<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Business overview
Fiscal 2000 posed a number of challenges for the Company. Reduced aerospace
orders due to customer inventory reductions and lower engine build rates,
continued soft market conditions in the oil and gas industry, and the negative
impact of the Asian economic crisis all negatively impacted fiscal 2000 results.
Helping to offset these unfavorable conditions were the completion of the
Wyman-Gordon acquisition at the end of the third quarter of fiscal 2000, strong
growth in the industrial gas turbine ("IGT") market, effective management of
cost reduction and manufacturing process improvement programs and indications of
an upturn in the Company's core markets during the fourth quarter.
Total sales for fiscal 2000 reached a record $1,673.7 million, an increase of 14
percent from fiscal 1999 sales of $1,471.9 million. The increase was primarily
due to the acquisition of Wyman-Gordon, as well as several smaller acquisitions
completed during the year. Excluding the fiscal 2000 acquisitions, revenues
decreased by 3 percent from fiscal 1999. The decline in sales to the aerospace,
oil and gas and general industrial markets was partially offset by the continued
growth of sales to the industrial gas turbine ("IGT") market. Total IGT sales
doubled from fiscal 1999 levels. Aerospace sales as a percent of total sales
decreased from 51 percent in fiscal 1999 to 50 percent in fiscal 2000. The
Company anticipates that the percentage of aerospace sales in fiscal 2001 will
increase to approximately 53 percent due to a full year of results from
Wyman-Gordon, coupled with modest growth in the Company's base aerospace
businesses. Increases are also expected in the IGT and oil and gas markets. Over
the past five years, total sales have increased at a compound annual growth rate
of 31 percent.
Operating income before restructuring and other non-recurring charges for fiscal
2000 totaled $192.5 million, or 12 percent of sales, a $1.0 million increase
from fiscal 1999's operating income before restructuring and other non-recurring
charges of $191.5 million, or 13 percent of sales. The reduced sales level,
coupled with pricing pressures principally in the Company's Fluid Management and
Industrial Products segments, caused the lower margin as a percent of sales.
Over the past five years, operating income before restructuring and other
non-recurring charges has increased at a compound annual growth rate of 34
percent.
Fiscal 2000 net income of $85.3 million was 17 percent lower than fiscal 1999
earnings of $103.3 million and resulted in earnings per share of $3.47
(diluted), compared with $4.22 per share (diluted) last year.
Acquisition of businesses
The Company completed five acquisitions during fiscal 2000 which complemented
existing business lines and provided access to new domestic and international
markets. The Company completed its acquisition of the Wyman-Gordon Company in
the third quarter of fiscal 2000. Headquartered in Grafton, Massachusetts,
Wyman-Gordon 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. Results for Wyman-Gordon are included in both the Investment
Cast Products and Forged Products segments. The Company completed three
additional acquisitions in the third quarter: Valtaco, Reiss Engineering and
MMG. Valtaco, which has operations in Switzerland, Germany and the UK, and Reiss
Engineering, located in the UK, both manufacture specialty quarter-turn valves.
MMG, located in Houston, Texas, is a sales and distribution company that will
operate as a channel for the Company's European valve products. MMG was renamed
PCC Valves and Controls. All three acquisitions are included in the results of
the Fluid Management Products segment since the date of acquisition. During the
fourth quarter, the Company acquired Technova, headquartered in Switzerland,
with additional operations in Germany and the U.S. Technova manufactures
high-performance engineered plastic and polymer-lined valves for systems
designed to handle corrosive and/or abrasive fluids and pure liquids. It is also
included in the Fluid Management Products segment.
Subsequent to year end, the Company completed three additional acquisitions.
Fastener Engineering Group of Rockford, Illinois, a designer and manufacturer of
wire-processing equipment for the fastener industry, will be operated as part of
the Industrial Products segment. ConVey Engineering, located in Germany, is a
manufacturer of double-eccentric, heavy-
1
<PAGE>
duty valves. ConVey will be included in the Fluid Management Products segment.
Most recently, the Company acquired Aero, the aerospace division of United
Engineering Forgings, located in Lincoln, England. Aero, a manufacturer of
aircraft engine discs, shafts and engine-mounting brackets, will be renamed
Wyman-Gordon Lincoln and will be included in the operations of the Forged
Products segment.
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.
Disposition of businesses
During the fourth quarter, the Company sold the Albany Titanium Business of
Wyman-Gordon, as required under the FTC Consent Order, to the Ladish Company.
Also during the fourth quarter, the Company sold Water Specialties to
McCrometer, a division of Danaher Corporation, and sold Penberthy to Tyco
International. Water Specialties and Penberthy were considered to be non-core to
the Fluid Management Products segment. The three transactions, which were sold
for an aggregate selling price of $59.3 million, subject to adjustment, resulted
in a net break-even position for the Company.
Restructuring and other non-recurring charges
During the third quarter of fiscal 2000, the Company recorded pretax charges
totaling $11.0 million related to restructuring and other non-recurring items. A
restructuring charge of $7.6 million was established principally for severance
and other costs associated with the consolidation and downsizing of operations
within the Industrial Products segment. The other non-recurring charges
principally provided for the write-down of fixed assets and inventory in the
Investment Cast Products segment and the Industrial Products segment as a result
of the restructuring efforts. Partially offsetting these charges were favorable
adjustments related to the final disposition of issues previously charged to the
provision for restructuring and other non-recurring charges. The tax effected
impact of these charges totaled $6.4 million or $0.26 per share.
Other income
The results for the year included other income of $4.2 million, or $0.10 per
share, that reflected the benefit realized from the termination of a portion of
an interest rate hedge that was entered into in anticipation of the Company's
issuance of $200.0 million of 8.75% Notes due 2005, issued under Rule 144A with
registration rights, during the fourth quarter.
Outlook
The Company is expecting fiscal 2001 results will benefit from a full-year of
Wyman-Gordon operations as well as the other acquisitions completed during
fiscal 2000 and the first quarter of fiscal 2001. The Company is also expecting
modest internal growth resulting from strong demand for its IGT products and
anticipated strengthening of its key aerospace, fluid management and industrial
markets. The Company also expects to benefit from cost cutting and manufacturing
improvements made during fiscal 2000.
Financial results by segment
The Company reports its financial results by segment in accordance with
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.
With the acquisition of Wyman-Gordon, PCC has reorganized the Company's business
segments along its four major product lines. Financial results are now reported
in the following four
2
<PAGE>
segments: Investment Cast Products, Forged Products, Fluid Management Products
and Industrial Products. Operating income amounts discussed below exclude
restructuring and other non-recurring charges.
Investment Cast Products
The Investment Cast Products segment includes PCC Structurals, PCC Airfoils and
the Wyman-Gordon Casting operations. These three businesses manufacture
investment castings for aircraft engines, IGT engines, airframes, medical
prostheses and other industrial applications.
