyman-Gordon
Lincoln and is included in the operations of the Forged Products
segment. The purchase price of $34.3 million generated $23.9 million of
goodwill, which is being amortized on a straight-line basis over 40
years.
Fiscal 2000
During the third quarter, PCC purchased 98% of the outstanding shares
of common stock of Wyman-Gordon Company ("Wyman-Gordon") pursuant to a
cash tender offer. PCC acquired the remaining outstanding shares of
common stock of Wyman-Gordon pursuant to a merger on January 12, 2000.
The transaction, financed from borrowings under Credit Agreements with
Bank of America, N.A., as Agent, was valued at approximately $784.0
million, reflecting shares acquired in the tender offer and merger at
$20 per share ($731.0 million), PCC's tender for and subsequent payment
of Wyman-Gordon's 8% Senior Notes due 2007 ($150.0 million), less
Wyman-Gordon's cash ($97.0 million). The transaction generated goodwill
of approximately $571.0 million. 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. Wyman-Gordon's
casting businesses operates as part of the Investment Cast Products
segment, and the forging businesses comprise the Forged Products
segment.
Pursuant to an FTC consent order regarding PCC's purchase of
Wyman-Gordon, the large cast parts operations of Wyman-Gordon in
Groton, Connecticut, was divested at the adjusted net book value
recorded at the time of purchase of Wyman-Gordon. In addition,
pursuant to the FTC consent order, PCC divested the titanium
investment casting operation located in Albany, Oregon.
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Page 9
The following represents the pro forma results of the ongoing
operations for PCC and Wyman-Gordon as though the acquisition of
Wyman-Gordon had occurred at the beginning of the period shown. The
pro forma information, however, is not necessarily indicative of the
results which would have resulted had the acquisition occurred at the
beginning of the period presented, nor is it necessarily indicative
of future results.
<TABLE>
<CAPTION>
Three Months Ended
June 27, 1999
-------------
<S> <C>
Sales $ 567.8
Net income $ 26.7
Net income per share:
Basic $ 1.09
Diluted $ 1.09
</TABLE>
Results for the three months ended July 2, 2000 include the full
quarter's results from acquisitions.
During the third quarter, PCC acquired the stock of Valtaco, which is
headquartered in Switzerland. Valtaco manufactures quarter-turn,
three-piece ball valves and sells these valves along with complementary
valve products through subsidiaries in Switzerland, Germany and
Scotland. The purchase price of $7.0 million generated $4.2 million of
goodwill. Valtaco operates as part of the Fluid Management Products
segment.
During the third quarter, PCC acquired the assets of Reiss Engineering,
which is located in England. Reiss manufactures quarter-turn knife gate
valves and operates as part of the Fluid Management Products segment.
The purchase price of $2.7 million generated $1.9 million of goodwill.
During the fourth quarter, PCC acquired the stock of Technova AG,
headquartered in Switzerland, and its two subsidiaries. Technova AG
manufactures high-performance engineered plastic or polymer lined
valves for systems designed to handle corrosive and/or abrasive fluids
and pure liquids. The subsidiaries are sales and distribution
operations, which are located in Germany and the U.S. The purchase
price of $14.0 million generated $8.0 million of goodwill. The Company
also acquired a small U.S.-based distributor, MMG, for $0.3 million.
Technova and MMG operate as part of the Fluid Management Products
segment.
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Dispositions
During the third quarter, pursuant to the FTC consent order, the
Company divested the large cast operation of Wyman-Gordon at the
adjusted net book value recorded at the time of purchase of
Wyman-Gordon.
During the fourth quarter, the Company sold the titanium castings
operation of Wyman-Gordon as required under the FTC Consent Order for
$26.6 million. Prior to completing this transaction, the Company
purchased the minority interest in the titanium casting operation from
Titanium Metals Corporation (TIMET). Also during the fourth quarter,
the Company sold the Water Specialties business for $12.7 million and
the Penberthy business for $20.0 million. Water Specialties and
Penberthy were considered to be non-core to the Fluid Management
Segment. These dispositions resulted in no significant gain or loss for
the Company.
(3) Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
7/2/00 6/27/99
----------------------------------------------------------
Basic Diluted Basic Diluted
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 28.3 $ 28.3 $ 22.3 $ 22.3
----------------------------------------------------------
Average shares outstanding 24.7 24.7 24.5 24.5
Common shares issuable -- .3 -- .1
----------------------------------------------------------
Average shares outstanding
assuming dilution 24.7 25.0 24.5 24.6
----------------------------------------------------------
Net income per common share $ 1.15 $ 1.13 $ 0.91 $ 0.91
==========================================================
</TABLE>
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Page 11
(4) Segment Information
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
7/2/00 6/27/99
--------------------------
<S> <C> <C>
Sales
Investment Cast Products $ 278.7 $ 235.8
Forged Products 145.8 --
Fluid Management Products 75.3 73.3
Industrial Products 49.7 49.9
-------- --------
Consolidated sales $ 549.5 $ 359.0
======== ========
Operating income
Investment Cast Products $ 48.4 $ 37.2
Forged Products 21.9 --
Fluid Management Products 2.6 4.9
Industrial Products 1.8 3.2
Corporate expense (6.9) (2.8)
-------- --------
Operating income 67.8 42.5
Interest expense, net 20.6 6.8
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Consolidated income before
provision for income taxes $ 47.2 $ 35.7
======== ========
</TABLE>
(5) Financing Arrangements
During the first quarter, the 8.75% Notes due fiscal 2005 issued under
Rule 144A with registration rights were exchanged for 8.75% Notes due
2005 as registered under the Securities Act of 1933, as amended.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Consolidated Results of Operations - Comparison Between Three Months Ended July
2, 2000 and June 27, 1999
Sales of $549.5 million for the first quarter of fiscal 2001 were up 53 percent
from $359.0 million in the same quarter last year. Operating income of $67.8
million was up 60 percent from $42.5 million in the first quarter last year. Net
income was $28.3 million, or $1.13 per share (diluted), for the quarter,
compared with net income of $22.3 million, or $0.91 per share (diluted) in the
same quarter last year.