Fiscal 2000 compared with fiscal 1999
Investment Cast Products reported fiscal 2000 sales of $970.8 million and
operating income of $161.5 million. Fiscal 2000 sales increased 3 percent over
last year's $942.1 million, and operating income improved by 9 percent over last
year's $148.7 million. Revenue growth was largely due to the addition of
Wyman-Gordon Castings at the end of the third quarter of fiscal 2000. Reductions
caused by lower aircraft build rates and customer inventory adjustments were
partially offset by substantially higher IGT sales. The operating profit
improvement was due to improved margins on IGT products, coupled with increased
cost reductions and synergies from the acquisition of Wyman-Gordon and effective
cost management at PCC Structurals and PCC Airfoils.
Fiscal 1999 compared with fiscal 1998
Investment Cast Products reported fiscal 1999 sales of $942.1 million and
operating income of $148.7 million. Fiscal 1999 sales increased 11 percent over
the prior year's $850.8 million, and operating income improved by 16 percent
over the prior year's $127.8 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
IGT market. Sales of aircraft engine components for original equipment
applications began to fall in the latter part of the year as the aerospace cycle
moved toward its peak. The higher operating income reflected leverage from the
higher sales volume and improved operating performance at PCC Structurals.
Forged Products
The Forged Products segment consists of the forging operations of Wyman-Gordon,
which was acquired by the Company in the third quarter of fiscal 2000. Forged
Products' aerospace and IGT sales are primarily derived from the same large
engine customers served by the Investment Cast Products segment, with additional
aerospace sales going to manufacturers of landing gear and other airframe
components. The Forged Products segment also produces seamless pipe for the oil
and gas industry.
Fiscal 2000 compared with fiscal 1999
Forged Products sales totaled $192.1 million for the year, with operating income
of $24.4 million. The fiscal 2000 results reflect five weeks of the third
quarter and all of the fourth quarter. The segment benefited from increased
orders for aircraft engine and airframe components and strong IGT demand.
Significant cost savings from synergies and productivity improvements have
contributed to higher profit margins versus historical levels.
Fiscal 1999 compared with fiscal 1998
The Forged Product segment was not a part of the Company in fiscal 1999 or 1998.
3
<PAGE>
Fluid Management Products
The Fluid Management Products segment includes all of the businesses of PCC Flow
Technologies. The businesses that comprise this segment manufacture an extensive
range of fluid management products under various brand names, which include
PACO, Johnston and Crown pumps for water and wastewater treatment, new
construction, energy and other applications; E/One for low-pressure sewer
systems; and Newmans, General, TBV, Techno, Barber, OIC, Sterom, Reiss and
Technova valves for oil and gas, fuel distribution, food processing, severe
services and other applications.
Fiscal 2000 compared with fiscal 1999
Fiscal 2000 sales for Fluid Management Products were $291.6 million, as compared
to $306.4 million in fiscal 1999, a decrease of 5 percent. The segment's
operating income also dropped from $33.8 million in fiscal 1999 to $13.5 million
in fiscal 2000. The declines were largely due to the continued negative impact
of depressed economic conditions in the oil and gas industry. In addition, the
segment incurred costs associated with the redesign and consolidation of product
lines, realignment of its European operations and development of more
competitive manufacturing processes. New and redesigned products, broader
distribution, higher productivity and indications of improving market conditions
should contribute to stronger results in fiscal 2001.
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 the prior year's $34.9 million. The Fluid Management Products
segment experienced the effect of lower oil prices worldwide, which dramatically
affected sales of its Barber Industries' wellhead equipment and its Newmans
valve product line, both domestically and internationally. In addition, the
softness in the chemical and petrochemical industries negatively impacted the
stainless steel product line. The decline in these markets not only caused a
substantial reduction in orders, but also increased competitive pricing
pressures, which adversely affected normal margin opportunities during fiscal
1999.
Industrial Products
The Industrial Products segment includes PCC Specialty Products, J&L Fiber
Services and Advanced Forming Technology ("AFT"). PCC Specialty Products
manufactures a broad range of cold-forming header and threader tools, gundrills
and machines for vertical and horizontal boring, fastener production and
gundrilling, principally for automotive and other general industrial
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 PCC
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. AFT manufactures metal-injection-molded, metal-matrix-composite
and Thixoformed-TM- components for numerous industrial applications.
Fiscal 2000 compared with fiscal 1999
The Industrial Products segment's sales decreased by 2 percent, from $223.4
million in fiscal 1999 to $219.2 million in fiscal 2000, and its operating
income decreased by $9.7 million, from $19.4 million to $9.7 million. The
segment's sales decline was principally due to reductions in Europe as a result
of competition from lower priced Asian products and due to lower domestic sales
resulting from inventory reduction efforts in the automotive sector. Partially
offsetting these declines were higher sales levels within all of the operating
units at AFT and modest market improvements during the fourth quarter of fiscal
2000. Operating income was negatively impacted by the sales declines, downward
pricing pressure associated with the depressed market conditions and
difficulties at PCC Pittler. Restructuring efforts were
4
<PAGE>
implemented during fiscal 2000 at several of the segment's operations to provide
for more efficient and cost-effective manufacturing. The restructuring will
benefit fiscal 2001 and beyond.
Fiscal 1999 compared with fiscal 1998
The Industrial Products segment's sales increased by 9 percent, from $205.3
million in fiscal 1998 to $223.4 million in fiscal 1999, and its operating
income increased by 47 percent, from $13.2 million to $19.4 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. Partially offsetting this growth was the decline of AFT sales of
metal-injection-molded parts because of slower than expected qualifications for
automotive customers and substantially lower demand for electronic components.
Operating income was positively impacted by the higher sales levels coupled with
improved manufacturing performance at Reed-Rico-Registered Trademark-.
Interest and taxes
Net interest expense in fiscal 2000 was $47.1 million, as compared with $27.6
million in fiscal 1999. The higher expense reflects higher debt levels as a
result of borrowings to fund the fiscal 2000 acquisitions and debt assumed in
connection with those acquisitions.
The effective tax rate for the year was 38 percent, compared with 32 percent in
the prior year. The increase in the rate was due to the favorable impact of tax
benefits recognized in the third and fourth quarters of fiscal 1999, 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 Company's fiscal 1999 normalized tax rate
prior to the above reductions was 38 percent.
Liquidity and capital resources
Total capitalization at April 2, 2000, was $1,842.1 million, consisting of
$1,068.2 million of debt and $773.9 million of equity. The
debt-to-capitalization ratio was 58 percent compared with 38 percent at the end
of the prior fiscal year.
Cash requirements for the year included $675.0 million for acquisitions, $49.3
million for capital expenditures and $5.9 million for dividends. These
requirements were funded from cash generated by earnings of $142.6 million,
$66.1 million from divestitures and other investing activities, $37.4 million of
working capital reductions and $3.9 million from the sale of common stock
through the employee stock purchase plan and stock option exercises. The cash
shortfall was funded from $489.8 million of net borrowings, resulting in a net
increase to cash of $2.8 million from the fiscal 1999 ending balance. A
committed line of credit entered into during fiscal 2000 facilitated borrowings
during the year.
Capital spending in fiscal 2000 of $49.3 million principally provided for
increased IGT capacity in the Investment Cast Products segment, renovation of
manufacturing lines in the Fluid Management Products segment and expanded
manufacturing facilities at J&L Fiber Services for its screen cylinder line and
for better access to the eastern U.S. market. Fiscal 2001's capital spending,
which is expected to be at least 50 percent higher than fiscal 2000's,
principally will provide for further capacity expansion at both the Investment
Cast Products and Forged Products segments, installation of computer systems at
the Company's Houston operations, as well as for other normal requirements to
maintain production, provide for cost reductions and maintain safety.
During fiscal 2000, the Company entered into bank credit agreements totaling
$1.25 billion to finance the acquisition of Wyman-Gordon, to finance a cash
tender offer for Wyman-Gordon's $150.0 million of 8% Senior Notes due December
15, 2007, and to refinance the Company's current bank credit facilities in
connection with this acquisition. These credit agreements included a $550.0
million term loan facility, a $400.0 million revolving credit facility and a
$300.0 million interim term loan facility. During the third quarter, the Company
replaced $150.0 million of the term loan facility with a $150.0 million
Receivable Facility. During the fourth quarter, the Company repaid the interim
term loan facility by issuing
5
<PAGE>
$200.0 million of 8.75% Notes due 2005, issued under Rule 144A with registration
rights ("the Notes"), and issuing commercial paper. Subsequent to the Company's
fiscal year end, the Notes were exchanged for 8.75% Notes due 2005, as
registered under the Securities Act of 1933, as amended. The new bank credit
agreements contain various standard financial covenants, including maintenance
of minimum net worth, fixed charge coverage ratio and leverage ratio. Borrowing
capacity under the Company's bank credit agreements was $236.3 million at fiscal
year end. At fiscal year end, the Company had an outstanding interest rate swap
which fixed the interest rate at 6.5% on $425.0 million of floating rate debt.
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 equity instruments.
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. In December 1999, Staff Accounting Bulletin 101 "Revenue
Recognition in Financial Statements ("SAB101") was released. This bulletin
provides new revenue recognition guidelines and outlines the characteristics of
a transaction that preclude revenue recognition, even where title to the product
has passed to the buyer. SAB 101 is not expected to have a material impact on
the Company's consolidated financial statements. The SAB is effective for fiscal
years beginning after December 15, 1999. The Company will incorporate the new
guidelines as required at the end of the first quarter of fiscal 2001.
Year 2000 update
The Company began addressing the Year 2000 (Y2K) issue in November 1997, with
the development of a standardized Year 2000 Plan format 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 total project identified 113 systems that required Y2K upgrades. As of
December 31, 1999, all significant upgrades had been completed. The Company did
not experience any material disruptions as a result of Y2K issues.
The total cost associated with the modifications and replacement of systems to
become Year 2000 compliant was not material to the Company's financial position.
The total cost was $5.4 million, which included $3.6 million to replace systems
and $1.8 million to upgrade or modify existing systems, and included $2.0
million for systems that, although not Year 2000 compliant, would have been
replaced for other reasons by Year 2000 or shortly thereafter. All costs
associated with these projects were provided for from existing operating budgets
and were funded through operating cash flow.
6
<PAGE>
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; 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.
7
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------------
(In millions, except per share data) April 2, 2000 March 28, 1999 March 29, 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,673.7 $ 1,471.9 $ 1,316.7
Cost of goods sold 1,305.0 1,134.0 1,025.1
Provision for restructuring and other 11.0 13.1 8.6
Selling and administrative expenses 176.2 146.4 127.0
Other income 4.2 - -
Interest expense, net 47.1 27.6 20.7
-------------------------------------------------------------------------------------------------------
Income before provision for income taxes 138.6 150.8 135.3
Provision for income taxes 53.3 47.5 49.2
-------------------------------------------------------------------------------------------------------
Net income $ 85.3 $ 103.3 $ 86.1
-------------------------------------------------------------------------------------------------------
Net income per common share (basic) $ 3.48 $ 4.23 $ 3.56
Net income per common share (diluted) $ 3.47 $ 4.22 $ 3.53
-------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements on pages 14 through 28.
8
<PAGE>
CONSOLIDATED BALANCE SHEETS
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In millions, except share data) April 2, 2000 March 28, 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 17.6 $ 14.8
Receivables, net of reserves of $9.5 in 2000 and $3.4 in 1999 330.7 255.1
Inventories 337.3 253.6
Prepaid expenses 23.7 7.3
Deferred income taxes 42.6 26.1
------------------------------------------------------------------------------------------------------------------------
Total current assets 751.9 556.9
------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 27.1 16.5
Buildings and improvements 226.3 111.8
Machinery and equipment 468.5 400.3
Construction in progress 41.9 34.0
------------------------------------------------------------------------------------------------------------------------
763.8 562.6
Less - accumulated depreciation (264.5) (231.2)
------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 499.3 331.4
------------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $50.4 in 2000 and $34.0 in 1999 1,059.6 525.9
Deferred income taxes 33.9 -
Other assets 71.0 35.4
------------------------------------------------------------------------------------------------------------------------
$ 2,415.7 $ 1,449.6
------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Investment
------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Short-term borrowings $ 143.5 $ 17.2
Long-term debt currently due 40.2 39.0
Accounts payable 152.8 102.1
Accrued liabilities 212.3 137.1
Income taxes payable 42.7 9.2
------------------------------------------------------------------------------------------------------------------------
Total current liabilities 591.5 304.6
------------------------------------------------------------------------------------------------------------------------
Long-term debt 884.5 369.7
Deferred income taxes - 25.1
Pension and other postretirement benefit obligations 113.9 39.2
Other long-term liabilities 51.9 13.6
9
<PAGE>
Shareholders' investment:
Common stock, $1 stated value, authorized - 100,000,000 shares;
issued and outstanding 2000 - 24,643,948 and 1999 - 24,465,910 shares 24.6 24.5
Paid-in capital 182.2 178.4
Retained earnings 576.5 497.1
Cumulative translation adjustments (9.4) (2.6)
------------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 773.9 697.4
------------------------------------------------------------------------------------------------------------------------
$ 2,415.7 $ 1,449.6
------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements on pages 14 through 28
10
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------
(In millions) April 2, 2000 March 28, 1999 March 29, 1998
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 85.3 $ 103.3 $ 86.1
Non-cash items included in income:
Depreciation and amortization 74.2 54.1 43.5
Deferred income taxes (16.9) 7.5 4.1
Changes in operating working capital, excluding effects of acquisitions:
Receivables 44.9 (40.9) (16.1)
Inventories 15.7 (9.5) 19.1
Payables, accruals and current taxes (17.3) (14.4) 16.5
Other (5.9) (9.3) (5.7)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 180.0 90.8 147.5
---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of businesses (675.0) (77.7) (139.1)
Capital expenditures (49.3) (74.8) (82.9)
Dispositions of businesses and other 66.1 0.5 16.3
---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (658.2) (152.0) (205.7)
---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of long-term debt 612.3 61.7 247.7
Repayment of long-term debt (247.4) (25.8) (160.1)
Net increase (decrease) in short-term borrowings 124.9 16.3 (18.5)
Common stock issued 3.9 6.2 11.9
Cash dividends (5.9) (5.9) (5.8)
Other (6.8) (1.5) (2.1)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 481.0 51.0 73.1
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2.8 (10.2) 14.9
Cash and cash equivalents at beginning of year 14.8 25.0 10.1
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 17.6 $ 14.8 $ 25.0
---------------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 44.5 $ 27.7 $ 21.9
Income taxes, net of refunds received $ 31.9 $ 57.9 $ 30.1
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements on pages 14 through 28.