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Net interest expense for the first quarter of fiscal 2001 was $20.6 million,
as compared with $6.8 million for the first quarter last year. The higher
expense is primarily due to increased debt levels used to fund the
acquisition of Wyman-Gordon in fiscal 2000.
The effective tax rate for the first quarter of fiscal 2001 was 40 percent,
as compared with 37.5 percent for the first quarter last year. The increase
in the rate for the current year is primarily due to non-deductible goodwill
related to the acquisition of Wyman-Gordon.
Results of Operations by Segment - Comparison Between Three Months Ended July
2, 2000 and June 27, 1999
With the acquisition of Wyman-Gordon, PCC reorganized the Company's business
segments along its four major product lines. Financial results are reported
in the following four segments: Investment Cast Products, Forged Products,
Fluid Management Products and Industrial Products.
Investment Cast Products
Investment Cast Products increased sales quarter over quarter by 18 percent,
from $235.8 million in the first quarter of fiscal 2000 to $278.7 million
this year. Operating income for the segment improved by 30 percent, from
$37.2 million in the first quarter a year ago to $48.4 million in fiscal
2001. The increase in sales is due to the addition of Wyman-Gordon Castings,
which was acquired in the third quarter of fiscal 2000, and due to the
recovery of aircraft engine sales and rapid growth in the industrial gas
turbine market. In addition, recent opportunities, such as airframe
components and aluminum castings, are starting to have an impact on top-line
growth. The favorable operating income resulted from the higher sales level
coupled with higher margins related to IGT programs and to continued
realization of increased synergies related to the acquisition of Wyman-Gordon.
Forged Products
Forged Products' sales amounted to $145.8 million for the quarter, with an
operating income of $21.9 million. Since this segment consists entirely of
operations purchased as part of the Wyman-Gordon acquisition in the third
quarter of fiscal 2000, there are no comparative first quarter results. This
segment's first quarter sales and operating income improved 1 percent and 16
percent, respectively, over fourth quarter 2000 results.
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Page 13
Forged Products, which serves the same major markets as Investment Cast
Products, is also enjoying some of the recovery in its aerospace business.
The improved operating income reflects the significant cost savings
instituted since the acquisition of Wyman-Gordon by the Company, which
include both higher productivity and manufacturing and administrative
synergies.
Fluid Management Products
Fluid Management Products' sales improved slightly from $73.3 million in the
first quarter of fiscal 2000 to $75.3 million this year. Operating income
declined, dropping from $4.9 million last year to $2.6 million in the first
quarter of this year. Fiscal 2001 first quarter sales are comparable to
fourth quarter 2000 results, while operating income is beginning to trend
upward. The sales increase was due to improved sales in the construction and
oil field services markets. The decline in operating income was due to lower
profits in Europe, where pricing and volume issues negatively impacted the
quarter.
Industrial Products
Industrial Products' sales of $49.7 million for the first quarter of fiscal
2001 were consistent with the $49.9 million in the comparable prior year
period. Operating income fell by 44 percent, from $3.2 million in the first
quarter of fiscal 2000 to $1.8 million in the first quarter of this year. The
decline in operating income was due to lower sales in the pulp and paper
market, which traditionally has higher margins than other markets in the
Industrial Products segment, coupled with continued difficulties in the machine
tool business in Europe. Restructuring efforts in Europe, which were started
in the fourth quarter of last year and were continued this quarter, have
started to provide cost improvements.
Changes in Financial Condition and Liquidity
Total assets of $2,473.1 million at July 2, 2000 represented a $57.4 million
increase from the $2,415.7 million balance at April 2, 2000. Total
capitalization at July 2, 2000, was $1,896.9 million, consisting of $1,101.1
million of debt and $795.8 million of equity. The debt-to-capitalization
ratio remained constant from the end of the prior fiscal year at 58 percent.
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Page 14
Cash from earnings for the three months ended July 2, 2000 of $54.4 million,
plus $22.8 million of debt proceeds, $8.0 million from short-term borrowings,
and $0.9 million from the sale of common stock through stock option exercises
exceeded cash requirements which consisted of $37.7 million for business
acquisitions, $20.5 million for increased working capital, $14.5 million for
capital expenditures, and $1.4 million for dividends. The net increase in the
quarter's cash resulted in an ending cash balance of $27.7 million, up $10.1
million from fiscal 2000 year end. 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.
FORWARD-LOOKING STATEMENTS
Information included within this filing 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; successful introduction of new products; 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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(11) Computation of Per Share Earnings*
(27) Financial Data Schedule
* Data required by Statement of Financial Accounting Standards
No. 128, Earnings per Share, is provided in Note 3 to the
Consolidated Financial Statements in this Report.
b. Reports on Form 8-K
On May 5, 2000, the Company filed a Form 8-K regarding the
announcement of the Company's earnings for the fiscal year ended
April 2, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRECISION CASTPARTS CORP.
Registrant
DATE: August 7, 2000 /s/ W.D. Larsson
------------------------------
W.D. Larsson
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