11
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock Cumulative
Outstanding Paid-in Retained Translation
(In millions) Shares Amount Capital Earnings Adjustments
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 30, 1997 24.0 $ 24.0 $ 160.8 $ 319.4 $ 0.2
Net income - - - 86.1 -
Cash dividends - - - (5.8) -
Common stock issued 0.3 0.3 11.6 - -
Translation adjustments - - - - (1.3)
----------------------------------------------------------------------------------------------------------------------------------
Balance at March 29, 1998 24.3 24.3 172.4 399.7 (1.1)
Net income - - - 103.3 -
Cash dividends - - - (5.9) -
Common stock issued 0.2 0.2 6.0 - -
Translation adjustments - - - - (1.5)
----------------------------------------------------------------------------------------------------------------------------------
Balance at March 28, 1999 24.5 24.5 178.4 497.1 (2.6)
Net income - - - 85.3 -
Cash dividends - - - (5.9) -
Common stock issued 0.1 0.1 3.8 - -
Translation adjustments - - - - (6.8)
----------------------------------------------------------------------------------------------------------------------------------
Balance at April 2, 2000 24.6 $ 24.6 $ 182.2 $ 576.5 $ (9.4)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements on pages 14 through 28.
12
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PRECISION CASTPARTS CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------
(In millions) April 2, 2000 March 28, 1999 March 29, 1998
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 85.3 $ 103.3 $ 86.1
Other comprehensive loss:
Foreign currency translation adjustments (6.8) (1.5) (1.3)
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 78.5 $ 101.8 $ 84.8
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements on pages 14 through 28.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except option share and per share data)
Summary of significant accounting policies:
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
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 a significant number of the Company's operations. The average
inventory cost method is utilized for most other inventories. Costs utilized for
inventory valuation purposes include labor, material and manufacturing overhead.
Inventories valued at current replacement cost would have been $1.0 million,
$2.4 million and $4.0 million higher than those reported at April 2, 2000, March
28, 1999, and March 29, 1998, 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.
As discussed in the "FINANCING ARRANGEMENTS" note, the Company was committed to
an interest rate swap on floating debt at April 2, 2000. Other immaterial
instruments in place at year end included hedges to cover exposures related to
foreign currencies and raw materials used in certain of the Company's
facilities. At April 2, 2000, and March 28,
14
<PAGE>
1999, 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 passes 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
Assets and liabilities of the Company's foreign affiliates, other than those
located in highly inflationary countries, are translated at current exchange
rates, while income and expenses are translated at average rates for the period.
For entities in highly inflationary countries, a combination of current and
historical rates is used to determine currency gains and losses resulting from
financial statement translation and those resulting from transactions.
Translation gains and losses are reported as a component of shareholders'
investment, except for those associated with highly inflationary countries,
which are reported directly in the consolidated statements of income.
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 required for the
fiscal 2000 Wyman-Gordon acquisition.
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, which is being amortized on a straight-line basis
over 40 years, subject to changes from pre-acquisition contingencies.
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 operate as part of the Investment Cast Products segment, and the
forging businesses comprise the Forged Products segment.
15
<PAGE>
Pursuant to an FTC consent order regarding PCC's purchase of Wyman-Gordon, the
large cast parts operation 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.
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 periods shown. The pro forma information, however, is not
necessarily indicative of the results that would have resulted had the
acquisition occurred at the beginning of the periods presented, nor is it
necessarily indicative of future results.
<TABLE>
<CAPTION>
(Unaudited) Apr. 2, 2000 Mar. 28, 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 2,087.4 $ 2,259.3
Net income $ 59.3 $ 89.8
Earnings per share (basic) $ 2.42 $ 3.68
Earnings per share (diluted) $ 2.41 $ 3.67
----------------------------------------------------------------------------------
</TABLE>
Also 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, which is being amortized on a
straight-line basis over 40 years. Valtaco operates as part of the Fluid
Management Products segment.
PCC also acquired the assets of Reiss Engineering, which is located in England,
in the third quarter. 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, which is being amortized on a
straight-line basis over 40 years.
During the fourth quarter, PCC acquired the stock of Technova, headquartered in
Switzerland, and its two subsidiaries. Technova 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, which is
being amortized on a straight-line basis over 40 years. 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.
Fiscal 1999
During the first quarter, PCC acquired the stock of Environment/One Corporation
("E/One"), a manufacturer of highly engineered equipment for low-pressure sewer
systems and other applications. The purchase price of $72.0 million resulted in
$62.3 million of goodwill. E/One operates as part of the Fluid Management
Products segment.
Also during the first quarter, PCC acquired the assets of TBV, a manufacturer of
ball valves and pipeline instrumentation. The purchase price of $9.8 million
resulted in $4.4 million of goodwill. TBV operates as part of the Fluid
Management Products segment.
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 $1.6 million. 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 $6.5
million. Sterom operates as part of the Fluid Management Products segment. PCC
acquired most of the remaining stock of Sterom during fiscal 2000.
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 the
Industrial Products segment. The purchase price of $5.3 million yielded negative
goodwill of $3.6 million.
16
<PAGE>
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 $109.4 million resulted
in $78.8 million of goodwill. J&L operates as part of the Industrial Products
segment.
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 the Investment Cast Products segment. The purchase price of
$19.4 million resulted in $11.7 million of goodwill. Also during the fourth
quarter, PCC acquired the stock of Baronshire Engineering Limited ("Baronshire")
located in Scotland, for $7.0 million including acquired debt. Baronshire, which
manufactures stainless steel butterfly valves for the food and pharmaceutical
industries, operates as part of the Fluid Management Products segment. The
purchase price generated goodwill of $4.7 million.
Dispositions
During the fourth quarter of fiscal 2000, 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 Titanum 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 a net break-even
position for the Company.
Provision for restructuring and other
During the third quarter of fiscal 2000, the Company recorded pretax charges
totaling $11.0 million related to restructuring and other non-recurring items.
Restructuring charges of $7.6 million related principally to severance and other
exit costs associated with the downsizing of operations within the Industrial
Products segment. The Company is in the process of downsizing its machine tool
business in Langen, Germany, and has closed its machine tool and components
business in West Branch, Michigan. The Company also closed its powdered metal
processing plant located in Bad Axe, Michigan, during the third quarter of
fiscal 2000, as well as completed several smaller restructuring efforts within
the Industrial Products and Investment Cast Products segments. Non-recurring
charges related principally to the write-down of fixed assets and inventory
which was required as a result of the restructuring efforts in both the
Industrial Products and Investment Cast Products segments. Partially offsetting
these charges were the favorable disposition of issues previously charged to the
provision for restructuring and other non-recurring charges, including
settlement of a product warranty dispute and the sale of certain assets from a
business shut-down prior to fiscal 2000. The tax effected impact of these
charges totaled $6.4 million or $0.26 per share (diluted).
During the fourth quarter of fiscal 1999, the Company recorded pretax charges
totaling $13.1 million related to restructuring and other non-recurring items.
Non-recurring charges of $11.9 million related principally to the write-down of
inventory, and establishment of provisions for 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 $7.8
million, or $0.32 per share (diluted). The restructuring efforts were
substantially completed in fiscal 2000, and an immaterial reserve remains at
April 2, 2000.
During the fourth quarter of fiscal 1998, a restructuring charge of $8.6 million
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 $6.1 million or $0.25 per share (diluted). In
connection with these charges, 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 remained
at March 28, 1999.
17
<PAGE>
Other income
During the fourth quarter of fiscal 2000, the Company recorded $4.2 million of
other income upon termination of a portion of an interest rate hedge which was
entered into in anticipation of the Company's issuance of the 8.75% Notes.
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, except for the $150.0 million of 6.75% Notes which had a
fair value of $130.1 million at April 2, 2000. The fair value of the interest
rate protection related to the swap underlying $425.0 million of the Company's
floating rate debt had a fair value of $2.1 million at April 2, 2000.
Concentration of credit risk
Approximately 51 percent of PCC's business activity in fiscal year 2000 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.
Accrued liabilities
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
Apr. 2, 2000 Mar. 28, 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Salaries and wages payable $ 67.1 $ 63.0
Other accrued liabilities 145.2 74.1
--------------------------------------------------------------------------------------------------------------------------
$ 212.3 $ 137.1
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Financing arrangements
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
Apr. 2, 2000 Mar. 28, 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.75% Notes due fiscal 2005, issued under
Rule 144A with registration rights(1) $ 200.0 $ --
6.75% Notes due fiscal 2008 150.0 150.0
Term Loan, 6.1% at April 2, 2000, 6.6% at March 28, 1999, payable quarterly in
various amounts through fiscal 2006 400.0 95.0
Commercial paper, 6.6% at April 2, 2000,
5.1% rate at March 28, 1999 164.0 151.7
Industrial Development Revenue Bonds
and other, variable interest rates, 3.8% to
5.4% at April 2, 2000, payable annually
through fiscal 2002 10.7 12.0
--------------------------------------------------------------------------------------------------------------------------
924.7 408.7
Less: Long-term debt currently due 40.2 39.0
--------------------------------------------------------------------------------------------------------------------------
$ 884.5 $ 369.7
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
(1)Subsequent to year end the 8.75% Notes were exchanged for 8.75% Notes
due 2005 as registered under the Securities Act of 1933, as amended.
Long-term debt is payable as follows: $40.2 million in 2001, $60.6 million in
2002, $50.0 million in 2003, $80.0 million in 2004, $320.0 million in 2005 and
$373.9 million thereafter.
During the second quarter of fiscal 2000, the Company entered into bank credit
agreements totaling $1.25 billion in connection with the acquisition of
Wyman-Gordon. These agreements replaced the Company's prior bank credit
facilities. One credit agreement ("Credit Agreement") included a $550.0 million
term loan facility and a $400.0 million revolving credit facility which is used
to back the Company's commercial paper program. The revolving credit facility is
payable in fiscal 2006. The other credit agreement consisted of a $300.0 million
interim term loan facility.
During the third quarter of fiscal 2000, the Company replaced $150.0 million of
the term loan facility with a 364-day Credit and Security Agreement ("Receivable
Facility"). The amount of borrowings allowable under the Receivable Facility is
a function of the level of eligible trade accounts receivable, which cannot
exceed $150.0 million. In the fourth quarter, the Company repaid the $300.0
million interim term loan facility by issuing $200.0 million of 8.75% Notes due
2005 ("8.75% Notes") and issuing commercial paper.
At April 2, 2000, the Credit Agreement totaled $800.0 million, of which $236.3
million was unused. Borrowings under the term loan and the revolving credit
facility both include a margin based on the Company's credit ratings.
The Credit Agreement contains various standard financial covenants, including
maintenance of minimum net worth, fixed charge coverage ratio and leverage
ratio. The 6.75% Notes and 8.75% Notes also contain various standard financial
covenants. The Company's debt agreements also contain cross default provisions.
At April 2, 2000, the Company was in compliance with all restrictive provisions
of its loan agreements.
At April 2, 2000, the Company had swapped $425.0 million of floating rate debt
into fixed rate debt at 6.5%. This amount decreases by $25.0 million quarterly
through November 2002. In connection with issuance of the 8.75% Notes, the
Company hedged the underlying Treasury bond rate in June 1999 and realized a
$5.6 million benefit on the hedge, which will be amortized over the life of the
8.75% Notes. The benefit resulted in an effective reduction of the coupon rate
to 8.19%. An additional portion of the hedge was terminated before the bonds
were sold, resulting in a $4.2 million gain which was included in "Other Income"
in the fourth quarter of fiscal 2000.
Short-term borrowings at April 2, 2000 were $143.5 million under the Receivable
Facility. At March 28, 1999 short-term borrowings which totaled $17.2 million
consisted of foreign bank borrowings. The weighted average interest rate on
short-term borrowings was 6.4% at April 2, 2000 and 5.7% at March 28, 1999.
Income taxes
Income before provision for income taxes was:
<TABLE>
<CAPTION>
Fiscal 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 129.6 $ 130.3 $ 104.1
Foreign 9.0 20.5 31.2
----------------------------------------------------------------------------------------------------------------------------
Total pretax income $ 138.6 $ 150.8 $ 135.3
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Fiscal 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $ 49.8 $ 40.1 $ 38.2
Foreign 9.8 6.9 8.9
State 7.6 5.5 7.0
----------------------------------------------------------------------------------------------------------------------------
67.2 52.5 54.1
19
<PAGE>
Change in deferred income taxes (13.9) (5.0) (4.9)
----------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 53.3 $ 47.5 $ 49.2
----------------------------------------------------------------------------------------------------------------------------
</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 efficient 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% to 1% 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 $8.9 million or $0.35 per share (diluted).
During the fourth quarter of fiscal 1998, the effective tax rate was
significantly reduced from a normal rate of approximately 40% to 24% 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 $6.1 million 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 2000 1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate 35% 35% 35%
Effect of:
State taxes, net of federal benefit 3 3 4
Amortization of goodwill 4 2 3
Foreign Sales Corporation tax benefit (3) (4) (4)
Resolution of an IRS tax issue - (2) -
Reversal of state and foreign tax reserves
reserves no longer required - (3) -
Valuation allowance 1 1 (2)
Other, net (2) - -
------------------------------------------------------------------------------------------------------------
Effective rate 38% 32% 36%
------------------------------------------------------------------------------------------------------------
</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>
Apr. 2, 2000 Mar. 28, 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets arising from:
Expense accruals $ 82.7 $ 39.5
Post-retirement benefits
other than pensions 23.7 3.9
Tax loss carryforwards 9.7 --
Tax credit carryforwards 4.0 --
Inventory reserves 3.6 5.1
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Foreign operations 0.5 2.0
Other 1.3 1.7
Valuation allowances (6.9) (2.7)
------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 118.6 49.5
------------------------------------------------------------------------------------------------------------
Deferred tax liabilities arising from:
Depreciation/amortization 34.0 32.2
Inventory basis differences 5.9 11.4
Foreign operations 1.7 3.3
Other 0.5 1.6
------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 42.1 48.5
------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 76.5 $ 1.0
------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has provided valuation allowances for domestic and foreign net
operating loss carryforwards to reduce the related future income tax benefits to
zero.
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 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted Basic Diluted
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 85.3 $ 85.3 $ 103.3 $ 103.3 $ 86.1 $ 86.1
-----------------------------------------------------------------------------------------------------------------------
Average
shares
outstanding 24.5 24.5 24.4 24.4 24.2 24.2
Common
shares
issuable - 0.1 - 0.1 - 0.2
-----------------------------------------------------------------------------------------------------------------------
Average shares
outstanding
assuming
dilution 24.5 24.6 24.4 24.5 24.2 24.4
-----------------------------------------------------------------------------------------------------------------------
Net income
per common
share $ 3.48 $ 3.47 $ 4.23 $ 4.22 $ 3.56 $ 3.53
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Pension and other postretirement benefit plans
The Company and its subsidiaries sponsor many domestic and foreign defined
benefit pension plans. Benefits provided by these plans generally are based on
years of service and compensation. PCC's funding policy for the domestic plans
is
21
<PAGE>
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. The following information is provided for the plans
discussed above.
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------------------- ----------------------------
Fiscal 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in plan assets:
Beginning fair value of
plan assets $ 166.8 $ 156.9 $ 0.6 $ 0.3
Actual return on plan assets 31.1 14.6 - -
Adjustment from curtailment - - (0.6) -
Business acquisition 305.9 - - -
Business disposition (2.3) - - -
Company contributions 9.1 0.9 2.9 1.3
Plan participants'
contributions 2.3 0.7 - -
Benefits paid (10.2) (6.3) (2.9) (1.0)
-------------------------------------------------------------------------------------------------------------------------
Ending fair value
of plan assets $ 502.7 $ 166.8 - $ 0.6
-------------------------------------------------------------------------------------------------------------------------
Change in projected benefit obligations:
Beginning projected benefit
obligations $ 208.2 $ 184.8 $ 16.9 $ 17.0
Service cost 17.1 9.6 0.3 0.3
Interest cost 20.7 13.2 1.4 1.2
Plan participants'
contributions 2.3 0.7 - -
Amendments 0.3 1.2 (0.6) -
Curtailment gain - - (2.6) -
Business acquisition 287.4 - 50.8 -
Business disposition (1.9) - - -
Actuarial (gains) losses (46.3) 5.0 (3.0) (0.6)
Benefits paid (10.2) (6.3) (2.9) (1.0)
-------------------------------------------------------------------------------------------------------------------------
Ending projected benefit
obligations $ 477.6 $ 208.2 $ 60.3 $ 16.9
-------------------------------------------------------------------------------------------------------------------------
Reconciliation to balance sheet amounts:
Fair value of plan assets greater
(less) than projected benefit
obligations $ 25.1 $ (41.4) $ (60.3) $ (16.3)
Unrecognized net (gain) loss (65.5) 4.4 (4.3) (0.8)
Unrecognized prior
service cost 11.7 12.4 (0.6) -
Unrecognized net transition
obligation (asset) 4.2 (1.1) - -
-------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (24.5) $ (25.7) $ (65.2) $ (17.1)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Amounts recognized in the balance sheets:
Other assets $ 26.8 - - -
Accrued liabilities (2.3) (3.3) (0.3) (0.3)
Pension and postretirement
benefit obligations (49.0) (22.4) (64.9) (16.8)
-------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (24.5) $ (25.7) $ (65.2) $ (17.1)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other assets include $22.0 million of prepaid benefit cost and a $4.8 million
intangible asset.
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 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $ (46.9) $ (34.4)
Accumulated benefit obligation $ (43.2) $ (30.7)
Fair value of plan assets $ 17.4 $ 16.8
-----------------------------------------------------------------------------------------------------------
</TABLE>
The assumptions used in determining the benefit obligations in 2000 and 1999
were as follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
--------------------- -----------------------
Fiscal 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 8.0% 7.0% 8.0% 7.0%
Expected return on plan assets 9.0% 9.0% - -
Rate of compensation
increase 5.0% 5.0% - -
-------------------------------------------------------------------------------------------------------
</TABLE>
The health care cost trend rate to be used in fiscal 2001 is 5% and is expected
to remain consistent thereafter. 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 $ 0.2 $ (0.2)
Effect on postretirement benefit obligation $ 4.4 $ (3.9)
----------------------------------------------------------------------------------------------------------
</TABLE>
The net cost for the Company's pension plans consisted of the following
components:
<TABLE>
<CAPTION>
Fiscal 2000 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 17.1 $ 9.6 $ 7.1
Interest cost 20.7 13.2 11.1
Expected return on plan assets (22.4) (14.0) (12.1)
Other, net 0.4 0.5 (0.3)
----------------------------------------------------------------------------------------------------------
Net pension cost $ 15.8 $ 9.3 $ 5.8
----------------------------------------------------------------------------------------------------------
</TABLE>
The cost of postretirement benefits other than pensions consisted of the
following components:
<TABLE>
<CAPTION>
Fiscal 2000 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 0.3 $ 0.3 $ 0.3
Interest cost 1.4 1.2 1.2
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C>
Curtailment gain (1.5) - -
----------------------------------------------------------------------------------------------------------
Postretirement benefit cost $ 0.2 $ 1.5 $ 1.5
----------------------------------------------------------------------------------------------------------
</TABLE>
The cost of contributions to the Company's 401(k) savings plans was $7.1
million, $3.8 million and $0.8 million in 2000, 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.
Shareholders' investment
Authorized shares of common stock without par value consisted of 100.0 million
shares at April 2, 2000, March 28, 1999, and March 29, 1998. Authorized and
unissued series A no par serial preferred stock consisted of 1.0 million shares
at April 2, 2000, March 28, 1999, and March 29, 1998.
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 Price(1)
------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted 899,000 27.99
Exercised (52,000) 18.45
Expired or cancelled (137,000) 48.23
------------------------------------------------------------------------------------------------
Outstanding at April 2, 2000 2,124,000 $ 37.71
------------------------------------------------------------------------------------------------
Exercisable at March 29, 1998 349,000 $ 25.84
Exercisable at March 28, 1999 503,000 $ 34.69
Exercisable at April 2, 2000 698,000 $ 40.54
------------------------------------------------------------------------------------------------
</TABLE>
(1) Weighted average exercise price.
24
<PAGE>
The outstanding options for stock incentive plan shares have expiration dates
ranging from fiscal 2001 to fiscal 2010. At April 2, 2000, 1,967,000 stock
incentive plan shares were available for future grants.
Summarized information about stock options outstanding and exercisable at April
2, 2000, is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------- ----------------------------
Exercise Price Option Average Average Option Average
Range Shares Life(1) Price(2) Shares Price(2)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $15 26,000 0.6 $ 11.58 26,000 $ 11.58
$15 to $30 1,007,000 8.6 26.62 157,000 21.24
$30 to $45 208,000 6.7 37.95 146,000 37.41
$45 to $60 812,000 8.0 50.14 334,000 50.94
Over $60 71,000 7.2 61.42 35,000 61.42
-----------------------------------------------------------------------------------------------------------
2,124,000 8.0 $ 37.71 698,000 $ 40.54
-----------------------------------------------------------------------------------------------------------
</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 2000 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average fair value of grants:
- Per option(1) $ 10.46 $ 11.54 $ 19.29
- Per purchase right(1,2) $ 7.23 $ 9.34 $ 11.87
Valuation assumptions:
Risk-free interest rate 6.4% 4.5% 5.9%
Dividend yield 0.6% 0.6% 0.6%
Volatility 32.0% 29.6% 25.5%
Expected life (years) 5 5 5
Pro forma effects(3):
Net income $ 81.7 $ 100.3 $ 83.9
Net income per common
share (basic) $ 3.33 $ 4.11 $ 3.47
Net income per common
share (diluted) $ 3.32 $ 4.09 $ 3.44
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated using Black-Scholes option pricing model
(2) Purchase rights granted under employee stock purchase plan
(3) Net income in millions; 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 per share,
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
25
<PAGE>
more of the outstanding shares of common stock, or (iii) after the Board of
Directors of PCC declares any person who owns more than 10 percent of the
outstanding common stock to be an Adverse Person. Each right will entitle its
holder to receive, upon exercise, common stock of the Company (or, in certain
circumstances, cash, property or other securities of PCC) having a value equal
to two times the exercise price of the right. If the rights become exercisable,
and (i) PCC is acquired in a merger or other business combination in which PCC
does not survive or in which its common stock is exchanged for stock or other
securities or property, or (ii) 50 percent or more of the Company's assets or
earning power is sold or transferred, each right will entitle its holder to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the right. The rights expire on
December 16, 2008, and may be redeemed by PCC for $0.001 per right at any time
until a determination is made that any person is an Adverse Person, or 10 days
following the time that a person has acquired 15 percent or more of the
outstanding common stock, or in connection with certain transactions approved by
the Board of Directors. The rights do not have voting or dividend rights and,
until they become exercisable, have no dilutive effect on the earnings of PCC.
Segment information
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," 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. With the acquisition of Wyman-Gordon,
financial results are now reported in four segments: Investment Cast Products,
Forged Products, Fluid Management Products and Industrial Products.
Investment Cast Products
The Investment Cast Products segment includes PCC Structurals, PCC Airfoils and
the Wyman-Gordon Casting businesses. These three businesses manufacture
investment castings for aircraft engine, industrial gas turbine (IGT), airframe,
medical prostheses and other industrial applications.
Forged Products
The Forged Products segment comprises all of the forging businesses of
Wyman-Gordon. Aerospace and IGT sales are primarily derived from the same large
engine customers served by the Investment Cast Products segment, with additional
aerospace sales to manufacturers of landing gear and other airframe components.
The Forged Products segment also produces seamless pipe for the oil and gas
industry.
Fluid Management Products
The Fluid Management Products segment includes all of the businesses of PCC Flow
Technologies. The businesses that comprise this segment manufacture an extensive
range of fluid management products that include pumps for water and wastewater
treatment, low-pressure sewer systems, new construction, processing, energy and
other applications; and valves for oil and gas, fuel distribution, food
processing, severe services and other applications.
Industrial Products
The Industrial Products segment includes PCC Specialty Products, J&L Fiber
Services and Advanced Forming Technology (AFT). PCC Specialty Products
manufactures a broad range of cold-forming header and threader tools, gundrills
and 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. AFT manufactures metal-injection-molded,
metal-matrix-composite, and Thixoformed(TM) components for a wide variety of
applications.
The following table summarizes segment information:
<TABLE>
<CAPTION>
Fiscal 2000 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Investment Cast Products $ 970.8 $ 942.1 $ 850.8
Forged Products 192.1 - -
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C> <C>
Fluid Management Products 291.6 306.4 260.6
Industrial Products 219.2 223.4 205.3
---------------------------------------------------------------------------------------------
Consolidated net sales $1,673.7 $1,471.9 $1,316.7
---------------------------------------------------------------------------------------------
Segment operating income
Investment Cast Products $ 161.5 $ 148.7 $ 127.8
Forged Products 24.4 - -
Fluid Management Products 13.5 33.8 34.9
Industrial Products 9.7 19.4 13.2
Corporate expense (16.6) (10.4) (11.3)
---------------------------------------------------------------------------------------------
Operating income 192.5 191.5 164.6
Restructuring and other charges (11.0) (13.1) (8.6)
Other income 4.2 - -
Interest expense, net (47.1) (27.6) (20.7)
---------------------------------------------------------------------------------------------
Consolidated income before
provision for income taxes $ 138.6 $ 150.8 $ 135.3
---------------------------------------------------------------------------------------------
Total assets
Investment Cast Products $ 569.5 $ 533.1 $ 482.7
Forged Products 700.6 - -
Fluid Management Products 445.8 479.5 381.7
Industrial Products 369.4 389.4 351.0
Corporate(1) 330.4 47.6 59.2
---------------------------------------------------------------------------------------------
Consolidated total assets $2,415.7 $1,449.6 $1,274.6
---------------------------------------------------------------------------------------------
Depreciation and amortization
expense
Investment Cast Products $ 30.8 $ 26.6 $ 23.6
Forged Products 12.0 - -
Fluid Management Products 14.2 13.4 10.0
Industrial Products 14.8 12.7 9.6
Corporate 2.4 1.4 0.3
---------------------------------------------------------------------------------------------
Consolidated depreciation and
amortization expense $ 74.2 $ 54.1 $ 43.5
---------------------------------------------------------------------------------------------
Capital expenditures
Investment Cast Products $ 23.8 $ 33.1 $ 54.5
Forged Products 1.3 - -
Fluid Management Products 9.8 12.0 6.4
Industrial Products 13.8 29.7 21.9
Corporate 0.6 - 0.1
---------------------------------------------------------------------------------------------
Consolidated capital
expenditures $ 49.3 $ 74.8 $ 82.9
---------------------------------------------------------------------------------------------
</TABLE>
(1) Corporate assets consist principally of accounts receivable (Precision
Receivables Corp. established in fiscal 2000), cash and cash equivalents,
deferred income taxes and other assets.
27
<PAGE>
The Investment Cast Products and Forged Products segments had net sales to
General Electric and United Technologies as follows:
<TABLE>
<CAPTION>
Fiscal 2000 1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Electric $ 263.6 $ 162.2 $ 159.2
United Technologies $ 152.2 $ 139.8 $ 152.8
------------------------------------------------------------------------------------------------------------
</TABLE>
The Forged Products segment represented $66.3 million and $9.6 million of the
net sales to General Electric and United Technologies, respectively, in fiscal
2000. The remaining net sales to these two customers are attributable to the
Investment Cast Products segment. 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 2000 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 1,377.3 $ 1,221.0 $ 1,106.6
Europe 273.9 219.9 170.9
Other foreign 22.5 31.0 39.2
----------------------------------------------------------------------------------------------------------
Net sales $ 1,673.7 $ 1,471.9 $ 1,316.7
----------------------------------------------------------------------------------------------------------
United States $ 2,045.6 $ 1,221.5 $ 1,096.9
Europe 342.1 198.5 145.5
Other foreign 28.0 29.6 32.2
----------------------------------------------------------------------------------------------------------
Total assets $ 2,415.7 $ 1,449.6 $ 1,274.6
----------------------------------------------------------------------------------------------------------
</TABLE>
Subsequent events
Subsequent to year end, the Company completed three additional acquisitions.
Fastener Engineering Group of Rockford, Illinois, a designer and manufacturer of
wire-processing equipment for the fastener industry, will operate as part of the
Industrial Products segment. ConVey Engineering ("ConVey"), located in Germany,
is a manufacturer of double-eccentric, heavy-duty valves. ConVey will be
included in the Fluid Management Products segment. Most recently, the Company
acquired Aero, the aerospace division of United Engineering Forgings, located in
Lincoln, England. Aero, a manufacturer of aircraft engine discs, shafts and
engine-mounting brackets will be renamed Wyman-Gordon Lincoln and will be
included in the operations of the Forged Products segment. The aggregate
purchase price of the acquisitions was $40.1 million. All three cash
transactions will be accounted for by the purchase method of accounting. The
goodwill generated will be amortized on a straight-line basis over the estimated
economic lives.
Also subsequent to the Company's fiscal year end, 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.
28
<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 April 2, 2000 and
March 28, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended April 2, 2000, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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
May 3, 2000
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
------------------------ -----------------------
William C. McCormick William D. Larsson
Chairman and Chief Vice President and
Executive Officer Chief Financial Officer
29
<PAGE>
FIVE-YEAR SUMMARY OF
SELECTED FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
(In millions, except employee and per share data) 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,673.7 $ 1,471.9 $ 1,316.7 $ 972.8 $ 556.8
Net income $ 85.3 $ 103.3 $ 86.1 $ 56.5 $ 41.1
Return on sales 5.1% 7.0% 6.5% 5.8% 7.4%
Return on beginning shareholders' investment 12.2% 17.4% 17.1% 18.6% 15.9%
Net income per common share (basic) $ 3.48 $ 4.23 $ 3.56 $ 2.59 $ 2.02
Net income per common share (diluted) $ 3.47 $ 4.22 $ 3.53 $ 2.57 $ 2.00
Cash dividends declared per common share $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24
Average shares of common stock outstanding 24.5 24.4 24.2 21.8 20.4
Working capital $ 160.4 $ 252.3 $ 246.0 $ 205.2 $ 125.8
Total assets $ 2,415.7 $ 1,449.6 $ 1,274.6 $ 1,070.1 $ 450.5
Total debt $ 1,068.2 $ 425.9 $ 372.2 $ 300.5 $ 13.9
Total equity $ 773.9 $ 697.4 $ 595.3 $ 504.4 $ 303.1
Total debt as a percent of total debt and equity 58.0% 37.9% 38.5% 37.3% 4.4%
Book value per share $ 31.46 $ 28.50 $ 24.50 $ 21.03 $ 14.76
Capital expenditures $ 49.3 $ 74.8 $ 82.9 $ 52.8 $ 19.7
Number of employees 13,090 12,335 10,367 9,280 5,646
Number of shareholders of record 3,868 3,800 3,715 2,267 2,327
</TABLE>
30
<PAGE>
QUARTERLY FINANCIAL INFORMATION
(Unaudited)
(In millions, except per share data)
<TABLE>
<CAPTION>
2000 1st Quarter 2nd Quarter 3rd Quarter(2) 4th Quarter(4)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 359.0 $ 357.9 $ 404.7 $ 552.1
Gross profit $ 79.9 $ 80.4 $ 89.0 $ 119.4
Net income $ 22.3 $ 23.3 $ 12.7 $ 27.0
Net income per common share(1):
Basic $ 0.91 $ 0.95 $ 0.52 $ 1.10
Diluted $ 0.91 $ 0.95 $ 0.52 $ 1.09
Cash dividends per share $ 0.06 $ 0.06 $ 0.06 $ 0.06
Common stock prices:
High $ 47.25 $ 42.88 $ 31.25 $ 37.63
Low $ 36.00 $ 30.38 $ 23.44 $ 23.69
End $ 42.38 $ 31.06 $ 27.63 $ 36.50
<CAPTION>
1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter(3)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 370.0 $ 363.4 $ 361.2 $ 377.3
Gross profit $ 85.6 $ 86.2 $ 83.9 $ 82.2
Net income $ 24.4 $ 25.3 $ 25.7 $ 27.9
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>
(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 third quarter of fiscal 2000, the Company recorded charges
related to restructuring and other non-recurring items. These charges
principally provided for severance costs, lease terminations, and asset
write-offs, partially offset by favorable disposition of issues previously
charged to the provision for restructuring and other non-recurring charges. The
tax effected impact of these charges totaled $6.4 million, or $0.26 per share.
(3) 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 $7.8 million, 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).
(4) During the fourth quarter of fiscal 2000, the Company recorded other income
related to the benefit realized upon the termination of a portion of an interest
rate hedge in connection with the Company's issuance of $200.0 million of public
debt securities.
31
